SOURCE: CALIFORNIA ASSOCIATION OF REALTOR'S DECEMBER NEWSLETTER
Saturday, December 28, 2013
5 Costly Mistakes When Selling Home
Did you know that many homeowners lose thousands of dollars by the time they close on their home because of simple mistakes they make... and could have easily corrected BEFOE putting their home on the market?
Mistake 1: Putting the home on the market before it's ready. Most times this happens because the seller gets impatient or is thinking right now is seller's market and the home will go anyway, and has pushed himself up against a moving deadline without getting the pre-sale work done. So it comes on the market with the horrible carpet (that gets replaced during the marketing of the home); or they are painting it while it goes on the market. Presentation is everything -- so get the house clean and tidy before marketing the property.
Mistake 1: Putting the home on the market before it's ready. Most times this happens because the seller gets impatient or is thinking right now is seller's market and the home will go anyway, and has pushed himself up against a moving deadline without getting the pre-sale work done. So it comes on the market with the horrible carpet (that gets replaced during the marketing of the home); or they are painting it while it goes on the market. Presentation is everything -- so get the house clean and tidy before marketing the property.
Mistake 2: Over improving the home for the neighborhood. This happens with additions, bump outs, and upgrades that make the home stick out from among its competitors so much that it's an anomaly, instead of a nice addition to the community. Well, truth is, you might get more showings and offers, but that doesn't mean the offer price counts what you paid for those upgrades. Most of upgrades worth no more than 50% of the cost during selling time.
Mistake 3: Pricing the home based on what the seller wants to net. This pricing strategy always ends in failure. Sellers can control the "asking" price, but they don't control the "sales" price. The market does. It doesn't matter what the seller wants, the price is determined by the black-and-white, matter-of-fact reality of the market.
Mistake 4: Getting emotionally involved in the sale of the home. This is one of the biggest challenges home sellers face when putting their house on the market. Once you decide to sell your house, it's no longer a home, but a commodity. It needs to be prepared as a commodity, marketed as a commodity, and priced as a commodity. It doesn't matter what you "want," only what the market can bear on pricing. People are going to come in to kick the tires, so to speak, and you can't get emotional about how they may or may not appreciate the nuances of your home of seven years.
Mistake 5: Trying to cover up problems, or not disclosing them. California has a property disclosure form -- use it wisely. Just because you disclaim doesn't mean you cannot be sued later for the leaky roof, or dilapidated heating/air system that's discovered 30 days after settlement.
Selling soon? Call me when you are ready to sell your home!
Friday, December 27, 2013
What to Look When You're Buying an Investment Property
Jennifer Zheng
REALTOR, Abacus Properties Inc.
16870 West Bernardo Drive, Suite 400
San Diego, CA 92127
Cell #: (858) 344-8478
San Diego, CA 92127
Cell #: (858) 344-8478
BRE License #: 01450123
My service, service for Life
CALL ME today @858-344-8478, I'm a REALTOR and an experienced investor myself.
When your a new investor using a realtor is almost mandatory since you can use their experience, contacts, and knowledge to help you find the best deals.
Remember they have to pay for their own gas when showing property, their annual real estate licenses, and all the rest of their overhead costs.
They are constantly dealing with buyers that never buy a house and waste their time showing prospective property. It is important to realize this since real estate agents are considered independent contractors.
Have a little compassion and don’t waste their time if your truly not interested in buying property. That being said, you need to find a realtor that OWNS investment property themselves.
Most agents only deal with buyers that are looking for a house to live in themselves and they have little to no knowledge in dealing with rental property.
What your looking for as an investor is a realtor that owns rental property themselves. They will know what to look for in a investment property and their knowledge is very valuable to an investor.
They can save you a lot of money by avoiding property that will have issues as an investment property. Interview and actually have the potential realtors show you several properties first.
The really valuable realtors will be pointing out the pros and cons for each property.
This is the type of realtor you should select for finding investment property.
Finding Property
Ok, now that you have your financing and realtor selected it’s time to get down to business. Finding the right property is crucial to making money in real estate.
There are some important points to know:
1. Don’t Buy In Expensive Neighborhoods - Nice areas may have nice homes but they don’t make sense as an investor. By the time you pay the higher mortgage payment, taxes, and homeowners insurance your left with little to no income.
Unless you have enough cash to buy these higher priced home avoid them at all costs since the risk is to high for rookies.
2. Don’t Buy In Cheap Neighborhoods
Although there are many great deals in the worse areas your tenant pool will be bad. The
tenants that pay won’t stay long while you will be spending your days in court evicting the non-paying tenants. Drugs, murders, and other crimes will cause any potential capital appreciation to the property to be wiped out. Not only will your properties not make much income but their value will likely decline as well.
3. Buy In Average Neighborhoods - The best deals in real estate are often in working class areas. These are neighborhoods that tend to have decent tenants and hard working people.
Many of the homes for sale may be foreclosures or homeowners looking to upgrade. Since there isn’t a huge demand for these properties you can get some great deals.
Homes in these areas can appreciate rapidly if a more affluent crowd starts to move in. Your potential tenant pool will be large since the rents are more affordable and the quality of the tenants is respectable.
Once you have located several areas that meet your buying criteria your going to want to
take a look at the inside of the properties that are for sale.
Benefits Of Buying Real Estate
Reasons For Buying Real Estate
There are many reasons why someone would want to invest in rental property, below are a list of the most popular reasons.
1. Passive Income - You can make passive income every month if you use a property manager to manage your properties. There is no greater feeling than getting nice sized checks in the mail every month without doing anything.
