Thursday, November 15, 2012

Six key questions for Contractors


No matter how big or small the home remodeling project, you can find the perfect contractor by posing the right questions.


Photo: Thinkstock

Getting antsy to remodel your home? You might think your kitchen or bathroom needs a remodel right this minute, but remember: Haste makes waste.
Rather than rushing to hire the first - or even cheapest - contractor you come across, asking the right questions upfront will help you filter out the bad apples and find a reputable contractor to meet your needs.
"I want my clients to feel 100 percent comfortable with me," says Shawn Kruse, president of the Remodeling Contractors Association of Connecticut and owner of Kruse Home Improvement, LLC. "And honestly, the more investigation they do about me and questions they ask me, the better it is for me. It helps me get the job."
As Kruse points out, a thorough investigation can benefit both parties in the end.
"Potential clients learn about your credentials, background and experience. They start to get to know you and see if your personalities can get along," Kruse acknowledges.
You may know exactly what you want out of your remodel - from the fixtures to the flooring - but you should know what you want from your contractor, too. Don't settle for the first or cheapest bid. Your contractor will control the project - and probably your stress level - from start to finish, so it's important the two of you are a good match.
If you want to find a contractor who suits your needs, try asking these six questions during the interview.

Question #1: What's Your Business History (and Much More)?

You wouldn't hire a surgeon without knowing how many surgeries he or she has performed, would you? Well, your home is about to go under the knife, so you'll want to evaluate contractors with the same level of scrutiny.
Kruse suggests first asking questions about a company's business practices and experiences with the remodeling project you need. Find out what kind of procedures and rules this contractor would follow to meet your demands.
Here are a few other things Kruse thinks you should ask contractors:
  • How long have you been in business?
  • Are you licensed by the state?
  • What percentage of your clientele is repeat or referral business?
  • Are you a member of a national trade association?
  • Do you have a list of references from past projects similar to mine?
  • Have you or your employees been certified in remodeling or had any special training or education?
Kruse also recommends contacting a client with whom they are currently working. "This way, you can see how things are conducted on a day to day basis," he says. "You can find out if there are problems or issues that have arisen, and ask how well they communicate throughout the project."

Question #2: Do You Provide a Detailed Written Contract?

Misunderstandings happen. People forget. Things change. But a contract helps both you and the contractor know what is expected from both parties.
Every job, no matter how small, should have a signed contract by the contractor and customer, Kruse says. Seems like a no-brainer, right? Not so fast - the devil is in the details.
"A contract should be very specific and point out step by step what will be going on throughout the project and before it even begins," he adds.
Some things that should be on a contract - all written in great detail - include:
  • Names, addresses, and phone numbers of all parties involved in the project, including vendors
  • Detailed list of the work to be completed
  • List of each product along with its price and model number
  • Who is responsible for pulling permits
  • Where deliveries will go and where the dumpster will be placed
  • What time the workers begin and end their day
  • Project's start and completion dates plus payment schedule
  • All work carried out by subcontractors
Anything that changes along the way must be written and signed in a change order, which makes sure everyone is in agreement on the change, price, time, or anything else that is adjusted from the original contract.

Question #3: How Much Do I Need to Put Down?

If the contractor asks you to pay for all of the project's cost upfront, it's time to find another contractor. An unreasonable deposit is the first sign something is fishy, Kruse says.
The Better Business Bureau's website suggests going by the rule of thirds: Pay one third at the beginning of the project, one third when work is 50 percent complete, and one third after it is final and you are satisfied with the outcome.
But chances are your contractor will have a formula to determine how much money is needed to get the job started. "Most contractors go with a 15 percent down payment on larger projects," Kruse says. "My clients usually give me the 15 percent deposit at the same time they hand me the signed contract."
Keep in mind that if the job is a small one, it's okay to provide money for the cost of materials - which might be 50 percent of the job or a little more, he says.

Question #4: Can I Get Itemized Price Estimates?

