Raleigh-Durham Real Estate News & Market Trends

Many buyers and sellers are unsure of how the real estate transaction process really works. The articles on this blog will help home buyers and sellers with

  • misconceptions about which realtors are required to have your best interest before their own and which ones are really working for the other guy. 

  • confusion over how the residential listing and offer to purchase contracts work in North Carolina and what funds are at-risk at what times.

  • what buyers should look for when touring a home, what to focus on when speaking to a new home builder and what home improvements get the best results for sellers.

  • unmasking the mystery of home appraisals and why they can be unpredictable.

  • obtaining a market valuation on a specific home and area market reports so you can stay on top of home sales in your area.

  • overcoming hurdles like first-time home ownership, bad credit, low available cash and quick moves.

The blog focuses on North Carolina residential real estate with an emphasis on the Raleigh-Durham triangle and surrounding areas. You can find articles for first-time home buyers, for sale by owners, property valuation information, hints on working with real estate agents, tips for new construction homes and the market in general. So, grab a cup of coffee and enjoy the articles. There is something new with great take-aways for everyone.

Have questions, comments or concerns? Feel free to reach out anytime. We’d love to talk with you!

May 19, 2022

Multi-family Residential Investments in Raleigh, NC

Raleigh NC DuplexMany investors are interested in residential multi-family properties. Some want to house hack by living in one unit and renting the rest. Others want all the cashflow by renting all the units. 

Part of what makes residential multi-family units attractive to investors is that properties with up to 4 units are considered residential and are able to be financed using residential loans rather than more expensive commercial loans.

In the Raleigh, NC market, these residential multi-family properties can be hard to find due to zoning regulations that severely limit where multi-family properties can be built. But that is recently changed with the passage of new zoning regulations which permit multi-family housing to be built where only single family homes were allowed. In the short term, this provides a great opportunity for investors looking to convert a single family home to multi-family. As inventory of multi-family homes increase, investors looking to rent out units will have more choices.

When considering a multi-family investment property:

* More doors means lower vacancy rates - if you have a duplex and one renter leaves you have a 50% vacancy rate. But with a quadplex, one renter leaving is only a 25% vacancy rate.

* House hacking a duplex is not enough doors to fully eliminate rent for the live-in investor. A quadplex is far more likely to cover all the rent.

* When living in one of the units, an investor can qualify the property as their primary residence so additional financial options become available - like FHA mortgages with low down payments.

With inventory of multi-family homes in Raleigh, NC being limited, an alternative to a multi-family property is to buy a single family home and rent out rooms.  This can be very profitable assuming you don't mind living with strangers.

 

Posted in Investors
May 16, 2022

Difference Between Condo and Townhouse

Difference between Condo and TownhouseCondominiums ("condo" for short) and townhouses are two very different types of real estate ownership. Their ownership models can impact the property's capacity to increase in value, the rights available to an owner and the ability to be financed.

The largest and most definitive difference between a condo and a townhouse is that in a townhouse the owner owns the land on which the townhouse sits as well as the interior and exterior of the unit, while in a condo the owner only owns the space between the walls and not the building exterior or the land - the homeowners association (HOA) owns the land.

This distinction may seem academic so some people, but the impact is significant:

* Land is a unique and limited resource. While a building can deteriorate due to limited life, land is mostly permanent which gives a townhouse a base value not existing in a condo.

* Since a condo owner only owns the air between the walls, much of their condo value is tied to financial and community strength within the HOA. For example, the HOA must be in good financial shape with a limited number of units being rented to non-owners. If it isn't, the HOA could be considered non-warrantable.

* Should the condo HOA be deemed non-warrantable, buyers will have a hard time getting financing. This is because without the benefit of land ownership and a strong HOA, the lender has very little to back its mortgage other than air between the walls. In essence, both the buyer and the condo must qualify for the mortgage.

* Lending options are also different between a condo and a townhouse. For example, FHA mortgages are not available in the Raleigh, NC area for condos. A different mortgage method would be required with conventional or VA loans being likely alternatives.

Due to these ownership differences, a condo is generally more likely to have a lower sale price, higher HOA dues and include exterior maintenance than a townhouse though some townhouse HOAs do take on exterior maintenance as well.