2. Capital Appreciation - Real estate investors have the advantage of their properties appreciating without paying taxes on them until they sell them. This is a great way to accumulate real wealth.
3. Retirement - With most retirement plans investing in stocks it’s a good idea to diversify your retirement assets with real estate. Normally stocks and real estate move in opposite directions so owning real estate is a great way to reduce risks in your portfolio.
4. College - Since college costs are rising so rapidly many parents can’t save enough money to fully fund their children's education. Smart parents look to real estate investing as a way to be able to fund their children's education.
5. Wealth Accumulation - Most of the wealthy have became millionaires through their investments in real estate. Creating wealth through real estate has worked for investors in the past and it should continue to work in the future.
6. Investment Diversification - Whether you invest in stocks, own a business, or are just looking to make more money, owning investment real estate is a great way to diversify your investment portfolio.
Benefits Of Real Estate
1. Tax Write Offs - One of the major benefits to investing in real estate are the tax writeoffs that are allowed. This is the one of the few investment that allows such tax savings.
2. Income - As long as your real estate is managed well the rental income will allow you to invest in more properties if that is your goal. Once you have the property on auto mode it’s the easiest passive income you will ever get.
3. Capital Appreciation - As mentioned earlier your real estate should increase over time. If you ride out the ups and downs in the real estate market you normally will come out ahead.
4. Wealth Accumulation - If your not good at forced savings your real estate mortgage will force you into saving. While your paying your investment property mortgage you will be building up your wealth.
5. Assets - A great benefit of owning real estate is the effect it has on your balance sheet. Banks love to see real estate on a loan application and love to make loans using it as an collateral. If you ever find yourself in a financial bind it’s nice to know that you can use the property as collateral for a loan.
6. Increase Credit - Since banks like to see real estate ownership it increases your credit worthiness and will cause your credit score to increase as long as your making your mortgage payment on time.
7. Status - As a real estate investor and landlord you will gain social status in your community. If you have never owned investment property you would be shocked at how much more influence and respect you will get from other people in your community.
8. Management Experience - If you have never actively been in charge of a business you will learn a lot of people skills that many people don’t have. This is important since you will not only become a more well rounded person but you can list the experience on your resume.
As you can see there are many benefits to owning real estate and many of them are not just financial.
There are many reasons why someone would want to invest in rental property, below are a list of the most popular reasons.
1. Passive Income - You can make passive income every month if you use a property manager to manage your properties. There is no greater feeling than getting nice sized checks in the mail every month without doing anything.
2. Capital Appreciation - Real estate investors have the advantage of their properties appreciating without paying taxes on them until they sell them. This is a great way to accumulate real wealth.
3. Retirement - With most retirement plans investing in stocks it’s a good idea to diversify your retirement assets with real estate. Normally stocks and real estate move in opposite directions so owning real estate is a great way to reduce risks in your portfolio.
4. College - Since college costs are rising so rapidly many parents can’t save enough money to fully fund their children's education. Smart parents look to real estate investing as a way to be able to fund their children's education.
5. Wealth Accumulation - Most of the wealthy have became millionaires through their investments in real estate. Creating wealth through real estate has worked for investors in the past and it should continue to work in the future.
6. Investment Diversification - Whether you invest in stocks, own a business, or are just looking to make more money, owning investment real estate is a great way to diversify your investment portfolio.
Benefits Of Real Estate
1. Tax Write Offs - One of the major benefits to investing in real estate are the tax writeoffs that are allowed. This is the one of the few investment that allows such tax savings.
2. Income - As long as your real estate is managed well the rental income will allow you to invest in more properties if that is your goal. Once you have the property on auto mode it’s the easiest passive income you will ever get.
3. Capital Appreciation - As mentioned earlier your real estate should increase over time. If you ride out the ups and downs in the real estate market you normally will come out ahead.
4. Wealth Accumulation - If your not good at forced savings your real estate mortgage will force you into saving. While your paying your investment property mortgage you will be building up your wealth.
5. Assets - A great benefit of owning real estate is the effect it has on your balance sheet. Banks love to see real estate on a loan application and love to make loans using it as an collateral. If you ever find yourself in a financial bind it’s nice to know that you can use the property as collateral for a loan.
6. Increase Credit - Since banks like to see real estate ownership it increases your credit worthiness and will cause your credit score to increase as long as your making your mortgage payment on time.
7. Status - As a real estate investor and landlord you will gain social status in your community. If you have never owned investment property you would be shocked at how much more influence and respect you will get from other people in your community.
8. Management Experience - If you have never actively been in charge of a business you will learn a lot of people skills that many people don’t have. This is important since you will not only become a more well rounded person but you can list the experience on your resume.
As you can see there are many benefits to owning real estate and many of them are not just financial.
Who Pays What? (Seller and Buyer Closing Cost)
In California Who Pays What is determined by local custom. Below is a list of who pays which fees in Southern California.
