Beginning in 2007, foreclosures rocked the real estate world. Like an out-of-control freight train, they began to decimating the market, peaking in 2009. Like any new phenomenon, myths and rumors began propagating like mushrooms as consumers struggled to understand the new reality. Although many misconceptions have come and gone, we still encounter 5 myths on a regular basis.

1.    There is going to be a flood of new foreclosures to the market.

This rumor has appeared every year since 2008 and has been routinely debunked. However, recent announcements that the Feds reached a settlement over the robo-signing scandal have reignited speculation. The idea is simple: since the cork is now out of the foreclosure bottle, we’ll soon see another flood of REOs inundating the marketplace.

Personal opinion: don’t hold your breath.

Banks have learned that by controlling inventory, they can affect local prices. By releasing homes in measured amounts, they realize higher prices than if they released a glut of homes. In addition, they’ve learned that if they can mitigate their losses by agreeing to a short sale, everyone wins, including their bottom line.

2.    You can go direct to the bank to buy a foreclosure.

Every few weeks I’m asked how to buy foreclosures direct from the bank. Someone knows a friend being foreclosed on and they want to step in and grab the house before it hits the market. Don’t we all. In reality, banks have a simple system – they first offer properties on the courthouse steps. The rest they assign to asset mangers who then hire local Realtors to put them on the market along with all the other homes. Want an REO? Pay cash at the courthouse steps or get in line with the rest of us when they hit the local MLS (Multiple Listing Service).

3.    You can get a killer deal by submitting lowball offers on foreclosures.

You would’ve thought this myth would be dead by now. Unfortunately, like Elvis sightings, it just won’t go away. Here’s the truth: Banks want REOs sold in 30 days or less so they typically appear on the market priced slightly under comparable properties. If they don’t get a quick sale, they’ll lower the price after about 30 days. Lowball offers are ignored and are, quite frankly, a waste of everyone’s time and effort. You might get a deal by offering a lower price on a foreclosure that’s been sitting on the market over 90 days, but keep in mind, there are good reasons it’s been there so long. Such as, “It’s a complete dog.” Got cash? It DOES NOT mean you’ll get a lowball offer accepted either. Seriously.

4.    You can’t use foreclosures when doing an appraisal.

Or short sales, for that matter. No longer true. In fact, in many neighborhoods, that’s all that’s there. Therefore, foreclosed or distressed sales represent the actual value of homes in the area and HAVE to be used to appraise other properties. Don’t like it? Get over it. Times have changed and the ways neighborhoods are valued have changed as well.

5.    Foreclosures are only impacting the bottom end of the market.

Used to be true, however, while foreclosure rates on the lower end of the market have actually decreased, not so on the upper end. According to Daren Blomquist, vice president of RealtyTrac, while the market share of foreclosed homes under $1 million is shrinking, properties valued over $1 million are rising – up 115% since 2007. Additionally, multi-million dollar foreclosures (properties valued upwards of $2 million) have increased by 273%. While some well known jetsetters have melted down and lost everything, others are choosing to strategically default. They see it like liquidating a poorly performing portfolio - they have enough resources to cut their losses and move on. Historically, banks have been reticent to foreclose high-end homes and absorb a large loss. Defaulters are now forcing their hands and mansion foreclosure rates are moving on up.

Myths control behavior, and this has never been truer than in the housing market. Savvy buyers will understand the importance of working with knowledgeable agents in debunking myths, studying market trends, operating with solid facts and …

Actually closing transactions.

They were a wonderful young couple – stars in their eyes, hope oozing from every pore and excited about purchasing a home they could call their own. After meeting with them for a number of weekends, looking at countless properties (many of which they loved), and watching them, week after week, make no decision to write an offer on any of them, I finally commented,

“It doesn’t appear to me that you are willing to buy a home at this time.”

“We’re confused,” they admitted. “We’ve seen some gorgeous houses that are everything we want, BUT … we have some serious questions.” “Let’s talk,” I said, and, over coffee at the local Starbucks, listened as they shared three fundamental concerns.

Since I deal with home buyers on a regular basis, I frequently hear the same three queries. They may be framed differently by each person, but at core, they all are asking the same three questions.

Question #1: “I’m hearing that home prices may continue to fall – why should I purchase a home now?”

It’s a great question with more to it than initially meets the eye. I bought an old car a number of years ago – I thought I got a fantastic bargain until I suddenly realized that the ongoing maintenance bills were killing me. The initial price might have been very low, but the overall cost of ownership was extremely high. Many home buyers miss this critical fact:

Price is not the only consideration – total cost of ownership, in fact, is more important than the initial price.

As an example, a buyer purchasing a home for $375,000 with 20% down will have a mortgage of $300,000. If they lock in at a rate of 4% fixed for 30 years, monthly payments will be $1,432.25 and the total cost of the loan will be $515,610.00.*

For the sake of this argument, let’s assume the market falls 5% over the next 12 months. If the buyers hold off buying for a year, their price would be $356,250 ($18,750 lower). Their loan would be $285,000 and, if rates stay the same, their payment would be lower … by only $71.62 a month ($1,360.63). However, if rates rise by only a single percentage point, the monthly payment increases to $1,529.94 – $97.69 more per month than if they’d bought at the current price of $375,000. While this may not seem like much of a difference initially, over the life of the loan they’d end up paying $550,778.40 – $35,168.00 MORE that they’d pay by buying now.

And … this scenario DOES NOT include the cost of renting for an additional year or income tax deduction savings.

So how likely is it that rates may change in the near future?

John Dutra with RPM Mortgage provides some insight: “Although Federal Reserve Chairman Ben Bernanke insists that rates may remain stable for some time, the Fed has also confirmed a rise in rates if inflation becomes an issue. Current rates are coupled to world-wide economic factors – specifically what is going on in Europe’s Euro-zone.” Dutra adds, “Should Greece become stable and Europe manage to stabilize the Euro, the result in America will be an increase in the American Consumer Confidence. If that soars, ultimately rates will go up.”

The reality is, we honestly don’t know where we’ll be in a year.

You could do what some are trying to do and second guess the market, but I’ve seen so many buyers try that and fail. And there is always a price tag associated with that failure – sometimes a hefty one.

Recommendations:

· Don’t try to “second guess” or “time” the market. Even seasoned investors get it wrong. Frequently.

· Meet with a lender who can help you run projections based on your personal data – they can help you estimate projected monthly payments, factor in income tax savings and more. You’ll have some real data with which to make your decision.

Question #2: “If I buy now, when can I expect to see appreciation?”

Historically, buyers didn’t purchase homes because of the potential for appreciation in value. Freedom from tyrannical landlords was at the top of the list. The idea that fueled the immigration fires for many moving to the United States was the thought that you could actually own a piece of America – and with that concept came the ideals of freedom to do with your property as you wished. Later on, as an additional benefit, the government included tax interest deductions.

Appreciation was never the primary goal: if it occurred, it was a bonus, not the ‘raison d'être.’

Additionally, historic rates of appreciation were often very low. Somewhere in our history, however, probably beginning the middle of last century, the idea of appreciation began to foment in our nation’s consciousness. As we headed into the 21st century, the perception that, “If you buy it, appreciation will come” was firmly cemented into most homeowner’s minds. With the rampant price escalations of 2003-2006, potential appreciation predominated almost everyone’s thinking and became the primary reason to buy a home. Ill-prepared buyers purchased out of fear that, “If we don’t get in now, we’ll miss the boat.” Amateur “investors” looked at potential short-term gains and leapt in hoping to score big.

Spiraling home values changed the way we thought about appreciation and not in a good way: it set the stage for the housing collapse that began mid-2006.

An increase in the value of your property might make you feel more secure or add depth to your balance sheets. Unfortunately, appreciation really only matters when you (1) sell, (2) refinance or (3) add an equity line of credit. The greater your equity at the point of sale, the greater your options. Additionally, banks like to see at least 20% equity in your home when you refinance or add a line of credit.

Buyers whose primary goal is potential appreciation are buying for the wrong reason and could easily become disillusioned by the current market. In fact, they could, by focusing on the wrong things, miss out on one of the best buying opportunities in the past century.

Soap box aside, let’s try to answer the actual question of, “When will the market begin to appreciate?” To be brutally honest, no one really knows. Our initial projections showed parity in 2014, however, we’re now pushing this date back, perhaps to 2016.

And no one knows what 2012 will bring - 2011 had some nasty surprises including:

· Mid-term elections and the resulting change of power in the House,

· Japan’s earthquake and ensuing tsunami,

· The Arab uprisings,

· The shocks in oil pricing,

· Europe’s Sovereign debt crisis,

· Greece’s collapse and default,

· Our own debt ceiling debacle,

· The downgrading of USA’s long-term debt,

· Ensuing volatility in the stock market,

· Threats to remove the interest deduction,

· Increased protests locally and abroad.

These events and their fallout threw all projections to the wind and redefined uncertainty. Factor in the impending 2012 presidential election and there are enough issues in the queue to keep unrest simmering and the prospects of appreciation in check for quite a while to come.

If potential appreciation is one of your core reasons for buying, you could be waiting a very long time.

Recommendations:

· Remove potential appreciation from your list of reasons to purchase.

· Examine the remaining reasons to buy: security, the ability to do with your own home as you wish, income tax advantages and so on.

· Sit down and write out a “Pros and Cons” sheet that will help you make your decision – it would be a good idea to sit down with a Realtor and/or lender to get their help with the list.

Question #3: “Is it better to rent or buy?”

Time Magazine named their 2011 Person of the Year “The Protestor” making this past year “The Year of the Protestor.” It could easily have been called “The Year of Confusion.” With all of the chaos coupled with the uncertainty of the real estate market for the past few years, many in 2011 opted to sell their existing home and ride out the uncertainty. There are no shortage of reasons for this:

· Fear of losing more equity,

· Drastic income reductions making debt service difficult,

· Job loss or uncertainty about future job prospects,

· Adjusting rates making increasingly high payments untenable,

· Deferred maintenance due to lack of funds spiraling out of control,

· Trying to second guess the market.

Many have bailed, concluding that current market risks outweigh any projected benefits. Some, tired of maintaining their properties, have sold, relishing a return to rental homes where landlords get to deal with issues, not themselves.

An entirely different group, however, previously unable to buy because of sky-high prices, view current depressed prices and unbelievably low interest rates as opportunity knocking! They’ve grown weary of standing on the sidelines watching everyone else buy. They can’t wait to get their own home, and they are lining up in droves to get their slice of the American dream in 2012.

So which is better, owning or renting? It TOTALLY depends on WHY you are buying.

Looking for short term gains or quick profit? Don’t bother. That’s how we ended up in this mess to begin with. With any luck, we’ve learned enough not to go back there again. And if you have to commit financial suicide to make the monthly payments, it’s not worth it – too many things could go wrong, including losing your health. If, however, you want to be free of rentals with their restrictions and petulant landlords, the ability to paint your home any color you wish, renovate to your heart’s content, own the dog of your dreams, benefit from the significant income tax deductions and benefit from long-term upside potential AND … you can afford it …

Then you qualify to own.

Additionally, national studies show significant social benefits accompanying homeownership. I’d recommend you read the study, but in general, those who own their own home (when compared to renters):

· Live in areas with lower crime rates,

· Have higher academic potential,

· Are perceived to be happier,

· Tend to be in better health,

· Are perceived as having more focus and purpose.

Lastly, and this is the icing on the cake, it’s becoming possible in many area for it to cost less to own than it does to rent. While this also should not be the primary goal of owning, it is definitely a benefit worth pursuing.

Recommendations:

· As suggested above, write out a list of Pros and Cons – make sure you have all the facts before making a decision.

· Meet with a lender to get pre-approved – you will get the information you need to make informed decisions. You won’t know if you really can afford to buy until you’ve had a lender look at everything and provide you with all your options.

The young couple? Proud owners! In fact, as I checked in on them the other day, they were wondering why it took them so long to decide. Although it took them a while, in the end, after reviewing all the data, they made the plunge ...

And are VERY glad they did.

*NOTE: all numbers are approximate and are not a guarantee or promise of any kind. See your lender for information specific to your situation.

In identical fashion, there is still no substitute for buyers actually walking through a home for sale.

We’d love to think that we can make the entire process virtual. Savvy listing agents have learned that the more pictures and information they post online, the better a home’s exposure and chances for a sale. As an example, just a few short years ago our MLS (Multiple Listing Service) could only facilitate one picture per listing. Then it moved up to 9. Just recently, the ante has been upped to 30. Add in virtual tours and the like and it’s possible to go armchair shopping with your iPad or smart phone from the comfort of your family room armchair.

In the words of a buyer as we were recently touring a home: “Those online pictures put a LOT of lipstick on this pig.”

Even with all our technological advances, there’s still a need … for boots on the ground. A great way to accomplish this is the ubiquitous “Open House.” Although many doubt the effectiveness of Open Houses in the new internet-based real estate world, buyers still need to get inside homes, walk through all the rooms, see what’s behind Door #2, check out the closets, garage and even open cabinet doors and drawers to ensure everything is working as it should. Ironically, many agents in our area are starting to push their buyers towards open houses, thinking that if a buyer can visit a home without them, they can be off doing something else. I disagree with this approach, but it is gaining popularity.

Allowing visitors to poke through Open Houses and peer into every nook and cranny can cause serious problems for unwary sellers.

The primary issue with Open Houses is the inability to control who comes to visit. It’s common knowledge that looky-loo neighbors swarm to open houses like ants to a church picnic. Others, however, target Open Houses with more than idle curiosity – they come to see what they can steal. Some come to scope out the home – if they see things they like, such as expensive art, they’ll monitor the house and come back later. And sellers, if not properly trained, can unwillingly contribute to the removal of their own valuables. While recently visiting an open house in an upscale neighborhood, I spotted the seller’s diamond-studded NBA championship ring sitting in plain view for all to see … on the master bathroom counter. I took it downstairs and handed it to the listing agent, who almost had a seizure.

Whether a planned robbery or crime of opportunity, the end result is still the same – the items are gone and the sellers are victims.

To lessen the potential for our own listings, we made a decision a number of years ago to train our sellers to protect themselves and their valuables during the sale of their home. Prior to going on the market, we provide a Security Coaching Session and a Detailed Checklist to ensure our sellers are protected as much as possible.

Here are the top 12 ways Sellers can protect their home while on the market:

1.   Remove All Identifiers:

All family pictures, awards, certificates should be removed. You want guests to look at your home, not your family pictures. And you most certainly don’t want to give away your personal information by proudly displaying it on a wall where someone can take a discrete picture of it with their phone and then use the information later for harmful purposes – such as setting up a false credit card account in your name.

2.   Remove All Valuables:

Locate them in an off-site secure location. You are going to need to pack all of your belongings to move anyway – we suggest that you start now. Art, knick-knacks … anything you value.

3.   Remove Obvious Targeted Items:

Make sure items such as jewelry boxes, safes, strongboxes, gun safes and other obvious targeted items are packed in an offsite, secure location.

4.   Remove Prescription Drugs:

Take them with you when you leave the house. Have them in a box or container and simply keep them in the trunk of your vehicle while you are gone. Prescription drugs are the #1 target for thieves and frequently the easiest items to take – they will often lock the door to the bathroom as if they are using the facilities and then go through everything unhindered.

5.   Remove Extra Keys, Garage Door Openers:

Or any other devices that will provide access to your home. Frequently they are left lying around or are hanging in a place where someone could grab them and stash them in their pocket.

6.   Secure Financial and/or Legal Documents:

Credit card or banking statements, legal documents, wills, insurance policies, etc. Make sure that any documents that will give away personal information are properly safeguarded.

7.   Secure All Electronics:

Turn off computers. It’s also a good idea to make sure they are password protected. Remove extra laptops, cell phones, iPads (any tablets), thumb drives, portable hard drives and any other personal electronic devices.

8.   Secure Desks or Filing Cabinets:

If there is anything important inside (blank checks, anything with personal information, etc.), lock them and keep the keys in a safe location.

9.   Check EVERY Drawer and Cabinet Door:

Open every single one everywhere in the home to ensure there is nothing valuable inside. This includes furniture drawers such as a dresser in the master bedroom.

10.  Refrain From Leaving Out Any Cash, Jewelry, Small Valuables:

Anything you personally value that can be picked up with one hand. As an example, I’m amazed at how many times I see cash laying out in plain view in the master bedroom.

11.  Items Up and Out of Children’s Way:

Unfortunately, parents frequently let children roam through the house on their own or don’t hang onto them as they should. Additionally, make sure all toys – especially in children’s rooms – are up and out of reach. There are many reasons you don’t want visiting children playing with your children’s toys, including health and safety issues.

12.  Check EVERY Window and Door Upon Returning Home:

Make sure they are all properly secured. A ‘visitor’ may unlatch a window or door, hoping to return later and have easy access. Include the side door to the garage, if applicable.

Thieves targeting open homes frequently come in pairs: one keeps the open house agent busy while the other roams freely throughout the home looking for items to steal. While we’ve never had a theft from any of our listings, we understand that it could happen in a heartbeat and so we continue to work hard to prevent it from happening for the first time. We recommend you do the same.

Be wary and safe: you lose your privacy when selling your home – make sure you don’t you’re your valuables as well.

I moved to the San Francisco Bay Area in 1983 and like most newbies, couldn’t wait to experience my first earthquake. With no idea what to expect, my emotions ranged from apprehension to intense curiosity. I didn’t have long to wait – three months after we arrived, I boarded a plane to fly to a conference in Los Angeles. Within seconds of the wheels leaving the ground, a voice came over the cabin speakers stating, “This is the Captain speaking. The Bay Area just experienced an earthquake – we’ll keep you updated as we get more information.”

In the immortal words of Maxwell Smart, “Missed it by THAT much …”

Since then I’ve weathered many temblors and have grown “accustomed” to the ground moving from time to time. It’s the simple reality for those of us who’ve lived here a while and gone through events such the Loma Prieta Quake. The moving and shaking is an integral part of living in one of the best spots on the globe.

Newcomers, however, have many concerns about buying a home in an earthquake zone.

And rightly so. For many buyers, it’s the great unknown, especially since fault zones crisscross the Bay Area. The recent shaker on the east coast coupled with the devastating quakes in Japan and Haiti have heightened buyer paranoia. As a result, local Realtors are frequently asked about earthquakes and many don’t know where to go to provide accurate information. Consequently, many buyers are afraid to buy a home close to an established fault.

They reason that the closer you get, the higher your chances of losing your home in a major seismic event. I’m not sure that’s true.

In 1989, the Loma Prieta earthquake rocked the Bay Area. The epicenter of the quake was in Forest of Nisene Marks State Park in Santa Cruz County, an unpopulated area in the Santa Cruz Mountains approximately 2–3 miles (3–5 km) north of unincorporated Aptos and approximately 10 mi (16 km) northeast of Santa Cruz.

You’d assume the worst damage would have been at the epicenter. You’d be wrong. While it’s true that nearby San Cruz suffered severe damage, the most notable devastation was over 70 miles away. When the shaking was done, the Marina area of San Francisco had sustained major destruction, the upper section of the I-880 Cypress Freeway Viaduct section in Oakland had collapsed, crushing numerous cars and their occupants on the lower section, and an upper section of the Bay Bridge had fallen to the deck below.

There are numerous faults impacting the Bay Area. Since the San Francisco East Bay sits right on top of the Hayward Fault, running from Fremont northeast up through Richmond and into the bay, I’m frequently asked about earthquake safety in relationship to the Hayward Fault. Although I can’t give a definitive answer, I do have some opinions.

If past earthquakes affecting the Bay Area have taught us anything, it’s that a serious shaker will affect areas far away from the epicenter.

Therefore, if there’s a significant quake on the Hayward Fault, it’s a fair bet that it, like the Loma Prieta event, will affect locales at least 70 miles away. If you draw a 70 mile radius circle on a map using the center of the fault (San Leandro) as the center, it will impact THE ENTIRE BAY AREA, not just the Central County.

Concerned about a specific fault (such as the Hayward Fault) and its impact on your potential purchase?

Here are FIVE critical things to understand:

1.    Understand the Impact Radius.

If you are genuinely concerned about earthquakes and the potential impact on your home, you might consider looking to buy somewhere outside the 70 mile radius of any fault that provides you with concern. And therein lays a significant problem: because this is California, that could easily put you inside the radius of another fault. Thinking you might be safe outside California? The recent quake on the east coast has shown us a simple fact: earthquakes aren’t just limited to the west coast of the United States. They can hit anywhere.

