Helen Oliveri

Question: Our homeowner association has 30 single family detached homes. Our governing documents were basically written for townhomes. One of the bothersome issues is that the governing documents state that the HOA is responsible for replacing roofs, painting, gutters and other things that are commonly done with condominiums. Many owners object to building up a reserve fund to pay for repairs that may be as much as 20 years or more down the road.

The covenants also state that the board cannot special assess for anything other than common area improvements. So that leaves us with pretty much the options of building up the reserve fund or changing the governing documents. Can you provide us some sample wording for a single family home HOA that would allow homeowners to pay for major repairs themselves but would allow the board architectural control of those repairs?

Answer: While it's unusual for a single family HOAs to do exterior maintenance, repairs and replacements, it's not unheard of. I doubt that the developer made a mistake on this since it's a huge issue. And it's doubtful that you can muster the votes to change this which may take 100% of the owners to approve it including their mortgagees. You need to consult with a knowledgeable attorney to determine the requirements. If it is possible, the attorney can assist the board with the proper wording of the amendment.

So barring you pulling off a major governing documents amendment, yes, you need a reserve plan that includes a funding plan to collect money systematically from each owner every year. The 20-year-down-the-road thinking is flawed. While a reserve event like a roof may take place 20 years down the road, the reserve plan will only charge each owner a share of the future cost directly proportional to the benefit received. For example, if a particular owner owns for five years and sells, he would only pay 5/20ths of the future roof cost. He only pays for the benefit received and not a penny more. It's like refilling the tank of a rental car. This is the fairest way to fund future costs.

Question: Our board is being badgered by a delinquent owner because his account was turned over to collection. In hard economic times, should the board back off of collections?

Answer: As long as the board is enforcing collections uniformly, consistently and fairly, it is the board's responsibility to enforce the Collection Policy regardless of circumstance or economic climate. There is no government bail-out for HOAs.

Question: Is there an average that HOA management companies charge for managing a homeowner association? How do they base their fees ... by size, number of units, expectations, etc.? Do they usually charge a flat fee or percentage? How do they charge for maintenance, as a flat fee, by the job, etc.?

Answer: Percentages are not used to determine HOA management fees. Commonly, the management fee is expressed as the cost "per door." But behind the per door concept is an analysis of how much time it takes the management company to execute the routine duties described in the Management Agreement. This can vary a lot from HOA to HOA. And within the fee structure, there is usually several levels and costs of service included in the routine duties like management, accounting and general office services (mailing, making copies, etc.).

Maintenance and repairs are charged over and above the basic duties on an hourly or bid basis. So, for a management company to make a profit, an annual estimate of all the levels of service multiplied by their hourly charges multiplied by the number of hours for each plus a profit margin equals the annual cost of management. Keep in mind, however, that most Management Agreements provide for extra charges for non-routine tasks like assisting in insurance claims, arranging contractor bids and performing special tasks or investigations requested by the board.

R. Thompson

You probably remember the line about porridge from Goldilocks: It wasn't too hot, it wasn't too cold, it was ... just right.

Well, you could make that point about some of the latest housing and real estate numbers.

Last week's new housing starts were reported by the media as further evidence of the deep hole the home building industry is in: Starts were up by barely half a percent nationwide, and permits for future construction were down.

But is that "cold," or maybe something else? If you dig below the anemic sounding half a percent gain, you discover something very different: New starts by builders on single family homes were actually up by nearly four percent for the month nationwide.

It was multifamily apartment starts, which are notoriously volatile and jump around every month, that were down bigtime -- by nearly 16 percent.

Now a 4 percent gain, combined with lower permits, are hardly dramatic enough to say new home building is heating up. Then again, they're definitely not stone cold.

Home builders are building, just at a modest pace.

So maybe the starts and permits numbers are somewhere in "just right" territory. Lawrence Yun, chief economist for the National Association of Realtors, suggests that modest gains in production might be the best way to go at the moment.

If builders start new units too fast, they'll most likely add to their inventories of unsold houses. But if they stop all starts, they'll go out of business and tens of thousands of jobs in building components, appliances and construction will be lost.

Far better to keep it "just right."

