Home Building in a Down Economy

The downward spiriling market has produced a major decline in home building.  This decline is making some doubt that now is now the right time to build a home.  Is the decline in residential home building a good thing or bad?

Photo. courtesy of http://www.flickr.com/photos/cindy47452

The current financial crisis is affecting everyone, but it is particularly difficult on the home construction market. Construction jobs are in decline, and many folks are losing their homes to foreclose.

 

 

From the positive side – many home building contractors are very slow and have dropped their profit margins.  Thus, one could assume the cost of building a new home has at least stabilized, if not declined. 

 

On the negative – lenders have tightened their lending policies,  AND, just as importantly, they’ve increased the requirements on building contractors – which has in turn driven up the cost of home building insurance or liability insurance. 

But, if you are set on forging ahead and getting home building estimates, here are some suggestions. 

 

First, get in touch with several local builders that have constructed houses similar to the size, quality and features that you want. By talking to them, you get a straight answer as to how much it is going to cost for the entire project plus what materials they will use.

 

Ask them the following questions:

 

1) Are your home building costs increasing, stabile or declining?

 

2) What is the general per square foot cost range to construct a a standard home like (list an address of a home he/she has completed)?

 

3) What new home features are most expensive presently?

There are numerous other questions you would want answered, but this is a start for your prospective home builder.

 

Don’t forget to put a 5-10% additional allowance to your budget when you make your estimate because plans change and in most cases, you and you contract will encounter unforeseen circumstances. Naturally you have to deal with the situation otherwise there will be delays when everything will be finished.

Also remember -  the cost per square foot is higher for a small home than a big one. Why? Because the cost of items is spread over and a two story home if that is what you want has a smaller roof and foundation. The same goes for plumbing and ventilation.

 

Another thing that could reduce cost is the shape of the home. Houses that are shaped like a rectangle, square or dome shaped are more affordable to build since there are not that many angles or corners which increases the amount of labor and the materials that will be needed.

 

As much as possible, work with even numbers because this reduces wasted materials. The ideal home to make should be not less than 32 feet deep otherwise your roof trusses will have to be custom made which will cost more.

 

Until the market stabilizes – one would have to think long and hard about about constructing a house when there is a decline in home building due to the financial crisis. The best advice is to keep these tips in mind when the economy does improve so you will already have an idea how much money you need to build it.

 


Home Market Values? 5 Steps to Find and Track Them

 A few days ago I called home values pendulums on steroids.  They are swinging wildly.  Others might suggest that the value of homes were like skydiving with a questionable parachute – you’re falling way too fast and you hope the ‘chute opens before you hit bottom. 

 

 

Whatever you call this current real estate home market, most can agree it is difficult right now to find true home market value.

 

Before we jump in and look at the 5 step process to assist you in finding home values, let me present a definition of market value.  The simple answer to the market value definition is:  the price a willing buyer will pay a willing seller. 

 

However, I think taking a closer look at the definition of home market value, or simply market value, is worth noting. 

 

The Federal Office of the Comptroller of the Currency states market value is:  The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus 

 

The definition goes on and gets more detailed, but, in layman’s terms what this says is that market value is the price a buyer pays to a seller when they both know what they’re doing and the property has been exposed and available for sale.  In ever simpler terms – what would someone pay for a home with a “for sale” sign in the yard? 

 

 

That is the essence of home market value.

 

Ok, now let’s look at the five steps to determine what a home is worth, or the value of the home.

 

1)     Start by looking at national, regional and local housing trends.  National trends are everywhere – just make sure you’re looking at facts and not opinion on home values.  Statewide or regional area trends are typically available somewhere on line for free if you can locate them.  Here in Texas, the Texas A&M Real Estate Research Center puts out an excellent home value trends report.  Contact your local appraiser, realtor or lender for a source in your area.  You’ll notice your region could be substantially different from national trends –either for the better or worse.  Home values continue to plummet in the Phoenix area, while some markets in Texas have had flat to slightly increasing values. Your local market probably has a Multiple Listing Service, or MLS, and most usually compile quarterly or regional data. 

