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15 Warning Signs Of A Bad Lease

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For Rent sign in front of new house

If you’re looking to rent a home or apartment during this time in your life, you’re not alone. Many people opt to rent rather than buy. However, it’s important you know exactly what you’re signing up for when reviewing your new lease.

Members of Forbes Real Estate Council share warning signs that renters tend to overlook when signing a lease. Here’s how noticing these signs can help you avoid falling victim to bad leases.

1. No Buy-Out Clause

Make sure there is a predetermined and reasonable buy-out clause in the event plans change and the lease needs to be terminated prior to the end of the lease. We find it reasonable to allow a lease to be terminated upon 60 days notice plus the payment of two additional month’s rent. Residents appreciate the option should plans change. – Michael Zaransky, MZ Capital Partners

2. Lease Clauses That Give Other Parties Leverage

Don’t assume the lease is just “standard language.” Understand the lease agreement and the implications if you don’t perform your duties. Make sure that you negotiate even the worst-case scenarios carefully as you never know what will happen or how it will impact you. Most importantly, you can’t allow random lease clauses to provide the other parties with leverage over you. – Jonathan Keyser, Keyser


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3. No Remedies If The Landlord Defaults

Many leases are written to protect the landlord in the event that the tenant defaults on the terms of the lease. These defaults can be falling behind in rent or storing items that are prohibited, having pets, etc. Any number of tenant actions can be cause for default, but landlords can default, too, most commonly by not performing repairs. Make sure that you as a tenant have remedies in the case of a landlord defaulting. – Kristin Geenty, The Geenty Group, Realtors

4. An Unclear Lease-Break Requirement

Taking the time to understand all lease terms is hugely beneficial for a renter. Lease terms should be carefully reviewed prior to signing a contract as details are intricate and can vary significantly from state to state. A major cause of confusion is the lease-break requirement. It can be costly for a renter if they do not understand how to properly provide notice to vacate. Communication is key! – Don Wenner, DLP Real Estate Capital

5. Any Non-Standard Lease Items

The key is to look at addendums and other non-standard items. Some states like Texas have a standard lease agreement. The key is to know your security deposit, any personal information you need to share, who the person you are sharing your information with is and whether they have their information secure. In this day and age, you have to be careful that you are working with properly licensed people. – Chander Mishra, Accel Equity Group LLC

6. No Clarity On Resolving Discrepancies

In many cases, a good lease also discusses the process to resolve discrepancies. In other words, a lease is in many ways a guide not only to recourse but disagreement as well. Look for the guide in the lease and understand it ahead of time rather than going to the contract when there’s a problem and having to react to it then. – Clark Twiddy, Twiddy & Company

7. A Lease Written By A Family Member

Be careful when renting from family! It might help build generational wealth, but it can also inject all kinds of sticky interpersonal problems into your relationship. In my opinion, professional rental management companies are a surefire buffer between owners and tenants. Barring such measures, I’d caution renters to steer clear of a lease written by a loved one. – Michael McMullen, Prominence Homes and Communities

8. Contracts That Don’t Spell Out Your Rights And Duties As Tenant

Understand both your rights and your duties contained in the leasehold agreement. It is a legally binding contract and should be taken seriously by all parties signing it. Many leasehold agreements are form contracts with addendums added to address a specific property. States vary widely in landlord-tenant laws and renters should stay informed.  – Anne Keshen, RMT Capital Management 

9. ‘Free’ Months Of Rent

Rather than lowering the price, some landlords are now offering up to four months “free” when signing a new lease to attract new tenants. When the lease expires, the new expected rent is often too high for the tenant to afford. A $2,625/month net effective on a 16-month lease with four months free will turn into $3,500/month when the lease is renewed. – Rodolfo Delgado, Replay Listings

10. Pushback From The Landlord

Every rental property has some deferred maintenance, so the question is how willing the landlord is to correct the current issues before you move in. If the landlord gives a lot of pushback during the honeymoon period, don’t expect the marriage to be any better. – Nick Ron, House Buyers of America

