Nuts & Bolts: Building Going Sky-High!

Home building permits near 4-1/2 year high

Reuters | December 2013 | link

WASHINGTON – U.S. permits for future home construction set their fastest pace in nearly 4-1/2 years in November, pointing to underlying strength in the housing market, even as starts dropped after three straight months of strong gains.


Joe Raedle / Getty Images

Electrician Calvin Warren helps build a Toll Brothers Inc. home in the Azura community on November 20, 2012 in Boca Raton, Florida.

The Commerce Department said on Wednesday building permits increased 3.6 percent to a seasonally adjusted annual rate of 899,000 units, the highest since July 2008.

Economists polled by Reuters had expected permits, which lead starts by at least a month to rise to an 875,000-unit pace last month from 868,000 units in October.

Groundbreaking fell 3.0 percent to an 861,000-unit pace, worse than economists’ expectations for a pullback to 873,000 units. October’s starts were revised down to show an 888,000-unit pace instead of the previously reported 894,000 units.

The step back in homebuilding in November followed three straight months of solid gains, and reflected a 5.2 percent drop in the Northeast, which was slammed by Superstorm Sandy in late October. Starts also tumbled 19.2 percent in the West.

The housing market has regained some footing after a historic collapse that pushed the economy into its worst recession since the Great Depression.

That firming trend was reinforced by a report on Tuesday showing builders’ confidence in the market for new single family homes rose this month to its highest level in more than 6-1/2 years.

Homebuilding is expected to add to gross domestic product growth this year for the first time since 2005.

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 4.1 percent to a 565,000-unit pace. Starts for multi-family homes slipped 1.0 percent to a 296,00-unit rate.

Permits to build single-family homes dipped 0.2 percent last month to a 565,000-unit pace. Permits for multi-family homes increased 10.6 percent to a 334,000-unit rate.

Nuts & Bolts: Home Generator 101

Selecting a Home Generator

 Bob Villa | Zillow Blog | December 12, 2012 | link

By Bob Vila

It may have seemed like overkill in the past, but recent storms have forced many to reconsider the wisdom of owning a generator. Brief, infrequent electricity outages are easy enough to endure, but if you’re losing power more frequently and for longer periods of time, it may be time to purchase a portable or standby generator.

Portable generators: Labor-intensive but affordable

Smaller portable generators cost between $500 and $1,500 and are capable of powering your home’s essential appliances. But while this type of generator is relatively inexpensive and quick to set up, it does require manual operation and close monitoring.

First things first: You must be at home when the grid power goes out in order to get a portable generator going. And because a gas tank will hold three to six gallons on average, you must periodically refill it, even during foul weather.

Due to the risk of carbon monoxide poisoning from engine exhaust, a portable must be placed at least 10 feet away from the house. And I recommend plugging in a carbon monoxide detector whenever you run the generator as an extra precaution.

Standby generators: Hands-off but expensive

More powerful, quieter and safer than their portable counterparts, standby generators start automatically in a blackout — you don’t need to lift a finger. But that convenience doesn’t come cheap. Installed, an average system of this type will cost about $10,000.

The upside is that standby generators tend to last a long time, approximately 15 years. And upon home resale, they recoup 50 percent or so of their value. Though maintenance is necessary every two years, licensed professionals can help ensure a unit’s reliability.

Whether it’s worth it to shell out for a standby generator depends largely on your needs. Grid failures are certainly inconvenient for everyone, but for some people, living without power can be dangerous —families with home medical equipment come to mind.

In making your decision, strike a balance between what is essential for your comfort and what your budget will allow.

Buying in the New Year: What Everyone Else is Buying

10 Most-Viewed Homes on Zillow in 2012

Erika Riggs | Zillow Blog | December 31, 2012 | link

‘Tis the season for end of the year lists: best books, best movies, best newsmakers. But it wouldn’t be the end of 2012 without another significant list: the most-viewed homes on Zillow. From luxury mansions in Miami and Beverly Hills to a home once owned by the Osbournes, here are the properties that garnered the most clicks, starting with No. 10.

10. Mary Kay’s Pink Home

8915 Douglas Ave, Dallas TX
For sale: $2.799 million

The former home of the founder of Mary Kay Cosmetics is exactly the color you would expect: a soft shade of light pink. Mary Kay Ash’s mansion was designed in 1984 and served as the businesswoman’s home and headquarters in Dallas. She sold the home in 2000 in her efforts to downsize. Watch the video tour.

9. Sunset Boulevard Mansion

901 N Alpine Dr, Beverly Hills CA
Not for sale

The home may have garnered views for its spectacular size — 28,000 square feet — and its previous $29.9 million price tag, but even more interesting is the history of the home’s location. The house sits on a lot that once held a home owned by Sheikh Mohammed al-Fassi, an in-law of the Saudi Arabian royal family. He painted his house bright green and decorated the grounds with statues painted in flesh colors. In 1980 the home burned down, and the property was split into two lots, one of which was recently for sale as an unfinished mansion.