2.    Understand the Building Implications.

Earthquakes typically don’t kill, but man-made structures do. For Bay Area residents, earthquakes are a ‘routine’ part of our day-to-day existence. We understand that our local homes can be affected based upon the type and severity of the temblor. While a short, sharp jolt might rattle your teeth and knock items off walls and shelves, a long rolling quake may not feel as severe but it could literally push homes off their foundations.

Older Bay Area homes have little or no seismic protection as originally built. In reality, some still aren’t anchored to their foundations – I found one just last week – a darling Oakland bungalow built in 1925.  To protect Bay Area residents, upgraded earthquake-resistant building codes have been factored into home designs over the past 30-40 years.

The newer the home, the better the codes and the better the protection from earthquakes.

One of the changes is to build homes on concrete slabs instead of having elevated foundations and cripple walls. When the Loma Prieta quake hit in 1989, I was living in a 1978–era home built on a slab. I felt the entire house move up and down and watched in amazement as every interior door opened and shut, opened and shut until the shaking subsided. I did a quick check after the event was done and discovered that there was no measureable damage of any kind to my home.

California is working hard to beat earthquakes. Located in Stockton, California, the Tyrell Gilb Research Lab is actively designing and testing earthquake resistant structures. Opened in July, 2003, it is designed to perform large scale systems testing. Their quake simulator shakes structures up to 3 stories tall and 25 feet long. Shear wall systems can be tested to 5 stories in height and 50 feet in length. Their motto is, “One test is worth a thousand expert opinions.” In July, 2009, they tested a full-scale, seven-story wood-framed condominium tower in a simulated 7.5 magnitude earthquake. It not only survived, but escaped the test with barely a scratch. This unprecedented research highlights the importance of earthquake-resistant construction, and will ultimately improve the construction and safety of wood buildings in the U.S. and around the world.

Everything learned in the Stockton facility goes into the statewide Universal Building Code to ensure that all new homes built in California have the best protection possible.

I recommend that you make yourself aware of the level of seismic protection in your home. If you live in an older home, start with a property inspection by a qualified seismic specialist. Based on their report, you may want to consider upgrades. At the very least, ensuring that your property is bolted to its’ foundation. Cripple walls? Consider reinforcement. Cracked foundations? Have them repaired. Since this is an active seismic zone, there are many contractors here in the Bay Area specializing in seismic upgrading.

Want to make upgrades on your own? There is a tremendous resource provided by the Association of Bay Area Governments (ABAG). They provide a complete Standardized Plan Set designed to help homeowners upgrade the seismic readiness of their homes. Their website states, “This plan set is a standard for strengthening homes to better withstand earthquake shaking. When approved by the local building official, the plan set may be used to strengthen older homes without the need for an engineer to develop costly site-specific plans and design calculations. This plan set provides a low-cost method to help improve an older home’s chances of surviving an earthquake.”

You can even take seminars at the Building Education Center to learn how to seismically upgrade your home (See Seminar #7 – taught by Engineer Tony DeMascole and Retrofitting Contractor Jim Gillett).

3.    Understand Liquefaction

If you’ve ever purchased a home in California, you’ll see a section in the Natural Hazards Disclosure showing the level of liquefaction for your home. It’s defined by the USGS in the following way:

“Liquefaction takes place when loosely packed, water-logged sediments at or near the ground surface lose their strength in response to strong ground shaking. Liquefaction occurring beneath buildings and other structures can cause major damage during earthquakes. For example, the 1964 Niigata earthquake caused widespread liquefaction in Niigata, Japan which destroyed many buildings. Also, during the 1989 Loma Prieta, California earthquake, liquefaction of the soils and debris used to fill in a lagoon caused major subsidence, fracturing, and horizontal sliding of the ground surface in the Marina district in San Francisco.” (Click here for a Liquefaction Flash Animation)

Homes built in areas with higher liquefaction potential are at greater risk for damage during a major seismic event. For this reason, California State law mandates that every real estate transaction for any home (4 units or less) be accompanied by a Natural Hazards Disclosure. These disclosures ensure that potential buyers are informed about seismic hazards and potential liquefaction zones.

4.    Understand Your Insurance Options

And then there’s the matter of insurance. Thinking that your homeowner’s insurance policy covers earthquakes? You’d be wrong. You might also assume that everyone living in an active fault zone would have an earthquake policy. Again, you’d be completely wrong. In reality, it’s estimated that less than 10% of Bay Area owners have quake insurance. While very costly and with a high deductable, if you are concerned about an earthquake’s potential to damage your home, it’s an option you want to consider.

5.    Understand the Truth

Informed buyers are those who take the time to research all the facts before buying. It’s critical you do so – there are many urban legends out there and outright fantasies as well. The USGS (U.S. Geological Survey) has conveniently provided a site designed to differentiate between fact and fiction (Click here to access the site). And read the Natural Hazard Disclosure provided by the seller of any home you are interested in – the information in the report will be the most accurate and up-to-date data available (as long as the report is current – if it’s older than 6 months old, ask for an updated version).

The next quake? It’s truly not a matter of if it will happen, but when. Since no one knows when or where it will hit, we have some practical advice:

Prepare now so that when the shaking is over, you AND your home are left … STANDING.

Important related websites:

USGS Earthquake Site

Bay Area earthquakes within the past week

Latest Earthquakes in the World - Past 7 days

Association of Bay Area Governments (ABAG): Earthquake and Hazards Programs

Association of Bay Area Governments (ABAG): Seismic Upgrade Standardized Plan Sets

Association of Bay Area Governments (ABAG): Liquefaction Maps and Information

Tyrell Gilb Research Laboratory Video Library

List of other Earthquake Websites

California Geological Survey Web Site

California Geological Survey - Alquist-Priolo Earthquake Fault Zones

QuakeInfo.org

California Seismic Safety Commission

CGS: Interactive Seismic Hazards Zone Map

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If you’ve lived any length of time, you’ve seen trends come and go – especially in the arena of homes. Remember “Country” when pink and blue pastels were as popular as Farrah Fawcett posters on teenage boy’s bedroom walls? Or during the dotcom era when McMansions popped up everywhere like mushrooms? I remember when Golden oak cabinets graced every kitchen and Corian countertops and seamed-in sinks ruled. Colors, textures, favored materials, sizes of homes … it’s all changed. And will change again. And again.

In reality, the only constant we have … is change.

Trends have always been shaped by external events. We like to think that we’re the captains of our own destiny, but, truth be known, we’re all swept along by whatever currents are moving around us. Used to be that currents were defined by local issues: now, more often than not, the trends impacting our lives are being shaped by global events.

As an example, it’s becoming obvious that we’ve mortgaged our souls and the time to pay the piper has arrived. Therefore, current buyer wants and perceived needs reflect the idea that money will not be as readily available in the future as it’s been in the past. Like a slowly tightening belt, salaries are trending lower, bonuses are becoming less frequent (if at all) and interest rates are threatening to rise in the near future. Taxes are likely to increase, fuel costs are soaring … even a casual observer can see where this is headed.

Consequently, active home-buyers are now looking for different things than buyers just a few short years ago. Although there are still a lot of buyers out there, their priorities have changed and prospective sellers need to pay attention now more than ever.

Here are the top 3 buyer trends we’re seeing:

Trend #1: Good Value

It’s fun to walk into a McMansion with their soaring ceilings, expansive rooms and lavish amenities. Who wouldn’t want to live there? Apparently, a growing list of people. Large spaces are hard to keep clean without an army of maids and, with rising energy costs, they’re becoming very expensive to heat and cool. And would someone explain to me why a young couple with no kids actually needs 4,200 square feet? While beautiful to look at and great at making a statement that “you’ve arrived,” in reality, unless you’re fortunate enough to have unlimited amounts of disposable income, they’re simply not practical.

With grandiose on its way out, economy of scale is moving in.

Glitz is being replaced with value. Buyers are now looking for homes that not only represent a good value when purchased, but also won’t be too expensive to operate in the future as well. We’re officially in the Goldilocks Era with buyers looking for homes, “not too big, not too small, not too expensive, not too cheap … just right.”

Implications for Buyers:

· If this description resonates with you, you are not alone. Which means there are many other buyers out there looking for the same homes you are.

· Don’t expect a bargain. Expect to pay market rate for a nice home that meets your criteria.
 

· If it’s REALLY nice, expect to compete with others in a multiple offer shootout. Difference between now and the heyday back in ’05? Instead of paying tens of thousands over asking, the margins will be much lower.

Implications for Sellers:

· Trying to sell a McMansion? Good luck getting even close to your initial investment unless you live in a location that trumps common sense.
 

· Selling a normal home? Make sure your home is priced correctly for the market. Buyers won’t even visit homes they sense are priced too high – if the price doesn’t make sense out the gate, they’ll click to the next online listing. In about 10 seconds flat.

Trend #2: Great Condition

When REOs (foreclosed homes) first appeared in significant quantities with their “AS-IS” requirements, their arrival spawned a new breed of buyers. These hardy individuals looked past the obliterated carpets, dingy walls, missing items and trashed interiors to see … potential. I’d frequently hear comments such as, “Look honey, we can make it our own!” Many of these buyers not only had cash in the bank to pay for their down payment, they could afford subsequent upgrades as well. The return of FHA loans fueled this movement as the low 3.5% down payment meant additional available cash could be diverted to improvements.

FHA loans are still going strong, but appetites for fixing up homes after the purchase are waning. As the first wave of buyers bought distressed homes and fixed them up, their friends watched the process and concluded, in droves, “That’s not for me.” Banks have also realized this and the overall condition of REOs hitting the market today is vastly superior to the offerings of just a few years ago. Some banks now routinely carpet, paint and install new appliances to ensure their repos are in move-in condition.

Currently, homes that sell the fastest are those that are move-in ready AND are also perceived as a good value.

With incomes down, many buyers are stretching to just get in the door: they don’t have the money or desire to fix things up once they’re in. And, since many are working harder and longer just to keep their jobs, time has become a premium and fewer owners actually have time available to “do-it-themselves.”

And here is the rub: the criteria of “move-in ready” has changed.

Granite counters and dual pane windows now top the list of “norms” expected by buyers. New flooring, paint, upgraded kitchens and bathrooms are all items buyers want to see when selecting their new digs. Properties featuring these items move to the top of the list and, if priced correctly, move on and off the market in a very short period of time. Think it’s a buyer’s market? Think again. Well prepared, correctly priced homes in our area can usually garner multiple offers within a week.

Flippers have begun to shine in this market because, of all available homes for sale, their products usually look the best. They are vacant, meaning they are very easy to show, and, if the flipper knows their stuff, have all the criteria ‘move-in ready’ buyers want to see. There are some problems with flips (click here for more details), but in a world of frumpy REOs and short sales that are impossible to view, flips are usually the brightest beacon on the block. Buyers are more than willing to pay more for homes that can be occupied the day escrow closes with “required improvements” limited to items such as changing out light bulbs.

Implications for Buyers:

· If you want a move-in ready home with the amenities you love, expect to pay the going rate.
 

· If it’s REALLY nice, expect to pay slightly over market price. (See Buyer Implications in the previous section)

· Make sure the sellers pulled all the appropriate permits for their upgrades. With many cities in dire financial straits and looking for income, some (eg. Oakland) have code enforcement personnel out scoring the streets. Fines can be heavy and may turn your dream purchase into a nightmare.

Implications for Sellers:

· Pay attention – the tide is turning and buyers want to buy homes that are “turnkey.”
 

· Hire a Realtor that understands this – as an example, we own a staging company that also provides project management through a licensed general contractor. A skillful, trained stager can suggest improvements and upgrades that will make your home sizzle, yet not cost you a bundle. If done right, an investment of a few thousand dollars can reap huge dividends. We discovered time and time again that sellers willing to properly prepare their homes will not only get a quick sale, they’ll get top dollar as well.
 

· RESIST THE URGE to price your home above the market. Because of Trend #1 above, it’s a surefire way to fix up your home and then get no takers. It’s like getting all dressed up with no place to go. A total waste of time.

Trend #3: Bargain Basement Deals

Seen as a “right of passage” for many buyers (and some cultures), a “totally screamin’ deal” provides the necessary ammunition for bragging to family and friends. And brag they do. In fact, some pontificate so much about the virtues of a bargain that others in their circle of influence will resist buying a home they like simply because it might not be as good a deal as the one their best friend’s cousin’s boss’s barber’s aunt’s fishing buddy found. Three years ago. In a different city.

Consequently, I’ve encountered MANY buyers who refuse to buy a home they love and can easily afford simply because they do not believe it is a good enough “deal.”

Forget that it is where they want it to be. Never mind that it has all the amenities they are looking for. Or that their kids can walk to the best school in town. They pour through local tax records and previous sale prices and if another comparable home has sold for less, regardless of the amenities, conditions, location, etc., they will not offer more for the home they love than the price per square foot of the previous deal. Market increasing? Doesn’t matter. Long line of buyers out the door during the Open House? Inconsequential. Already 6 offers on the table? They will still write their offer at their “deal” price … and lose out every time.

I call this misplaced optimism and it’s a classic case of buyers trying to out-think the market.

They’ve forgotten the purpose of buying a home: to provide shelter, maximize tax deductions, long-term appreciation potential and so on. Instead of buying a home, they are fixated on buying … a deal. And, while they may actually get lucky and find one no one else has discovered, they might also win the lottery. Not. Truth be known, there are MANY buyers out there like this and they are showing up in droves at any nice house and writing untold offers hoping to score.

For many of these buyers, no deal actually means … no house.

Implications for Buyers:

· Get real. Expect to pay market rate for a nice home that meets your criteria. If you are consumed with getting a deal, go to BIGLOTS!.
 

· As stated above, if it’s REALLY nice … expect multiple offers. If you want the house, you will need to go over asking price.
 

· Instead of viewing the price as “the deal”, view the long-term benefits as “the deal” – tax savings, quality of life, potential appreciation and so on.
 

· Resist the urge to waste everyone’s time.

Implications for Sellers:

· Don’t be insulted by the lowball offers that come floating in. Counter back to reality. You never know, they may have simply been testing you. If they disappear, don’t lose any sleep over it.

· If you’ve done your homework and followed the suggestions in Sections 1 and 2 above AND are priced properly, market value offers will come. If they don’t within a few weeks, adjust your price until they do.

As in every aspect of life, things change. In this case, global events are causing buyer tastes to migrate towards frugality. In reality, it’s a good move and sellers need to be paying attention. With the market transitioning yet again, if you want to sell your home to today’s buyers, you’ll need to take the time to position your property so it comes in line with …

What buyers are actually buying.

As foreclosures and short sales exploded onto the real estate landscape, business as usual almost disappeared. Transitions and severe changes were forced on the procedures involved in the sale of homes and buyers and their agents struggled to keep up. One of the most significant changes was the way Requests for Repairs were handled.
 
Or NOT, in most cases.

As “distressed” properties appeared on the market, “AS-IS” sales moved from being a quaint sideshow to the main event. Historically, most transactions allowed the buyer to ask the seller for repairs. It was a normal part of almost every deal – once inspection reports and disclosures were reviewed, there was usually a “mid-point” negotiation where the buyers asked the sellers to make repairs. Using the Request For Repairs form, these negotiations became an integral part of the contract.

Enter the banks.

Unwilling to spend any more money on properties already in the red, banks and their asset managers or short sale negotiators refused to pay for any repairs. They forced “AS-IS” stipulations on buyers along with a “Don’t like it, leave it” mantra.

It was a rude awakening for many buyers who, after viewing a distressed foreclosure, wanted new carpets, holes patched, appliances installed, roofs fixed, termite clearances and the like. Banks said, “NO!” In many cases, due to FHA property condition stipulations, buyers with FHA loans had to look hard to find a home that would actually make it through the lender’s scrutiny.

With the flood of foreclosures receding, we are once again seeing “normal” sales appear like the first flowers of spring … and they come with the possibility of requests for repairs. Problem is, it’s been so long since we’ve been able to ask for remedies to problems that many buyers are totally unfamiliar with the process.

Consequently, we’re seeing “requests” that are totally unrealistic.

It’s time to reexamine the rules of engagement.

Rule #1: It IS reasonable to ask for roof and termite clearances.

Buyers have historically asked for roof and termite clearances. To facilitate this, most roof and termite inspections actually come with costs associated with the found damage so that everyone knows, up front, how much the repairs and resulting clearance will cost. With regard to termite reports, in the bay area, it’s customary for the seller to cover Section 1 repairs (any active infestation of termites or other wood-destroying insects or organisms like dry rot fungus typically resulting from water intrusion). Buyers have historically covered Section 2 items (items that, if left unmitigated, could lead to Section 1 damage). (Click here for an explanation of Section 1 and Section 2 items)

When it comes to roof reports, good roof inspection companies will offer a warranty along with their recommended repairs to ensure that the roof, once repaired, will remain watertight for a specified period of time. Warranties range from 6 months to 2 years, depending on the condition of the roof and the company doing the inspection. Occasionally, a roof will be in such poor repair that it will be impossible for a roofing company to provide meaningful short terms repairs. In these cases, they will categorically recommend a new roof. If it is determined that a new roof is required, buyers will want to factor this into their negotiations.

Rule #2: It IS reasonable to ask that the home’s primary systems be working correctly.

While the roof and termite reports deal with specific issues, the property inspection deals with the overall condition of the property’s systems (electrical, plumbing, HVAC, foundation, etc.). As such, a property inspection report is broken down into separate categories for each system in the home and provides an overview of the system’s condition along with any specific issues identified. Property inspection reports DO NOT come with the associated costs to remedy any issues found.

It is reasonable to request that the home’s primary systems be functioning correctly (electrical, plumbing, heating). You want to make sure you can turn on lights and use the outlets without getting a shock. It’s OK to request that toilets flush properly, sinks and showers operate correctly and all the plumbing is watertight. The heater should be working correctly, foundation should be sturdy, windows and doors should be able to be opened, closed and locked and so on.

Rule #3: It IS NOT reasonable to ask for upgrades.

It is NOT, however, considered acceptable to ask for upgrades. Homes are built to the building code in place at the time of construction. As an example, homes built in the mid-20th century did not require electrical systems to be grounded. Typically, outlets in these homes accept two prong plugs: hot and neutral. As the 20th century progressed, increasing consumer protections instituted better electrical building codes. Receptacles in homes built to newer electrical codes accept 3 prongs: hot, neutral and ground. When buying an older home, you are buying an electrical system that is not in compliance with current electrical codes. In fact, depending on the age of the home, it may contain knob and tube wiring, screw in fuses, 50 amp services and the like. While it is OK to ask the seller to ensure that the existing electrical system is working correctly for the date it was built: it is NOT acceptable to request that the electrical system be upgraded to current codes.

When buying an older home, you are buying it with the applicable building codes as of the day it was built OR the day any permitted upgrades were constructed.

With this in mind, you should not be asking sellers to upgrade galvanized pipes to copper or PEX tubing, install new furnaces if the old ones are still working safely (even if they are the old gravity style furnaces), seismically retrofit foundations, replace single pane windows with dual pane products and so on.

You also should not be asking that the sellers remove products with materials deemed hazardous.

If you believe the home contains asbestos, you may order an asbestos inspection, but you cannot reasonably request that the asbestos be removed. In reality, a significant number of homes in the bay area have asbestos in some form in the home (ventilation or furnace ducting, acoustic ceiling texture, sheetrock mud, floor tiles, fireproofing materials, roofing and siding, some textured paints and so on). The same thing applies to lead-based paint: you can inspect, but sellers cannot be expected to remediate old lead paint.

Rule #4: It IS NOT reasonable to ask for cosmetic changes.

Thinking of asking your prospective bride to get a nose job before you will marry her? Or lose 50 pounds? What are the chances of that happening? Right. Any relationship based on these types of requests is doomed to fail.

In the same way, requests for cosmetic changes to a home are considered tacky …

And you can totally expect the buyer to turn a deaf ear to such requests. I’ve seen buyers request that houses be repainted, carpets be replaced, wood floors be refinished, pools be removed … and so on. And in 100% of the cases I’ve seen, these types of requests were not only refused, they insulted the seller in the process. And as I’ve learned from experience, the more amiable you can keep the entire escrow process, the better your chances are of being satisfied with the outcome. When buyers and sellers start going head-to-head, no one comes out a winner.

Follow the rules and keep it realistic: if you ask too much, you run the risk of alienating the seller … and ending up with nothing at all.

Short sales have been a key player on the real estate playing field for a few years now, but buyers just now entering the market still find them very confusing. There’s good reason: of all the potential types of transactions, short sales lead the pack with misunderstandings, myths and misconceptions. This makes them the granddaddies of real estate urban legend generators for producing the highest number of misconstrued opinions and factoids.

