Sunday, April 27, 2014

IN HONOR OF SOUVENIRS

Sometimes it is not a time for writing; it is a time for remembering.

RIP dear friend.

-ally


Image courtesy of symphony of love via Flickr.

Friday, April 18, 2014

DO I REALLY NEED A REAL ESTATE AGENT?


Real Estate Agents

Wow.  We sure pay a high price for their expertise.  Typically 6%* of the total sale.
*3% goes to the seller's agent and 3% goes to the buyer's agent, though both of those amounts are paid by the seller.
Image courtesy of Marcia Todd via Flickr

Not that a client is privy to such information, but my experience is that an agent spends between 10 and 20 hours per sale.  Wait up, that's for me, and I may not be the standard client.
When selling, I do my own staging, photography, open house and advertising.  My agent posts my information to the MLS, handles negotiations, and draws up the paperwork.  When buying, I find the house on my own and rely on the agent to get my choice shown, handle negotiations and paperwork.

So that's likely not true for most clients.  An agent friend of ours says that 80 hours is not really what you could call typical (because the number of hours is drastically different for each client), but it is close to the average of time spent for him.

An Example

If the majority of houses in our neighborhood range from about $250K to $500K, let's see what that looks like:


That's $94 PER HOUR for each real estate agent (@3% each) if they each spend 80 hours on the sale of a $250,000 home.  That's a pretty high hourly rate, and it goes up, of course, with the value of the sale.


Questions When Hiring a Specialist or professional:
Image courtesy of wvhomes via Flickr

  1. How qualified are the people you've hired? (this determines a reasonable hourly rate)
  2. How hard are they working for you? (a total of 10 hours seems unacceptable, while 80 hours starts to look more reasonable for a professional hourly rate in this price range)

For Comparison:



ALL professionals have OVERHEAD:

  • taxes, memberships, offices, benefits, marketing, licensure
  • unbillable hours to keep the business running, and 
  • work that goes unpaid (in hopes of landing the sale/project/case)
and these must be built into the hourly rate.  This is true whether that professional is a lawyer, a doctor, or a real estate agent, and whether they are self-employed or part of a larger company.
This means that when looking at hourly rates across fields, we are comparing apples to apples.

However, when asserting "apples to apples," it is important to note the difference between a business's hourly rate that is charged to a client vs. the hourly rate that an individual (employee or self-employed person) receives as their gross income.  For example, a $42/hr rate charged to a client--after the business overhead items listed above--may be only $26/hr income for the individual before taxes.


A Side Question:

Why do real estate agents get a percentage vs. an hourly rate?
Charging a percentage makes it incredibly difficult for agents to make a living wage on lower-priced homes, and probably steers them away from that market.

Contracts could even be written as an hourly-not-to-exceed, so that the client can budget for the expense and will be informed if the hours are getting close to the agreed-upon limit.



My Point of Reference

I honestly believe these fees are fairly over the top and this is why: architects (my point of reference) often do not get paid as much as 6% of the construction costs (which do not include the value of the land as in real estate transactions).

Architects have typically five years of college-level education, seven licensing exams, and several years of internship before getting a license.  They sweat over creating a building out of their imagination and have a large team of specialized consultants and draftsmen to turn that into a set of drawings.  They then administer the construction all the way until completion.   Compare that to the section below.   (You're wrong: I don't feel strongly about this at all.)



The Difference Between Real Estate Agents & Brokers

Though requirements vary by state, there are some common themes for Real Estate Agents
Image courtesy of MarkMoz12 via Flickr

  • Education: a few college-level courses (not a degree) or a certain number of hours.
  • Testing: pass a state and national test 
  • Internship: be mentored by a Real Estate Broker (and start off by sharing part of your commission with him/her)
And for Brokers:
  • Education: a few more college-level courses
  • Testing: pass another state and national test 
  • Experience: have at least two years of experience as an agent


But Aren't Real Estate Agents Obsolete?