8. Million Dollar Room in Atlanta

490 W Paces Ferry Rd NW, Atlanta GA
For sale: $19.90 million

A spot on television can get a home quite a bit of fame. This Atlanta house was recently featured on HGTV’s “Million Dollar Rooms” for its pool courtyard. Designed to be an outdoor retreat, the pool area features beautiful marble mosaics, fountains and spas as well as a full outdoor kitchen and dining area. The rest of the house isn’t too shabby, either. Measuring a whopping 40,000 square feet, the property includes seven full kitchens, two gyms, hair and nail salon, wellness center, cigar room and theater.

7. Christina Aguliera’s Home

513 Doheny Rd, Beverly Hills CA 
For sale: $13.5 million

It could be that “The Voice” host and singer Christina Aguilera owns this home. It could also be that the Osbournes once owned the Beverly Hills estate. Or, it could be the quite eclectic decor that reels people in. Whatever the reason, the Mediterranean-style manse garnered enough visits to put it at No. 7 on the list. The home is currently for sale — listed for $13.5 million since March 2011.

6. Encino Cliff Home

17070 Encino Verde Pl, Encino CA
For sale: $3.98 million

No. 6 on the most-viewed list is the kind of home most people dream of living in. Perched on a 5-acre, cliffside lot in Encino, the house is filled with luxury touches. The home begins with an enormous grand entry with black crystal chandelier and includes a gourmet kitchen with high-end appliances, enormous living room with a 20-foot wall of windows and a master suite with steam shower, dry sauna and whirlpool bath.

5. Woolworth Apartment

4 E 80th St, New York NY
For sale: $90 million

What makes this townhouse worth $90 million? Location: The home is located on New York‘s prestigious Upper East Side and measures 19,950 square feet. Built for Frank Woolworth in 1915, the neo-French Renaissance mansion is 35 feet wide, with 14-foot-high ceilings, grand fireplaces and formal parlor and breakfast room.

4. Over-the-Top in Beverly Hills

904 N Crescent Dr, Beverly Hills
For sale: $58 million

Just steps from the Beverly Hills Hotel is “The Crescent Palace,” which features a swan pond, and indoor and outdoor pool on over an acre lot. The 7-bedroom, 11-bath home also features a Moroccan dining room, media screening room, grand ballroom, 5,000-bottle wine cellar, gym and elevator.

3. Versace’s Florida Home

1116 Ocean Dr, Miami Beach FL
For sale: $100 million

Swim in luxury in this home’s 24-karat gold-lined pool. Purchased by fashion powerhouse Gianni Versace in the 1990s, this Miami Beach home has 10 bedrooms and 11 bathrooms in a 23,462-square-foot floor plan. Most of the interiors are just as luxe as the gold pool outside, featuring tile mosaics, hand-painted walls and ceilings frescoes.

2. Florida Private Island

E Sister Rock Is, Marathon FL
For sale: $12 million

Located off the Atlantic shore of Marathon in the Florida Keys is a private island getaway with all the amenities. Surrounded by its own coral reef, the island measures 1.5 acres and contains a Bahamian-style 4-bedroom, 3-bath home.

1. Dick Clark’s Yabba Dabba Digs

10124 Pacific View Rd, Malibu CA
Not for sale

You may expect the host of “American Bandstand” to live in a classic home — perhaps a California mid-century modern. Rather, the late Dick Clark’s home is more “Flintstones” than Americana. Perched on more than 22 acres in Malibu, the 2-bedroom cavern structure was last listed for $3.5 million.

Buying in the New Year: Keeping Your Transaction Alive

Beware of these deal killers

Navigating clauses and conditions in real estate contracts

Lew Sichelman | United Feature Syndicate |December 27, 2012 | link
Beware of these deal killersThe typical real estate sales contract includes a number of clauses that can scuttle the deal. (Bon Bon/ Imagezoo / December 21, 2012)


The typical real estate sales contract includes not just a price and a closing date but also a number of clauses, any of which can trip up the buyer or seller and scuttle the deal.

While contract language may vary from one place to another — not just state to state but also county to county, and sometimes even from one company to another — here’s a quick rundown of some clauses or conditions that are likely to cause the most trouble:

Financing. Perhaps the most common contract condition makes the transaction contingent on the buyer obtaining a mortgage or a written commitment in the amount required to complete the purchase within a certain time frame.

Each part of this clause is important, obviously. But according to real estate professionals, the timing aspect can be the most troublesome. The sooner the buyer can complete this condition, the better. If the deadline passes without a loan approval, the seller has the right to cancel the contract.

“Since financing contingencies can be complex and vary widely, they require strict attention to all timelines involved,” advises Sam DeBord of Coldwell Banker Danforth in Seattle.

But buyers beware of using this clause to get out of the deal. You could find yourself in default if you fail to follow through on what you agreed to.

In Virginia, making a substantive change — seeking a loan that far exceeds the amount specified in the contract, for example, or being unable to find a rate that’s lower than what’s stated in the contract — may put your earnest money deposit in danger. In Minnesota, if your financing falls through after you have satisfied the financing contingency, the seller can keep all the earnest money as damages.

On the other hand, Florida contracts are “very one-sided” in favor of buyers, reports Liane Jamason of Smith & Associates in Tampa. Twice recently, Jamason had to deal with upset sellers who mistakenly thought they were entitled to their buyers’ deposits when their financing fell apart after months of waiting to close.

