Make Your Best Offer

5 THINGS TO BE AWARE OF WHEN YOUR FIRST HOME IS A RENOVATION PROJECT

You have decided to buy your first home, and… you have decided to put your special touches on it. Congratulations! But, unless you have the necessary experience in conducting renovations, or supervising contractors, you will need to be aware some very important things B-4 you decide to take on a very serious, and hopefully, avoidably, financially impairing project. Here are a 5 things to be aware of:

Buying verses Repairs-It is important to know how much you are willing and able to spend. Whether financing the project, or coming out of pocket, knowing your financial limitations is key. If, for example, the most you have to spend on a house and repairs is $150,000, it would be important to know the condition of the property before buying it;
Inspections/Estimates- The most unassuming property may hold more challenges than you can imagine. Taking the time to inspect a home before buying it will save a tremendous amount of money. For example, a house valued at $75,000 may leave another $75,000 for repairs, additions and adding decorative ideas. If of the $75,000, you may have set aside, 20% for repairs, or $15,000, will that be enough if an inspection reveals pluming problems and/or foundation problems? While either of these maybe addressed within the initial $15,000, was that 20% supposed to also include a new roof, or electrical? If so, then, that 20% may have to be adjusted to maybe 35%, or $26,500. It will be important to get several estimates for the necessary work to be done, so as to minimize how much the “must do’s” affect the “want-to-do’s”;
Contractors (family, friends, professionals)-While family and friends maybe professional contractors, Professional Contractors may not always be family and friends. Please note the difference how each, if not properly insured, or supervised, may cost the first-time home buyer in taking on a first-time renovation project. As you make a decision on how much to spend on repairs and those things that you may want to do the property, you will also want to take into account, who is going to do the work? Contractors are not in short supply. They are like Real Estate Agents (no Offense) and Lawyers (no offense). But the best of the best will be depend on how much you can afford. Affordability in this instance applies not just to how much they will charge, but also how properly licensed and insured they are. As a first-time home buyer, you can’t afford to have just anyone doing work on your home who is not properly covered against liability, or workers’ compensation. A failure to exercise reasonable care when contracting someone to work on your new home cannot be budgeted for, because the amount of liability that begins to grow, may exceed what you may have purchased the home for, as well as what you may have set aside for repairs and updates. It is suggested that you use the Better Business Bureau and/or (in the State of Louisiana) the Contractor’s Licensing Board, even for Family and Friends;
Financing-if you have not met with a lender, you may not be aware of the types of loans that you could apply for that allows you to purchase a home and finance the repairs and upgrades. There are several loan products, but for now, let us briefly talk about the FHA203K loan (See your lender for further details). This loan allows a purchaser to buy and repair the home as long as one main condition is met: the purchaser must agree to live in the home for a certain amount of time (certain conditions may apply). The important thing to remember is that this process helps the purchaser to fine-tune the purchasing of the home through a structured process that involves an appraisal, an FHA Home Inspection and the opportunity, if necessary, to finance part of the loan without coming out of pocket (your lender can explain). This and other loan products are available through select lenders, certified in FHA203K loans, please check with your lender first.
Insurance-Knowing the right type of insurance for your home is extremely important. Consult with your insurance provider as you ask them about one of their products called Builder’s Risk. This particular product is available when a house is not quite ready to be moved into, or is vacant. It covers the homeowner during renovations, and particularly, while contractors are doing very important work to restore your home. After the renovations are through, you should already be aware of the cost of homeowner’s insurance and flood insurance. These are usually required by lenders when a property is being financed. NOTE: even if your lender does not require Flood Insurance, or your home is located in a non-flood zone, please be advised of the importance of maintaining adequate flood insurance in the southern portion of Louisiana and along the Gulf Coast.
BONUS-Who is watching your stuff? The first thing that jumps out at me as Realtor, is the fact that when a first-time home buyer is looking at a property that is obviously in disrepair, and they want to take that property on as a project. God Bless’em! I automatically switch to protective mode on their behalf. I often ask: “Who are you going to get to do the work? Will the person(s) be someone you can trust? Most of the time it is a family member whom they will be getting to do the work, and at the point, I am at ease. But for those who have yet to encounter what it is like to work with contractors, especially as a first-time home buyer, and you are working your 9-5, or you are out of town a lot, please have someone whom you can trust to ensure that the work you are paying for, is the work that is getting done. This is not to cast dispersions on contractors in general, but, what if the wrong counter-top goes in? What if the wrong paint is applied? Who is watching out for that first time home buyer, if they are not on site? The outcome of not being able to be hands-on can be financially impactful, even if, for example, the wrong tile is put up in the bathroom. These types of situations happen, even among the most qualified contractors, with on-site supervision! So it would be helpful to the first time home buyer to make sure that they are as visible as necessary to help their contractors do their best, on the buyers’ behalf.

