Tuesday, January 30, 2007

Minneapolis New Home Features, Part 2

Home Fire Sprinklers

A new home trend that is still an idea in most peoples minds, but sure to become the future norm, is the home fire sprinkler system. We all know that commercial properties and apartments buildings are required by law to have an operating sprinkler system, but apparently there is a push to have future homes equipped with them as well.

My husband works for Northstar Fire Protection in Eagan, MN as a Project Manager. He designs and oversees the installation of commercial sprinkler systems. One day last year we were talking about a project he was handling in Las Vegas and our conversation turned toward real estate. He mentioned that he had the feeling sprinkler systems would one day be required in residential homes. I laughed it off at first, but as we talked further about government regulations, lobbying groups, and insurance companies, I realized that he had a great point. Groups successfully lobbied to have airbags installed in every vehicle, so what is to stop them from lobbying the government to require the installation of a sprinkler system in every home. It is a safety factor after all, and the government loves to regulate our safety.

While doing some research into the topic, I came across the Home Fire Sprinkler Coalition, a nonprofit group who's goal is to educate the public on the benefits of the home sprinkler system. I gained some valuable insight from a survey they did in late 2005. Here are some interesting facts from them, and my husband:

  • Each sprinkler is individually activated by heat, so a localized fire in one room will be the only room affected by water disbursement (less water damage to personal items).
  • A home sprinkler system is estimated to add 1-1.5% of the total building cost to new construction.
  • Sprinkler heads can be recessed into the ceiling and concealed from view.
  • Smoke and toxic fumes are greatly reduced by quick sprinkler response and might even put out the fire before the fire department arrives on the scene.
  • About 69% of homeowners believe a fire protection system adds value to their home.
  • Sprinkler systems will most likely lower insurance premiums. For example, State Farm offers its customers with sprinkler systems a 5-10% discount off the premium.
  • If you are thinking of installing a system into your home, make sure to use a professional fire sprinkler company. Most states require the work to be completed by a licensed contractor.

Don't get me wrong, the availability of a sprinkler system is a great home option. It not only can save lives, but it can also reduce substantial insurance claims against loss. We plan on building a new home in the future and will definitely install a fire sprinkler system. I just hope installation never becomes mandated by the government.

Thursday, January 25, 2007

Minneapolis Airport Zoning Disclosure

Effective 8/1/2006 a seller of real property in Minnesota, before signing an agreement to sell or transfer real property that is located in an airport safety zone A, B,or C, will be required to disclose in writing to the buyer the existence of airport zoning regulations that affect the property. However the disclosures do not apply to safety zones operated by the Metropolitan Airports Commission. The following airports are excluded:
  • Anoka County Airport
  • Crystal Airport
  • Eden Prairie -Flying Cloud
  • Lake Elmo
  • Lakeville - Air Lake
  • Minneapolis / St Paul International
  • St Paul Downtown

The disclosure still applies to the remaining general airports in Minnesota, including the South St Paul Airport and Forest Lake Airport.

Sellers and buyers please note that the Minneapolis Area Association of Realtors has made it easy for you to comply with this new disclosure. The proper language has been added to the residential Seller's Property Disclosure Statement and the Vacant Land Disclosure Statement that you receive from your agent!

Tuesday, January 23, 2007

Minneapolis Real Estate Housing Outlook, Part 2

2007 Minneapolis Real Estate Outlook not as good as 2006

Picking up where I left off in Part 1, the fact remains that intelligently priced homes will sell. Sellers have been blinded by the last few years of 20-40% price appreciation, and are in the mindset that a 5-8% annual increase is a bad thing. In fact, it is more the natural norm and previous market trend before the big housing boom. Word to the wise, price for the future, not the past.

Another topic put forth as the MBA convention was the Pay Option ARMS. The financial market has been flooded by these types of loans the last four years and offer "creative" financing to certain buyers who may not fit a conventional loan. Buyers are sweetened up with a low interest term loan, but knowing the rate will increase according to the Adjustable Rate Mortgage. They typically forget or ignore what their payment will be in 3-5 years once the higher rate takes affect. While they should be putting the extra money they save into paying off credit cards or maxing out their 401k, they are instead buying expensive cars, furniture, and gadgets that will never help them financially. Many are banking that their home will continue to appreciate 20% or more a year, or that interests rates will stay low so they can refinance in a few years. Don't count on it.