 

2)     Pull up the current assessed value of a home and others in its market area.  Look at the assessment history.  Is the value trending up, down, or is it stagnant?  This is a good initial research step that will just take a few minutes, assuming your assessor’s office has on-line data. Here’s a key – divide the total assessment by the home’s square footage and look for trends and consistency.

 

3)     Talk to realtors.  Notice I realtors, not realtor.  Talk to several about home values in their market area.  I find most realtors are pleasant and pretty chatty.  Good places to talk to realtors (and appraisers for that matter) are at local Chamber or community events.  Bad places to talk to realtors are church, the grocery store, or any other place where you may be intruding. 

 

4)     Talk to appraisers.  Anyone truly seeking to know home values for their area needs a working, or at least talking relationship with a good appraiser.  Realtors can be a source for quality appraisers, but do some research on your own.

 

5)     Monitor listing prices in your area. Check your Sunday paper and other classified sources.  Do you see a large number of “reduced” prices listed?  Make a simple chart of homes/areas you’re familiar with.  Are these home prices lower than you recall 6 months prior?  Remember when it comes to determining the value of homes – data is king.

 

Ok, these five steps are not only the beginning, but also the cornerstones for determining values and home value trends in your area.  Make a habit of tracking where home values are heading.  Once you start you’ll develop a better eye for value and home pricing in general. 


What’s My Home Worth?

With real estate prices swinging wilder than a pendulum on steroids over the past few years, the question on every homeowner’s mind today is – What’s my home worth? 

Maybe you’re not an owner, but a buyer – you still are obviously asking the home value question.  If you’re looking to refinance your home with current low rates, or, maybe you need to pull some equity out of your home for college tuition – the question will still arise – how much is my home worth?

My first suggestion to you – take a deep breath, step back and realize that regardless of the answer a) There’s not a lot you can do about it today; and, b) Everything will be alright – eventually. 
 
Ok, back to the question of the value of my home. Let me offer four easy and very do-able steps you can begin taking today to find your answer. 
 
Your four fundamental steps to begin answering the question of how much is my house worth? Include:

  1. Start with your home assessment to determine the value of homes in your area. Most assessor’s office or appraisal district data is on line these days, and the search process is pretty simple to follow. If not, call your local office and ask for your current total assessment, or, better, drive there and get a current print out. First – get your home valuation expert hat on and ask yourself – is my home worth this much or more? Remember, everyone has an opinion of value and yours matters too.  Get a few other assessments in your area for comparison purposes.
  2. Compare your assessment with current listings in your neighborhood.  With your assessment in hand, do some investigating of home listings in your area. Most Multiple Listing Services (MLS) can be searched on line, or, you can simply look in your local paper’s classifieds. Does your current home appraisal by the Assessor’s office stack up, or is it wildly different from current listings?  Remember that current listings generally represent the upper limits of value in your area, while your assessment is either at, or potentially below the actual value of your home. You certainly hope your assessment is below real market value, and, if it is not, I would advise protesting your home value in efforts of reducing your property taxes.
  3. Call a realtor who you feel confident knows home market values in your area. Most successful realtors are pretty talkative, but also remember they are very busy. If you have a realtor friend, start with them. Be straight forward – ask them what home values are doing in your neighborhood. Make more than one call as realtors opinions vary as well. Talk to a realtor who you know has sold a home in your neighborhood recently. Be professional and courteous and you will get solid information.
  4. Have a limited appraisal performed on your home.   Even though I appraise homes for a living, I put this last simply because you can do a lot on your own without spending money. However, if you really want to know and you don’t mind spending from $100 to $400 or so dollars, this is your best bet. With the market downturn many appraisers are either slow or downright starving for business now. Call a few and see if you can locate an appraiser that works your area and may be looking for work.   Many appraisers are open to bartering – that is, offer your business service to them in return for a limited appraisal.   If money is tight, ask an appraiser if he/she will “run comps” in your neighborhood. They may be willing to do this for under $100, depending on your area. But, if you’re going to spend money, my advice is to get some type of real appraisal. Also, remember, if you’re in the process of re-financing your lender will require an appraisal anyway. Wait for them to order it so you don’t pay twice, and remember to ask for a copy of the appraisal when it’s complete.