In our local market, short sales have taken over the lead from REOs and now dominate the distressed property pack. As an example, in Hayward, California, short sale listings have soared to 46% of active listings, while REOs (bank owned foreclosures) have dropped significantly to less than one quarter of local inventory (23.44%).*

With short sales representing such a high percentage of currently active properties, it’s important to understand them.

Here are the eight myths you need to know and understand:

Myth #1: Short sales are short.

Nothing could be further from the truth. In a short sale, the word “short” refers to the fact that a homeowner is selling their home for less than they owe on their mortgage(s): they’re “short” of the funds required to pay off their obligations. In all other ways, these sales are actually long: long on aggravation, long in potential pitfalls … and they typically take a very LONG time to close (in spite of all the recent lender hype to the contrary).

While the average transaction is approximately 6 months from offer to close (we know that some, especially Wachovia loans, can actually close in a very short period of time), we’ve seen them go 18 months. And that’s IF they close. The odds of a successful close on a short sale, while greater than they used to be, are still … long.

Myth #2: Short sales are bargains.

You’d think so: they’re typically the lowest priced properties on the market. Why? Because buyers, aware of the potential difficulties, usually put these at the bottom of their list. Listing agents, knowing this, try to make homes selling short as attractive as possible. Instead of focusing on property condition, they usually lower asking prices far enough below market averages to entice a buyer. Problem is, before a short sale is approved, an appraisal is performed by the bank.
 

Many buyers don’t understand how this can be (see Myth #3): they don’t understand that the ultimate selling price doesn’t typically matter to a seller (since they are losing everything anyway), so an upside down homeowner will frequently agree to almost any price just to get an offer. Unfortunately, in a short sale, the homeowner does not have the authority to set the final price. Don’t like it? You can try negotiating, but good luck with that. In many cases, once the price goes back up to normal, bargain-hunting buyers bail. In other cases, the price is readjusted higher than the buyers can afford, causing the deal to implode and forcing the home back on the market – this time, with an “approved” price.

Myth #3: Short sale homeowners set prices.

Au contraire, mon ami. This is the most confusing aspect of short sales. Buyers cannot understand why the price of their accepted offer can change once they get into escrow. They assume that they can negotiate with the seller, come to an agreement and then wait for their keys. Many get a rude shock when the bank comes back with a higher price. Buyers often cry, “FOUL!” because no one explained to them who really sets the price: it’s not the seller … and it’s not the bank, either. In reality, it’s the investor behind the loan. In most cases, the bank is only servicing the loan for an investor and it’s this “hidden entity” that gives final approval. Or not. Frequently, the investor is operating by a set of guidelines that seem to make absolutely no sense at all.

Myth #4: Short sale sellers are motivated to sell.

Put yourself in their shoes: their credit is getting trashed, they’re losing their home, they’re being publically humiliated, they’re going to have a hard time finding accommodations that will accept their bad credit (and in MANY cases, their pets) … and then factor in the fact that many of them have not been making mortgage payments of any kind for months …

Why would they be in a hurry to move?

In many cases, they’re not. Which can add to the further confusion and frustration of a short sale. And brings up the next myth.
 

Myth #5: Short sales are easy to access.

We all have pet peeves. Mine include people calling and not leaving a message, folks walking behind my car while I’m already backing up, Caltrans sweeping during the day, cell phones ringing during events (church, movies, etc.)… and so on. Buyers have pet peeves as well, and their No. 1 complaint is…

Short sale listings with no lockboxes and viewing by appointment only.

It’s a VERY real problem. Realtors can get into foreclosures and most normal sales with ease: they all normally have lockboxes. You go direct with REOs and normal sales usually have showing instructions like, “Call, leave a message, go, leave a card.”

An increasing number of short sales, however, state “Appointment only — no lockbox.” No homeowner phone number is give and, in MANY cases, the listing agents don’t answer their phones, return calls or respond to texts or emails.

This is VERY real, it happens every day and totally frustrates legitimate buyers who want to see short sale homes.

Call me old-fashioned, but I’ve always thought that the reason for listing your home was to get it sold. To sell, you need offers. For that, you usually need to let people in — when they’re available — not when or if it’s convenient for the seller, but when it works… for the buyer. And since short sales are the most difficult homes to sell, you’d assume sellers selling short would go overboard to ensure their properties were accessible.

It seems the exact opposite is true.

I frequently ask listing agents why their short sales are “appointment only.” They usually say: “The seller doesn’t want to be inconvenienced.” What? They’re losing their home, will have their credit trashed, will be forced to move — and they don’t want to be inconvenienced? In reality, I place the blame squarely on the shoulders of the listing agents. I believe many agents do a disservice to their sellers by (1) not  explaining things adequately, (2) providing incorrect information to their sellers as to how the process works and (3) by allowing sellers to dictate how showings should happen.

The only exception should be short sales with renters who make it extremely difficult to show the home.

Which brings up another question: if, as a seller, you are selling your home short, then why would you allow a renter to remain? What can you possibly hope to gain by allowing the renter to stay? Again, there is an exception – Section 8 renters who have a government contract. However, that should be the ONLY exception. (Did I mention this was a pet peeve?)

Cooperative short sellers who remain in their homes have a lockbox with a key in it and their phone number(s) listed for buyer agents to call for access. Homes that are easy to access are the ones most agents choose to show AND the ones that get offers.

Done right, a short sale can be priced right, attract offers and be off the market in a relatively short period of time. And then there is a long wait while the bank processes the short sale during which the sellers can do whatever they want to do — without being “inconvenienced.”

And without TOTALLY frustrating buyers.

Myth #6: Short sales are sold “AS-IS”.

On the surface, this is true. “AS-IS” means don’t expect the seller or the bank to contribute ANYTHING towards the property condition. No repairs, no cleaning, nothing. Zip. Nada. Rien. Niente. Zilcho. And this frequently includes delinquent HOA fees.

Problem is, the buyer is usually selling because they can no longer afford to live in the home. Forget the fact that they haven’t been making payments and could possible be squirreling money away somewhere out of sight to the bank and others – you will never see any such funds - should they actually “exist.” And don’t forget that since they haven’t been making payments on anything, they’ve also stopped maintaining their digs. And will continue to do so AFTER you get your offer accepted and submitted to the bank.

Here is where it gets a bit dicey: it’s not really sold “AS-IS” because, in many cases, property condition can be substantially WORSE than when you saw it and agreed to buy it.

And, as a parting shot, the sellers may take “stuff” with them when they leave. Like appliances that were specified in the contract. Or light fixtures. Or … whatever. Think you can get them to bring those items back? Guess again. You’ll more than likely have to take them to small claims court – good luck with that. And, supposing they “dent” a wall moving out … who fixes it? Or who cleans the property after they leave? It won’t be them, that’s for sure. They have absolutely NO incentive to do so. I can count the number of clean short sales I’ve seen after the sellers moved out at close of escrow … on one thumb. And we’ve closed a bunch.

Buyers can understand that a property might not be clean when they get the keys, but they often want other assurances when buying a short sale. Which brings up the next myth.

Myth #7: Buyers are protected when buying a short sale.

Truth is, and even though I stated it in the previous myth:

THERE ARE NO GUARANTEES.

No guarantees that:

· That they will receive the property and its contents in the same condition as when they originally viewed it and got their offer accepted.

· That all the appliances will be there.

· That there will be no damage.

· That there will not be any additional costs required to close the deal.

· Etc.

Buying real estate is fraught with inherent risks – and short sales are the all-time risk leaders – you accept those risks when you chose to enter a short sale transaction. Buyers ARE NOT protected when buying a short sale – and their only recourse may be small claims court. If at all.

Myth #8: Buyers can recoup costs if a short sale collapses.

It’s a sad fact that while some approved short sales may make it into escrow, they don’t successfully exit the other end. Any number of things can and do go wrong. In reality, this is true of any transaction, but is even more probable for a short sale. And here is the caveat:

Money expended by the buyer during a short sale escrow WILL NOT BE reimbursed to the buyer should the deal collapse.

This can include money paid for:

· Inspection Reports

· Appraisals

· HOA docs

· Any money they may have invested to get the property up to par so it would qualify for an FHA loan

· Etc.

There is no one to pay. The title company is usually not the party at fault. Neither of the Realtors made any money on the failed transaction, the bank will not pony up a penny and … the seller doesn’t typically have any money either.

As stated in myth #7, there is RISK involved in buying any form of real estate.

So if you are the timid sort who holds things close to your chest and are not willing to lose any funds, then, quite frankly, short sales are probably not for you.

And here’s the final irony: some short sales do actually close in a very short period of time. And some end up being actually incredible bargains. And there are those who buy lottery tickets who actually WIN! Just don’t get your hopes too high …

Those are the exception rather than the rule.

*Data for April, 2010 - TrendGraphix.com

If you’ve ever attended a real estate auction, you’ll have quickly discovered it’s a very simple process: people make bids viewed by everyone else in the room. As the prices increase, buyers may move in and out of the bidding, but everyone is aware of all the bids and the final price is no secret. It’s a noisy, hyperactive and frenetic process, BUT … it’s very clean, transparent and neat. And when the gavel goes down and the deal is done, there is no confusion about who bought the property and for how much.

Submitting an offer on a property on the local MLS is different.

If you write an offer on a property and your contract is the only one submitted, it’s really a very simple process: you negotiate with the seller with counter offers and, when the terms have been agreed upon, the deal is set and you go into escrow. Can’t agree? Move on.

It’s different with multiple offers.

Want to know how much others are offering so you can effectively compete? Good luck with that: many listing agents refuse to divulge any information about existing offers. Especially if it’s a foreclosed home. It’s secretive and hidden. Confusing. Incredibly frustrating.

In fact, some Realtors actually believe it’s illegal and/or unethical to share offer information.

Fact #1: It is NOT illegal. Or unethical.

To ensure that disclosure is consistent across the state, the California Association of Realtors issues standard contractual forms used by Realtors statewide. One of the forms, DISCLOSURE AND CONSENT FOR REPRESENTATION OF MORE THAN ONE BUYER OR SELLER (Form DA), includes the following text:

“NON CONFIDENTIALITY OF OFFERS: Buyer is advised that Seller or Listing Agent may disclose the existence, terms, or conditions of Buyer’s offer unless all parties and their agent have signed a written confidentially agreement.

In other words, it is totally legal and ethical to share any pertinent information from any offer with anyone else deemed relevant to the transaction UNLESS there is a written confidentially agreement signed by ALL parties involved.

Fact #2: Real estate practices differ from area to area, office to office and agent to agent, seller to seller.

Form DA goes on to say:

“Whether any such information is actually disclosed depends on many factors, such as current market conditions, the prevailing practice in the real estate community, the Listing Agent’s marketing strategy and the instructions of the seller.”

Although we include this disclosure as a part of every transaction (buyers AND sellers), many Realtors simply don’t know about this form and/or clause. Others don’t understand it. Yet others dislike the idea or ignore it all together. Although real estate practices differ from area to area, the truth remains statewide: if there is no confidentiality agreement in place, any and all facts of an offer may be freely shared.

Fact #3: To prevent disclosure of any information, a written confidentially agreement must be signed by ALL parties.

ALL parties include the following: the buyers, the sellers and the agents from both sides. If all do not sign, there is simply no agreement. No agreement, no confidentiality. And it’s not enough for a buyer to submit a confidentially agreement with an offer: if it’s not signed by the other side, it’s not valid. And there are plenty of reasons why a party may not wish to sign, ESPECIALLY the seller (See Fact #4).

Fact #4: It may be in seller’s best interest to share offer details.

Listing agents need to thoroughly discuss this concept with their sellers. Depending on the nature of the offers, the amount of information revealed may or may NOT be in the seller’s best interest. As an example, if a property has one or more strong offers, a seller might want their agent to disclose the amounts and/or terms to generate even better offers. If, however, existing offers are low, revealing the amounts could limit the quality of any subsequent bids. A wise listing agent will weigh the variables carefully before disclosing information.

Some agents simply refuse to disclose any information. In my opinion, this mindset can constitute a breech of fiduciary responsibility to their seller.

In addition, it can result in meaningless efforts on behalf of buyers and their agents who are operating totally blind. Having represented hundreds of buyers, I’ve grown to appreciate the fact that the more information I have before writing an offer, the better. It can also save countless hours of wasted time and effort: if I know there are better offers on the table than my buyer can compete with, we will not waste anyone’s time by writing a pointless offer. It’s better to move on to another property where we actually have a chance.

Some listing agents prefer the concept of “highest and best” offers. Buyer agents HATE this practice.

This practice is VERY exasperating for buyers and their agents and may potentially harm the seller. It is a lazy practice at best and a breech of fiduciary responsibility to the seller at worst. (Click here for more on the topic of highest and best offers.)

Fact #5: Buyers Beware.

Form DA did not spark a movement to begin disclosing information on existing offers. Rather, it was designed to make buyers aware of a practice that was already in existence. Since there has historically been much confusion over this issue, the disclosure brings to light the POTENTIAL that a buyer’s offer information may be shared.

Bottom line: buyers need to understand that the details of their offers may be shared with others writing competitive offers.

It’s true. While some listing agents will not discuss terms of offers, others freely divulge information hoping it will net their sellers the highest possible price and best terms.

There’s a LOT of disagreement about this practice amongst real estate professionals.

Many ‘old-school’ agents who’ve been around for years (especially before the advent of the Internet) prefer to keep offer information secret. They don’t think it’s a ‘fair practice’ to disclose information. If there is going to be an auction or bid for a home, they prefer the idea of a “sealed-envelope” auction or ‘secret auction.’

On the other hand, many looking to buy a home in the current marketplace have grown to appreciate the free flow of information afforded by the internet and its’ resulting transparency. They want the home-buying process to resemble an ‘open’ auction where all the bids are out on the table for all to see. Agents that have begun their practice after the internet revolution also tend to prefer this type of transparency. I, for one, favor this approach.

Whichever school your agent belongs to, if you’re looking to buy OR sell, you absolutely need to make sure you discuss this with your Realtor so you are all on the same page. After all, the more you know, the better.

Social networking is having an unprecedented impact on the way we live our lives. Examples are the recent events in Egypt and other parts of the African Continent. Wherever there has been a cause there has always been a method of communicating and networking that has carried the day. Whether pamphlets, books, newspapers, radio, television, faxes, cell phones or email – the message never changes, but the method of communicating it … does.

Today’s preferred vehicles include Facebook and Twitter.

There is another aspect to social networking that has also changed the fabric of our existence. It’s the new “transparency” facilitated by social networking venues enabling people to live their lives openly for all to see. Whether we want to see or not. Whether we care … or not. While I appreciate Facebook, Twitter and similar sites for the way they facilitate information about key events in my “friends” lives – I admit I’m not so interested in what’s for dinner or other such 'momentous' news. It’s TMI, in my opinion.

There are some, however, who are VERY interested in the minutest exploits of others:

Google “facebook divorce rate” and you’ll be amazed at what you’ll find. Apparently Facebook is not just impacting countries in Africa …

And, it seems, in the desire to communicate every facet of their lives, some have chosen to detail their home-buying exploits online as well. In, I might add, vivid detail. Which brings up an interesting problem. When it comes to social media and the need to explicitly chronicle the prospective purchase of new digs, it’s “Buyer Beware:”

Because Facebook can bite back.

It’s easy to understand why buyers might choose to go online to share their excitement about the purchase of a home. It’s fun to share your feelings, aspirations and dreams with others. It can also be beneficial to read the shared experiences of others.

Facebook, however, IS NOT the place to be sharing specific details about a specific transaction.

Recently a couple, excited about a property, made an offer and then posted everything on a social networking site. They went so far as to share how badly they wanted the home and even how much they were willing to pay! It cost them – the seller spotted the post and used it to leverage the deal in their favor (click here for more details).

It’s an age old problem with a contemporary twist.

For years we’ve counseled buyers to ‘put a lid’ on their emotions AND “a cork in their mouths” when touring prospective properties – especially if any sellers or agents are present (see Rule #3 - How NOT To Buy A House – 6 Important Rules For First-Time Buyers). I’ve actually had to drag gushing buyers from a room to get them to stop talking and “giving away the farm.”

The moment the other side senses your interest in the home, you begin to lose negotiating power. The more they know, the more you lose.

Since we now live in a ‘virtual’ world, this advice applies online more than ever. I’ve tried, on numerous occasions after reading some of my children’s posts, to help them understand that you never really know who is actually reading your comments. Or what they are doing with them: in this new ‘cut-and-paste’ internet-based world, we no longer have any control over where our entries may end up. I’m personally frequently amazed at where some of my musings end up.

So a word to the wise. When buying a home, control your emotions, your mouth …

And your Facebook.

2010 was not a year for the timid. Although we’ve seen a lot of market turbulence in the past four years, 2010 was, in my opinion, the worst. It was reminiscent of Great America’s Flight Deck, and many of us felt our stomachs leave somewhere in the middle of the ride. Now that it’s over, many are wishing it ‘good riddance’ and with good reason.

Here are my Top 8 Real Estate Issues of 2010:

1.    The Demise of the Tax Credit

Under normal circumstances, January is real estate’s slowest month. “Au contraire” in 2010: fueled by the home-buyer’s tax credit, the market accelerated last January like a space shuttle on steroids and kept gaining altitude as it roared to a climax at the end of April. Unparalleled numbers of prospective first-time homebuyers stood in lines to view potential homes and multiple offers cascaded in on anything deemed ‘decent.’ Market frenzy reached new heights and buyers were overbidding by $20-30,000 to get a credit of $8,000.

Some have stated that the credit did not affect the market: that is simply not the case here in the Bay area. It provided the final push many buyers needed to get off the fence and they did so in hordes reminiscent of lemmings. Many were also warning that we were buying from our future and that once the credit was gone, the market would crash. The frenzy continued nonetheless.

Contrary to pundits’ predictions, the market did not crash … but tailspin it did.

Like the metal door at Costco coming down at closing time, the market duly screeched to a halt in May and in the silence that followed, everyone stood around wondering what had just happened. It should have been no surprise – the exact same thing happened at the beginning of November, 2009, when the first round of tax credits had ended. We had three short weeks of market stillness before it blasted back into gear at the announcement of the next round of credits.

And in the following months of 2010, inventory increased into the summer, prices again began to slide and the market returned to … normal. Problem was, it had been so long since we’d seen ‘normal’, no one knew how to react. And they still don’t.

2.    The Introduction of HVCC

As if the demise of the tax credit was not enough, immediately on its heels came a double whammy: May, 2010 saw the introduction of HVCC (Home Valuation Code of Conduct). Intended to prevent price manipulation or kickbacks on behalf of lenders, this law stopped the existing practice of lenders talking directly to appraisers. It broke long-term lender-appraiser relationships, slowed appraiser response times, cut the fees paid to appraisers per appraisal and totally turned the industry on its head.

It was a stereotypical governmental reaction to a perceived problem and it WAS NOT a good response.

We started seeing appraisers driving in from the Central Valley to do Central County assessments. Criticized from all quarters and decried nationally, HVCC set off a flood of sub-par valuations resulting in record numbers of blown-up transactions … all at a time we could least afford it.

The bitter irony is this: the government spent so much money trying to buoy up the housing market with the tax credit only to blow a hole in it by introducing HVCC and its accompanying practices THE VERY NEXT MONTH.

And blow a hole it did. We watched in shocked disbelief as appraisal after appraisal came in under value. And were horrified as transaction after transaction was blown into the stratosphere. These were transactions where buyers had, in good faith, already expended approximately $600 for their inspections and another $400 for the appraisal. Over a thousand dollars up in smoke, ESPECIALLY if it was an FHA transaction. In an “injury to insult’ maneuver, buyers had to pay for the very appraisal that blew their hopes out of the water. The net result was an artificial cap on prices that slowed the very market appreciation we desperately needed to get out of the hole. 

3.    The Tightening of Lender Guidelines

2010 saw dramatic increases in lender guidelines as banks struggled to get a grip on their bottom line.

As the year came to a close, loans were significantly harder to obtain.

And the problems do not end there: underwriters began checking borrower’s information multiple times throughout a transaction. We discovered that this could happen three times during an escrow and by three different underwriters. To add an even darker thread to the equation, no two underwriters seemed to be looking for the same things. This meant that demands frequently varied drastically from the beginning of a transaction to the end. In a move seemingly designed to kill otherwise healthy transactions, many requirements started appearing very late in the process and introduced significant delays, unexpected expenses to either the buyer or the seller and, in all too many cases, dealt outright death to the deal.

Increasingly, 2010 lender changes altered the lending landscape in a very negative fashion.

