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Wednesday, December 9, 2009
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62 comments:
Thanks for the tip yesterday Cara, though that place doesn't fit my physical requirements. I do read the daily posts but really don't have much time to reply until weekends.
I must admit that I got rather a laugh from yesterday's comments about how "I would buy that house at that price if it were in Vienna not Springfield." I remember Frank Llosa saying in his blog some time ago that it was that comment that drove him nuts. "I would buy that house for that price if it were in location XYZ." "If it were in XYZ it would cost 50K more!"
Housebuyer,
That's on the pinks. I prefer to avoid the pinks. That's just me.
Like I suggested, call it before it moves. What are you looking at in the future?
Looking back is the troll's game. That's not you.
C,
I think there will be more coming. There were two new listings higher up in Springfield of owners trying to get out at their 2004 prices. And right now, you really need to immediately subtract $25k off every price in order to think about it realistically. Because that's about the smallest discount from list that I think you have every right to expect. (won't get it from every seller, but at least half of them would be tickled to death with only $25k off list, based on recent sales)
@J@-
I agree that we should look at past performance, I thought you were showing AMD and how well it did in the past. Had you talked about it a long time ago or were you just happy about its move a couple of days ago. If so I will agree with you that it did have a good pop a couple of days after you bought it.
Because I work with stocks for my job I can't really invest in things other than index funds.
we saw a house we liked the other day. it has two incurable flaws (location related) that we're willing to live (literally) with, if the *price* is right. but it's hard to monetize the flaws because it's impossible to find true comps with the same issues. frankly speaking, even in my own mind, i don't know how much of a 'discount' i'd be happy with, subjectively. is there ever a case when buying a home that you go with what your heart tells you how much it's worth? i know i could just put a bid in and see what happens, but i know once a bid is it we'd be emotionally attached to it and be very hard to walk away.
thoughts? comments?
MM-
I think it really depends on person. I think most people think more emotionally than people on this blog. As long as you are happy with the home and can afford it and will not be kicking yourself in the future for trying to get a better deal go for it. On the other hand if you are the type of person that will be mad at yourself for years to come about not getting a better price it probably is not worth the stress of buying it.
Given my various suddenly formed attachments to various properties, from the time we started intensively searching back in March until today, I think that for me, searching for real estate is sort of like a teenager who changes boyfriends or girlfriends once every week.
I can say there is one property that we saw in the very beginning of our search that was stunningly beautiful, but it backed a major road. You couldn't peacefully sit outside in the backyard, but I was willing to go for that. My husband wasn't. While I would have been extremely happy with that house, I also have to admit, I have "fallen in love" many times since then.
I don't know if it's that way for you, but if it doesn't work out, "there are other fish in the sea."
I also think that the excesses of the past decade are a good reminder to stick within a price range that is reasonable for your budget, and do your best to determine how much of a risk you're taking. That last issue seems a bit tricky in your particular situation.
MM,
Be very careful about buying a house with incurable defects. I would expect a large discount in this market.
In a hot market, you will be able to sell quite readily - but it may be many years before we see that.
Just my two cents. I also agree with the sentiment that something better will come along.
A Babushka goes to the Private Store:
A babushka goes to the private store
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User Forum Topic
Submitted by patb on December 9, 2009 - 1:25am
During Communism the soviet system had stores
that were operated by the state and they had stores
that were operated privately.
It's 1977 and a babushka goes to the private store
and says "How much is that chicken?" the store
owner says "That chicken is 300 rubles" which was
a month wages. The Babushka says, "That is outrageous,
I could buy a chicken at the communal store for
10 rubles" "So why don't you buy that chicken from
them?" says the store owner. "They have no chickens"
says the babushka. "Well this chicken is 300 rubles"
says the store owner. "Well that's just robbery
considering i can get that chicken down the block for
10 Rubles" she says.
I am reminded of that story when i look at this house.
http://franklymls.com/DC7133787
"I will give you $141K for this house" says Me.