The above 5 areas and Bonus suggestion, are only a snapshot of what the first time home buyer/renovator should be concerned about before signing off on the final papers. There are more things to be concerned about, but it is recommended that the first-time home buyer consult with each professional along the way. From the proposed contractor(s), to the lenders, Inspectors, and of course, Realtors, the important thing is to leave nothing to chance when it comes to investing in a home that needs to be renovated. The first time home buyer encounters a tremendous number of challenges already. If they are not prepared for what renovating their new home involves, the financial repercussions may cause extensive more problems than had they chosen to purchase a move-in ready home. Good luck on the purchase of your new home, and as always: Make Your Best Offer!

SPEAKER: If interested in having Wayne Lewis speak before your community group, please email him at waynelewissoldit@yahoo.com

DISCLAIMER: ALL INFORMATION PROVIDED IS DEEMED TO BE FROM RELIABLE SOURCES, BUT NOT GUARANTEED. NOT AN INTENT TO SOLICIT THE AGENTS CUSTOMERS OR BUSINESS OF ANY OTHER AGENT OR BROKER.

Labels: Contractors, FHA203K certified., FHA203K Lenders, First-time home buyers, First-time Renovators, Home Renovations

Trying to Make Sense of Flooding and Flood Insurance

National Flood Insurance Program (NFIP)[1]

For the purpose of this discussion, I want to try make sense of the thousands of pieces of information relating to Flooding and the Flood Insurance program otherwise referred to as the National Flood Insurance Program or NFIP. As I sat down to try and put some type of order to this post, I found myself not knowing where to start, let alone finish. So, the first thing I want to do is refer you to the National Flood Insurance Program’s website. It is referenced several times throughout this post, but here it is anyway, so that you can always be able to pull it up at will: http://www.floodsmart.gov/floodsmart/ .

Throughout the blog and the footnotes, I will be referencing various areas of the Floodsmart Program and FEMA, as the two apparently work together to address issues regarding flooding and flood prevention and flood protection here in the United States.

http://www.fema.gov/national-flood-insurance-program-flood-hazard-mapping

Having been the victim of major flooding 2 times in my life (Hurricane Betsy 1965 [2], which predates the current Flood Program, and Hurricane Katrina, 2005 [3]), doesn’t make me an expert. As a matter of fact, each incident and its impact and aftermath presented its own challenges that the NFIP addresses minimally. First of all, here are some general things that we should know or be aware of regarding preparation and response:

Flood Insurance should always be obtained, whether you are in a flood plain or not, whether you are a homeowner or renter, you should have Flood Insurance;
Do not allow your Flood Insurance to lapse, it could be 30 days before the policy kicks in;
What flood plain risk is your home?[4]

High Flood Risk-AE, A, or AO Zone; VE or V Zone
Low or Moderate Flood Risk Zone-Shaded X

If your policy lapses, and your renewal is coincides with a named storm in your region, the policy may not kick in until after the hurricane passes [5]
Keep policies in a place where you will always be able to access them in an emergency;
Have an emergency plan of action in the event a hurricane strikes or threatens.
Keep your emergency supplies available in the event you either have to evacuate or are not able to evacuate to a safe place;
Listen to local public officials and broadcasters regarding the most reasonable action to take to stay safe;
Have a plan of action to address the needs of children who could be separated during an evacuation;
Have a plan of action to address the needs and safety of elderly or special needs family members; [6]
Have a plan of action to address the needs of your pets;
Take pictures of your home and belongings prior to evacuation for insurance purposes;
Do not return to your home after a major water event unless directed to do so by the local authorities;
Do not touch downed power lines or they maybe energized;
Establish a central contact place for all family members in the event of separation;

http://www.floodsmart.gov/floodsmart/pages/preparation_recovery/pr_overview.jsp

There maybe other important things that may pertain to your situation that you should prepare for, you should consult your respective authority for those circumstances.

Protect Yourself[7]

Since standard homeowners insurance doesn't cover flooding, it's important to have protection from the floods associated with hurricanes, tropical storms, heavy rains and other conditions that impact the

U.S.

In 1968, Congress created the National Flood Insurance Program (NFIP) to help provide a means for property owners to financially protect themselves. The NFIP offers flood insurance to homeowners, renters, and business owners if their community participates in the NFIP. Participating communities agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding.

http://ks.water.usgs.gov/pubs/fact-sheets/fs.024-00.html

What if your home is flooded? Here are some suggestions, based on what we (my family) have experienced:

Make sure all power is off in your home, do not touch any downed trees or power lines (Contact your power company to advise of down lines in your area (for example: Entergy)[8];
Take pictures immediately of the damage to your home and surrounding areas;
Contact your Insurance provider, or go to the off-site facilities that are often stationed in your neighborhood;
Do not drink water from the faucets unless you are advised to do, which may also include a boil water order from your public works or sewerage and water operator;
Depending on the extent of damage to your home, you may require a structural report to determine if your home is safe for habitation;
If you are injured, contact 911, or locate your nearest Red Cross provider in the area;[9]
Be careful opening refrigerators that have been flooded, possible mold buildup
When safe, open your home’s windows and doors to decrease mold build up
You may want to contact a specialty company to come and treat your home for mold;
Be sure to give insurance companies all of your pertinent information;
You will also need to make contact with FEMA (Federal Emergency Management Agency), as they will require a tremendous amount information regarding damage to your home, loss of food, loss of use of your home, any loss of life, and/or loss of valuables;
With respect to security & safety:

