Shopping for Your Home

Thursday, January 30, 2014

When Remodeling, Protect Yourself


When Remodeling, Protect Yourself  

Written by

You are planning major renovation to your home. There are many steps you have to take in order to adequately protect yourself.

First, do you need an architect? That's a difficult question to answer. The architect can assist you with developing the appropriate plans, but this comes at an additional cost. Many legitimate home improvement contractors - while not licensed architects - can serve the same function, at little or no additional cost to you. Equally important, it's the contractor that will be doing the job, and invariably you will find that changes have to be made. So quite often, the architect's plans have to be modified when the job is ongoing.   
Next, how do you find a good home improvement contractor? In my experience, word of mouth from friends and neighbors is your best bet. Interview at least three contractors; ask for references and personally inspect the jobs they did for others.
Keep in mind, however, that you will only get good references. Obviously, no one will give you names of those who will bad-mouth the contractor. You should also contact your local Better Business Bureau to determine if any complaints have been filed against the company you are considering.
Finally, you - or your attorney - should review the court records in your jurisdiction to determine if there are any lawsuits pending against the contractor. This information is now publically available from your local courts, and even available online (search "court cases in X state), although some are accessible only by attorneys.

When you have selected the contractor, before you sign any contract, call the licensing board in your state, county or city. You want to make sure that the appropriate licenses have been issues - and are current.

Negotiate the price of the job. Will this be a fixed price or a time-and-materials contract? The latter means that you will be paying the contractor an hourly fee for the work done by the contractor and the subs that work on your house. If it is a time-and-material contract, make sure you get in writing the maximum hourly rates, and a statement in your contract that you will get a weekly statement of how many hours were worked that week, and by whom. I have been involved in cases where the contractor padded his hours; we discovered this when the homeowner said he was at home one day and no one showed up - despite the fact that he was billed for 6 hours.
You need a written contract. Many contractors use what I call the "two page special". This is a simple contract which merely states who the contractor is, a very general description of the work to be performed, and the total cost of the job.

This is not in your best interest.

The American Institute of Architects (AIA), headquartered in Washington, D.C., publishes a number of contract forms for use by homeowners, architects and contractors, and you should insist that your contractor use one of these forms. One such form is A105, a standard agreement between owner and contractor for a residential or small commercial project. Form A107 - which is more comprehensive - can also be used for projects of limited scope.

Why use an AIA form? Because it contains many provisions that will protect you. For example, what warranty will you get? Any changes in the scope of work must be in writing. There will be a schedule of when you have to make periodic payments. What happens if the contractor walks off the job? What rights do you have if you are dissatisfied with the quality (or timeliness) of the job? And, perhaps the most important provision: how much money should you hold-back (retain) until the job is finished, you are satisfied, and you get a written release of liens from the contractor and all subs. I like to see a 15 percent retention of the total price, but in any event no less then 10 percent.

The AIA can be reached on the web at, or by phone at 1-800-AIA-3837.
You now have a good contract, and the work has begun. When it is completed - at least in the eyes of the contractor - you are not happy with a number of items. What can you do?

The AIA contract provides for arbitration of such disputes. You can contact the American Arbitration Association ( or by a toll free call to 1-800-778-7879, to get more information about the process and the costs involved. If there is an arbitration requirement in your contract, you cannot file a lawsuit. And in many situations, arbitration may be much less expensive - and faster - than the court system.
What if you did not follow my advice and do not have a good contract. You are unhappy with the work and stop making payments. The contractor walks off the job, and now you are forced to find someone else to make the necessary corrections and finish the project.

You now learn that your contractor did not have the appropriate home improvement contractor license. The laws vary: in many states, if the contractor is not licensed at the time the contract was initially signed (or when the work began) the contract cannot collect anything. In fact, he/she might have to give back what was already paid by the homeowner. For example:

District of Columbia: The laws here provide the best consumer protection in the area. If you have paid an unlicensed contractor $300 or more up front, you are entitled to get back all of the moneys you paid him or her. It does not matter that you knew the contractor was unlicensed when you first started the job, nor how good the job is. According to DC law, no person shall accept payment for a home improvement contract in advance of full completion of the work without a home improvement license issued by the District Consumer and Regulatory Affairs Department. The public policy of the District is to penalize contractors who do not have that license.

Virginia: the Virginia Board for Contractors issues different classes of licenses, depending on the dollar amount of the job. For example Class C contractors can perform work on single jobs that are greater than $1,000 but not more than $7,500, and yearly not to exceed $150,000 for all jobs.
It is a misdemeanor, punishable by fine (and perhaps jail) for a contractor that does not have a license. Additionally, it may be a violation of the Virginia Consumer Protection Act, which allows recovery of treble damages and attorneys fees if the homeowner is successful in court.

Maryland: as in the District of Columbia, unlicensed contractors are not entitled to recover if they sue the homeowner for breach of their contract. The Maryland Home Improvement Commission regulates and supervised contractors. It is a misdemeanor not to have a license, and upon conviction, the contractor can be fined up to $1000 or imprisoned for up to 30 days.

Conversely, if the contractor is licensed in Maryland, homeowners can recover up to $20,000 from the Home Improvement Guaranty Fund for losses caused by poor or incomplete work.

