First Time Homebuyers

AC/DC is more than just an awesome band

One of my favorite parts of my job is that I get to play an integral part in helping others make one of the largest (financially speaking, of course) decisions they will ever have to make. It is remarkable how moving it can be to see someone walk in to a house for the first time and know it needs to be their's. Warm fuzzies aside, I really like that each purchase (and sale) is different from the one before it. There is always something to learn. That being said, I recently had an encounter with aluminum wiring.

What is aluminum wiring and why is it a big deal?

In the mid to late 60's, copper prices spiked and home builders were looking for a less expensive alternative. Because it had the same conductivity (and was much cheaper), they shifted to aluminum wiring. 

The problem with aluminum is that it expands and contracts (sometimes up to 30% of it's original size.) These shifts in size create loose connections between the wiring and outlets. As a result, the wires overheat, and electrical fires take place. 

So, should I abandon a house if it has aluminum wiring?

Not necessarily. There are a couple reasons to stick it out. First, every home has aluminum wiring (for the most part), so that is a bit of a trick question. The wiring for most major appliance outlets and the main service wires is aluminum. Most of these are supplying 240 volts. The danger is in the 15 and 30 amp wiring running from outlets to your breaker box. 

Second, it is fixable. Through a process called "pigtailing", the existing aluminum wiring is pigtailed with new copper wiring, providing a safer connection. The wires are connected, crimped with a special sleeve, and this can only be performed by a certified electrician. The new connections should be monitored by that same electrician going forward, but generally speaking, you should be good to go.

In conclusion...

Is aluminum wiring dangerous? Sure it is. It is like driving in a car with no seat belt. Is it the safest way to travel? Absolutely not. If you drive to the store to get milk, are you positively going to get into a fiery accident? The odds are low. There are much safer forms of wiring a home than aluminum. Aluminum wiring represents an increased risk of fire. If properly addressed and monitored, aluminum wiring is manageable. However, each homeowner needs to decide for themselves how important it is to address. And remember: Your Realtor and home inspector (most likely) are not certified electricians. You really should speak with a certified electrician prior to making any sort of decision about the safety of your electrical system. 

Condo's and Condon'ts

Yeah, I know, pretty cheesy title. Hey not everything Mozart put out was gold, either. The topic is serious, however. Most people assume that purchasing a condo is the exact same as purchasing a single family home. Not the case.

For those that are not familiar, a condominium is a single unit that is part of a larger property. There might be 2 condos on the property or 2,000. Every property is different. What is important, is that they are all part of the same space and have shared structures. These condominium complexes are typically managed by an outside company that handles the general maintenance of the exterior (roof, siding, landscaping.) Often times, they will share some utilities like water, sewer, and trash removal. They will also have amenities similar to an apartment complex (pool, gym, clubhouse, etc...)

All of that sounds simple enough, and it can certainly be attractive to the right buyer. It is very similar to the low-maintenance perks of apartment living, while still building equity. However, financing a condo can be a bit tricky. First, there are two types of complexes: FHA approved and non-warrantable. For a condo to be FHA approved, the following needs to be true:

  • No one person can own more than 10%
  • At least 50% must be occupied by the owner
  • No more than 15% of owners can be late on dues

There are also a few other requirements with the types of loans, but that is something a lender can tackle. Why would you want a condo that is FHA approved? Simple. You can purchase it with an FHA loan, and when you go to sell, your buyer can get an FHA loan. By eliminating the possibility of an FHA loan, you are cutting out a fairly large segment of buyers. This also means a larger down payment from you, which for some buyers, can handcuff their ability to purchase a property that needs a bit more work. 

Generally speaking, a larger down payment is going to be necessary for a condo purchase as compared to a single family home. There are also fees that must be considered when talking about a loan. HOA's can be a killer. For example's sake, let's say you want to buy a condo. It is listed at $100,000 in a non-warrantable building. It has HOA fees of $250 per month. Because it is a non-warrantable building, a 25% down payment is required by the lender. There is also a home that you like. It is for sale for $150,000. It is not part of a neighborhood association. Let's compare the two.

