What is Arbitration and How Does it Work?

In essentially every real estate transaction, buyers, sellers, and their respective REALTORs must decide whether to accept or decline arbitration.  My experience is that most agents have no idea what they are asking their clients to accept or decline, and that's a big issue.  In the event a discrepancy or dispute arises between buyers and sellers, whether during or after the transaction, that decision to accept or decline arbitration will have a huge effect on what happens next.

To start, a 35,000 foot overview of arbitration - arbitration is an alternative to litigation (i.e. lawyers and the court system).  A panel of arbiters would hear both sides of a case, and the decision reached by the arbiter becomes legally binding.  It is significantly cheaper than going through the court system (after all, hiring lawyers is expensive).  In Minnesota, arbitration has a statute of limitations of two years (meaning a claim would have to be filed within two years of the closing date - anything after would likely be rejected by the arbitration company).

The important caveat to keep in mind is that a dispute is only going through the arbitration process if ALL PARTIES TO THE TRANSACTION (include the REALTORs) accept arbitration.  If any party declines on the Arbitration Disclosure Statement, any dispute would be directed to the small claims court system.  This is why it's important for customers to understand the significance of their decision to either accept or decline arbitration at the time of the offer.  At the end of the day, REALTORs are not allowed to dispense any sort of legal advice, but at the very least they should be able to communicate and articulate the consequences for accepting or declining arbitration.

Please keep in mind that this is a very high-level overview of arbitration and what it entails, and I could probably write another 5 paragraphs about this.  If you have other questions about arbitration and how it relates to real estate transactions, please feel free to contact me.  And of course, always seek the legal advice of a qualified attorney if you have specific questions!

Buying a House? Test for Radon!

Continuous radon monitor test in-progress.

Over the past few years, particularly since a section was added to our Seller's Property Disclosure Statement, radon has been a hot button issue in real estate.  To quickly recap, radon is an odorless, invisible gas that is caused by the half-life breakdown of uranium in soil.  It's in every house and is the 2nd leading cause of lung cancer behind smoking, according to the Environmental Protection Agency (EPA).  Radon levels are measured in picocuries per liter (pCi/L), and the EPA states that any level above 4.0 pCi/L is deemed to be "unsafe".

Radon testing is involved in nearly EVERY home transaction these days.  Testing occurs during the buyer's home inspection contingency period, and typically costs about $150.  Testing is typically done using a continuous monitoring system and is performed in the lowest level space that will be lived in (my home inspection usually performs them in a lower level bedroom).  The minimum amount of time for testing is 48 hours and the results are ordinarily available immediately.

I strongly encourage buyers to test for radon during their inspection contingency period.  If the results come back below 4.0 pCi/L, excellent!  You can rest assured that your home has a safe level of radon without installing a radon mitigation system.  If it comes back above 4.0 pCi/L, it's usually an item that it easily negotiated with the sellers.  The most common solution is for the seller(s) to hire a professional contractor to install a radon mitigation system.  Radon mitigation systems vary in price depending on the home size and setup, but a typicaly system costs somewhere in the $1,200 - $1,800 range.  Below is a very basic graphic example of how a radon mitigation system looks.

Example of a radon mitigation system.

If the seller is unwilling to install a system prior to closing, the alternative solution is usually for the seller to offer a price reduction or closing cost credit to cover the cost of the system.  Sellers have a strong incentive to resolve a high-radon issue, because they would then be required to disclose that (1) a test was performed and it came back high, and (2) that a radon mitigation system has not been installed.

Radon is a complicated issue that effects nearly every single transaction these days, so if you have additional questions on radon or radon mitigation systems, contact me!  I'd be happy to help.

Make Sure Your REALTOR Understands the Paperwork!

(PREFACE:  Now that the busy season is drawing to an end, expect more blog posts this fall and winter!  I realize it's been several months since I last posted here.)

I almost feel stupid writing this blog post because of how obvious this topic should be, but all too often (and particularly as of late) I've seen my fellow REALTORs show a complete lack of understanding about the paperwork we use in transactions.  At the end of the day, these REALTORs are ultimately doing a strong disservice to their clients, who rely and trust on them to navigate through the paperwork.  No buyer or seller should be expected to know more about the paperwork than their REALTOR.