11. Leases That Look Too Good To Be True

Check with a real estate agent or a local professional to confirm the rental listing is legitimate. Fraudulent listings are very common, and if it looks too good to be true, chances are that it is. Be very careful of where you deposit or wire your security deposit. Double and triple-check the instructions and always verify by phone before you send money. – Ron Costa, The Eighty Two Group

12. Landlord Pressure

Being pressured into signing a lease with language such as “this offer is available only if you sign now” is a red flag. Leases are legal contracts. Often, individuals glance over the fine print as the language may be hard to understand. Taking the contract home to fully review it is the first step. Additionally, hiring an attorney for a 1H review may save you thousands down the line. – Marco Del Zotto, LIV | Sotheby’s International Realty – Breckenridge CO

13. Poor Or Nonexistent Property Manager Reviews

A lack of social or online validation such as reviews is a bad sign. Renters need to ensure they’re working with a reputable and well-respected property manager that will look after their best interest. A good property manager takes good care and sees value in the relationship of both the investor and tenant. It costs a renter nothing to get this representation. – Chris Turcotte, Centum Financial Group

14. Addendums Longer Than Two Pages

Watch for an addendum longer than two pages. If a landlord has a list of over 50 items that they want a renter to read over and sign in addition to the lease itself—that could mean trouble for the renter. Keep a keen eye on fees and penalties. Some property owners go overboard in the amount of money they charge you for key replacements or trash tickets. – Demetrios Salpoglou, Boston Pads LLC

15. Fine Print About Late Fees And Finance Charges

Standard lease agreements have a provision that talks about what happens when and if rent is late. Some renters never read the fine print and may be surprised to get hit with exuberant fees and charges for a missed payment. It’s important to read and understand how late fees are charged and if the amount is statutory legal in a particular state. – Jason Duff, Small Nation

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Real Estate

Are We In a Housing Bubble? Will the Housing Market Crash?

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Today’s housing market is fierce! Due to remote work and record-low mortgage rates, Americans are relocating and purchasing homes at an all-time high. However, there is a major problem – there aren’t nearly as many homes for sale as there are buyers. And this severe housing shortage is fueling record-high prices and cutthroat competition.

With the red-hot real estate market we’re experiencing, many consumers are understandably concerned. The soaring home prices and a lack of homes for sale may feel eerily similar to the 2007 housing bubble that led to The Great Recession. 

So, is there a reason to worry? Are we in a housing bubble and headed for another housing market crash? Let’s take a look. 

What is a housing bubble?

Before we jump into our current situation, let’s first take a look at what a housing bubble actually is. Also known as a real estate bubble, a housing bubble occurs when home prices rise at a rapid rate to a level of instability. Housing bubbles generally begin when there is a shortage of inventory and an increase in demand in a market. As the prices start rising, speculation begins to take effect. Consumers expect prices to increase further, so everyone wants to buy a home as quickly as possible. This drives up demand further and prices continue to skyrocket.

As we know from physics, what goes up must come down. So at some point, the steep housing prices become unsustainable and homes become overvalued. When this happens, demand begins to decrease and therefore, supply starts to rise. Suddenly, we’re in a situation where there are more homes for sale than prospective buyers. As a result, housing prices can fall drastically – and the bubble bursts.

What leads to a housing bubble?

Bubbles are a phenomenon that can happen in just about any industry, whether it’s homes, stocks, or gold. Traditionally, bubbles don’t often occur in the housing market because of the large financial responsibility associated with purchasing a home. However, with the right combination of factors, a housing bubble can begin. Here are several situations and variables that can occur, drive up demand, and lead to a housing bubble. 

