It’s tough enough to sell a house with home sales in the Twin Cities undergoing the biggest decline in the country, down 42 percent in July year to year. Yet some local governments make it even tougher for homeowners by imposing some of the country’s most onerous before-sale residential inspection ordinances, adding to the cost and red tape of buying and selling a house at the worst possible time.
Currently, fourteen metro-area municipalities have so-called “point-of-sale” ordinances in place, requiring home sellers to pay for a city inspection prior to selling their property. (In some cases, the ordinances are referred to as “time-of-sale” and “truth in housing” inspections.) In fact, in many cases, sellers are required to pay for the inspection before being permitted to put their home up for sale. These inspections are in addition to, not in lieu of, the private inspections for which home buyers routinely pay $300 or more.
That’s because, as several cities readily admit, these ordinances are not intended to help the buyer or seller. They are intended to help the city.
On its website, the City of Richfield states “inspections are not for the benefit of buyer or seller, but are a community effort to maintain the quality of Richfield’s houses and neighborhoods.” Common code violations cited by Richfield inspectors include bare wood, peeling paint, missing or deteriorated window glazing, and clogged gutters.
The laws require sellers to undergo a comprehensive city inspection for potential code violations at an initial cost that varies from $50 to $200, often before allowing the property to go on the market.
“There are already fixed costs when you buy and sell a property and so having these extra costs piled on top of the transaction can really break up a deal,” said Christine Berger of the Minnesota Association of Realtors. “You can potentially lose your dream home. I call them transaction killers.”
Applications typically include a disclaimer like the City of Osseo’s waiver stating the inspection “does not constitute a guarantee or warranty to any person as to the condition of buildings inspected.” The City of St. Paul “does not guarantee or warranty the accuracy of the report,” according to its website.
Homeowners can get slapped with a fix-it list of repairs needed to bring the property into compliance with city codes. Though some cities issue “disclosure only” reports that do not require action, other municipalities require the property owner or the buyer in some cases to make improvements that go beyond potential safety hazards.
“Who among us in our homes doesn’t have something that would get flagged for some reason or other? The health and safety issues are obviously paramount to us,” said Eric Myers of the North Metro Realtors Association. “But we’ve had them flag a bit of mold along the trim in the bathtub where you just haven’t scrubbed it lately.”
In the Minneapolis suburb of Brooklyn Park, inspectors find problems and order repairs in the overwhelming majority of houses being listed, according to city officials. Even if the house doesn’t sell or is taken off the market, the city requires owners to correct not just code violations but so-called “property deficiencies.”
Officials contend the inspections are more important than ever in an economic downturn to protect potential buyers who may not be able to afford a private one. With an estimated 1,000 vacant and foreclosed houses in Brooklyn Park, officials also insist the inspections are necessary to prevent neighborhood blight.
“I don’t think it’s accurate if you want to talk about too much government,” said Robert Schreier, Brooklyn Park’s community development director. “It’s providing a service to the community. We never hear complaints from people buying the houses. The people that are moving in are glad for the inspections.”
While there are no available statistics to measure the impact of point of sale ordinances on housing sales or costs, realtors say cities should offer buyers and sellers incentives, rather than roadblocks, to reduce the glut of foreclosures and attract buyers.
“Essentially what the city is saying is that you Mr. or Mrs. Seller can’t sell unless we say so, unless you have a city inspection and then make all the repairs,” Myers said. “Nowhere else in the country do we know of where they apply the entire code to delay the transaction, as opposed to focusing on a few items like water saving showerheads or energy efficiency items.”
Point of sale inspections may put the onus on sellers today, but it will be on Brooklyn Park city officials before long. The city council will review whether or not to sunset what’s viewed as the most stringent point of sale ordinance in the Twin Cities—and possibly the nation—in 2012.
“I think when the economy turns around, there’s a question of whether the program would continue,” Schreier said. “I think for this time, however, it’s a good program.”
Metro Area Cities with Point-of-Sale Requirements
Bloomington
Brooklyn Park
Crystal
Golden Valley
Hopkins
Maplewood
Minneapolis
New Hope
Osseo
Richfield
Robbinsdale
St. Louis Park
St. Paul
South St. Paul
Economists often describe unemployment as “cyclical” or “structural.” Cyclical unemployment results from broad economic slowdowns: As the economy turns, businesses lay off workers, meaning other businesses suffer, meaning more layoffs. Structural unemployment results from broad economic changes: An economy with a strong apple trade might be becoming an economy with a strong orange trade, and as that transformation happens, a lot of apple workers might be out of a job.
