Case Shiller is not a new type of luggage

One of the few people who called the housing boom correctly is Robert Shiller, an economist at Yale University. In his 2000 book, Irrational Exuberance, he warned against the run-up in home prices. His work is prescient in forecasting the housing boom and warning against the excesses of lose lending regulations, etc. Yet, in the peak of boom, Shiller was regarded as a pariah. Who want to hear about the buzz kill during the boom! His was clearly the minority options. People just didn’t want to hear the bad news! Instead, they blindly proceeded ahead.

The Case-Shiller Home Price Index is now belatedly accepted as the standard for the real estate industry. Your best resource for information on housing trends is Case Shiller.

Just imagine for a moment if you’d taken Shiller’s advice seriously. Imagine that you disinvested all your real estate at the top of the market in 2006-2007 and now had cash to be bargain hunting at the bottom of the market, as what is potentially a long, slow rebound commences? What would you look to buy?

One thing will always remain true, no matter the overall state of the housing market: homes that share basic, sound characteristics will be valued higher than homes without them. What are some of these characteristics? The classic one is location, but there are others like condition, configuration (number of rooms/types of rooms/size of rooms), and finally there is finish – the quality and “style” of the home.

In a market full of distressed properties, BuildSmart helps home buyers to identify valuable properties – valuable now, and ones that will maintain their value over time. Our background in architecture and contracting give us unique insight on our client's behalf to create a home solution that fits their needs, and holds its own, even in a turbulent marketplace.

If you're a home buyer, contact us today to experience our value-based real estate solutions for your next home purchase.

Real estate behaves just like any other market

One of the startling thinks about the real estate boom were the number and variety of sources proclaiming the soundness of the real estate market.

Once this positive feedback loop starts, it takes on a life of its own and quickly, we are not responding to the underlying market but just participating in the feedback loop.

To see how this happens, look back to the boom and see:

Marginal buyers buy houses > Demand increases
Demand increases > More houses get built >
More houses get built > The stock of the public builders rises

This story inevitably gets reported as “Huge demand fuels builder stock bonanza!” and confirms everyone’s assumption about the health of the housing market. Without understanding the story behind the headline, you’ll just be participating in this feedback loop and not making good decisions, etc.

Remarkably, the housing boom obscured almost everyone’s perspective, sure, home buyers and small investors got caught up in the euphoria, you’d expect that but large, sophisticated investors that should have known better also got caught up in the hysteria.

The housing crisis explained

Reading the statistics about housing’s collapse, it’s hard to imagine how we all got here, but here we are. While it’s tempting to lay the blame at greedy mortgage brokers, ill-informed home buyers, crooked appraisers, etc. The fact remains, there is enough blame to go around. Seeing the extend of the demand for housing people and companies stepped into the breach to offer new, more exotic home loans, looser qualifying, etc. The “how” of this all came about is now clear to see, the “why” it came about is will be debated endlessly.

We believe that one reason we became over-invested in housing has historical antecedents. What’s interesting about our current malaise about housing, is how much of it can be laid at the feet of the first great housing crisis in America during the great depression. Surprisingly, until that time, most people rented homes. Because of steep down payment requirements, most people simply did not have the cash required to afford a down payment. That meant that those who participated in the market were actually financially capable of participation. If you didn't have enough money saved for a down payment, you simply couldn't buy.

We faced this same scenario as a prelude to the current crisis: people wanted to buy homes, but really, their incomes couldn't afford it. So what did the industry do? Created an entire marketplace based on sub-prime credit levels. Now everyone could afford to play. In a world where housing prices only go up, this is a beautiful thing. But as we learned, housing prices actually fall now and then. And sometimes, when the foundation is poor enough - they collapse.

The value of repairing

According to an article released by Realtor.com, you will be more likely to get the best value from handling repairs than any other renovation. Why does this make sense? You only have to consider the negative impact on a buyer's perception that a home in a state of dis-repair can have.

