Real Estate For Atlanta Blog

Many counties in Georgia offer seniors a very large break on their property taxes. In most cases, the discount is related to an exemption of the school tax portion of the bill. However, it’s important to note that each county has different restrictions, qualifications and amount of discount offered. I recently called most of the local counties that I frequently service and inquired about the specifics of each counties plan. Overall, what I found shows that Cobb County offers the most generous discount and Fulton offers the least. If you are interested in this information for another county, please feel free to contact me and I’ll be happy to assist you. Also, please note that while I believe this information to be accurate, it is not warranted in any way:

For months, I have been telling people that the opportunity to buy is now and that waiting for the so called bottom is a mistake. Those who listened to me took advantage of the market and closed on their homes this month. They will enjoy a purchase price as low as low can be. In many cases, prices in line with what the same home cost 10 years ago. In addition, they are enjoying a 4.5% 30 year fixed interest rate. For those who have missed the boat, interest rates have already gone up by almost a full percentage point in the last week alone. The going rate now is closer to 5.25% - 5.5%. This .75 difference in rate may sound like a small amount; but take out any loan calculator and you’ll quickly see that it equates to about $200 / month extra payment on a $400,000 house. That means that what cost $2,000 a month last week will now cost the owner $2,200 for the same house. A 1% rise in rates is about equivalent to a 10% rise in price in terms of monthly costs. So, effectively the payment on that $400K house is now equivalent to the payment you’d have if you bought it for $440K last week. Additionally, home sales are up and the value priced properties are now getting multiple offers and bidding wars. It stands to reason that prices will begin to rise soon as well. Though it is probably too late to buy at the most opportune time, I believe things will only get less favorable for buyers from this point forward. The prices and interest rates we have now are still incredibly low and this could very well be the last chance to get in before the train pulls away. Don’t get left out and kick yourself for waiting too long and missing the opportunity to buy a home in this unprecedented buyer’s market.

If you’re out looking for a deal on a home and notice some new construction that is bank owned, you may tend to assume that since the home is new there will be less problems with it and it might be a better option than an older resale. While this could be true on some properties, make sure you consider the following:

1. Notice how many other homes in the subdivision are either empty lots or vacant homes. If the community is less than 75% sold, it could take a considerable amount of time for the other properties to be sold. The vacant lots can require some maintenance such as weed control that the bank owner is not likely to do. If there are a lot of partially complete vacant homes, these could become hazards and eye sores to the street as children begin to play in them, etc.
2. Check the health of the Homeowner Association. Many new construction homes are part of a Homeowner Association (HOA) that collects dues to maintain common areas and shared amenities such as pools and tennis courts. If there are only a few occupied homes, these few homes will need to pay high enough dues to cover the costs of maintaining these areas without having the benefit of more homes to share the costs with.
3. Since the foreclosures are as-is sales, make sure the home is complete. Often, these new construction “bargains” are sold as-is meaning that if the electrical wiring is only half installed or the kitchen cabinets aren’t in yet or the floors aren’t finished, what you see is what you get. Make sure to at least ask if a C/O (certificate of occupancy) has been obtained. That at least means that the county has inspected the home and determined that it has all of the basic needs to be moved into by a homeowner. Of course, cosmetic items are completely ignored by the county inspectors.
4. If you do buy a partially finished home and plan to finish it on your own, make sure your lender will be willing to make a loan on it. Most lenders will not lend you money to buy an unfinished property or they will consider it a construction loan; which will at the very least preclude you from getting those 4.5% interest rates that are around these days and might prevent you from being able to obtain financing.
5. Even the best built homes need some tweaking and fix ups after the 1^st year. That’s why most builders offer a 1 year walkthrough to address the issues that come up after closing such as nail pops, squeaky floors, etc. due to normal settling that occurs in the first year as well as things that went unnoticed during construction. Since you won’t have such a warranty on a foreclosure, you will be absorbing the risk on your own. Additionally, you will not have any recourse if there turns out to be a major issue. For example, if the home is built on a sink-hole and develops structural issues shortly after closing, you have nobody to go back to since the builder is not the one who sold you the house.