As a buyer, you should not be dissuaded from purchasing a condo, but you should make sure that you or your agent asks the right questions to ensure you are making a safe investment.

 

Jan. 14, 2022

That's a Material Fact, Jack

Find Material Facts in a Real Estate TransactionReal Estate Agents, under all circumstances and regardless of any fiduciary obligations to their client, must always disclose material facts. Indeed, real estate agents must seek out and uncover material facts so they can disclose them to all parties in the transaction.

A material fact is any factual information that could impact the decision of a buyer to buy or a seller to sell. This includes, but is not limited to, the following:

* Zoning, infrastructure projects, flood zones and private roads
* The ability for the buyer to buy or the seller to sell.
* Property easements, encroachments, needed repairs, deed restrictions, occupancy limitations and covenants.
* Presence of a cemetery (but not hauntings or other stigmatized property situations)
* Square footage, unpermitted additions, septic capacity, assessments
* Anything specifically indicated by the buyer or seller.

That last one seems like a big catch-all so let's take a closer look at it.

The ability to put a pool in the backyard of a home is not, by itself, a material fact. But if the buyer mentions to their real estate agent that it is important to them to have a home where they can put in a pool - that becomes a material fact. As a material fact, the real estate agent must work to determine if a pool can be installed. The agent would need to review the covenants and deed restrictions, provide these documents to the buyer and recommend the buyer include a review of the property with the city as part of the buyer's due diligence. And if the real estate agent learns that a pool can not be installed, the real estate agent must disclose this to all parties in the transaction.

As another example, if the real estate agent is touring the property and notices moisture on the basement wall, the agent needs to inquire about the reason for the moisture, request any repair documentation to prove repairs were completed and disclose this information to all parties in the transaction. This must be done even if the real estate agent's client does not want it disclosed.
Jan. 14, 2022

Dual Agency - Real Estate Agent Conflict of Interest

For Sale SignSee previous posts on "Does Your Realtor Work for You?" and "Becoming a Client with a Realtor Agency Agreement" for background information prior to reading this post.

When a client hires a real estate agent by signing a listing or agency agreement, that client is actually hiring the real estate agent's entire firm not just the real estate agent themselves. A common transactional situation is that the buyer and seller each have their own real estate agents who work for different firms and operate in the best interest of their respective client. Things can get more complicated, and a conflict of interest can exist, when the same real estate firm is used by both the buyer and seller.

For example, if the buyer and seller both hire John Agent working for XYZ Realty, the buyer and the seller have hired the same firm (XYZ Realty). Since a single firm can not simultaneously provide the fiduciary duties of OLDCAR (see previous posts as noted above) to both the buyer and the seller, a conflict of interest exists. Real estate agents call this situation dual agency and it reduced both client's protections and benefits to fairness, honesty and disclosure of material facts.

Let's look at a couple of common scenarios where dual agency can arise:

1. Bobby Buyer signs a Buyer's Agency Agreement with John Agent of XYZ Realty. John Agent shows Bobby Buyer several properties over the course of a couple of weeks. One of the properties John Agent shows is listed by Sally Agent also of XYZ Realty. If Bobby Buyer decides he is interested in the property, a dual agency will exist. As a result, neither the seller nor Bobby Buyer will benefit from OLDCAR. Instead, both will only get fairness, honesty, and disclosure of material facts.

2. A seller hires Sally Agent from XYZ Realty and Sally places a sign in the front yard advertising the property for sale. Bobby Buyer sees the sign and, using the phone number on the sign, calls Sally Agent to see the property. At this point, it is the sellers that are Sally's clients and to which Sally must provide OLD CAR. Bobby Buyer is not a client so Sally is only obligated to provide Bobby Buyer with fairness, honesty, and disclosure of material facts. Once Bobby Buyer signs an agency agreement with Sally Agent a dual agency situation would exist. As a result, neither the seller nor Bobby Buyer would be entitled to OLDCAR - settling instead for fairness, honesty, and disclose of material facts.

In the above scenarios, the buyer and seller can get back their OLDCAR benefits by having the real estate firm specifically assign one named real estate agent to represent the seller and another named real estate agent to represent the buyer. When specific named agents are assigned in this way it is called designated dual agency. In the first scenario, this seems rather straight-forward since the buyer and seller are already working with different agents within the firm. In the second scenario, the firm would have to replace Sally Agent with another real estate agent for either the buyer or the seller. The important thing about all this is that unless dual agency is mitigated by designated dual agency, the real estate agent's obligation to the client is diminished from OLDCAR to fairness, honestly and disclosure of material facts.