Seems like FSBO signs used to be posted only by people who were anarchists, disassociated with most social and regulatory conventions.  These days, I can post my house on Zillow in about fifteen minutes and it costs me nothing.  What's to stop me?

Nothing, really.  And I may even get a few hits.  I won't get top dollar, and I may have to wait awhile, but I may be saving 3% (or even 6% if the buyer agrees) in fees.  What does this look like?

As long as I get within 3%-6% of the price I would have gotten with an agent, I'm in the clear.
Of course, to know what price I-would-have-gotten-with-an-agent, I'd have had to go through the listing process and have some offers to even know what that number is, so that math is not terribly helpful.
Part of what an agent can do is help you decide what price is a good price to list your home at.

Sellers

The truth is, as a seller, if you really want exposure to the real estate network of anxious buyers, you've got to go the trodden path and pay the percentage fees.

Buyers
Image courtesy of familymwr via Flickr

However, as a buyer, there is another option: the real estate lawyer.  If you're like me and do all your own online and "legwork" searching, and you've found the gem you want, you can have a lawyer draw up the documents (or review the documents drawn up by the seller's agent) for a flat fee or an hourly fee.  Even if it takes them a few hours at $150/hour, that's less than $500.  Quite a savings over 3%!

Outsiders

Of course, you still have to break into the real estate world.  I've used Zillow to email a "knock on the door" of several sellers' agents who couldn't be bothered to get back to me.
I'm only assuming that it's because I'm on Zillow and not a agent-only site.  Maybe I'm just being sensitive?

In fact, I have been told that real estate agents pay "exorbitant" advertising costs to both Zillow and Trulia.  That's a terrible reason for agents to ignore interested parties: must've been a fluke!

Greed & Negotiations

And there's the aspect of one's home being the largest asset most of us have.  Which makes the buying & selling process the biggest business deal we've ever been a part of.  That brings out fear and stress and worry... As a homeowner, it's not something you want to screw up or be screwed on.  My agent friend says,

"A self represented buyer frequently is absolutely out of their element in any but the most polite and friendly negotiations. Most negotiations are just what you would expect in a 6 figure business deal."


It's Not a Contest

If I can disassociate myself from the question,

  • "Do real estate agents make more than the architectural teams who design a building?" 

(and just accept that most architects are underpaid) I can focus on the real issue of this post,

  • "Do real estate agents earn their standard 3% fee?"


My Favorite Real Estate Agency

Image courtesy of MarkMoz12 via Flickr
When I'm not trying to figure out how to DIY real estate, I'm trying to build a network of those who are really good at it.  I mean, if I'm going to pay those fees, I want to get my money's worth.  There's a relatively new real estate company in town here, and I'm a fan.

They are vibrant, young-but-old-enough-to-know-their-stuff folks.  Their collaborative team delivers full sales services, including staging, professional photography, excellent text and graphic design, and a regular online magazine-style blog.  All of this for homes just at the upper end of the price range mentioned above.  It's not that I haven't seen this kind of service before; it's just that I've only seen it on really high-end properties.

My other favorite thing about Cityhome Collective?  They organize their listings by neighborhood (not zipcode), and even have information about the businesses & culture of each neighborhood.  Supercool and intuitive to navigate.


It Comes Down to Services

Image courtesy of Images_of_Money via Flickr
My point is not to bash real estate agents! I know some really cool people who are agents, who work very hard.

As someone passionately interested in affordability, I simply want to get value for what I'm paying.

What services is an agent providing for me?

Are they earning their 3%*
  • by negotiating for more than I could have on my own (essentially paying their own fees), 
  • with specialized expertise that I do not have,
  • in a shorter time span, and 
  • with minimal stress on my part?

That would be a great deal, at any price! 



Cheers,
ally

*This last part also comes from My Point of Reference.  I often tell people that most people building a home can "afford" an architect, because he will "earn his wage" within the budget by saving you money through efficient design and materials use, overseeing a contractor on your behalf to make sure you get what you pay for, and being your representative with all parties.