In summary, there are some fantastic deals out there and in many areas new construction prices have come down more than resales. These can be good deals; but when deciding to buy one of them, make sure you take these factors into consideration to evaluate whether it’s really a good deal or not.

On Sunday, April 26^th, 2009 you will have a chance to sample food from over 70 restaurants in the Marietta, GA area at the 16^th annual Taste Of Marietta event. In addition to fantastic food there will be live music, family fun and arts and crafts booths. This is a very popular event and tends to get crowded. Come early as parking is often limited. It is a great way to spend the day with the family or if you are new to the area you can check out what Marietta has to offer. Last year this even drew over 75,000 people. This year, the weather is supposed to be beautiful so I would expect it to draw even more. Some new events this year include a cooking demonstration stag. Admission is FREE and parking is FREE. The restaurant booths will charge a nominal fee for samples of their food (.50 – 5.00 each). The event is taking place right in the historic Marietta Square area. You can find out more details by visiting www.TasteOfMarietta.com. I hope to see you there.

In the good old days, a tenant could be pretty sure that if they continued to pay their rent on time and took good care of the property that they’d have the right to continue living in the property for the duration of their lease and then receive a refund for their security deposit upon vacating the property at the end of the lease. The current market has introduced a new potential complication that every renter needs to know about and take the necessary steps to protect their interests. What is happening too often now is that landlords are collecting rent checks from their tenants; but not paying their mortgages. When this happens, the bank will foreclose on the landlord’s rental property; potentially leaving the unsuspecting tenant who has been paying their rent as they are supposed to out in the cold, literally. So what can be done to prevent this from happening to you? For starters, before you sign a lease with a landlord, it’s a good idea to ask the right questions to make sure that the landlord is current on their payments and is likely to have the capacity to continue to do so. I have seen some tenants go as far as insisting that they make their payments directly to the owner’s lending institution; but good like finding a property owner who’d be willing to agree to that. At the very least, research can be done to investigate how much the property owner owes on the home. If you are renting a home in which the landlord has a significant amount of equity in the property then this would be much less likely to become a problem. However, if you are renting a home from a landlord that owes 100% or more of what the property is worth, you might want to proceed with caution. Additionally, you will be protected better if your deposit is being held in a designated trust account by a property manager / broker rather than being intermingled with the landlord’s funds. Licensed agents and brokers are required to do so; but if you are renting a by owner property from a landlord who is not a licensed real estate broker or agent, you might not be as protected. So before you sign that lease, be sure to evaluate the situation in the light of the current market or better yet, utilize a good real estate professional to help protect your interests.

With all of the short sales and foreclosures taking place in the recent year or so, it is no surprise that the companies that issue title insurance are feeling the pain. These distressed sales are much more likely to lead to title problems than any other and when things go wrong, it is often the title insurance company that gets stuck paying. For those that may not know, title insurance is insurance that protects against claims to the title for real property (land and houses). As part of the settlement process, a title search is done to identify any potential problems and the closing cannot take place unless there is reason to believe that there is clear title on the day of the closing. However, often things come up after that fact and that is what title insurance protects against. There are typically 2 policies; one policy to protect the lender’s interest in the property and another to protect the owner. The state of Georgia is one of only a few states that do not require a home buyer to purchase an owner’s title insurance policy; but it is almost always a good idea to do so anyway. Due to the increased risk to the insurance company, the insurance companies are being forced to raise their rates. Therefore, it is not uncommon for title insurance to cost 25 – 30% more than it did just a year ago. Lenders should be aware of this when issuing Good Faith Estimates and home buyers should expect to have these additional costs at closing.

