Jan. 18, 2010 -- Every few weeks I answer readers' questions here in my column. This week, I have the pleasure -- and the pain! -- of responding to questions about my new book, "SAVE BIG: Cut Your Top 5 Costs and Save Thousands." I mention the pain because, my goodness, the blogosphere is a harsh environment! Whew! For every glowing compliment there was a scathing criticism. But that's OK. It keeps me in touch with you and your concerns. Some of you asked for more information. Some disputed my advice. And others misinterpreted it. It all makes for a chaotic dialogue about saving money that we can all learn from. This week I'll respond to your questions and comments about houses and cars, our top two costs. Next week, I'll tackle credit, groceries and healthcare. Here goes! ~Elisabeth
Government Window Rebates
Q: I am just spending so much time trying to get facts on stimulus funds for window replacement. It's gotten frustrating. It took a couple of months to figure out "clunkers for cash." I don't know if I am on a real government site or a look alike. Need facts.
A: The Web sites to learn about government rebates for windows, appliances, insulation and more were right in my story, but many of you missed them and wrote to me. Here they are again:
Selling Your Own Home
Q: I have been an avid GMA fan for years, however I take exception to the "Save Big" segment. I have been a realtor for 31 years. Commissions are large, although a fraction of the "big picture." By pricing the house too high, the sellers lose the market, pricing to low and they lose profit. Not to mention the legal liability. How many sellers carry errors and omissions insurance? How many sellers know local, state and federal rules and disclosures regarding a sale? Ignorance of the law is no excuse.
A: I heard from several outraged real estate agents after reporting that I saved $25,000 by selling my condo myself without an agent. A brief TV or Internet story does not convey all the nuances that a 300-plus page book does. In "SAVE BIG," I recount instances in which I did and did not use an agent. I explain that I would only try a "for sale by owner" approach in a healthy housing market. It would not be a good move right now in this recession. But it certainly is a unique way to save big and I think people should try it with at least one of their properties during their lifetime. If you succeed you'll save thousands. If you fail you'll learn new appreciation for real estate agents. Regarding pricing a property just right, that is indeed the biggest trick of selling a home. In "SAVE BIG," I point out that you can hire an appraiser to help you determine the home's fair market value and then you can discount it slightly below that and still save thousands because you are saving so much in commissions. As to following the law, that's what lawyers are for. Anybody who sells a home on their own should have a good real estate attorney on board to help with the technicalities. Lawyers are expensive, but not as expensive as real estate commissions!
Q: And to add one more thing as to why you should spend the money on a real estate agent -- safety. The agent will have qualified anyone coming to look at your home and you won't have just anyone walking through your home checking out your valuables.
~MA in CT
A: This sounds like a bit of a scare tactic to me. One of the main marketing strategies real estate agents use is open houses and they certainly don't "qualify" every stranger who sees the ad in the paper or the sign out front. If you hold your own open house, you should certainly put away or remove valuables. Another idea is to enlist friends to be "docents" at your open house and assign them to keep their eye on different rooms for you.
Q: To all the realtors on here crying about her advice on not using a realtor -- GET REAL! I could understand you arguing that you provide a valuable service, one that a person should go ahead and spend the few thousand dollars on. But TWENTY-FIVE thousand dollars?! That's ridiculous. My wife used to work in a real estate office, so we know everything that is involved. $25K for a total of maybe 5-20 hours worth of work (usually) is just crazy.
A: If it is a tough real estate market or if the property itself has flaws that make it challenging, a good agent can be a terrific asset to you as a seller. One suggestion from "SAVE BIG": Sign up for a three-month contract with an agent rather than a six-month one. That way the agent is motivated to move quickly and if you're not happy you can move on. If they are doing a great job and the right buyer just hasn't surfaced, you can renew your contract.
