Smart Moves

Back stateside after a decade of deployments in the Middle East, a 37-year-old U.S. Army mechanic vowed to buy a house of his own. An off-road vehicle enthusiast, he was keen on acquiring a place with a double garage and recently found a split-level to his liking.

But knowing he’d face competition from other bidders in the suburb where he wished to live, the mechanic made sure to submit his strongest possible offer -- one to convince the sellers he could definitely go through with the deal.

“There were four other bidders, including one offering the owners more money. But our buyer still beat out all the others. He was extremely happy to win because the house was in immaculate condition,” says Richard Harty, the real estate broker who represented the mechanic.

How did this first-time buyer prevail? He took Harty’s advice and met in person with a local lender to ensure he had a strong and personalized letter of mortgage pre-approval to attach to his offer.

“The letter practically guaranteed that this mechanic had the financial assets and credit history to make it to the closing table,” Harty says.

Real estate specialists say this summer’s frenzied seller’s market is now becoming slightly more balanced to the benefit of buyers. But they caution that buyers seeking a home in a popular neighborhood can still expect to face multiple bidding situations through 2022.

“Strategic buyers know that to compete they must have their financial ducks in a row. That absolutely means getting mortgage preapproval and having the highest possible credit score,” says Harty, president of the National Association of Exclusive Buyer Agents, (naeba.org).

The mechanic in this true story had an almost flawless credit history, not to mention employment continuity and a healthy down payment. But many other prospective buyers need more time to strengthen their financial status.

Here are a few pointers for first-time buyers:

-- Inform yourself about credit.

“Because you can’t learn this stuff by osmosis, you have to educate yourself about credit,” says Keith Gumbinger, a vice president at HSH Associates (hsh.com), which tracks mortgage markets across the country.

As he notes, nearly all U.S. adults are assigned a three-digit number associated with their credit histories: the increasingly influential “credit score.” Yet few consumers know their scores or how to improve them.

To learn more about credit -- and how to correct errors -- Gumbinger suggests you visit the website of the Federal Trade Commission (ftc.gov) or find a book on the topic. One he recommends is “Your Credit Score,” by Liz Weston.

“Ideally, you’ll start reading and educating yourself a few months before you go for a mortgage, or even sooner if you know you have credit issues,” Gumbinger says.

-- Research your credit standing.

Under federal law, you're entitled to free credit reports from the three largest credit bureaus: Equifax, Experian and TransUnion. You can easily request these online at annualcreditreport.com.

Besides your credit reports, you'll want to access your credit scores. Such scores, which draw on data from the credit bureaus, seek to provide lenders with a quantitative measure of a person's credit risk. Most lenders still use FICO scores, pioneered by the Fair Isaac Corp.

In most cases, you'll need to pay a fee to obtain your credit scores. One way to get them is through the Fair Isaac website: myfico.com. You can also receive credit scores through the three large credit bureaus. FICO scores range from 300 to 850 and the higher the score, the more likely you are to get the best available rate on your mortgage.

Once you’ve chosen a property you want to buy, it's time to begin the process of comparison shopping on mortgage rates.

You may wish to start the rate-shopping process with the lender who tutored you in the basics of home finance. But Gumbinger strongly suggests you extend your rate hunt well beyond the first lender you consulted. And he recommends you include community banks and credit unions in your search.

-- Realize that your credit scores can be improved over time.

Harty encourages his home-buying clients to safeguard their credit status in advance of buying a property.

“At least until your mortgage is finally approved, you need to tie up any loose ends in your financial history. Ideally, you’ll pay down an outstanding debt, such as a credit card or auto loan. You will resist taking out any new credit lines and you’ll maintain your job status,” he says.

Credit experts say consumers should avoid closing unused credit accounts, which can cause their scores to sag. Likewise, it’s a mistake to consolidate credit card debt on one or two cards, because a concentration of high balances can adversely affect a credit score. Consumers who “max out” their credit cards or other revolving credit lines are treated unkindly by the Fair Isaac scoring formula.

-- Seek to correct errors found on your credit report.

A recent investigation by Consumer Reports (involving 6,000 consumers) found that more than one-third had errors on their credit reports, leading in many cases to excessively high interest charges.