As a small child, I remember overhearing my parents speak about money and with an over-simplistic, child-like perspective I chimed in and asked them; “If you need more money, why don’t you just go to the bank and get some”. It was then that my parents explained to me that the money they take out of the bank was actually money that they put in there too and finally I got it. From that moment on, I had a new perspective on the value of money. As adults, this sounds somewhat humorous because we all know that is how things work. However, it amazes me how few adults actually get the concept of money at a higher level. Since money is printed by the government, many view the government as an endless supplier of money. In reality, asking the government to print more money to pay for things is equally as absurd as me asking my parents to go to the bank to get more money when they had none in their account. Still, this is what is going on as we speak. In an effort to save the economy, the government is really not left with much choice other than to print more money to pay for things that will hopefully boost the economy. In the short term, it seems that the efforts to prop up the economy are starting to work. However, there are future consequences to actions that are being taken today that many have not thought out fully. As the government prints more money, it devalues the money; effectively making each dollar worth less (on some level, this is simple supply and demand). If each dollar is worth less, it will lead to inflation. Furthermore, if the government issues more treasury bonds to raise capital for some of the proposed spending projects, there will be more bonds; which, in effect makes it harder to find buyers for the bonds and it is likely that higher interest rates will need to be paid on the bonds to entice investors to buy them. If it plays out like that, then the Fed will have no choice but to raise interest rates significantly and quickly to keep the value of the dollar from heading towards worthless. Therefore, it seems that we find ourselves in a delicate race against time. We have no choice but to take actions today that will prop up our economy and put a band-aid on things for now; knowing that our actions will eventually lead to new and very different problems down the road. Our best hope is that the economy is able to revive itself to a point at which it can sustain the next blow before the inflationary problems hit us. If it does, then we’ll be able to pull through on a more permanent basis and enter into a more stabilized economic climate. However, if not, then we may have only seen the tip of the iceberg. So what does this mean to investors and home buyers? There will likely not just be a “bottom” to the market; but rather a small window of opportunity. The window of opportunity is the time period at which the positive effects of our actions of today begin to be felt while the negative longer term effects have not fully set in. During this time, one will have the extremely rare opportunity to have the best of both worlds: low interest rates, bottomed out prices, low or non-existent inflation, etc. before the pendulum begins to swing in the other direction ushering in an age of high interest rates and inflation. In my opinion, that time is NOW. If you have been on the fence about buying property, this really is the opportunity of a lifetime. Once interest rates begin to rise, you will quickly miss out on the window of opportunity. Many people don’t realize that a 1% rise in interest rates has an equivalent effect on home ownership costs as a 10% change in price. In other words; buying a home for $200,000 with a 4.5% interest rate will yield a virtually identical payment to getting the same home for $180,000 and paying a 5.5% rate on the loan. It is foolish not to take advantage of this incredible and short-lived opportunity while it is available.

What does it mean if a home is in the flood plane?  In most cases, not much at all.  In certain areas of the country (i.e. New Orleans), this can be a more serious problem.  In the metro Atlanta area where I work, it is not a big problem.  Of course, there are different levels of flood plains.  In most cases, a home would never be built on land that is prone to excessive flooding.  However, often homes are built on lots that back to lakes, creeks, etc. that have not flooded in recent history and have an extremely low probability of flooding.  However, if the probability is anything greater than zero, your lender will likely require you to carry flood insurance on the home.  The cost of this will vary depending on the probability of the home flooding.  On average, it is usually around $500/year; which is by itself an indication of how unlikely a scenario actual flooding is.  If you owned an insurance company and had to rebuild all homes that get flooded, would you charge $500/year if the homes were flooding frequently?  If you did, you’d be out of business pretty fast.  The reason they can charge so little is that it is so unlikely to happen that there is a 99% probability that they will make $500 for nothing and once in 1,000 years; they may have to pay out a claim.

Some other things to consider about homes on flood plain lots:

1.  You can look in your local tax records to see if a particular home is recorded in the flood plain.

2.  Many homes are recorded as flood plain lots and really shouldn’t be.  I recently had a listing that was in the flood plain according to the tax records; but both the seller and I questioned the validity of that.  We ordered an elevation study on the lot from FEMA and sure enough, we got the home removed from the flood plain status.

3.  There is a plus side to it.  If the home is in a flood plain, it likely backs to a creek or some water nearby and often that goes hand in hand with a private lot that cannot be built on behind the house; so you can be assured your back yard trees will never be taken down in favor of a new subdivision or roadway; thereby guaranteeing your privacy for as long as you own the home.

 So, before you eliminate a home just because it’s in the flood plain, know the facts.  Find out what the flood insurance will cost.  In all likelihood, it should not be a significant enough consideration to sway you from buying a home that you otherwise like.