I think part of why this is popping up (and subsequently why I felt compelled to write this) is that the Minnesota Association of REALTORs recently made changes to many of our forms.  This is pretty standard - about once a year, the Association with make minor tweaks to the forms.  Usually they are minimal - a couple word changes here, and small new section there.

However, this year the Association made some rather sweeping changes - in particular, they made very significant changes to the Inspection Addendum, which is a form used in almost every single transaction.  More specifically, the way that the number of days are calculated for completing inspections and negotiating any repairs or price reductions changed.  These timelines have significant importance to the transaction, and making a mistake could end up costing the buyer the house, or causing the buyer to assume a bunch of sub-par items on the home inspection.

At the end of the day, real estate isn't rocket science.  But there are huge amounts of money on the line for buyers AND sellers, and even the smallest mistakes can have significant repercussions.  REALTORs should know the paperwork inside and out, be diligent and detailed, and if they can't explain the paperwork or how specific aspects of the transactions work it should be an immediate red-flag.

I'm Selling My House - What Items Do I Have to Leave?

So you've decided to put your house on the market for prospective buyers.  You've painted, made some repairs, completely de-cluttered, signed your paperwork, and you're ready for the buyers to start rolling in.  However, there is something that is oftentimes not discussed in length with your REALTOR - what items in your home are "included" and what items are you supposed to take with you?

The short answer is a boring one, but it's absolutely true - EVERYTHING IN REAL ESTATE IS NEGOTIABLE.  From the price to the closing date to the earnest money to the inspection timeline and on and on - the items that are "included" in the sale are absolutely negotiable, and should be negotiated with the buyer upfront to prevent any future confusion or problems.

However, although every item is technically negotiable, our Purchase Agreement does provide some guidance to buyers and sellers as to what is included.  Below is a screenshot from page 1 of our Purchase Agreement, which addresses generic items that are generally expected to stay for the new buyer(s). 

Screen shot from page 1 of our Purchase Agreement, which outlines many items that are generally included.

As you can see, this list covers a lot of ground and generally includes items that are attached or affixed to the property.  Many of these items would be intrusive to remove, and thus are included.

You'll notice that certain common items are NOT included on this list - for example, no sign of washers or dryers on the list.  To cover these types of items, we typically use a form called a "Personal Property Agreement."  This form covers items not included in the above list that sellers and buyers have agreed will be a part of the sale. 

My general advice to sellers is the following - if there are items that are on the above list that they do NOT want to be part of the transaction, simply remove the items from the home prior to letting a single buyer through.  Those living room drapes that you want to take with to your next property?  Take them down before the listing goes live on MLS.  Want to take your refrigerator because it's new and you REALLY want it?  Either remove the refrigerator, or do something to very clearly articulate that that item is not included.

I could probably write another 6 paragraphs on this topic, but this seems like a decent start.  Have a specific question?  Feel free to call or email me!

Why You Should Meet With Your REALTOR Before House Hunting

It happens ALL the time:  I get a call from a new buyer client, and they've found a house online and they want to go see it immediately.  I completely understand why - they've found something exciting, and it's piqued their interest enough to start house hunting seriously.  However, I always try to get my clients to pump the brakes and hold off on house hunting until I have a chance to sit down with them. 

In my opinion, particularly if it's your first home purchase ever, it is absolutely critical to meet with me so we can discuss the process, some of the issues we might encounter, and set some ground rules/expectations for the home buying process.  Buying a home is a huge investment, and it's crucial to know what you are walking into instead of just "winging it".  As a REALTOR, it is very hard to guide the process and educate my clients when we are out looking at houses - it just never seems to work out like it should.

Most of my initial appointments are 75-90 minutes, and we cover a lot of ground.  We talk about the reasons buying a home is a good investment, what the current status of the housing market is, what the step-by-stop process is that you'll encounter, a little bit about mortgages, a timeline of when you will be expected to spend your money during the process, and a bit about my experience/real estate background.  Many loan officers do something similar to this - in the homebuying process, knowledge is power!