  • Condo
    • $75,000 mortgage
    • $25,000 down payment
    • Approximate monthly payment of $800
  • Single Family Home
    • $125,000 mortgage
    • $25,000 down payment
    • Approximate monthly payment of $900

Do you think there is a difference between a $150,000 house and a $100,000 condo? Absolutely. Is the house a better buy? Not necessarily. Every buyer has different needs, and it is important to speak with a Broker regarding what should work best for you.

Big style, tight space

Not everyone can afford 4,000 square feet. Not everyone who can afford 4,000 square feet wants to maintain it. Indianapolis is a fairly unique city, in that with our system of highways and interstates you can travel from one side of the city to the other in less than an hour. Let's compare it to Chicago. At times, it can take upwards of 2 hours to travel from the city center to nearby suburbs. That's about the same amount of time it takes to drive from Indianapolis to Louisville. Here's my point, because most of the city is accessible via car in less than an hour, we are able to develop cheap land into large subdivisions that value size over perceived convenience. Outside of a select group of neighborhoods, most Indianapolis homes can easily accommodate the possessions of the average Indianapolitan (yeah, that's what we are called.) However, for the rest of us, we make due with slightly less space.

The average home in Broad Ripple has 947 square feet above grade. With homes in surrounding suburbs typically 2-3 times larger, I am often asked how we make due with the limited space. First, we find that we have more than enough livable area for 2 adults, 1 toddler, and a giant dog. We have sleeping spaces, a place to hang out, a place to eat. I am not sure that there is much more that we could ask for. I certainly understand the question, as storage comes at a premium. A few general rules for storing your things in a tight space:

1. Rotate: You will not use everything that you own, every day. It simply won't happen. Though not completely predictable, you can assume that the weather will behave in pretty general terms throughout certain seasons. I don't need a parka in July or shorts in January. That means that my tiny closets don't need to hold absolutely all of my clothes at all times. Some time around March and September I switch my clothes out for the next season. Though we occasionally get an 80 degree day in October, I can always dig out a pair of shorts for a week. This can work for quite a bit more than clothes (i.e. media, children's toys, etc...)

2. No Dead Space: Pretty simply idea. Have you ever been to an art gallery and overheard the pretentious guy next to you discuss "negative space" with his disinterested date? He's talking about the white on the canvas. You have negative space in your home as well. How can you re-purpose that negative space as storage. The simplest areas include: ottomans, underneath the stairs, and bench seating. Google it. Other people are creative, steal their ideas.

3. Reduce: Absolutely the simplest. Get rid of your stuff. It's junk. It absolutely is. If you don't believe me, go hold a yard sale. Let complete strangers tell you exactly what they think you're prized positions are worth. That couch you won't give up? 20 bucks, tops. That fantastic dress? 75 cents. It'll bring you back to Earth quickly. When tossing your junk, think about donating it. Great tax writeoff, and you are supporting a good cause. You would be surprised how easy it is to get by on less. 

If you have any creative ideas let me know!

If you want it done right, should you do it yourself?

Ever want to elicit a visceral response from your even-keeled Realtor friend? Ask them about For Sale by Owner's. The idea of a member of the general public selling their home without the use of an agent absolutely drives some of peers crazy. I get it. My wife, the teacher, isn't a fan of homeschooling. In fact, most people who provide a service or a special set of skills aren't usually keen on individuals going the do-it-yourself route.

However, I certainly believe that there is a place for FSBO's. I choose to think about it like this: When done correctly, a For Sale by Owner can be a huge help to me and my business. First, I am able to avoid a situation with an unrealistic seller. Most people list FSBO, because of the financial ramifications. They don't see the value in a Realtor. This can lead to a challenging relationship from the start. Listing a home is not free. To hire the right photographer, stager, and contractors cost money. There are brokerage fees, open house fees, heck, even the sign in the front yard is money out of the pocket of the listing agent. To spend that kind of money on a listing where the owner doesn't trust you is bad business. It is much better for both parties if they list on their own.

