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.
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