" Why 2 months ago I had a buyer who would offer me
$219K for this little hovel". says the seller.
"Well why didn't you sell it to him for $219K"
says me.
"He had no money to close the sale." He Says.
"Well, I will give you $141K for your hovel" I say.
"Well that's just robbery, considering I had a buyer offer me $219K just 6 weeks ago.".
Pat,
I've been in situations where a buyer will say "the house down the street sold for X and you want Y which is way too much". You know what my response has been? Go buy THAT house (which, by the way, sold in a day). Well, of course he couldn't - it was sold.
MM,
No comps, huh? I know everyone hates tax assessments and in Arlington, they don't properly price in major roads and other incurable defects, but in FFX Cnty they do. So as insane as this sounds you might try looking at similar places in say Vienna, with and without similar incurable defects (but otherwise close in location) and see what (a) the selling price differentials were and (b) what the tax assessment differentials were.
Va_investor's right, this market has taken down the homes with incurable defects first and hardest. And only in a hot market will buyers again ignore them and pretend that they should be the same price as the homes without such problematic flaws.
I also totally agree with REdealseeker, I'm really good at falling in love with houses, but it passes immediately once I've found a better one. (or even an equivalent one).
At some point though, you will have to go with your gut, and decide what am I willing to pay for this place? Or turn it around, how much better of a house am I getting for the same price due to these livable but incurable defects. It's like the co-op garage townhomes in Burke. They've been going for $310-$335k, while all the other garage townhomes have been over $375k (and that's for ones without the fabulous stumble to the VRE location). For putting up with the co-op arrangement and finances, and paying the extra co-op fees you can get a similar product for a much lower price.
(of course at today's rates the co-op fees appear a lot more onerous than usual, such that a greater discount is required).
MM, my advice (based on a bad experience we had) would be NOT to overpay for the house even if you love it. You may have to sell it before you expect (life, like ***t, does happen) and buyers will very definitely discount the house for perceived defects, and that this will be exacerbated in a buyer's market.
If you have a good Realtor, s/he may be able to estimate what the incurable defects' value (devalue) is. Or, like Cara's advice, you might ask try to find pairs of houses (one with the defects, one without) in other price ranges in nearby neighborhoods. See if you can compare their selling prices and get a sense of what the absence of defects "cost" then scale it as best you can for your target house.
MM, I'm a little different. I'd rather pay to much to get what I like than making a great deal. I searched for a couple of years online looking for my new home. I found 3 I loved, 1 was way overpriced, like a 100,000, one went U/C the day before we got to AR and we bought the third. The U/C was my favorite by far. I'm still pining for that place. But I'll be fine with my new place once I start making it mine. I'm extremly hard to please, tho. I'm not so sure your place has real incurable problems if it appeals to you as a buyer. Make an offer, nothing ventured, nothing gained. All they can say is no or counter
Indeed as Ace said, you do have a realtor. If you're seriously thinking about this house, they should be able to generate comps for you that not only price your house, but demonstrate how much the absence of those incurable defects is worth. If you're having a hard time, ask them. And don't let them get away with just a ball-park number, make them back it up.
They are the selling agent after all.
Here is an interesting WSJ article about people moving to rural areas. It notes Baby Boomers as a possible large source of such moves but also those younger. Perhaps Arkey fits the "ruralpolitan" mold it describes.
I do not know if this is really describing a real trend but it seems no less anecdotal than the articles about baby boomers moving to the cities or beaches etc. I think in reality we have no idea where the bulk of baby boomers will move (or even if they will move.)
Right now we have a realtor sending me listings, and for whatever reason, I thought, why not let him take a crack at it? I told him exactly what our deal is, and so he sent me some more listings - he went to the absolute top of our price range, and the absolute bottom of neighborhoods we would consider.