  • A rise in economic activity. When the economy is doing generally well, people have more disposable income to spend on housing.
  • Low mortgage interest rates. This puts homeownership within reach for many hopeful homebuyers.
  • Loose mortgage lending practices. This is a major factor that led to The Great Recession as many lenders offered home loans to homebuyers without regard for their ability to repay.
  • New mortgage products. Specifically, those allowing the buyer to make low monthly payments. This can make the idea of homeownership appear more affordable than it actually is. 
  • A sudden increase in migration. For example, if a large group of homebuyers relocates from San Francisco, CA to Austin, TX – this will increase demand and shrink supply in Austin, driving prices up further. 
  • The time it takes to build a house. It generally takes a long time to build a new home which makes supply slow to respond to dramatic increases in demand.
  • Speculative and risky behavior. This can lead to more property investors entering the market, along with homebuyers who can’t afford the homes they are purchasing. 

What happens when housing bubbles burst?

Housing bubbles can cause major problems in the larger economy. Once the bubble bursts, many people may realize that they have borrowed more than their home is worth and could struggle to keep up with their house payments if they lose their job or find themselves in other financial trouble. This can lead to foreclosures and a loss of financial security across the board. However, if a homeowner maintains a steady income, they should still be able to make mortgage payments and hold onto their home even if their home goes down in value.

Are we in a housing bubble now? 

So, will the increase in prices and shortage of housing inventory result in a housing market crash in 2021? Most experts don’t think so. 

The circumstances influencing the housing market today are different than those of the 2006-2007 housing bubble. The bubble that eventually led to The Great Recession was primarily a result of irresponsible lending. Just about anyone who wanted a mortgage could get one, even if they didn’t have the income to afford it. However, this time mortgage requirements are stricter and the current demand isn’t caused by reckless lending. It’s the result of true supply and demand. 

“I wouldn’t call this a housing bubble because the demand for homes is truly there and the buyers can afford these high prices,” said Redfin Chief Economist Daryl Fairweather. “Bubbles burst; I don’t see that happening.”

Instead, Fairweather believes that as the U.S. reaches herd immunity from COVID-19 and the economy rebounds, the demand and home prices will slowly begin to come down. “That’s because mortgage rates will make buying a home more expensive, and Americans will have more options for how to spend their money. Instead of spending on homes, Americans will want to spend on activities like vacations, parties, and dining.”

What should you do if you’re buying a house right now?

While no one can say for sure what will happen with the housing market, it’s important to be prepared if you are currently buying a home. The most important takeaway, if you are currently house-hunting, is don’t buy more than you can’t afford. 

Right now, bidding wars are at an all-time high and buyers are paying well over asking to secure a home. So before embarking on the homebuying process, we recommend using an affordability calculator to help you determine your budget. This can help you set expectations ahead of time, so you know what you can offer and when to walk away.

It’s also important to work with a real estate agent who has your best interest in mind and a deep understanding of current market conditions. They can help you navigate the ins and outs of this tricky seller’s market. 

 

Redfin does not provide legal or financial advice. This article is for informational purposes only and is not a substitute for professional advice from a licensed attorney or financial advisor.

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Real Estate

Are Closing Costs Tax Deductible?

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Are Closing Costs Tax Deductible?

There are some great benefits that come with homeownership. Things like the ability to make improvements to your home increased wealth due to an increase in your home’s value through the years, and certain tax advantages. But what if you recently bought a home, are closing costs tax-deductible? Before answering that question, it’s a good idea to understand what closing costs are and what is typically included in them.

What Are Closing Costs?

Closing costs are the fees you pay when you obtain a mortgage loan. Typical closing costs run anywhere from 2% to 5% of your loan amount. For example,on a $250,000 loan, you’ll pay between $5,000 and $12,500 in closing costs.

Here is What’s Typically Included in Closing Costs:

Property Taxes

These are fees homeowners pay to the state, county, and even various local entities to help fund the school district where you will be living, pay to repair and keep roads in good condition, and fund the local library, to name a few. The tax amount varies depending on where you live and the amenities available in your community.  

Usually, you will be responsible for paying property taxes from the date of closing forward, and the seller will pay from January to the date of closing. Your lender will typically collect between three and six months of property taxes from you at the time of closing. This is to ensure there is enough in escrow to pay the tax bill when it comes due.   