Q: I sold my house without the help of realtors. All I had to do was price it correctly and hire a lawyer to look over the final paperwork. The lawyer fee cost me $200.00 and I saved $30,000.00. I also made sure the interested buyers were pre-qualified by a bank. I kept the house clean, had a couple of open houses, and put some ads online. I made sure not to leave any valuables in the house during the showings. I did all this in just a few weeks, while working my full-time job. I think realtors will go the way of travel agents in a few years. Don't listen to them! You can sell your property yourself.
A: This reader brings up another important step when you sell on your own. You have to make sure those who make offers have the finances to back them up. If you have an agent, they should "qualify" buyers for you. If you sell on your own, you can cut out the middleman and go straight to a mortgage lender for this assistance, which they will happily provide -- for free.
Cut Your Closing Costs
Q: I am getting ready to purchase a home, what are those fees that can be appealed and not paid for. the seller is not covering all of the closing costs, and I want to save as much as I can.
A: One of the first ways I learned to save big was by challenging junk closing costs. Here are some that you should challenge. You may not get them all deleted, but see if you can at least get them knocked down: application fee, document preparation fee, appraisal review fee, administrative fee, processing fee, courier fee, funding fee, lender closing fee. There are also title agent fees you can challenge and save thousands. I don't have room for that lengthy explanation here, but it's all in the book! Starting Jan. 1, new rules went into effect that are intended to prevent lenders from gouging people on closing fees, but I fear it will continue to take place.
Prepaying Your Mortgage
Q: She's taking about pre-paying your mortgage. Yes sure, that will work during the life of the mortgage... that's not an instant savings... it's a long term savings... so you have to increase your monthly payments, which you cannot afford, in order to save in 30 years... How many people in this unstable economy can afford to increase their monthly expenses, to save for the future? Also, how many people stay in the same house for 30 years? Not many. So bottom line what I saw will not help anyone NOW, it will help you in 20 or 30 years from now.
~Read My Lipstick
A: Here's the deal. A mortgage is a financial obligation that you took on that you are going to have to pay one way or another. You can prepay just a tiny bit of it now and save tens of thousands of dollars. Or prepay nothing and save nothing. On a $150,000 mortgage at 5.5 percent, you can save $11,000 by sending in just $25 extra per month! You can save nearly $37,000 by sending in an extra $100 a month. When I did a savings makeover for a Baltimore family, I showed them how they can save about $5,000 a year by taking simple steps with their groceries and car insurance. They plan to roll just a little bit of that immediate savings into prepaying their mortgage to save even more! This reader was also dead wrong in saying that prepaying your mortgage only benefits you if you stay in the house for 20 to 30 years. In "SAVE BIG" I did the math for a family with a $200,000 mortgage at 7 percent interest. If they send in an extra $50 a month, they will still save $8,654 if they sell in 10 years! Dismissing the power of prepaying your mortgage is short sighted. This reader needs to learn to think BIG!
Q: We just refinanced our home. The old mortgage had a 6.98 percent interest rate and would end in 2025. With the lower rates we refinanced at 4.5 percent for 15 yrs so our monthly payments are $112 lower. We are comfortable with our old payments and plan to continue paying that amount shortening our time frame from 15 years to 12 years. So instead of ending in 2025 we are paying the same amount per month and it will end in 2022.
A: Bravo! Refinancing is another time when you can find "free money" via a lower interest rate and use it to prepay your mortgage. And being mortgage free several years early is the other fabulous fringe benefit!
Canceling Private Mortgage Insurance
Q: First of all if you have PMI (private mortgage insurance), the bank will not let you do away with it until you have paid down your mortgage 20%, which it will take years before you can pay it down!
~Read My Lipstick
A: This reader criticized my savings strategy that by prepaying your mortgage you can then cancel private mortgage insurance sooner and save thousands more in those premiums. Actually, you can't cancel PMI until you have 22 percent equity in your home. And prepaying your mortgage certainly will enable you to do this faster. This idea came up in my savings makeover for that same Baltimore family. By sending in an extra $100 a month they will reach the 22 percent mark four years early and save $3,060 in PMI premiums. Yes, this savings will take a few years to materialize. Why are we such an instant gratification culture? That's partly what got us into this recession in the first place -- people wanting it all now.
