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Should Buyers and Sellers See Each Other's Settlement Statement?

by Connie Yoshimura

At closing, the settlement statement adjusts buyer and seller’s debits and credits.  It includes the sales price of the property, deposits made towards the purchase price and the new loan amount.  Pro-rations and adjustments include taxes, daily cost of early occupancy if applicable, escrow hold backs for exterior paint, landscaping  and other hold backs identified by the appraiser.  On the buyer’s side are the loan origination fee and prepaid interest charges.  Other loan charges can include the flood certification, credit report fee and tax service to Alaska Realty Tax service.  Buyers also establish reserves for homeowner’s insurance and property taxes.  They also pay for the lender’s title policy. 

Buyers and sellers generally share in the cost of title document preparation, recording fee and the settlement fee paid to the title company.  They usually also share in the cost of the deed preparation and recording. Sellers debits Include the payoff of any first and second mortgages, liens and real estate commission.  All of this is fairly straightforward  but how much  or any of these seller or buyer costs should be disclosed to one another is the question.  Both buyers and sellers should be entitled to privacy when it comes to their financial affairs and home purchases.  What a seller makes or doesn’t make on the sale of the home is not relevant to the buyer and vice versa.  Sellers are not entitled to know the terms of the buyer’s financing and  their down payment  requirement, whether or not they are having to pay for mortgage insurance.  

It should be the responsibility of the title company and the escrow closing officer they employ to go the extra mile and keep the settlement statements separate.  As listing and selling licensees, we make it a point to ask on every closing for that confidentiality. A good example of how settlement statements can be misinterpreted is when buyers purchase a new home .  The builder’s settlement statement can show as  $100,000 or more on a $500,000 purchase price.  But, does that amount represent the builder’s net profit?  Absolutely not!  Out of that $100,000 comes his original equity injection when he first received his construction loan, overhead (office space, gasoline, et cetera ) labor costs, and thirty days worth of subcontractor bills to finish the home.  According to the National Association of Home Builders, the average net profit of a builder hovers around five to six percent.  That’s about $25,000 to $30,000—a far cry from the builder’s proceeds showing on the settlement statement.

Similarly, a private seller may have made mortgage payments for ten years, replaced a furnace, aging kitchen appliances, installed expensive window coverings, planted and replaced trees and shrubs, paid homeowner’s insurance and if a condo, expensive HOA dues.  Although different from the builder because they have had the pleasure of living in the home, their seller’s net is not what is showing on the settlement statement and doesn’t even necessarily reflect their own closing costs and down payment when they initially purchased the home.   In today’s world where everything seems to be disclosed and available online, let’s not fall into that mode.  Lets keep buyer and seller proceeds private from one another, even if it means a little more work on the part of the escrow closers.         

Check Out Your Landscaping Requirements

by Connie Yoshimura

At closing, the settlement statement adjusts buyer and seller’s debits and credits.  It includes the sales price of the property, deposits made towards the purchase price and the new loan amount.  Pro-rations and adjustments include taxes, daily cost of early occupancy if applicable, escrow hold backs for exterior paint, landscaping  and other hold backs identified by the appraiser.  On the buyer’s side are the loan origination fee and prepaid interest charges.  Other loan charges can include the flood certification, credit report fee and tax service to Alaska Realty Tax service.  Buyers also establish reserves for homeowner’s insurance and property taxes.  They also pay for the lender’s title policy. 

Buyers and sellers generally share in the cost of title document preparation, recording fee and the settlement fee paid to the title company.  They usually also share in the cost of the deed preparation and recording. Sellers debits Include the payoff of any first and second mortgages, liens and real estate commission.  All of this is fairly straightforward  but how much  or any of these seller or buyer costs should be disclosed to one another is the question.  Both buyers and sellers should be entitled to privacy when it comes to their financial affairs and home purchases.  What a seller makes or doesn’t make on the sale of the home is not relevant to the buyer and vice versa.  Sellers are not entitled to know the terms of the buyer’s financing and  their down payment  requirement, whether or not they are having to pay for mortgage insurance.  

