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Clients often ask me what a neighborhood is like.
I would love to answer. But I can’t.
Federal and state fair housing laws prohibit Realtors from commenting on any sort of demographic information, whether it’s factual or perceptual.
Further regulations prohibit Realtors from engaging in anything that could resemble “steering”, which is a practice of directing a client toward or away from a property in any sort of discriminatory manor.
So, wink, wink, nudge, nudge, can’t I just give clients my opinion?
Nope.
Not that I don’t have plenty of them.
But I try to base my opinions on facts, and when it comes to things like crime statistics and addresses of registered sex offenders, I don’t have them.
The police do.
And believe it or not, if you ask them their opinion of a given neighborhood or street, they will tell you. In fact, in the case of both Minneapolis and St Paul, the latest crime statistics are posted on their web sites. If you’d like even more up-to-the-minute data, you can call and ask for the SAFE officer in the neighborhood police precinct.
If you look at the maps or call, you might be surprised.
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said on August 14th, 2009 categorized under: Financing
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There was a quiet bit of good news for Minneapolis duplex buyers in the mortgage market this week.
PHH Home Loans and two of its mortgage insurance companies removed the “declining market” label from the Twin Cities.
For the last couple of years, lenders deemed a metropolitan area a “declining market” if the Federal Housing Finance Agency Home Price Index saw a slide in value of, basically, one percent or more. In other words, if the average home price drops, it’s a declining market.
Understandably, banks are reluctant to lend money on a duplex that’s going to be worth less money one year from now. As a result, if a property is in one of these markets, an appraiser may flag it as such. This has, has often resulted in owner occupant buyers who intended to use conventional financing being required to bring more money to closing table for a down payment.
This often meant a 20 percent down payment on the duplex they wanted to live in. Needless to say, this additional cash requirement was a deal breaker for many.
Big deal, right? Just use an FHA loan.
Well, remember those FHA red flags?
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Sometimes government rules and regulations just don’t make sense.
Take, for example, the city of Minneapolis’ rule on the number of unrelated people who can occupy a rental unit.
If a property has a zoning designation of R 1-3 (residential 1- 3 units), a maximum of three unrelated people can live in each of the units.
The number of bedrooms or amount of square footage in each is irrelevant. In other words, if you own a duplex with a five bedroom unit, you can only have three unrelated people living in it.
If the multi-family property is zoned R 4-6, however, you can have up to five unrelated people in each unit; even if there’s only one bedroom in each apartment.
Of course, if the other people occupying a unit are related by blood, marriage, or adoption, an R 1-3 property can house the family plus two unrelated people.
In a R 4-6 zoned multi-family building, a family can have up to four unrelated people living with them; again, regardless of the number of bedrooms in the apartment.
What happens if the city discovers there are more residents than allowed in a duplex? The landlord can lose his rental license.
So if you have a Minneapolis duplex, say, by the U of M or in Uptown with a couple of four bedroom units, how can you make sure you’re in compliance?
Get your tenants to marry or adopt each other.
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Looking for income property in today’s foreclosure-cluttered market sometimes requires myself and my clients to learn from Nancy Drew.
The scene of the crime is an abandoned and often neglected property. There are few, if any, witnesses, no paper trail of seller’s disclosures or signed leases, and absolutely no one to ask anything about the property.
So, like any good detectives, we use our heads.
This week, the building in question was a vintage triplex in a highly sought-after neighborhood, with tons of vintage charm and amenities. It sold for nearly twice what it will be on the market for just a few years ago, and now, represents a once-in-a-lifetime opportunity.
It’s been over a year since I saw it as a short sale. And of all the properties I see week after week, it was one of a handful that will always stand out in my mind.
As part of doingdue diligence on the property, I called to verify the gas, water and electric bills with the appropriate utility companies. I was surprised to learn the property only had two electric meters. (Hey, I can’t remember everything.)
This clue got me to thinking. While two of the units were clearly built as part of the building, the third was obviously an afterthought. It wasn’t long before it occurred to me the unit may not be legal. So I called the city.