Friday, April 11, 2014

WHAT'S A YARD FOR, ANYWAY?

It's Spring again, and I'm ambivalent about it.  Part of me is very excited to get my hands in the soil and try not to kill my plants this year, get some sunshine and just revel in what passes for nature in our yard.
The other part me is dreading it: do I really want that shrub there?  Is that tree really dead?  Why did three of that variety die but the fourth is just fine?  Sometimes I'm a little envious of people who just have grass in their front yard..... in spite of the fact that that's what I had when I started.


"Urbana, IL Mumford House and South Farms 1918"
Image courtesy of army.arch via Flickr

Why Do We Have Yards?

Seems like a silly question, but considering that urban planners are trying to get suburbanites to do without them, perhaps we should at least review.

Farms


In the country, yards were the interstitial & surrounding areas of a homestead and its assorted outbuildings like barns, sheds & stables.  A homesteader or farmer would typically plant trees to protect from winds, and grasses to alleviate wind erosion and dust storms. A courtyard would often be established: an exterior space that was also protected.  Animals and people could be defended against thieves and predators by their proximity.

city park in Batumi, capital of Adjara, southwest Georgia
Image courtesy of vampa_ via Flickr

Parks, Air & Light


In the city, paved courtyards were a reprieve from intense density where sunlight and fresh air were largely absent.  Occasional parks (which for a very long time were only for the wealthy) could be the only source of plant-generated oxygen.  Today parks are typically referred to as "green space" in planning language and are valued mainly for these reasons.

"San Francisco Earthquake and Fire April 18, 1906." 
Filmmaker unknown.
Courtesy of the Library of Congress

Fires

And don't forget about the spread of fires.  The Great Chicago Fire of 1871 was started in the O'Leary's barn, whether by their cow or not.  The San Francisco fire of 1906 was started by an earthquake.  Many other less famous fires ravaged towns when a small fire would spread, usually through flammable building/roofing materials and close proximity.

1911 Sanborn Fire Insurance Map
of a part of my neighborhood.
Pink is brick/masonry; yellow is wood; "D" is for dwelling.
Distances between buildings are shown in feet.
The number of storeys is also indicated with a "1" or "2."
Fire Insurance maps helped insurance companies assess the risk based mainly on these two characteristics. (Plus, they're super cool.)

Why Today?

If you were to ask me why I (in particular) have a yard, I wouldn't give you any of those answers, though.  I'd tell you that I moved from an affordable and awesome Victorian flat downtown that we restored/remodeled to a neighborhood-with-parks and houses-with-yards for one reason: children.
A slightly blurred picture (to protect the sweet
innocents) of what we call the "sprinkler dance."

The house is a wreck of DIY remodels and questionable tenants over the last 100 years, but the neighborhood is perfect.  And we have a back yard!  A swing and a place to dig holes and chase worms and get busted for running in the sprinklers naked (again) and hang out with friends and..and..and.

We also have a front yard.  We've slowly been transforming our front yard from an uneven lumpy grass- & weed-fest to a garden of mostly native plants.  We also plant vegetables and I dare anyone to have tastier strawberries than our tiny little guys.  Only about 2/3 or our plants come back each year, but it's a wonderful journey to learn about soil and compatibilities and what works and doesn't work.

Why do YOU have a yard?



Can We Do Without Yards? (And Why Would We Want To?)

"Village of Kumrovec," Croatia
Image courtesy of archer10 (Dennis) via Flickr.
These homes are separated from the road by only a ditch,
a strip of lawn (almost a park strip) and a row of shrubbery.

Save Water & Money

1/3 of residential water use is for landscaping our yards.  This does not include what farmers use for irrigation.  It's mostly for maintaining grassy lawns. Click here for a short video on conserving water if you DO have a lawn.

