You have to buy a house! I had to. So did a lot of others in the Army, Navy and Coast Guard. And when rent controls are removed in full, there will be many more who will have to buy a house also. Let no one underestimate the significance of the contributing circumstances.
The plight of those on active military duty with a continuous service record is truly a special problem in today’s critical housing situation. Finding a place to rent is a practical impossibility—even under the much nurtured “bonus” system. What few rentals there are, are conditioned upon restrictive eligibility clauses which leave faint hope for military persons with children (and/or pets). Being forced into the purchase (and sale) of a house, by virtue of little or no control over time and place of an official transfer, is costly in time, money, and convenience. Contrary to some popular opinion, the purchase of a house is not “the same as paying rent.” It is much more complicated and works toward a definite economic disadvantage. A full appreciation of such a disadvantage can be best understood by those who have undergone the experience, or are preparing to do so.
In my own case I had no other alternative but to buy a house. I did so, reluctantly, knowing full well that it was a forced investment. As a Coast Guard officer I was compelled to seek an urban or suburban domicile. This precluded the more economic possibility of cave-dwelling or forest life in a lean-to. Naturally, I would have to buy on the most inopportune real estate market imaginable.
My exhaustive quest for that proverbial “roof” led me to dire things. After checking on more than 200 advertisements and looking at more than 50 houses, in sheer desperation I paid $14,000 for a house I know is worth only half as much. I shouldn’t have paid this price. In the first place my fixed income does not warrant it. In the second place, as a member of the regular establishment, I never know when or where I’ll be transferred, or how long I’ll be when I get there. You say I can’t afford it—with a family, and with the general cost of living1 having doubled since 1939. I’ll concede the point. But, remember, I didn’t want to buy; I had to. What else was there to do?
Upon my transfer from San Francisco (where I also had to buy a house) to Washington, D. C., in March, 1946, more than three months were spent searching for a place to live. What hectic months they were! Fortunately, some relatives in Baltimore were kind enough to set up a bed and a table in their basement—just an ordinary row house basement—while I commuted daily, 45 miles each way, to and from Washington. My two children were loaned to other relatives some 800 miles away. The experiences I had during those months may be worth recounting—especially so that others might derive some benefit from them.
To add unbelievable color to the realty picture, I would like to report that the asking value of property rose approximately one thousand dollars per month during the time of my search. My next door neighbor, I later found out, paid five thousand less than I did. Our houses are the same. He bought his house only six months before I bought mine. A neighbor two doors from me (incidentally a Marine Corps officer) paid two thousand dollars more than I did for the same type house. Since then, however, I understand that realty values have “leveled off.”
Rather than weigh all of the factors preceding and following my purchase, suppose I summarize only the more significant features or basic principles of the “lessons learned.” This is the only practical course to take inasmuch as local conditions vary, and houses and agents also vary.
As in any purchase, a piece of furniture for example, there is a definite order of events. First, we have a need for the article and start looking around. We are attracted by an advertisement. Then, in consecutive order, we meet with a salesman, examine the object to be purchased, and go over contract stipulations (verbal and/or written); then follows settlement (the “sign on the dotted line” moment), possession, and reflective thinking. So it is with the purchase of a house.
Frequently, real estate advertisements are misleading. Perhaps they are designed to be that way. If you were to read of a “lovely, 6-room brick house, new, complete in every respect, reasonable,” you might feel, understandably, that here was your opportunity. Yet a personal investigation might reveal otherwise. It would not be uncommon to find that the “lovely” would refer to an ordinary rectangular house with no noticeable architecture; the “rooms” would be over-sized closets; the “new” might mean under construction, or built sometime during the past decade; it might be “complete in every respect” except for those items which must be paid for as “extras”; “reasonable” might mean anything from $13,000 to $23,000, or higher. Actually, I have followed through on several “medium priced” houses to find them quoted, on the scene, in the twenty thousands. If you ever see “running water and electricity” mentioned, you can be pretty certain that speculative interests have gone out on the farm.
On occasions I have noticed that some builders would run an announcement something like the following: “$14,950, full basement, oil heat, weather-stripped, landscaped for 60 feet, two houses available for immediate occupancy” and other apparently relevant matters. Somehow, the word “up” was omitted from the $14,950; the “full” basement might be full of water, full of scrap lumber and piping, or full of building supplies which have been stored temporarily therein. “Oil heat” does not mean, necessarily, that all fuel lines and wiring are connected, nor that all essential parts of the burner motor are installed and ready to go. “Weather- stripped” might mean that one door is so fitted, or more than one, but not necessarily every window and door throughout the house. “Landscaped for 60 feet” might mean anything from 20 to 60 feet of landscaping so long as the lot does not exceed 60 feet in width. The two houses “immediately available” have either “just been sold” or, are immediately available in 10, 20, 30 days or longer, depending on possession date and other factors.
