HOMEOWNER ASSOCIATIONS AND THE POWER THEY YIELD

While some homeowner associations are voluntary or dormant,

most are not.  They enforce the Covenants, Conditions &

Restrictions (CC&Rs), bylaws, and rules and regulations that govern

the community, all of which are legally binding.  The purpose of

HOAs is to provide services and amenities to homeowners and to

enforce shared community standards.

An HOA can be a very positive thing - - a vehicle that helps

homeowners maintain property values.  Some HOA rules may sound

picky; however, if every house in the neighborhood did something

such as putting up a clothesline or doing car repair work in the

driveway, can you imagine how that would impact property values?

HOA-governed communities for single-family residences, condos

and townhomes are now the norm, not the exception, in North

Carolina, especially  those built in the last 15 years.  The boards

that run these neighborhoods consist of homeowners elected from

the respective neighborhoods.  They are not subject to the

constitutional constraints of government and they wield a lot of

power under North Carolina law.  They set dues, require

assessments (homeowner-required payments beyond dues) to cover

expenses, fine homeowners for noncompliance, place liens on

homeowners for unpaid monies, and they can even foreclose on a

property.

Homeowners who don’t like HOA rules have little recourse.  The

courts usually say if covenants are well written and fairly

administered by an HOA, the court is going to let the HOA run its

own private business even though the results to the individual

homeowners can seem harsh.

When seriously considering purchasing a home in a community

governed by an HOA, it is wise to read the governing documents

which say what can and can’t be done by homeowners.  One hot

issue is whether boats, campers, recreational vehicles or

commercial vehicles can be parked in a homeowner’s driveway. 

Many HOAs prohibit such vehicles in driveways, but they often can

be parked in garages.  In some cases, to stay within the rules,

homeowners must cover commercial logos on vehicles with

magnetic strips when they are parked in the driveway or on the

street.

Then there are rental restrictions.  A recent trend has been to

restrict the number of rental properties in a community.  Common

rental caps are 5 to 20 percent, with minimum leases of a year. 

Some associations require that the HOA receive copies of leases. 

Once the community reaches the cap, then a homeowner can apply

to the board to rent their unit and they are put on a waiting list. 

They are only allowed to rent their unit if a current rental unit is

sold or taken off the rental market.  These rental restrictions are

in place because homeowners tend to take more interest in

property maintenance than renters.  Furthermore, if the

percentage of renters in condominium complexes is high in a

community, some lenders may require buyers to pay larger down

payments or will not make loans in the community.  With attached

condos, Fannie Mae requires that owners must occupy at least 51

percent of a project at the time of loan origination.

                                                                                   

Sylvia Becker Broker, REALTOR, CLHMS, SFR, CID RE/MAX Executive 2901 Coltsgate Road Charlotte, NC 28211 (704) 780-5592 Cell
eMail  Sylvia

THE EARNEST MONEY DEPOSIT

Most offers to buy a house are accompanied by a check.  This

check is generally referred to as the earnest money deposit. 

The basic reason for the deposit is to impress upon the seller

that the buyer “earnestly” intends to purchase the property.

The amount of the deposit varies from purchase to purchase

depending on a variety of factors.  If a property generates a

lot of interest, a buyer may wish to make a larger deposit to

convince the seller that their offer is stronger than the others. 

During “hot” markets, deposits are generally larger than

during slow markets.

In normal times, buyers should hesitate to make a deposit that

is larger than two percent of the purchase price.  Underwriting

guidelines sometimes require strict documentation of such

deposits.  A buyer may often be required to show a bank

statement just prior to the date of the check plus evidence

that the check actually cleared the bank.  If you are closing

quickly, this might require a trip to your bank.

There are other reasons to try to keep your deposit as small as

possible, but not so small that the seller doesn’t take you

seriously.  Once a buyer and seller agree to terms, the earnest

money deposit is usually placed in a trust account.  At that

point it is no longer the buyer’s money.  It belongs jointly to

the buyer and seller.

Almost all deals close and the earnest money funds are applied

to the buyer’s down payment and closing costs.  As the saying

goes, however, there are exceptions to the rule.

Some sellers think that if the deal falls through, the earnest

money deposit is automatically forfeited.  Some buyers think

that if the deal doesn’t close, they automatically get the

money back.  Neither is true.