Some contractors like to hand you a bid with one price estimate for the entire project because it's less work on their end. Don't let them. You will need details on all the costs associated with the project and each item purchased.
Here's why an itemized estimate is essential: If midway through the project you decide to put in a less expensive countertop than the one originally discussed, you need to know the exact cost of the first countertop. Without it, you have no way of knowing how much of a credit you should receive.
An itemized price list should detail the cost of labor, demolition, materials, electrical, plumbing, permits, and more.
Kruse explains how an itemized estimate is better for client and contractor: "It just makes it easier to track work, and it's transparent to both the client and I of what is expected on the job. I also offer my preferred vendor list to our clients so they know who we are buying their products from."
Some contractors use their estimates as proposals, but these might be very inaccurate and could mislead the homeowner, Kruse says. Don't assume anything. Be certain that once you sign a contract, what you see on paper is what you will be paying.

Question #5: Who Will Be at the Site?

Just hiring your contractor doesn't ensure he or she will be the one hammering and sawing. They might only show up to sign the contract and present the finished product. It's important to know that certain contractors manage their companies by getting bids or supervising many job sites at once and are not hands-on people.
How do you find out which one you have? "Ask potential contractors who is going to be in charge of your project at all times," Kruse says. "You need to meet with that person, get a feel for what he/she is like and get acquainted a bit. Go check out that person at one of their current jobs."
In their "Home Sweet Home Improvement" guide, the Federal Trade Commission urges homeowners to ask if subcontractors will be used on the project. If so, homeowners should ask to meet them to make sure they have insurance coverage and proper licenses.
When meeting the subcontractor, ask if the lead contractor pays them on time. Why is this little detail important? According to the Federal Trade Commission, "A 'mechanic's lien' could be placed on your home if your contractor fails to pay subcontractors or suppliers," who, in turn, could take you to court to retrieve their unpaid bills.

Question #6: Do You Think We Can Get Along?

Just like any good relationship, the one between you and your contractor should have harmony, communication, and collaboration. Some personalities and styles just don't mesh, so don't pick someone just because their bid is the lowest, says Kruse.
Your contractor will be part of your daily existence for quite some time. They will see how your children behave, how you don't water your plants, and how your breakfast dishes sit in the sink all day.
Hiring a contractor without much thought can be a big mistake, says Kruse. "Sometimes [homeowners] end up with work that is less than adequate, or they give these shady contractors a large chunk of money upfront and then they never show up again."
Protecting yourself from these nightmares means knowing exactly who your contractors are before you hire them. After all, it doesn't hurt to ask - but it sure could hurt if you don't.