Buying a Used Car
Q: My one comment to these ideas is regarding the purchase of a used car. My wife and I have bought both new and used vehicles. Buying a used car that is less than three years old typically provides the remainder of a warranty, which can be extremely helpful if the car needs expensive repairs.
A: If you buy a three-year-old used car, that's the sweet spot because cars depreciate fastest -- an average of 45 percent -- during the first three years. If a factory warranty is important to you, try a "certified pre-owned vehicle." It will be more expensive than other used cars but far less than buying new. If you are interested in a car that is not certified, here's a hot tip: Ask the dealership if you can pay just a bit more for them to certify the vehicle and include the warranty.
Sleuth Out Secret Warranties
Q: Elisabeth, Please explain "car companies offer hundreds of secret warranties" (GMA 01/05/2010).
A: A "secret warranty" is when a car maker will quietly repair your car for free to avoid issuing a formal recall. It's called a secret warranty because they don't offer to do this. You have to ask. At any given time, there are about 500 secret warranties in existence, according to the Center for Auto Safety. Finding them is tricky, but you can start by searching for technical service bulletins for your make and model. To research those, click here. (http://www.edmunds.com/maintenance/select.html). For a list of secret warranties that have already been sleuthed out by the Center for Auto Safety, click here: (http://www.autosafety.org/campaigns/23.)
Make Your Car Last
Q: It would be more valuable to tell car owners how to save money on the maintenance costs that will help us keep our cars longer.
A: In fact, there is an entire chapter in "SAVE BIG" about how to make your car last and get repairs for less. I can't post the entire book here! My publisher would kill me! But I have been sharing huge chunks of my material week by week in this space. Secret warranties, mentioned above, are one way to save on car repair costs. Free is the best savings of all! My other advice is less sexy. Spend some time finding a wonderful mechanic. You may call this simplistic, but you know what? Sometimes simplicity is beauty. Click here for several creative ways of finding a great shop. (http://www.elisabethleamy.com/web_links?web_links=chapter%2016∂=Part%20II) This reader is on the right track. Most people turn their car in every five years. One way to save big is to make it last even a little bit longer. That way you will own fewer cars in your lifetime, saving thousands.
Dropping Collision and Comprehensive Car Insurance
Q: I dropped the collision and comprehensive part of my car insurance in October on advice to save but on Thanksgiving day my car, which was legally parked, was broadsided by an uninsured driver. As a result, it's my loss -- a loss of $9,000 and no transportation. My car was damaged beyond repair. Not one penny did I get to help me through my insurance company.
A: Dropping collision and comprehensive coverage to save money is a calculated, educated risk. It's best for those with very low-value cars and/or those with the resources to replace a car if it's damaged. If your car was worth $9,000 then you probably shouldn't have dropped your collision and comprehensive coverage. The rule of thumb is that you can consider dropping collision and comprehensive when the premium for this coverage exceeds 10 percent of your car's value. I doubt your collision and comprehensive premium was $900. And rules of thumb only work if you can afford them. A $9,000 car is painful to replace out of pocket. A $3,000 car might be more manageable. That was the price-range of the vehicle owned by the Baltimore couple to whom I offered this advice.
Q: One thing I would like to see is what type of car insurance these folks have that you can save $1,200 per year by dropping collision and comprehensive. I evaluated ours and it would save me no more than $300 per year and is only around 30 percent of the total insurance bill. This is nothing to sneeze at, but not the savings claimed in the article.
A: Insurance industry experts say that dropping your collision and comprehensive coverage usually results in savings of 30 to 40 percent, so yours is right in the zone. Keep in mind, the couple I advised was thinking of dropping the coverage on two vehicles, not just one. But you bring up a good point. Their car insurance seemed expensive to me, too. Another tried and true way to save is simply to shop around. When I was researching "SAVE BIG," I found a $1,478 difference between two identical policies from two very reputable companies. And I uncovered a $1,440 discount by buying car insurance through a warehouse club like Costco or Sam's.