The SELLER
can generally be expected to pay for:
Statement fees
Reconveyance fees
Prepayment penalties
The BUYER
can generally be expected to pay for:
The SELLER
can generally be expected to pay for:
- Real estate commission
- Owners title insurance policy
- 1/2 of the sub-escrow fee
- 1/2 of escrow fee
- Document preparation fee for deed
- Documentary transfer tax
- Transfer or conveyance tax
- Loan fees required by buyer's lender (Only for FHA/VA)
- Payoff all loans against property
- Seller's lender being paid off
Statement fees
Reconveyance fees
Prepayment penalties
- Termite inspection (according to contract)
- Termite work (according to contract usually section 1)
- Home warranty (according to contract)
- Any judgements, tax liens, etc., against the seller
- Tax proration (for any taxes unpaid at the closing)
- Any unpaid homeowner's dues
- Recording charges to clear all documents of record against seller
- Any bonds or assessments (according to contract)
- Any and all delinquent taxes
- Notary fees
The BUYER
can generally be expected to pay for:
- Lenders title insurance policy
- 1/2 of the sub-escrow fee
- 1/2 of escrow fee
- Document preparation (if applicable)
- Notary fees
- Recording charges for all documents in buyer's name
- Tax proration (for any taxes unpaid at the closing)
- Homeowner's transfer fee
- All new loan charges (except FHA/VA loans)
- Interest on new loan from date of funding to 30 days prior to first payment date Assumption or change of records fee on existing loan
- Assumption of existing loan
- Inspection fees (roofing, property, geological, etc.)
- Termite work (according to contract usually section 2 )
- Home warranty (according to contract)
- Fire insurance premium for first year
Sunday, December 22, 2013
Leap Over Repair Hurdles with Ease
By Stella H. Ling, Esq.
Q: What happens if a buyer and seller are in contract together and something falls into disrepair before close of escrow?
A: Under C.A.R.’s Residential Purchase Agreement (RPA), a seller is generally responsible for repairing any items that fall into disrepair during escrow. For example, the doorbell could stop working or the roof could start leaking for the first time when it rains. A seller who is about to vacate and sell the home may be reluctant to repair or replace these items. However, paragraph nine of the RPA requires the seller to maintain the property in substantially the same condition as on the date the parties entered into their purchase agreement. If, however, damage was caused by the buyer’s investigation of the property, the buyer would generally be responsible under paragraph 10 of the RPA.
For REALTORS®, dealing with repair issues in a sales transaction can feel like jumping over hurdles in a track-and-field race. Even just one feature or item in need of repair can cause a property to sit on the market for months or cause buyer after buyer to cancel an agreement to purchase. Knowing what repairs are required according to the law, the purchase agreement and market demands can give you a competitive edge on your way to the finish line. Understanding how to handle repair issues is particularly important in the current market, given the high number of homes in disrepair after a foreclosure or short sale.
Repairs Before Listing
>> Right from the start of the race, you can spot an experienced listing agent by the way he or she handles repair issues. Other than encouraging a seller to do minor repairs, newer agents tend to have a wait-and-see approach for handling repairs. They may list the property for sale in its present condition for a period of time to test the market.
In contrast, an experienced listing agent will have more of a take-charge approach and help the seller decide upfront which repairs should be made to effectively market the property for sale. To arrive at that decision, the experienced listing agent will help the seller analyze various factors, including, but not limited to, what items should be repaired, whether the seller has the ability to make the repairs, what the typical buyer of that type of property would accept, and what the market will bear. Average listing agents may or may not help their sellers maximize their return on investment; many experienced listing agents will.
Hiring Contractors
>> Having a take-charge approach doesn’t mean throwing caution to the wind. If repairs are needed, agents should heed the age-old advice of giving the seller a referral list of three or more reputable contractors, vendors, or other service providers to choose from. Recommending only one contractor may expose The agent to liability for negligent referral, if the contractor does a bad job.
Another precaution is leaving it to the seller to order a contractor to do the work. If a salesperson orders work to be done on a client’s behalf without clarifying payment arrangements upfront in writing, and later on, the contractor doesn’t get paid, the contractor may attempt to collect payment directly against the salesperson and even the salesperson’s broker. This matter can be exacerbated if a contractor files a mechanics lien against a seller’s property to recover payment.
Request for Repairs
>> Agents representing buyers can also run into obstacles if they do not educate their clients upfront about repairs. After entering into a purchase agreement and going through the inspection process and reviewing disclosures and reports, buyers may mistakenly believe that their seller will take care of certain repairs. In reality, California law generally requires a residential seller to provide only two point-ofsale items—smoke detectors and water heater bracing. Certain cities may have additional local requirements (such as gas shut-off valves, low-flow toilets, or even government inspections). Other than these mandatory pointof- sale requirements, a seller is not legally required to make any improvements or repairs before transferring title, which can be quite a Rude awakening for the buyer.
For instance, buyers may not realize that, absent language to the contrary in the purchase agreement, their seller need not make repairs required by the buyer’s lender. Also, some buyers who discover serious health and safety issues during their inspections, such as faulty electrical wiring, toxic mold, or rodent infestation, may be appalled to then be told their seller may not be contractually or legally required to fix these problems before close of escrow. Other than point-of-sale requirements, a seller is legally required to disclose, not fix, any known material facts affecting the value or desirability of the property.
Agreed-Upon Repairs
>> To keep a buyer from cancelling a purchase agreement due to a property’s condition, a seller may voluntarily elect to make repairs that the buyer requests. However, we’re still not home free. At times, a seller may want to cut corners when doing the buyer’s requested repairs. Point out to the seller that paraGraph 15 of the C.A.R. Residential Purchase Agreement (RPA) requires repairs to be performed in a good, skillful manner with materials of quality and appearance comparable to existing materials.
Repairs must also, according to the RPA, comply with any applicable legal requirements. Most notably, if a project costs $500 or more for labor, materials, and other costs, the work must generally be performed by a licensed contractor. Unlicensed handymen can only do projects that cost less than $500. Many projects may also require building permits, such as roofing, electrical wiring repair, window and door change outs, and drywall replacement, just to name a few. For more information about the permit process, the seller should check with the local Building and Safety Office.
