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The Biggest Hurdles When Renovating Old Homes and Buildings

The Biggest Hurdles When Renovating Old Homes and Buildings

Developers, home owners, and businesses alike all have a vested interest in purchasing the best properties within their budgets. Especially true in older communities and cities, a variety of high-quality buildings and homes can be found, many of which use more solid building styles and materials.

You've probably heard the phrase “this home has good bones.” Particularly important when renovating or remodeling an older home, many owners find that the underlying structures allow for great customization and a plethora of new possibilities.

Nevertheless, there are many potential hurdles facing those who want to renovate or change older buildings. Let's take a look at the biggest obstacles here today.

Historical Building Regulations

In many cities and towns, historical societies exist to protect various historical buildings and features in neighborhoods. For those purchasing, or who are planning to purchase an older home or building, the very first thing they should do is verify whether the building has any historical significance.

The consequences of attempting to renovate or remodel an older building can range from public campaign pressure to binding legal requirements. In some cases, remodeling an older building – such as one within a designated neighborhood or with certain historical relevance – is not allowed by law.

Permits

Any major renovation poses a variety of challenges but obtaining the proper permits and permissions can be a nightmare. Especially in the case of older buildings, there may be an entirely different set of hurdles through which owners will need to jump.

Having the proper understanding of the building in question – and therefore what will be required – may take several trips to your local zoning or building agency. Because of the complexities often faced with renovating older buildings in urban areas, owners may decide to source assistance from qualified compliance officials. 

Costs

Obviously, a huge roadblock to renovating an older property – or any property, for that matter – is the cost associated with the endeavor. All too often, renovations for older properties can become expensive very quickly, exceeding that of more contemporary projects.

Due to a variety of concerns relating to the structure's composition, its location, regulations surrounding the renovation itself, and any unexpected surprises found, a renovation can easily cost twice as much per square foot as a remodeling of a newer building. As such, a full assessment of the building prior to any contracts or commitments should be executed.

Environmental Issues

In many jurisdictions, older buildings may enjoy exemptions from modern building codes and environmental regulations. From wiring and plumbing to insulation, many raw materials may create environmental hazards once removed during a remodel.

As such, securing the proper permits and disposal situations for components such as lead pipes and asbestos can be a logistical nightmare. Through agencies such as the EPA, owners can determine what requirements and risks exist when renovating older properties.

These hurdles are not insurmountable but are definitely challenging. Because of this, no purchase of an older home or building should be rushed: it is imperative to do your homework and evaluate the conditions of the property and the requirements needed for renovation. This can help minimize the chances of financial ruin, legal action, wasted time and stress.

How to Determine a Seller's Market

How to Determine a Seller's Market

What the Heck is a Seller's Market?

There are no better words in the English dictionary that can make a home owner do their infamous happy dance than these four little words: “it’s a seller’s market”.

So….you ask….how do you know if it really is a seller’s market and what exactly does that mean?

I’m going to bring you back to ECON 101 for a moment. Remember when your professor spent two weeks explaining the concept of supply and demand? Well, I hope you took notes.

In a seller’s market, there are fewer homes for sale with more buyers out there looking to purchase.  The factors that lead to more buyers in the market could be:  sustained low interest rates, high employment rate, legislative changes which make it easier to purchase a property – events and conditions that make buyers think it would be a good time to invest in a home.

In my experience, there are some advantages to the sellers in this kind of market. Typically, home prices will rise, buyers will quickly make offers and sometimes, buyers will compete for a property. This can lead to a bidding war, ultimately driving the price of the home up above expectations

Now on to your next question. How do I, as a potential seller, know when it really is a seller’s market?

How to Recognize a Seller's Market

There is a thing called "Absorption Rate" that many REALTORS and economists alike will use to determine whether the market is in a buyer's or seller's favor. First, a REALTOR will use the MLS to determine the number of homes closed in your market over a specific period. Next, they will divide the number of homes by the number of months in the period. This gives a per month absorption rate. Lastly, they will divide the rate into the number of current listings. This will yield the month's supply of homes. A six months' supply is considered a balanced market - when the number of listings roughly equals the number of buyers. Numbers over six represent a buyers' market and those below, a sellers' market. 