So much for advertisements; what about realty agents themselves? Here a solemn word of caution is in order. My experience has taught me that it would have paid me to study my agents as carefully as they were studying me. As soon as an agent would uncover the fact that I was a newcomer to the area, had children and was living in cramped quarters, he knew the advantages of a “sellers’ market.” No matter how hard I tried to withhold this information, I was not always successful. This process is known to realty men as “feeling out.” They seek to distinguish the “sightseers” from those in need. It is a question of selection rather than selling.
Once an agent has determined your need for a house, his next step is to determine your “ability to pay.” Of course, he will always take the very upper limit of your ability; he works on a commission basis, you know. The thing that the prospective buyer should do, then, is to make a complete character study of each agent, builder, or owner, with whom he is dealing or about to deal.
All realty persons are human beings. Self-survival is the primary motive of their business. To achieve this end some agents are boastful, some resort to “high pressure.” There are those who would intimidate you, while others would speak only in half-truths. Some are purposely vague; they use such phrases as “here or there,” “more or less,” “on or about,” etc. Some are psychologists—in their own way. They casually refer to what might well be a fictitious “other person” who has already made a bona fide offer, or they use that “last one left” spur. Some have a code of ethics quite difficult to comprehend.
Beware of those agents or builders (or owners) who verbally agree with your every request but always find some excuse for not putting it in writing. Beware, also, of those who have a shrewdness for misrepresentation by implication. For example, if you were to ask “How far back does the lot go?” the egotistically shrewd agent (or builder, or owner) could wave a bold, definite hand in the direction of all trees 30 feet back, 60 feet back, and 200 feet back. He would say very positively, “Way back beyond those trees.” He would mean, of course (but you wouldn’t know this at the time), those trees just 30 feet back. And, finally, beware, oh! beware, of the evasive agent—the type who just won’t give you a specific answer to any of your questions and who keeps referring to “hidden” values.
There is no other way to study an agent than by seeing him in action. Consequently, by the time you have come to some partial evaluation of an agent or builder, you will also have made at least a preliminary examination of some house and its premises. This should reveal your interest to the extent that further inspection is, or is not, necessary. If you are interested further, it may prove to your advantage to warm up your “eagle eye” and make particular note of the following: layout and size of rooms (length, breadth, cubic footage, number of windows, wall space, etc.); closet and storage space; size and utilitary value of kitchen, the most important spot in any fixed income home (you might be examining a 1942 house with a 1934 refrigerator); condition of flooring (knots, worm-holes, amount of creaks, etc.); paint work, (inside and out); woodwork; plumbing (leaky faucets, chattering, whistling, or continuously running toilet valves, rusty joints, weak holding-brackets, drain and clean-out access, etc.); tilework and roofing (and spouting); size of, and accessibility to, attic; condition of basement, if any (look closely for evidence of moisture); type and construction of foundation and main beams); size of lot, drainage (look for ground wash and low places), and landscaping; condition of sidewalks (if any) and gutters and curbs; plus many individually minor items, but most costly in time, convenience, and nuisance value—such as door bell, fire-place cleanout traps, hand railing on stairways, window locks, light bulbs, fuses, etc. Better ask a few questions about zoning; that is, whether the property is residential (A or B), commercial (X or Y), or industrial (Q or T). For example, one might ask, “Is there any re-zoning taking place in the community?” or, “Is there a master plan of zoning in effect?” (an important question in a newly developed area.) Zoning affects the future value of property.
The foregoing comments are based upon the premise that the house is financially within your reach, though admittedly it is probably at the extreme of your fingertips when both hands are strenuously extended. Today, when there are ten families-in-need for every available home, this condition prevails. Consequently, further financial and contractual discussions will automatically follow any more-than-casual examination of a home. As a result every deal will involve, at the outset, a deposit and a contract to purchase. Here it is important to note that the colloquial real estate “contract” is a contract to purchase; it is not a contract of purchase. This latter act, in the office of the lending institution, is manifested by mysterious rituals at the time of final settlement and possession. The “contract,” accompanied by a deposit, is merely an assurance that you intend to buy. The deposit is subject to forfeiture in case of bad faith on your part. Bad faith on the part of some agents or builders is a highly technical and debatable question. In one case, I had to forfeit $100 to learn of bad faith not on my part.