Timing of Repairs
>> Another hurdle is timing. A seller may want to delay doing agreed-upon repairs absent assurance that the buyer will close escrow. Yet, under paragraphs 15 and 16 of the RPA, the seller must complete agreed-upon repairs before the buyer’s final walk-through, which the buyer has the right to do five days before close of escrow.
Credit Instead of Repairs
>> Given these various hurdles (skillful manner, contractors, permits, and timing), a seller may be better off just giving the buyer a monetary credit instead. In exchange for the credit, the seller can require that the buyer release the seller and brokers from any liability regarding the repair items the buyer has requested. This release is included in C.A.R.’s Request for Repairs (Form RR).
Final Thought
>> Understanding the law, contract, and market will help you leap over repair hurdles with ease. See you at the finish line!
Stella H. Ling, Esq., is Managing Senior Counsel at C.A.R.
Q: What happens if a buyer and seller are in contract together and something falls into disrepair before close of escrow?
A: Under C.A.R.’s Residential Purchase Agreement (RPA), a seller is generally responsible for repairing any items that fall into disrepair during escrow. For example, the doorbell could stop working or the roof could start leaking for the first time when it rains. A seller who is about to vacate and sell the home may be reluctant to repair or replace these items. However, paragraph nine of the RPA requires the seller to maintain the property in substantially the same condition as on the date the parties entered into their purchase agreement. If, however, damage was caused by the buyer’s investigation of the property, the buyer would generally be responsible under paragraph 10 of the RPA.
For REALTORS®, dealing with repair issues in a sales transaction can feel like jumping over hurdles in a track-and-field race. Even just one feature or item in need of repair can cause a property to sit on the market for months or cause buyer after buyer to cancel an agreement to purchase. Knowing what repairs are required according to the law, the purchase agreement and market demands can give you a competitive edge on your way to the finish line. Understanding how to handle repair issues is particularly important in the current market, given the high number of homes in disrepair after a foreclosure or short sale.
Repairs Before Listing
>> Right from the start of the race, you can spot an experienced listing agent by the way he or she handles repair issues. Other than encouraging a seller to do minor repairs, newer agents tend to have a wait-and-see approach for handling repairs. They may list the property for sale in its present condition for a period of time to test the market.
In contrast, an experienced listing agent will have more of a take-charge approach and help the seller decide upfront which repairs should be made to effectively market the property for sale. To arrive at that decision, the experienced listing agent will help the seller analyze various factors, including, but not limited to, what items should be repaired, whether the seller has the ability to make the repairs, what the typical buyer of that type of property would accept, and what the market will bear. Average listing agents may or may not help their sellers maximize their return on investment; many experienced listing agents will.
Hiring Contractors
>> Having a take-charge approach doesn’t mean throwing caution to the wind. If repairs are needed, agents should heed the age-old advice of giving the seller a referral list of three or more reputable contractors, vendors, or other service providers to choose from. Recommending only one contractor may expose The agent to liability for negligent referral, if the contractor does a bad job.
Another precaution is leaving it to the seller to order a contractor to do the work. If a salesperson orders work to be done on a client’s behalf without clarifying payment arrangements upfront in writing, and later on, the contractor doesn’t get paid, the contractor may attempt to collect payment directly against the salesperson and even the salesperson’s broker. This matter can be exacerbated if a contractor files a mechanics lien against a seller’s property to recover payment.
Request for Repairs
>> Agents representing buyers can also run into obstacles if they do not educate their clients upfront about repairs. After entering into a purchase agreement and going through the inspection process and reviewing disclosures and reports, buyers may mistakenly believe that their seller will take care of certain repairs. In reality, California law generally requires a residential seller to provide only two point-ofsale items—smoke detectors and water heater bracing. Certain cities may have additional local requirements (such as gas shut-off valves, low-flow toilets, or even government inspections). Other than these mandatory pointof- sale requirements, a seller is not legally required to make any improvements or repairs before transferring title, which can be quite a Rude awakening for the buyer.
For instance, buyers may not realize that, absent language to the contrary in the purchase agreement, their seller need not make repairs required by the buyer’s lender. Also, some buyers who discover serious health and safety issues during their inspections, such as faulty electrical wiring, toxic mold, or rodent infestation, may be appalled to then be told their seller may not be contractually or legally required to fix these problems before close of escrow. Other than point-of-sale requirements, a seller is legally required to disclose, not fix, any known material facts affecting the value or desirability of the property.
Agreed-Upon Repairs
>> To keep a buyer from cancelling a purchase agreement due to a property’s condition, a seller may voluntarily elect to make repairs that the buyer requests. However, we’re still not home free. At times, a seller may want to cut corners when doing the buyer’s requested repairs. Point out to the seller that paraGraph 15 of the C.A.R. Residential Purchase Agreement (RPA) requires repairs to be performed in a good, skillful manner with materials of quality and appearance comparable to existing materials.
Repairs must also, according to the RPA, comply with any applicable legal requirements. Most notably, if a project costs $500 or more for labor, materials, and other costs, the work must generally be performed by a licensed contractor. Unlicensed handymen can only do projects that cost less than $500. Many projects may also require building permits, such as roofing, electrical wiring repair, window and door change outs, and drywall replacement, just to name a few. For more information about the permit process, the seller should check with the local Building and Safety Office.
Timing of Repairs
>> Another hurdle is timing. A seller may want to delay doing agreed-upon repairs absent assurance that the buyer will close escrow. Yet, under paragraphs 15 and 16 of the RPA, the seller must complete agreed-upon repairs before the buyer’s final walk-through, which the buyer has the right to do five days before close of escrow.