Be aware of contractors who move in quickly to repair your home, who often ask for thousands of dollars up front;
Ask contractors for local references, confirm that they are registered with the sate’s contractor licensing authority ( in Louisiana), it Louisiana Licensing Board for Contractors[10];
Be aware of the length of time your contracts have been in business;
Be aware of any outstanding complaints against your contractor and/or their company[11];
Secure your home properly if you are going to be away for any extended period of time;
If you are going to have new supplies at your home, be sure to secure it inside and check often for vandalism and/or theft-Call 911 if you suspect any criminal activities;
Be careful in revealing any personal information to strangers whom you are not familiar with, or who may have not been referred to you by a reliable source;

Use social media to learn of or to share any activity that maybe going on in your area

http://www.epicdisasters.com/index.php/site/comments/the_deadliest_us_floods/

What is currently going on in the area of Flood Insurance? [12]

Flood insurance for investors and businesses are subject to increases of up to 25% annually
Flood Insurance for primary owners who are outside of protected flood walls are subject to increases in their insurance premiums of up to 25% annually
Maps/Mapping-Flood maps are being evaluated and approved in various communities
Grandfathering will be eliminated of existing policies to new homeowners
A Current flood policy may be transferrable until new laws are in place.
Preferred Risk Policy (PRP)- The Preferred Risk Policy offers multiple coverage combinations for both buildings and contents (or contents-only, for renters) that are located in moderate-to-low risk areas (B, C, and X Zones). Preferred Risk Policies are available for residential or non-residential buildings also located in these zones, and that meet eligibility requirements based on the building’s entire flood loss history. [13]

http://www.noaanews.noaa.gov/stories2008/20080320_springoutlook.html

Flood Facts [14]

Floods and flash floods happen in all 50 states.
Everyone lives in a flood zone. (For more information, visit our Flood Zones FAQs.)
Most homeowners insurance does not cover flood damage.
If you live in a Special Flood Hazard Area (SFHA) or high-risk area and have a Federally backed mortgage, your mortgage lender requires you to have flood insurance. (To find your flood risk, fill out the Flood Risk Profile.)
Just an inch of water can cause costly damage to your property.
Flash floods often bring walls of water 10 to 20 feet high.
A car can easily be carried away by just two feet of floodwater.
Hurricanes, winter storms and snowmelt are common (but often overlooked) causes of flooding.
New land development can increase flood risk, especially if the construction changes natural runoff paths.
Federal disaster assistance is usually a loan that must be paid back with interest. For a $50,000 loan at 4% interest, your monthly payment would be around $240 a month ($2,880 a year) for 30 years. Compare that to a $100,000 flood insurance premium, which is about $400 a year ($33 a month).
If you live in a moderate-to-low risk area and are eligible for the Preferred Risk Policy, your flood insurance premium may be as low as $129 a year, including coverage for your property's contents.
You are eligible to purchase flood insurance as long as your community participates in the National Flood Insurance Program. Check the Community Status Book to see if your community is already an NFIP partner.
Typically, it takes 30 days after purchase for a policy to take effect, so it's important to buy insurance before the floodwaters start to rise.
In a high-risk area, your home is more likely to be damaged by flood than by fire.
Anyone can be financially vulnerable to floods. People outside of high-risk areas file over 20% of NFIP claims and receive one-third of disaster assistance for flooding.
The average annual U.S. flood losses in the past 10 years (2002-2011) were more than $2.9 billion.
When your community participates in the Community Rating System (CRS), you can qualify for an insurance premium discount of up to 45%. Read more about CRS Ratings.
Since 1978, the NFIP has paid over $36.9 billion for flood insurance claims and related costs (as of 12/31/10).
Over 5.5 million people currently hold flood insurance policies in more than 21,000 communities across the U.S.

For more policy and claim statistics, visit the National Flood Insurance Program.

Summary-This information is not considered to be legal advice. You are encouraged to consult with your respective insurance provider, real estate professional, or related provider for those services that may impact you. Information provided here is subject to change and should be verified by those agencies or companies with whom you may have accounts or any professional relationships. Information obtained here while deemed to be from reliable sources, is not guaranteed. You are however, encouraged to consider strongly to obtain flood insurance, even if not required in your respective area. No blog post should be considered as an attempt to solicit the clients or customers of other brokers or agents.

Online bibliography regarding FEMA and Flood Insurance:

Grandfathering Options-

http://www.floodsmart.gov/toolkits/insurance/docs/insurance/Grndfthr_Sht.pdf

http://www.floodsmart.gov/floodsmart/pages/flooding_flood_risks/grandfathering.jsp

Flood Risks

http://www.floodsmart.gov/floodsmart/pages/flooding_flood_risks/levee.jsp