Closing costs. A poorly worded clause here can cost the buyer or seller a lot of money, depending on how it’s written.

Often, the agent writes in the contract that the seller will pay X amount toward the buyer’s closing costs at settlement, when what the buyer really wants is that X amount be paid toward closing costs, points, prepaid items, lender-allowed costs, warranties, administrative costs and fees.

“Closing costs are really only those associated with closing the transaction and may be far less than the entire list of financing charges,” explains Jim Mellen of Re/Max Peninsula in Williamsburg, Va. “A buyer who shows up at the table planning to have $6,000 paid on his behalf will be awfully angry if he gets only $1,200 of his fees paid.”

Another possible issue is how the closing cost contribution is stipulated. If it is given as a portion of the selling price, say $300,000, a 3 percent contribution could cost the seller $9,000. But if it is written as a part of the financed amount, say $240,000, the seller would be on the hook for just $7,200.

Make a mistake, and there are no do-overs. “The written word on a contract will trump intentions all day long,” Mellen says.

Disclosures. The different property disclosure clauses are “some of the more difficult to navigate,” says Ralph Harbison of Re/Max Realty Brokers in Birmingham, Ala. Buyers tend to want “yes” or “no” disclosures, but sellers prefer something that says they are not aware of any issues. And that leaves buyers to wonder what’s wrong with the place.

Writing certain inspection clauses — termite, radon, mold, lead-based paint, home — into the contract should go a long way toward removing the buyer’s anxiety, but only if the buyer adheres to the contract’s timelines.

In Florida, for example, the buyer typically has 10 days in which to obtain and review a home inspection. The buyer can cancel the contract during this period by providing a written notice to the seller, or he can ask for an extension. But issues arise when the buyer tries to negotiate repair credits or actual repairs and the inspection period expires.

“If the repair issues cannot be resolved during the initial inspection period, the buyer must execute the cancellation or extension,” says Blair Damson of Coldwell Banker in Coral Springs, Fla.

In the Philadelphia area, as long as the buyer adheres to the time limit, he only has to notify the seller that he does not wish to proceed to get back his earnest money deposit. But Linda Williams, an attorney/agent with Sage Realty in Wayne, Pa., goes a step further by making sure the deposit is not payable to the seller until after the inspection period ends.

In Warren County, N.Y., broker Mark Bergman, president-elect of the local multiple listing service, writes inspection clauses with specific repair cost limitation “to prevent frivolous renegotiation.”

Dates. One more thing about timelines: Be explicit. Contract language should be spelled out in either calendar days or banking days, says Magda Robles of Keller Williams Properties in Weston, Fla. “Number of days is not good enough,” she says. “Specify the specific month, day and year.

“As is.” This clause can be a double-edged sword, says David Welch, a broker in Orlando, Fla. While the seller is not obligated to make any repairs found necessary during an independent home inspection under the as-is clause, the buyer can cancel for any reason if he does not like what the exam has revealed.

Short sales. Buyers need to be leery when a “seller” in a short sale commits to paying closing costs. The bank is the seller, not the occupant, warns Christy Walker of Re/Max Signature in Phoenix. As such, the bank has every right to renegotiate the fees or refuse to pay them at all.


Buying in the New Year: Get Prepped

Tips for Preparing to Buy in 2013

 Zillow Blog | December 27, 2012 | link

You’ve been saving your pennies for a down payment and watching the housing market news. You see the low interest rates, are confident you’ll own a property for at least five years and know that you’ll be able to find a home that you’ll love within your budget.

You’re finally ready to buy a home in 2013!

Here are a few tips to help you get started.

Get with a lender

First up is going to a bank, direct lender, credit union or mortgage broker to get qualified for a loan. They will run the numbers to set your price range for financing. This will help you in working with a real estate sales professional to determine which areas and types of properties fit within your budget. The lender will also pull a credit report to see if you need to be aware of any credit issues. If necessary, this will give you time to start improving your credit picture to make you the most creditworthy you can be when it comes time to lock your loan rate and terms.

Find a competent real estate agent

You also should look for a real estate agent whom you feel can best represent you. Talk to friends and acquaintances for referrals, and interview at least three agents. Find out how many properties they’ve sold in the past few years, what training they have and whether they work as an agent full time and know the areas where you would like to purchase. Get some references from each one and actually take the time to call those references and see what they thought of the real estate professional’s service level and experience.

Educate, educate, educate

This will most likely be your most complicated, expensive and riskiest purchase of your life. You should talk to friends, family members and possibly a lawyer; read books, articles or take a class. In other words, do everything you can to better understand the real estate buying process and how to make the best home purchase decision.

Shop, shop, shop

Consider all the neighborhoods that fit in your price range. Drive them during the day, at night and on the weekend to get a feel for the areas. Look at the neighbors’ properties, any retail spaces nearby and check online neighborhood ratings, crime reports and school ratings. Learn all you can about where you are going to be a real estate owner.

With a price range from your lender, a good real estate sales professional on your side and a solid education on buying a home and the areas where you want to buy, you’re now better prepared to make 2013 the year of the home purchase.