Sure enough, looking at recent sales, the listings are all 50-100K over the recent sales. One of the listings has been on the market since 2007. I'm sure there could be some kind of reason why this house is listing for so much more, including it being a nicer house, but from my perspective, who really cares? That's not a good value proposition for me.
I told him the listings were overpriced and he said, you're probably right, we would have to do a CMA, etc. Well, I don't have time or inclination to do that. If this property has been on the market since 2007 why would I somehow be the magic person who could close that?
A lot of people are saying well-priced listings go fast. Well great, get me THOSE listings. If I am going to totally overpay on a crappy overpriced listing, do I really need professional help with that? I wrote about this in my blog, how there is a total absence of even attempting to give the consumer value. I want to get the best house for my money. I think to get a competitively priced house I probably need a realtor. I don't need to pay someone to direct me to the worst fricking listing on the planet.
TBW, I know they are retiring to AR in droves, the Arkies are so happy to find out its me, one of them. Lots of people coming in from AZ and Ca...
Muffin Top,
Doing a thorough comp search to make sure your max offer is under comps, (and hence that you don't overpay, at least by the current going rate) is not that much work. It's simply due diligence. Hack 10% off the top of all the listing he gave you, and then see if any of them are somewhat appealing. If they are go see them. If you like one do your due diligence and put in an offer.
That's simply the minimum amount of work buying a house is. It's a huge purchase, if you don't have the time to devout to it, then you are bound to overpay.
Don't you get email alerts from Frankly and redfin? Shouldn't those show you in a timely fashion what's listed within 10% of comps? The comp search with frankly is now easy, just a click of a button for nieghborhood sales.
MuffinTop, use my realtor..he is great. Patrick Saltz works as hard for his buyers as he does for his sellers and yeah my listing produce buyers for him and I mean this man can work miracles. I know for a fact he can and does save deals that other realtors can't. We had a couple make an offer on our home before he was our listing agent. We couldn't come to terms. Their realtor then made an offer on one of his listings, they worked a deal then they ran into financing problems because they had 2 rentals in OHIO, well, at closing their deal fell out. Their buyers agent was of NO HELP. Patrick took over and closed the deal for them 2 months later.
Technical question
Our appraisal through the lender did not include a replacement value, because nothing in the area is new, so it wasn't deemed useful for the market value evaluation.
But we need homeowner's insurance... Duh. For which of course "they" recommend you insure up to the replacement costs. Any recommendations for how I should go about estimating this myself before just calling the agent? Or should I just take my agent's word for it for how much homes in the area similar to mine typically carry in insurance?
Thanks in advance.
Cara, you may already know this but one method is (a) subtract the estimated land value (since that isn't replaced); (b) multiply the square footage of the house by the high end of the current price per square foot that custom builders are using. Right now, this would probably be around $200-250 per square foot. Why the high end? Because the quality of construction in an older home is more expensive to duplicate than that of a newer home, generally speaking; because some costs are fixed, as we've discussed before, making smaller houses more expensive per square foot, etc.
Then add in any additional items such as a deck or garage that may be destroyed in a fire.
We have always "over" insured because it doesn't cost much more to insure on the high end of what things are worth and it would reduce the disaster and/or arguing with the insurance company after a fire occurs, over the $. YMMV.
Cara, insurance most certainly isn't my thing but it seems like one key question may be whether you would rebuild your house as it currently exists, or whether a hypothetical replacement home would be larger, etc etc.
If you are dealing with "replacement" costs what you are really asking is what would it cost to build a new home on an existing lot. How much that would cost would depend on what kind of home you wanted to build.
BTW, I must have been missing when you found your home. When did that happen and where did you end up?
Thanks for the feedback. I am definitely able and willing to do the due diligence before making an offer, my issue was that if the listing price appears so far off, and the house has been on the market that long, it seems like that would be a project I don't want to take on. I'd rather start with something priced competitively - if something is well-priced it seems like it might be worth the investment of time. If it is literally 100K overpriced and on the market 2-3 years I don't want to get involved with whatever needs to be happen to make that house sell.