Credit Instead of Repairs
>> Given these various hurdles (skillful manner, contractors, permits, and timing), a seller may be better off just giving the buyer a monetary credit instead. In exchange for the credit, the seller can require that the buyer release the seller and brokers from any liability regarding the repair items the buyer has requested. This release is included in C.A.R.’s Request for Repairs (Form RR).
Final Thought
>> Understanding the law, contract, and market will help you leap over repair hurdles with ease. See you at the finish line!
Stella H. Ling, Esq., is Managing Senior Counsel at C.A.R.
Tuesday, December 17, 2013
New Year Perspective
We've had consecutive two golden years in 2012 and 2013! Did I say that? No one would have guessed that we would go from a non-performing market in Jan 2012 to a nearly explosive June 2013 in a short of just 18 months. And then when many home owners were expecting the frenzy to continue without break, the market dynamics changed, as a matter fact, homes that remained on the market in August, 2013 were simply OVER-PRICED.
As much as I try, it's virtually impossible to predict what the market will do. If I could, my job would have been much easier.
Let's take a quick look back at 2013 and see if you agree.
The following source is from CNBC's Diana Olick.
A LOOK BACK AT 2013
Home Price: Got this one totally right but underestimated the extent of the gains. Investors and move-up buyers pushed the higher-end market.
Mortgage Availability: The new mortgage rules were released, and they will make loans more expensive. Credit standards haven't moved either.
Rents: No sign of easing at all. Renter nation is in full swing as young Americans either can't get the credit or don't have the desire to buy homes. Rents continue to rise and vacancies fall as affordability and homeownership sink.
Foreclosures: Foreclosures and shot sales have continued to ease. Banks have been modifying more loans and writing down principal, and rising home prices have kept the newly delinquent loan numbers low.
Underwater borrowers: Different surveys show different numbers, but the steep rise in home prices pulled around 2 mission borrowers back into equity land in their homes. Renovations took a big leap in 2013 as a result.
FORWARD to 2014
Home sales will rebound: After a brief lull in the fall of 2013, I predict that sales activity will return to the market with more home buyers. The steep jump in home prices has brought thousands of homeowners above water on their mortgages, enabling them to sell and move. Negative equity has been one of the biggest barriers to home sales since the housing crash. Come spring, there will most likely be more sellers, more homes on the market and therefore more transactions.
Home Price Gains should ease: Prices will still rise, no question. but probably not as steeply as they did in 2013. Annual gains of more than 12 percent were driven in large part by investors on the low end of the market. As foreclosures ebb and fewer distressed sales are in the mix, prices will moderate. Still low inventories, however, will keep them in the positive
Rents will rise: Despite the return of home sales, renter nation should continue throughout 2014, as younger Americans and first time home buyers are still left out of the recovery. Saddled with student debt and unable to come up with the large down payments required from today's mortgage lenders, this cohort will probably continue to fuel both the multifamily apartment market and the single-family rental trade.
Investors will not leave the market: Some have predicted that with rising home prices, the large-scale private-equity investors will leave the newly evolving single-family rental market. Just the opposite. Now that they have built economies of scale and figured out the management, they will most likely settle in for the long haul - perhaps not buying as many new properties, but keeping the bulk of the ones they have. Some smaller investors may opt to sell, but they may sell to the bigger guys rather than to individual-owner occupants.
Mortgage rate will rise: The days of the 3.5% 3-year fixed are over. Rates are already up well over a full percentage point form a year ago. And as the Federal Reserve begins its much anticipated exit from the bond-buying business, I believe rates will inevitably go higher. How much that affects home sales will depend entirely on job and wage growth. Mortgage underwriting will remain tight, but buyers with solid credit should be able to weather slightly higher rates. By historical standards, they are sill relatively low. It is less rate and more availability that will continue to hamper sales.
Friday, December 13, 2013
FHA drastically lowers loan limits
Last week, the Federal Housing Administration (FHA) announced it was reducing
the loan limit for FHA-insured loans from $729,750 to $625,500 beginning Jan. 1,
2014. However, while the FHA is required by statutes under the Housing and
Economic Recovery Act (HERA) to lower its cap on loan limits, it has also
interpreted HERA to require it to reset metropolitan statistical (MSA) median
home prices.
Since 2008, FHA has based its MSA median home prices on the highest median home price for a county over time (which for many counties has meant 2007 home prices, when prices were at a peak). According to FHA’s announcement, FHA believes it must use 2008 price levels. If an area’s median home price has increased since 2008, FHA will use the higher median price. However, home prices in many areas are still below 2007 levels, which has resulted in the drastic reduction of FHA’s MSA median prices. In California, it has resulted in reductions of an average of more than $100,000 statewide.
This is an unprecedented action by FHA. FHA has historically held an area harmless when that area’s median home price declined. While FHA was required to lower maximum loan limits and reduce high-cost area calculation beginning January 1, 2014, C.A.R. does not believe they were required to reset MSA median home prices. C.A.R. is working with NAR to fight the resetting of MSA median home prices.
View FHA’s announcement and the new FHA MSA median home prices.
Since 2008, FHA has based its MSA median home prices on the highest median home price for a county over time (which for many counties has meant 2007 home prices, when prices were at a peak). According to FHA’s announcement, FHA believes it must use 2008 price levels. If an area’s median home price has increased since 2008, FHA will use the higher median price. However, home prices in many areas are still below 2007 levels, which has resulted in the drastic reduction of FHA’s MSA median prices. In California, it has resulted in reductions of an average of more than $100,000 statewide.