As a result, the odds of successfully closing an escrow fell dramatically. Banks kept piling on requirements at the end of closings. Consequently, escrow failures went way up, causing severe frustration and confusion on behalf of all parties involved.

Lender changes coupled with the HVCC fiasco made 2010 “The Year of Derailed Transactions.”

It was not a pretty year in ANY way – our team alone saw close to 30 transactions go up in smoke. And we were not alone: Realtors all across the Bay area decried 2010 as a year when a transaction became increasingly hard to obtain and almost impossible to successfully close.

4.    The Failure of Loan Modifications

With the “Yes We Can!” dialogue morphing to “Guess We Can’t” and “The Audacity of Hope” changing to “I Hope We Can Change Something,” millions are discovering that the current administration’s promises, including that of successful loan modifications are, in fact, largely empty. No un-kept promise has affected homeowners more than the supreme disappointment of HAMP’s (Home Affordable Modification Program) failure. It’s not a simple failure, either. When someone loses in this arena, it means the accompanying loss of their home, their dreams and … their hope.

It’s been a scenario repeating itself millions of times across the country: homeowners, buried by rising interest rates, job losses, reductions in income and diving home values have been unable to liquidate their properties to get out of trouble because they’ve owed more than their homes are worth.

They’ve turned to the government backed programs for help and been left hanging. And it’s here that the story actually gets worse. Whenever there is a vacuum of real help, scammers always step in. And step in they have: we quickly lost track of the numbers of those who paid horrific upfront fees only to have the sheriff show up on their front door step with eviction papers and usher them and their dreams to the front sidewalk.

5.    The Decrease in Foreclosures and Increase in Short Sales

With loan modifications being turned down in record numbers, many turned to short sales to maintain some significance of dignity in the midst of the current calamity. Since those who participate in a successful short sale don’t have the cloud of a foreclosure hanging over their head for life, many chose to go this route instead of letting their home be taken from them.

Accompanying this was an actual decrease in the numbers of foreclosures as banks started to get some semblance of a handle on making short sales work.

As an example, closed REO transactions (foreclosed homes) in Alameda County started at 4,168 in 2008, rose by 143.76% in 2009 to 6,018 then plummeted 60.39% in 2010 to a low of 3,634. In contrast, closed short sales transactions started at 768 in 2008, climbed a staggering 257.55% in 2009 to 1,978 and kept increasing in 2010 to 2,526 homes – up an additional 127.70%.

Contra Costa County saw similar percentages: 7,520 sold REOs in 2008, up 121.25% in 2009 to 9.118 units, then down 53.61% to 4,888 properties in 2009. Short sales echoed Alameda County numbers as well by starting with 835 in 2008, increasing 267.78% in 2009 to 2,236 homes and increasing yet again in 2010 to 3,199 successful short sale closes, an increase of 143.07% over 2009 numbers.

There is a glimmer of real hope here, however. The introduction of HAFA (Home Affordable Foreclosure Alternatives Program) by the feds on April 5, 2010 will most likely lead to additional successful short sales in the future. HAFA was introduced when it became obvious that HAMP was not working and has actually seen limited success towards the end of 2010.

6.    The Return of Equity (Normal) Sales

The beginning months of 2010 saw a perfect storm of events in the Bay area real estate market including:

(i)    The tax credit incentive

(ii) Plummeting home prices finally reached the level of affordability

(iii)     Rock bottom interest rates and the revitalization of FHA loans

(iv)    The sudden lack of inventory as foreclosures began to ease

(v) Artificially low pricing of inventory to generate interest and multiple offers

(vi)    Stabilizing Bay area economy

(vii)   The introduction of the spring buying season.

(viii)     A pent up supply of first-time buyers

These events combined to provide a dramatic surge to the market of first-time buyers.

This wave subsequently increased market values, bolstered equity and returned many Bay area homeowners to a position of equity. Because of this new found liquidity, many sellers, previously underwater, suddenly found they had enough equity to sell their homes without taking a bath. The market, dominated in 2008 and 2009 by REOs, suddenly, in early 2010, saw the re-entry of “normal” sales into the market in ever increasing numbers. At first it was a bit of a shock: many of us had done so many REO transactions, it seemed odd to be able to communicate effectively with the listing side AND actually ask for repairs.

Unfortunately, as the tax credit disappeared and prices again began to slide, the window of hope was snatched away for many homeowners. The slim margins of equity held by many began to disappear and, towards the end of 2010, some had to take their homes off the market because they were again under water and could no longer sell without a loss.

7.    The Mortgage Fraud Scandal and Resulting Freeze in Foreclosures

Although this was a significant story in other parts of the country (click here for a summary), in California it was not a real issue in 2010 because of the way foreclosures are handled here in this state. While banks were halting foreclosures across the country, the only bank to stop temporarily in California was Bank of America – and this was only to give it time to catch its breath before resuming practices.

In a nutshell, this scandal came from the disclosure that mortgage lenders were signing and submitting legal documents without verifying them, causing homeowners to be at risk of an incorrect foreclosure.

The practice was labeled “robo-signing.” Unlike many other states, this scandal has not been centered on California because we are not one of the 23 states requiring a court action to foreclose. This is not to say that this practice did not occur in California. In fact, AOL's Daily Finance’s article on October 30, 2010 suggests that while California may not be directly involved because of the way we handle our foreclosures, the long-term problems with robo-signing could ultimately be significantly harder to correct in this state.

8.    The Tightening of the Noose on Condos by FHA

Condos, especially in the high-priced Bay area market, have long been a target for budget-minded first-time buyers. With dipping prices, low interest rates and willing and able buyers, you’d think everything would be good to go. Not exactly. Case in point: we recently had a couple in escrow on a lovely Hayward condo that was everything they’d hoped for. Their FHA loan was proceeding, inspections were perfect and it appraised at full value. Perfect. Then, without warning, we received news that blew the transaction out of the water.

The condo’s Home Owner’s Association (HOA) failed to renew their FHA certification and the buyer’s FHA loan was instantly no longer viable for that development.

It’s a story repeated throughout the Bay area and it’s making an already lousy condo market SIGNIFICANTLY worse.

The FHA (Federal Housing Administration) is a government agency whose primary purpose is to insure residential mortgage loans. For many buyers, FHA loans provide the only means to purchase a home. But in order for FHA to fund a specific purchase, the property has to meet THEIR guidelines. If it’s a single family home, it has to be “livable” – you need to be able to move in, prepare meals, use the bathrooms, lock the doors and so on.

Unfortunately, condos have more hoops to jump through, and the FHA is decreasing the circumference of the hoops, making it ever harder to qualify.

The Home Owner’s Association has to be financially solvent, monthly HOA dues delinquencies cannot exceed 15%, the owner-occupant rate has to be at least 70% and so on (although the actual owner/occupancy rate is 50%, many lenders use the 70% number to be safe). Because of the rash of condo foreclosures, many condo projects have had their FHA cert removed, especially developments where investors have swept in and bought wholesale units for rental purposes.

What’s the big deal? It means the number of available buyers for uncertified condo projects has been drastically reduced to those with conventional loans or cash.

Since the current majority of condo buyers have FHA loans, a lack of qualified buyers means prices are getting pushed down. WAY down. Bay area condo prices took a MAJOR hit in 2011: it’s been serious bad news for current owners who might want to sell. In addition, existing residents who want to refinance through FHA are also out of luck: if FHA won’t certify for purchase loans, they won’t refi either.

December 7, 2010 was the FHA deadline for renewing and many area developments failed to re-certify. An extension was granted for some units until December 31, however many weren’t even aware of the deadline OR the extension. Other extensions are being granted based on the age of the development. 

As a result, hundreds of Bay area condos just lost their FHA cert and owners may not even realize it until they try to sell or refinance.

And when they do, they could receive a very nasty surprise. It could easily force buyers into a short sale situation when they had hoped they’d qualify for an equity (normal) sale. If you are uncertain as to whether or not your development is FHA certified, go to https://entp.hud.gov/idapp/html/condlook.cfm for HUD’s condo certification website.

All in all, it’s been quite a year and one we hope to never repeat. Here’s hoping that 2011 will be the year many of these things turn around and the market will again begin to rebound. It will certainly be about time.

Let’s hope time is on our side.

Growing up as a child in Canada, visiting the grandparents meant a three-hour trip across the Canadian prairies through frigid winter conditions to grandma’s house. We never minded the drive, the snow, wind and ice or sub-zero temperatures because we knew what awaited us at journey’s end: Grandma’s incredible anise seed bread. No matter how cold we might have been, we were warmed to the core the moment we entered her kitchen and let the enchanting aroma of the just-baked bread wrap itself around us like a cozy blanket of love.

Grandma’s gone and we’re now living a country apart, but we carry still carry the Grandma’s bread tradition forward. Our kids, aware that the sweet anise aroma officially signals the beginning of the holiday season, always ask when the first batch of bread will arrive. And every year, as the incredible fragrance permeates our house, I’m transformed back to Grandma’s kitchen.

Smell is amazing. Studies show that smell triggers memories.

I certainly find this to be true; I’m often pulled into the past when I catch a whiff of a specific aroma. Sometimes good, other times … not so much. Every once in a while, my nose encounters an odor that instantly reminds me of a hot summer day in Tijuana. It’s not a good memory – I try to distance myself from the source of the odor as quickly as possible. Smells also affect emotions. A tantalizing scent of perfume can instantly take you back to a wonderful romantic encounter or the devastating trauma of a heartbreaking breakup. Certain smells from a person's past can even induce negative reactions they may not actually be aware of - they just know they want to leave. Now.

The effects of smell are never more visible than when a buyer is viewing homes for sale.

Every home has its own, distinctive fragrance. Some have aromas evoking a sense of peace and comfort. Others have smells that combat your nose: many who’ve visited foreclosed properties in the past few years have had their noses assaulted the second they’ve opened the front door. I’ve labeled the odor, “Eau de REO.” In some cases, severe stench has actually prevented buyers from entering the home. If you can’t enter, you most certainly won’t buy.

Truth is, smell can reduce the salability of a property and actually reduce its value.

Here are my TOP 4 SMELLS TO AVOID:

1.    Cigarette Smoke

The smell of cigarettes in a home ranks #1 on many buyers’ list of “Smells to Avoid.” For disciplined smokers who confine their habit outdoors, interiors are affected minimally; usually only by the odor transmitted by the smoker’s actual clothing. Unfortunately, some choose to puff away inside their residences and, consequently, the smell permeates everything.

Nothing turns off a buyer faster than the smell of cigarette smoke in a home.

Buyers know they’ll have to paint the interior and remove all soft surfaces, including carpets and curtains. In addition to the repugnancy of the smell, there is also the association to the health issues of second hand smoke. Many don’t understand exactly HOW second hand smoke works – but they DO understand that it’s bad. They don’t know the difference between actual second hand smoke and the resulting smell, so they chose to avoid any suspect environment altogether.

We personally purchased a home that had been smoked in for 35 years. It had been on the market for 210 days – you could scrape tar off the walls with your fingernails and could hardly breathe inside the building. Understanding the potential of the house, we bought it, stripped the interior, covered everything with 2 coats of shellac-based primer and 3 coats of paint – and got a sizeable reduction in price as well.

2.    Pet Odors

The problem with pets is that some breeds produce significant odors and others … don’t. I remember walking into a home that had an awful critter aroma vaguely reminiscent of a zoo – I enquired as to the source and was informed, “Ferrets.” Who knew?

Dogs can be particularly offensive and there can be any number of reasons for doggy odor, ranging from species to allergies, oily skin, infected ears or anal glands and more. And truth is, some species simply smell worse than others (Why do some dogs smell worse than others?).

Although a specific pet may or may not have its’ own odor issues, the manner in which the pet is cared for and its behavior ‘managed’ can lead to additional smell issues. Dogs with odor issues can contribute significantly to interior smell by being allowed on furniture that absorbs and then transmits their smells. Pets that urinate inside a home – especially on carpets, are a major source of offensive odors. If a cat’s litter box is regularly cleaned and an odor-neutralizing litter is used, the stench can be kept under control. If more than one cat uses the litter box, it should be scooped and maintained daily. The type of cat food provided can also contribute to odor. If dogs are allowed to defecate ‘at will’ in a yard, a hot summer day can make a back yard a distasteful place for visiting guests – aside from the disturbing potential of stepping on a doggy-bomb. 

The biggest issue with pets is that, in most cases, they are treasured members of the family.

This makes the process of dealing with their odors so much more difficult. In reality, many pet owners have lived with the odors for so long they are not even aware that their home reminds visitors of a petting zoo or poorly maintained pet store.  While some people don’t mind pet odors, others, especially from cultures that don’t traditionally own pets, can be turned off very quickly and make a hasty exit from your home.

3.    Cooking Odors

Having visited thousands of homes, I’ve discovered it’s actually possible to determine the ethnicity of many homeowners the minute the front door is opened. Reality is, curry, garlic, fish, rice, liver and other “smelly” foods produce odors that can permeate every corner of your house. And offend as well. Since we live in an area that is so diverse and contains so many different food palettes, when it’s time to sell your home, take measures to remove cooking odors from your home (see the link at the end of this post) and then only cook foods that are less odor-producing.

4.    Mold

Mold smells. Its’ dank, dusky smell is readily identifiable and causes alarms to start ringing in home- buyer’s minds. In California, mold is identified as a potential issue that needs to be disclosed during the sale of a home, but no specific remedy is normally included in a real estate transaction (Click here to see California Association of Realtor’s Overview of Mold and Its Impact on Real Estate Transactions).

There have been countless scams concerning mold abatement and the medical community is divided as to molds’ influence on sickness. Safe to say, mold is an issue that many do not know how to address. When there is a vacuum of solid information and recommendations, theories abound and there is no limit to unfounded assumptions and old wives’ tales about mold.

Bottom line: whether mold is a real issue or not, MANY buyers are very threatened by the presence of mold and will quickly pass on a home where even the smell of mold is present.

I’ve seen it countless times and for many, the smell of mold is enough to move them out the door and to the next home. Problem is, many people do not know how to differentiate between the smell of mold and cousin, mildew. In most cases, mildew can be remedied quite simply (Click here for instructions on removing mildew). The source of a mildew smell could be as simple as a wet towel bunched up in a corner for a few days or a swimming suit in a laundry hamper. It could be the result of showering without the fan going or the window open. Once it gets into the paint, proper surface preparation and a simple mildew additive to paint can remedy most mildew issues in bathrooms. Caulking around the tub or shower is another prime location for mildew and can be remedied in a short period of time.

Click here for a great article dealing with the Top 10 Ways to remove offensive odors from your home.

There are many more smells that can mess up a sale, but these four are the ones I see the most. Whatever the source of the ‘odiferous emanations,’ be aware of their effects. In addition, a competent Realtor will be happy to work with you to help eliminate unwanted odors and replace them with …

Smells that sell.

President Obama’s White House’s Deficit Reduction Commission is putting forward a proposal to alter the existing Mortgage Interest Deduction. Numerous voices from across the county are calling this a seriously misguided attempt to redirect tax dollars that will have severe repercussions on the already devastated US housing market.

With the president facing a Republican house, calls are going out for bi-partisan cooperation. He’ll need it: with economic alarms sounding everywhere, our nation’s financial problems seem almost insurmountable. As if the actual problems weren’t bad enough, you also have to factor into the mix a dose of realism as elected representatives are keenly aware that the general populace will not abide a lack of solutions for much longer. Recent elections revealed as much as disenchanted constituents tossed “Yes We Can” party members out of office much as crates of English tea were thrown overboard by angry colonists at the ‘Boston Tea Party’ in 1773.

Obviously, we need solutions.

Therefore, everything is up for grabs as the White House’s Deficit Reduction Commission looks for ways to modify expenditures. Everything. And while everyone agrees much must be done, elected officials, fearful that further voter backlash could unseat them, have developed, en-masse, a serious and debilitating ailment. It’s the highly toxic NIMBY Syndrome (Not In My Back Yard) and, especially after this past election, it’s proving to be very contagious. It’s an understandably tough spot for politicians to be in: while drastic measures need to be taken, no one wants to make tough decisions that may cost them a future in Washington.

And therein lies the rub: how can we trust that our representatives are going to put aside their political ambitions and act in the country’s best interest? Which brings up another question.

Which proposals are being tossed due to fear and which are simply bad ideas that need to be ousted on merits?

Case in point: the proposal to alter the Mortgage Interest Deduction. According to C.A.R. (California Association of Realtors), “the proposal recommends offering a 12 percent nonrefundable tax credit to all taxpayers and capping the mortgage-interest deduction to loans less than $500,000, with homeowners receiving no credit from mortgages on a second home.”

While I understand that everything needs to be on the table, I do not think this particular idea will have a positive effect. Nor do many others. As quoted in the New York Times, “The mortgage interest deduction is one of the pillars of our national housing policy,” said Michael D. Berman, chairman of the Mortgage Bankers Association. “Limiting its use will have negative repercussions for consumers and home values up and down the housing chain.”*

These sentiments are echoed by David Stark, Public Affairs Director for the Bay East Association of REALTORS®. “The latest proposal to modify the Mortgage Interest Deduction will only further weaken an already fragile real estate market in Alameda County,” states Stark. “The Mortgage Interest Deduction provides an incentive for home buyers. Promoting homeownership positively impacts the quality of our neighborhoods and contributes to local, state and national economies.” Stark further clarifies, “Removing or modifying a powerful incentive for homebuyers and homeowners will cause ripples we’ll feel throughout the rest of the economy.”

Indeed. While listening to a financial broadcast just a few short weeks ago, I heard a financial analyst state, in general terms, “With the housing market in such poor condition, our economy is going to have to try to recover on its’ own. It’s not going to be easy – it will be like trying to use a three-legged stool with one leg missing.”

So why would we want to do anything to further weaken the housing market?

We don’t. C.A.R. has clearly expressed its’ serious concern to elected officials that the far-reaching implications of this proposal be fully understood. As such, C.A.R. is officially opposed to this proposal. Click here to read the letter of opposition sent to the U.S. House of Representatives.

On the other hand, federal tax experts argue that the deduction is not really that important: they point to the fact that neither Canada nor Australia have the deduction, but homeownership levels are approximately the same. This argument does not hold water. I used to live in Canada and owned a few houses there: I didn’t own because of the deduction, I bought for the long-term investment value and the fact that I didn’t want my money being poured down the drain by subsidizing a rental. There are plenty of good reasons to buy a home apart from the deduction. When I moved to the US I bought a home here for the same reasons, NOT because of the tax benefit. HOWEVER … when I discovered the tax perks that came with home ownership here in the United States I was overjoyed because it meant money back in pocket that I could spend on other things. And spend I did: the tax savings went right back into the economy. And continue to do so.

In reality, the Mortgage Interest Deduction means more money in OUR hands to do with as we wish instead of trusting the government to spend it as they see fit. Sounds like a good idea to me.

Secondly, I am personally aware of the fact that many of my clients who currently own homes would not be in those specific homes were it not for the impact of the deduction on their income and consequent ability to service the mortgage payments. Having lived abroad, I understand a simple fact that separates us from Canada and Australia:

Due to the implications of the deduction on our income here in the United States, we are able to afford more expensive homes on the same salary than our compatriots in the other two countries.

This fact alone should give us cause to fight the proposed reductions tooth and nail.

Here are some important facts to remember:

· The MID has been part of the federal tax code since it was first enacted in 1913.

· People with both low and middle incomes use the MID. According to the most recent IRS tax return data available, 63 percent of the families who claim the MID earn between $50,000 and $200,000 per year.

· While in any particular year only about one-third of taxpayers itemize, of the taxpayers who itemize deductions, more than 81 percent take the MID.

· Current law permits deductions of the interest paid on mortgage debt of up to $1 million on a primary residence and one additional residence. In addition, the interest paid on home equity loans of up to $100,000 may be deducted.

Here are three critical actions to take:

1.    Take the time to research this issue and understand its implications.

Knowledge is necessary to protect our rights. Take the time to click through the links provided in this post. Carefully read all of the viewpoints so that you completely understand the issues and know how to express your opinions to those who have the power to affect this proposal.

2.    Contact Your Representative Today

You can locate your Member of the House of Representatives here. Use the pull down menus to locate your state, enter your zip code (the PLUS-four digits are not required), then click the “Contact My Representative” button to contact them. We recommend you call AND write a letter or email to express your opposition to this proposal.

3.    Contact Your Senator Today

You can locate your Senator here. Use the pull down menus to locate your specific senator, then click through to their personal website to contact them. We recommend you call AND write a letter or email to express your opposition to this proposal.