Even when the failure to close the transaction is the buyer’s

fault, the seller doesn’t have an automatic “right” to the

deposit as a way to “punish” the buyer.  Nor does the buyer

automatically get the entire deposit back.  Since the deposit is

held in trust, both the buyer and the seller must agree on the

disposition of the funds or the funds are turned over to the

court to make a determination.  This is the law in most states

and the real estate agents and their companies have no

control over it.

Serious problems are the exception rather than the “rule.” 

The situation may be new to you, but qualified real estate

agents have dealt with it many times in the past.

                                                                                             

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DO I NEED A PERMIT? If you are contemplating remodeling your home and asking whether you need a permit, the answer is probably yes, you do. ACCORDING TO MECKLENBURG COUNTY Appropriate permits are required for any new construction, reconstruction, alteration, repair, movement to another site, removal or demolition of any building. Permits are required for the installation, extension, alteration or general repair of electrical, mechanical or plumbing systems. Permits are required to be grouped by the particular project and paid for by the general contractor or the homeowner acting as their own general contractor. Separate permits are required for building, electrical, heating, air conditioning and plumbing work. EXCEPTION FOR SINGLE FAMILY RESIDENCE Permits are not required for any work costing five thousand dollars or less, unless the work involves: The addition, repair, or replacement of load bearing structures; The addition or change in the design of a plumbing system; The addition, replacement or change in the design of a heating or air conditioning system; The addition, replacement or change in the design of an electrical system; The use of materials not permitted by the building code; The addition of roofing, excluding replacement of like-grade fire resistance material. Not obtaining a legally-required permit can come back to bite you. Consider these potential issues that can arise: Failure to Disclose: A seller of residential real estate has a responsibility to disclose all known defects and issues that might affect the value or desirability of the property being sold, including improvements done without a permit. If the seller has not fully revealed the extent of the property’s defects or issues, then they may be found liable for misrepresentation. Homeowner Insurance: Doing DIY jobs like updating plumbing or electrical work incorrectly could lead to denied homeowner insurance claims. If something like a fire consumed your whole home and your insurer found you hadn’t obtained a permit, imagine the loss you’d suffer if that claim was denied. Appraisal Issues: Some lenders will not loan on non- permitted areas, and they ask appraisers to not include any non-permitted area as square footage. Other lenders will loan when there is a non-permitted addition, but they ask appraisers to consider how a lack of permits impacts value. Delayed Closing: What happens if just days before closing on the sale of your house the buyer learns there was no permit issued for that new sun room? A delayed closing is probably going to be imminent or even a cancellation of the contract to purchase the home. Buyer research verifying permitted work is easy today, so “fudging” on this issue is not a good idea. I believe the main reason homeowners fail to obtain permits is not the cost of the permit itself but the possibility of property taxes increasing due to the increase in value of the home as a result of the new addition or improvement.