Now, on a more sobering and unexpected note, hopes for an early signal from the Obama administration that it supports an extension of the $8,000 home buyer tax credit encountered a setback last week. HUD Secretary Shaun Donovan told a Senate committee hearing that the White House is not yet on board.

Though builders and Realtors have presented strong statistical evidence that the credit has been a major contributor to economic growth this year, Donovan said the program is costly to the federal Treasury, a key negative at a time of soaring federal deficits.

Donovan added that it would not be "catastrophic" if the credit were allowed to die as scheduled November 30.

Meanwhile, the mortgage market continues to be attractive to anyone buying a home: Rates last week on 30 year fixed loans averaged just above five percent, according to the Mortgage Bankers Association, while 15 year rates averaged four and a half percent.

K. Harney

The clock is ticking. Time is running out. To be exact, time runs out midnight, November 30, 2009. Many readers will know what I am referring to. Under the American Recovery and Reinvestment Act of 2009, November 30 is the last day for a home purchased by a first-time home buyer to qualify for the $8,000 tax credit. The purchase must be closed and title transferred by that date. It will not be sufficient simply to be under contract or in escrow.

By way of a brief refresher:

1. The tax credit is for first-time home buyers only. For the program, the IRS defines a first-time home buyer as someone who has not owned a principal residence for the past three years.

2. The credit does not have to be repaid.

3. The tax credit is equal to 10% of the home’s purchase price, up to a maximum of $8,000.

4. The credit is available for homes purchased (closed) on or after January 1, 2009 and before December 1, 2009.

5. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

6. The credit can be taken for either 2008 or 2009 taxes. In the former case, an amended return can be filed.

By all accounts the program has been extremely popular – which is to say, successful. The National Association of Realtors® (NAR) estimated that, by September, about 1.1 million first time home buyers had used the program; and another 700,000 are expected to do so. Already, the Treasury Department has reported nearly 315,000 people have claimed the tax credit after filing an amended 2008 return.

As enacted, the program is set to expire at the end of November. A number of bills have been introduced to extend and/or expand it. Representative Eddie Johnson (D-Texas) introduced a bill to extend the program through 2010. Another would also expand it to all home buyers. In the Senate, a bill co-sponsored by Johnny Isakson (R-Georgia) and Chris Dodd (D-Conn.) would expand the tax credit to $15,000 and make it available to any buyer regardless of income.

One would think that at least the modest proposal for an extension would be a no-brainer. It is a government program that is working, for goodness sakes. But even that legislation is in doubt. Two obstacles are cited. One is the cost. Extending this program would result in reduced future revenues. The second problem is that such a bill will have a hard time receiving any attention while the Congress is – for the next foreseeable months – focused on considerably higher profile items such as health-care and Afghanistan.

The first so-called problem seems just crazy. Suppose an extension generated an extra 1 million sales. That would result in $8 billion in unrealized tax revenues. Now that is a lot of money; but it is chump change compared to the amounts that have been lavished on financial firms and auto makers, with yet to be determined beneficial effects. The tax credit program only costs money if it works. Its cost is proportional to its success. If it didn’t work at all, it wouldn’t cost a dime. Imagine that for a government program.

The second problem is realistic. There’s a lot of heavy-duty stuff going on. But, it would seem a simple extension of the program could be achieved with very little ado and virtually no distractions from the “big issues.”

Meanwhile, what should interested parties do?

1. If you are a first-time home buyer, you had better get off the dime. There’s certainly no guarantee the program will be extended.

2. If you are a real estate agent, pass #1 along to every potential first-time buyer that you know.

3. Whether you are a Realtor® or not, if you believe in extending the program, let your representatives know.

4. If you are a member of the Realtor® organization, respond to NAR’s call for action, supporting its lobbying efforts.


B. Hunt

Foreclosures and bank REOs are pulling a new wave of novice investors into the market, some of whom "are just plain clueless, to put it bluntly," says Robert Cain, a long-time rental market and real estate management specialist based near Tucson, Arizona.

"They see the price and they way, wow! I can buy that house and turn it into a rental," says Cain, who lectures around the country and online about investing intelligently.

"But they don't understand the local market, they don't understand landlording, and don't even necessarily visit the property," Cain said in an interview last week with Realty Times.