Quick T.R.I.D. Update

A few months ago, major changes took place in the lending world.  These changes, referred to as T.R.I.D. (TILA-RESPA Integrated Disclosure, for those curious), ignited a lot of fear and uncertainty in the real estate environment.  How would lenders react and adapt to the changes?  Would closings go smoothly after changing the forms that had been in place for 20-something years?  What would the new rules mean for REALTORs and their clients?  A lot of questions were raised, and nobody really knew what to expect.

Well, we are a few months into T.R.I.D and we have (at least a little bit) of clarity.  I obviously don't get to see the behind-the-scenes at mortgage companies, but my impression thus far is that most companies were well prepared for the changes and the transition has been mostly smooth!  Of the closings I've had since T.R.I.D. took effect (using multiple mortgage companies) there have been no noticeable issues and each file has closed on time!  And some mortgage companies have backed-off of their requests for REALTORs to write purchase agreements with 60 day closings.  I've had multiple transactions that closed in 45 days, which was (kind of) the standard prior to T.R.I.D. taking effect.  I think it's safe to say at this point that the fears about T.R.I.D. were just a tad overblown.

Something to ponder for the future, however - with major changes, there are inevitably going to be minor tweaks and changes that take place over time.  I have not heard of anything specific at this point, but it would not surprise me to see things change and improve over time.  It is hard to say how any of these changes might effect things going forward.

If you have specific T.R.I.D. or mortgage-related questions, reach out to me and I'll put you in touch with a loan officer!

A New Place to Search for Homes!

Tired of looking for houses on Zillow and Trulia and Realtor.com?  I recently rolled out a new website that is fantastic for searching for homes in the Twin Cities - www.joshpeltohomesearch.com!  This website feeds directly from the MLS system that REALTORs use, allows you to create your own account so you can save listings you are interested in, and has an easy to use built-in mortgage calculator that allows you to roughly estimate what a monthly mortgage would cost.

Of course, if you want to search a little more seriously, contact me and I can set you up on a custom home search directly through our MLS system - just shoot me an email!

Happy home searching!

"I Need 20% Down to Buy a House, Right?"

This is easily one of the biggest misconceptions that first time home buyers have when I sit down with them - the belief that, in order to purchase a home, they need to have 20% for a downpayment.  In reality, this is about as far from the truth as possible!  Unless you are buying a 2nd home or planning on using the home as an investment property, buyers absolutely DO NOT need 20% downpayment to purchase a home.

One option that many first time homebuyers choose is an FHA loan.  FHA loans are guaranteed by the federal government and the minimum downpayment is 3.5%, which is significantly less than 20% down.  However, FHA loans have become slightly less desirable over the past couple years because of changes to FHA's mortgage insurance.  Currently, FHA mortgage insurance will never come off of the loan.

An alternative to FHA is a conventional loan.  This is what we typically think of when we hear 20% downpayment loans.  However, most conventional programs allow you to go down as far as 5% downpayment, just slightly above the 3.5% required by FHA.  However, there are times when you can actually go below 5%.  There are specific programs that allow you to obtain a conventional mortgage with 3% downpayment.

So let's review the difference in downpayment required on a $200,000 home.

20% Downpayment Conventional:  $40,000 downpayment required at closing
5% Downpayment Conventional:  $10,000 downpayment required at closing
3.5% Downpayment FHA Loan:  $7,000 downpayment required at closing
3% Downpayment Conventional:  $6,000 downpayment required at closing

No wonder first time buyers think homeownership is unattainable when they believe they will need $40,000+ at closing!  The reality is that 20% is a relic of the past, and most homebuyers are closing with significantly less cash than 20% down.

I work with several fantastic loan officers, so if you have been considering making a purchase but scared that you need 20% down, contact me today and I'll happily put you in touch with one of them!

