Real Estate Advisor: February
Today's consumers are more willing than those from previous eras to think outside of the box, applying less traditional solutions if necessary to reach their goals. This month's Real Estate Advisor covers two options in the real estate world that your parents probably never considered: home warranties and condominiums.
Understanding Home Warranties
What are home warranties?
Home
warranties are essentially service contracts that cover repair
costs of a home's systems and major appliances for a set period of
time (usually one year). Unlike home insurance, which covers the
structure of the house itself against hazard, home warranties are
for the replacement or repair of items within the home that fail.
As an example, let us say that you have both a home warranty and home insurance. If your refrigerator develops a leak while you are on vacation (ruining the kitchen floor in the process), your home insurance would cover the damage to the floor while your home warranty would likely replace the faulty fridge.
Home warranties have grown in popularity over recent years. They may be purchased by the buyer, the seller or a combination of both parties, and are frequently purchased at the time of closing.
Typically covered:
- Heating systems
- Plumbing
- Electrical systems
- Air Conditioning
- Major appliances such as dishwashers, washing machines and dryers
Typically not covered:
- Structural elements (walls, floors, roof, etc.)
- Small appliances such as microwaves
- Items in poor working condition at the time the policy is issued
How a home warranty benefits buyers:
The expenses of buying a home can make even the most
liberal spenders much more cash-conscious. A home warranty
protects you from unanticipated repair costs early in the
ownership of your new home. The relatively low price of a policy
is often worth the added security, and may be incorporated in the
asking price or even paid for by the seller.
How a home warranty benefits sellers:
A home warranty can often make your home more
attractive to a wide range of buyers. If you are selling an older
home that hasn't had much upgrade work done, a home warranty can
attract buyers who may otherwise not have considered your home.
Even sellers of newer homes can benefit from the added piece of
mind that a warranty provides for buyers.
Things to consider:
To
effectively shop for a good home warranty, you must compare both
policy cost and the cost of the deductible (co-payment). The
average home warranty generally costs somewhere between $300 -
$400, although this number varies depending on the specific
coverage of the individual policy. Keep in mind that lower-priced
policies may charge extra to cover water wells or some appliances.
Most deductibles are in the $50 to $100 range per claim, but some
companies charge as much as $150.
When comparing policies, find out who will be performing any repair work. Many warranty companies use a network of specific repair contractors for all work. If you prefer to choose such professionals, you must look for policies that allow you to make the decision on your own.
While in the shopping phase, pay close attention to the customer service that you receive. If a warranty company doesn't seem helpful and informative when you are shopping for a policy, they may be difficult to deal with should you ever need to file a claim. You should always review the warranty contract carefully to ensure that you understand any limitations of the policy and the claims practices of the warranty company itself.
Before signing a policy, verify the warranty company's history and standing with the Better Business Bureau or the Chamber of Commerce. A real estate professional can also provide you with the names of warranty companies who have a strong reputation and proven track record.
Should You Consider Buying A Condo?
In the past, the condominium buyers generally fell
into one of two categories: single adults or families in dense
metropolitan areas. This stereotype has changed over time as
buyers have begun to explore housing options outside the
traditional single-family home. The value of condominiums has
risen in recent years, in some markets even outpacing the
appreciation of traditional homes. Overall condominium sales also
remain high in many marketplaces. These trends signal an
increasing interest in the affordability and flexibility that
condos offer.
How do they differ from single-family
homes?
Essentially, condos resemble finely finished
apartments that vary in size and style. Purchasing a condo gives
the owner title to the interior space of the unit and shared title
to the common areas of the complex/building. Today many
condominiums fall under the category of "detached condominiums",
single-family properties that require little or no exterior upkeep
by the homeowner. Collectively, the residents constitute the
homeowner's association. An elected board of directors creates
covenants and bylaws that dictate conduct on the property. The
board also collects ownership dues that go towards maintenance and
upkeep of common spaces and the building's exterior.
Widespread appeal
Condo
ownership is an appealing option for many. Three types of
homebuyers in particular are more likely to be interested in
condos:
Urban market buyers - Large metropolitan areas have higher average housing prices, greater demand, and less land to support new development. Rising prices often force buyers in these markets to buy homes in outlying suburbs. Condominiums offer buyers an affordable means of maintaining their urban lifestyle while avoiding a long commute.
First-time buyers - Those considering homeownership for the first time may see the purchase of a condo as a reasonably inexpensive way to transition from renting to buying, particularly in competitive markets.
Downsizing homeowners - Many older and empty nesters begin to feel that they own much more home than they need. Condos can be an attractive alternative for higher-end homeowners seeking less upkeep and a smaller, cozier space to live in. Downsizing homeowners are partly responsible for the rise in condo prices, as they can generally afford to spend more than most first time buyers.
Condo pratfalls to beware
With
condominiums, the diligence of the homeowner association's
leadership can greatly affect the quality of life in a given
building. Outside of the pros and cons of the actual condominium
itself, here are some things to look out for:
Unreasonable covenants and rules - Ideally,
association covenants are written to help protect the complex's
value. However, some associations create a web of rules that can
become stifling. You should always carefully review the complex's
covenants. A homeowner's association that starts its quiet hours
at 7pm or prohibits hanging plants on your balcony may be too
controlling for your tastes.
Owner dissatisfaction - How do current owners in the building feel about their experience? A high number of complaints about the homeowner's association or the condo itself is a sure sign that you should stay away.
Insufficient association funds - Ask about the association's budget and reserve funds. If the association doesn't have enough money in the bank to cover foreseeable maintenance needs, youll have to pay expensive assessment fees if problems do arise.
A high percentage of renters - When condo owners elect to rent their units out to tenants, it brings down the overall value of the complex. Tenants are considered more likely to improperly use common areas or to cause disturbances, and some lenders will not offer a loan if the condo has a large number of renters.
Inefficient leadership - If the board of directors for the homeowner's association lacks positive leadership, it may lead to decisions that make living at the property less enjoyable. Sit in on a homeowner's association meeting to get a feel for how well the organization is run.
Is a condo right for
you?
Market forces such as average condo prices and
inventory may largely determine whether or you should shop for a
condominium. The market for condos can vary from neighborhood to
neighborhood.
Most of all, remember that buying a new residence is an intensely personal decision. To determine whether or not condos are a viable option for you, consider what features you value most in a property. If benefits such as location and easy maintenance matter greatly to you, you may decide that a condominium is the perfect housing solution.