We often do not understand rights and benefits until they are gone. Let’s make sure that we understand this specific issue and fight to ensure that the Mortgage Interest Deduction does not go the way of the passenger pigeon.

Once it’s gone, it won’t be back.

*Taking Aim at the Mortgage Tax Break, by David Kocieniewski, the New York Times, November 12, 2010.

They’re fun to watch: new buyers checking out their first batch of homes: they're full of hope with stars in their eyes and anticipation in their steps. The first four homes they see are foreclosed properties: raunchy, stained carpet, dinged and dirty walls, pungent odors, things missing. The stars begin to fade and footsteps drag as reality slowly sets in.

And then, suddenly, without warning, the next home is their dream home! You can still see the seams in the sod on the front lawn. Perky flowers wave their heads in chorus from the flowerbeds. The roof looks new and fresh paint gleams everywhere. Inside, the home boasts new kitchen cabinets, granite counters, stainless steel appliances, remodeled bathrooms, new flooring, dual pane windows … it’s everything they were looking for! In a desert of distressed homes, it’s a welcome and unexpected oasis.

“It’s a flip,” their Realtor states.

What is a flip? It’s typically a property purchased by an investor at a discounted rate; either at the auction on the courthouse steps or some other means such as an estate or pre-foreclosure sale. In many cases, the investor sends in a crew to upgrade the home before putting it back on the market. Improvements often include paint, flooring, kitchen cabinets, counters, appliances, dual pane windows, hot water heaters, roofs and more. In many cases, flips are the nicest homes on the market. Seems wonderful, right? You’d think.

Problem. Permits are required for most upgrades, and, in many cases, flippers simply don’t bother.

Whenever improvements are made without necessary permits, it causes a very real dilemma. Permits are required for almost every facet of home improvement. When a buyer purchases a home with unpermitted improvements, they become liable for bringing the home into compliance.

And there’s the rub. Time is money. Competition has increased on the courthouse steps and consequently, margins have shrunk substantially. To make a profit, flippers must get homes improved and back on the market as quickly as possible. They don’t want their flip to become a flop. Obtaining permits can cause unwanted delays. I’ve personally visited many flips where permits were not obtained. Violations include new tubs, showers and sinks, replacement hot water heaters and furnaces, new dual pane windows, roofs, recessed lighting fixtures and more. And those were the VISIBLE issues. Who knows what they’ve done under the floorboards?

Flippers can’t say, “We didn’t know.” There is absolutely no excuse for ignorance. It’s not like the rules vary from city to city or county to county: almost everyone has adopted the Universal Building Code so the rules are the same no matter where you go. In reality, you even need a permit for minor improvements such as replacing a dishwasher or a light fixture.

Additionally, adding injury to insult, work is frequently performed by non-licensed individuals functioning as contractors.

California contract law is VERY clear: any improvement over $500.00 needs to be performed by a licensed contractor. In addition, any home purchased for the express intent of resale must have all upgrades performed by licensed contractors. Flippers do not qualify as “owner/builders” and therefore must operate by a different set of rules. This is the very reason I personally obtained my general contractor’s license.

There’s another factor here as well. Since flippers are buying properties “AS-IS”, they inherit per-existing upgrades, many done without permits. They really should be getting purchases into compliance with local building departments BEFORE doing additional improvements and getting back on the market so that the end-users don’t have to deal with the possibility of code or permit violations.

And it’s safe to say that in many cases, this simply isn’t happening. Might I suggest, MOST cases?

Critical Issue #1: The Good

FIippers who play by the rules are upgrading distressed homes and thereby improving neighborhoods. It’s welcome news for both buyers and local municipalities: enhanced homes and neighborhoods are a win/win for everyone. And in addition, they’re buying materials from local stores and hiring labor to do the work.

It’s urban renewal at its best.

Lastly, there are a lot of buyers out there who have two thumbs when it comes to fixing up a home: they buy all their home improvement items at Target and Wal-Mart and will most likely never enter a Home Depot or Lowe’s. For these types, turn-key, move-in ready flips are the ideal ticket. 

Critical Issue #2: The Bad

1.    Shortcuts.

In an attempt to make a quick buck, many flippers ignore crucial laws and regulations and pass liability on to the end-user. They do not bring homes into compliance before they begin their work, never check to see if permits were pulled for existing upgrades and, as a result, will never deliberately give building officials access to the home.

Here’s why: prior to visiting a home for permitted inspections, most building inspectors pull the permit history. If, when visiting the home to sign off work for which permits WERE obtained, they see upgrades for which there is NO permit on record, they can red-tag the project until the non-permitted issue is brought into compliance. It can cost both time AND money. In addition, building officials will check for contractor licenses and applicable workers compensation insurance. No licenses, no insurance, no permits. You can see where this is going.

Needless to say, some flippers don’t want this sort of hassle and therefore do everything they can to stay under the local building department’s radar.

2.    Improper Disclosure.

In some cases, the scope of work is not adequately represented in the disclosures. Flippers I’ve seen try to excuse this by stating, “Existing owner has never lived in the property and therefore cannot provide disclosure.” While technically correct, this means that the flipper is stating that they are not willing to accept any liability for the property’s current condition and they are passing the buck on to the buyer. And it’s not like they don’t know the issues: after all, they and their crew have been in and out of the property many times and probably know it and all its flaws very well. In some cases, they’ve deliberately covered them up.

Full disclosure really means providing copies of all applicable permits.

In fact, cities such as Livermore, CA mandate that the official permit records from the city’s building department be provided as a part of the disclosure package given to prospective buyers. It’s a practice whose time may have come for all cities to adopt.

3.    No permits.

As stated above, if the flipper does not provide a permit trail and certificate of occupancy, then the buyers themselves should carefully check city records for permits.

None? Ask the seller to provide them.

In many cases, this will stop the transaction cold because some flippers will not want to follow due process to provide necessary permits. I’ve personally seen this happen MANY times. Many flippers have a “take it or leave it” mentality.

If there are no permits, the buyer needs to know that upon completion of the purchase, they assume ALL liability going forward for bringing unpermitted work into compliance. Depending on the scope of work, this could be a serious and expensive liability. Insisting on missing permits may cause you to lose out on a particular home you like but could save your bacon in the long run.

Critical Issue #3: The Ugly

Many flippers I’ve seen do very nice work. Some, however … not so much. Some paint over issues and hide serious problems any way they can to turn a quick profit. SERIOUS problems. I’ve seen:

· Crawl space foundation jacks incased in concrete to hide the fact that they were rusty and had deteriorated to the point there they needed to be replaced.

· Dry rot in external wood members painted over (this is VERY common) in an effort to conceal the damage.

· New floor tile installed in bathrooms on top of rotting sub-flooring material.

· New carpet installed on top of mold.

· New paint slapped on moldy walls without proper mold abatement.

· Replacement windows that did not follow the current regulations mandating adequate egress to allow a quick escape during a fire or proper access by fire officials.

· Illegally converted garages.

· Ceilings painted to hide water stains without any effort made to remedy the leaks.

Make sure you properly inspect the home you are considering buying so you know exactly what you’re getting into.

You may spend a couple of hours at the local building department and a thousand dollars or so investigating the property only to discover that there are issues the flipper will not remedy. I’ve told buyers repeatedly, “Think of the cost of inspections as insurance: no one likes paying it, but a small investment of a thousand bucks up front could save you tens of thousands of dollars in the years that lie ahead.”

So … if all this is true, then why are flips flying of the market almost as quickly as they appear?

There are two simple reasons:

Reason #1: Buyers don’t understand their liability.

Buyers really need to be educated. The beauty of the Internet is that it’s a great tool for learning critical information. And, quite frankly, it’s also the responsibility of a buyer’s agent to fully explain all the ins and outs of a flip. Buyers need to be told to perform due diligence: to make sure they perform all the necessary inspections AND go to City Hall and pull the permit files. They need to know how to negotiate for repairs, how to stand their ground and when to walk away.

Reason #2: Some buyers just don’t care.

Some like to live on the edge. With a limited inventory of nice homes and lots of competition here in the San Francisco Bay Area, some buyers overlook the flaws just to get an address they can call their own. They get in line, pay the going rate and don’t ask too many questions. For these types, they get what they pay for. And, quite possibly, a whole lot more than they bargained for as well.

BOTTOM LINE: When it comes to flips, no matter how nice it appears to be, like it or not, it’s a classic case of caveat emptor:

BUYER BEWARE.

For more information, see Remodeling Without Permits - Part #1 and Remodeling Without Permits – Part #2.

Baseball’s World Series signals the end of one season and the beginning of the next. The demise of summer, hotdogs and mustard. The commencement of fall, pumpkin pie and whipped cream. It also signals the end of baseball’s balk for another year.

Balking can be a bit hard to understand. In baseball, a balk occurs when the pitcher commits to home plate and then interrupts the delivery for any reason. In other words, the pitcher appears to be winding up to throw to the batter, then suddenly changes direction or stops their pitch. Balk rules are complicated, but their simple purpose is to prevent pitchers from deceiving opposing players. And there is a penalty when a pitcher balks: opposing players advance a base.

While baseball is done for the year, balking is still in full swing … in real estate.

Home buyers everywhere seem to be committing to buy, then suddenly changing direction. I’ve personally driven buyers around, found a home they absolutely loved, sent them home to talk about writing an offer, and then discover they don’t call back. Or respond to emails. And I’m not alone. While their sudden lack of response is certainly rude, it’s also very confusing to both Realtors and sellers alike.

Unlike baseball’s balk, I don’t believe deception is the intent. In reality, there are many issues out there right now confusing buyers. As a result, they don’t know how to respond. So they balk. Regardless of their motives, uncertainty is the outcome. For everyone.

As a result, there is no shortage of bewilderment going around these days.

While there are MANY issues confounding buyers right now, I believe the following are the five key factors:

1.    Market Uncertainty.

No one seems to know where the market’s headed. While theories abound, there’s no clear indication of where we’ll be in 6 to 12 months. And to add to the confusion, our country is divided into many regional markets, all of which are currently responding differently. Here in the San Francisco Bay Area, we have many micro-markets that vary from county to county. We also have three distinct tiers (entry-level, mid-market, luxury). The bottom of the market is still red hot in most bay area markets (attractive, well-priced properties can still expect multiple offers), while the middle is soft and the top end is practically dead.

In well-defined markets, buyers know how to act. As an example, if it’s a seller’s market, buyers understand that they (1) need to stand in line to view attractive homes, (2) will be forced to act quickly and (3) can anticipate being involved in multiple offer situations with little or no negotiation. In contrast, in a buyer’s market, savvy buyers understand that they (1) will have a good selection to choose from, (2) will be able to negotiate price and terms and (3) can take their time deciding.

In reality, parts of the bay area are still in a seller’s market. And again, it varies according to which tier the property falls into. Other areas are deep into a buyer’s market. And there are no shortage of opinions about where the market is headed in each area and tier. It’s no wonder buyers are confused.

With everyone giving differing opinions, buyers are being blown about by the winds of uncertainty and consequently are having a difficult time deciding anything.

2.    Foreclosure Uncertainty.

Banks are freezing foreclosures. Or are they? There are so many questions out there right now concerning foreclosures. Here are just a few:

· Have the banks truly halted foreclosures?

· What are the differences between states? Why halt in some states and not others? 

· What’s the difference between judicial foreclosures and trustee foreclosures?

· If the foreclosure issues primarily concern judicial foreclosures, do we even have those in California (CA is a trustee foreclosure state)? If no, what’s the effect in California, if any?

· Is it safe to buy a foreclosed home? Will I have to give it back?

· If foreclosures are truly halted, why did my friend just have their house foreclosed last week?

· What about the shadow inventory many claim is out there? Is the shadow inventory “real?”

· Is there a new wave of REOs coming? Will “more” inventory drive prices down?

· Will the temporary halt on foreclosures lessen inventory and actually drive prices up?

LOTS of questions. Lots of confusion.

And with serious foreclosure confusion, buyer balking is the inevitable result.

3.    Lender Uncertainty.

It’s a certainty that loans are harder to get. Lender guidelines HAVE tightened significantly as banks are trying to protect their bottom line. However, even with increased regulations, loans are still available to qualified buyers.

Unfortunately, there is a dark side to the lender equation.

In addition to tougher requirements in securing a loan, there’s another serious lender-backed change occurring. In my opinion, this change is more ominous. Underwriters now check borrower’s information multiple times throughout a transaction. In addition, they are adding stiff property guidelines. This can easily happen three times during an escrow and by three different underwriters. And no two underwriters are looking for the same things, so demands can be very different from underwriter to underwriter. Many requirements come very late in the transaction and can cause significant delays and/or unexpected expenses to either party. Other requests simply kill the deal outright.

It’s become very similar to navigating a minefield blindfolded.

As a result, the odds of successfully closing an escrow have fallen dramatically. In a recent discussion with Kim Silva of Chicago Title, she emphasized, “Banks keep piling on requirements at the end of closings. Consequently, escrow failures are way up, causing severe frustration and confusion on behalf of all parties involved.”

4.    Economic Uncertainty.

Nothing puts a damper on home buying like the prospects of a job loss. Or a reduced pay scale. Many prospective home buyers, hot-to-purchase through the summer, have recently received corporate news dimming their employment prospects and thus stalling their search for new digs. With its diverse and vibrant local economy, the San Francisco Bay Area usually fares better in this regard than many other regions across the country, but it’s still a very real scenario I’ve oft heard repeated here in recent days. And the impending election is not helping things. There is ALWAYS uncertainty at election time.

5.    Seasonal Uncertainty.

Historically, as the holiday season approaches, buyers begin wavering. This year is no exception. If anything, due to the reasons above, it’s more pronounced this year than historical norms due to the end of the home-buyer tax credits. A quick look at last year paints a stark contrast. As an example, in Alameda County, November of 2009 signaled the beginning of a home-buying spree focused on the bottom end of the market (entry level homes under $400,000) that spiraled upward through the end of April, 2010 (ironically, the end of the tax credit incentives). Pending sales during that period of time jumped 38% in four short months.

The simple fact that we are not seeing the same level of market activity we saw LAST YEAR at this time factors in some uncertainty of its own.

And then there are the results. Just like in baseball, there is a penalty for balking here as well. And just like the balk penalty in baseball can actually cost the game, the buyer penalty for balking can be game changing as well.

I believe there are two significant results (penalties) related to balking by buyers:

Result #1: There is a misconception that the market is actually weaker that it really is.

Truth is, nice well priced homes are still flying off the market with multiple offers. I’d love to be able to tell buyers that they can look at a nice home a few times over a few weeks and then negotiate a killer deal. I’d love to. Can’t, however. I still have to tell buyers, especially looking at entry level homes, that they can’t count on that home being there very long. And, as I’ve discovered countless times, if someone is interested in something, they are NEVER alone. I call this fact “The Most Bizarre Rule In The Cosmos (And How It Can MESS YOU UP!)”

Result #2: Buyers are missing out on some truly good things NOW.

Things like:

· Record low interest rates: they won’t last forever. Really.
 

· Good quality inventory: due to the current shortage of foreclosed homes, the remaining inventory is in better than average condition. Factor in flips and we have some of the best looking inventory we’ve seen in the past three years.
 

· Reduced competition: with seasonally low numbers of buyers, there really is less competition out there right now. And sellers who are selling at this type of year are usually more motivated – they are willing to be on the market during the holiday season because they need to sell.

Buyers balking?

It’s an easy call. Absolutely. Unfortunately, unlike baseball, there’s no simple remedy. Let’s just hope it doesn’t last … until next year’s baseball season.

It’s been one of the extreme disappointments of the past couple of years: the growing awareness that the prospects of a successful loan modification rank up there with other urban myths like Apple giving away free iPads, Bill Gates sending out checks for $10,000.00 for responding to an email and Mr. Rogers being a trained Navy Seal sniper.

It’s become a well worn scenario: homeowners, buried by rising interest rates, loss of jobs, reductions in income and plummeting home values have been unable to sell their properties to get out of trouble because they’ve owed more than their home is worth. Desperately turning to the prospect of a loan modification to save the day, they’ve discovered a very upsetting fact.

This problem is actually worse than it appears on the surface. Many have turned to their banks to provide relief, only to discover that lenders are overwhelmed with the flood of requests and the lack of clear guidelines and processes. A successful loan mod is a very complicated recipe and it seems most lenders haven’t discovered the secret sauce.

And then there are “the other guys.” As is the case with any major crisis, loan modification companies promising “solutions” have showed up in droves. Unheard of as little as two years ago, countless loan modification “organizations” have emerged promising relief. Desperate homeowners, scrambling to stay in their homes, have signed up in droves to get their loan balances and payments reduced. Some organizations have genuinely worked on the issues with mixed success, others have been outright scams. I wrote on this last year hoping that attorney-based loan mods were the answer, but even they have been short on delivery.

Here’s the bottom line: in most cases, loan modifications – regardless of who is overseeing the modification – are failing to provide the anticipated relief.

As if this weren’t bad enough, there’s another serious problem here. In many cases there’s a serious lack of communication between the bank or third party service overseeing the “modification.” Homeowners, confident that their loan mod service is processing their modification to a successful conclusion, often ignore critical warning signs from their lenders until it is too late. We’ve encountered a number of homeowners in the loan mod process who were so confident they were getting their modification that they ignored the foreclosure and auction notices they were receiving.

In the end, they were foreclosed on and didn’t even know it until the eviction process began.

It’s an “insult to injury” scenario and it’s happening on a large scale. Had these homeowners truly understood what was happening, they would have been able to go another route, including short sales or bankruptcy. And although a short sale means selling your home, at least you emerge with better credit prospects than if you are foreclosed on or file for bankruptcy. Why?

With a short sale, you never have to check the boxes on any future loan application that asks if you’ve gone through a foreclosure or bankruptcy.

This simple fact can be HUGE when applying for a loan a few years from now. It could mean lower interest rates, better terms and, in some cases, getting the loan at all.

If you are in trouble with your current loan and need help, I have 5 recommendations.

1.    Don’t put all your eggs in the loan mod basket.

With successful loan modifications such a long shot, you don’t want to bank everything on yours being the one that actually succeeds. It’s like putting all your chips in when you only have a pair of sixes. Not a wise move no matter how you look at it. Take a serious look at all options and be prepared to move in a different direction if necessary. I’d recommend that you meet with a Certified HAFA Specialist (CHS) who can discuss all the options with you and help you make intelligent, informed decisions.

2.    Watch the warning signs.

When notices of auction dates start showing up, that’s a clue. Although the loan modification process should be able to push the sale date out, many have discovered, to their horror, that various departments in banks don’t necessarily talk to each other. Strange, but true. And there is often even less communication between third-party loan mod services and your lender. So be ready for Plan 2. And don’t leave it too late: we’ve received calls from people on a Monday whose homes are going to auction on Friday. Not a lot we can do at that point.

3.    Be aware of scammers.

Seriously. Click here to see a list of what to avoid. And don’t pay ANY up front fees. Only pay for real results.

4.    Take a serious look at a short sale.

Even though it means moving, a short sale may be your best bet. In my opinion, loan mods fall into the category of the most over-promised and under-delivered ideas of the past five years. Even though short sales also have a spotty record, from personal experience, I’d say the odds of a successful completion are substantially higher than those of a loan modification. And with the recent freeze on foreclosures by some major lenders, there will be a lot of increased pressure on banks to get properties off their books. A short sale may be the best solution for everyone. And remember: the ultimate goal of a short sale is to have your short sale conclude with “Paid as agreed.” That makes your credit report look better AND removes the possibility of a bank coming after you with a delinquency judgment.

5.    Talk to an attorney about a bankruptcy.

For some, bankruptcy is a valid option. I’ve never been an advocate of abandoning debts, but I’m very much in favor of granting a pause so beleaguered homeowners have a chance to regroup, catch their breath and negotiate a settlement. A bankruptcy can potentially stall the auctioning off of your home and give you time to reorganize. A bankruptcy attorney can explain all the options and which chapter will be best for you.**

Consider all your options very carefully.

Again I’d recommend that you meet with a Certified HAFA Specialist (CHS)*. They’ve taken the time to go through the HAFA training and the certification process and a better bet than someone who simply has uninformed opinions.

With all of the shortcomings and frustrations we all encounter as a part of daily living, you don’t want to come home and discover that … you have no home. Although it happens frequently, it’s completely avoidable as long as you take the time to understand all the facts and options. With cooler weather on the way, the last thing you want …

Is to be left out in the cold.

*Our team has both the CHS (Certified HAFA Specialist) and the CDPE designations (Certified Distressed Property Expert) and provides no-cost, no-obligation consultations to help you fully understand all of your options.