If a potential buyer is walking through your home and sees damaged tiles in the bathroom, stains on the ceiling from a leaky roof, or windows that don't open properly, they are likely to look elsewhere or are considering how much below asking price they may put their offer in at. After all - someone has to put the house in order.

At BuildSmart, we'll help you focus on renovations that create value - and all while saving you money on the process. By turning owners into builders, we are committed to helping you get the most out of every renovation dollar spent. At BuildSmart, we help you turn the obvious repairs that a home might need into renovations that attain the big-picture goal - increasing your home's value.

Contact us today to learn more about how we can help you.

Housing 2.0, a revolutionary way forward

When the American militia fought the English during the revolutionary war, they faced overwhelming odds. There were three better trained, better equipped English soldiers for every American soldier. The American troops prevailed by fighting the war on their on their own terms. They relied on stealth and strategy, only engaging the British when they knew they had the advantage.

So, how does that relate to us? BuildSmart believes the best way forward in this new era of home ownership is to behave more like the American Militia than the British Troops.

• Know your territory better than anyone else
• Use strategy and cunning to help you succeed 
• Embrace your inner pioneer and don’t be afraid to do it yourself

The problem with the housing market is the problem with the housing market.

It’s hard to even talk about the housing market without sounding like a cliché.

• Approximately $1.5 Trillion of wealth lost
• Approximately 2.5 Million foreclosures
• Approximately 25% percent of all homes underwater

The extent of this problem is staggering; ask yourself, have you, your family or friends been affected by the housing downturn? Did you lose your house to a foreclosure of short sale, are your adults kids now living with you because they can’t afford a home.

Obviously behind these numbers there are real people drying to dig out of their personal calamity. You probably know some of them; maybe you have your own tale of doom from the housing market. If you lost money in real estate, lost your home, had to do a short sale, etc. we're sorry to hear that, according to a Pew research poll, over 15% of American households, approximately 15 million households were negatively affected by the housing downturn. So, if you were affected by the housing downturn, you are not alone. But, here’s the thing, it’s time to get over it.

 More to come...

The small builder's dilemma

Yes, some homeowners actually are THIS upside down in their mortgages.

At BuildSmart, every day, we see first-hand how small builders find it hard, if not impossible, to compete against distressed properties. By their nature, distressed properties have a way of creating a new low (floor) price for a neighbor. Since the sellers are now banks just trying to liquidate them, it doesn’t matter what people paid for the properties, they just want them gone. These sales are corrosive.

Small builders don’t have this luxury and instead need to sell their homes at a profit just to stay in business. Many of these builders have now left the market either permanently or temporarily.

Why start a new housing project and take all that risk if there is no guarantee  you can make a profit?

While there is obviously a lot of pain in the real estate industry, there are also a lot of opportunities for the buyer and small investor. These opportunities are primarily in undervalued or distressed properties.

Since many of these properties have either structural issues or cosmetic issues, this approach, which we call BuildSmart walks you through the process of and identifies these issues of improving distressed properties in order to come out on top in your investment.

More to come on this exciting topic...

Renovation - What you should know about your window replacement contractor

If your mailbox looks anything like mine, each week you receive a coupon or special offer from a company offering to replace your windows. Free windows, free sliding doors, trips to Hawaii, etc.

Why all the junk mail? Window replacement is a highly profitable niche of the remodeling industry, in-fact, some of the biggest remodeling contractors in the country specialize in window replacement. In order to maintain their project flow, many of these companies use aggressive promotion and sales tactics.

On a country built on specialization, hiring a firm that specializes in window replacement might seem like the logical choice. Before you do, make sure you hire the right firm. If you call one of these firms, chances, are they’ll send a consultant (AKA, salesperson) to visit your house, they’ll measure your windows, try to sell you the most expensive window they have and get you signed-up at that visit. Not exactly a consultive approach.

There are many problems with this approach. These include, trying to sell you the most expensive windows (since they are commissioned based) and selling you windows that are wrong for your home. For instance, using expensive high-performance windows for energy savings when there might be cheaper, more effective, ways to save energy, such as insulting your attic or under floor space.