You can be quite sure that the “form” contract adequately protects the interests of the realty agent or builder. In my opinion, every particle of printed matter already on the “form” is one-sided, and you also can be certain that whatever has been forgotten is covered by a catch-all clause at the bottom. Accordingly any prospective buyer should take definite written steps to protect his own interests. He should define his every term. Even then the buyer is not always safe. For example, in my contract I stipulated “lot to be tapered full length.” Upon possession, I found the lot to be V-shaped. Questioning the builder revealed that it was “double- tapered.” With swaggering arrogance he informed me that he reserved the right to interpret the contract as he saw fit.
If the house is to be occupied in 30 days or less, an attempt should be made to strike out the “or more” that is occasionally and unobtrusively inserted in the form contract. If the house is one of recent construction, it might prove advantageous to include a phrase that it was built in accordance with specifications on file at the local building inspector’s office. Then ask to see the specifications, but don’t be too surprised at “corner cutting.” On a house calling for three coats of paint (in the specifications) a contractor may lead you to believe he has produced the same effect with two coats. Guard against those contracts which have a tie-in arrangement with a loan or finance company not of your own choosing (if you want to choose a loan or finance company). There is usually a reason for the “tie-in” which is not to your best interests. Most contracts state that a purchaser agrees to comply with “all covenants of record.” Ask to see them. Ostensibly covenants are for the protection of the property. However, in the real estate industry, an element of profit making is reflected in some covenants. Consider, for instance, a new development of houses, each house without a garage. The public-minded builder or developer will arrange a covenant whereby, in the interests of community “harmony and uniformity,” no garage or other structure can be built unless he approves the plans. What will prevent him from disapproving any and all such plans unless he or some of his associates get the full opportunity for the work? In short, it would be most wise to have several days’ prior access to all “form” contracts for personal scrutiny before affixing signatures. This privilege, of course, may not always be accorded—for obvious reasons.
Even though a contract is drawn, possession of the house and property cannot be had until “settlement.” This involves a down payment, a mortgage, handling (or closing) charges, a deed, a title search, and possibly (if you are financially unfortunate) a second trust (or a third)—an I.O.U. to someone other than the first mortgagor. The down payment (your deposit is included in this) and second trust can be considered as the inflation value of your purchase. Today, this amount frequently equals or exceeds the maximum first mortgage. The first mortgage is an index of the true worth of your house on a so-called “normal” market. The mortgage stipulates many conditions on which you may occupy the house, the primary ones being to make your monthly payments and bear all expenses incident to maintaining the property at its par value—interest, taxes, insurance, repairs, improvements, etc. Surmounted on these expenses and also not included in the sale price of the house, are innumerable handling fees and charges. There are title fees, appraisal fees, inspection fees, settlement fees, separate charges for the preparation of deed and loan, separate charges for recording of deed and loan, notary fees, federal and state tax stamps, adjustment fees, and a dictionary of others. A house with a price tag of $13,375 may come out of this mill at $13,651.60—the more expensive the house, the higher the mill handling charges. In other words, the buyer pays for all of the mortgagor’s work in connection with a loan. The interest on that loan is another entity.
Before you dip your pen in ink for affixing a signature to the “form” (that word again) mortgage, you had better get a clear—and I mean a very clear—understanding of the “release” clause, technically known as “full prepayment privileges.” This is important and could prove very embarrassing to a military person upon receipt of official transfer orders when it became necessary to sell in a hurry (which is certainly not the best way of selling real property). Every finance company or bank is in business to make money—for the welfare of its shareholders. When a loan is granted, the morale (synonymous with “dividends” or “profits”) of the share holders and lending management is pre-computed in a sense on the basis of so much interest money from each mortgagee each year for so many years. Naturally any pre-mature termination of a mortgage is refleeted by a corresponding reduction in lending institution morale. In some cases this possibility is recognized in terms of a 1% or 2% (of the original loan) “penalty.” In other words, on an original $9,000 F.H.A. or bank loan, it may cost between $90 and $180 just for the privilege of being “released.” Finance companies do not always make this recognition. Their “forms” stipulate, in effect, that the “Board of Directors” (that august body) may not release you. If the “Board” does release you, it’s for a monetary penalty. If it does not release you, you are simply “stuck.” A fine mess to be in! And there are cases on record of military persons in this predicament. This is probably a poetic penalty for failing to read the small print and those references to the “rules and by-laws” of the finance association (which are seldom supplied without request). See what a fast moving pen can get you into? I had one; have you?
When all matters regarding the transfer of property are settled to the satisfaction of prior ownership interests (probably not to your satisfaction, but you do need a house) a “settlement date” is effectuated. This date (hour and minute) is recorded in the land office of the presiding county seat and represents the line of demarcation for any legal controversies that may later develop.
