Protecting Yourself When Homeownership Doesn't Come with "Love and Marriage"
Love and marriage, love and marriage, goes together like horse and carriage... you can't have one, you can't have none, you can't have one without the other... Frank Sinatra
So went a popular song of the 50's, sung by Frank Sinatra. Not even Frankie always followed through at the time, but in 2010, young people starting out their lives certainly do not always follow the order of love, marriage, family, buy a home. Some have the baby or buy the home long before the legalities, while singles, single parents, siblings or multiple generations with a family, life partners, and roommates pursue homeownership as well as "traditional couples." While social mores may change, real estate law is not so flexible. In most states, there are legal guidelines to determine what happens to property when one of the co-owners dies - or if the relationship does - when the parties are married, but not otherwise. In any case, if breaking up is hard to do, breaking down the assets is even harder.
If you find yourself thinking of buying a home with someone, figuring out what would happen to it in case things change in the relationship is an important part of planning to become homeowners. Think about this: Over 50% of marriages fail; undoubtedly, if anyone kept track of the longevity of other housing arrangements, the conclusion would be that many arrangements end up being even more temporary. Roommates move on and move out, siblings marry and want to buy a home with their new spouse, single parents marry and want a jointly-agreed on house. The beat goes on.
In Ann Arbor, a college town, parents often help their children buy a condo as an alternative to student housing. While Mom and Dad may be paying the mortgage, what happens if Junior graduates (or even if he doesn't stay in school) but wants to wants to stay in town, keep the condo, and take over the payments? Thinking out all the possibilities (and maybe even having them in writing) in advance will come in handy if a parent dies, the step parent doesn't like the arrangement, or if Mom and Junior fall out.
Larry Elkin, in Financial Self-Defense for Unmarried Couples, laid out questions posed by homeownership in more legal terms. For example,
• If the partnership breaks up, who stays in the house and who goes?
• If one partner dies and his estate goes to his family, what happens if the heirs want to sell?
• In case of death, how is tax liability ascertained when one partner has paid more of the downpayment, mortgage, improvements, etc?
• Similarly, what right do partners have to claim ownership when their contributions have been different?
Answers to questions like this need to be formalized in a legal document before you buy a place together. Often times, even talking about these issues brings to light differences in values that make it clear that renting is a better option. Once you are comfortable that co-ownership is practical and workable, with the legalities in place, you may decide to take the plunge.
As noted in our blog Moving In? Think of your Exit Strategy, planning for change at the beginning of ownership will make things easier when change inevitably occurs.
Have all your details worked out and ready to buy? Whether you are buying or selling your home the Bouma Group can help you with your real estate needs in Ann Arbor, as well as keep you up to date about Washtenaw County and Ann Arbor neighborhoods. Check out our Condo Hotline to get a handle on the Ann Arbor condo market.
Posted Tuesday, April 27, 2010 by Martin Bouma
Tags: ann arbor condo
, home ownership for unmarried couples
, ann arbor homes for sale
Chill Out: Will Michigan Appliance Rebates Attract Buyers?
Throughout the days of the home buyer tax credit, set to expire on April 30, the question has been: Will cash back encourage a person to buy a home? Cynics have countered: People would have bought anyway.
The same questions are now being asked about the latest round of rebates, this time on appliances like refrigerators, clothes washers, dishwashers, and water heaters. Michigan‘s share of the program, $9.5 million, went into effect on February 10. As of April 17th, only 25% of the funds have been reserved on household appliances and only 1% on approved furnaces and water heaters. Will the rebates be enough to encourage Michigan shoppers to chill out with a new Energy Star-rated refrigerator or other qualifying appliance?
Dollars from the American Recovery and Reinvestment Act of 2009 ,which have stretched city and budgets, paid for public works projects, promoted energy saving upgrades, and funded the homebuyer tax credit, are now funding a new endeavor in Michigan and many other states. Consumers who buy specific models of more energy efficient Energy Star-rated appliances will reap a cash rebate in return. Program details and a list of qualifying models can be found at www.MIrebates.com.
The Cash for Appliances rebate plans vary by state, but the thinking is the same. Older appliances cost consumers more to operate and produce high levels of greenhouse gas emissions. When an appliance indentified with an Energy Star label replaces an older model, both the environment and the consumer benefit. The new appliances are often more expensive than models which lack the label, so the rebate is an attempt to offset the great initial cost.