THE IMPORTANCE OF THE APPRAISAL

The appraisal is the linchpin around which all else in the real estate sales transaction revolves. Both buyers and sellers are in a holding pattern until the appraiser arrives at the property, looks it over and comes back with a figure for what he thinks the place is worth. Such is the case whether the property in question is a $200,000 single-family home in the suburbs or a $200- million office building in the city. The appraiser’s job is to be unbiased and completely independent of the transaction, while at the same time being realistic and practical. The appraiser’s valuation is his or her opinion - - repeat, opinion - - of what the property is worth. It doesn’t matter what the buyer is willing to pay or the seller is willing to accept. Two appraisers could do an appraisal on the same day, on the same house, come up with two different values and have them both be right. The reality is that value is really the appraiser’s opinion, not an average, not a range, but a number the appraiser picks by looking at the data, understanding the market and considering all factors. If the appraisal comes in too low for the lender to accept the buyer’s application for a mortgage, the seller will have to lower the price or the buyer will have to come up with more cash to make the deal work. Appraisers are only as good as the data available to them. Most markets have a multiple listing service from which the appraiser gleans much of his information. But issues tend to arise when the appraisal is on new construction or houses in rural areas. Then the appraiser must often deal with incomplete, outdated or inaccurate data. Sellers should write up a list of all improvements made to the house within the previous five years to present to the appraiser as he enters the house. That way, the appraiser can spend time verifying the information, which is more likely to reflect favorably upon the overall appraisal. Remember, though, that routine maintenance does not count. You are only as good as your neighborhood. Like it or not, your neighbors and your neighborhood have an overall effect on your home’s value. In a $200,000 neighborhood, spending $100,000 on improvements is not likely to add $100,000 in value. All adjustments to the valuation of the property must be backed by real data that support the appraiser’s opinion. For example, a $5000 adjustment for a garage isn’t just pulled out of the air. It is backed by market research and data indicating that garages are worth $5000. Appraising is a full-time profession. The typical appraiser does one or two appraisals a day. They are trained to be very careful when it comes to what they will and won’t do regarding value, property condition and selecting comparables. Licenses are difficult to obtain. It takes two years, 300-plus tested education hours and 3000 field hours to obtain appraiser certification. An appraisal is not a home inspection. The two are totally different. The inspector’s job is to make sure all of the mechanical and subsystems are working and that there are no structural issues. The appraiser’s job is to observe the house in its current state, compare that with similar homes in the area, and come up with a valuation. Put another way, appraisers typically work on the assumption that everything is in good working order, whereas inspectors verify functionality.
PROTECTING YOUR PRIVACY WHEN SELLING YOUR HOME Are your secrets safe? Before your home goes on the market and home buyers start traipsing through, smart sellers will relocate confidential information. Even so, you might be astonished to learn what home buyers can learn about you. Is it considered snooping to open a drawer? Not if the drawer is part of what they will be purchasing such as kitchen or bathroom cabinetry. Buyers can innocently open a drawer to inspect the construction or depth and find important documents that you might not have intended they see. I heard a story about a buyer opening a kitchen drawer and finding an estimated seller “net” sheet reflecting the price the seller wished to obtain for their home. It clearly indicated a lower price was expected, so you can guess what that buyer offered. Don’t leave mail where anyone can find it. Many sellers toss opened mail onto their kitchen counter. At a quick glance, buyers might see how much your owe on your credit cards. They can observe if you’re late on your mortgage payment or if the IRS is after you. Heaven forbid you should file bankruptcy or be sued and leave those documents out for the world to see, but sellers do it all the time. They must have confidence that buyers will not glance at that personal mail even when it’s taped to the front of the refrigerator begging to be read. I’ve also shown vacant homes and seen mail tossed all over the floor in the entryway. It wasn’t hard for the buyer to figure out that much of that mail contained collection notices. If a buyer is armed with this information, guess what price the buyer would be thinking of offering? And it wouldn’t be the asking price. Remove diplomas and wedding photos from walls. Notwithstanding that all personal items should be removed, sometimes sellers overlook the obvious and leave diplomas on the wall. People form biases and can carry them too far. For example, the seller might be a lawyer, and there are buyers who might not feel comfortable buying a home from a lawyer. Diplomas give away a seller’s age or a close estimate. Wedding photos might give away the seller’s religion, as do certain religious artifacts. Buyers can be prejudiced. Don’t give buyers a way to form any opinion about you at all. Contents of closets. Often sellers who are divorcing feel pressure to sell quickly, but that is not information the seller would want to share with a buyer. They do this by hanging all women’s or all men’s clothes in the closet. Once a buyer finds out a seller desperately needs to sell, the buyer won’t make an offer anywhere near the asking price, so don’t leave telltale clues around that could give away your motivation to sell.