A window is only as good as the installation and that is usually left to the field crew. Part of the challenge of getting a good installation with these companies is their focus is on volume. Many installers are paid on a piece work basis (per window). Compensating the installers on how quickly they get the job done makes it hard to do it right.

So, before you hire one of these companies find out what brand of windows they carry, are these “private label” or “house brands”, many house brands are value engineered to increase the profit margin for the replacement company and are inferior. If you’re replacing your windows to save energy, see if they perform a real energy audit and payback analysis; don’t just rely on vague claims about “saving energy”.

Find out who will be doing the installation; are these company employees or sub-contractors? Are they paid by the window? Finally, find out the qualifications of the person supervising the project, this should be an experienced contractor.

If they push back to your questions with vague assurances like “don’t worry it’s guaranteed“, keep looking. Remember, this is your house and it has to be done right.

Another choice for replacing your windows

Before you call the number on the piece of junk mail offering “free windows” or a trip to Hawaii, consider another approach, hiring a remodeling contractor to replace your windows. This approach has numerous advantages; you’re not limited to a specific brand(s) of window like you are with most replacement contractors, if there are trim or siding repairs needed, your contractor can take care of them, if you want to change window sizes or add and delete windows, your contractor can do all of this at the same time.

Also, if you have a historic home, this is really the only logical choice, since a qualified remodeling contractor will be able to match the details of your home assuring its historical integrity.

Many home owners take a keen interest in researching the windows for their home. Hiring a remodeling contractor and not a window replacement company means that you are able to use whatever window you want, not just select from their narrow range of options.

So, before you fall for the “free” trip to Hawaii, review your window replacement project with a qualified remodeling contractor.

BuildSmart can help you when it comes to working with all sorts of contractors. We know the questions to ask and the qualifications to look for. We can also teach you how to identify the right vendor for your work. At BuildSmart, we turn owners into builders every day. Contact us to learn more about how we can help your next renovation project a success.

Water world: Do you need to renovate your siding?

Recently, BuildSmart got a call from a homeowner who was interested in replacing their siding. She was having the aluminum windows in her 1970’s rambler replaced. The window replacement contractor doing the work told her that her siding had “failed”. This of course created much anxiety for the homeowner. After doing a site inspection of the house; we realized that the window replacement company’s prognosis was based on the siding being worn in places. This was nothing that a fresh coat of paint wouldn’t fix. This sparked a conversation with the homeowner about when siding did need to be replaced and the knowledge base of her window replacement contractor.

There are really only two reasons to replace your siding.

1. You don’t like the way that it looks
2. It doesn’t work

You don’t like the way it looks

The look part is obviously subjective; if you don’t like the look of your house, the simple remedy is to repaint it. Sometimes though, the only way to re-image a house is to re-side it. This can be complicated and costly and is usually done as part of a major remodel. During a major remodel or addition, there are usually many changes to the exterior envelope such as changing window and door locations. If you’re not careful, all this patching can result in a “Swiss cheese” look, so the best course in these situations is to just re-side the house.

It doesn’t work

Before you can determine that your siding doesn’t work, consider what it’s supposed to do. In simple terms, siding protects your house from the weather; rain, snow, wind and wind-driven rain. Most residential siding is installed over a moisture barrier (either “tarpaper” or Tyveck house warp) the siding works together with the moisture barrier. Although there are now more advanced moisture control systems, the majority of houses in the country have some version of the above.

The principles at work are very elementary; rain is stopped by the siding and carried vertically down to the ground, assuming the ground around the house is sloped properly, then the water is carried harmlessly away. The challenge is that water is insidious. Unless your siding is properly detailed, water will find its way past the siding.

The detailing challenges for a properly installed siding system typically occur at windows and doors. Unless properly designed, these openings allow moisture behind the siding causing damage to the house. There are myriad resources for window and door details, the problem comes down to the people in the field doing the installation.