What should buyers do who are already suffering from "payment creep"? If you used your "saved" money wisely, you might already be ahead because you have paid off other debts. You most definitely should call your bank and talk about your options. Most likely you can refinance to a fixed-rate loan and breathe a sigh of relief. If you need to speak to a real estate agent about selling the home to get out as soon as you can, call a local professional. You might only "break-even" on the sale of your home, but it beats going into foreclosure because you can't make payments.

Saturday, January 20, 2007

More People Moving into Minnesota

Good News for Minnesota Real Estate!

According to a recent migration pattern study by United Van Lines, more people moved into Minnesota than moved out. While the study ranks Minnesota as a "balanced" state, meaning their is no huge "move-in" or "move-out" of residents, it does show that this is the first time in 25 years that more people have moved in than out. The statistics show that United vans processed 8730 shipments of household goods in 2006, of which 4480 were inbound. That means 51.3% of all shipments were new residents.

How does this correlate to real estate? With the recent slow down of the local Minneapolis market, homeowners are finding it harder to sell their homes. Prices are coming down as homes take longer to sell. If more people are moving to Minnesota, then the current homes on the market have a better chance of selling sooner than later and the local economy benefits from new consumer spending. Minnesota is lucky, other Mid-west states like Indiana, Illinois, Ohio, and Michigan are seeing a large part of their residents leaving for the Southeast and West.

(To read more about the survey see United Van Lines 2006 Migration Study)

Friday, January 19, 2007

Minneapolis Real Estate Remodeling Report

2006 "Cost vs. Value Report"

The resale value of many remodeling projects has not kept pace with the costs of those projects, according to Realtors and remodelers who recently participated in Remodeling magazine’s 2006 “Cost vs. Value Report.” Produced for 19 years by Hanley Wood, LLC, this is the ninth consecutive year the report was completed in cooperation with REALTOR Magazine, as National Association of Realtors members provided their insight into local markets and home buyer preferences in 60 different cities across the country.

The report shows that prices for most remodeling projects continue to increase, though their resale value has decreased. This trend reflects a return to a more balanced real estate market in many areas of the country. As in 2005, kitchen and bathroom remodels are still near the top of the list in terms of costs recouped, on a national average.

In 2006, the national average cost for a major kitchen remodel was $54,241, and the return was $43,603, for an 80.4 percent return on investment. By comparison, in 2005, a major midrange kitchen remodel cost an average of $43,862 and returned $39,920, or 91 percent of the costs to remodel. Midrange bathroom remodels recouped 85 percent of their cost in 2006, with remodeling expenses averaging $12,918 and resale values averaging $10,970. Last year, the same project cost $10,499 and returned $10,727, or 102.2 percent.

“Our Realtor members visit hundreds, if not thousands, of homes with their buyer clients each year, and have a unique understanding of what home buyers value in their local markets,” said NAR President Pat Vredevoogd Combs of Grand Rapids, Mich., vice president of Coldwell Banker–AJS–Schmidt. “As real estate markets shift in many sections of the country, homeowners must rely on the guidance of real estate professionals who are immersed in the industry. Realtors’ insight into buyer preferences and their connections to local remodeling experts help them add value to the real estate transaction, whether their clients are preparing their home for sale or just want to be informed about resale value down the road.”

The report compares construction costs with resale values for 25 common remodeling projects in 60 cities. This year the report provides data for nine U.S. regions, rather than four as in years past, following the divisions established by the U.S. Census Bureau. The projects represent additions, remodels and replacements. Nationally, replacement projects tended to return more value than additions or remodels, but, as in previous reports, the desirability of different remodeling projects varied by region and metropolitan area.

The most profitable projects nationally, from a resale value, were midrange vinyl and upscale fiber cement siding replacements, at an average of 87.2 and 88 percent costs recouped, respectively. Most of the regions reflected that, as well; some type of siding replacement ranked among the top three projects in terms of costs recouped in every geographic area except the Mountain region, composed of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico and Wyoming. The least profitable project was a home office remodel; this project returned the lowest percentage of remodeling costs at resale in all but the South West Central (Arkansas, Louisiana, Oklahoma and Texas) and Pacific (Alaska, California, Hawaii, Oregon and Washington) regions.

Homeowners in the Pacific and South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia) regions could expect to see some of the highest percentages of remodeling costs returned at resale, while homeowners in the West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) and East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin) experienced some of the lowest returns.

Combs cautioned consumers to look beyond the data. “Many factors affect a home’s value and, consequently, the resale value of any given remodeling project,” she said. “The home’s overall condition, availability and condition of surrounding properties, location, and regional economic climate are all factors that influence value in real estate. When considering a remodeling project or preparing a home for sale, consumers should rely on industry professionals, such as Realtors, who have the expertise and experience to help homeowners protect their investment.”