Save Time & Money by Eliminating your Front Yard


"Alfie's - High Street, Winchester"
Image courtesy of ell brown via Flickr
Instead of having side yards,
these buildings share a parti wall and
are built all the way up to the sidewalk.
Most of the good reasons I can come up with for a yard apply to a back yard: a yard that can be used.  Front yards often just have to enhance curb appeal so you don't anger your neighbors.  You could sell your lawn mower and fire that annoying neighborhood kid.

Increasing Land Values


In areas where there are steadily increasing land values, open space for parking or yards eventually disappear.  As an individual, you can buy more house if you don't have to pay for as much land.


Would YOU consider eliminating your yard?




Front Yards vs. Back Yards vs. Side Yards 

"Pakenham Road, Monkstown," South Dublin
Image courtesy of infomatique via Flickr.
No front yard, but significant side & back yards.

To recap, my simplified view of yards is this:
  • front yards are typically for the benefit of your neighbors, but are not meant to be used
  • side yards help with privacy between neighbors, but they're not the only tool for that
  • back yards are an extension of the living space that you call home


How is a Yard different from a Garden?


Yards are typically enclosed, and associated with a specific purpose and building(s).  A garden exists for its own purpose, namely the plants that it houses.  I guess my goal is to turn my front "yard" into two "gardens:"

  • 75% indigenous shrubs, trees & flowers that (once established) are low maintenance and provide habitat for what little wildlife we have here, like bees, butterflies, ladybugs, birds, etc.  
  • 25% vegetable garden as I learn what will grow here.  A lot of this process is what we can eat raw or know how to prepare.  For example, I can grow cucumbers, but they're nasty and bitter (ew). 
Many people would consider the front yard a silly place to grow vegetables.  Others think it's a WONDERFUL idea.  It replaces a useless front yard with an edible front garden.

What do YOU think?  Too utilitarian?

Cheers,
ally


Friday, April 4, 2014

BOOK REVIEW: The Cheapskate Next Door

The Cheapskate Next Door: the surprising secrets of Americans living happily below their means (2010) by Jeff Yeager  


The Review


I thought this book was the most fun I ever had reading about money.  The writing is entertaining and the approach to finances challenging from a philosophical standpoint but super easy from a mathematical one.  I totally recommend it for people at any stage of life for mid-course correction, but especially at the beginning stages before the I'm-an-adult-now-you-can-tell-from-my-expensive-car stage starts.

By the way, regardless of the typical connotations of the word "cheapskate"-- someone like Scrooge who removes all the joy from life to save a half-penny-- Mr. Cheapskate Yeager actually encourages focusing on what is really important and beautiful about life rather than on its cost.
For example, do not stop having dinner parties.  Instead, serve a less expensive brunch menu or big pot of soup or have a potluck.  The focus is the friends, after all.

"A Cheapskate values time more than money.  
It helps to put the true cost of things in perspective.  But, if you go about it wrong, frugality and saving money can be a time-suck in its own right.  It’s really more about stretching their time than it is about stretching their dollar."



The Reason Mr. Cheapskate is Relevant at Zessn


Considering the largest asset most middle class Americans have is their home, it's the biggest part of the financial pie.  I'd like to report on some of the the approaches that cheapskates interviewed in the book have taken as they apply to housing.

A "non-traditional approach":

Take a non-traditional approach to the big ticket items AND control your spending on a wide range of small-ticket items.


"Kate moved an unwanted house at her own expense to land she already owned.  This cost $6500 to move plus $20K for a new foundation, basement & remodeling."  

"Albert Polhemus House" getting moved
Image courtesy of dfulmer via Flickr
The same lady moved an old barn to her property, board by board, and only paid $250 for it.