For example, a property manager in Tennessee called Cain for advice recently. The manager had a simple question: "Should I fire my client?" who lives in California and purchased rental real estate 3,000 miles away in Tennessee -- sight unseen because the low price made it sound like a steal.

But the property had a long list of defects requiring costly repairs, and it was slow to rent - causing the absentee owner-investor to blame the property manager for the cash drain.

"We see it constantly," said Cain. "New investors think it's easy. They buy on emotion, on low pricing, rather than buying with a disciplined plan.

What are some of the key rules for freshman class investors? Here are a few of Cains' that have served him well since the early 1980s:

Number one: Due diligence is never optional. You've got to understand the local market - and that includes not just where prices are headed, but specific market demand for rental real estate in this price segment, and even the local government's plans for the area where you're thinking of buying.

Number two: Buy with a written plan - that's right, just like the large professional investors use, with an entry strategy and an exit strategy. How long are you going to hold onto the property, how much will it earn you during your period of holding?

And what's the endgame - a sale to another investor? Conversion to condos? Tear it down and build something that's closer to the underlying real estate's highest and best use?

"Write it all down," says Cain. That way you can analyze it better.

Number three: Calculate the actual costs of the property in advance - not just the bargain basement price, but how much you'll need to fix it and feed it - the management costs, rental commissions, vacancy costs, taxes, to name just a few.

"If you don't know these things up front," says Cain, "you are flying blind. And there are no good surprises in real estate."

K. Harney

We all know that as things age, they often need replacing but sometimes homeowners neglect to take care of their home's electrical wiring and that can set them up for potential danger. Electrical consumption since the middle of the last century has increased in most homes on average about 400 percent.

If you're tripping your main safety circuit box that could be a sign that you're overloading the electrical outlets and an indication that an electrical contractor should examine your wiring. Oftentimes, homes are renovated several times without any electrical wiring updated. Yet, this is a part of the house that can cause huge problems if it isn't kept up-to-date.

Outdated circuit boxes. When a home hits the 40-year mark the biggest area of electrical concern is the circuit breaker box. Zack Israel, owner of Mike Electric, says that when the circuit box becomes outdated, "it doesn't do what it's supposed to do." He says that as the house ages, the brand of the circuit box becomes obsolete "and today, a new generation of improved boxes is being installed." Israel cautions homeowners about the danger of not replacing an old and outdated circuit box. "If the breaker doesn't trip then the wire might melt and cause a fire," says Israel.

Kitchen wiring upgrades. An area of an older home that typically needs upgraded wiring is the kitchen. "The kitchen is an area that always needs to be upgraded after 40 years. Several decades ago we didn't have microwaves and all the appliances that we have today," says Israel. He says that what can happen if the kitchen wiring isn't upgraded is that when appliances are used, the circuit breaker trips or, even worse, it doesn't trip at all. "So the kitchen is an area that you want to upgrade and bring more power to it," he says.

The electrical code requires two circuits of 20-amps, 120 volts for GFCI (Ground Fault Circuit Interrupter) receptacles for the kitchen/eating area. However, more might be necessary depending on appliances being used.

Heavy-duty appliances need dedicated outlet. A common problem for homeowners occurs when there isn't proper distribution of the electrical circuits. Israel says homeowners often don't understand this. "Let's say for example that [depending on the weather] a homeowner tries to use a portable air conditioning system or heater and plugs it into just any plug—and boom! there's no power—it trips the circuit. This is common. People don't know that they need a dedicated circuit for that kind of appliance," says Israel.

Wire insulation cracks. Another big problem for older homes is that electrical wiring insulation cracks. "Especially in the ceiling lights, the heat from the light rises into the box and causes the wiring insulation to crack," says Israel. When homeowners consider tackling the task of rewiring their home they're often overwhelmed by it—feeling like it will be too expensive and too much trouble. While it is true rewiring can be a major renovation that, in some cases, even means the homeowner must leave the home for a period of time—due to electricity needing to be turned off or just the inconvenience of living with workers in your home -- the end result of peace of mind from knowing your electrical system is working properly and no longer at risk of causing a fire–(a major concern of home insurers)—is well worth the expense and any temporary hassles.

P. Chongchua