This is an unprecedented action by FHA. FHA has historically held an area harmless when that area’s median home price declined. While FHA was required to lower maximum loan limits and reduce high-cost area calculation beginning January 1, 2014, C.A.R. does not believe they were required to reset MSA median home prices. C.A.R. is working with NAR to fight the resetting of MSA median home prices.
View FHA’s announcement and the new FHA MSA median home prices.
Thursday, December 12, 2013
How Accurate is Zestimate
It is no secret that many home buyers and sellers are using online tool to search and find about home values. it’s a very helpful tool, but the home value figures can be misleading and people shouldn’t etch that number in stone when it comes to making an offer or pricing your home.
Zillow hired a team of statisticians and tech gurus to come up algorithms that analyze data to identify relationships within a specific geographic area, between the home-related data and actual sales prices. It takes considerations on bigger location, lot size, square footage, number of bedrooms and bathrooms, however it does count the following facts -
1) The smaller scope of location, such as whether it's a quiet corner unit or a road side unit.
2) Renovations and upgrades. For instance, one unit has kitchen and bath and floor all updated, and the other has 3 dogs with worn carpet and walls with holes.
3) Special designs.
Overall, an algorithm is just an algorithm, it lacks human judgement like a home appraiser does. Zestimate tends to be more accurate in neighborhoods with frequent turnover, which provides a constant stream of information about home sales.
So, you could use zestimate as a general guidance, but not a bible, more accuracy shall be obtained from
Zillow hired a team of statisticians and tech gurus to come up algorithms that analyze data to identify relationships within a specific geographic area, between the home-related data and actual sales prices. It takes considerations on bigger location, lot size, square footage, number of bedrooms and bathrooms, however it does count the following facts -
1) The smaller scope of location, such as whether it's a quiet corner unit or a road side unit.
2) Renovations and upgrades. For instance, one unit has kitchen and bath and floor all updated, and the other has 3 dogs with worn carpet and walls with holes.
3) Special designs.
Overall, an algorithm is just an algorithm, it lacks human judgement like a home appraiser does. Zestimate tends to be more accurate in neighborhoods with frequent turnover, which provides a constant stream of information about home sales.
So, you could use zestimate as a general guidance, but not a bible, more accuracy shall be obtained from
- Getting a comparative market analysis (CMA) from a real estate agent
- Getting an appraisal from a professional appraiser
- Visiting the house (whenever possible)”
Thursday, December 5, 2013
Short Sales Not Subject to Federal or State Income Tax for Cancellation of Debt
| Article for California Association of REALTORS Realegal Short sales in California are generally not subject to state or federal income tax for cancellation of debt. The Franchise Tax Board (FTB) issued a letter yesterday stating that, as nonrecourse obligations, short sales in California are not subject to state income tax for cancellation of debt. The FTB's position conforms with the federal treatment of short sales stated in an IRS letter as we previously reported on November 15. These letters will provide welcome relief for short sale sellers given that the tax break for a qualified principal residence under the federal Mortgage Forgiveness Debt Relief Act of 2007 will expire at the end of this year, and similar protection under California law already expired in 2012. The FTB letter includes transactions that closed in 2012 but, as always, sellers should consult with their own tax professionals. According to the recent FTB letter, “a California taxpayer would not have cancellation of indebtedness where the taxpayer was involved in a short sale pursuant to CCP section 580e.” Section 580e of the California Code of Civil Procedure (CCP) generally protects borrowers from owing a deficiency after a short sale of a residential property with one-to-four units, including both first and junior trust deeds. Exceptions include fraud, waste, cross-collateralized loans, and borrowers that are corporations, LLCs, or limited partnerships. For more information, C.A.R. members may refer to our legal article on Short Sale Deficiencies. As with the IRS letter, the FTB letter states that even if no cancellation of debt income is owed, a taxpayer may nevertheless have capital gains to the extent that the outstanding debt exceeds the tax basis for the property. A principal residence, however, is generally excluded from capital gains tax up to $250,000 for single taxpayers and $500,000 for married couples filing joint returns (under 26 U.S.C. § 121). |
Sunday, December 1, 2013
Why Sell By Owner Doesn't Work Well
FSBO: For Sale By Owner
Are you considering selling your own home? Recently, I saw a sign go up in front of a home. It read “For Sale By Owner, no brokers or agents”. After about 3 weeks, the sign was gone. I thought to myself, “Hmm, that house sold fast”. The next day, a new sign appeared on the front lawn from a big agency now representing the seller.
Obviously, the seller had wanted to save themselves commission by selling their own home but things must have not quite worked out. Why could this have been? Even in a seller's market? Many home buyers thought about selling home by themselves, but 99% of the cases things don't work out as they had expected.
- FSBO can’t list their homes on the MLS (mulitiple listing service), thus have very limited audience. On the other hand, MLS exposes your home to hundreds of thousands of potential buyer group.
- More likely to have legal problems.
- As sellers usually use online estimating systems such as Zillow and Redfin , and there are many drawbacks to those systems, homes are not priced well.
- Buyers feel intimidated.
- Agents are reluctant to show and work with seller directly.
How to Vest the Property Title
Once escrow is open, you may receive escrow instructions from escrow office, and one of them is title vesting. I often receive phone calls from my clients asking how they should vest the ownership on the property.
