I’ve got two neighbors and a good friend out of state that have put their house on the market for no other reason than “they just want to move”.

All three couples have two kids, and all three live in good sized, three bedroom houses.  After pinging each of them that it’s really a great time to buy a house, so long as you can sell your existing one, they all followed with the same response: “we’re just bursting at the seems in our existing house, so it’s time for a change”.

Honestly, I can’t say that I agree that “we’re bursting at the seems” is a good enough reason to sell your house.  Two of the three couples will only get their money back from the initial purchase three years ago, and the third stands to make about $5,000.  And that’s if they get their asking price.

I can’t help but think that these three families are busting at the seems, not because if the increase in the number of kids they have, but because of the increase in “stuff” they have.  One has a basement that is packed so full of stuff you can’t even walk around in it; none of it is kids stuff.

I’ve gone to great lengths to get rid of the “stuff” my wife and I don’t use.  If there’s a box in the storage closet that hasn’t been opened in 5 years, there’s probably no good reason to keep it’s contents around.

What does every square foot of your house cost?

The way I look at storage is in mortgage payment per square foot.  Take the overall monthly house payment (add in taxes and insurance) and divide that number by the total square feet in your house.  Mine comes in at $0.65 per square foot.  So those Tupperware bins stacked up in the basement holding all my wife’s college t-shirts is costing me about $4 per month to store.

When you put it in those terms, those t-shirts sure would make good rags to wash the car with!

Frugal Living, Real Estate housing market, storage

I’ve had Allstate Insurance (ALL: chart, web, Y!) covering my rental property for the last 4 years.  However, last Fall, they sent me a notice that my premiums would go up 52% this year without any explanation whatsoever.

Being the capitalist I am, I understand costs go up over time.  But not 52% at once.

I called for an explanation, and after cutting through the bull, and being passed around to three different people as I worked my way up the ladder, I had a district manager tell me that rates went up on landlord policies due to an increase in fraudulent claims over the past year.

That’s bull!

For one, I’ve never filed a claim, and never had a reason to.  Furthermore, if the company has a problem with fraudulent claims, that’s their problem, not mine.

So I’m doing what every good capitalist would do and exercising my options through my wallet.

Allstate was insuring my single little rental for $950 per year.  Just the structure, mind you, not the contents (that’s what renters insurance is for).  The increase for 2009 brought the annual premium to $1,460 with no increase in coverage.

As a comparison, I insure my personal home with a market value over $150,000 more than my rental, all my personal belongings, AND three vehicles for under the new premium to insure just my rental house.

That just doesn’t smell right.

My new policy is with USAA, whom I carry that home and auto insurance with, and they will insure the rental for the replacement cost, not the value; there’s a big difference.  All the while, USAA’s premium is cheaper than Allstates best quote, even after I assured them I’d not do business with their company unless they offered me something more reasonable.

Allstate’s new premium is based on the market value of the home, while USAA’s premium is based upon rebuilding the same home on the same piece of property with today’s dollars.  So the coverage is for nearly $200,000 more than Allstate would provide.

I’m not buying Allstate’s excuses for a drastic 52% premium increase.  Allstate reported a $1.3 billion net loss, or $2.11 per share, for Q4 of 2008 while expectations were for the company to make $1.35 per share.

In all, I seriously doubt that Allstate needed to raise my premium by 52% due to fraudulent claims.  I suspect they had to raise the premium because they’re not making any money due to poor performance of their own investments.

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Insurance, Real Estate Allstate, Insurance, Rental Property, USAA

Having recently initiated the refinance process, I’ve taken some interest in opinions from those in the industry.

When talking to the loan officer at Wachovia, I had to ask the requisite question: “Which direction do you see rates going?”  Not one to look a gift horse in the mouth (the refi rate would be 4.625% vs. my current 6.66%), I wasn’t going to let his response become a deal breaker, but I thought I’d ask anyway.

The answer didn’t surprise me.  He kind of hemm’d and haw’d around, and I saved him the misery of coming up with a response that wouldn’t put him in a bind, and just gracefully switched topics.

I knew that whatever answer he gave me could get him in trouble.  If he says rates will fall and they do, I’d be mad that I didn’t wait for a better rate.  If he says they go up, and they actually drop, he’s still in a bind.

If he really knew the answer, he wouldn’t be a loan officer.

Then came the appraisal.  The guy shows up with his tape measure, pen, pad and a camera.  Naturally, I had to ask him how business was going.  It was a rhetorical question, really.

Business was picking up, especially for third-party, independent appraisers.

Apparently, and this will come as little shock, banks were using their in-house appraisers to determine the value of the home, which ended up getting inflated by 100-300%.

Starting on May 1, loans sold to Fannie Mae and Freddie Mac will require an appraisal chosen by the two big banks.  In essence, the lender will be able to chose the appraiser, and in the in-house lender is chosen, the banks loan origination department will have no oversight for the process.

Unfortunately, the rules will only apply to Fannie and Freddie.  However, due to the trickle down effect of the loan trade, the effects will be spread far and wide regardless.

Since a large number of loans are bought by or guaranteed by Fannie or Freddie, the entire industry will have to play by the same rules if they want to play.

The Corner Office Comments

It’s a start.  This is a move that one would think would be inherent to the system to begin with, however, as we’ve found with our government, common sense does not reign supreme.

In talking to the appraiser who evaluated my home, it seems that the while the practices are still the same, the principles just got a lot tighter.

No more benefit of the doubt (not that I was looking for one).

Finance, Real Estate appraisal, Fannie Mae, Freddie Mac, loans, mortgages, refinance