I started using the Frankly site - I was able to look up the realtor and it does seem like he's a rookie.
Muffin Top,
I would definitely recommend finding an agent that's been in the business for 10-15 years. The realtor I used has been in RE for 30+ years. Every time we went out to look at listings, what she showed me fit better and better.
The reason I say 10-15 years is several fold. One - they've seen both up and down markets. Two - if they've been in business that long, they must be doing something right. Three - they tend to have good people around them (home inspector, mortgage brokers, RE attorneys) because they're not going to be in business that long and suffer through incompetent support staff that could jeopardize deals.
My $0.02
Leroy,
We found a SFH we fell for in one of our target high school districts in mid-November. Close January 5th. (why oh why did we ask for such a long close??? I know why, so we wouldn't bring ourselves down to our last dime).
It has all the things we most wanted, and none of what's unimportant for us. Only a bit more than 5% off list, but 10% under "comps", but semi-justifiable so. We're definitely overpaying compared to what one might be able to get in February, but we love the house, love the location, LOVE the 0.29 acre lot, it's only had two owners since it was built in 1961, and for us it's totally move in ready, without being overdone. Renovated bathrooms, but in tile not expensive stone, renovated kitchen, but not overdone, and most importantly with cabinets to the ceiling and a U-shaped workspace plus eat in area, which is exactly the lay-out we want. Screened in porch, Franklin stove in the fireplace in the walk-out basement.
It's altogether possible that we could have found a place we loved just as much for $30-40k less in a few months. Or a bigger place for the same price. But we like this place, can easily afford it on either salary, we'll just do our part to bring comps of real sales back down a notch.
We couldn't have bought this until now. Because we didn't have $80k until now.
thank you for the feedback.
i think i can find comps for homes with defect #1 (near I-66), but not likely for defect #2, even in other close-in markets. it's rare and impossible to identify from the listings, i'd have to look at the maps and/or tax records.
so really the x factor is defect #2. i feel the current listing price does reflect 'discount' for defect #1, but it's still sitting, so the market hasn't decided how much defect #2 will cost the sellers.
i don't think my agent could be any help on this front. his *approach* is more or less like, 'let's start with 10% off asking prices...'
Thanks Ace,
250 per above ground square footage or total square footage? Will they let you insure by enough to build a nicer home in the case of total loss, that seems odd....
These homes are old, in a "the market doesn't like them anymore" kind of way, and FFX county decides land values as the difference between sale value and house value, so the house value in the tax assessment is 2/3rd of your rough estimate of the replacement cost...
Cara,
That's awesome! I only got 3% off of list and about 6% under the appraisal. But I know there was another interested party and the whole thing was ratified only days after it hit the market.
I put 15% down, and coupled with the discount to the appraisal value I should be able to get PMI removed soon.
Mine is a bit of a fixer upper but I'm low maintenance so it is "move-in" ready for me.
The other 5% I didn't need for the down payment is now being spent on all of the projects needed to clean the place up. Refinished floors, upgraded electrical, some minor bathroom renovations. Stripping painted over wall paper (UGH, who does that!?!).
Good luck making your house a home!
My $0.02
That is great news for you.
Your research and patience have paid off. Even if the house does move down in value in the future you can still sleep comfortably knowing that you avoided the worst of the declines.
So if you find yourself worrying that the market has continued to fall... just ask yourself what you would have ended up with had you bought a year or two before you did.
Leroy,
Oh I know! I look at the townhouses that were $450 in 2006, and thank my lucky stars!!! Holy moley am I glad we weren't ready to buy in 2006.
