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The heart may be at the heart of housing market recovery
Although an argument can be made that cheap money and a mania to encourage home ownership got us into the mess of the last six years, some real estate industry officials believe we are back in the saddle again.
“…the typical family has roughly double the income needed to purchase a median-priced home," said Moe Veissi recently. Viessi is president of the National Association of Realtors, a group known for unrestrained sunshine-pumping no matter the state of the economy.
Still, it is hard to argue with current trends. Inventories are down, interest rates remain at historic lows, and the housing affordability index, according to the NAR, is at its highest mark since such records started to be kept in 1970. The wild card to an accelerated recovery, of course, is the availability of credit to those who want to buy a home and, of course, the political shenanigans in Washington.
I have been thinking about home affordability in the context of my own personal history. In 1978, my company transferred me to Atlanta, wife and newborn son in tow. We found an apartment in the Sandy Springs area just north of the city, a nice place with two bedrooms and a monthly rental of about $700, as I recall. Ten months later, during a drive through a rural part of Marietta, we spotted a brand new community of modern cedar and stone homes. We wandered into the sales office and wandered out an hour later, resolved to buy a new home there. We did so a few weeks later, with 5% down on a $43,000 un-built house (only the slab foundation was in), a mortgage interest rate of around 8% (memory a little dim on the exact number), an annual property tax of less than $400, and total monthly payments a few dollars less than what we were paying for the apartment. We only lived in our sparkling new house for 14 months before I was transferred back to New York; we sold the house for $1,000 more than we paid but we had only put down about $2,000; and, again, the monthly payments were lower than the previous rent.
I was smitten that I owned a home, and half a dozen homes later, I’m still hooked on the notion of owning. The heart drives the home ownership decision, even though we pretend it’s the head when we pull out the calculator. As my wife and I rush toward true retirement –- which means selling a too-big house now that the kids are grown -– we know that renting something somewhere might make sense for us. After all, price appreciation as you get older doesn’t matter as much, and it is much simpler to have someone else “own” the mechanical failures and acts of God that can afflict any residence. But then you start to think of how much money you’ve made on most of the houses you’ve owned –- the last few years notwithstanding -– you remember that rush of pride you had when you bought your first house, and rational thinking takes a back seat.
My wife’s best friend and her husband, who are quite successful and live in a large, beautiful home, have children in their 20s. The son bought a house with his wife about a year into their marriage; they were 25 at the time. “I don’t understand it, they’re so young,” the mother told my wife. My wife, who has known her all their lives, had to remind her friend that she and her husband bought their own first house at the same age.
There is nothing rationale about home ownership. All things being equal, that should help drive a recovery.
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Avoid jeopardy when buying a golf community property. Just ask the right questions.
by Michelle Tanzer, Esq.
So you're thinking about buying a home on the course? You've come to the right place if you've been dreaming of waking up to beautiful vistas and daily club activities just beyond your doorstep. The problem is you're not exactly sure whether golf community living is for you, and if it is, which community matches your requirements most closely. You realize there are dozens of independent factors, with scores of options to choose from.
How do you sort it all out? Just like in the game of Jeopardy®, you need to ask the right questions in order to win. Here are the key questions, round by Jeopardy round.
Round One: Is the Developer Still Involved in the Community Association?
Whether the Developer is still involved is a critical turning point in a community's history. If the Developer is still involved, you want to know many things; some of the most important include the following:
Who is the Developer?
The developer could be a national, regional or even a local builder who has been starting communities for many years, or for just a few. Either way, it's important to learn about the developer's reputation and track record. Have projects developed by this company faced troubles? Are those troubles simply due to the unforgiving economic times, or something about the way the developer has conducted business? Is the developer well capitalized and recommended by others? You can learn a great deal about the developer on the Internet but you should go beyond the Web and get as much detail as possible from other buyers and businesses that have been involved with the developer. If you can't find any pertinent information easily available, then that may tell you something as well. Many developers have gotten a bad rap during this economy, but not all are bad. Take the time to investigate so you can know the difference.