City of Crystal Abandons Point-of-Sale Inspection

Following in the footsteps of Brooklyn Park just a few years ago, the City of Crystal has officially decided to do away with their Point-of-Sale inspection.  The program, which has been in place since 1992, was repealed by the Crystal City Council earlier this week.

Along with repealing the ordinance, the City issued details about how current and future transactions will be handled.  The official repeal of the Point-of -Sale inspection will go into effect on September 26th.  Any property transaction closing on or after September 26th will no longer be subject to the existing Point-of-Sale inspection.  Properties currently under contract but closing prior to September 26th will still be subject to the rules of the existing ordinance.

The City of Crystal is offering a full refund to homeowners who have already paid for the inspection but have not had the actual inspection take place.  If the inspection has already happened but the closing is after September 26th, the seller will still have to bear the cost of the inspection.

Including the repeals that have taken place in Brooklyn Park and Crystal, there are still 12 cities that have some kind of point-of-sale ordinance on the books.  A few of the cities still requiring inspections include Minneapolis, St. Paul, Richfield, Bloomington, and Golden Valley.  For more detailed information on what each particular city requires at the time of sale, please visit http://www.mplsrealtor.com/laws-regulations/.

It will be interesting to see what unfolds on this front in the next few years.  Both the Minneapolis and St. Paul Associations of REALTORs strongly oppose Point-of-Sale inspections, citing the "the costs, duplication of efforts, limited scope, and waiver of city liability that comes with city-mandated Point of Sale inspections."  As recently as a couple months ago, the City of Eden Prairie was considering a Point-of-Sale mandate, but ultimately turned it down.

For any questions or more details, please feel free to call (763-213-4617) or email (josh.pelto@remax.net) me!

How Much Earnest Money Should I Offer?

This is a really common question I'm asked - "How much earnest money should we include with our offer?". Since I hear this often, I figured it'd be a great subject for a blog post!

Like (essentially) everything in the Purchase Agreement, the amount of earnest money is negotiable!  However, REALTORs frequently use a rule of thumb for earnest money - roughly 1% of the purchase price.  For example, if the home you are offering on is priced at $280,000, I normally instruct my clients that something in the $2,500 - $3,000 range is an acceptable amount of earnest money.

There are some important caveats to this rule of thumb, however.  For example, when offering on a foreclosed home the seller may require a certain amount.  I've seen foreclosures require 2% of the purchase price for earnest money - in the $280,000 example above, the bank would require $5,600 for earnest money.

Another caveat is that in a multiple offer situation, raising the earnest money might make your offer look stronger than the other competing offers.  Of course sellers ultimately care the most about the sales price over the rest of the details, but it's a simple way to increase the strength of an offer!

Immaculate Original-Owner Home in Champlin For Sale!

In addition to my listing in Osseo, I also have a wonderful home for sale in Champlin. This home has had massive investments made to it - new windows, newer roof, metal siding, updated mechanicals, HUGE addition, gorgeous views of South Pond - this home is so much to offer. Additional photos and information are below!

Beautiful Home for Sale in Osseo!

I have a gorgeous house for sale in Osseo - it's a one-story home with three bedrooms on the upper-level, gleaming hardwood floors, beautiful updated kitchen with custom seating in the dining area and new backsplash, a spacious lower-level master bedroom with a private walk-through to the bathroom, and a wet-bar that is perfect for entertaining.  This home is priced to sell at $224,900 - this is one of the best homes in all of Osseo!

UPDATE:  NEW PRICE!  This home is now offered at $222,000!

Real Estate Radio Hour - 6/20

www.RealEstateRadioHour.com

Woah guys, it's been a while since I've posted here.  It's been a crazy 2015 helping my buyers and sellers, and unfortunately this blog is one thing I often have to set aside when things are busy.

Anyways, I was lucky enough to be a guest on the WCCO Real Estate Radio Hour this weekend.  You can learn more about the radio show and our sponsors at www.realestateradiohour.com. 

This week's topics included the just-announced delay to the major mortgage changes happening (now going into effect on October 1, 2015 instead of August 1), working with investors, and selling your home with "environmental" challenges - asbestos, lead-based paints, radon, etc...  We spent a decent amount of time discussing radon as it is effecting nearly every real estate transaction taking place.