Congrats mytwocents! Yeah, we didn't need to set aside much for fixing up. No wallpaper, impeccably refinished wood floors. There's plenty of small stuff like moving the dryer to the same wall of the basement as the washer... and replacing all the screens in the screened in porch, and maybe the doors there too, and the indoor/outdoor carpet with something like I don't know, flagstone? And possibly investing in french drains, or even replacement windows someday? But my mom will be helping us out. (mostly because my sisters need the help and she'd feel guilty if I let her distribute unevenly again, since I didn't take "my" portion of Dad's boat's proceeds.)
And with our new house payment only $200/month more than our current rent (including taxes and insurance, not correctly accounting for the tax deduction) we'll be able to do quite a few $1k projects over the course of the first year while still saving.
Oh yes, biggest immediate investment will be the fact that there are ZERO window treatments... A nice blank slate.
mytwocents,
There were two other offers on ours too. It was slightly over two weeks "old" though. One was a low-ball. Thank you low-ballers for making our offer look sane! The other was an insignificantly higher net FHA offer. Which really helped prove the point that they weren't going to get list.
Jeff Royce helped us play hard ball just a little bit, (i.e. they asked us to match or get closer to the FHA bid and we said here have $1k more dollars if that will make you feel better) and they took ours. Went for the easy one with a settlement company they knew, and a loan officer they knew, and 20% down.
But basically they were listing with a little room for negotiation. They only positioned themselves $20k under a recent comp that it would have cost at least $30k to turn our place into that place. Just because I like ours better is not the point.
Cara, I should have clarified - I'm not trying to insure to build a better house (I don't know whether any company would allow that). I believe that most people try to insure as cheaply or at least as reasonably low as they can, and that agents may not realize how much rebuilding a solid older house would cost when they tell you what the average homeowner does. That's what I mean by "over-insured" since you had mentioned your agent's telling you what "most people do."
So let's say a homeowner gets $200K of coverage for a 1947 house (with a land value of $180K), puts in some time and/or money into updating it, because the sales price was $400000 and the policy is a few bucks cheaper than one for a higher value. Later, the house burns to the ground. The policy is "replacement value." I would suspect that there is no way that homeowner could get a contractor at that time to rebuild a house of comparable quality and size to his/her former house for anything close to that insured value. The homeowner and the agent then go 'round and 'round about how the policy really isn't covering the house's replacement. And some policies value your possessions at a % of the house value. So if you undervalue the house, you may also be underinsuring the value of your household goods. This fussing and/or being short $100K (for example) is much worse than paying a little more each year for coverage.
To save premium $, we took a higher deductible instead. Some people can't do that because they have shelled out all their savings on the new house but if you can, it can make a big difference. You don't want to file a claim on a small loss anyway, since many insurance cos. hold each claim against you and may bump up your premiums or cancel your policy.
I think the article about mortgage rates on calculated risk is interest. It gives some evidence that interest rates will likely go up in the future even as the fed stops buying MBS. I except the 10 year will start to go up next year, but even if it doesn't mortgage rates are currently about 0.5% lower than you would expect. I don't think 0.5% will make a huge difference, but I thought the data was interesting.
Cara-
The math is a little strange. I assume if your house was burnt to the ground you would likely move rather than wait for the new house to be constructed. If this is the case the case over insuring it probably is not necessary, because the land value increases when your house is burnt down. In most areas I am looking at lots sell for almost the same amount as a place that has a 1000-1500 sq. ft. house, because there is value in tearing things down and building larger houses. This may be less true in Burke than closer in areas like Arlington.
Although knowing that you are risk adverse Ace may be right that paying a little more in premiums may be worth it so you know you are fine if even if something happens to the house.
housebuyer, I actually know someone who was in that exact situation. They moved to a rental while a new house was being built on the same lot where the house burned down.
The $ value you get I think is the same whether you actually build in the same place or not (you'd have to read your policy). So if you insure for less than the rebuilding cost, you are suffering a greater loss than the house was worth, which means you will have less with which to buy the next place at another location.