Friday, November 2, 2012

Buying Home 45% Cheaper than Renting

You can save hundreds of dollars a month by buying a home instead of renting – especially if you can get today’s low mortgage rates, itemize your tax deductions and plan to live there for 7 years.
The most important housing decision that most consumers face is whether to rent or to buy. So to help them with this decision, we took a look at the key market factors affecting the cost of homeownership.  First off, asking home prices have started to rebound and have risen by 2.3% year over year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%). This means that prices are lower relative to rents than they were a year ago. But more importantly, mortgage rates have fallen: the best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. Based on asking prices and rents during the summer of 2012, buying is now 45% cheaper than renting in the 100 largest U.S. metros, on average – that’s a savings of $771 a month. If you plan to stay in a home for 7 years, which is the average time that Americans traditionally live in a home before moving again, it is more affordable to buy than to rent in ALL of the 100 largest metros in the U.S.
Costs aside, the decision to rent or buy a home is very personal. There’s a strong emotional component: some people want the security of homeownership and others want the footloose freedom of renting. But the financial factors are also very personal because the decision to rent or buy depends on:
  1. Can you qualify for a mortgage at the best rate available?
  2. Which tax bracket are you in, and do you itemize your deductions?
  3. How long will you stay in your home?
To calculate whether renting or buying costs less, we assume people can get a low mortgage rate of 3.5%, itemize their federal tax deductions and are in the 25% tax bracket, and will stay in their home for seven years. (Below, we’ll show how changing these assumptions can affect the rent-versus-buy math.) We do the following calculations:
  • First, we looked at all the homes for sale and rentals listed on Trulia in June, July and August 2012. On for-sale homes, we took the asking price and estimated what it would rent for; for rentals, we took the asking rent and estimated what it would sell for. That way, we can calculate the average rent and asking price for an identical set of properties in a metro area, for a direct apples-to-apples comparison. By looking at homes currently for sale or rent, we’re able to illustrate the actual housing options that consumers face right now.
  • Second, we estimated the total costs of renting and buying for the typical property in a metro over a seven-year period. We factored in all the costs of homeownership (e.g., closing costs, maintenance, insurance, taxes, etc.), along with the tax benefit of deducting mortgage interest and property taxes, as well as the proceeds from selling the home after seven years with modest home price appreciation. On the rental side, we factored in renters’ insurance and the security deposit. Finally, we calculate the net-present-value of all those costs to capture the opportunity cost of tying your money up in a down payment. This gives us the total cost of buying versus renting. We then calculated the dollar difference and percentage difference between renting and buying.
  • Finally, we looked at alternative scenarios of the costs of renting versus buying, by changing the mortgage rate, the income tax bracket for tax deductions, and the time horizon.
Where Buying is a Slam Dunk
With a 20% down payment, a 30-year fixed mortgage rate at 3.5% and at the 25% federal tax bracket, homeownership is cheaper than renting in all of the 100 largest metros by a wide margin. There is no market where the financial decision is even close, so long as you plan to stay in the home for at least seven years, get 3.5% mortgage, and itemize your tax deductions. However, how much cheaper it is to buy a home than to rent really depends a LOT on where you live.
Buying is 24% cheaper than renting in Honolulu, 28% cheaper in San Francisco, and 31% cheaper in New York. On the other end of the spectrum, homeownership is extremely affordable in Detroit, where buying a home is 70% cheaper to buy than to rent, and 63% cheaper in both Oklahoma City and Gary IN. Check out the top 10 lists below to see where the cost differences between buying and renting are smallest and largest.
Where the Financial Advantage of Buying Over Renting is Smallest
U.S. Metro Monthly cost of home ownership ($) Monthly cost of renting ($) Difference ($) Difference (%)
Honolulu, HI
$1,519
$2,007
-$488
-24%
San Francisco, CA
$2,327
$3,226
-$899
-28%
New York, NY-NJ
$1,857
$2,687
-$831
-31%
San Jose, CA
$1,819
$2,646
-$827
-31%
Los Angeles, CA
$1,379
$2,020
-$641
-32%
Ventura County, CA
$1,516
$2,274
-$759
-33%
Orange County, CA
$1,610
$2,423
-$813
-34%
San Diego, CA
$1,314
$1,981
-$667
-34%
Albany, NY
$999
$1,535
-$536
-35%
Long Island, NY
$1,603
$2,513
-$910
-36%
Note: Cost of homeownership assumes that the home is sold after 7 years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly cost is based on net present value of costs over 7 years. Monthly costs are based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.
Where the Financial Advantage of Buying Over Renting is Huge
U.S. Metro Monthly cost of home ownership ($) Monthly cost of renting ($) Difference ($) Difference (%)
Detroit, MI
$349
$1,149
-$800
-70%
Gary, IN
$616
$1,649
-$1,033
-63%
Oklahoma City, OK
$590
$1,576
-$987
-63%
Lakeland-Winter Haven, FL
$495
$1,276
-$781
-61%
Toledo, OH
$476
$1,222
-$746
-61%
Dayton, OH
$524
$1,332
-$808
-61%
Warren-Troy-
Farmington Hills, MI
$588
$1,494
-$907
-61%
Memphis, TN-MS-AR
$548
$1,389
-$841
-61%
Cleveland, OH
$585
$1,464
-$879
-60%
West Palm Beach, FL
$723
$1,764
-$1,041
-59%
Note: Cost of homeownership assumes that the home is sold after 7 years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly cost is based on net present value of costs over 7 years. Monthly costs are based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.
What does this mean in dollars? Buying is cheaper than renting by several hundred dollars a month in every large metro. The charts above show how the percent difference in buying versus renting may be smaller in San Francisco (-28%) than in almost all other metros, but the annual dollar savings is big ($899) because the rents and home prices there are so high – so even a smaller percentage difference means a big dollar difference. (Remember that we’re looking at the annual cost of buying or renting the typical listed home. Most homes listed are for-sale, and for-sale homes tend to be much larger than rentals, on average. That’s why the monthly cost of renting the typical home is higher than the actual amount most renters pay.)