Selling in the New Year: Financial Fitness First

7 Tips for Keeping Your Financial Fitness Resolution

RIS Media | January 2, 2013 | link

Financial Planning and Review of Year End Reports [1]The new year is a great time to get yourself pointed in the right direction financially. “Making small improvements at the beginning of the year is a lot easier than trying to play catch-up,” says financial planner Rick Rodgers, author of “The New Three-Legged Stool: A Tax Efficient Approach To Retirement Planning.”

“Just as you would embark on an exercise program to lose weight and get physically fit, there are simple steps you can take that will lead to being financially healthy and fit.” Here are Rodgers’ seven tips for improving your financial life in 2013.

• Review your credit report—Borrowing money isn’t the only reason to check your credit. Employers check credit reports and so do insurance companies. Your credit score can have a profound effect on the amount you pay for auto and homeowners insurance—and perhaps on health and life insurance in the not-too-distant future. Order your free credit report at

• Set up an Automatic Savings Plan (ASP)—If your employer doesn’t offer this through payroll deduction you can set one up through your bank or brokerage account. Simply have a certain amount of money withdrawn from your checking or savings account each month and deposited into your investment account. That way, you save it before you ever have a chance to spend it. Try to increase the amount you invest at least once a year.

• Establish a cash flow plan—Business owners know you can’t control what you don’t track. Take the time to forecast your income and expenses for the year, and put it in writing. Then adjust those numbers to reach your goals, such as paying down debt or replacing a car. Track your progress on a regular basis by holding a monthly family finance meeting to review the plan.

• Pay off your credit cards—It’s especially important to take action on debt in 2013. Cash doesn’t earn much interest sitting in a deposit account (less than 1 percent) and even “low interest” credit cards charge 10 to 12 percent. So if you’re sitting on any extra savings, consider using it to pay down credit card debt. Your cash flow plan should include a schedule to eliminate credit card debt as quickly as possible.

• Shop your insurance—Insurance agents are often paid commission based on premium levels, so they have no incentive for finding existing customers lower premiums. However, there is a huge incentive for a competing agent to find you the lowest premium in order to win your business. Make note of the coverage levels you have for your homeowner’s and auto policies and use them to comparison shop. Look at ways to save on your health insurance coverage, too, such as switching to a high-deductible plan and opening a Health Savings Account.

• Write an estate plan—At a minimum you need to have a valid will, power-of-attorney (POA) for your finances and health-care decisions, and a living will (Advanced Healthcare Directive in some states). Decide who will be your personal representative in the event you become incapacitated (POA) or at your death (executor). If you have minor children, choose who will raise them in your absence and establish a testamentary trust for their finances.

• Meet with a financial adviser—An adviser is to financial planning as a personal trainer is to an exercise program. Allow yourself to be held accountable by a third party who will push you to help yourself. Good advisers will help you develop a budget, look at your debts, tax situation, retirement and college savings, estate planning and insurance. You don’t have to be a high-net-worth individual to seek the assistance of a financial adviser. Go to the National Association of Personal Financial Advisors (NAPFA) and search for one in your area.

Don’t just make a vague resolution to save money. According to Psychology Today, of the millions of American’s who make a New Years resolution, 40 percent have already failed by Jan. 31. Let 2013 be the year you make lasting changes to improve your financial life.

Selling in the New Year: Making the Most Before You Do

5 year-end real estate tax breaks worth considering

Mood of the Market

Tara-Nicholle Nelson | Inman News |  Monday, December 17, 2012 | link

<a href="" target="_blank">New year</a> image via Shutterstock.New year image via Shutterstock.

At this time of year, most people have some sort of rush situation happening in their lives. Maybe it’s a rush at work to get those annual targets met before you leave for the holidays, or a rush at home to prep for the holidays themselves.

But if you are — or were — a homeowner, there’s a short list of other items you should consider placing on your “rush” list to get done before year’s end that have nothing to do with twinkle lights, animatronic Santas or gluten-laden baked goods.

1. Prepay interest. If you have the cash handy, consider paying your January mortgage payment before December even ends. The interest portion of this payment is actually interest that accrued to your mortgage in 2012. So, if you pay it before the end of the year, it will increase the mortgage interest deduction you’ll be able to take as soon as you file your 2012 taxes (after Jan. 1).

And no, Virginia, you can’t just prepay all of next year’s payments to boost your tax deductions — the January payment applies to December 2012’s interest in arrears. If you prepay for other months in 2013, the IRS requires that you claim that interest on your 2013 taxes.

2. Close on your refi — especially if you’re paying points. If you’re a buyer, it’s almost undoubtedly too late to start and close an escrow this year. But if you’re a homeowner in the process — or even considering — refinancing your home, there might still be time to put the pedal to the medal and close the deal.

Discount points or other prepaid mortgage interest you shell out to close a refinance home loan may be considered fully tax deductible on your 2012 return to the extent that the refinance money covers your original purchase money loan and home improvements. (If you get extra cash out from your refi, your points may still be deductible, but you’ll have to take the deduction over the life of the loan.) So, if you get them paid before the end of this year, you stand to improve your tax situation only when you file next year.