Our objective was to not come out behind, regardless of whether one rebuilds or buys elsewhere. I figure a catastrophic loss like that would be tough enough to deal with without having to also fight with the insurance co. or come up with another huge $x just to "stay whole." But someone else may prefer to risk having to absorb that loss.
sorry, I probably should have used a word other than "exact" (not enough sleep last night) - the numbers were simply an example, but they did rebuild on the same property (kids were in the school system, they liked the neighbors, etc.).
and rather than "greater loss than the house was worth" should have been "greater loss than the insured value." Preview should be my friend.
I think this site looks pretty good (re: insurance):
http://www.iii.org/individuals/homei/hbs/howmuch/
I realize you may have seen it, Cara -- just posting so others can indicate if they think the advice is reasonable too.
As for your basement question, as you've probably guessed, yes, I would include that square footage esp. if it is finished. You could ask a contractor whether that would be a different cost per square foot. VA_Investor may want to chime in here with cost estimates too but remember that we retail customers will probably have to pay more than someone who provides more business for the contractor.
MM,
How close to I-66 are we talking? Close that you are worried about noise? Or so close that if they expanded the number of lanes enough your home would be eminent domained?
If you are buying with a long enough vantage point (say 15+ years) I would avoid that has eminent domain potential. No discount now could make up for making a home somewhere for 20 years and then having to move elsewhere because of a road project (at least IMHO).
If it's a short vantage point this is a non-issue. At most over the next five years is probably a third lane for I-66W which requires no new land for VDOT.
Here is an interesting article for the housing bears out there. Basically PIMCO made a model for insurance industries to value their MBS. Obviously as part of the model they had to put in housing price scenarios. The base case is for an additional national drop of 12% (38% total drop). The best case is a 5% additional drop(33% total drop) and the worst case is a 45% drop from here for a 61% drop from peak. Obviously these are national numbers, but it is still interesting to see how much distress may still be out there.
http://www.lifeandhealthinsurancenews.com/News/2009/12/Pages/RMBS-Scenario-To-Include-17-Unemployment-.aspx
"I will give you $141K for this house" says Me.
Ha. Ha. Loved your babushka parable Pat.
This is what 450 will get you in McLean.
McLean
This is what 425 will get you in Ft Washington. Love the houses there and some of the neighborhoods but .....
Ft Washington
For all the commentary on the difference a location makes, pictures are worth a thousand words. This link makes the point poignantly
PhotoGallery
Sorry, but I still haven't quite figured out how to do html links. Looked okay on the edit but they don't work when posted.
Here are the links in order
http://franklymls.com/FX7011396
http://franklymls.com/PG7089510
http://www.time.com/time/photogallery/0,29307,1882089,00.html
http://www.time.com/time/photogallery/0,29307,1882089,00.html
Oh nuts. Looks ok when previewing in edit mode. All bollixed when posted.
Feh.
It has been a busy few weeks, but we were able to buy the house our agent told us about in the Oakcrest neighborhood above Crystal City in Arlington. We had looked at townhouses in Fairfax (including the townhouse we are currently renting off Lee Hwy near Merrifield, which our landlord offered to sell to us) Burke, Vienna and a little slice of Falls Church near Dunn Loring. We had many friends living in older houses in Arlington and really liked the area near Crystal City because it is close to Metro and has parks, restaurants and is near Pentagon City and the big Costco! The house is owned by a lovely widower who is moving to a retirement place in Falls Church in January, so we can settle right after he moves. The house is very solid, has large rooms, a nice yard with some trees and is in good condition but needs updating. Our home inspector had a tough time finding any problems with it. We can live in it until our 2 year olds are old enough that we can do a renovation, so we are just going to do some painting, add some insulation in the attic and buy some new kitchen appliances, light fixtures and bathroom vanities. We went to one of the parks last Sunday and met many people with young children and our seller asked us to come to the neighborhood holiday party this Saturday. This is what we were missing at the townhouse community where we knew no one and there was no place to go. The neighbors had children but they all stayed indoors. The closest thing to child-friendliness was to walk our children to the nearby fire station on Lee Hwy. where the firemen would let them sit in the fire trucks. We could have waited for a year or so because our landlord sold the house to a friend who wanted us to stay. Prices did not seem to be going down much in Arlington so we decided to buy now. Like many of you, we were not ready to buy during the bubble years, so we probably saved money by having to wait. I hope all of you find the right house at the right time and at the right price. Thank you for your help.