Recording Fee

Recording fees are charged by the county to record the documents related to the transfer of ownership of the property. This takes place every time a house is bought or sold.

Loan Origination Fee

This is a fee charged by the lender as compensation for handling your mortgage loan from inception to closing. The amount of this fee varies from lender to lender.

Homeowner’s Insurance

This insurance typically protects loss related to the property. It is required by the lender so that they know the property is protected. The cost of this insurance varies depending on the value of your home and the amount of coverage you carry on the property.  

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Primary Mortgage Insurance

Lenders require PMI (Primary Mortgage Insurance) on Conventional loans if the borrower does not put at least 20% of the sales price toward the down payment. This insurance is protection for the lender should the loan ever go into default. On a home valued at $250,000, you would need to have a down payment of $50,000, to equal 20% down, or you will be charged PMI.  

Appraisal

The appraisal provides the lender with an independent opinion on the value of the home. It is provided by a professional who is trained to estimate the value of real estate. The home appraisal process provides assurance to the lender that the amount they are lending is not greater than the value of the property.

Credit Report Fee

The credit report provides the lender with information about your credit history and credit worthiness. If your score is too low, it will impact your ability to secure financing and could cost you the ability to obtain the best interest rate available.  

Flood Inspection

The flood inspection determines whether the property you are purchasing lies in a flood zone. If it does, flood insurance will be necessary.

Pest Inspection

Your lender will require a pest inspection if the appraiser notices any infestation of termites or other pests when completing the appraisal. In some places, a pest inspection is required on all deals.

Title Search

The title search is performed by a title company. They are responsible for making sure the title to the home is clear, meaning there are no defects in the title or problems that would prevent the title from transferring to you at the time of purchase.

Title Insurance

You will need two types of title insurance when buying a home. The first kind protects your lender (lender’s title policy) in case something was missed during the title search. The second type of title insurance is an owner’s title policy. This protects you against any defects or problems in the title just as the lender’s title policy protects the lender. 

Survey Fee

If there is a question regarding property lines, the title company can order a survey.

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Discount Fee or Points

When you pay points toward your mortgage loan, it is also known as buying down the loan. These fees, paid to your lender, lower the interest rate of your loan. One point equals 1% of the loan amount. In our example of a $250,000 loan, you would pay $2,500 to buy the loan down one point. The amount the one percent buy down would impact your interest rate varies by lender, type of loan, and current mortgage rates.

Escrow Fee

The escrow company is responsible for handling all the funds involved in buying your new home. They make sure all parties involved in the transaction get paid accurately. The fee charged by the escrow company, also known as a closing fee or settlement fee, pays for their involvement in the transaction.

Prepaid Daily Interest Charges

At the time of closing, borrowers pay interest on their loan from that date to the end of the month. If your closing date is near the end of the month, you will pay fewer taxes than if you closed on your loan the first week of the month. The seller is responsible for paying interest from the first of the month to the date of closing.

Are Closing Costs Tax Deductible?

Not all closing costs are tax-deductible, and the tax code changes frequently, so check with a tax professional to determine what deductions apply to your situation. Here are some typical closing costs that may be able to deduct from your taxes this year:

Mortgage Interest

This deduction allows you to deduct the amount of interest you pay when you buy your new home. It is one of the best tax deductions for buyers. Your tax professional can assist you with questions regarding this deduction.

Primary Mortgage Insurance (PMI)

Through 2020, the PMI deduction is allowed. After 2020, this closing cost will no longer be tax-deductible unless extended by Congress.  

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Discount Points

Any of the discount points you paid when you closed on your loan are tax-deductible. You should consult your tax professional or visit the IRS website to determine whether you can take this deduction in the year you purchased the house, or whether you are required to deduct the points over the life of the loan.

State and Local Real Estate Taxes

This deduction includes state and local taxes and property taxes. Again, you will need to consult your tax professional or visit the IRS website.  

