Beware of Less Obvious Costs of Ownership When You Buy a Home

When you buy a home, your lender will factor in several obvious costs of your purchase when approving your loan, but there are other less obvious costs which the lender doesn’t consider, but which you should definitely investigate.

The costs your lender considers are your projected mortgage payments (consisting of Principal, Interest, property Taxes and Insurance, or “PITI”) plus Mortgage Insurance Premium (“MIP”) and HOA fees.

Let’s look at those obvious costs first.

Regarding property taxes, don’t make the mistake of assuming that unincorporated areas have lower property taxes than incorporated cities. The City of Golden, for example, has the lowest mill levy I’ve found anywhere in Jefferson County, and many newer subdivisions, such as Candelas, have mill levies that can be twice that of Golden. (See my Dec. 17, 2015, and July 21, 2016, columns about Metropolitan Tax Districts at www.JimSmithColumns.com.)

 

Regarding insurance costs, shop around! I have observed substantial variation among insurers. Use an independent insurance broker to get competitive quotes from different carriers, or, if you get quotes from “captive” insurance agents, get quotes from three or more different carriers. If the home is in a flood zone, flood insurance can be another major expense.

 

Regarding mortgage insurance premiums, don’t assume that you must pay MIP if you have less than 20% down payment. We can refer you to lenders who offer work-arounds regarding MIP with much less than a 20% down payment.

 

Regarding HOA fees, some HOA’s require “working capital contributions,” “document fees” and “move in fees” that may take you by surprise.  Ask about these.

 

Now let’s look at some other, less obvious costs of home ownership.

 

What about energy costs? These can vary substantially from one house to another. Find out what the current owner is paying for gas and electricity each month, and factor in whether the number of members in your household will vary from the seller’s when projecting what your energy costs will be.

 

Once you’re under contract, you’ll be hiring a home inspector to evaluate that home. Make sure it’s an inspector who is qualified to assess the home’s energy efficiency as part of his inspection (at no extra cost). We can recommend such an inspector.

Your inspector can also assess how much deferred maintenance there is on the house you buy. Get his advice on how much you might need to budget in coming years for maintenance and repairs, which can vary greatly from one home to another.

Water consumption is big cost to consider, especially if the home has a lot of Kentucky bluegrass, which requires lots of water.

Here’s a hidden expense you may not have thought of — health expenses due to bad indoor air quality. You recognize the smell of new carpeting, right? It’s not as innocuous as you might think. You might well be smelling VOC’s — volatile organic compounds. Some paint also contains VOC’s, and they’re less expensive than paint labeled “low in VOCs.” Ask your inspector to assess how many VOC’s might be in the air that could literally make you sick. Mold is another sickness-causing consideration. Your inspector will tell you whether a separate mold inspection is called for. He (or we) can recommend mold inspectors. Radon tests, costing $100-150, are also a good idea, since naturally occurring radon gas is a known carcinogen.

 

Older homes have clay sewer lines that are prone to root intrusion and collapse, which is the homeowner’s responsibility. A $100 sewer scope could identify the need for a 4-figure repair that you might be able to get the seller to absorb, saving you that expense later.

Published June 15, 2017, in the Denver Post's YourHub section and in four Jefferson County weekly newspapers.

Our Closing Gift for Buyers: A Home Energy Audit

Golden Real Estate has a well-deserved reputation for its commitment to sustainability. Our agents are certified EcoBrokers® and we earned the City of Golden’s Sustainable Award for Business in 2010, in recognition of our solar powered office, recycling of Styrofoam, and other practices, which have only expanded since then.

 

Now we’ve come up with the perfect closing gift for our buyer clients. We have partnered with Andrew Sams of Alpine Building Performance, LLC, to provide a full home energy audit after closing — a $385 value! 

A home energy audit, also known as a home energy assessment, is the first step to assess how much energy your home consumes and to evaluate what measures you can take to make your home more energy efficient. An assessment will show you problems that may, when corrected, save you significant amounts of money over time.

Published June 1, 2017, in the Denver Post's YourHub section and in four Jefferson County weekly newspapers.

 

Sen. Bennet’s SAVE Act Will Bring Sense to Valuing Solar-Powered Homes

[Published Jan. 26, 2012, in the Denver Post]

I had the privilege of representing the Realtor community last week at a press conference promoting the SAVE Act, an important (and rare) bi-partisan bill co-sponsored by Sen. Michael Bennet, (D-Colorado) and Sen. Johnny Isakson (R-Georgia).

“SAVE” is an acronym for “Sensible Accounting to Value Energy.”  The act is long overdue, and let’s hope it does not become a victim of the partisan gridlock in Congress. Besides its bi-partisan sponsorship in the Senate, it costs nothing, merely instructs underwriters to modify appraisal guidelines.

On the one hand the Act will improve the underwriting of mortgages by requiring energy costs to be considered alongside property taxes and insurance.  It makes no sense that lenders don’t factor in the cost of operating a house when determining whether a borrower can afford it.  After all, the average energy costs of American homes today is greater than the average cost of property taxes.

The flip side, which is dear to me as the owner of a solar-powered home, is that appraisers will be empowered to assign extra value to homes which consume less energy, whether through extra insulation or on-site power generation.

As I’ve written in the past, appraisers — and the underwriters who must accept their appraisals — are not allowed under current guidelines to give value to such efficiency unless there are comparable sales proving that homes with these features have sold for more than homes without them.

Personally, I have sold two listings which had photovoltaic (PV) systems resulting in near-zero electrical bills.  Both sold for no more than homes which lacked such systems, because there were no comps to support extra value.  The result of those sales merely reinforced the problem, since they created comps which proved such systems have no value! It’s a catch-22 situation which the SAVE Act  and a “greener” MLS can address.

Sen. Isakson, himself a 30-year practitioner of residential real estate in Georgia, points out that in addition to improving underwriting guidelines (which could reduce foreclosures), the bill could actually create jobs by improving the return on investment for energy efficiency and renewable energy improvement made by homeowners.  Currently, you can expect far less (or zero) return from such investments than, say, for redoing a kitchen or bathroom.