When will Turnover Occur? The turnover of the community from developer to property owners can be a time of great difficulty for both parties. Although the transition can be smooth, turnover frequently involves disputes, even litigation, between the parties. If turnover has not yet occurred in the community you are considering, ask to see the governing documents and make sure funds are available and secured to address any potential issues. Seek out Board members with whom you can discuss the status of the turnover. If no Board has been organized, a committee created to represent the owners during turnover could be a source of information for you. If turnover has occurred, be sure to understand what, if any, obligations exist on the parties and whether those obligations have been met. In particular, find out if there is, or may be, litigation pending with the Developer.
Round Two Control of the Community has been turned over to the homeowners. What now? If the Developer has turned over control of the Association to the homeowners, you want to know the following:
Who operates and manages the Association and the Common Areas? Many homeowner associations have cut their budgets during the recession. If the association you might join is self-managed, the costs of management are certainly lower than if a management company is involved. However, it's important to know the level of experience the individuals managing the association have. Generally, residential golf communities hire a professional management company to run the club and/or the association. If so, find out the terms of the management agreement and what fees are being charged for such management? Is the manager experienced and do the common areas reflect that management is doing an effective job? If not, speak with individuals on the Board to learn what is planned to get things up to standard. A community in need of sprucing up a bit could offer lower prices because of the optics and might be an especially good value after some changes are made.
Are the Governing Documents still Relevant? Governing documents can become stale and in need of moderate or substantial updates after the developer's departure. Many buyers aren't interested in reviewing governing documents, but these documents are the "skeleton" of the community and can shape its future. You can either review them or have a professional do so for you, but know if there are shortcomings in the documents before you buy. Make sure the homeowners association has the powers required to continue to operate properly after the developer's departure.
Round Three What is the status of Golf and the other Amenities? There are numerous variations on amenity programs and membership plans, and you need to understand the key elements of the program:
What is structure of the Membership Program? There are three common membership programs -- Equity (member owned); Non-Equity (developer/operator owned); and Convertible (begins as developer/operator owned and, after a triggering event, becomes member owned). Decide how the differences will affect you and what structure will best suit your purposes, financially and in terms of your involvement with the club. In other words, if you want to have the benefits and obligations of an ownership interest in a club, then an Equity or Convertible membership program might work for you. If there is a refundable component to the membership price, take a realistic look at the likelihood of getting this refund, especially if resignation lists remain at high levels. Determine whether membership is mandatory for property owners and, if not, determine what your payment obligations are if you elect to resign.
Bonus Round (Double Jeopardy®) Regardless of the stage of a community's development, it is important to understand the options for resolving disputes regarding the community. Litigation can be time consuming and expensive. For obvious reasons, litigation between owners and developers can be harmful to property values and the reputation of the community. Look for provisions that offer or require alternative dispute resolution methods such as mediation and arbitration. In easier times, it was said that the three major components in making a real estate decision were location, location and location. Times have changed and now many other factors come into play. The questions above are just a few of those you should ask before you buy. While governance structures may not be perfect, there is one that can be perfect for you. Thus, to find the best match with your lifestyle and goals, you must carefully evaluate each particular community based on its own facts and governing documents in the context of the unique combination of qualities you desire. Only then can you make the critical decision about which golf community is best for you, and how much money you should commit to emerge from your game of Jeopardy® victorious.
Michelle F. Tanzer is a partner in the Real Estate Group of Holland & Knight and a member of the firm's Global Hospitality, Resort and Timeshare Group. Ms. Tanzer has extensive experience in the area of real estate development, club membership programs and community association law, and she assists her developer and hotel operator clients with projects in the United States as well as in the Caribbean, The Bahamas, Latin America and Asia. Her practice focuses on structuring and preparing the necessary documents for residential and resort communities, including branded residences and club membership programs, such as master declarations, condominium declarations, management and licensing agreements, rental program documents, reciprocal easement agreements, club membership plans and the related ancillary documents. Michelle is a Phi Beta Kappa graduate of Emory College (BA, Psychology) and holds a J.D. from the Emory University School of Law.