It should be the responsibility of the title company and the escrow closing officer they employ to go the extra mile and keep the settlement statements separate.  As listing and selling licensees, we make it a point to ask on every closing for that confidentiality. A good example of how settlement statements can be misinterpreted is when buyers purchase a new home .  The builder’s settlement statement can show as  $100,000 or more on a $500,000 purchase price.  But, does that amount represent the builder’s net profit?  Absolutely not!  Out of that $100,000 comes his original equity injection when he first received his construction loan, overhead (office space, gasoline, et cetera ) labor costs, and thirty days worth of subcontractor bills to finish the home.  According to the National Association of Home Builders, the average net profit of a builder hovers around five to six percent.  That’s about $25,000 to $30,000—a far cry from the builder’s proceeds showing on the settlement statement.

Similarly, a private seller may have made mortgage payments for ten years, replaced a furnace, aging kitchen appliances, installed expensive window coverings, planted and replaced trees and shrubs, paid homeowner’s insurance and if a condo, expensive HOA dues.  Although different from the builder because they have had the pleasure of living in the home, their seller’s net is not what is showing on the settlement statement and doesn’t even necessarily reflect their own closing costs and down payment when they initially purchased the home.   In today’s world where everything seems to be disclosed and available online, let’s not fall into that mode.  Lets keep buyer and seller proceeds private from one another, even if it means a little more work on the part of the escrow closers.         

No Bargain Basement Homes in Alaska's Housing Market

by Connie Yoshimura

Listen up, Alaska, if you’re waiting for the housing market to tank so that you can buy a bargain basement home, your wait may be longer than you think.  Alaska ranks ‘Best in the Nation’ when it comes to subprime delinquencies at 6.3% when compared to the U.S. average at 16.2%.  Want to buy a subprime foreclosure?  Again, Alaska ranks ‘Best in the Nation’ with a 1.7% compared to the U.S. rate of 7.8%.  Alaska is also ‘second best’ for  total delinquencies at 2.7% versus a U.S. rate of 5%.  Total foreclosures in progress is 0.7% compared to U.S.’s 1.8% , making Alaska ‘fourth best’.

These foreclosure and delinquency rates are for 1-4 unit residential properties and come from a  recently released survey by the national  Mortgage Bankers Association.   A subprime loan is made to borrowers who traditionally don’t qualify for underwriting guidelines.  Alaska, along with other states, have reduced their exposure to subprime loans, by tightening their lending requirements.  In the past, many subprime loans had ‘stated income’ borrowers which simply meant there was no income verification. Another example would be a 90% letter I once received  in 2008 that stated I could buy a condo I wanted in Marina Del Rey, California.  That was in 2008 and thank goodness, I never came to an agreement with that seller because the market crashed shortly thereafter.

But, Alaska is not California, Florida, Arizona, Nevada or even Texas and our housing market and thus our mortgage market, is steady, thanks to historically low building permits over the past eight years.   All communities, except the Mat-Su Borough, has a shortage of housing.  In particular, Anchorage suffers from a lack of affordable homes in the $350,000 to $400,000 range.  And, unfortunately, most of those homes were built well before the twenty first century, making them twenty to thirty years old.  Sales in this price range are occurring with homes built in the l970’s.  Older homes have larger lots, mature landscaping and are usually priced 20% lower on a price per square foot basis than new construction.  However, buyers need to be aware of the future, hidden costs for maintenance and repair.

As pressure continues on the local housing market, local planners continue to push for denser housing and more stacked, vertical construction as if it were the solution to affordable housing.  What they don’t realize is that the  cost of this type of housing is more expensive that the traditional single family or zero lot line.  These type of residential properties are built to condo specifications and require homeowner’s associations that need professional management.  Dues include insurance and management fees, as well as accounting  and legal fees.  It is not unusual for these dues to run between $300 and $400 per month for each homeowner.  In order to qualify for the mortgage, a buyer would need to make an additional $1,200 to $1,600 per month.  So why wouldn’t a buyer prefer an older home, even with its potential future risk for roof, electrical and mechanical repairs?                      