**We are not attorneys and as such cannot provide legal advice. The above comments on bankruptcy are only a recommendation to talk to an attorney, not a recommendation from us to file bankruptcy per se.

Foreclosure is a devastating process, stripping individuals of their homes, credit and self worth. In some cases, personal possessions are lost as well. It leaves victims struggling with anger, depression, hopelessness and more. And it can have untended consequences on an entire group who are all-to-often left to fend for themselves.

Pets.

As a pet owner, I can’t imagine losing one of our critters. We love them and they’re a vital part of our family. Yet for those forced from of their homes by foreclosure, options for pets can be extremely limited. One of the first shocks is the fact that, with damaged credit, rental options are severely restricted. Frequently the only rentals available … don’t allow pets. I’ve personally talked to despondent pet owners who’ve searched in vain for pet-friendly rentals. It’s an unfortunate part of the foreclosure process and adds injury to insult. Many try to give their pets to extended family or friends. At least, they reason, they’ll be able to see their furry friends occasionally. Unfortunately, this often fails as well.

So what happens to the pets if they cannot move with their owners?

“All too frequently they’re left behind,” states Jennie Comstock, the Animal Services Manager in Hayward, CA. “We frequently get calls from neighbors reporting abandoned animals. We find them locked in homes. We’ve also seen significant increases in the number of animals dropped off at shelters. In addition, those who’ve lost their jobs and are in the process of losing their homes often don’t have the funds to continue feeding their pets.”

When most people hear the word “pet”, they usually think ‘dogs’ and ‘cats.’ Unfortunately, pets being abandoned include exotic birds such as macaws, parrots, cockatiels and cockatoos. And reptiles of all kinds. Think … snakes and the like. Left behind, they quickly get very hungry. Not the kind of “pet” you’d want to encounter when entering a vacant home. Yet these encounters have happened. Snakes have ended up taking shelter in bathrooms. Imagine opening a closet and being confronted by a starved iguana.

Ironically, this tragedy has an extra twist.

At the time when local shelters need the most help and assistance, funding is at an all-time low. Hours are being cut and some shelters, such as San Leandro, CA’s facility, have closed for lack of operating capital. Efforts have been made to help those in danger of losing their pets, however, as a banner on the website for The Humane Society of the United States informs, “Unfortunately due to financial constraints, the Foreclosure Pets Fund has been temporarily suspended.”

Want to help alleviate the crisis?

“As a result of foreclosures,” Comstock adds, “We currently have many pets in our shelters eagerly waiting to be adopted!” You can see them at Hayward’s Animal Shelter at 16 Barnes Court, Hayward CA. You can also volunteer to help. Other Alameda County shelters are located in Fremont, CA and Dublin, CA. 

Volunteer to help or adopt a new family member – whichever you choose, you can ease foreclosure’s bite and gain a new friend at the same time!

As we’d initially met to start the buying process, I’d recommended, a number of times, that it would be a good idea if they’d consider using my mortgage broker. “You can trust my lender,” I explained. There won’t be any hidden costs, escalated fees, and so on. They listened politely, then explained that a friend had recommended someone with lower rates. They’d decided to go with the friend’s recommendation.

I asked for a copy of the lenders Good Faith Estimate (GFE), factored in the remainder of the closing costs and added it all up. It was going to be tight, but we had enough to close. And then the day arrived: the signing appointment at the title company. We’d had a problem getting a copy of the Estimated Closing Statement (HUD1) ahead of time: the lender had been dragging their heels in getting loan docs to title. We got the call the docs had arrived and, since time was running out, headed to the title company to sign.

And discovered, very quickly, that the costs and rate for the loan were vastly different than stated on the initial GFE.

With shock on their faces, the couple suddenly realized that they did not have enough money to close. They were short a couple of thousand dollars. Faced with the prospect of their dreams going up in smoke, the wife began to cry. The title company adjusted their costs a bit and managed to lower their costs a fraction. The seller had been extremely difficult to deal with, so we knew we were not going to get another penny from that side. As we sat there desperately looking for ways to solve the problem, a slow, gnawing feeling was forming in the pit of my stomach. I knew that that the only one left with any money to contribute to get the deal closed was …

Me.

I looked at the buyers, then the title officer, and finally reached over and wrote out a credit for closing costs, using up the majority of my commission. The buyers, realizing what was happening, looked at me with shock on their faces that slowly turned to joy as they realized their dreams would come true after all. And I went home, happy for the buyers, angry at the fraudulent lender and resolved that I would NEVER let that happen again.

As it turns out, I’m not the only one who has been in a situation like that, nor the first to make such a resolution. Lender fraud has been rampant, and HUD has finally had enough.

In a move designed to protect consumers, HUD (U.S. Department of Housing and Urban Development) recently issued new regulations intended to put pressure on lenders to “tell the truth.” It’s been a problem for years: buyers, searching for the lowest rates and best terms for loans, have often been provided with lender’s “good faith estimates” that don’t accurately reflect true costs at closing.

In an effort to curb the practice of lowballing estimated costs to lure customers, the new laws dictate that home loan lenders must pay the difference if a loan's closing costs come in higher than estimated. This law, although welcomed by Central County realtors, has had an unexpected consequence.

Closing costs have dramatically increased.

Closing costs have been a problem for years. I’ve talked with many buyers who’ve complained bitterly that lenders charged more at closing time than stated up front in their “Good Faith Estimates.” Some, like the couple mentioned above, when confronted with increased costs at signing, didn’t have enough cash to close. Others have ended up with monthly payments higher than anticipated. John Dutra, Senior Loan Consultant with Summit Funding, states, “It’s good to see the new regulations. Those of us who’ve worked hard to maintain integrity in the lending industry have often lost out to the false promises of lower rates and “cheaper” closing costs of ‘bait and switch’ practitioners.”

In reality, closing costs haven’t escalated all that much. It’s true that lenders, confronted with increased scrutiny requirements from regulators and loan buyers (Fannie Mae, Freddie Mac), have added increased fees to their products to cover higher processing costs. In reality, however, lenders, making sure they don’t end up paying penalties, are now factoring ALL costs into their estimates.

And many are estimating high, just to be on the safe side.

Buyer reaction has been sharp. Many are very concerned about perceived increases, not realizing that in fact, they are actually seeing real costs for the first time. Historically, lenders have showed inaccurate fees for escrow and title insurance costs and have frequently left costs for inspections out completely.

Bankrate, a leading aggregator of financial rate information, surveyed online good-faith estimates for loans of $200,000. They discovered that estimated lender’s direct closing costs are up 23% from a year ago, while estimates for third party providers such as title companies and appraisers soared a whopping 47%.

Closing costs up? A bit. Lender honesty? Up a bunch. And although it seems that costs are  higher, the new level of honesty might actually end up keeping more money in your pocket.

And, quite frankly, we welcome the change.

Everyone now seems to be charging for things that used to be “free.” I remember watching “Back To The Future” a number of years ago. There’s a classic segment in the film where a car pulls into a ‘50’s era service station and is instantly surrounded by four uniformed boys checking the tires, cleaning the windows and adding fuel. The audience’s response to this clip? They broke into gales of laughter!

It’s sad to reflect on what has happened in our society to downgrade service so far that when we actually see stellar service, it’s regarded as an anomaly.

In sharp contrast, I got a nail in a tire a few days ago, and had to find a service station to pump up my tire so I could get home. That’s when I discovered that you now have to pay for air! Who knew? And since the pumps took quarters and I didn’t have any change, I had to go to three “service” stations before I was able to find someone willing to help.

Everyone seems to be “unbundling” their services to get more income to the bottom line.

First it was the phone companies. Then cable. Now the airlines. Want a meal? You pay for lunch-in-a-box (and you thought airline meals were bad before?). Need a pillow? Blanket? Be prepared to fork over some dough. And just 4 weeks ago I was jolted by UAL charging me to check a bag. “So I’ll carry my bags onboard,” I thought. Then Spirit Airlines started charging for CARRYON bags. And believe it or not, now there’s talk about charging for bathroom use while in flight. I can’t wait to see how they plan to enforce that …

So … why not Realtors?

Attorneys and accountants have long provided “unbundled” services charged by the minute. Since commissions seem to be the number one hack people have about Realtors, let’s change the playing field! Instead of “bundling” our services for a flat commission to sellers and NO CHARGE to buyers, we can “unbundle” and offer an “a la carte” menu instead! And a bonus would be that this would end the VERY annoying practice of having buyers ask for a part of our commission!

Here’s what I propose:

Buyer Bundle Options:

Seller Bundle Options:

Short Sales Bank Bundle Options:

It’ll never happen …

But at least it caused a “bundle” of laughs when I suggested this in our last office meeting. Or maybe it will … with all the consumer pressure to change the way real estate transactions work … you never know. 

Walking.

It’s back in style, and many home buyers are taking a closer look at local amenities when buying their new digs. In addition to standard values, walking distances to parks, stores and the ubiquitous “Starbucks” are working their way up the list of priorities. What’s been common for inner city dwellers for years is now infiltrating the suburbs as well.

Used to be everyone could walk to the corner store. In the neighborhood I grew up in, the grocer was right across the street next door to the bank, the park was an easy walk away, I could saunter to the baker and sample my favorite pastries (it was conveniently located next door to the butcher) and the drug store was a block down in the other direction.

For most of us today, it’s not even an easy walk to the closest mailbox, let alone a coffee shop. With the advent of modern highways, the commute lifestyle was born and suburbs sprang into existence like flowers at hint of the first day of spring. Big box stores and strip malls popped up like mushrooms and it quickly became normal to have to use your car to get anything.

After interviewing a number of REALTORS®, Nancy Keates of the Wall Street Journal concluded, “Today's home buyers aren't just looking for good schools and low crime rates when they evaluate a neighborhood… They're paying much more attention to what they can walk to.”

To facilitate this growing trend, websites such as Seattle based Walk Scores (www.walkscore.com) are working hard to provide walk scores for every address. Although they are limited by the relevancy of current data on the internet (i.e. Google Maps), they are certainly a great beginning (click here to see how it works). In fact, each of our listings boasts a dedicated website (click here, then click on “What’s Nearby”) that features the walk score for that particular address.

How does it work?

Eager to discover my house’s score, I plugged in my address and discovered that my score is … a dismal 40 out of 100. I was puzzled at first: I live at a lake with walking trails, exercise stations, plenty of local birds, the occasional raccoon and more. Then I took a closer look and realized the problem: most of the community amenities such as stores, restaurants, etc. were over .75 miles away. That’s not a simple walk around the corner for most folks.

In contrast are Scott and Catherine Moore, new owners of a cute home in San Leandro’s Estudillo Estates. “We specifically looked for a home with great “walkability’,” states Scott. Catherine echoes by emphasizing, “We love the ability to walk to favorite stores, coffee shops and local restaurants.” “It’s all close by,” Scott adds, “We love it!”

Their walk score? 71.

BOTTOM LINE: Homes that score higher are those closer to amenities such as grocery stores, restaurants, theaters, coffee shops, bars, schools, parks, libraries, fitness clubs and the like.

According to industry specialists and urban planners, homes with high walk scores will become more popular in the years that lie ahead. Increased popularity translates into increased value. This trend has been pushing builders to combine living and commercial spaces to maximize walk scores, convenience and a heightened sense of community. It’s why we are seeing a number of communities in the Bay Area that are very reminiscent of established inner city communities with shops and restaurants on the first floor with walk-up condos on the floors above.

Great examples are Santana Row in San Jose, Waterford Place in Dublin and Bay Street in Emeryville.

When you factor in other types of housing, a large shopping area and multiple amenities such as those found in the entire Dublin Ranch development (click here to go to the City of Dublin Website for a General Plan Multi-Modal Map - East Dublin) AND Hacienda Crossings in Dublin, CA, you have a combination that is very hard to beat. It even includes access to BART.

It appears that our future may actually just be a walk away. It’s VERY green. I like it, and I’m pretty sure our dog does too.

Click here to find your own Walk Score.

Just when you thought …

· The government was actually finished spending our grandkids money …

· Saner heads had actually prevailed and the tax credits were finally done …

· Someone in Washington actually had some chutzpah …

· The game was actually over ...

CORRECTION:

IT’S FINALLY APPROVED!

For sure. Not kidding this time. No crossed fingers behind my back.

Click here for details.

Don’t get me wrong … I’m quite pleased with the overall effect of the tax credits. And, to be honest, I’m glad for those clients I have in escrow who were unable to get their deals closed before June 30th. There are actually quite a few of them and they will most likely now get the credit funds.

However … I’m also disappointed that we are continuing to spend our grandkids future into the dirt. I’d secretly hoped that SOMEONE in congress knew where the brake pedal was and actually had the guts to press it through the floorboards. Guess not. At least this time, anyway.

Bottom line: if you entered into a contract to purchase a home prior to April 30, 2010 and have not yet closed that tranaction, you now have until September 30, 2010 to wrap it up. Close by then and first-timt buyers get the $8,000.00 federal credit and qualified move-up buyers are in line for the $6,500.00 credit.
 

And the REALLY good news is that I will have some very happy clients once we get their short sales and 203-K transactions actually closed …

Whenever that is.

It’s a scenario repeated countless times over the past few years: as property values have plummeted, homeowners, looking at their slashed property values, have realized it might be many years before they return to an equity position.

This realization has prompted some to stage what the housing industry calls a “strategic default.”

Eileen AJ Connelly, AP Associated Press informs, “A strategic default occurs when a homeowner stops making payments on a mortgage despite being able to do so. It has become increasingly common in communities where housing values fell sharply and homeowners are "underwater," or owe more than their houses are worth.”

Rather than wait out the market until their homes again have positive value, they simply hand in their keys and walk away.

Fannie Mae, deeply distressed by this practice, is striking back.

Terrence Edwards, recently appointed as Fannie Mae’s new Executive Vice President, Credit Portfolio Management, has come out swinging. In a widely publicized quote, he declares, “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting.”

It’s no news that many homes have gone into default because homeowners have lost jobs or interest rates have spiked higher than their capacity to pay. Fortunately, it’s not those in this category who are being targeted. That would be adding injury to insult. Instead, it’s those who can still afford to pay their obligations but feel it is no longer “convenient” to do so. Instead of trying to work out other solutions, they bail and leave the bank on the hook.

Fannie Mae considers such behavior to have criminal implications and is now targeting strategic defaulters in two key areas.

(1) Fannie Mae is extending its ban on defaulting borrowers to seven years.

Currently, Fannie Mae has a five year moratorium on those defaulting on their loans. In a recent Fannie Mae statement entitled “Seven-Year Lockout Policy for Strategic Defaulters,” they stated, “Defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure."

Click here to read the entire news release.

(2) Fannie Mae plans to take legal action against “convenience” defaulters by pursuing judgments against these individuals.

In locations where the law permits, Fannie Mae intends to pursue defaulters to the extent of the law. In the news release referenced above, they reiterate, “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.”

For those who lose homes through genuine hardship, however, Fannie Mae is taking a different tack.

To help homeowners who’ve exhibited good faith efforts to resolve their situation and yet still end up losing their home, Fannie Mae is discussing making loans available in a shorter period of time. Terrence Edwards adds, “On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

No word as of yet as to how “short” the wait actually may be.

So. You’re upside down in your digs and tired of pouring money down the proverbial drain. You’ve looked at the various options and aren’t sure what to do. Thinking of walking away from your home because it’s no longer “convenient”? Think again.

According to Fannie Mae’s new guidelines, the price may be higher than you may want to pay.

I just returned from a trip to the Great White North – Edmonton, Alberta, Canada – the city of my youth. Home of the famed Edmonton Oiler’s and Wayne Gretzky. The “not-so-famous” Edmonton Eskimos CFL football team of Warren Moon fame. There’s a VERY good reason the “Eski's” have that name. Edmonton is the city where I froze through countless winters (my last winter there we endured 41 days in a row of minus 40° degrees or colder weather). It’s a place I avoid at all cost UNLESS I have a VERY good reason. As for this trip? My family lives there and we had a family emergency – so off I went.

Getting to Canada means an air trip and, although I love to fly and go places, I, like many of you, hate going through security. HATE IT. It means taking off my shoes, coat, belt and watch, unpacking my laptop, emptying all of the change out of my pockets, making sure I don’t have any breath mints with a foil wrapper anywhere on my being and removing my cell phone.

This last trip, however, I actually breezed through while they did a major search of the guy right in front of me. I chuckled all the way to the plane at the poor guy’s misfortune.

Since I take my virtual office with me in my roller case wherever I go, I unpacked everything once I got to my cousin’s place in Edmonton. He sat and watched as I unpacked my laptop, cables, phone charger, portable printer, hunting knife …

HUNTING KNIFE????

I sat there in shock as I realized I’d picked up a Smith & Wesson knife in a vacant listing a few weeks earlier (someone forgot it and I couldn’t leave it there). I’d simply dropped the blade in my case. The same carry-on I took through security. The same roller-case that breezed through the scans … with the knife inside (see picture).

My cousin was laughing his guts out visualizing the prospect of me trying to explain to airport security why a hunting knife was in my case. I’m EXTREMELY grateful I didn’t have the opportunity (I should have been “the other guy”). I might have missed my flight, amongst other things. I didn’t bother bringing it home – not even in my checked luggage. I gave it to my grateful host who now has a wicked looking souvenir and a heck of story to go along with it!

And just when you thought all that aggravation at the airport was accomplishing something worthwhile … you suddenly realize that once in while something slips though, but overall, the safety of air travel has increased exponentially. I’m extremely glad that security is there.

That situation is SO much like real estate I just had to comment.

We’ve got our own “security checkpoint” to go through now as well. If you haven’t purchased a home recently, you’ll not understand just how difficult it has become. And I mean DIFFICULT. Every detail gets scrubbed. Lenders, badly burned by the ineptitudes of earlier years are now making life seriously difficult for all parties concerned. And HVCC is absolutely not helping either. So many layers and conditions have been added to transactions that it’s becoming more and more difficult to close on time. Or at all, for that matter. When I first started in this business, it was almost inconceivable to have a transaction fall out of escrow. We’ve had many drop out this year alone, and it’s not even the end of June. And we are hearing the same from others as well. The good news, however, is that we’ve closed so many more.

It really seems that we’re working ten times harder than ever before for the same result.

When I hear of people saying to me that they want to buy or sell without a REALTOR®, my response is now, “Good luck with that.” If it’s become so much harder for those of us who pride ourselves on being consummate professionals, I can’t imagine trying to do this as a lay person. I had one of my buyers say to me, just a few days ago, “I had NO idea how much you guys do and how hard you are actually working to get us into our home.” A seller who sold a home by themselves to their son came up to me and said, “Well, we did it … but now I know why I should have paid a REALTOR®. I will NEVER put myself through that again. I’ve got your number taped to the insides of my eyelids.”

To offset this, we hear of those who went out, bought a home on their own and now make it sound like it was a cakewalk. We call these “Direct Buyers.” To which I will now reply, “And I made it through airport security with a hunting knife in my carry-on.” I got lucky.

And I NEVER plan on trying that again.

And you’d be wrong.

And so they persist. I just received an offer on one of our listings at almost $100,000.00 under asking price. This was on a listing already priced UNDER market value and the lowest priced property in the area. And the buyer’s agent actually submitted the offer with a straight face!

I can understand lowball offers in a buyer’s market. Newsflash … we’re in a seller’s market in most areas of the bay area. Have been since April, 2009. So that there is no confusion, let me clarify something right up front.

LOWBALL OFFERS IN THE CURRENT MARKET ARE AN ABSOLUTE, TOTAL WASTE OF EVERYONE’S TIME.

Lowball offers may be the norm in other parts of the world. I’ve done this myself as I’ve negotiated in markets in Africa, Mexico and other places. It’s expected. However, to try it on a property here in the Bay Area in the current market – means you are totally out of touch with the reality of this culture and market conditions.

If you like playing the odds, buy lottery tickets. That way, when you get nothing, you are the only one inconvenienced. It takes time and energy to write an offer, even if it’s a lowball. As agents representing buyers, we are compelled to do as they ask; if we wish to continue working for them, that is. So when they ask us to write up a lowball offer after we’ve clearly communicated market conditions, area pricing, comps, the comments of the listing agent and so on, as agents we have to ask ourselves a few questions:

(1) Since, as an experienced REALTOR® I know full well the results of submitting lowball offers, why would I want to continue to work with a buyer who does not trust my expertise and wants to lowball anyway?

(2) If I’m working with a buyer who wants to lowball, what else might they ask me to do IF we actually do manage to get into an escrow?