Below is a link to the podcast - it's about 34 minutes long.  Be sure to tune in to WCCO every Saturday from 10-11am for the Real Estate Radio Hour.

6/20/2015 Real Estate Radio Hour - Andy Prasky, Josh Pelto, Travis Whitford

Your Market Update - September 2014

Compared to September of last year the inventory of houses for sale is up 8%, a welcome reprieve for buyers eager to buy but facing a shortage of homes for sale.  Whereas a year ago we had approximately 3-months worth of homes for sale, that number today sits at 4.4 months.  We typically view a "balanced" market (meaning no clear edge to either buyers or sellers) as having between 4 and 6 months of inventory available.  We appear to be settling in that range as we head into the (typically slower) winter months.

Along with a rise in inventory, we've seen a slight downward tick in the number of pending sales recently.  We use pending sales as a leading indicator, since pending sales represent homes being under contract but not yet closed.

However, even though we are seeing pending sales fall slightly, it hasn't affected prices....yet.  Compared to September of last year, the median sales price rose 5.1% to $205,000.  According the Minneapolis Association of REALTORs, we have now seen 31 consecutive months of year-over-year price increases.  We've certainly come a long way since the market crash of 2007-2008.

It will be interesting to watch the market as we head into the winter months.  Real estate in Minnesota is very much cyclical and tied to the weather - spring and summer see the largest number of sales, fall and winter typically see a downturn in sales.  My prediction is that with inventory up, there will be prime opportunities for savvy buyers this winter.

If you have questions about a specific area or neighborhood, contact me today - I'd be happy to create a custom report for you.

Information and statistics gathered from the Minneapolis Association of REALTORS.

Your Market Update - June 2014

With the official start of summer right around the corner, let's take a look at the Twin Cities real estate market!

The biggest news we have is on the inventory-front.  Home buyers are finally starting to see more homes to choose from - in June, new listings were up 3% (compared to June 2013) and pending sales were down 9%.  This has given buyers more options than they've had in well over a year. 

Along with increased inventory, absorption rates have fallen.  The absorption rate measures how quickly homes come on and off the market.  In June, the absorption rate fell to 3.9 months, meaning it would take 3.9 months for all homes on the market to sell (assuming no new listings enter the market). 

The mix of home sales continues to move away from distressed properties (foreclosures and short sales) and towards traditional sales.  This continues to be a welcome sign as we move out of a very difficult 5-year stretch for the housing market. 

Homes continue to sell quickly (from a relative standpoint).  In June, it took an average of 80 days for a home to sell.  Compare that to 2011, when homes were taking upwards of 140 days to sell.  Looking at these numbers, it's pretty amazing how quickly things have changed.

And now, the part most people care about - home prices.  In June, the median sales price rose 8.2% to $210,000.  We've now seen 27 consecutive months of year-over-year price gains.  This is certainly welcome news to traditional sellers, who have not seen a market this strong since the bubble-days of the mid 2000's.

If you have specific questions about your area or neighborhood, please feel free to contact me!  My phone number is 763-213-4617 and email is josh.pelto@remax.net

Another Client Testimonial!

There is nothing better than closing a home sale and having extremely pleased clients.  I recently helped a family friend purchase a home and received a heartfelt testimonial from her.  She's happy, and because of that I'm also happy!

Here's the testimonial:

"Josh - Words cannot express the depth of my appreciation for all you've done.  This is more than just buying a home - it's truly make a dream come true for me and I couldn't have done it without you!"

 Selling real estate can be stressful and problem-filled, but kind words like this make it all worth while!

Market Update - May 2013

The real estate market continues to perform strongly as we make our way further into 2013.  After several very tough years, the market has dramatically turned around - to the delight of sellers, and to the frustration of buyers. 

Compared to a year ago (May 2012), the numbers for May 2013 are somewhat shocking.  The main statistic most people look at, median sales price, increased nearly 15%.  The median sales price in the Twin Cities area is now up to $194,000. 