Actually the term “settlement date” is a misnomer. It’s only the beginning. It is an inaugural date for a long term financial obligation. You are reminded of this date twelve times a year.
The question of financing the circumstantially-forced purchase of a home is a deep personal problem. It gets down where it hurts. But the problem must be solved if one is to have shelter for self and family. The ability to locate between $1,000 and $5,000 (the average limits of cash down payments today) depends a great deal on one’s personal thrift (that is, his life savings), relatives, outside sources of income, and such collateral as furniture, automobile, and life insurance policies. The G. I. loan2 is not available to active duty personnel who have never been separated from the Service. The objective, therefore, is to pay as little cash down as you can and adjust the combined monthly payments (if more than one loan is carried) somewhere in the vicinity of one- fourth the monthly pay check—a pre-war “rule of thumb” somewhat difficult to apply today.
In selecting the source of a loan it is usually desirable to keep away from finance companies—building and loan associations, perpetual building associations, “plan” banks, mortgage “banks,” etc. In the first place, they are apt to carry that “may not release” feature. In the second place, their interest rates are usually higher than conventional banks and F.H.A—by ½% to 1% or so. Don’t be fooled by such small percentage differentials. When you stop and figure that on the first $90 monthly payment (say on a combined $10,000 loan at 5%), $41.67 goes for interest alone, a ½% difference in rate can mean a tidy sum in 12 times 20 payments (about $4.17 per payment). In the third place, some finance companies compute their interest charges on an “unpaid balance” every six months, instead of monthly. On the figures just given the interest depreciates about 21 cents per month. With no depreciation for a six month period, that means an added institution morale factor of some $3.15 per borrower over and above that enjoyed by a conventional bank or F.H.A. loan. And so on. Barring a forced “tie-in” with a finance company, a commercial bank or F.H.A. loan is preferable. Try F.H.A. first. You may get a higher loan at an equal or less interest rate than from a bank.
Once all arrangements for financing and “settlement” have been made and you become the physical possessor of the property, conditions should then gradually permit reflective thinking and evaluation of your purchase. If you take advantage of conditions, it is a healthy sign, as it indicates a willingness to learn (even if it is the “hard way”). If you bought a used house you may find that the automatic hot-water heater (or the heating system itself) may begin to act up, then not act at all. Or there may be mal-functioning or mal-formation of some other necessary item which may cost you good money to repair or replace. If you bought a new house, the windows may not fit right (after all, you can’t check every one of them before you move in), the paint work may need touching-up, cracks may develop in the ceilings or bathroom tile, floors may become uneven, plumbing may prove faulty, there may be missing fixtures and a lot of other items to challenge your patience and integrity evaluation of the agent or builder who sold you the house. But all this is good for the soul, as it keeps one in mental trim for the inevitable receipt of new orders and the signal for starting the whole damned cycle over again.
There have been all kinds of estimates on the duration of the national housing shortage. None of the estimates is encouraging to the career military man with a family. Some experts say five years, some say ten, some say more. However, one fact is quite clear. The “good old days” will never return. The hope of being able to freely rent a house at any time, in any location, and for a convenient price is nostalgia of the most pitiful kind. The possibility of a third world war, in a less space of time than between the first two wars, is certainly not going to ease the housing picture. Oh, yes, there always will be some who will be favored by more than their share of “rabbit’s feet.” But, by and large, the probable necessity for purchasing a house, upon each official change of station, is as much a reality in the foreseeable future as it is today.
There are reports that in some localities new houses are beginning to remain unoccupied. Paradoxically enough, the human need for these houses has not diminished one bit; only the “ability to pay” has diminished. Accordingly, it is possible that the future asking price of houses may turn downward, but only slightly—maybe 10% to 20%. For unless the prices do come down, the number of unoccupied houses will grow. If this happens, statistics will be culled by realty interests to show that “there are plenty of houses available,” and therefore all rent controls should be removed immediately. Then the higher prices will go still higher. Under such circumstances it is seriously doubtful that many Service people will be able to wait out the market should they be unable to find a rental appropriate to their needs.
So, if you have to buy a house, of course you have to. Be wary; be cautious; be as realistic as you can. But, remember, you are not apt to get a good buy. There are painfully few good buys on today’s realty market. About the best you should hope for is a roof and suitable cubage thereunder. The drier the roof, the better.
1. The May 5th edition (1947) of the N. Y. Journal of Commerce showed the September 2, 1939, general cost of living index to be 77.4 and the May 3, 1947, general index to be 163.2.
2. Section 500 (a) of the “Serviceman’s Readjustment Act of 1944” states that “loans for the purchase or construction of homes” are applicable only to those “who shall have been discharged or released from the military or naval service under conditions other than dishonorable.”