Some errors can be corrected with enough phone calls and patience. However, as Weston says, some credit problems, such as identity theft, can prove so horrendous that you could need an attorney to help straighten them out. One possible source for legal help: The National Association of Consumer Advocates (consumeradvocates.org).

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Most homeowners who bought their property prior to the pandemic have ample reason to feel good about their purchase. That’s because the red-hot real estate market ushered in by COVID-19 has led to a stunning increase in home values.

A new study by CoreLogic (corelogic.com), a California-based housing analysis firm, says homeowners with mortgages gained a remarkable 29.3% increase in equity within the last 12 months alone. For average U.S. homeowners, that marks a $51,500 gain in their ownership stake.

“Home equity wealth is at a record level and will bolster economic activity in the coming year,” says Frank Nothaft, CoreLogic’s chief economist.

Several factors explain why home values have risen so dramatically. One is that the pandemic has driven up demand for homes with larger living space. Another factor is that new home construction has been severely constrained due to global supply chain issues, which have pushed up the cost of building materials.

“Prices have soared because demand has outstripped the supply of available properties. Simply stated, that’s economics 101,” says Sid Davis, a real estate broker and author of “A Survival Guide for Buying a Home.”

Of course, the euphoria over rising values among pre-pandemic-era homeowners is hardly shared among those still striving to fulfill their aspirations for a first property.

“To a lot of prospective buyers -- including those who’ve lost property to other bidders -- ownership can feel like an exclusive club they’re unable to join,” Davis says.

Still, real estate analysts now see slowly emerging causes for optimism among buyers still trying to buy a place.

Susan Daimler, the president of Zillow, a national real estate company headquartered in Seattle, foresees “a healthy rebalancing of the market, giving homebuyers out there some much needed relief.”

“We’re seeing inventory rise month after month for the last four months, and we’re seeing home price appreciation cool down a little bit,” Daimler says.

Of course, the current generation of first-timers doesn't only want to obtain a house. Ideally, they also wish for a place that will gain value going forward.

Here are a few pointers for those in search of appreciation potential:

-- Look for an area with a strong job base.

The pandemic has brought with it much turmoil for multiple U.S. industries. But economists believe these COVID-era disruptions will likely ease once the overall economy normalizes. Eventually, areas with a strong employment base can expect a faster rebound and stronger home values.

Davis is bullish on the growth in home values around major medical centers or near pharmaceutical companies.

“Aging baby boomers need more health care, and this is one factor that has kept communities around medical centers strong in terms of housing demand,” Davis says.

He also recommends you consider buying in the vicinity of a major university.

Still another segment of the economy that should do well within the next several years: places where “green companies” are thriving. These are firms involved in environmental engineering work or alternative energy development.

-- Consider a “walkable” community.

Whether due to volatile energy prices or roadway congestion, many Americans are fed up with what Davis calls “the car life.” They dream of living in a community where they could safely walk or bike to a good movie, a fine restaurant or a local ice cream parlor.

“Walkability should be one password for you when you’re looking for a neighborhood,” Davis says.

In reality, there are still relatively few walkable suburbs outside major metro centers. But an increasing number of communities are hooked into public transportation systems that let people whiz to their destinations without driving.

“The option of remote work, which has become commonplace during the pandemic, has intensified interest in small, walkable communities” Davis says.

“People in all generations -- but especially 20-somethings, 30-somethings, empty nesters and retirees --are keen on the access that comes with life near a well-positioned town center. Expect homes in these areas to do well on future appreciation,” Davis says.

-- Screen for top-quality construction.

Is your plan to make your first home one that’s new or nearly new? If so, you’ll want to buy in an area where the builder has a reputation for high-quality construction. That’s because homes that are durable and weather well are more likely to gain value as the years pass.

“Some subdivisions are extremely well built, and others are just the opposite. You’ve got to make sure you don’t purchase a place in a community that’s been plagued with plumbing problems, electrical issues or premature roof failures,” says Barry Nystedt, the president of a realty firm that works solely with buyers.

How can you determine if a subdivision that interests you is solidly built? Nystedt suggests you spend a few hours one Saturday going door-to-door in the area, quizzing local residents.