Congratulations, waiting too! Sounds like the perfect fit for you and I hope you will be very happy.
two properties i've been watching
closed in DC, it's quite fascinating
especially if you look at the price
movements.
http://franklymls.com/DC7186260
399K in 6/08
237 in 10/09
closes at 275
or
http://franklymls.com/DC7102820
list 11/08 for 540K
lists 7/09 for 274K
sells at 285K
the $8K buyers bribe has put some air in the DC market.
Cara: Oh yes, biggest immediate investment will be the fact that there are ZERO window treatments... A nice blank slate.
Cara, on behalf of the benevolent Window Treatment society we thank uou.
Driving or walking around my neighborhood the wife and I are open mouthed at all the McMansions that have absolutely no shades, curtains, blinds, or veils on the windows. Just big ol' wide open windows so we can stare right inside. I mean good golly Molly, what idiots don't cover the windows into their home at night?
Do they want every passerby to just stare right inside?
The only two reasons we can think of are stupidity and vanity.
Nothing else makes any sense.
Excuse me while I go make sure the shades are drawn....
Hey Texas Native, here's a third possibility - those McMansion owners have spent all their money on the mortgage, taxes, utilities, etc., and have no money left for window coverings.
One of our previous houses was in a neighborhood with houses as close together as Arlington's and it had no window coverings on the huge downstairs windows. I would "get" this if it were on an wooded acre in Great Falls, for example, but not 10 feet from your neighbor. The previous owner had it for nearly 20 years like that. He said they of course couldn't run around the living room in their pajamas at night but otherwise didn't understand why we would even ask about this. I figured our new neighbors didn't like this any better than I did so the first big expense was for blinds.
"Cara, I should have clarified - I'm not trying to insure to build a better house (I don't know whether any company would allow that)."
I have no idea whether an insurance company would allow it... but look at all of the tiny early 1950's ramblers in the NOVA area.
If a 3Bd 1Ba 900sq ft home that somebody bought for $300k+(obviously including the land) burned down, would they replace it with another 3Bd 1Ba 900sq ft home?
As I said before I really don't know what the rules are but if I owned such a home I would want to over-insure the house a reasonable amount to avoid having to worry about that.
You cant over insure the house, that would be fraud.
The insurance company decides how much it would cost to rebuild your house and thats what they insure you for.
If your house would cost 50k to rebuild, it does not matter that you paid 300k for it, you get 50k if it burns down.
I'm with Ace: I'm surprised at the number of McMansions with no window treatments and no landscaping. I suspect that if I was invited inside, I'd find not much furniture, or cheap furniture from their college days.
I think a lot of folks don't budget for what it takes to properly own a house.
While I agree with you that in many of these cases people just didn't budget for the money some people don't put up blinds because it reduces the light you get. I currently have curtains in the bedrooms in my place, but I never cover the windows in my living room. I enjoy the additional light and views and do not really care if someone wants to look in and see what TV I am watching.
Doug,
Except that you are also allowed to purchase insurance for the mortgage amount. Which would then not be fraud. In fact I'd be surprised if the loaning body would allow you to carry less insurance than the mortgage amount. (which in our case is only 80% of the purchase price, but still).