Second, if the owner has done a halfway decent job of advertising their home, I will be able to find it and examine if it is a good fit for my buyers. Many buyers agent's will scour only the MLS for potential showings. Many will outright blackball any FSBO's and refuse to bring clients by. Again, this is great for me, because it means that I am going the extra mile to assist my clients where others might stop short. Is it more difficult to setup a showing with a FSBO, of course! With a listing, 95% of the time, I simply call a 3rd party service (or order online) to setup the showing with the owner, and they manage the confirmations and what not. With an owner, I am trying to reach someone who has a full-time job and is now a part-time "agent." It can be very difficult. 

There are certainly challenges and advantages to negotiating directly with a homeowner. First, I am speaking with someone who may or may not have knowledge of the process. This can provide the buyer with a bit of an upper hand. There are certainly opportunities in every transaction to "beat" the other side. It might be creative wording, a well placed addendum, etc... I can think specifically of a family friend who sold their home on their own, and because they failed to properly understand the contract, did not realize that they were responsible for replacing their entire roof prior to closing. It ran them $40,000 and they were looking at around $20,000 in Realtor commissions. 

There are certainly some disadvantages as well. Real Estate, though incredibly enjoyable, is not a hobby I do for fun. It is my job, and I need to see compensation. When working with a homeowner, I need to secure funding for my work. That means the individual who most likely opted not to use a Realtor because of the cost, and I, need to talk about what I am worth. Now if I listed a home and represented both the buyer and seller, I would reduce my commission to around 4%. I reduce it for two reasons. 1. It saves my sellers money, and increases their bottom line. 2. I will not be doing twice the work (6%), because my hands are tied in a limited agency setting. Should I ask for 4% from the sellers? Absolutely. Are they going to pay it? Not a chance. They already believe: a. I am overpaid. b. The negotiations are the easy part. c. They did all the work. Assuming that we can agree on a number, the negotiations can be painful. Balancing ethical duties to customers (the sellers), and my fiduciary duty to my client can be a bit trying. Also, if they fail to understand certain portions of the process, it becomes my duty to educate them. This helps my client, as it moves us closer to the closing, but it also increases my workload. I welcome the challenge, and I believe that my clients should be able to purchase the home of their dreams no matter who is selling it.

As there are pluses and minuses for the buyers agent, there are certainly pluses and minuses for the homeowner. First, you become a part-time agent. That means fielding the phone calls, the drop ins, the advertising, the tire kickers, the low-ballers, etc... It can be taxing, and you should certainly be prepared for some work. There are also going to be individuals that you will need to hire throughout the way. It might make sense to hire a Realtor or an appraiser to give you an accurate picture of what your home is worth. You will need to consult a real-estate attorney to look over any documents you may sign. Advertising can vary in cost. Getting your listing on Zillow is free, but the MLS can cost upwards of $1,000. All of this adds up. As mentioned above, if you opt not to consult anyone you can end up in an unfavorable contract, which can cost 2,3, and 4 times what you would have spent otherwise. There is also opportunity cost. If you are in an area that has sharp market swings with the seasons, listing your home by yourself during the peak can hinder your ability to sell down the road with a professional, if they are forced to sell during a "down" period. There are a multitude of factors to consider prior to putting your home on the market.

It's not all bad. I have always said that a good home, in a good area, for a good price, will sell. Whether that is by owner or agent, it will almost always sell. I have seen homes in my neighborhood that were listed by owner sell in 2 weeks, as well as 52 weeks. Good agents will continue to hunt down any home that is for sale and will work diligently to make sure there client is happy. That certainly holds true for FSBO's. Would I recommend selling your home on your own? In most cases, no. There are a myriad of potential pitfalls that most homeowners do not know exist, that can destroy you financially. Why risk it? However, there are absolutely instances where a FSBO can be successful. 

If you are unsure of which scenario you might fall in, please feel free to reach out to me. I would be more than willing to speak with you about the value of your home, how I would get it sold, and if it might be best for you to go it alone.