Common Methods of Holding Title
SOLE OWNERSHIP
Sole ownership may be described as ownership by an individual or other entity capable of acquiring title. Examples of common vesting cases of sole ownership are:
1. A Single Man or Woman, an Unmarried Man or Woman or a Widow or Widower:
A man or woman who is not legally married or in a domestic partnership. For example: Bruce Buyer, a single man.
2. A Married Man or Woman as His or Her Sole and Separate Property:
A married man or woman who wishes to acquire title in his or her name alone.
The title company insuring title will require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that both spouses want title to the property to be granted to one spouse as that spouse’s sole and separate property. The same rules will apply for same sex married couples. For example: Bruce Buyer, a married man, as his sole and separate property.
3. A Domestic Partner as His or Her Sole and Separate Property:
A domestic partner who wishes to acquire title in his or her name alone.
The title company insuring title will require the domestic partner of the person acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that both domestic partners want title to the property to be granted to one partner as that person’s sole and separate property. For example: Bruce Buyer, a registered domestic partner, as his sole and separate property.
1. Community Property:
A form of vesting title to property owned together by married persons or by domestic partners. Community property is distinguished from separate property, which is property acquired before marriage or before a domestic partnership by separate gift or bequest, after legal separation, or which is agreed in writing to be owned by one spouse or domestic partner.
In California, real property conveyed to a married person, or to a domestic partner is presumed to be community property, unless otherwise stated (i.e. property acquired as separate property by gift, bequest or agreement). Since all such property is owned equally, both parties must sign all agreements and documents transferring the property or using it as security for a loan. Each owner has the right to dispose of his/her one half of the community property by will. For example: Bruce Buyer and Barbara Buyer, husband and wife, as community property, or Sally Smith and Jane Smith, registered domestic partners as community property. Another example for same sex couples: Sally Smith and Jane Smith, spouses, as community property.
2. Community Property with Right of Survivorship:
A form of vesting title to property owned together by spouses or by domestic partners. This form of holding title shares many of the characteristics of community property but adds the benefit of the right of survivorship similar to title held in joint tenancy. There may be tax benefits for holding title in this manner. On the death of an owner, the decedent’s interest ends and the survivor owns all interests in the property. For example: Bruce Buyer and Barbara Buyer, husband and wife, as community property with right of survivorship, or John Buyer and Bill Buyer, spouses, as community property with right of survivorship. Another example for same sex couples: Sally Smith and Jane Smith, registered domestic partners, as community property with right of survivorship.
If you live in a community property state, you and your spouse (or registered domestic partner) may be able to avoid probate by taking title to property as “community property with the right of survivorship.” Community property states include Alaska, Arizona, California, Idaho, Nevada, Texas and Wisconsin.
Holding property as survivorship community property has certain consequences, the most important of which are that:
3. Joint Tenancy:
A form of vesting title to property owned by two or more persons, who may or may not be married or domestic partners, in equal interests, subject to the right of survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will. For example: Bruce Buyer, a married man and George Buyer, a single man, as joint tenants.
Note: If a married person enters into a joint tenancy that does not include their spouse, the title company insuring title may require the spouse of the married man or woman acquiring title to specifically consent to the joint tenancy. The same rules will apply for same sex married couples and domestic partners.
4. Tenancy in Common:
A form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses. Each co-tenant may sell, lease or will to his/her heir that share of the property belonging to him/her. For example: Bruce Buyer, a single man, as to an undivided 3/4 interest and Penny Purchaser, a single woman, as to an undivided 1/4 interest.
A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders.
2. A Partnership*:
A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership.
3. Trustees of a Trust*:
A Trust is an arrangement whereby legal title to property is transferred by a grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries. A trust is generally not an entity that can hold title in its own name. Instead title is often vested in the trustee of the trust. For example: Bruce Buyer trustee of the Buyer Family Trust.
4. Limited Liability Companies (LLC)*:
This form of ownership is a legal entity and is similar to both the corporation and the partnership. The operating agreement will determine how the LLC functions and is taxed. Like the corporation its existence is separate from its owners.
*In cases of corporate, partnership, LLC or trust ownership - required documents may include corporate articles and bylaws, partnership agreements, LLC operating agreements and trust agreements and/or certificates.
Common Methods of Holding Title
SOLE OWNERSHIP
Sole ownership may be described as ownership by an individual or other entity capable of acquiring title. Examples of common vesting cases of sole ownership are:
1. A Single Man or Woman, an Unmarried Man or Woman or a Widow or Widower:
A man or woman who is not legally married or in a domestic partnership. For example: Bruce Buyer, a single man.
2. A Married Man or Woman as His or Her Sole and Separate Property:
A married man or woman who wishes to acquire title in his or her name alone.
The title company insuring title will require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that both spouses want title to the property to be granted to one spouse as that spouse’s sole and separate property. The same rules will apply for same sex married couples. For example: Bruce Buyer, a married man, as his sole and separate property.
3. A Domestic Partner as His or Her Sole and Separate Property:
A domestic partner who wishes to acquire title in his or her name alone.
The title company insuring title will require the domestic partner of the person acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that both domestic partners want title to the property to be granted to one partner as that person’s sole and separate property. For example: Bruce Buyer, a registered domestic partner, as his sole and separate property.
CO-OWNERSHIP
Title to property owned by two or more persons may be vested in the following forms:1. Community Property:
A form of vesting title to property owned together by married persons or by domestic partners. Community property is distinguished from separate property, which is property acquired before marriage or before a domestic partnership by separate gift or bequest, after legal separation, or which is agreed in writing to be owned by one spouse or domestic partner.
