Tag Archives: homebuying

Real estate agents and steering today

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Many real estate agents today won’t answer certain questions but does this eliminate steering?

Agents such as Foster and Thakkar are hypersensitive because they don’t want to run afoul of the Fair Housing Act, which prohibits discrimination on the basis of race, color, religion, gender, national origin, familial status, disability or handicap. The law is administered by the Department of Housing and Urban Development. Penalties for violating fair housing rules can be costly, so many real estate brokerage firms train agents on what constitutes “steering” of homebuyer clients as well as what could be interpreted as showing any form of bias against any “protected class.”

What can agents do when clients ask certain questions? Here are several of the examples provided:

“We can’t answer,” Foster said. “It’s all too subjective.” Instead, she refers them to online information sources about whatever they’re asking — websites that rate schools, statistical compilations on crime rates and the like…

“It’s a very common question,” he says: “Can you tell us how many other Indian families live on this street?” Even though he thinks he understands the thrust of the question — are there people like us around? — he declines to answer directly. Instead, he supplies them a list of the names of current owners on the street, allowing his clients to decide for themselves whether the names indicate that they are Indian or not.

Referring people to other sources may lead to issues:

But some fair housing advocates are concerned that the online information available today may actually enable a subtle form of racial steering when agents name specific sites that offer highly localized racial and ethnic breakdowns and refer clients to them. Lisa Rice, executive vice president of the National Fair Housing Alliance, a nonprofit group that has fielded teams of white and minority “testers” to detect bias in homes sales, thinks that in the event of fair housing complaints against those agents, the fact that they made such specific referrals could be held against them.

It seems to me that one of the best ways to eliminate this issue is to educate homeowners about all the potential information they can access. Stop them from asking in the first place. Realtors could even make this clear at the beginning. The Internet certainly presents a lot of available information to possible home buyers ranging from the Census to other data aggregators to message boards to municipal websites. In other words, it is not hard to find out this sort of information. Yet, this would go against the argument that realtors make about why they are still necessary: they have inside information about the home and the entire process. Additionally, all the online information is not necessarily easy to interpret. Say a homeowner is interested in future property values: can they make a prediction based on what is online? Or, say that an online message board suggests one thing is happening while the local newspaper claim something else is taking place. How could someone unfamiliar with the area make a judgment regarding conflicting information?

In the long run, if people want to fight residential segregation and housing discrimination (which are legitimate concerns), would it be better to remove real estate agents from the process or not?

Use Airbnb to try a neighborhood before you buy a home

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The neighborhood is an important part of purchasing a new home so I’m surprised it has taken so long to get to a solution like this: use Airbnb to try out the neighborhood before you buy.

Realtor.com and Airbnb have teamed up to show visitors to the realty website what Airbnb rentals are near properties listed for sale, so potential buyers can test-drive a neighborhood.

“This collaboration with Airbnb reinforces our commitment to giving consumers unparalleled insight to make informed real estate decisions,” Ryan O’Hara, chief executive officer of Realtor.com, said in a statement Wednesday. “Our relationship with Airbnb … allows us to reduce some of the unknown factors associated with relocating to a new community.”

I wonder how many people will take advantage of this. Even though Airbnb might make it easier to try the neighborhood yourself, it still requires the effort of signing up, actually staying, and then looking around and/or talking to people. And if you are going to go to the trouble to walk around and talk to people, do you actually need to stay the night? Remember, many neighborhood members may just be trying to avoid each other (examples here and here).

Perhaps the next step in all of this is to find a way for people to stay at the prospective home itself before they buy. Perhaps you could get two days and one night to stay there but have to put down a hefty fee. This may not work if the homeowners are still living there but it would offer an unparalleled look at a major purchase.

Appraisals based on neighborhood sales contribute to price differentials in Chicago

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Home appraisals are often based on nearby properties, leading to large price differences and lending practices across Chicago neighborhoods:

That means if you’ve got an area with lots of boarded up houses and lots of extremely low value sales, then it’s likely that even a newly rehabbed house would be appraised at a lower price. Hobbs says that’s because most residential appraisals are determined by comparing that property with ones that have recently sold in the neighborhood.

“In the desirable neighborhoods, there’s an insufficient amount of inventory or supply and therefore buyers are competing even more ferociously to be in place, to be the one individual or family that is successful in buying that property,” he said.

So in an area like Lincoln Park, that demand drives prices way up, even beyond peak prices. And appraisers and banks feel comfortable with that because they have the numbers to back it up. But when someone wants to make a traditional purchase in a marginal area like Lawndale, appraisers and lenders are more conservative, especially after what happened during the housing crisis…

Rose said in the post-bubble market, banks are putting more weight on the value of a property than they did before. He thinks using cash transactions and distressed sales as comparables doesn’t really give a true market sense for what a house should sell for.

Another point in favor of living in hot or desirable neighborhoods: lenders are more likely to make loans. In contrast, economically depressed neighborhoods have a tougher time recovering unless lending institutions decide to make an investment or people have cash or capital to get past the lower appraisals. This could have the effect of reinforcing residential segregation for long periods of time.