If you would like a FREE copy of the 2006 "Cost vs. Value" Report for Minnesota, please contact me via email with your name, address, email address, and phone number and I will send a copy right away.

(article courtesy of Sara Weis, http://www.realtor.org/)

Wednesday, January 17, 2007

The Truth about Online Home Valuations

Beware Using Free Online Home Value Websites to Determine the Value of Your Home!

Here is what you need to know that those results do not tell you:
  1. Is the comparable house really there? A computer cannot tell you if the home is actually where it's suppose to be. Has it been destroyed by a Hurricane? Is it a beautiful mansion, or a small cottage? Sometimes the mapping of a home is off by a couple blocks, putting it in a completely different neighborhood, thus compromising the value calculated.
  2. Does the home have unique features? These features might add to the value of the home, but they can also detract value. Does the estimated value take into consideration the power plant next door, or the proximity to an airport? Are train tracks nearby with trains blowing whistles as all times of the day? Is it located in one of the most desirable neighborhoods because of the school district? All of these can greatly affect the value.
  3. How long ago was the property assessed? Many of the online valuation companies solely rely on public assessment records. In FL, for example, homes are only assessed each time it sells. So a home that hasn't changed owners for 10 years will have a lower assessed value. Also in FL, Homestead laws only allow the assessed value to increase a maximum of 3% in any given year. This could mean your free online value is lower than it should be.
  4. What determines a comparable property? Online sites "compare" homes that are in the same vicinity, have similar square footage, and sales date, but does not take into consideration highways, school districts, foreclosures, auctions etc. The computer just does not know the adjustments needed to correctly deliver a fair market value. Only a licensed appraiser can do that for you.
  5. Is the market in decline? If your market just burst, where you were seeing record sales, but now homes just are not selling, the online websites will not take into consideration this decline. Days on the Market, current price reductions of existing homes for sale, and number of homes on the market are important parts of any market analysis of your home.
  6. What exactly are the qualifications of that website? When you work with an appraiser, you know they are state licensed and have in-depth knowledge for evaluating properties, but what exactly are the qualifications of the person behind the free online market analysis? Most likely they have none and are just data "collectors" who will take no responsibility for a faulty market analysis that you might rely on.

Word to the wise? Do not get me wrong, some online websites are a good place to start when looking to sell your home and get a market value, but PLEASE do not rely on them as the "word of God". You really need to either speak with a local real estate agent who can draw up a Comparative Market Analysis (CMA), or better yet, spend the money and hire an appraiser to give you an appraisal. Use their knowledge about the local market to give you a leg up on the competition by properly pricing your home.

Saturday, January 13, 2007

New Minnesota State Laws for 2007

New laws went into effect on January 1, 2007, some of which are certain to affect local Minneapolis real estate.

Twin Cities New Construction affected by New State Law

Installation of carbon monoxide detectors is required in all newly constructed homes and apartments. According to the law, operational detectors must be placed on each level of the residence and within ten feet of each sleeping room in any single or multiple-family dwelling.
The law is in place for newly constructed facilities with permits issued after January 1, 2007. It will apply to existing single-family dwellings on August 1, 2008, and for all multiple-family dwellings on August 1, 2009.

Sales Tax Increases in Minneapolis Area

Also of interest to the public is increases in Minneapolis and Hennepin County sales tax. The sales tax rate will go to 6.65% in Hennepin County and to 7.15% in Minneapolis. The tax revenue will mostly go to pay for the building of the new Twins stadium.

Wednesday, January 10, 2007

Real Estate Housing Outlook, Part 1

2007 Minneapolis Real Estate Outlook not as good as 2006

Recently the 4th General Session on Economic and Housing Outlook met in Chicago and was presented by two top economists, Doug Duncan, Ph.D and Lyle Gramley, Ph.D. They shared their forcasts for the housing market and issues also linked to mortgage finance. Here is some data they compiled:

1) Homes are staying on the market for an average of 7 months

2) Condominiums are taking 8 months or more to sell and have supersaturated the market

3) Total mortgage production for 2006 is expected to decline by 19% based on the following:

  • new home sales are down 18%, just over 1 Million units
  • existing home sales are down by 9%, to 6.42 Million
  • purchase have dropped by 8%
  • refinances dropped by 29

4) The total mortgage production for 2007 is not much better. Production is expected to decline another 14%, mostly driven by:

  • new home sales down 8%, just under 1 Million units
  • exisiting home sales projected to decline another 8%, to 5.94 Million
  • purchases will go down 5%
  • refinances will drop another 25%

As you can guess, this is not great news. However Duncan made a point to remind us all that the short and long term trends need to be considered. These figures, for perspective, closely resemble 2003 home sales, which was the third consecutive year of record home sales.