Economic commentators such as Mohamed El-Erian, the head of PIMCO, have described the United States’ problem as mostly structural. The housing boom created millions of jobs in construction, development and realty, and those jobs are gone. Over at Project Syndicate, economist Brad DeLong makes the argument for cyclical unemployment:
In [the case of structural unemployment] we would expect to see construction depressed: firms closed, capital goods idle, and workers unemployed. But we would also expect to see manufacturing plants running at double shifts – the money not spent on construction has to go somewhere, and, remember, the problem is not a lack of aggregate demand. We would expect to see manufacturers holding job fairs, and when not enough workers showed up, we would expect to see manufacturers offering higher wages to attract workers into their plants, and then raising prices to cover their higher costs.
That is what “mismatch” structural unemployment looks like – and it is not what we have today, at least not in Europe and North America. In the past three years, employment in construction has shrunk, but so has employment in manufacturing, wholesale trade, retail trade, transportation and warehousing, information distribution and communications, professional and business services, educational services, leisure and hospitality, and in the public sector. Employment is up in health care, Internet-related businesses, and perhaps in logging and mining.
DeLong does not say that structural unemployment does not exist in the U.S. economy, just that the problem is primarily cyclical. In a few years, with unemployment still projected to be above 8 percent, the problem will primarily be a structural one, he notes.
Though the problem seems to me to be both: The unemployment is cyclical and structural. Most sectors have suffered from the turndown, but job losses are concentrated in some industries: In residential construction, they are down 38 percent since 2006. (Between Aug. 2007 and Dec. 2009, unemployment in construction quintupled from about 5 percent to about 25 percent.) In health care and education, however, jobs are up.
Here is a chart I made from Bureau of Labor Statistics data that shows the phenomenon. (The chart shows total jobs in major sectors since 2005.) Most sectors — retail trade, business services, wholesale trade, finance — have had moderate job losses one could reasonably chalk up to an economy-wide lack of demand. Let’s think of those as sectors characterized mostly by cyclical job loss. Then, there is manufacturing and construction. Jobs there have taken a nose dive, and the problem seems to be structural. Moreover, the job gains in education and health might thought to be structural as well. (Mining and logging isn’t an industry I know a lot about, so I’m not sure what’s going on there.)
That said, the big problem at the root of all of the employment woes remains sluggish demand.
One can also think about the unemployment geographically. Joblessness has tracked up in all states, due to lack of demand. But states with big manufacturing and construction industries — Michigan, Nevada, California and Florida — are suffering from massive structural unemployment, made worse by the foreclosure crisis. (Four years ago, you might have been working in construction in Nevada and overpaid for your house. Today, you’re likely out of a job and, worse, can’t move to a state like North Dakota because you can’t sell the property.)
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It’s tough enough to sell a house with home sales in the Twin Cities undergoing the biggest decline in the country, down 42 percent in July year to year. Yet some local governments make it even tougher for homeowners by imposing some of the country’s most onerous before-sale residential inspection ordinances, adding to the cost and red tape of buying and selling a house at the worst possible time.
Currently, fourteen metro-area municipalities have so-called “point-of-sale” ordinances in place, requiring home sellers to pay for a city inspection prior to selling their property. (In some cases, the ordinances are referred to as “time-of-sale” and “truth in housing” inspections.) In fact, in many cases, sellers are required to pay for the inspection before being permitted to put their home up for sale. These inspections are in addition to, not in lieu of, the private inspections for which home buyers routinely pay $300 or more.
That’s because, as several cities readily admit, these ordinances are not intended to help the buyer or seller. They are intended to help the city.
On its website, the City of Richfield states “inspections are not for the benefit of buyer or seller, but are a community effort to maintain the quality of Richfield’s houses and neighborhoods.” Common code violations cited by Richfield inspectors include bare wood, peeling paint, missing or deteriorated window glazing, and clogged gutters.
The laws require sellers to undergo a comprehensive city inspection for potential code violations at an initial cost that varies from $50 to $200, often before allowing the property to go on the market.
“There are already fixed costs when you buy and sell a property and so having these extra costs piled on top of the transaction can really break up a deal,” said Christine Berger of the Minnesota Association of Realtors. “You can potentially lose your dream home. I call them transaction killers.”
Applications typically include a disclaimer like the City of Osseo’s waiver stating the inspection “does not constitute a guarantee or warranty to any person as to the condition of buildings inspected.” The City of St. Paul “does not guarantee or warranty the accuracy of the report,” according to its website.
Homeowners can get slapped with a fix-it list of repairs needed to bring the property into compliance with city codes. Though some cities issue “disclosure only” reports that do not require action, other municipalities require the property owner or the buyer in some cases to make improvements that go beyond potential safety hazards.
“Who among us in our homes doesn’t have something that would get flagged for some reason or other? The health and safety issues are obviously paramount to us,” said Eric Myers of the North Metro Realtors Association. “But we’ve had them flag a bit of mold along the trim in the bathtub where you just haven’t scrubbed it lately.”
In the Minneapolis suburb of Brooklyn Park, inspectors find problems and order repairs in the overwhelming majority of houses being listed, according to city officials. Even if the house doesn’t sell or is taken off the market, the city requires owners to correct not just code violations but so-called “property deficiencies.”