“I strongly encourage my clients to do neighborhood walks to ask the current owners if they’re satisfied with their houses. You need to know if the builder has honored his warranties and fixed all the issues that need fixing. There’s no such thing as a development with totally perfect houses. But some subdivisions are much better candidates for appreciation,” Nystedt says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

A couple in their late 60s -- an American Express manager married to a landscape architect -- were highly motivated to retire and move to a beachfront condo in South Carolina. Standing in their way: the sale of their 1970s-era brick colonial.

To expedite the move, the couple swung into action with their own plan for pre-sale upgrades. Unfortunately, some of their well-intentioned “improvements” hindered rather than helped their sale, according to Ashley Richardson, who later became their listing agent.

“Before you go gung-ho on upgrades, call in local pros for expert opinions on what will truly enhance your sale without overspending,” says Richardson, who sells homes through the Long & Foster realty firm.

As it happened, she says the retiring couple wasted more than $20,000 on ill-advised upgrades. These included poorly planned kitchen changes, such as the installation of replacement countertops in black linoleum. The couple also brought in new carpeting to cover handsome hardwood floors.

“Buyers love hardwood, but they hate linoleum. As to the kitchen, their overwhelming preference is always for light quartz or granite,” she says.

After the retirees engaged her services as a listing agent, Richardson assisted them with a revised list of upgrades -- including flooring fixes and better kitchen countertops. It cost another $10,000, but the house sold just days after the extra work was done.

In many neighborhoods, demand for fairly priced residential properties continues to outstrip supply --keeping sellers in a strong position. That’s all the more reason why it can be unwise for owners to overspend on upgrades in hopes of increasing their profits.

Fred Meyer, a veteran real estate broker, says it’s rare for sellers to benefit from major pre-sale remodeling work.

Meyer, who also trained as a real estate appraiser, says one primary tenet of the appraisal field is that “cost does not equal value.” To illustrate, owners who spend $40,000 to install an in-ground swimming pool might at best reclaim only a fraction of that expenditure when their place is sold.

On the other hand, small landscaping upgrades that add color to the entrance of a home can repay sellers mightily.

“If you put in blooming flowers, you can expect to recover their cost at least 10 times over,” Meyer says. The same holds true for sellers who spend modestly to repaint their interior rooms in a pale neutral color, such as light gray.

Here are a few pointers for sellers:

-- Find an agent with substantial knowledge of your community.

What’s surprising to many sellers is that buyers differ widely in terms of which upgrades they prize most. For example, around Harvard University, where Meyer lists property, he says sellers are sometimes justified to install built-in bookshelves.

“Some professors joining the faculty actually put more of a premium on bookshelves than a snazzy kitchen,” he says.

Mark Nash, a real estate analyst and author of “1001 Tips for Buying and Selling a Home,” says owners who are unsure which improvements are worth doing are often reluctant to ask for advice before remodeling. But Nash says reputable agents won’t pressure you to list a property until you’re ready. Meanwhile, their advice could save you thousands of dollars in contractor charges.

“Real estate people can often put you in touch with local contractors who do good work for a low price. Through their clients, they pick up the names of contractors who are solid yet inexpensive,” Nash says.

Ask any agent who visits your home to go room to room, creating a checklist of updates that should enhance the value of your property rather than hurting it.

-- Don’t overshoot your neighbors on upgrades.

Nash says nowadays, buyers will refuse to compensate you for any renovation work that raises your property above neighborhood standards.

What kinds of upgrades constitute “overimprovement”? One example would be the addition of a three-car garage in a neighborhood where most houses have no garage at all.

-- Retreat from renovation work that’s overly pricey.

Have you already launched into a remodeling project, but fear you’re spending more than you could recoup? If so, Nash encourages you to contact your contractors and negotiate a change in plans.

Often, real estate agents can suggest less expensive products than those recommended by contractors. For example, they might recommend you replace worn carpet with a Home Depot brand rather than one from a designer showroom.

Besides substituting supplies, your contractors may be willing to renegotiate the overall scope of your project.

“Even after paying penalties for canceled work, you’ll probably come out ahead if you contain your enthusiasm for fancy upgrades,” Nash says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)