I’ve heard many reasons for wanting to submit lowball offers, however, they typically fall into the following categories:

(1) “We never pay full price for anything.”

That’s nice. You’re not buying a house from Costco. Go buy a beat up REO – you’ll get a house under market value and you can “make it your own.” As for normal sales, plan on negotiating a deal at or close to the current market rate.

(2) “We cannot afford or are not qualified to pay more.”

So go write offers on what you CAN afford. Don’t waste a seller’s time because you are hoping they will feel compassionate because you cannot afford to pay more and they will therefore come down to your price. Won’t happen. And it’s tacky to try. Sellers don’t care what you can or cannot afford to buy. They want realistic offers on their home. Period.

(3) “We are looking for a deal.”

Trust me – this IS NOT the way to get one. If you want deals, think like investors: spend hours researching the market, knocking on doors, going to auctions on the courthouse steps and so on.

(4) “We are paying cash.”

SO? When the dust settles at the end of a transaction, the seller will end up with … CASH. Whether you gave them cash or your lender did. Cash is only an advantage in certain types of transactions and during multiple offer situations. It DOES remove the loan contingency and streamline an offer, but there has to be a compelling reason for cash to make a difference. It DOES NOT justify a lowball offer.

(5) “We will have to pay a lot to fix up the home the way we want it once we move in.”

I’ve also hear this stated as, “We need to buy furniture once we move in.” Or new appliances. This falls under category 1 – the seller doesn’t care. Go do a budget, then bid on properties you can afford AND buy furniture. Or appliances. Or fix it up the way you want it. Whatever.

(6) “We don’t think the comps substantiate a higher price.”

You cannot use trashy REO comps to substantiate prices for normal homes. Or short sales that sold below market value. Or homes from three neighborhoods over. Smart listing agents realize you are using bogus comps and will make sure the seller knows as well. Beside, any listing agent worth their salt has already done a few proper CMAs with their sellers – who know what market value should be.

Even knowing all the facts up front, some still have to give it the old college try, “just because.” If you still insist on writing lowball offers, you need to be aware that more often than not they will have some unexpected, negative consequences:

(1) They frustrate, anger and alienate sellers.

As in, seriously tick them off. Lowball offers are grossly insensitive, demeaning and waste a seller’s time and emotional energy. Think of it as a formula:

Insensitive Buyer
+
Demeaning Lowball Offer
=
One Totally Ticked Seller

And rightly so.

(2) They often don’t get presented to the seller.

Many agents don’t even bother to send them over to the seller, let alone sit down and go through it. Although all offers are supposed to be presented (and, in the case of our team, always will be), in reality, many are not.

(3) They get used by sellers and savvy listing agents to shop for higher, more realistic offers.

If a decent offer comes in, listing agents will often disclose the price and terms to anyone else interested so as to negotiate up to the highest and best possible offer. However, smart listing agents WILL NOT disclose lowball offer amounts – they will simply tell everyone that calls, “Yes, we have an offer – if you are interested, you’d better get your offer in right away … and make it a good one!”

(4) They can set up distrustful and antagonistic relationships if you get into escrow.

Let’s say you finally do manage to negotiate a price and get into escrow. By then, however, the damage has been done. Your tactics will have produced anger and distrust in the seller and they will not be amenable, in most situations, to negotiate anything else in the transaction. A transaction that could have been very smooth could end up extremely bumpy instead. Bottom line, you can actually lose more than you hoped to gain by lowballing in the first place. Not a good plan.

(5) You can end up undermining neighborhood values.

Again, let’s say, for a moment, that you do manage to get a home at under market value. Your purchase price now becomes the standard for the neighborhood going forward, so that every sale after yours will be at a comparable value to yours. At the end of the day, your “deal” will turn into a normal transaction because every REALTOR® and appraiser will use your price to set the bar for every deal to come. And your new neighbors could actually end up being extremely resentful that you were the one that caused neighborhood values to go down.

So … at the end of the day, I certainly can’t stop you from writing lowball offers. However, I CAN tell you that in the current market, it is NOT a good idea and, in fact, it may accomplish a whole lot more negatives than any positive effect you might be hoping to achieve.

NOT such a good idea after all.

Here is my concern: with the tax credit now gone, systems surrounding appraisals have the potential to force a downturn in the market and undermine the past efforts of the government to stimulate the housing market.

FACTS:

(1) Another buyer just lost a home as a result of a totally inappropriate and faulty appraisal (see details below).

(2) Substandard appraisals (fueled by HVCC) are becoming more frequent.

(3) Poor appraisals are actually eroding market values.

(4) EVERY REALTOR® I know doing a decent level of transactions has been impacted by substandard appraisals. They are SERIOUSLY frustrated and upset at what is currently happening.

(5) REALTORS® and lenders across North America have been lobbying to repeal HVCC.

MY OPINIONS:

(1) Whenever the government tries to regulate a solution to a perceived problem, they inevitably add another layer of red tape that actually makes the situation WORSE (eg. HVCC).

(2) Governmental intervention by the imposition of HVCC into the marketplace has actually put a damper on market appreciation – the EXACT OPPOSITE of what they have been trying to accomplish through their stimulus packages.

As I’ve stated before, fair market value for anything is the price at which a seller is willing to sell and a buyer is willing to buy.

I understand that banks will only lend to what they believe is the value of any item (house or otherwise) – thus making appraisals necessary. I get it when people state that our “free market” got us into this mess by not applying controls on escalating greed. However, like it or nor, any outside agency that controls offering and/or market prices is actually price fixing and therefore putting a lid on free market enterprise. Unfortunately, external agencies have now determined that they know more about the value of a home than do buyers and/or sellers. More than the person who has owned the home, more than the buyer who is willing to pay to purchase the property. Let me reiterate: I completely understand the abuses of a few years ago.

However, in trying to correct, we’ve tilted way too far in the other direction.

And now we have a second problem. As if HVCC wasn’t bad enough, Fannie Mae, Freddie Mac and FHA lenders are now adding extra layers to the process of home valuation. In addition to the actual appraisal, they now do appraisal reviews or even require second appraisals to make sure that every transaction meets exacting standards. These reviews are typically VERY conservative. If the lender believes that the initial appraisal is weak in any way, it’s safe to say that the subsequent review will NEVER come in higher than the initial appraisal. In fact, it stands a very good chance of coming in lower.

This practice literally puts the “fear of God” into appraisers and reviewers, reinforcing the idea that they must NEVER come in over perceived market value, or they will be reprimanded. They will look for comps UNDER the subject property’s value, but will be hard pressed to use comps that are HIGHER. In reality, foreclosures and short sales should not be used to determine value. Unfortunately, they are, and, in cases I’ve seen, higher priced “normal” sales are ignored.

Under these guidelines, it becomes almost impossible to show any market appreciation.

As a result, appraisals are consistently coming in lower than the buyer’s offering price. In reality, these government sponsored entities are, by their regulatory actions, coming into direct conflict with other segments of the government that are trying to stimulate the economy and increase market values. It’s a classic case of the right hand not knowing what the left hand is doing. It’s like the old Dr. Strangelove alien hand syndrome where a wayward hand tries to choke life out the very being that provides its sustenance.

BOTTOM LINE: Buyers are no longer setting the prices for homes. External agencies … ARE.

This is having a devastating impact on the market. Here are just a few of the effects:

(1) It is adding uncertainty into buyer’s minds.

They assume that if a third party is stating that the home they want to purchase is worth less than they were willing to pay, then their offer was obviously too high and that they were somehow wrong. They will then try to negotiate the price down to the appraised value.

(2) It is enabling dubious market tactics.

Many buyers and their agents have tried to take advantage of this by deliberately offering high to win in a multiple offer situation, knowing full well that the home will not appraise and the price will then be negotiated downward. This in turn leads to listing agents asking that the appraisal contingency be removed up front.

(3) It is crippling deals.

If the lender will only lend to the appraised price and the appraisal comes in low, then the buyer and seller must negotiate the price lower. Or appeal the appraisal. Or come up with some cash (impossible in an FHA situation). Yet why would a buyer want to appeal the new price? It’s in their favor. And why would a seller give up thousands of dollars for a bogus appraisal? If the seller is unwilling to go down to the “appraised” price, then the buyer must come up with the difference or the deal is done. (Click here for more on this topic.)

To illustrate the problem, here is a very recent example that highlights the problems we are facing:

DETAILS:

(1) We listed a home at a fair price.

(2) We had multiple offers, two of which were over asking.

We accepted the highest offer at $10,000.00 over asking price – this buyer also had over 60% cash as a down payment – we deliberately chose this offer because we knew that even if we got a low appraisal, the bank would still process the loan without the buyer kicking in extra funds. The offer was at $298 / sq. ft.

(3) The appraisal came in $20,000.00 under offering price, at $287 / sq. ft.

a.    The appraiser was an out-of-area appraiser with absolutely no knowledge of the area neighborhoods, division lines, etc. This was a very specific neighborhood with very specific boundaries.

b.   The appraiser used a comp from clear across town that was from a drastically different neighborhood; it was not a comparable home in style, amenities, location or size of lot. The neighborhood for this comp had a far lower average price per square foot than the subject neighborhood.

c.    The appraiser DID NOT use a comp from just a couple of blocks away that was very close in square footage and lot size, almost identical amenities and WAS in the same neighborhood. This happened to be another of our listings, so I knew the property very well. I also know I was not called by the appraiser for any clarification on this property. It sold at $310 / sq. ft.

d.   The appraiser used a comparable property that was perfect in size, location, amenities etc., but then ADDED IN square footage for a non-permitted non-structural sunroom, thus driving the price per square foot way down from $310 / sq. ft. (as shown on the MLS) to $260 / sq. ft. This sunroom WAS NOT listed in the public records and WAS NOT included in the square footage by the listing agent. There was also a picture on the MLS showing it as a sunroom, not a normally constructed addition. In other words, everyone understood that this room could not be counted as square footage for the home. Except the appraiser.

e.    The appraiser got the address wrong on the third comparable.

f.     The appraiser stated that the real estate market for the community was declining. Nothing could be further from the truth: the market in this area has been trending upward since April 2009 and there was, in fact, a 22% increase in market values during that time period.

g.   When we tried to contact the appraiser for clarification, there was absolutely no response to our inquiries.

(4) We had a VERY good case to appeal the appraisal, but the buyer refused to allow us to do so.

They stated they wanted the newly appraised price or they’d take the highway. In the end, they left the transaction, leaving a very bitter taste in everyone’s mouth. They lost the money they paid for their inspection reports and the appraisal, and the seller lost a deal.  

If this was a random occurrence, I would not be so concerned. Unfortunately, I see scenarios like this almost every day. External forces are now seemingly controlling the market and, in my opinion, acting in the market’s worst interests. I am deeply concerned about where this is headed – and it is most certainly not getting any better. And there are definite long term implications.

With the tax credit now gone, these issues have the potential to undermine a very precarious market.

And in the end, buyers don’t just lose houses they’ve fallen in love with. Or the money they’ve invested in reports, etc., Sellers don’t just lose equity and the ability to sell at market value. REALTORS® don’t just lose transactions. Lenders don’t just lose loans. Neighborhoods don’t just lose value. Retirees don’t just lose the ability to sell their home for a fair value and move to the next facet of their lives.

We also lose hopes, dreams and even, sad to say, market integrity.

It’s a sad day indeed.

Links:

Petition to Rescind HVCC

HVCC Overview Video

“I don’t have an agent,” he said. “I’m a direct buyer.”

I wasn’t surprised by the fact that an unrepresented buyer was contacting me – that happens all the time. We frequently have prospective buyers contacting us as potential buyer’s agents. It was the fact that he identified himself as a part of a category – and that they had a name – “Direct Buyers.” Who knew?

There’s a growing group of self-proclaimed “direct buyers.” They aren’t looking for a buyer’s agent. They are trying to AVOID them altogether. The goal of this group is to cut out the middle man (the buyer’s agent) and “go direct” to the listing agent. They have a couple of goals they want to achieve:

(1) They’re hoping that this maneuver will mean they get the property for less, or:

(2) They’re trying to somehow get the commission that is supposed to be paid to the buyer’s agent, or:

(3) Some combination of both (1) and (2).

There are some serious flaws with this strategy.

Seriously. And I’m not just saying this because I’m a professional, fulltime REALTOR® who makes his living at this. As a professional, I’m immersed in real estate all day long every day and have a front row seat where I get to view real issues up front and personal. I see the messes created by buyers and/or sellers trying to do an end run around the system.

Here are some of the problems I see that “direct buyers” need to understand:

(1) The Problem of Dual Agency.

Direct buyers are trying to avoid the “buyer’s agent.” Problem is, if a buyer goes direct to a listing agent, they end up being represented by an agent whether they like it or not. The listing agent automatically becomes the buyer’s agent and the buyer enters into a dual agency relationship with the listing agent. Dual agency is so fraught with problems that many listing agents will not function as dual agents (a simple Google search of “dual agency problems” brings up a host of hits).

A listing agent, in addition to becoming a dual agent, also assumes legal responsibility for the buyer’s side of the transaction. In many cases, this means extra financial liability for the agent.

(2) The Problem of Commissions.

If there is no buyer’s agent, then the listing agent earns the whole commission by representing both sides of the transaction. Not only will many listing agents NOT negotiate this commission, commissions can only be paid to licensed REALTORS®. It is actually illegal to pass any commission on to a buyer per se. Some agents might cut a check outside of escrow, however, this is a violation of both their code ethics and the law.

This in turn brings up a couple of interesting questions: “If an agent is willing to violate their code of ethics to get a transaction, in what other areas might they be cutting corners as well? And why would any buyer, just to save a few bucks, want to work with someone who is willing to bend the rules and expose everyone to future liability?” 

(3) The Problem of Fiduciary Responsibilities

Dealing direct with the listing agent does not mean you will get a better deal. The listing agent first and foremost represents the seller and has a fiduciary responsibility to ensure that they get the highest price possible. It is a conflict of interest for a listing agent to try to work a listing price down to give a deal to a buyer. It also puts the listing agent in a VERY awkward position when a buyer asks them to do so.

(4) The Problem of Shortsightedness

You may manage to go direct, might get a piece of the commission and even a “lower” price, but the reality is you may have set yourself up for potential problems for years to come. The potential legal issues and lack of objective representation might actually cost you far more long term than you may have “saved” up front. MANY of the lawsuits originating from the real estate excesses of the 2002-2005 market came from perceived improper representation, lack of correct disclosure of agency relationships and subsequent consequences. In many instances, this ended up costing far more than was saved by doing an end run on the buyer’s agent.

It is a VERY shortsighted view of the market.

(5) The Problem of Cultural Clash

The bay area is a melting pot of diversity. Differing cultures have varied business practices and these can insert many diverse variables into business negotiations. We have a number of barter-based societies whose members seemingly cannot complete a real estate transaction until they feel they have managed to “get a deal.” Genuine cultural clash is induced when differing cultural ideologies intersect in a real estate transaction. I’m all for cultural diversity (my immediate family is a great example), however, I draw the line when diversity challenges a conformed code thereby impacting ethics.

In North America, the REALTOR®’s Code of Ethics dictates practices, policies and procedures. In the past few years, I’ve seen several “cultural” practices do a frontal assault on the ethical standards of REALTORS®. I’ve also seen REALTORS® themselves do an end run on the very code of ethics they purportedly adhere to … all in the name of expediency. It appears to me that can result from differing cultural practices and mindsets.

Please understand that I’m not bashing certain cultures: I’m merely identifying the fact that different cultures bring differing mindsets and cultural expectations to the negotiating table and that some of these practices and mindsets are actually in conflict with the code of ethics to which REALTORS® are bound. Sadly, it appears that even some REALTORS® are willing to “bend” their ethics to make a deal come to fruition. Others, self included, are not.

(6) The Problem of Convenience

For this plan to work, the prospective “direct buyer” must sort through listings on their own, identify homes they want to see and then call the listing agent for each individual property. Some rely on Open Houses, others set up appointments to view each home. This can be a very laborious process and can also be frustrating to a listing agent, many of whom rely on buyer agents to show their properties. It’s even more frustrating for listing agents if the “direct buyer” doesn’t tip their hand until AFTER they show up for their visit.

In contrast, a buyer’s agent makes the process MUCH more user friendly by providing comprehensive lists of all available properties, access to ALL listings and tours where multiple properties can be seen at one time.

(7) The Problem of Selection

“Direct Buyers” miss out on over 50% of the available market inventory. If none of the above 6 problems were a detriment, you would think this last issue would make a difference. Let me break this into categories:

(i)   Foreclosed Properties – REOs

It is almost impossible to go direct with foreclosed homes – many REO agents simply WILL NOT talk to buyers. There are a number of reasons for this. Some banks mandate that REO agents cannot double-end deals on bank owned properties. Other REO agents simply refuse to talk to anyone – including buyer agents.

(ii)    Short Sales

In the same fashion as REOs, banks do not want short sale listing agents representing a buyer on a short sale. In many cases, the bank will only pay one half of a commission for this type of arrangement. As a result, many short sale listing agents will not entertain a “direct” sale.

(iii)  Normal Sales

I personally know listing agents who absolutely WILL NOT entertain dual agency nor will they cooperate in any way with a “direct buyer.” As a result, this further limits the number of homes actually available for buyers who choose this tactic.

Bottom line: subtract out most REOs, short sales and many normal sales, and you are left with access to less than 50% of the available homes on the market.

In some areas, “direct buyers” are actually limited to less than 30% of the market. Since REOs and short sales represent the best potential values in the current market, direct buyers rob themselves of the opportunity to get truly good deals. In addition, they might get a “bargain” on a home, but in the end, because of the inability to access ALL the market, wind up with less than they really wanted.

Where I come from, that’s called “penny wise and pound foolish.”

Although I totally understand the idea and mindset behind “direct buyers,” I totally disagree as to the efficacy of this practice.  When the day is done, “direct buyers” might think they’re getting a deal, but when limited to a small percentage of the actual inventory available AND the potential legal and long term problems, it suddenly doesn’t look like such a good deal after all.

That’s the way I see it, anyway.

Closing costs can be a bit confusing – especially transfer taxes.

When a home is purchased in the Bay Area, each county charges a one-time transfer tax. This tax, normally paid by the seller, is included in the transaction costs labeled “closing costs.” The fee is $1.10 per thousand dollars of purchase price. As an example, if a property costs $200,000.00, multiply the price by .0011 (or .11%) and you will have the tax amount of $220.00.

In addition to the standard country transfer tax, some bay area cities also charge a city transfer tax.

Some of these fees can be quite high and, if the buyer is not aware, can cause a bit of a nasty surprise at closing time. Although it’s customary for this additional fee to be split 50/50 between the seller and the buyer, in some cases, when buying an REO or Short Sale, the seller (a bank) might pass all of the transfer tax fees onto the buyer.

As an example, the City of Oakland charges a city transfer tax of $15.00 per thousand dollars of purchase price. If a property costs $200,000.00, multiply the price by .015 (or 1.5%) and you will have the tax amount of $1,500.00.  

We are providing the following charts so you will know what the county and city charge transfer taxes are in Alameda, Contra Costa, San Mateo and Santa Clara Counties.

(Click here if you want access to transfer taxes for the entire state of California.)

Buying a replacement home contingent on the sale of your existing home.

I’m often asked, “Is it better to buy a replacement home AFTER I sell my existing property, or is it best to find a new home that I love BEFORE putting my existing home on the market?” Another variation to this question is, “What happens if I start looking for a new home and totally fall in love with a specific house BEFORE I sell my existing abode?”

This goes back to the age old fear that you may actually sell your current accommodations and end up on the street. Or, even worse, staying with relatives. It’s a concern that goes back to the time the very first one-bedroom cave was sold because the owner just got a pet baby brontosaurus and needed to upgrade to larger digs.

There are as many opinions out there as spots on a leopard, but the general consensus is this:

It is best to sell your existing home first, and then buy a replacement home.

If it’s a seller’s market, you will probably be able to sell your existing home right away, but then have a hard time finding a replacement home. If it’s a buyer’s market, you will have your pick of homes to purchase, but may have a difficult time selling your existing home. Both of these scenarios generate fear and uncertainty. When approached by sellers with questions about selling their existing home and buying a replacement, I offer the following advice:

1.    “Let’s go out and look at the options.”

I do this so they will be comfortable that the type of home they want is available in their new price range.

2.    “MAKE SURE you do not fall totally head-over-heals in love with a home that you cannot live without BEFORE you sell your existing home.”