Before you sign up with a home improvement contractor, do your homework. Too many homeowners have found themselves having paid 80 or even 100 percent of the contract price and the contractor has walked off the job having done less than 75 percent of the work. Careful planning - and with a fair and balanced contract, you will be in the driver's seat.

Friday, January 24, 2014

Kitchens Sell a House

Kitchens Sell a House
             Written by Carla Hill

It's a tool used by house flippers all across the nation. Stagers know its power. Real estate agents push its importance. What is this not-so-well-kept secret of real estate? A kitchen can sell a house.

A kitchen is the heart of a home. This is true all across the globe. The old saying that the "stomach is the way to the heart" carries a lot of truth. Kitchens are where we spend much of our time and most of that is with our families. It's the room where we nourish our bodies and our spirits.    
Kitchens are integral to entertaining and in today's age of open floor plans, they're a focal piece of many family rooms. It's because of this that kitchens play such an important role in the buying and selling process.
This one room is the showpiece of the house. You'll see it every day and your guests will see it during most visits. This means buyers want homes with up-to-date kitchens.
Kitchens, however, can be one of the most expensive rooms to renovate. These projects can also be the most labor and time intensive of all home renovations. It's not just a new layer of paint.

Instead you find a complicated array of flooring, tiling, cabinets, and counters. This means buyers may want a home with an up-to-date kitchen but they aren't willing to tackle this problem themselves. Most buyers want a kitchen that is ready to use the day they move in.

What do buyers look for in up-to-date kitchens? A lot of this depends on what price range your home is in.

The main thing to remember as a seller is to not price yourself out of your market. If homes in your neighborhood are selling for $100,000 with tidy, but not luxury kitchens, then this is no time to upgrade to granite, travertine, and marble at the price tag of $40,000+. You simply won't find a buyer.

Scope out the competition. Use open houses in your area or MLS listings to find out what your competitions' kitchens look like.

Do area homes have new solid wood cabinets and granite counters in today's designer colors? You'll be wise to consider making the same move. Are they including new stainless steel appliances and add-ons like dishwashers, wine-coolers, and trash compactors?

Are you in a higher-end neighborhood? It's time to think high-end. Your older home may have a highly functional kitchen, but a buyer will take one look at your formica counters and white appliances and become lost in the stress of how much money and time it would take to remodel. If you don't want to put in the time yourself to make upgrades then you'll have to make concessions in the price.

Don't become overwhelmed, though. Sometimes a kitchen update can mean doing just a few minor changes. Change the paint color to a warm, neutral tone. Get rid of any clutter. Update your appliances, paint your cabinets, change the pulls, or get a high-end looking counter for a fraction of the cost (faux-granite or lower end granite). You might even save a bundle by doing much of the work yourself.

The bottom line is a kitchen can sell a home. Do a little research and find out what your kitchen needs to make it competitive with area listings.

Monday, January 6, 2014

New Loan Requirements For Getting A Mortgage

New Loan Requirements For Getting A Mortgage
             Written by

The number of homes purchased with a home loan has been dropping steadily since May, according to RealtyTrac. Instead, cash is king for many reasons. As mortgage rates began creeping up, some homebuyers started opting to purchase with all cash. And that trend may continue as new loan requirements become more strict.

However, for those buyers who do need to purchase a home with a loan, expect to see some changes in the loan requirements as the new year rings in. Here are a just a few of the changes that are going into effect in January 2014. Some of these requirements are already in place by lenders.   
The new guidelines are being implemented under The Consumer Financial Protection Bureau's Qualified Mortgage (QM) and are designed to help avoid the borrowing catastrophes that caused the housing crisis. The guidelines are what the lenders use to prove borrowers' ability to repay a loan.
One of the guidelines’ requirements is that borrowers must have a maximum debt-to-income ratio of 43 percent. Debt-to-income ratios have already been in place but the new rules won't allow for any compensating circumstances. That means that not even a significant downpayment or a large cash reserve will be allowed to offset a higher debt ratio.

The incentive to follow these guidelines is huge for the lender. If the mortgages don't meet the QM guidelines, the lender will be required to hold the loan as opposed to selling it to Fannie Mae and Freddie Mac.

The QM requirements potentially may have lower loan limits for conventional conforming loans. The agency that regulates Fannie Mae and Freddie Mac, The Federal Housing Finance Agency, will delay its normal adjustment of loan limits from January 1, 2014 to sometime later in the year. The agency is trying to see what kind of impact the new QM guidelines will have on the housing industry. For most housing markets, the current limits are $417,000 and up to $625,000 in high-cost areas. How these figures will change remains to be seen in 2014.

Origination fees will be limited under the QM requirements, which could make getting a smaller loan more difficult. Origination loan fees will be limited to no more than 3 percent of the loan amount. This could make mortgage lenders less likely to offer smaller loan amounts because they may not always be able to recoup their costs and make a profit.

Self-employed borrowers already face tough standards and they'll likely be even more strict in 2014. In the QM guidelines, all borrowers must prove there is sufficient cash flow to make payments on their loan but self-employed borrowers' incomes typically fluctuate. These borrowers frequently have cash reserves that they rely on to pay bills when their income is off in a particular month. However, even if there is a large amount of money in reserve, it may still be difficult for the self-employed borrower to get a loan approved due to this new "ability-to-repay" QM guideline.

Expect to see changes in the loan approval process as the new year begins. However, some of the specific requirements may not be determined until later in 2014.