3. Get your property taxes paid. Most taxpayers should be able to qualify to deduct next year’s property taxes, so long as they get them paid by Dec. 31. Two primary criteria apply here:

  • You must be what the IRS considers a cash-basis taxpayer (meaning you report income the year you receive it and deductions the year you pay them, on the whole), and
  • Your county or other taxing authority must accept prepaid taxes as prepaid taxes — not as a deposit. Check with your tax assessor’s office to see how they handle prepaid property taxes before you make this move with the expectation of getting a big tax deduction boost.

4. Get warm — and tax credits — at the same time. Many cities and states offer meaty tax credits for homeowners who make energy-efficient home improvements, like dual-paned windows, solar systems and tankless water heaters, to name a few. Check your city and state websites for which improvements qualify in your area, then get on the horn, as these can be challenging improvements to schedule when the weather is bad, and the clock’s a-ticking!

5. Settle out a lingering HELOC. If you lost a home to foreclosure and have an old second loan or home equity line of credit (HELOC) still lingering on your credit reports, now might be a great time to approach that lender or servicer and negotiate a settlement. Even if it has been charged off or the servicer is not aggressively pursuing you for it, these old loans — often called sold out junior liens — remain on your credit reports and make it nearly impossible to qualify for a new home mortgage.

Banks like to close their books out at the end of the year, and are generally more willing to settle at lower amounts with people who no longer own the property. Further, the Mortgage Forgiveness Debt Relief Act is, surprisingly, still set to expire on Dec. 31. That means there’s at least a chance that Dec. 31 might be your last chance to settle that lingering second loan or HELOC for less than the full amount without having to pay any income taxes on the forgiven debt.

Selling in the New Year: Smelling A Sale

The right scent sniffs out buyers

Mary Umberger  | Chicago Times | December 14, 2012 | link

Sniffing out buyersDiffusers can influence a prospective buyer’s perception of a home, but a little scent goes a long way. (Fuse photo / December 11, 2012)

There’s a category of online real estate information that I refer to as “advice for morons” that offers such stunning insights as, perhaps you ought to tidy up the house before you put it on the market.

Another perennial tip: Bake some chocolate chip cookies while the place is being shown to potential buyers, because the aroma will make them feel as if they have come home. They’ll be hopelessly hooked, and they’ll write you a check on the spot.

Eric Spangenberg laughs at the chocolate chip cookie advice and brands it an urban legend. Still, baking something when you’re trying to sell a house isn’t a bad idea — it just has to be the right “something,” he said.

Spangenberg, dean of the Washington State University College of Business in Pullman, Wash., recently published research that he maintains demonstrates that the right scent wafting through the room will influence consumers to spend more money. But the KISS Principle (Keep It Simple, Stupid) is at work here, he said — stick with simple scents, as opposed to “complex” ones.

The researchers, whose work recently was published in the Journal of Retailing, tested a store’s sales levels when hundreds of shoppers were exposed to “background” scents of a straightforward orange aroma versus an orange-basil blended with green tea versus no scent at all.

Sales went up noticeably, by 20 percent, when the plain orange scent hung lightly in the air, the researchers concluded.

Spangenberg cautioned against strictly applying his findings about retail sales to the selling of houses (he and colleagues studied consumers in a home decor store in Switzerland), but Spangenberg, who for years has studied the uses of scent in marketing, said the basics should apply.

He said such straightforward scents as orange — or perhaps lemon or cinnamon or pine — are easier for shoppers to “process” and they add to the shopping experience. Blended, or “complex” scents, such as the orange/basil/green tea mix, make our brains work a little harder.

Put another way, they’re a distraction, Spangenberg said.

“I’ve noticed in some homes for sale that they will scent with a potpourri blend that may be very pleasant, but it’s just too complex,” he said. “There are too many scents in potpourri.

“When you’re in the real estate business, you want someone to walk in and want to stay in the house, so you want (the scent) not to be overbearing, but familiar. You want it to encourage revisiting, because sometimes it takes several visits to decide to buy.”

If a home seller wants to introduce a scent, Spangenberg cautions against the devices that plug into outlets and waft the aroma around the house.

“They’re meant to last 30 days, and the first days, they might be way too strong,” he said. “You can’t control them.”

A better option would be the various types of diffusers that warm and then mechanically waft the scent of oils within a room, Spangenberg said. (Other diffusion methods are as simple as dabbing a few drops of essential oils onto a tissue.)

But sellers ought to test-drive the effects before setting out any type of diffuser and leaving the house for a would-be buyer — a little bit goes a long way, and “little” is what one is aiming for, he said.

The baking tactic isn’t necessarily bad, but Spangenberg isn’t big on the aroma of chocolate chip cookies — for selling anything.

“It’s too complex,” he said. “You’ve got chocolate, you’ve got vanilla.”

Instead, consider warming the humble, and simple, cinnamon bun, he said.

“That’s what I’d do if I were selling a house,” he said. “I wouldn’t spend a lot of money (compared with purchasing a mechanical diffuser). After all, we’re just guessing here” when it comes to possible aromatic influence on real estate sales.