EVALUATING THE NEIGHBORHOOD  Good neighborhoods, like beauty, are in the eyes of the beholder.  For example, being near excellent schools is important if you have young children.  If, conversely, you’re ready to retire, buying in a peaceful area with outdoor activities may appeal to you, and being next to a noisy junior high school is your nightmare.  Personal preferences aside, all good neighborhoods have the following characteristics: Amenities  Amenities are special features of a neighborhood that make it an attractive, desirable place to live.  Wide streets bordered by stately oak trees, lush green parks, ocean views, quiet cul-de- sacs, parking, and proximity to schools, churches, shopping, restaurants, transportation, playgrounds and beaches are prime examples of amenities that add value to a neighborhood.  The more of these perks a neighborhood has, the better from the perspective of most home buyers. Quality Schools  You may not care how good or bad the local schools are if you don’t have school-age children; however, unless you’re buying in a remote retirement or vacation-type community, you’d better believe that when you’re ready to sell your house, most prospective buyers with children will be deeply concerned about the school system in your neighborhood.  Low Crime Rates  Most people today are concerned about crime.  As with schools, don’t rely on hearsay or isolated news reports.  Communities compile crime statistics, generally by neighborhood. Stability Some communities are in a constant state of flux.  Imagine what would happen to property values if a junk yard were replaced by a beautiful park.  How about the reverse  —  an ugly multi-story concrete parking garage appears where there was once a beautiful park? Pride of Ownership A home’s cost has no bearing on the amount of pride its owners take in it.  Drive through any neighborhood, posh or modest, and you will see in a flash whether the people who live there are proud of their homes. Property values sag when homeowners no longer take pride in their property.  Avoid declining neighborhoods which display the red flags of dispirited homeowners  — poorly kept houses, junk- filled yards, abandoned cars on the street, many absentee owners renting their houses out, high rates of vandalism and crime, and so on.
DON’T LET TERMITES EAT UP YOUR INVESTMENT  Termites cause an estimated $5 billion in property damage every year in the United States, making these pesky insects even more of a threat to wood-based structures than fire, flood or wind.  Yet many homeowners know very little about the damage that termites pose to their property. You don’t usually notice them until the damage is extensive.  Termites may take up residence in a home for years, even decades, eating away at the structure from the inside out.  An average subterranean termite colony can consume a two by four per year until the damage finally shows itself, hence the unsettling nickname “silent destroyers.”  There have been situations where homeowners have leaned against a wall and suddenly fallen through and toilets that have plummeted through chewed-up floorboards. Termites can enter a home by slipping through a crack in the foundation as thin as the average business card.  Window vents and roof joints are also popular entry points.  Older homes, where it’s more likely that the foundation may have cracked, probably are more inclined to be at risk but new homes aren’t off the hook.  If termite pre-treatments during construction aren’t done correctly by the builder, termite swarms can take hold even after five years.  So how can homeowners keep these crawly insects from biting into their investment? Keep moisture out.  Use downspouts and gutters to divert water away from the home’s foundation. Store mulch, firewood and wood chips away from the home. Ensure shrubs, vines, and other plants aren’t planted too close to the home and aren’t covering vents. Ventilate crawl spaces to reduce humidity. Eliminate gaps and cracks in areas such as attic vents, window joints and roof eaves. Remove old tree stumps and roots near the home. A homeowner’s best defense is to schedule regular inspections with a termite specialist.  Termite specialists can also prevent termites by using special wood treatments and repellants.  Such treatments are usually needed every seven to ten years. The U.S. Department of Housing and Urban Development’s web site provides information by state about areas most prone to termite damage.  Go to www.hud.gov and search for “Termite Infestation Probability Zones. Because termites thrive in warm climates, activity is greatest in the South, Southeast, West and Southwest.  Even in areas with a lower probability of infestation, the right combination of food, moisture and warmth can spell trouble.
THE LOCKBOX  If you are selling your house, you should not be present when an agent brings a potential buyer to view your property.  Successful marketing means that buyers need to be able to imagine the house as their future home.  Nothing puts a damper on that more than having the current owners hanging around. That is one of the reasons why the lockbox is such a key tool for real estate agents. A lockbox is a hollow metal box that attaches to the front doorknob or some other secure place nearby.  Inside the hollow area is another matchbox-sized box that contains the key to the house.  When an agent opens the lockbox, a smaller container slides out. The lockbox gets its name because it is a locked box.  A stranger cannot come by, open the box, get the key and gain entry to the house.  Only real estate agents can do that. Most modern lockboxes have a tiny microprocessor inside.  You need an electronic key to open it, and the only way to get a key is to be a member of the local Multiple Listing Service.  All of the keys have a unique identifier so that when someone opens the box, the microprocessor inside registers the name of the agent who opens it.  Agents are forbidden to allow another agent to use their electronic key. Since the box is “reset” just before being placed on the door, any agent who opens the box can be identified, as well as the date and time they entered the house.  That information is downloaded every night at the MLS Association.  This works as a security measure for the homeowner. But the main purpose of the lockbox is that it facilitates the sale of your home.  Without it, selling or buying a home would be much more difficult. Think of the alternatives.  Without the lockbox, the seller would have to be present for all showings of the property, and that does not help to sell the home.  Sellers could leave the door unlocked, of course, but in today’s security-conscious world, that is not the best idea.  Another possibility is that the seller could give a key to the listing agent, but then the listing agent would always have to be present when another agent brought a buyer to the home, and this could be an inconvenience to the buyer.