As I write this blog post, the DOW is up almost another 200 points. One of the major factors that is causing this Wall Street rally is the recent announcement by the FASB (Financial Accounting Standards Board) that they will be relaxing the current mark to market standards for banks. In order to understand why this news is so important to Wall Street Investors and to the housing market, it helps to understand what this accounting rule is and why many economists believe that it was a major culprit in leading us to the financial crisis that we are currently in. The mark to market accounting rule simply states that companies must value all of their assets at a value that could instantly be obtained in the current market. The most recent sale of a similar asset is used under the mark to market rule to determine the value of an asset on a balance sheet. Banks typically fund loans for businesses as well as home loans and personal loans. In order to free up their cash so that they can make additional loans, banks then bundle together these loan assets and sell them to Wall Street investors. Of course, the price that investors are willing to pay for these assets is going to be determined by their value on the balance sheet.

These days, we hear a lot about how subprime loans that shouldn’t have been made are causing our financial crisis. This explanation is perhaps an over-simplified and inaccurate assessment of the real problem. In reality, the so called sub-prime loans were only a very small percentage of the loans that were made in the previous few years leading up to this financial crisis (I remember reading somewhere that it was about 6% of loans; but don’t quote me on that). Furthermore, some banks were much more heavily in the sub-prime business than others and many did not do any sub-prime loans and never made a single loan that had more risk than the bank or any investor should realistically take. Still, in part because of the mark to market accounting rules, the values of all mortgage backed securities were devalued by the few bad apples. The mark to market accounting rules did not take into account whether a loan was sub-prime or not or a borrowers likelihood of default. Instead, the rule forced banks to value all mortgage securities the same. Therefore, when the market started to slow down and investors finally realized that mortgage backed securities were not the risk-free investments that they were touted to be, they quickly lost interest in the bad loans; which is perfectly understandable. So, the banks that had a lot of sub-prime loans were no longer able to find investors who were willing to buy these loans to free up their cash to make new loans. They were forced to sell them at very low prices and, truthfully, that is all those types of loans were really worth. However, other banks that had little or no sub-prime loans on their books now had to follow the mark to market rules and value all of their mortgage securities at the same value that the toxic assets were sold for. In essence, even the perfect loans with 20% down, dual income, and co-borrowers with 800+ FICO scores were devalued by the other bad apples in the bunch. This caused otherwise very healthy banks to appear on paper to be financially insolvent. Banks are required to maintain a certain level of “health” in order to comply with regulations; so many were forced to sell off other assets (equipment, etc.) at fire sale prices in order to boost their balance sheets to levels that would allow them to comply with the regulations. In doing so, they devalued their competitor’s similar assets further and made their balance sheets look even worse. This continued in a downward spiral until we got to where we are now.

Finally, the accounting standards have just been revised to allow assets to be reported based on what they would be worth in a normal (non-distressed) sale. In this way, if one bank is in trouble and has to fire sale their assets, they will not necessarily devalue their competitor’s assets by nearly as much and the system will do a much better job of separating out the banks that are really in trouble from those that are simply being pulled down by others and would be relatively healthy and stable on their own.

There are many critics of this change in accounting rules who fear that it will allow banks to overvalue their assets and get us right back where we were before. It is my belief that this is a HUGE step in correcting the problem we are in today. However, for the long term (after we get back on our feet) we need to find a good compromise. Too much regulation is no good as it causes things like this to happen. Still, not enough regulation can be equally bad as it can lead to the extended periods of over-exuberance and collapse that we’ve experienced. Perhaps one day, investors will learn their lesson and realize that speculative exuberance-based buying AND panic-selling are equally bad and unwise. The right place to be is right in the middle where one should never pay more than an asset is worth due to underestimation of risk; but should be willing to purchase investments that present a fairly balanced risk-reward ratio.

Keller Williams Atlanta North will be hosting a massive multi-home open house weekend this Sunday, March 29, 2009 from 2-5pm.  Homes being held open are all over the metro area with the majority in Marietta and others in nearby Roswell, Atlanta, Kennesaw, and other cities.  If you are in the market for a home or simply enjoy looking please stop by.  In particular, I’d love to see you at mine which will be at 560 Bircham Way; Roswell.  For a complete list of properties being held open this Sunday, you can visit:  http://www.RealEstateForAtlanta.com/publicpages/openhouses.aspx