As they say in real estate, it’s all about location, location, location…

Financial advice for young adults: don’t buy a series of McMansions

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A set of “10 Pillars of Financial Independence” includes advice about avoiding McMansions:

Therefore, their choices are to sacrifice a bit now so that in 30 years they have a home paid for and $204,958.63 in the bank, or a slightly smaller house payment and a home paid for without a good start on their nest egg. Many of the choices you make 10-20 years ahead of retirement can pay off very well when you want to retire.

I’m a firm believer in paying for your home as soon as possible. Unfortunately, beginning with a starter home and moving up to McMansion after McMansion has become commonplace; this habit can make it practically impossible to pay off your home in a timely fashion.

The general advice sounds good: beware of long mortgages for houses you don’t need. Instead, take the money you could save with a smaller mortgage over a shorter period of time and invest it.

However, the idea of people buying McMansion after McMansion after having a starter home sounds exaggerated to me. Perhaps I might be wrong: do McMansion owners tend to live in multiple such homes over their lifetime? Are they more or less likely to move than others? The illustration makes sense – don’t keep purchasing home after home that you can’t afford – and fits the idea that Americans overconsumed in the late 1990s and early 2000s. But, I would be interested in knowing more about serial McMansion purchases…

Century 21 survey suggests many Americans would cut back in other areas to buy their “dream home

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A new survey from Century 21 looks at what other purchases Americans would be willing to sacrifice in order to afford their “dream home”:

69 percent of homeowners who don’t own what they described as their “dream home” would be willing to make sacrifices to their personal lifestyle to be financially able to purchase it. Non-homeowners are more willing to make sacrifices, and 80 percent indicated they are willing to make changes to their personal lifestyle in order to be financially able purchase their dream home, including:

  • 50 percent: would cut back on dining out,
  • 49 percent: would cut back on their shopping for non-essential items (e.g.,
    clothing, accessories, gadgets, etc.),
  • 47 percent: would give up luxuries (e.g., expensive cable packages, trips to the
    salon, etc.),
  • 39 percent: would cut back on vacations, and
  • 10 percent would contribute less to their 401(k) in order to be able to purchase
    their dream home.

This suggests buying a home is still an important priority for many Americans. At the same time, the questions don’t really get at how much people might be willing to cut back (5% on dining out? 50%), how this compares to other purchases (would people say similar things if they were asked about purchasing a new car or some other big purchase), and how much people would need to cut back if they bought a house (there could be a big difference here if people bought a $220k home versus a $450k home). Also, I’m curious about that 50% that wouldn’t cut back on dining out or the 61% who wouldn’t cut back on vacations; do they not need to or would they seriously not do so in order to buy a dream house?

Another note: this was a web survey.

Harris Interactive® fielded the study on behalf of Mullen Communications from April 24-26, 2012, via its QuickQuerySM online omnibus service, interviewing 2,213 U.S. adults aged 18 years and older, of which 1,416 are homeowners and 734 are renters. This data was weighted to reflect the composition of the general adult population. No estimates of theoretical sampling error can be calculated; a full methodology is available.

Two issues here: this was not a random sample (hence the need for weighting) and if there can’t be any estimates of the sampling error, how trustworthy are the results?

Trulia survey: an increased number of Americans are looking for bigger homes

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Perhaps the McMansion is indeed making a comeback: a Trulia survey suggests more Americans are looking at bigger homes.

In Trulia’s latest American Dream survey, 17 percent more homebuyers said they envisioned buying 2,600 sq. foot homes this year than in 2011. What’s more, the number of people who set their sights on super-sized digs (3,200 sq. foot-plus) has nearly doubled from 6 percent to 11 percent.

“It turns out that new-home builders spotted this growing appetite for size,” Trulia notes. “The Census recently reported the average home constructed increased from 2,392 square feet in 2010 to 2,480 square feet in 2011.”

The only problem is our eyes might be bigger than our budgets…

There’s also the housing market itself to consider, as Trulia points out:

“Although newly constructed homes are getting bigger, most inventory is existing homes, including foreclosures, and the current inventory of for-sale homes skews smaller than most people’s idea…Meanwhile, the super-sized category –3,200-plus–is pretty much on the money, but the majority of available homes fall in the smaller size categories–800 to 2,000 square feet. That means many Americans may have to downsize their dreams to fit a smaller reality.”

Granted, this is still a small segment of the market (under 20% of homebuyers) but there does appear to be more interest in larger houses. I wonder if this suggests the housing market will continue to be bifurcated: wealthier homebuyers will look for larger new homes with amenities while the lower end buyers will scour smaller homes, short sales, and foreclosures.

Moving? Consider the walkability and transit scores

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The Infrastructurist looks at two figures that may become part of the home-buying equation in the near future: a home’s walkability and transit scores.

How much this influences homebuying decisions remains to be seen. I’m sure there is part of the population that wants such a location where daily needs, like parks, food, and transit are within a reasonable walk. But there are certainly others who would emphasize other features, like the size of the home, over the home’s context.

We know that Americans don’t want to walk much more than a quarter mile to get to things. New Urbanists use this information to guide their planning: homes should be within a 5-10 minute walk away from necessities.