The building zoned R2 (ok for two units), meaning the property would need to be rezoned to allow for the third. This can be a lengthy process, requiring, among other things, a specific percentage neighbors to sign off on their support on it.
Worse yet, the non-conforming unit wasn’t licensed or built with a permit. Having city inspectors approve the construction after the fact will likely require dismantling walls so they can verify it was wired, plumbed and framed correctly.
In other words, it may have to be rebuilt. From scratch.
OK, so while those are certainly obstacles, it’s still a great building. And in the end, overcoming those challenges will result in a big pay day, right?
Yes.
But there’s one more problem.
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To many Realtors and first time home buyers shopping for property it feels as if the market has begun to tighten.
Both entry-level homes and duplexes are selling in multiple offers. And in many cases, an offer that’s $10,000 or even $20,000 over list isn’t getting the job done.
In the duplex market, that may well be due to a lack of supply. For the week ending July 25, 2009, just 44 new multi-family listings came on the market. This represents a drop of 54.6 percent from the number of new listings for the same week just one year before.
Meanwhile, the percentage of lender-mediated properties new to the Twin Cities duplex market appears to have leveled off: up just one point from last year to 77.27 percent.
Duplex owners do seem to be making some inroads in the marketplace, accounting for almost one-fourth of the pended sales as opposed to last year’s 11.43 percent.
Better yet, the average off market price for the week was a whopping $171,841 (buoyed by the sale of a $999,900 duplex). The mark for the same stretch in 2008 was paltry by comparison at $103,464.
According to MAAR, the single family home market is changing as well. There are just 4.88 homes on the market for every buyer; a figure that is 34.8 percent below the amount of available inventory at this time last year.
Meanwhile, purchase agreements signed for the week were up 21.4 percent week over week, with the number of new listings down by 9 percent. Overall, there are 21.7 percent fewer listings in the marketplace this year.
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It’s not easy going green.
Oh, we all know there’s a push to do it. But let’s face it. It’s downright expensive. Where are you going to get the money?
Well, thanks to a salad bar full of recently passed and pending green legislation, it will soon be easier to finance these projects than ever.
Let’s start with the green opportunities already available to Minneapolis duplex owners:
- Energy Efficient Mortgage (EEM) -Already in place, this FHA-backed mortgage allows a buyer to purchase or refinance a principal residence of one to four units and incorporate the cost of energy efficient improvements into the mortgage. Best of all, the borrower does not have to qualify for or make a down payment on the additional funding.
The energy efficient improvements must be cost effective. In other words, you have to prove the cost of the improvement is less than the total value of the energy it will save you over its useful life.
As part of the American Clean Energy and Security Act now before Congress (more widely heralded for it’s cap-and-trade” carbon emmissions program), proposed additional incentives include:
- The FHA would directed to insure a mimimum of 50,000 new Energy Efficient Mortgages during the next three years, with the definition of an energy-efficient house being one where energy consumption is reduced by 20 percent after renovations.
- Freddie Mac and Fannie Mae would be required to increase the qualifying incomes of mortgage applicants by at least one dollar for every dollar of projected energy savings from efficient design, green construction or renovations. (Think of this as somewhat like being able to use 75 percent of a property’s rental income to help you qualify for a loan to buy it; except this is dollar for dollar).
- Loan applicants who live close to mass-transit lines or employment centers would receive similar concessions on their qualifying incomes.
- Appraisers would be required to consider energy improvements as part of a duplex’s appraised value.
- State governments would ensure property owners who go “off grid” by no longer using utility companies to provide power are not denied property hazard insurance.
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Anyone know if they make a version of Rosetta Stone for Truth In Sale of Housing Reports?
Because one of the most commonly overlooked and misunderstood documents by first time duplex buyers and sellers is the pre-sale inspection report.
These reports were originated by municipalities as a way to make sure the city’s housing met a certain set of minimum health and safety standards.
Prior to putting a property on the market, sellers in 14 metro cities are required to have an independent inspector come evaluate the single family home, condo, townhouse or duplex and determine the properties overall condition and level of code compliance.
The inspector will then rate each item in accordance with city guidelines.