What You May Not Know About Eagle River

by Connie Yoshimura

According to the Chugiak –Eagle River Chamber of Commerce, the area represents an estimated 12 percent of the Municipality of Anchorage’s population. Its last estimated population was 35,600, a 38% increase over the past twenty years. Long considered a stepsister to its more urban Anchorage neighbors, you might be surprised to know that 37% of its residents have college degrees, 65% of its residents are married and 62% work in the private sector- the vast majority of which take that five day drive into Anchorage’s employment centers. The community also has strong roots in the military with 21 percent of residents 18 years or older identifying themselves as having military/veteran status. That’s clearly evident on Memorial and Veterans Day when dozens of  U.S. flags fly on homes in popular neighborhoods like Eagle Crossing and Powder Ridge. Much of Eagle River’s popularity comes from its scenic beauty. It is what most Lower 48 residents dream about Alaska - a view of mountains and glaciers out their living room windows. Where your next door neighbors are moose, eagles, and even the occasional black bear on your back deck. Its scenic beauty rivals that of Anchorage’s hillside and it has a plethora of trails, biking, cross country skiing, and rafting on its name sake, Eagle River. 

However, when it comes to housing, there are some important differences between the two communities. You will be surprised to know that its average sales price is $363,514 or approximately $7,500 more than its more urban neighbor which averages in at $355,000. Currently, in Anchorage there are 154 homes for sale between $150,000 and $300,000 compared to just 16 in Eagle River. Despite the obvious difference in population, there is clearly more pressure on the Eagle River market in the affordable category.  What Eagle River does not have for sale are luxury homes. Only three homes for sale are above $750,000 compared to 72 in Anchorage. However, there is a quiet trend for more custom homes built, not on speculation, but on a presale basis.

Unlike most of Anchorage, Eagle River still has land for residential development owned by Eklutna, the Heritage Land Bank, and in the hands of private developers. With proper planning and cooperation by AWWU and the MOA, Eagle River has the capacity to stop the population drain to the Valley. The underlying basis and cost for all housing are its municipal codes and land use regulations. In the past, builders could obtain a land use permit for Eagle River-Chugiak with only proof of zoning. If this changes with the interpretation of the new Title 21 and its oversight extending to Chugiak-Eagle River, this stable and budding community will fall victim to yet another bureaucratic bottle neck.   

Mat-Su Population Growth Challenges Anchorage

by Connie Yoshimura

According to the latest census data for 2015, Anchorage has lost 1,458 residents when compared to 2014 while her popular neighbor to the north, the Mat-Su Borough gained 1,801. How many of Anchorage’s lost neighbors became residents of the Mat-Su is hard to calculate, but anyone who’s driven the Glenn Highway in the past twelve months can attest to the growing long line of traffic back and forth. According to the same census information, the Mat-Su has now become the second most-populated region in the state, surpassing the interior to which like the Municipality of Anchorage has also continued to lose population.

What makes the Mat-Su so attractive is the almost over-abundance of developable land resulting in more affordable home prices. But, it is not just the small ranch home that beats Anchorage home prices between $50,000 and $100,000, but also the more attractive and custom homes as well. With large lots, many with views and some with lake frontages, the Mat-Su has also become a fast-growing luxury home market. However, just like there is plenty of land to develop, there are also plenty of homes for sale. As of last week, Anchorage had 638 homes for sale, an increasing number, but not unusual for this time of year. That number reflects one home for sale per 468 residents. In the Mat-Su, with a population estimated at just over 100,000, there is one home for sale per 168 residents or more than 2.78 times the choices if you’re looking for a home to purchase.

Needless to say, lack of home-building regulations in the Mat-Su Borough makes building faster and more affordable. Only the city of Palmer actually has building permits. The rest of the borough is wide open with the only regulation coming from private inspectors in order for a home buyer to obtain long-term financing. Buyers should be aware that all homes are not created equally, and a popular home plan built in the Mat-Su versus the MOA may, for example, have fewer electrical outlets than the same home in Anchorage. However, fewer restrictions are also available in Girdwood, Eagle River, and Bear Valley.