Wednesday, October 24, 2012

Understanding Rate Locks

 
Talking Points
  • The rate lock might be the most complicated issue mortgage borrowers need to understand.

      
  • A rate lock is a guarantee that the lender will offer the borrower a specific combination of interest rate and points.  A point is a fee or rebate equal to 1 percent of the loan amount.

      
  • Also essential to a rate lock is a time period, typically 10, 15, 30, 45 or 60 days.

      
  • A rate lock protects the borrower from rate fluctuations for the duration of the lock period. If market rates rise after the rate is locked, the borrower will still get the lower rate, to the lender's detriment.

      
  • But there's a downside: If rates fall after the rate is locked, the borrower might not be able to take advantage of that opportunity.

Thursday, September 27, 2012

Trust Terminology


These terms can get confusing; here is a breakdown:
Term
Definition
Revocable trust
A trust that can be revoked.
Revocable living trust
A trust that can be revoked and that takes effect during the life of the grantor. Becomes irrevocable at the death of the grantor. Usually made to avoid probate.
Irrevocable trust
A trust that cannot be revoked.
Irrevocable living trust
A trust that cannot be revoked and that takes effect during the life of the grantor.  Usually made to transfer wealth, protect assets, or reduce taxes.
Testamentary trust
A trust created during the life of the grantor, but that takes effect at the grantor’s death.  Usually made as part of a will – for example, a child’s trust made to name a trustee for property left to a minor.

Thursday, July 19, 2012

Housing Affordability Hits Record High



The Housing Affordability Index rose to a record high of 205.9 in the first quarter of 2012, breaking the 200 mark for the first time since recordkeeping began in 1970.
According to NAR, a household earning the median family income of just under $61,000 could afford a home costing $325,500 in the first quarter. That's remarkable purchasing power when you consider that the median cost of an existing home nationwide is $158,100.
Currently, the median monthly mortgage principal and interest payment for a median-priced home would take only 13.5% of gross income.
Commenting on the report, NAR's president Moe Veissi said, "We've never seen better housing affordability conditions or market opportunities than we see at present."
Housing affordability is based on a combination of factors, including the median home price, median family income and the average mortgage interest rate. A composite Housing Affordability Index of 100 is defined as the point where a median-income family household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a down payment of 20% and 25% of gross income devoted to mortgage principal and interest payments.
Also, conditions for first-time homebuyers have never been better. A companion index measuring the ability of first-time homebuyers to purchase a home rose to a record high of 135.8 in the first quarter. The index is configured differently for first-time homebuyers: an income of 65% median ($39,632), a starter home of 85% median ($134,400), and a down payment of 10%.
According to NAR, first-time homebuyers could afford a home costing $182,500, an amount well above the overall median-price home.
For the year, the Housing Affordability Index is projected to set a record high average of 191.

Thursday, May 24, 2012

Compare energy use with neighbors

RightArrow.gifTip of the Week: App lets homeowners compare energy use with neighbors
Facebook, the Natural Resources Defense Council (NRDC) and Opower have joined with 16 utilities to launch a social energy app that leverages the Facebook platform to allow people to quickly and easily start benchmarking their home’s energy usage against similar homes, compare energy use with friends, enter energy-saving competitions, and share tips on how to become more energy efficient.

Find out more about the app at: http://opower.com/company/news-press/press_releases/50.

Tuesday, April 10, 2012

RENT VS OWN

Historically, the cost to rent an apartment has been about 10 percent lower than the after-tax cost of owning a home.  That rental discount began to fall in 2010 and disappeared entirely last year, according to analysts at Deutsche Bank who track housing costs. By the end of 2011, the bank’s research found that the cost to rent an apartment was about 15 percent higher than the cost to own a home.