Spangenberg said that after his research was released in late November, he was inundated with media inquiries about how scent might influence Christmas retail sales.

He also was asked whether such efforts might amount to manipulating or tricking consumers.

But adding scent isn’t nefarious, he said.

“Retailers are always looking for an edge,” he said. “And if retailers consider it, home sellers should consider it too.

“If you’re in a competitive market, you should think about such things as lighting, colors, music and smell. People process (information) with all of their senses, whether they realize it or not. If you’re looking for an advantage, why not use any advantage you can get?”

Spangenberg, whose house is not for sale, said that before he could offer more specific advice to homeowners, he’d have to solve his home’s own set of aroma concerns.

“Our issue would be to make sure the house doesn’t smell like dog,” he said.

Trending in 2013: Being In-the-Know

Everything You Wanted to Know About Credit Bureaus, Reports, Files and Scores

Jann Swanson | Mortgage News Daily | Dec 13 2012 | link

Much of an individual’s ability to secure credit depends on what the three national credit bureaus, Equifax Information Services, Experian Information Solutions, and TransUnion have to say about his/her creditworthiness.  Their information also impacts a person’s ability to rent a home or a job and is a factor in setting insurance premiums.  Consequently is it important that credit bureau information be accurate and complete and that consumers are informed about the credit process.

The Consumer Financial Protection Bureau (CFPBpublished a report on the National Credit Reporting Agencies (NCRAs) with a special focus on the infrastructure and processes currently used by the NCRAs to collect, compile, and report information about consumers in the form of credit reports.  The report covers a lot of information that is probably not familiar to consumers.  We have attempted to summarize some of the voluminous material below.

Credit bureaus originated in the late 1800s and were originally just lists of individuals who had failed to not repay their debts.  The credit reporting industry grew with the use of credit having particular growth spurts in the 1920s and 1950s.  By the early 1970s there were over 2,250 companies operating largely on a local or regional basis then automation spurred consolidation into large national bureaus.  Today there are still hundreds of smaller bureaus specializing in medical information, employment history or as resellers of credit reports.  In 2011 National Credit Reporting Agencies (NCRAs) generated U.S. revenues of about $4 billion, including revenues from ancillary businesses like the sale of lists for marketing purposes, the sale of credit monitoring services directly to consumers, and analytical services that provide credit scores or modeling tools to creditors.

The three major NCRAs each have more than 200 million files on consumers. In a typical month, they receive updates on about 1.3 billion “trade lines,” individual pieces of data on consumer loans, from approximately 10,000 information “furnishers.,” More than half of the trade lines come from the credit card industry (40 percent form general credit cards and 18 percent from “store” cards.  Thirteen percent are accounts in collection; education lenders and sales finance providers (i.e. closed end loans) and mortgage lenders each constitute 7 percent of furnishers and auto lenders 4 percent.

This part of the industry is very concentrated.  There are approximately 10,000 furnishers but 10 of them provide approximately 57% of the trade lines, the top 50 furnishers provide 72% of the trade lines, and the top 100 furnishers provide 76% of the trade lines in the NCRA databases.

Credit bureau files typically contain the following types of information:

  • Information (name, SS#, DOB) to identify the consumer.
  • Information on accounts or trade lines including type of credit, credit limit or loan amount, balance, payment history, dates account opened and closed and the current status.  Other information might include co-borrowers, reason for account closure, and any bankruptcy information.
  • Public records information including bankruptcy filings, judgments, and federal tax liens.
  • Third party collection reports.
  • Inquiries. Bureaus are legally required to list inquiries for employment related uses for two years and one year for credit uses. Bureaus differentiate between “hard” inquiries, (consumer-initiated activities such as applications for credit cards) and “soft” inquiries which are generally user-generated for prescreening or marketing.

A consumer’s file also has information on whether the consumer has initiated a security freeze, fraud alert, active duty alert, or filed a consumer statement on his or her file.

This information is used to generate credit reports to lenders and other users.  The Fair Credit Reporting Act (FCRA) limits how long a credit bureau can communicate certain adverse information; typically seven years for late payments or collections and no more than ten years for bankruptcies.

Users vary in how they evaluate credit reporting information.  The NCRAs provide a modified credit report for employment purposes that removes some sensitive information and credit data.  Financial services users rely on credit reports as well as proprietary or third-party “scoring” models to interpret the information in a credit report.

Along with credit reports credit bureau will usually also deliver a credit score.  The score is calculated from the information in a credit report along with variables derived from the credit report (often called attributes.)  Lenders use credit scoring systems to assess the relative risk of consumers not repaying a loan.  Consumers with very high scores are likely to get more favorable interest rates and loan terms.

Creditors use credit scores to enhance the efficiency and consistency of decisioning.  Credit scores may also reduce subjective decision making by lenders based on impermissible factors like marital status, age or national origin.

NCRAs can deliver reports and scores to users almost instantly making it possible for lenders to grant instant credit where it is integral to a purchase decision. Incorporating the use of credit scores in mortgage underwriting has enabled Fannie Mae and Freddie Mac, to introduce automated underwriting systems to streamline the mortgage underwriting process and provide rapid mortgage approvals.