Officials contend the inspections are more important than ever in an economic downturn to protect potential buyers who may not be able to afford a private one. With an estimated 1,000 vacant and foreclosed houses in Brooklyn Park, officials also insist the inspections are necessary to prevent neighborhood blight.
“I don’t think it’s accurate if you want to talk about too much government,” said Robert Schreier, Brooklyn Park’s community development director. “It’s providing a service to the community. We never hear complaints from people buying the houses. The people that are moving in are glad for the inspections.”
While there are no available statistics to measure the impact of point of sale ordinances on housing sales or costs, realtors say cities should offer buyers and sellers incentives, rather than roadblocks, to reduce the glut of foreclosures and attract buyers.
“Essentially what the city is saying is that you Mr. or Mrs. Seller can’t sell unless we say so, unless you have a city inspection and then make all the repairs,” Myers said. “Nowhere else in the country do we know of where they apply the entire code to delay the transaction, as opposed to focusing on a few items like water saving showerheads or energy efficiency items.”
Point of sale inspections may put the onus on sellers today, but it will be on Brooklyn Park city officials before long. The city council will review whether or not to sunset what’s viewed as the most stringent point of sale ordinance in the Twin Cities—and possibly the nation—in 2012.
“I think when the economy turns around, there’s a question of whether the program would continue,” Schreier said. “I think for this time, however, it’s a good program.”
Metro Area Cities with Point-of-Sale Requirements
Bloomington
Brooklyn Park
Crystal
Golden Valley
Hopkins
Maplewood
Minneapolis
New Hope
Osseo
Richfield
Robbinsdale
St. Louis Park
St. Paul
South St. Paul
Economists often describe unemployment as “cyclical” or “structural.” Cyclical unemployment results from broad economic slowdowns: As the economy turns, businesses lay off workers, meaning other businesses suffer, meaning more layoffs. Structural unemployment results from broad economic changes: An economy with a strong apple trade might be becoming an economy with a strong orange trade, and as that transformation happens, a lot of apple workers might be out of a job.
Economic commentators such as Mohamed El-Erian, the head of PIMCO, have described the United States’ problem as mostly structural. The housing boom created millions of jobs in construction, development and realty, and those jobs are gone. Over at Project Syndicate, economist Brad DeLong makes the argument for cyclical unemployment:
In [the case of structural unemployment] we would expect to see construction depressed: firms closed, capital goods idle, and workers unemployed. But we would also expect to see manufacturing plants running at double shifts – the money not spent on construction has to go somewhere, and, remember, the problem is not a lack of aggregate demand. We would expect to see manufacturers holding job fairs, and when not enough workers showed up, we would expect to see manufacturers offering higher wages to attract workers into their plants, and then raising prices to cover their higher costs.
That is what “mismatch” structural unemployment looks like – and it is not what we have today, at least not in Europe and North America. In the past three years, employment in construction has shrunk, but so has employment in manufacturing, wholesale trade, retail trade, transportation and warehousing, information distribution and communications, professional and business services, educational services, leisure and hospitality, and in the public sector. Employment is up in health care, Internet-related businesses, and perhaps in logging and mining.
DeLong does not say that structural unemployment does not exist in the U.S. economy, just that the problem is primarily cyclical. In a few years, with unemployment still projected to be above 8 percent, the problem will primarily be a structural one, he notes.
Though the problem seems to me to be both: The unemployment is cyclical and structural. Most sectors have suffered from the turndown, but job losses are concentrated in some industries: In residential construction, they are down 38 percent since 2006. (Between Aug. 2007 and Dec. 2009, unemployment in construction quintupled from about 5 percent to about 25 percent.) In health care and education, however, jobs are up.
Here is a chart I made from Bureau of Labor Statistics data that shows the phenomenon. (The chart shows total jobs in major sectors since 2005.) Most sectors — retail trade, business services, wholesale trade, finance — have had moderate job losses one could reasonably chalk up to an economy-wide lack of demand. Let’s think of those as sectors characterized mostly by cyclical job loss. Then, there is manufacturing and construction. Jobs there have taken a nose dive, and the problem seems to be structural. Moreover, the job gains in education and health might thought to be structural as well. (Mining and logging isn’t an industry I know a lot about, so I’m not sure what’s going on there.)
That said, the big problem at the root of all of the employment woes remains sluggish demand.
One can also think about the unemployment geographically. Joblessness has tracked up in all states, due to lack of demand. But states with big manufacturing and construction industries — Michigan, Nevada, California and Florida — are suffering from massive structural unemployment, made worse by the foreclosure crisis. (Four years ago, you might have been working in construction in Nevada and overpaid for your house. Today, you’re likely out of a job and, worse, can’t move to a state like North Dakota because you can’t sell the property.)
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