Michigan’s plan, a $9.5 million effort called Michigan Energy Efficient Appliance Rebate Program, was approved by the Department of Energy (DOE); $6.6 million is going toward rebates for washers, refrigerators, and dishwashers. Unlike some other stimulus bill programs administered by the Federal Government, the states developed the specifics of the appliance program and determined which appliances will qualify, the size of the rebate, and when the purchase must be made. Some states designed their programs to offer a percentage off the purchase price, while other states like Michigan have a schedule of rebates which vary by appliance. The DOE then approved the programs.
On the refrigerator/washer/dishwasher segment of the program, rebates vary from $25 – 100 for Michigan residents. Buyers can either 1) purchase the appliance, apply for the rebate, and mail in the proof of purchase or 2) apply to reserve a rebate and then send in the documentation when purchased. While residents can only claim one state rebate per appliance, they can receive multiple rebates if they buy other products, as well as collect rebates offered by appliance manufacturers. The rebate will come back in the form of prepaid Visa cards.
Will the program be effective? Figures compiled at www.energystar.gov indicate that consumers who buy a houseful of Energy Star appliances can save $500 a year Energy Star appliances that qualify are more expensive than their counterparts. Virtually all newer appliances use less energy than in the past, but the Energy Star models are predicted to save even more per year. Appliance maker Whirlpool notes on its website that the suggested prices for its line of Energy Star refrigerators is $649 (15 cubic foot) to $2,999 (22 cubic foot) vs. $529 (14 cubic foot) to $1,009 (22 cubic foot) for non-compliant models. (Figures for all appliances are compiled at www.energystar.gov.) The features in the various models differ, but cash strapped consumers may be more concerned with immediate out-of-pocket costs than long term energy savings.
By all indications, Cash for Appliances programs have been popular in many states like the Cash for Clunker program before it. Those in states that offer 10% or 15 % rebates ran out of rebate money within a few days. In Michigan, where unemployment is high, and the value of the rebates relatively low, the pot of rebate money may last much longer as the stakes are not high enough.
Though the monetary return is not great enough to prod a consumer to buy a $2,000 refrigerator on a whim, the incentive is good for those in the market. Especially since appliance manufacturers are sweetening the deal with sales pricing or additional rebates, the consumer has a chance to upgrade an older appliance and help the environment. The program is also a good way to encourage consumers to start thinking green when appliance shopping. Hopefully, appliance manufacturers will find a way to economically afford to offer only energy efficient products.
Looking for a home for those new appliances? Whether you are buying or selling your home, the Bouma Group can help you with your real estate needs in Ann Arbor, as well as keep you up to date about Washtenaw County and Ann Arbor neighborhoods. Visit our website at www.bouma.com and check out our Condo Hotline to get a handle on the Ann Arbor condo market.
Posted Saturday, April 24, 2010 by Martin Bouma
Tags: ann arbor real estate
, michigan appliance rebates
Bye, Bye Credit
With a little over a week left for Ann Arbor buyers to qualify for the Home Buyer Tax Credit, some may think “What’s the rush? It will probably be extended!” Consumers might like that, but by all indications, the credit will not be renewed. This time around, two of the biggest forces in pushing for the original extension, the National Association of Realtors (NAR) and the National Association of Home Builders(NAHB) are not pushing for it, as they feel market forces are talking over.
The federal tax credit was never meant to last forever, but the timing the end of this seems a little odd. Spring and Summer are the traditionally the biggest home selling seasons. Ending the credit when the spring season is just reviving up is akin to taking the training wheels off your kid’s bike in heavy traffic. He may be able to keep up, or he may fall down; would you want to take the chance?
Having the credit valid through Summer, 2010 would have been better, but many analysts feel that those who were most motivated by the credit bought last year. In addition, as each new home sale costs the government $43,000 in lost taxes, in an era when the deficit is rising, the credits have not been offset by other cost cutting initiatives.
More importantly, some argue that the credit has done its job. Many buyers who were skittish because of the economy made the leap to ownership, while generally consumers have regained confidence in home buying. A recent Gallup poll noted that 72% of those interviewed believed that 2010 was a good time to buy vs. 53% in 2008. About 77% expected housing prices to remain the same or rise, with 34% of those expecting price increase – up 12% over last year. This figure was only 24% in the midwest, compared to 39% on the east and west coast.
With the stimulus ending, three big questions loom.