So, tackle these steps and you will be well on your way to answering the question of how much is my home worth? Don’t procrastinate – take action today and you can have solid answers quickly.


Value of Home Improvements? Getting the Most Home Improvement Remodeling Bang For Your Buck

So, you’re considering a significant home remodeling and you want to know how much value this adds to your home?  My first recommendation is to disregard a lot of what you see or hear on home improvement shows.  

Why?  First the obvious – many of those wildly popular shows were filmed from 2005 to about 2008 during the hey-day of one of the craziest real estate bubbles we’ve ever experienced.   Those days are over.  While I don’t think the long-term picture is as bleak as many think – the days of making a fortune “flipping a house”  or two or three are probably long gone.

Secondly (but very important) -

Don’t take on a major home improvement remodeling strictly for the possible resale value of the improvement.

Generally speaking, the bigger the remodel, the less it adds to your home value on a dollar for dollar basis.  However, on the flip side, the more a remodel adds a basic necessity to your home – the more value it adds.

Let’s look at two examples with a costly home remodel – the bathroom addition.

First – be aware that bathroom remodels are expensive.  Due to the needed design, plumbing and permitting (from your City, County or Parish offices), the bathroom addition – that is – adding a new bathroom as additional square footage to your home – is probably the most expensive home remodeling job on a per square foot cost basis one can undertake. 

How expensive is the bathroom addition?  It could easily be upwards of twice as expensive as new home construction per square foot.  Thus, if a new home costs approximately $125 per square foot in your area, the bathroom addition could easily run $200 – $250 per square foot.  Ouch. 

Ok, the two examples…

Example 1:

John and Jane have a cozy, older 1,300 square foot home with three bedrooms, but only one full bathroom, and a second half bathroom in the master bedroom.  With a second child on the way they really feel they need for a second full bathroom.  Due to the configuration of their home they feel they might be able to extend a back wall of the home out a few feet and add a tub/shower combo. and larger sink to their existing half bath, and also possibly add a small closet or needed linen storage area.  

With strong real estate prices in the area, families with two or more kids are often looking for homes with two full bathrooms.  Realtors tend to find that homes with two full baths bring a strong premium to homes with only one or 1.5 baths.  

Example 2:

Bob and Betty have a spacious 2,200 square foot home with four bedrooms and two full bathrooms.  With two kids, they like the spare bedroom when their parents or friends visit once every two months or so.  However, they’d really like to add a third bathroom into this fourth bedroom and make it a true “mother-in-law” or guest quarters.

Homes in their area rarely have three bathrooms, and realtors suggest the third bath is rarely a critical selling point as larger families are often looking for more than 2,200 square feet. 

So….which bath addition gives you the most bang for your buck in terms of added value?  The first example, for two key reasons: 1) The future sales price will almost always be directly impacted by two full baths; and, 2) Smaller homes can have more dramatic per square foot swings in value on significant additions. 

Here’s one thing to consider if you’re in the market to buy a home.  Seek out homes with recent additions or expensive remodels that you feel may not add dollar for dollar to the owners’ total value.  Look for homes like example No. 2 above and don’t hesitate to make an offer that might be disappointing to the seller, but would still give them a little money for their addition.  What it would give you – the home buyer – is a third bathroom at a bargain price.

Whether it’s a bathroom remodel, new hardwood floors, granite counter tops, kitchen remodeling, or a major addition — For every home remodel, there’s a pretty clear method to determine just how much value that model adds to your home value.