Looking at our numbers, and how much I can guesstimate we would be able to sell the lot for in the worst case scenario, our mortgage ($320k)is less than the full replacement cost to build a 1800 total square foot house again on the same site(at least $360k), but not by much, whereas selling the land ($200k) and collecting a smaller amount ($250k) would be sufficient to purchase a "new" (to us) similar home allowing a little leeway for the market conditions at the time.
Or maybe that last calculation needs to somehow have our investment into the home and our financial liability thereon worked in, though I can't decide how...
I think what I just did assumes we own the whole thing, I can't decide if or how it should be different given that the house is collateral...
So, we'll see what the agent says. I'd prefer to insure for the full replacement cost, because I really like this neighborhood and this lot and location therein, but I would fully understand if "they" won't insure you for that, since it would be more cost effective for us to buy another 1961 home, and someone else to make highest and best use of the land.
(alright that's enough of thinking about my house burning down... as I add to my list of things to do, getting a consult from an electrician to make certain there's nothing we can do to make it safer).
housebuyer, you can open blinds and curtains during the day to get in all the light you want, and can't really see views out at night, so I don't see that as an issue.
Doug, unless your insurance co. is different from mine, that's not how it's done - see the insurance industry link I posted earlier in the thread. You decide how much coverage you are going to pay for - although what's unclear is whether ins. cos. would set an upper limit, which I would imagine they would so that people don't have an incentive to burn down their houses. You can of course ask the co. just to set an amount based on what others do. But you can underinsure your house. If you have a loss later, you are entitled to the full amount of the coverage for which you've paid - but no more. Sometimes the ins. cos. may try to pay less than what you've paid for, e.g., if they don't think you've had a total loss or don't believe you have certain belongings and you don't have an automatic % of house value coverage for your belongings. And there may be hassles where there is only a partial loss, e.g., a fire in one room, a burglary, etc.
Leroy, you may want to check this out:
ins. ind. site on how to determine the coverage to buy
You guys are talking about mortgage insurance, not homeowners insurance.
My cousin works in the insurance industry, and trust me, you cant insure your house for more than it costs to build, just like you cant insure your car for more than it costs to replace.
Your article backs up what I said, lol did you even bother to read it?
Nowhere in there does it say it covers the mortgage amount. Its the cost to rebuild plus the optional costs of your possessions.
Doug,
Why do you feel the need to interject un-grounded insults into your comments?
The loan may require both mortgage and homeowner's insurance.
What we're debating here is whether the insurance agency will allow you to cover the costs to rebuild, or if, since it would be less expensive to replace it by selling the land and buying a different home, whether they will only cover the literal replacement cost. My guess, and reading of that article is that they will only cover the difference between the purchase price of a new home and the sale value of the land. In which case, we'll need to think about getting both replacement cost and mortgage insurance.
If the cost to rebuild the house were the lesser of the two, it would be the other way around. They'd only pay to rebuild it not to purchase a different one after sale of the land. In which case, you'd still need to decide if you wanted mortgage insurance since you paid more for the home than the construction costs.
Learn to be able to juggle multiple concepts in your head at the same time. It's a useful skill. A heck of a lot more useful than a facility at flinging insults. Anyone can do that.
Why, yes, Doug, more than once.
You said "The insurance company decides how much it would cost to rebuild your house and thats what they insure you for."
No, it does not, as the article at the link clearly states. You decide (unless your lender requires certain coverage) and you pay for it. The insurance co. may limit your decisions.
Everyone else here seems to have adequately addressed doug's initial comment, but I have one more thing to add.
It is only "fraud" if you are somehow deceptive.
While I am not knowledgeable about the particulars of home insurance, I do know that it is possible in many cases to buy insurance of an agreed upon amount regardless of what the actual market value of something may be. It is just a question of reaching an agreement with an insurer.
One example would be of a athlete insuring himself against injury.
http://espn.go.com/sportsbusiness/news/2003/0106/1488252.html
Why 2.5 million? Why not 5? or 10?
The simple answer is that that is the amount the two parties agreed on.
No "fraud" required.
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