Standard Deduction

Your tax preparer will determine if it is in your best interest to take the standard deduction versus itemizing your deductions in the year you purchase your home. The IRS has determined standard deduction amounts for each taxpayer category. If the standard deduction for your situation is higher than if you were to itemize, then it would benefit you to take the standard deduction, and vice versa.

Homeowner tax benefits do not end when you buy your home. If you work from home, the IRS also allows for a home-office deduction. And should you decide to install solar panels or other energy-efficient improvements to your home down the road, there is another deduction that might apply to your situation, known as the residential energy-efficient property credit. Always talk with a tax professional to ensure you are taking full advantage of the latest tax code.

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Real Estate

SoftBank-Backed Better.Com Places Top Executive On Leave After Bullying Complaints

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There’s more executive turmoil swirling at Better.com, one of the mortgage industry’s hottest new startups, and it’s hitting just days after reports that SoftBank is investing $500 million of new funding that values the business at $6 billion.

Elana Knoller, Better’s chief product officer, has been placed on administrative leave following allegations of bullying and other workplace grievances, multiple sources familiar with the matter tell Forbes. Knoller has been one of the mortgage lender’s most powerful executives and a gatekeeper to CEO Vishal Garg, whose grueling management style was the subject of a 2020 Forbes report.

Discontent against Knoller has simmered for many months, according to interviews with six people who have worked with her, but complaints boiled over in the last three weeks on the social media app Blind, which lets employees leave anonymous feedback about their companies.

The upheaval began when some employees who report to Knoller questioned why they hadn’t received a job satisfaction survey that went to other departments, according to messages on the app that were shared with Forbes, with some commenters blaming her for the decision. The discussion then spiraled into broader accusations of bullying and mismanagement. As one example, Knoller had allegedly placed some individuals on performance improvement plans when they voiced discontent with her leadership. Other employees say that Knoller has presided over a culture of intimidation and retaliation, where workers were promoted based on loyalty and were otherwise sidelined or pushed out. “I think [she] knows that she has power and wields it in ways that are not the most, I guess, democratic,” says one person who has worked with her.

In response to a request for comment, an independent spokesperson for Knoller said, “Ms. Knoller is an incredibly accomplished executive who demands a great deal of herself as well as those who work for her. She has served in numerous leadership roles at Better.com and has significantly contributed to the company’s success. It is not a surprise some disgruntled employees have sought to undermine this talented female executive through a website that is dedicated to anonymous griping and chatter.” 

SoftBank declined to comment. A spokesperson for Better said, “We do not comment on employee matters.” 

Garg—who once berated employees over email for being slow, likening them to “a bunch of DUMB DOLPHINS”—has responded internally, however. “This stuff on Blind hit me like a sack of bricks,” he wrote on the app on April 2, identifying himself at the top of the message. “Now I know. And knowing is half the battle…. And whether I agree with everything said below or nothing said below, thank you for posting it and sharing. I am going to look into these issues.” In an email to employees, Garg also invited staffers to fill out a confidential survey to further detail potential grievances.

Knoller, 29, joined Better in 2017 from the commodities department at Goldman Sachs and was a member of Forbes’ 30 Under 30 finance list in 2021. She has ascended quickly at the company, rising from Garg’s chief of staff and head of partnerships to become an executive vice president in 2019. She was named chief product officer in February 2020. 

Better, meanwhile, has grown rapidly, fueled by a wave of refinancings during the pandemic caused by record-low interest rates. In the fall the company closed a $200 million Series D round at a $4 billion valuation—up from a less than $900 million valuation in 2019—sparking chatter about a possible IPO. The company generated about $800 million in 2020 revenue, according to PitchBook data, eight times more than the prior year. 

There are questions about whether Better can sustain that growth, as mortgage applications and refinancings begin to slow. SoftBank is clearly not spooked. According to The Wall Street Journal, which first reported the $500 million investment, the Japanese conglomerate is buying out some existing shareholders and will hand all of its voting rights to Garg.

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