So, the good news for this homeowner was that her siding hadn’t failed. However, after the faulty diagnosis by the replacement contractor, she wanted to make sure her window replacement was done correctly and didn’t create more problems than it solved. Since the window replacement contractor was already under contract to the homeowner, our solution was to hire an architect to verify that the window details were properly followed.

This was an extra step but for the homeowner provided valuable peace of mind to make sure her job was done right.

BuildSmart can help you make the right choice when it comes to decisions about siding systems and exterior updates. We are turning owners into builders every day by enabling them to take the mystery out of renovation and remodeling.

Repairing vs. remodeling

Repairing and remodelling. These terms are used interchangeably; however, the difference between the two is huge. To make money and create equity, you simply must understand the difference.

The best way to think about this is to visualize an iceberg. What you see above the water is only a small portion of the whole. Over 9/10 of the iceberg is below the surface. I could make some obvious titanic jokes, but I won’t, instead, I want you to visualize that iceberg like a homeowner would.

Home buyers usually value only what they see, so, if they can see fresh carpet, new appliances and counters then they mentally attribute some value to them. Conversely, what they can’t see it, they won’t value.

This is the critical difference between repairing and remodeling. Repairs are inevitably costly and time consuming but, don’t necessarily create any tangible value. Yes, this is a paradox but it is also true. When you go to resell your house, there is an expectation on the part of the buyer that, things work. Take the roof; buyers tend to over-focus on the condition of the roof. The expectation is that it won’t leak. If the roof has new asphalt shingles great, people value that. But imagine for a moment you had remodeled this house. You know it needed new shingles, what you didn’t know, was that that the roof has been leaking for a long time so the sheathing was rotted along with the roof trusses.

So, what should have been a simple reroof turned into a costly repair item to fix the sheathing and trusses. A buyer will value the new roof but not the structural repair.
The new shingles then are an example of a remodel item, something that adds value faster than cost.

The fix to the roof sheathing and trusses on the other hand an example of a repair, that while although necessary, doesn’t add any resale value.

BuildSmart take away: Understand the difference between repairs that add cost and repairs that add value.

Geometry for remodeling, or respect the triangle

Condition; neigborhood; cost. It's a triangle you have to respect if you're going to have a successful building project. Use this tool to help with your selection. Rather than trying to get each side perfect, use this concept to your advantage. Are you skilled at remodeling, if so then condition is less important to you. Instead, focus on the house and neighborhood. You can then take on a more extensive project in a better neighborhood. If you’ll be hiring a contractor to perform all renovation tasks, then condition is vitally important. In this scenario, structural repairs can quickly blow-up your budgets, so be sure to select properties and projects that only require cosmetic upgrades. Some buyers and investors are very sensitive about neighborhoods, wanting to only locate in specific neighborhoods. This is usually driven by convenience or familiarity. In either case, being deep in specific neighborhoods can give you a real advantage.

Remodeling to sell vs. remodeling to live: Just exactly perfect

Know when its OK to leave it OK

When you remodel, it’s easy to fall into the trap of wanting everything to be perfect. You have pride in your work and you rightly want it to show. So, when you remodel your house, you want to demonstrate your skill and infinite good taste. This can go to crazy extremes. Once, I was working designing and remodeling a humble 1910 house. Like many house from this era, it was built rather “informally” i.e., nobody must have owned a framing square. The house looked fine, but on closer inspection the entire house was slightly out-of-square.

From a practical standpoint, this was imperceptible. An old house being out-of-square three inches doesn’t really matter. The lead carpenter however had a different idea. He saw leaving the house as is and not correcting this as an affront to his craftsmanship and reputation. If this was his own house, then yes go ahead and address it but as it wasn’t and was being improved for resale, just leave it. Unfortunately, this wasn’t to be and countless hours were spent trying to fix this problem. The end result creating no tangible value for the project.

BuildSmart take away: know when it’s OK to leave it OK.