In Minneapolis, the items both the seller and a potential buyer should be concerned about are those described as “Required Repairs”. While this sounds ominous, the “to do’s” on this list can be as simple and inexpensive as putting a backflow preventer (a brass attachment available at any hardware store for just a few dollars) on a laundry tub faucet to repairing or replacing plumbing.
These “RRs” may be repaired by the seller prior to the property going on the MLS, thereby earning her a new and clean Truth In Sale of Housing report or, as is the case in many foreclosures or estates, the seller may ask the buyer to assume the responsibility for making these repairs within 30 days of closing.
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If you’re considering taking advantage of the $8000 first time home buyer tax credit to buy a duplex, you’d better hustle. Not only is time running out, but so is the inventory.
Wait? A housing shortage? Well…
According to MAAR, there are 21.4 percent fewer homes for sale in the Twin Cities market than there were at this time last year. In just the week ending July 18, there were 12.1 percent fewer new listings than there were for the comparable week in 2008.
Meanwhile, pending sales the week ending July 18 jumped 18.2 percent. Of course, most of these transactions involve homes in the first time home buyer price range.
As a result of shrinking first time home buyer single family inventory, frustrated buyers may be opting for duplexes. Pending sales for the week were up five percent from last year, with 15 percent of those properties did not involve a lender in the negotiations.
Sadly, the 2009 average off market price of the pended properties was just $104,927, as 16 percent drop from the same week in July in 2008.
There were, however, 18.9 percent fewer new listings year over year. While 70 percent of these continue to involve a short sale or foreclosure property, 67.57 percent of the 2008 properties did. In other words, we haven’t seen a dramatic leap in the percentage of foreclosures hitting the market.
A word of caution. In late 2008 and early 2009, there was a moratorium placed on foreclosures by the government. Word is those properties where the seller was not able to successfully renegotiate the terms of their loans will begin hitting the market August 1.
What’s more, numerous real estate reporters like Diana Olick of CNBC are talking about a ”shadow inventory” of bank foreclosures; properties the lenders have already seized, but are holding on to in order to not flood the market, causing further declines in home values.
While I have no statistical data to support this assertion, I do personally know of several properties that were foreclosed on as much as a year ago that have yet to hit the market.
Comment
Working with a Realtor is a lot like dating.
But with a contract.
And without those perks.
Once you’ve reached a certain point in your relationship with your agent, she may ask you to sign what’s known as a Buyer Representation agreement. There are many types of representation, but most often, she’ll ask you to sign a document that gives her the exclusive right to represent you.
If you think about it, this document makes sense. Agents work long and hard to find the right properties for our buyers. And once we do, we want to have the legal assurance we’ll be paid for our efforts. After all, we don’t get paid a thing; not a salary, not mileage, not base pay…nothing, until you buy your duplex.
So it makes sense that you should be committed to your agent. And, your monogamous relationship with that agent is considered so sacred you may even walk into an open house and have other Realtors ask whether you’ve signed a buyer representation agreement.
Why do they ask? Because the state of Minnesota says if you have, they’re not allowed to talk with you in any way that could be perceived as a violation of that pact. This law is so thorough that even if you’ve successfully negotiated a purchase agreement, but have yet to close, you aren’t allowed to speak with the agent representing the seller unless it’s through your Realtor.
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I stumbled into a story on MSHNBC the other day that reminded me why there has never been a better time to become the owner-occupant of a Minneapolis duplex.
The story chronicled the struggles of a pair of first time home buyers in Phoenix, Ariz. who had written no less than 15 offers on single family homes only to be outbid in multiple offers every time. In several cases they hadn’t even lost to other potential home owners. Instead, they’d lost out to investors; with cash, no need for appraisals and fast closing dates.
Needless to say, they were getting pretty down about it.
While Minneapolis isn’t Phoenix, it’s happening here too. The most affordable homes in desirable neighborhoods are being scooped up either as potential rehab and sell properties, or to be held as rental units.
But aren’t investors buying duplexes as income properties?
Yes and no.
With tightened lending practices now requiring duplex investors to have a minimum o Read the rest of this entry »