Several events must occur for dual agency and designated dual agency (a form a dual agency) to exist. The firm must offer dual agency, the client must agree to dual agency and a conflict of interest must arise. Real estate agents that operate under dual agency without proper approval from all parties in the transaction are engaging in undisclosed dual agency which is a serious violation.

All of this can be confusing and is typically something buyers and seller are not fully aware of when they work with a real estate agent. Hear the explanation directly from the North Carolina Real Estate Agent Commission at the following links:

Working with Real Estate Agents (Buyer)

Working with Real Estate Agents (Seller)
Jan. 14, 2022

Becoming a Client with a Realtor Agency Agreement

Becoming a Client with a Realtor Agency AgreementIn "Does Your realtor Work for You?", the fiduciary responsibilities of a real estate agent to a client were outlined. If you are not the client, you do not benefit from the agent providing those responsibilities. Becoming a client is easy but does require some commitment.

For sellers, signing a listing agreement to place their property on the market makes them a client and affords them all the benefits of the agent's time, effort and fiduciary responsibility. Anything the agent learns about prospective buyers, the agent's marketing and negotiation experience, and the agent's confidentiality all accrue to the seller-client's benefit. Of course the agent expects to get paid for this provided value so the listing agreement specifies the commission to be paid to the agent upon sale and provides the agent a specific period of time in which to make the sale happen.

For buyers, signing a buyer's agency agreement provides the same fiduciary benefits as described above for the seller and provides a specified period of time in which the agent has to find the right property for the buyer. The agreement also specifies the commission to be paid by the buyer but only in the event that the seller does not pay - in which case the agent needs to advise the buyer ahead of time to avoid surprises. While there are a few exceptions, usually the seller pays the commission as specified in the listing agreement and the buyer pays nothing. So the buyer is the client even though they are not paying the agent.

There is one exception to all this. In North Carolina, agents and buyers can work under an oral buyer's agency agreement which is an implied agreement (evidenced through action rather than signed documents) that affords the buyer the benefits of the agent's fiduciary responsibilities without actually signing a buyer's agency agreement. This allows buyers to see properties without committing to the agent and puts the agent in a position of potentially not earning commission. Many real estate agents choose not to engage in oral buyer's agency agreements due to the risk of doing all the work and then not getting paid. The oral agreement must be put in writing prior to extending an offer to purchase and many buyers miss the fact that they have signed a buyer's agency agreement as part of their offer documents - later surprised that they and the agent have committed to each other.
Find out more about realtor agency agreements and how different situations can affect your client benefits and protections in "Dual Agency - Real Estate Agent Conflict of Interest"
Jan. 14, 2022

Does Your Realtor Work for You?

When someone is hired, they expect to get paid and generally speaking they are accountable to whoever is paying them. Real estate agents are different, they work for whoever signs an agency agreement with them which is not always the same person paying. And the distinction is not simply a matter of money.

When an real estate agent works for you, you are called a client. A client, through the agency agreement, is owed certain fiduciary duties real estate agents call OLD CAR:

OBEDIENCE - Obey legal real estate related instructions.
LOYALTY - Keeping the client's best interest first, ahead of any other party including the agent themselves.
DISCLOSURE - Communicate to the client any and all information which may benefit them in making their buying/selling decision.
CONFIDENTIALITY - Keep secret information about the client.
ACCOUNTING - Accurate tracking of all documents and funds in the transaction.
REASONABLE CARE - Provide competent knowledgeable advice and guidance throughout the transaction.

If you have not signed an agency agreement with your realtor, you are not the client, you are not entitled to the OLD CAR protections and benefits and the realtor you are talking to is most likely legally obligation to work for the other party. While realtors working for the other party are still obligated to provide you with fairness, honesty and disclosure of material facts, they are also obligated to information the other party of any information they learn about your price, terms and motivations which ultimately hurts your negotiating position.

Find out how to protect yourself by being a client in "Becoming a Client with a Realtor Agency Agreement"