With impact will continued foreclosures and a further release of bank-owned homes into the market have on inventory? Can home buyers absorb them? Some states like California, always near the top in foreclosures, offers it own credit.
Especially in Michigan where unemployment was the highest in the nation (14.1% in March, 2010), will unemployment derail housing recovery? The out of work are out of the game as homeowners but the numbers may derail confidence.
- What will happen up with higher priced homes? Due to both income limits and property price limits, the upscale housing market was not directly helped by the credit. Repeat buyers who might look at one of these homes could benefit form move-up buyers who could claim the credit.
As there is no assurance that a longer credit would fix any of these problems, the credit will probably end on schedule. This leaves prospective buyers with two pieces of advice:
- If you aren’t ready to buy, there will be homes when you are. A few thousand dollars is not enough to push you into home prematurely ownership.
- If you are ready to buy a house, act now. You can still sign a contract by April 30.
Need a Realtor who’s ready when you are? Whether you are buying or selling your home the Bouma Group can help you with your real estate needs in Ann Arbor, as well as keep you up to date about Washtenaw County and Ann Arbor neighborhoods. Check out our Condo Hotline to get a handle on the Ann Arbor condo market.
Posted Tuesday, April 20, 2010 by Martin Bouma
Tags: ann arbor real estate
, ann arbor condo
, home buyer's home credit
A Little Internet Wisdom on Derivative Markets
In view of the recent Goldman-Sachs allegations and other Wall Street shenanigans, I thought you might enjoy this post that has been making the rounds of internet blogs and emails for the past couple years.
How Derivatives Work
An Easily Understandable Explanation of Derivative Markets
Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has thelargest sales volume for any bar in Detroit by providing her customer's freedom from immediate payment demands.
Heidi gets no resistance when, at regular intervals, she substantially increases herprices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral. At the bank's corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS.
These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities beingsold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi. Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics, they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and eleven employees lose their jobs.
Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi's bar.
Now, I understand.
Posted Saturday, April 17, 2010 by Martin Bouma
Time's a' Tickin', Chicken Licken
In the children's story, Chicken Licken was hit on the head with an acorn one day when he was eating his lunch. He assumed that the sky was falling and persuaded his friends to join him in going off to report the impending disaster to the king. He made the unfortunate mistake of crying "The sky is falling" to the wily Foxy Loxy who diverted the frightened animals into his den and had them for lunch.
There are people right now in Ann Arbor and all across America who are swept up in the Chicken LIcken mode. Tantalized by the home buyer's tax credit that is set to expire soon, they are holding back from taking action. A look at the economy has them convinced that the sky is falling, so they are gripped with fear that prevents them from committing to buy.
Now if Chicken Licken had felt first signs of an earthquake, he would have been a hero. Instead, without looking at the evidence clearly, he leapt to a false conclusion, caused a panic, and never made it to supper.
Buying a home is big commitment that will dominate your finances for years to come, so being careful is important, but if you are paralyzed from taking action, there may be something else going on that will prevent you from enjoying the benefits of homeownership now. If you are holding back from buying, are you being realistic or suffering from Chicken Licken syndrome? It's important to discern the difference, as Time's a' tickin', Chicken Licken!
Here are some questions to ask yourself:
Your lender has already probed this, but do you have undisclosed concerns about the stability or longevity of your job? Is this because many of your co-workers are getting pink slips or you know that cutbacks are coming. Or are you concerned with the unemployment rate in your area. Do you dislike your job and hope for a change to something that might pay less?
- Are you feeling pressured to buy too much house?
The lender may have approved you for a limit that it technically affordable for you, but the payment that would entail may make you queasy. Is this sticker shock or a concern that paying this much would curtail your life style or leave with little for emergencies or future needs, like saving for your children's education?
- Do you have conflicting goals?
Are you planning on going to school full time, starting a family soon, or preparing to get married soon in a lavish, expensive ceremony? Buying a home is more than obtaining housing. It can be a comforting staging area for any of these things, but can also add pressure. Do you have too much going on to make a decision about a home? Does your spouse or partner want to buy a house when you don't or maybe wants to buy a more costly one than you feel comfortable with?
- Is your relationship stable?
If you are buying a home with a spouse, partner, or significant other, are you happy and content enough to add a new level of permanentcy to the relationship? Or are you uncertain you have a future with the person? Breaking up is hard enough to do without the encumbrance of real estate assets to divide or fight over.