In California, real property conveyed to a married person, or to a domestic partner is presumed to be community property, unless otherwise stated (i.e. property acquired as separate property by gift, bequest or agreement). Since all such property is owned equally, both parties must sign all agreements and documents transferring the property or using it as security for a loan. Each owner has the right to dispose of his/her one half of the community property by will. For example: Bruce Buyer and Barbara Buyer, husband and wife, as community property, or Sally Smith and Jane Smith, registered domestic partners as community property. Another example for same sex couples: Sally Smith and Jane Smith, spouses, as community property.
2. Community Property with Right of Survivorship:
A form of vesting title to property owned together by spouses or by domestic partners. This form of holding title shares many of the characteristics of community property but adds the benefit of the right of survivorship similar to title held in joint tenancy. There may be tax benefits for holding title in this manner. On the death of an owner, the decedent’s interest ends and the survivor owns all interests in the property. For example: Bruce Buyer and Barbara Buyer, husband and wife, as community property with right of survivorship, or John Buyer and Bill Buyer, spouses, as community property with right of survivorship. Another example for same sex couples: Sally Smith and Jane Smith, registered domestic partners, as community property with right of survivorship.
If you live in a community property state, you and your spouse (or registered domestic partner) may be able to avoid probate by taking title to property as “community property with the right of survivorship.” Community property states include Alaska, Arizona, California, Idaho, Nevada, Texas and Wisconsin.
Holding property as survivorship community property has certain consequences, the most important of which are that:
- when the first spouse or partner dies, the whole property automatically belongs to the survivor, and
- the property does not need to go through probate to be transferred to the survivor.
3. Joint Tenancy:
A form of vesting title to property owned by two or more persons, who may or may not be married or domestic partners, in equal interests, subject to the right of survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will. For example: Bruce Buyer, a married man and George Buyer, a single man, as joint tenants.
Note: If a married person enters into a joint tenancy that does not include their spouse, the title company insuring title may require the spouse of the married man or woman acquiring title to specifically consent to the joint tenancy. The same rules will apply for same sex married couples and domestic partners.
4. Tenancy in Common:
A form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses. Each co-tenant may sell, lease or will to his/her heir that share of the property belonging to him/her. For example: Bruce Buyer, a single man, as to an undivided 3/4 interest and Penny Purchaser, a single woman, as to an undivided 1/4 interest.
Other ways of vesting title include as:
1. A Corporation*:A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders.
2. A Partnership*:
A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership.
3. Trustees of a Trust*:
A Trust is an arrangement whereby legal title to property is transferred by a grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries. A trust is generally not an entity that can hold title in its own name. Instead title is often vested in the trustee of the trust. For example: Bruce Buyer trustee of the Buyer Family Trust.
4. Limited Liability Companies (LLC)*:
This form of ownership is a legal entity and is similar to both the corporation and the partnership. The operating agreement will determine how the LLC functions and is taxed. Like the corporation its existence is separate from its owners.
*In cases of corporate, partnership, LLC or trust ownership - required documents may include corporate articles and bylaws, partnership agreements, LLC operating agreements and trust agreements and/or certificates.
Remember
How title is vested has important legal consequences and tax consequences. The tax consequences may be different for same sex legally related couples. You may wish to consult an attorney or tax advisor to determine the most advantageous form of ownership for your particular situation.Multiple offer? Now what?
When your home is well maintained, staged well, in a great location and priced competitively, chances are you will be getting multiple offers in this market. So, how do you leverage and get the most for your home? Here’s what you could do when countering:
1. Always counter ALL offers, even the one that low-balled you. You never know as offers are rather dynamic.
2. Counter with “highest and best price”. Based on my experience, you can be almost certain to get the highest and best among multiple buyers.
3. Reduce the number of days for buyer to remove contingencies in counter.
4. The more down payment the better.
5. Do not pay for 1-year home warranty.
When you are reviewing the offers, the all cash offer with no loan or appraisal contingencies and fast closing will be most desired, even though sometimes it may mean a little lower offer price. Always go through the contract carefully with your agent to make sure you understand all the terms and conditions.
1. Always counter ALL offers, even the one that low-balled you. You never know as offers are rather dynamic.
2. Counter with “highest and best price”. Based on my experience, you can be almost certain to get the highest and best among multiple buyers.
3. Reduce the number of days for buyer to remove contingencies in counter.
4. The more down payment the better.
5. Do not pay for 1-year home warranty.
When you are reviewing the offers, the all cash offer with no loan or appraisal contingencies and fast closing will be most desired, even though sometimes it may mean a little lower offer price. Always go through the contract carefully with your agent to make sure you understand all the terms and conditions.
What is Title Insurance
Title insurance is meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters. A title insurance policy insures against events that occurred in the past of the real estate property and the people who owned it.
There are two types of policies: owner and lender. Lenders require title insurance to protect their interest in the collateral of loans secured by real estate. Buyers purchasing properties for cash or with a mortgage lender often want title insurance, an owner’s policy, as well.
The cost of title insurance has two components: premium charges and service fees. Premium rates are based on five cost considerations, including those related to:
1. Maintaining current title information
2. Searching and examining the title to subject properties
3. Resolving or clearing defects to title
4. Covering title defects
5. Allowing for a reasonable profit
Usually, when you have a mortgage, and you use the same title company for both owner and lender title insurance, you get somewhat discount. But A federal law called the Real Estate Settlement Procedures Act (RESPA) entitles the individual homeowner to choose a title insurance company when purchasing or refinancing residential property. Typically, homeowners don't make this decision for themselves, instead relying on their bank's or attorney's choice; however, the homeowner retains the right.
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