Connected to the increase in median sales price is the dramatic drop in inventory we have seen.  Compared to a year ago, months supply of inventory (tracks the flow of houses coming on the market versus houses sold) has dropped approximately 31%, to 3.4 months of inventory.  To translate, if no new listings came on the market, we would burn through all the current houses for sale in 3.4 months.  Historically, this number is roughly 5-6 months. 

Finally, another statistic that is easily understood - Percentage of Listing Price Received.  Compared to a year ago, this number has risen 2.5%, and now sits at 97%.  To demonstrate, homes listed at $200,000 should expect to get, on average, $194,000 for their home.

Brooklyn Park Abandons Point-of-Sale Inpection Program

As you probably know, there are several cities in the Twin Cities that require city inspections when homes are sold.  The names (Point of Sale, Truth in Housing, Truth in Sale of Housing, etc..) and details differ from city to city, but the underlying idea is the same - cities want some way to assure that their housing stock stays in decent shape, and so they require sellers to have the home inspected prior to closing on the sale.

My thoughts on this have always been that more and more cities would adopt similar programs.  There are already quite a few cities that require Time of Sale inspections (Crystal, Golden Valley, Minneapolis, St. Paul, Richfield, Bloomington, etc..), but my expectation was that this would continue to grow.

However, at least in the very short-term, my assumption has been wrong.  Just last week the City of Brooklyn Park voted to repeal their Time of Sale program.  As of June 3, sellers are no longer required to have their homes inspected.

For buyers and sellers in Brooklyn Park, this is probably welcome news.  Although their are certainly benefits to such a program, many buyers and sellers look at them as invasive, time-consuming, and a waste of money - particularly by sellers, who are responsible for making any repairs required as a result of the inspection.

Ultimately, it will be quite interesting to see which city makes the next move on this front.  Will a new city adopt such a program, or will we see Time of Sale inspections continue to get the axe?  Stay tuned to find out!

Housing Recovery and Inventory Shortage

Market Inventory - Provided by MPLS Area Association of REALTORS

Wow, I have not posted here in a long time.  Consider this my formal vow to pay more attention to this blog!

As many of you know, real estate has been through a tough decade.  We saw enormous price gains from 2001 through 2008, unlike anything seen before.  Unfortunately, this was subsequently followed by massive price drops, high levels of foreclosures, and a market in complete distress.

It now appears that we are emerging from the depths of the real estate collapse.  And that is fairly positive news for everyone involved - buyers, sellers, loan officers, real estate agents, local communities, etc..  Normalcy (whatever that means) is something we've been seeking for quite some time now.

However, the recovery happening in the market is not all positive news.  Four years ago, there were more houses for sale than buyers knew what to do with.  Buyers had roughly 10 months worth of inventory to look at (10 months of inventory means that if there suddenly zero homes coming on the market for sale, it would take 10 months for all the existing inventory to sell).  Today, that number sits at a paltry 3.8 months.  Essentially, we've gone from one unhealthy extreme (way too much inventory) to the opposite (way too little inventory).  This has created a lot of pressure within the market, and as a result home prices are up roughly 10% compared to a year ago.

What we ultimately need is more home sellers to list their homes.  It is easy to see why sellers are still reluctant.  Just five years ago they though their homes were worth significantly more.  My (speculative) theory is that the lingering effects of the bubble/burst are still present in many sellers minds, and they have simply come to grips with the idea of staying put for the time being.

This summer will be a very important indicator of where the market is headed.  If sellers do decide to come off the fence and list their homes, buyers will be reinvigorated by more inventory to look at.  Stay tuned for a follow up post in the next few months as more data becomes available.

And as always, please feel free to contact me if you are curious what your home is worth.  I would be more than happy to prepare a market analysis for your home!

Another Wonderful Testimonial

I received another testimonial from a great client recently:

I would highly recommend Josh to anyone I know who is looking at buying or selling a home.  I already look forward to working with him next year as I look to buy my own condo.

Do you know anyone looking for this high level of care?  Please pass my information along to them, I take great pride in the work I do and making sure it is a positive experience for my clients.