Inaccuracies in credit report information can affect consumers’ credit scores and some matter more than others.  An identification error (wrong address, misspelled name) won’t typically impact a credit score or perceived credit worthiness but a public record or trade line incorrectly reporting a tax lien or a severe delinquency could cause a lender to deny credit or significantly raise its cost.

The NCRAs also provide lenders with analytical models using credit report data which may predict the likelihood of accepting a credit offer, of future account utilization, of consumers leaving an existing account, or of collectability on an outstanding debt.

Not all creditors report information about their borrowers. Some creditors report information about from some of their credit products, but not others.  Reporting is voluntary but furnishers have multiple incentives to participate.  They recognize the necessity of widespread participation to availability of information.  Reporting also provides an incentive to borrowers to make timely payments.  Consumers recognize both the risk of having delinquent accounts reported as well as the benefit of on-time performance.

There are also disincentives.  For example, the names of individuals with high credit scores may be sold by the bureau to lenders competitors.  There may also be costs for specialized equipment and the obligation to correct errors in a timely manner.

The NCRAs have extensive data quality processes in place that start with their screening of new furnishers. This generally includes gathering information on physical headquarters, license, and company records and some NCRAs may hire third-party investigation services to screen for illegal or unethical business history.  Sole proprietorships and new businesses may receive more specialized screening. Risk events may trigger reinspections and bureaus continue to monitor for data quality and fraud once a furnisher starts contributing live trade line data.

Furnishers generally provide monthly trade line updates through data file transfers that contain trade line updates on all of the furnishers’ active accounts.  Data generally goes through a multi-stage process to identify data irregularities such as blank fields or logical inconsistencies.  Individual consumer base records and tradeline updates are similarly screened for formatting errors, logical errors, internal inconsistencies, and anomalies. The NCRAs do not conduct independent checks or audits such as contacting a consumer to verify information.  The NCRAs rely on furnishers to report information on consumers that is complete and accurate.

In 2009 a number of federal regulatory agencies issued the “Furnisher Rule” which has now been restated by CFPB.  Under the Rule furnishers have are obligated to supply accurate data and required to “establish and implement reasonable written policies and procedures concerning the accuracy and integrity of the information it furnishes to consumer reporting agencies.”

Once the NCRAs have received trade line information from a furnisher they must assign it to a specific consumer’s identity.  Each NCRA has about 200 million individual files and the average one contains 13 past and current credit obligations, including nine bank and retail cards and four installment loans.

To locate and identify a consumer, NCRAs will use various combinations of personal information such as name, address, or date of birth. A trade line may not contain all of this identifying information and many consumers have the same or similar personal identifier.  This presents challenges when a NCRA tries to match an incoming trade line with the correct consumer’s file. Adding to the complexity, millions of individuals change how they identify themselves over time or between furnishers, changing their name or using names inconsistently (i.e. an Elizabeth or may also be Betty, Beth, or Liz.  Also creditors themselves vary as to what information they require on credit applications.

Inaccuracies in credit files occur when information is attached to the wrong consumer, omitted, or where there are factual errors in the trade line or other information.  Some errors come from matching challenges and others from data and data entry errors on either the bureau or furnisher level, processing errors, or from identify fraud or time lags in reporting payments or corrections of other errors.  Some supposed errors are actually borrower misperceptions – thinking a bill has been paid when it has not or assuming that paying an account in collection removes the delinquency notation.

Each type of credit report errors may affect how a creditor or a credit score assesses the credit worthiness of a consumer. Trade line errors can both hurt or help a consumer’s credit score.  An omitted current trade line, for example, may lower a credit score; a delinquent trade line inadvertently assigned to another consumer or incorrectly marked as current, could raise it.

The FCRA gives consumers the right to dispute information they deem inaccurate with an NCRA or a furnisher (where covered by the Furnisher Rule), or both and requires the NCRAs and furnishers to “reinvestigate” information contained in a consumer’s credit file when disputed.    Consumers are given the several ways to obtain their file information including a free credit report from each NCRA each year.

The CFPB estimates that as many as 44 million consumers obtained copies of their consumer file disclosure annually in 2010 and 2011 – either through the free report website (15.9 million) through a credit monitoring service (26 million);  directly from the NCRAs after receiving adverse action notices or risk- based pricing notices (approximately 1 million) or other sources.  Still this is only about one in five of the consumers who are entitled to them.

In 2011, the NCRAs received approximately 8 million consumer disputes.  Many of these consumers disputed more than one item in their file, leading to approximately 32 to 38 million dispute reinvestigations. This volume has declined significantly since 2007 when consumers were more active in applying for credit and dispute 47 to 53 million items.  Almost 40 percent of the disputes in 2011 related to debt in collections which is five times more likely to be disputed than mortgage information.

The NCRAs handle most consumers’ trade line disputes they receive through an electronic information network called e-OSCAR (the Online Solution for Complete and Accurate Reporting). NCRAs report they handle trade line disputes through five steps.