Remember the word I have used before in previous posts, normalizing? Duncan agrees, and says the market is definately normalizing, returning to its long term trend line. Many people forget that what we have experienced the last few years has included unprecedented low mortgage rates, record high price appreciation, and looser underwriting guidelines. The National Association of Realtors has always said it would not last and I have always agreed. (Remember the stock boom a few years ago that was suppose to go on forever? It did not last either.)

Sellers be forewarned: Duncan made a point of warning sellers that their current price expectations, if based on earlier selling prices for neighboring homes, advice from "smarter neighbors", and on-line home valuation sites, may not paint an up-to-date figure on what their home is worth, and better yet, what their home might actually sell for. Seek out a local real estate agent to get a more accurate outlook on price.

Look for my second installment in the next coming week!

Thursday, January 4, 2007

Minneapolis Real Estate Market Update

(as reported by the Minneapolis Area Association of Realtors)

The annual holiday intermission is near completed for the Twin Cities housing market. As consumers take time to focus on family and friends, new listings and new purchase agreements (pending sales) continued their post-Thanksgiving decline. For the week ending December 23, total listing inventory posted just under 23,000 housing units—its lowest count since February of 2006.

Real estate activity is at a temporary nadir before the onset of the spring market. Early in a new year, buyer activity typically gets a jump start on seller activity. This shift is reflected in our updated Supply-Demand Ratio for January 2007, posting a dramatically lower figure of 7.61. This means that there will be 7.61 homes on the market for every active buyer in the month of January. While this is a large drop from December's mark of 11.01, it remains a strong 36 percent higher than one year ago.

Monday, January 1, 2007

Minneapolis New Home Features, Part 1

The New Basement

One household feature you will be sure to find in Minnesota is the Lower Level Basement. Termed recently as just the "Lower Level", it typically offers a walkout feature to the backyard. No longer used as a secondary space with no design, basements have transformed into a functioning part of the home where families gather to entertain or relax. Current trends include wet bars, fireplaces, recreations spaces, lounging areas, home entertainment rooms, wine cellars, and more. Home owners are also transforming rooms into home offices, exercise rooms, or additional bedroom space for guests with a private bathroom. One main factor that is transforming these spaces is the recent improvement of TV technology and its affordability. Flat screen TVs not only offer different sizes to fit various nooks and crannies of the lower level, but they also offer a better entertainment experience with their resolution and picture quality. Families want the best TVS for their own personal enjoyment. Another factor is that families are getting less formal and want a space that is all their own, sometimes even creating themed rooms to fit their personality.

Some older homes in the Twin Cities have basements that are not convertible due to lack of space or foundation restrictions. Those that can be renovated and updated usually have restraints like low ceilings, visible duct work, poor floor plan design, and lack of natural light from windows. Buyers are in luck if they truly seek a home that has a functional lower level as described above. Newer homes, especially new construction homes, feature the "Walkout" lot, one which allows the home owner to walkout to the backyard or pool area, thus giving the new basement floor real value. Now the lower level can have 9-10 ft ceilings, hidden duct work, recessed lighting, full size windows, sliding glass doors, and anything that makes it more a part of the home.

Here are a couple of things to be aware of:

If you are looking for a newly constructed home or plan on building your own, be forewarned. Many of the homes currently for sale from builders have unfinished basements. You will look at a price and think that includes the basement, but it does not...and most of the time they will want another $50,000 + to finish it for you. I recently walked into a model that was advertised as a 3-bedroom home, only to find out the third bedroom was in the basement, unfinished. To finish it would cost another $40,000 and the home was already priced at the top of the market.

Also, if you are thinking of purchasing an older home that has a converted basement or remodeled basement, make sure you ask the home owner for proof of properly pulled building permits. Also make sure you ask if there has ever been any drainage problems before the conversion. I came across one home where the homeowner covered up his "problems" with drywall and nice looking carpet, only to have a huge mold problem later. Remember, a sure sign of moisture problems is a stale aroma as soon as you enter the basement. Also, look for dehumidifiers, a red flag for excess moisture.