The flight to the Valley is understandable but worrisome from a residential real estate perspective. While the Mat-Su may be too loose without permits and adequate oversight, Anchorage is going in a different direction with new Title 21 regulations requiring even a strict percentage of windows on the front elevation of all new homes, and the continual upgrading of the Design Criteria Manual, that little-known document governing the requirements for the construction of roads without any public review process. Somewhere in between the development philosophy of the Mat-Su Borough and the MOA should be a reasonable compromise so that both communities can fulfill the housing needs of its residents.    

Read Connie Yoshimura at www.columnsbyconnie.com. Contact her at 907-646-3670 or [email protected]

Why Are New Homes So Expensive?

by Connie Yoshimura

There are many elements that go into a brand new home. What buyers see and evaluate is the structure itself. However, the land and what is underneath the land, is 20 to 30% of the total cost of the home itself.  Anchorage is not really running out of land as the popular theory goes. But the land we do have for development frequently has marginal soils or wetlands. Class C wetlands allow for development but only when there is a mitigation fee paid by the developer which is calculated on a per acre basis. The fee is paid into a wetlands mitigation bank and, if in Anchorage, is paid to the Greatland Trust, a nonprofit entity.  An acre of Class C wetlands costs about $76,000 to mitigate so development can occur.

Now comes more costs. The Municipality of Anchorage has a little-known document called the Design Criteria Manual. This manual establishes the type of material that goes into the trenches and the amount of gravel for the road bed along with other requirements such as guard rails, lighting, and road grade. This document is changed periodically after peripheral review by a peer group, both internal and external. However, the underlying philosophy, whether publicly acknowledged or not, is to create such a high standard for development that the MOA will be immune from future maintenance and repairs for streets for several generations. Although this is partially understandable due to some shoddy development and substandards in the 1980s which the MOA is now having to repair and/or replace, it creates an extraordinary burden on developers which is passed on to future homeowners. This manual does not receive any public review and is not approved by the Anchorage Assembly. However, the criteria established for development is more costly than almost anything found in the new Title 21. Extra insulation and gravel is several thousand times more expensive than more windows and foundation landscaping.

AWWU also has a design criteria manual and over the years the type of pipe, and the technological requirements for monitoring water flow, has become more and more expensive. In addition, AWWU squarely places the burden for any offsite infrastructure solely on the developer/land owner. These offsites include lift stations, pump stations, and main line extensions. Add that to the cost of a lot for a new home and it becomes clear that it’s not greedy developers or over- zealous home builders that continues to spike the cost of new home construction, but rather changes in design and materials along with the time it takes for the review and approval of these ‘over’ regulations.  Obtaining a variance for any requirement in the Design Criteria Manual can take up to several months and meetings where private and public engineers charge by the billable hour, including travel time.

Buyers measure the value of a home by a cost per square foot, and in comparison to other homes, including resale properties. Rarely, even by an appraiser, is there taken into consideration what it cost to create the lot the home will be built on. It’s sort of like what’s in the ground, stays in the ground, and is rarely understood or taken into consideration.       

Anchorage Condo Market Holds Steady

by Connie Yoshimura

Condo sales in the Municipality of Anchorage have remained consistent YTD when compared to the same time as last year’s, and prices are stable with only 0.82% increase from 2015. This bodes well for the first-time home buyer and downsizers who are looking to scale back their square footage and utility expenses. It is also indicative of the continued interest and activity in the lower price ranges of the Anchorage market. Single-family homes have actually fallen in average sales price by 4% when compared to the average price of $366,585 in 2015. In general, the average condo days on the market has decreased by 33%.  The number of condos sold for the first two months of the year has remained consistent at 132 and 134 respectively. This decline in days on the market is consistent throughout the MOA, including Girdwood, Eagle River, and Chugiak/Peters Creek, which is somewhat surprising as it is not unusual for perimeter sales to fall when an economy slows or stalls due to the indecision by the legislature on how to handle its budget shortfall.