- Are you overly concerned with the worst case scenario?
Do you look ahead to the future and assume that you might not be able to make your payment if you lost your job? Do you assume that your house will lose value? Or fear that you will be hit by a bus and be left incapable of climbing the stairs to your front door? In Chicken Licken's case, the sky could have been falling but it wasn't. Are your fears grounded in reality?
Obviously, if you assess your situation and discover that your fears are real, you are right in hesitating to buy a home - credit or not. However, in most cases, you can take some steps to reassure yourself that buying is the right choice.
- Consider the whole picture. Right now, we have the lowest housing prices in ten years, historically low interest rates, and the tax credit.
- Buy an affordable home. If the bank says you can afford a $250,000 home and you feel more comfortable with the payments on one that is $200,000, set your sites on that homes in that price range.
- When you plan on your down payment, don't put so much down that you are penniless. If you still have a nest egg, you will have money for emergencies. If possible, try to have six months of expenses on hand to cover you in case of unexpected job lose. Consider going FHA to preserve your cash.
- If your relationship status is unclear, consult an attorney about the best way to set up the transaction to protect both of you in case something changes.
- Plan an exit strategy. As we noted in a previous blog, buy a home that appears to be easy to sell in case of job transfer, long term unemployment, divorce, graduation from school, need for more space, etc.
With 10 days about left to claim the homebuyer's tax credit, the time to act is now if you are ready. Put aside your Chicken Licken fears and gain $6,500 or $8,000 depending on whether you are a repeat buyer or first time buyer.
Need a good realtor to calm your fears and help you find the home that's right for you at this time of your life? The real estate professionals at The Bouma Group can help you find (or sell ) real estate in Washtenaw County and the Ann Arbor neighborhoods that will meet your needs. Act now to find a home you can have under contract by April 30 to claim the tax credit.
Posted Saturday, April 17, 2010 by Martin Bouma
Tags: home buyer's tax credit
, ann arbor real estate
Make Your Ann Arbor Condo a "Button Pusher"
In many markets, condos are harder to sell than single family homes. Sad but true, for those of us who consider condo sales a major part of our business and who love to promote their advantages - and sad for you if you have one in Ann Arbor that isn't moving as quickly as you'd like.
An interesting article quoting analyst Steve Hovany in a recent issue of the Chicago Tribune offered new hope to those selling homes, particularly condos. He went on to say that the demands of this group could save housing now and for years to come, but that is a story for another day. Generation Y, the 75.8 million people born between 1946 and 1964, have the income and the lifestyle preferences that mesh well with condo ownership. What would-be sellers have to do is make their properties "button-pushers" that move would be buyers to action!
What do 20-something Generation Y buyers seek? In a few words, limited space, with maximum function. At the point in their lives where they are focused on their career, and often single or with a like-minded partner, they don't want a mansion to clean or an estate to mow. Ownership in a small condo gives them tax advantages with limited responsibility for maintenance. They can travel for work or pleasure without guilt or worry. Condos fit the bill.
Raised on technology, X'ers want space to accommodate electronic and fitness toys - the Wii, the blue ray, the computer, the big screen TV, the video games, the treadmill, or the Total Gym - but could care less about having a formal living room or dining room. If the parents are driving in from Muncie, they; may want to move aside their stuff and set up a dinner table. They may want to push everything aside for a party.
If you‘re selling your condo, how can you make sure it will appeal to this group of buyers and really "push their buttons"?
• First, you should take heed of the advice being given to all sellers these days: stage your home. Declutter it, store extra furniture, depersonalize it so that new buyers can visualize your second bedroom or even your living room as a game room or office.
• Second, when you are getting your place ready to list, make sure that there are enough outlets to accommodate potential needs. If you don't want to add any, at least put away appliances (or unload the surge protectors) that might draw attention to how few there are!
• Third, if you are replacing counters or floor, go for granite and hardwood rather than Formica and carpet.
• Fourth, talk with your Realtor® about how emphasizing the flexible floor plan and other features that will be deal-making benefits to them.
Need a Realtor who knows condos? Whether you are buying or selling your condo, the Bouma Group can help you with your real estate needs in Ann Arbor, as well as keep you up to date about Washtenaw County and Ann Arbor neighborhoods. Check out our Condo Hotline to get a handle on the Ann Arbor condo market.
Posted Friday, April 09, 2010 by Martin Bouma