In another example, a 48 foot sailing ship (<500sf) docked in the Baltimore harbor cost its owner only $18K.
SO much cooler than a trailer park…it reminds me of that guy from the Highlander TV show in the 90’s who lived in a cool barge parked on the Seine in Paris.
I always loved that.
(warning: the ones in the link are not DIY, they've already been restored, so they're not gonna be $18K)

Eclectic Housing:


"Artists' Handmade Houses"
a great book about eclectic houses
largely DIY by creative people who
intended to stay in them a long time
"Many cheapskates have a passion for eclectic housing.  Part of it is a money thing; nontraditional housing often costs less, sometimes a lot less.  But I suspect that for most of us it’s more about expressing and being comfortable with who we are.

"We want to live in a place that is truly our home, not a house that we buy to keep up social appearances, or just because it’s a good investment, or a home that we’re afraid to modify to fit our particular (peculiar?) tastes for fear of negatively impacting its all-important “resale value.”  We want the luxury of owning a home that’s about us, not about what other people have or want or think. Ironically, that kind of housing often costs less than traditional housing."  




Negotiating for a House:


“A mortgage is a house with a guilty conscience.”

"Show them the money.  Paying with cash can often get you a better price."  Dave Ramsey recommends paying with cash, too.
I'm not so sure.  You have to pay rent while you're saving up for a down payment or to pay cash for a place to live.  In many cases, rent can be higher than the mortgage payment.  This makes no sense in my book.

Mr. Yeager also insists that banking services are very competitive and they will often waive fees if you ask.


The Right Size:

Differentiate between needs and wants.

Buy a “right-sized” home:  cheapskates average 1650sf vs national average of 2300sf.  The cost of U.S. housing per sf has increased only by inflation, but Americans spend almost DOUBLE on housing today than what we did in the ‘50s, simply because most Americans now want twice as much house.


Unless your commute looks like this!
Image courtesy of brian glanz via Flickr

The Right Place

Eliminate the commute.  Typical Americans drive 16mi to work (and back) at a cost of $4K/year.


The Right Price:

Buy a home that costs less than what you can qualify for based on your income.  Base it on how much you can afford to spend.  Cheapskates typically keep their housing costs (mortgage payment, taxes, insurance, maintenance) to 25-30% of their take-home pay.  Two-income cheapskate families only use one income for this calculation in case one spouse loses a job.
This advice is in alignment with what I've seen from Dave Ramsey.

Pay Off the Mortgage

"Paid In Full"
Image courtesy of kjarrett via Flickr

Pay it off as quickly as possible: 80% of cheapskates plan to or already have paid off their mortgages early.  Make additional payments with yard sale proceeds, or a few extra dollars every month.  Allocate the increase from pay raises directly to mortgage payments.
Consider setting up a “mortgage acceleration plan” with your lender (making ½ payments twice a month). This will knock years off your mortgage.
If you refi, do the math carefully and shorten the remaining term.

Focus on the prize (being mortgage-free).
Don’t be envious of neighbors who move on to bigger, more expensive homes/mortgages.  They may never get out from under a mortgage.

Home & Landscaping Improvements

"Home Improvement Store"
Image courtesy of Raymond Bryson via Flickr
Home improvement is all about timing: hire help during the “slow” season: landscapers in the winter, exterior repairs in fall/winter, interior jobs in spring/summer, moving company btw Oct & April.
Stay in your house as long as you can. Enjoy it.  Make it your own.  Put down roots.  Get to know your neighbors.

Practice guerrilla gardening:  swap plants with friends & neighbors at plant-swap meets.  
Befriend local landscapers who often discard plants they uproot from landscaping jobs.

Divide & propagate more plants from the plants they already own.  Score free or cheap mulch from the local highway department or landfill.  Recycle items into one-of-a-kind garden art.


I thought the Cheapskate Next Door had some great insights into how to keep your home affordable.  If you liked this, go get Mr. Yeager's book.

Cheers,
ally

P.S. my ab fav clip on Financial Responsibility from Saturday Night Live



SNL skit (partial) with Steve Martin
Season 31: Episode 12 (February 4, 2005)


"Seriously, if you don't have the money, don't buy it!"