One major factor contributing to the stability of the condo market is the lack of new construction. Multi-family starts are down and only one duplex was permitted in the first two months of this year compared to thirteen last year at this time. This downward trend in condo starts will undoubtedly continue at least through the first half of the year as developers grapple with the new Title 21 regulations. The new Title 21 impact is going to be felt most in this entry level market as the MOA’s desire for denser development can’t help but increase costs not only for construction but design time as well. It is a common misconception that building up is less expensive than row or townhouse style lower density. Interior corridors have to be heated and maintained. Four story buildings must be built to commercial standards. For appraisal purposes, condo square footage is measured interior paint-to-paint of the living area only and common areas are never taken into consideration when evaluating the value.

Although there is some market demand for flats in three and four story buildings with interior corridors the vast majority of buyers, including millennials, are still looking for a garage attached to the living area as opposed to a common garage area where the buyer is assigned a stall which may, or may not, have a storage area nearby. Buyers also want access to a private backyard even if it is only a couple hundred feet. The MOA, on the other hand, requires more shared open space and even designates its configuration and location. I would challenge planners to tour communities that have shared open space to see if and when it is used. The most popular amenities to single family or condo development are sidewalks, trails and connectivity. In today’s world, where security is becoming more and more an issue in neighborhoods, buyers want their children to play within eyesight and walk their pets on frequently-used sidewalks and trails. Townhouse style condos with attached garages, whether old or new, will continue to have excellent absorption in 2015.       

Read Connie Yoshimura at www.columnsbyconnie.com. Contact her at 907-646-3670 or [email protected]

Zillow Versus Alaskarealestate.com

by Connie Yoshimura

Recently, I had the opportunity to visit with a family moving to Anchorage from Houston, Texas. Like all savvy buyers, for several weeks prior to their arrival, they had been looking at homes on Zillow. Zillow is the most popular site in the world for real estate searches, and in December 2015 had 95 million visitors, more than homes.com, Homefinder, Trulia, et cetera. Despite its popularity due to its plethora of information and easy site maneuverability, all real estate is local and the nuances associated with actual value can’t be deciphered from a Zillow search. For example, in Anchorage the same home can vary in value by subdivision, lot size, location within the subdivision such as cul-de-sac or corner, southern or northern exposure, school district, the home’s age and view potential. Also, of particular importance in Alaska, is whether or not the home has an interior stairwell versus a long set of steps to get to the front door. So no wonder buyers, both local and new arrivals, have misconceptions about our market.

Let’s be perfectly clear. With less than six hundred single family homes in all price ranges for sale last week, Anchorage continues to suffer from a lack of inventory.  This lack of inventory outweighs any misconceptions created on Zillow by a $40,000 price reduction on a single home. The home may have been over-priced to begin with or have some of the less desirable features listed above.  Buyers have specific needs. Double vs. triple car garage. Four bedrooms vs. three. Some buyers want only a specific school district. Others don’t want a home built before 2000 due to potential future costs for maintenance and repair. When all these factors are taken into consideration, there is very little inventory available. For the buyer moving from Houston, instead of sixty-two available homes there were just five that met their criteria.

This is relocation season with buyers moving into our local market from around the world. They come from the military, government, transportation, oil, and medical professions.  For most of them, renting a home is not an attractive proposition. Many are here only for a few years and when they leave will have a guaranteed resale from their employer. Whether local or relocating, all buyers’ goals are to purchase at current market value.  There is no doubt some local buyers and sellers are nervous about the economy. Online and in print, we hear daily about the state’s financial dilemma. But let’s look at the statistics. Total active inventory so far this year is up by 160 single family homes or 15%. Sales have declined by 10%. However, when looking at specific price points, there is only a three month supply of homes in all price ranges up to $500,000. And when you get more specific, the availability narrows dramatically. There are 62 homes for sale between $500,000 and $600,000 in Anchorage. There are only 8 that have four bedrooms and a triple car garage in southeast Anchorage.  If you want your teenagers to attend South High, the most sought after high school in the MOA, there are only 6 homes and one does not yet exist because it is yet to be built.

This type of specific search cannot be accomplished on Zillow because it does not have a field for school district or garage—two of the most important criteria for Alaska’s home buyers. Instead, buyers should go to www.alaskarealestate.com, the statewide MLS website for more detailed search criteria.  

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Contact Information

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503
907-646-3600