  1. Consumer initiates a dispute by mail, on-line or by phone and reason codes are assigned.
  2. The NCRA reviews and uses proprietary decision rules to see if it can resolve the dispute internally. The NCRAs resolved or rejected an average of 15% of the disputes they received in 2011.
  3. If the dispute cannot be resolved internally, the NCRA will forward it through e-OSCAR to the appropriate furnisher. Consumers can provide supplementary documentation (such as billing or letters to and from creditors) regarding a dispute via mail to an NCRA, but it appears the NCRAs generally do not pass these to furnishers.
  4. The data furnisher investigates the request and routes back the response to the requesting NCRA with one of four responses: (a) verify account as accurate, (b) modify account/trade line information as indicated, (c) delete account, or (d) delete account due to fraud.

    In a recent 120 day period in 2012, 22% of furnisher responses indicated that the initial data was accurate (rejecting the consumer’s claim), 61% modified a trade line or other information, 13% deleted a trade line or other of information, and 0.5% deleted a trade line or other information due to fraud. The NCRAs deleted or modified 4% of disputed trade lines because the furnisher did not provide a response within the statutory time frame.

  5. Referral: If an account is modified or deleted, the furnisher is supposed to send copies of its modification to other CRAs with whom the data furnisher has a reporting relationship so that all can meet their responsibilities to update the credit files.

The NCRAs initiate their investigation of a public record dispute by again collecting the public record and re-checking. A data retrieval service called LNRDRS collects a combined 1-2 million public records annually at the NCRAs’ request.  In response to a dispute related to a public record, LNRDRS will typically send a data collector to the source to re-check the record and look for updates and report one back to the NCRA that the  status has changed (e.g., lien paid off); status is unchanged or unable to verify.  The NCRAs retain responsibility for determining whether a public record is accurately attached to a consumer’s file.

Recent reviews of NCRA accuracy to data have been either industry or consumer advocacy based and thus potentially bias. The FTC is expected soon to complete a mandated decade-long study on credit report accuracy and expects to issue a final report in 2014. It will attempt to estimate the proportion of credit files that contain material errors, identify the main types of errors and their frequency, as well as their impact on consumers’ credit scores and hence the errors’ impacts on affected consumers’ access to and cost of credit.

The CFPB is now accepting consumer complaints about credit reporting, giving consumer’s individual- level complaint assistance for the first time at the federal level with consumer reporting agencies. Finally, as part of its supervision of large financial institutions, it is examining the consumer reporting practices of the furnishers that are responsible for a preponderance of information contained in credit reports. These efforts will give the CFPB an opportunity to further evaluate the potential roles of credit report accuracy measurements and of metrics related to the NCRAs’ and furnishers’ various business processes in improving overall accuracy in the U.S. credit reporting system.

Trending in 2013: Deduction Dilemma

Thoughts on Eliminating the Mortgage Interest Tax Deduction from Rick Sharga, EVP, Carrington Mortgage Holdings

RIS Media | December 23, 2012 | link

mortgage deduction [1]The fate of the mortgage interest tax credit seems to be on everyone’s mind at the moment. I get asked about it pretty much everywhere I go these days, from business meetings to media interviews – even casual discussions at holiday parties. People are afraid of this happening, though not everyone sharing their worries seems to fully grasp what losing this credit might mean beyond what it might cost them personally.

In an attempt to avoid careening off the dreaded fiscal cliff, the government is reconsidering many of the things Americans have traditionally considered sacred – this tax credit being one – and essentially putting them all on the bargaining table. From my perspective, eliminating or dramatically reducing the mortgage interest tax deduction is the exact opposite of what would be best for the economy right now. Though some view this tax credit solely as a benefit for so-called wealthy homeowners, it has become a fundamental economic benefit to homeownership for tens of millions of Americans, and is a crucial component to maintaining stability within the housing market.

How significantly changes to the mortgage interest tax deduction will affect the health of the housing market really depends on how deeply the government decides to cut. If the tax credit is eliminated entirely, the impact on the real estate market could be devastating. Right now, the “move up” market is weak, and people who benefit from the tax credit comprise a good portion of that market. Eliminating the financial benefits of the tax credit, combined with tax hikes likely to be imposed on “wealthy” families may very well drive tens of thousands of potential homebuyers out of the market completely. Without the credit, home prices at the upper end of the market will undoubtedly fall, which will have an effect on pricing throughout the housing ecosystem, depressing prices just when the market is finally beginning to recover from a multi-year downward cycle.

While I doubt we’ll see the tax credit eliminated entirely, it seems likely there will be lower caps imposed on what can be deducted, as well as more stringent limits on what properties and loans a borrower can claim interest credit against. If these changes are significant, I suspect we’ll experience some softening in the market as well as the economy as a whole. After all, a weakened housing market will contribute to adverse conditions in related markets such as construction, building materials, home appliances and the like.

So even if we don’t go over the fiscal cliff, burdening the upper middle class and high-income households in this way can only hurt the real estate market. Considering that it’s been the housing market that’s pulled the U.S. out of virtually every recession since World War II, it seems like we should be shifting our focus to stimulating it in any way we can rather than doing anything that might knock it down. Doing the latter – by way of eliminating the mortgage interest tax credit or otherwise – could very well stall economic recovery. Nobody – regardless of their socio-economic class – wants that.