(Absorption Rate=  (Current Listings)/ ( (# of homes closed in a specific period)/(number of months in the period) ) 

How to Price a Home for Sale

After a REALTOR determines the absorption rate for a specific area or neighborhood, they will create a Comparative Market Analysis (CMA) of the subject property. This report will be based on the recent (usually within six months) comparable homes sold in the neighborhood or surrounding area (usually within one mile radius). This analysis will give the REALTOR an idea of what comparable homes are selling for, and how quickly. Using this information, along with the absorption rate, the agent will be able to come up with a listing price that will guarantee that the home sells quickly for top dollar. 

3 Ways to Reduce Your Closing Costs

3 Ways to Reduce Your Closing Costs

Most loans today require some amount of a down payment. But they all require closing costs. There are lender fees, common ones are loan processing and underwriting fees, and there are non-lender fees. Non-lender fees include items such as an attorney fee or title insurance premiums. It’s the non-lender fees that can really add up as mortgage loans require services and documentation from multiple players in the real estate world.

Saving up for a down payment is probably the biggest challenge, especially for first time home buyers, but closing costs also need to be addressed. Here are three ways buyers can reduce or eliminate these costs.

The first way is to have your lender quote you an interest rate that provides a lender credit toward your closing costs. When your lender quotes rates and fees to you, you’ll get a range of rates from lower to higher. Lower rates will require upfront interest in the form of a discount point. One discount point equals one percent of the amount borrowed. On a $300,000 loan, one point is then $3,000.

For example, if your lender offers 4.25% with no points on a 30 year loan you might also be able to get a 4.00% by paying one point upfront. The lender really doesn’t care if you pay points or not, it’s completely your call. You have the option of paying interest upfront in the form of a point or you can pay the interest over the term of the loan without paying a point.

If you take that 4.25% rate one step further, say to 4.50%, the lender may offer a one point credit. Your monthly payment goes up by a little, but you also saved on closing costs. On that same $300,000 30 year loan, the 4.50% rate gave you a $3,000 credit at the settlement table. There is some math involved to determine which rate is best in your situation and your loan officer will walk you through the process.

Another way to reduce your closing costs is to have the sellers pay them for you. This involves you and your real estate agent making an offer that asks the sellers to pay for all or some of your fees. Your offer might include verbiage that asks the sellers to pay a certain percentage of the sales price, say 1% or 2% of the sales price or you might ask for a specific amount, such as $3,000.

Different loan programs place certain limits on how much the sellers can pay so you’ll need to check with your loan officer before making the offer. Most such limits are rarely reached however. The maximum seller contribution for a VA loan for example is 4.0% of the sales price. Taking a $300,000 sales price would then provide up to $12,000. Closing costs are nowhere near that.

Finally, if the sellers decide to decline your request, you can adjust the sales price upward. If the sales price is $300,000 and closing costs are $3,000, you can offer $303,000 while then asking the sellers to pay $3,000 of your costs. The sellers net the same amount at the closing table and you don’t have to come up with an additional $3,000 for closing costs. One potential issue with this method is making sure the property will appraise at the higher amount, but a one percent increase usually won’t cause any problems. And yes, when making a higher offer that also means your loan amount will also go up the difference in monthly payment is barely noticeable.

Closing costs will need to be addressed just as a down payment needs to be. Your loan officer will provide you with an initial cost estimate that will generally match up with your final settlement, so you’ll know what to expect. You can adjust your rate upward, have the sellers pay for them as part of your offer, or increase your offer slightly to include an amount reflecting your expected settlement fees.

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Caroline Mortell | Real Estate Concierge Services, LLC. | 727-510-1811york@carolineyork.com
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