It’s one thing to look at homes to get an idea of what is out there – it’s another thing altogether to find a home that you get fixated on and decide you must have. It’s OK if you are a cash buyer and have enough dough to simply buy it outright. I love it when that happens. Or when sellers have the ability to completely finance a second home without selling their existing home and then don’t mind paying two mortgage payments until the first property sells.

However, for the rest of us “normal” folks, it’s a HUGE problem when sellers go out and find a home they have to have before they’ve sold their existing one.

It means they have to buy the new home CONTINGENT on selling their old one.

We are not talking about the normal buyer contingencies here (loan, appraisal and inspections). It means you submit an offer on a home SUBJECT TO or CONTINGENT UPON the sale of your existing home. This is a scenario fraught with issues and landmines.

There are nine basic problems with buying contingent on the sale of your existing home. These are as follows:

1.    Sellers DO NOT like contingent sales.

In a hot market such as the one we’ve seen here in the Bay Area, many sellers are VERY reluctant to agree to sell you their home contingent on you selling yours – ESPECIALLY if your home is not even on the market yet. When a seller depends on the sale of YOUR home to sell THEIRS, it robs them of control. Most sellers want to stay in control of the sale of their home – especially if multiple offers might be out there.

2.    You typically lose the opportunity to seriously negotiate when buying a house contingent.

Sellers are usually only willing to take their home off the market for an extended period of time as long as they feel they are getting top dollar – in other words, the benefits outweigh the risks. This is especially true if your home is not even on the market as of yet. That means you pay what THEY want, not what YOU want.

3.    Sellers have to change their property’s status on the MLS.

The seller of the home you are offering to buy has to take their home off the market (or at least mark it AC [Active Contingent] on the MLS). This means that they may miss other, better opportunities while their home is tied up with you and your offer. In many cases, AC listings no longer show up on consumer websites as Active and so their home may become “invisible” to prospective buyers.

4.    Most agents don’t like showing homes that are listed AC (Active – Contingent).

Many feel it’s a waste of time. Some don’t want to “rock the boat” of an existing transaction. In addition, some buyers don’t want to look at homes market AC because they don’t like the idea of bumping someone out of a home.

5.    YOU might get bumped.

Other offers occasionally come in. BEFORE your home has entered escrow. Depending on the way your offer was written, you will have somewhere between 24-72 hours to remove your contingency should someone else put an offer in the mix. If you cannot remove your contingency, you will be bumped. This can be VERY frustrating.

6.    You lose the ability to market your own home effectively.

The seller of the home you are buying contingent will most likely establish time frames for you to have your home sold – this typically means you have to price your home aggressively and take offers as they come – or risk losing the home you want to move to. This one reason alone is why I council sellers to avoid buying contingent.
 

7.    You will most likely end up buying high and selling low.

This is the exact opposite of what you should be doing. You want to sell high and buy low – especially if you are moving up. As a seller, you want to avoid situations where terms are dictated by someone else – it always puts you at a disadvantage and can actually cost you a lot of money.

8.    It’s hard to get a pre-approval for a loan based on conjecture.

To put a contingent offer on a replacement home, you need to demonstrate that you can pay for it. This means, in most cases, a loan preapproval. At best, you will only be able to give your lender “estimated” numbers for the sale of your own home. Truth is, you really don’t know for sure what your final sale price will be, and there are always unexpected costs such as repairs, etc.

Depending on the final sale price of your existing home and your net proceeds, you may actually end up no longer qualifying for the home you want to buy.

9.    You will not be able to offer on foreclosed homes.

Banks will not look at contingent offers. Since there are a lot of great opportunities out there right now, this excludes you from having access to the full market. And some potentially great deals.

So … since it’s not a good idea, how can you sell your existing home without ending up on the street?

Here are four suggestions:

1.    Put your home on the Market SUBJECT TO finding a replacement home.

Although this may limit, to a small degree, those who may want to see your home, it WILL protect you from being on the street. When we write an offer this way, we normally give the seller 21 days to find a replacement home. This has successfully worked about 95% of the time.

2.    Start looking once your existing home is in escrow.

Once you are in escrow, you are free to look! Any offer on a new property would be written in such a way as to protect you should something happen to your existing escrow. And you want to make sure that the deposit on your existing home is LARGER than the deposit you put down on your prospective new property. Your offer will still be contingent, HOWEVER, contingencies can be removed within normal time frames and you are protected. And if you are fortunate, you will have a concurrent close (your new property closes escrow the day after your existing home closes).

3.    Arrange for a rent-back of your existing home.

If you cannot arrange a concurrent close, and as long as the time period is no longer than a few weeks, rent-back is a good option as long as all parties can come to an agreement. You would normally rent back for the new buyer’s daily PITI (principal, interest, taxes and insurance). If it’s a property with an HOA fee, you’ll need to factor that in as well. This amount is called a “per diem” and it is normally a daily rate of 1/30 of the new owner’s actual expenses.

4.    If you can’t find a replacement home right away, find a short-term rental.

This is obviously the least desirable option, but it is an option nonetheless. Some of our clients have rented spaces from local extended-stay hotels while others have actually rented apartments or homes month-to-month. In every situation we’ve dealt with, this wait has paid off and the sellers are all living in homes they love.

We understand that every circumstance is different, and although we’ve done a number of contingent sales for clients (we even bought our own house contingent!), we’ve consistently found that the best option is sell, then buy. It results in the neatest, cleanest transactions and, when the day is done, the most satisfied buyers and sellers. You are going to be living in your new home for a long time: it’s best to make sure you are totally happy with your transaction ... 

In every way. 

We’ve all heard of the “good old days” – those “days of yore” that ain’t no more. Remember those times? I can easily recall hours spent in smoke-filled restaurants and airplanes, playing with mercury-filled thermometers as a child, contractors installing “popcorn” acoustic spray on household ceilings and more.

Public health and safety was not a primary concern and products were manufactured using the best known ingredients possible – with no thought given to potential health implications. Think mercury, asbestos … and lead.

Lead was used to improve a multitude of every day products. In paint, it provided a high opacity finish that spread easily, dried well and was extremely durable. In gasoline, it reduced engine knock.

Although providing tremendous benefits, there were severe environmental consequences. It became clearly evident that the adverse consequences far outweighed the advantages.  Ironically, although documentation of lead induced poisoning can be traced as far back as Ancient Rome, Greece and China, lead usage in commonly used items was not banned by the United States government until recent times. Eased out of gasoline in 1978 and banned in 1996, lead was also eliminated from household paint in 1978.

Unfortunately, consequences remain.

Of concern is the potential for lead poisoning. Especially harmful to children, lead damages nervous systems, stunts growth and delays development. Over time, lead-based paint deteriorates and produces dust. This lead-laced dust covers everything and is ingested by children through normal hand-to-mouth activities. It’s a hidden danger parents need to understand.

Many pre-1978 Bay Area homes contain lead-based paint under layers of newer paint.

In addition to the normal deterioration of lead-based paint and subsequent risks, remodeling substantially raises the potential of lead-saturated dust. Consequently, as of 04/22/2010, renovations disturbing lead-based paint in pre-1978 residences come under the auspices of the Environmental Protection Agency (EPA) and must comply with the Lead-Based Paint Renovation Rule.

This affects owners of older homes preparing them for sale.

If an owner plans on performing work themselves, the rules do not apply. However, hire a contractor or handyman and the rules DO apply. Anyone paid to perform or direct renovations (contractors, handymen, landlords, property managers) must comply. In addition, they’re responsible to disclose potential issues.

A Realegal® article published by the CALIFORNIA ASSOCIATION OF REALTORS® further clarifies: “Under the newly implemented rule, renovators of target housing built before 1978 must now be trained and EPA-certified to perform safe work practices to prevent lead contamination.  Additionally, renovators must deliver EPA's lead renovation pamphlet to an occupant within 60 days before a project begins (and, if mailed, at least seven days before a project begins).  Renovators must also obtain the occupant's signed acknowledgment of receipt or substitute documentation as specified.”

This means additional certification for licensed contractors will be necessary for contractors to comply.

Renovations are defined as “modifications of an existing structure that disturb a painted surface, such as surface restoration or surface preparation activity.  Excluded are minor repair and maintenance activities that disrupt up to 6 square feet of interior painted surface or 20 square feet of exterior painted surface.”

As with any government regulation, although there may be long-term gain, there will definitely be short-term pain.

Those of us who remember the kerfuffle when asbestos abatement programs were rolled out are already wincing at the implications of this new ruling.

Click here for information on testing your home and family for lead.

Click here for information on protecting your family from lead.

Click here to download a copy of the EPA Lead Hazards pamphlet.

Click here EPA Requirements for Renovation, Repair and Painting.

Click here for a list of lead certified professionals.

For more information go to:

California Association Of REALTORS® Realegal®

United States Environmental Protection Agency - EPA

ConsumerAffairs.com
California Contractors State Licensing Board

Let’s face it. Since the very moment humans began exercising their vocal chords and opinions many millennia ago, advances in communication technology have been a priority.

From the development of the Phoenician alphabet (circa 3500 BC), to the first recorded use of Homing Pigeons delivering messages for the Greeks (776 BC), the Telegraph (1844), Pony Express (1860), the telephone by Mr. Bell himself (1876) and Twitter (just 4 shorts years ago), we’ve made a worldwide pastime of increasing the efficiency and ease of communications. Why wait for that letter from your dear aunt Gertrude to travel by way of snail mail to the door of your nearest postal office when she can bless you with her sultry serenade in mere seconds via email? Or chat? Text? Tweets? Better yet, why not actually see her on Skype? It simply doesn’t make sense.

And not making sense simply won’t do.

With the advent of mass electronics, computers, smart phones and internet interconnectivity, you’d think that the ability to communicate, mobilize and conquer the world lay at our fingertips. Right when it would seem that electronics were capable of solving the woes of the world, that empires could be acquired at the click of a button, that you really can purchase your dreams on eBay, you’re rudely brought back to the reality of that quintessential doting of ink to paper brought to stardom by yours truly, John Hancock.

The signing of your name to paper.

Required by the vast majority of legally binding documents, the placement of your signature on the dotted line is simply unavoidable. And therein lays the rub. Purchasing property in Pennsylvania while sunbathing in Hawaii? Better find a pen, fax machine, and some time.

 It could take awhile.

In a time when much of our world revolves around the instantaneous, when communication is as easy as a click, drag and punch of the key, we have struggled to overcome the burden of the signature, to envision the day when this, too would be improved by technology.

Fortunately, that time has come. Electronic signatures are not only here, but as of April 8, 2010, they’ve gained national acceptance by the nation’s largest mortgage insurer, the Federal Housing Administration(FHA).

Although in use for some time, many entities would not accept electronic signatures. The IRS is an example (I know because I tried!). Those of us utilizing electronic signature services such as DocuSign would pull our hair out when told, “Wet signatures required.” We’d often end up with completely illegible faxed documents. And we’d lose valuable time as well, which, in some cases, cost us a deal.

In contrast, we’re currently facilitating a transaction with a property in Baltimore, MD, Buyer #1 in Castro Valley, CA, Buyer #2 in Lima, Peru and a lender somewhere deep in Michigan. What might have taken days to facilitate can now happen in less than … 5 minutes. And the resulting signed contract documents are crystal clear; leaving everyone with a copy they can email, upload or electronically archive at will.

Already accepted by NAR (National Association of REALTORS®), FHA’s decision to clarify their position on electronic signatures will undoubtedly assist to streamline the sale, purchase and financing of homes across the nation. Using electronic signatures, the need to fax and sign large loads of documents can be eliminated.

Now legally compliant in all 50 states, electronic signatures are Green as well.

They can expedite turnarounds of documents from days to minutes, even for clients overseas, and, since there is no need to print documents for signature, DocuSign and other electronic signatures are VERY green. You can go straight from soft copies to signature and back to soft copies without printing a single page. And you can even sign your docs on mobile devices like the iPhone.

And as I write this, many in my office are performing Balki Bartokomous' Dance of Joy …

Bottom line:

FHA’s approval is a major step in the right direction, and we’re going to sign off on it without a doubt!

GOOD NEWS FOR RENTERS!!

As of April 7, 2010, Consumers Can Now Search Trulia.com for Millions of Rental Units in Multifamily Buildings, Agent Represented Rentals and Landlord Submitted Properties From One Comprehensive Source!

In a bold move, Trulia.com launched their new rental platform designed to provide renters with a single, comprehensive source to locate rental properties. This new feature will be very helpful to both end users and REALTORS® alike and will not have many of the “issues” found on other rental-based portals.

Click here to see the full press release.

Click here to go to the new Trulia Rental link.

Trulia co-founder and CEO, Pete Flint states, “With the burst of the housing bubble, more consumers than ever are trying to decide if they should rent or buy so we’re giving them the tools to make the best decision for their lifestyle.” He adds, “We saw the opportunity to take our world-class interface, advanced search, rich maps and local neighborhood information and make Trulia.com available for renters, as well as home buyers. This is an exciting new market for us and we’ll continue to innovate to make it the best experience on the web.”

In its press release, Trulia also lists the following exciting benefits as a part of this new tool:

· Smarter Decisions - The decision whether to rent or buy is often a complex decision that requires intimate knowledge about each alternative. To help guide consumers through this process, Trulia offers a Rent vs. Buy calculator and Expert Renters’ Guides such as: 10 Questions to ask a building manager when touring a rental , How much rent can you really afford?. Consumers can also post questions in the Trulia Voices community to get answers from the largest real estate community on the Internet.

· Local Ratings and Information – Users can rate local areas on 12 different traits including parking, cleanliness, safety, public transport and weather, along with many more topics. They can also see information about nearby schools, local amenities and businesses provided by Trulia partners Greatschools.net and Yelp.com.

· Advanced Search – Consumers want flexibility when they search for a place to live. Trulia gives people the ability to search by keywords (ie. pool, waterfront, covered parking) multiple locations and custom ranges, as well as the capability to search by location, map and radius.
 

· Search on the Go – Having the ability to search anytime, anywhere is critical today. Consumers can easily search for a place to rent or buy on Trulia’s mobile Web site, which is compatible with iPhone, Blackberry, Android and other mobile devices.

· Personalization – Finding a new apartment or house is a very personal decision. Trulia gives consumers the ability to save communities and individual rental listings, easily send favorites to friends and family members via Trulia or Facebook, and sign up for real-time email alerts about new rental properties that match their saved search criteria.

New Tool Will Help both Renters AND REALTORS®

This new link provides obvious advantages to those looking for rentals in local housing markets. It's also a boon to REALTORS®, many of whom do not handle rentals. Now there is a comprehensive site to send clients to where they can gather comprehensive rental data without much of the difficulties presented by other dedicated rental sites.

This is a great move on Trulia’s behalf and one I am personally excited to see!

Steering is good. If you want to get to your final destination, being accurately guided in the right direction is critical. I’m old enough to remember when American automakers started switching to rack and pinion steering. Until then we had to put up with ranting European auto engineers touting the advantages of their superior designs. Come to think of it, we still do (but that’s a different post)!

Good steering helps a car accurately go where you point it. It’s great for vehicles of all kinds. So wouldn’t steering be good for Real Estate as well? Being pointed in the right direction? Not so much.

In fact, it’s Illegal.

So what is steering, anyway? REALTORS® are frequently questioned about the makeup of neighborhoods. It’s not uncommon for individuals of specific ethnic backgrounds to want to live in areas with concentrations of neighbors just like themselves. A question I’m frequently asked is, “What’s the ethnic makeup of this neighborhood?”

As a REALTOR®, it’s a question I cannot answer.

Steering is the practice of divulging data for the purpose of influencing a buyer’s decision to live or NOT live in any area. In reality, it’s a violation of the Fair Housing Act (Title VIII of the Civil Rights Act of 1968). As REALTORS®, it’s important that we avoid steering our clients where to or not to purchase a home based on race, religion or sexual preference or other demographic categories.

Ralph Roberts, author of “Flipping Houses for Dummies” explains it this way:

“The problem with profiling and steering is much more serious than any isolated act of racism or discrimination. It not only victimizes the buyer, by limiting the buyer's choices based on a person's physical appearance, culture, or belief, but it also promotes segregation and the ongoing cycle of discrimination. Without steering and other discriminatory practices, neighborhoods would naturally become more diverse. People would purchase homes based more on neighborhood preferences and income rather than on race, culture, and belief. The diversification would naturally lead to greater understanding and acceptance of differences.

In addition to being legally, ethically, and morally wrong, housing discrimination is un-American. It runs counter to the American passion for freedom. It threatens the American Dream of homeownership by restricting it to select groups of Americans. It weakens the synergies that could naturally develop when people of different cultures and beliefs share their values and ideas. It runs counter to the American belief that all people are created equal. And it cheats us all out of the opportunity to reap the potential benefits of diversity.”1

I totally agree. Like faulty steering in a car, faulty steering in real estate can lead to some huge problems.

There are three important facts to know as a buyer:

1.    REALTORS® CANNOT divulge race, color, nationality, religion, sex, lifestyle, disability, income levels and other specific demographical information about individuals or neighborhoods. We are prohibited by law and our Code Of Ethics from providing information classified as discriminatory.

2.    REALTORS® CAN discuss neighborhood qualities, amenities, styles, school scores and other local conditions. We can provide comparative market analysis, discuss national and local trends and help you establish fair property values. We can advise, be a mentor, a coach and provide a top-notch buying experience.

3.    While REALTORS® cannot discuss demographic information, it is readily available in many public forums.

Numerous websites provide demographic data for cities and even neighborhoods. As an example, ZipSkinny provides free demographic data by zip code. Many city websites provide identical data. They draw their information from the US National Census Bureau at US Census Bureau. This comprehensive website is a tremendous resource to businesses and individuals alike and is free. Demographical data, updated through the national census, is used by numerous governmental and business entities to regulate policies and practices. The figures and statistics gathered by our government are classified as public information and therefore available to all.

Which brings up my final point.

As I write this, I’m looking at an envelope from US Census 2010. Every household has received one and it’s crucial they’re accurately completed and returned on time. In fact, as the TV ads say, local area policies and funding depends on accurate information.

As a REALTOR®, I can’t (and won’t) “steer” you, but I WILL encourage you to make sure your census form is filled out and sent in right away! It’s your duty, it’s the law, and …

It’s the RIGHT thing to do.

1: Ethics Watch: How Discrimination in Real Estate Kills the American Dream, by Ralph Roberts. For more information, visit http://www.flippingfrenzy.com or contact Ralph at RalphRoberts@ralphroberts.com  or 1-586-751-0000.

Until they mention their budget.

More often than not, they want their dream home for a price that doesn’t exist west of the Mississippi. I call it “misplaced optimism” and it’s a disease that’s rampant amongst first-time home buyers. The cure?

A solid dose of reality.

I don’t want to sound hard or callused here. And I most certainly don’t want to break anyone’s heart or dash their dreams. After all, dreams are the stuff hope is made of. And without hope, where would we be? It’s hope that fuels the American dream of home ownership and keeps markets such as the one we’re in  … alive.

But there needs to be reality as well. And reality states, quite simply, that you cannot buy a home priced at $500,000 if your budget is $400,000. Yes, there are occasional deals. Yes, once in a blue moon the stars align and an unbelievable bargain falls out of the sky and into your lap alone. Yes, we know that you have a friend who got the absolute deal of the century. However, those are not situations you plan for. It’s like winning the lottery. If a person went out and bought a lottery ticket and then started basing their lifestyle on prospective winnings, we’d consider them to be delusional.

And yet when it comes to houses, everything seems to be different.

Personal opinion? The Bay Area is a very unique area and composed of many different cultures. It’s inevitable that there be cultural clashes when so many different ethnicities combine. Many of the cultures that make this region so special are based on bargaining. They are used to haggling on the price of anything and everything – so bargaining for the price of a home is right up their alley.

Until they run into the reality of the current market.

A lifetime of bargaining skills will not change the reality of the market. In most regions of the Bay Area, home prices at the bottom of the market turned around and started to climb back up in March of 2009. This is especially true for most of Alameda County. In Chart 1 below, I show data for 2008-2009 for single family homes 1,800 square feet and smaller (this size home typically represents the bottom end of the market).

Chart 1: Average price for Single Family Homes 1, 800 sq. ft. and smaller: 2008-2009

Much of the upswing in average prices can be attributed to low interest rates, the tax credit, very low inventory levels and record numbers of buyers trying to cash in on the low market prices (click here for a related post). I recently attended the HomeGain Nation event in San Francisco and heard stories from agents around the country: although the price point differs from city to city and region to region, similar market stories were coming from many other areas across the country.

The bottom of the market is red hot and multiple offers on anything decent have been the order of the day.

In contrast, the top of the market is still soft. As shown in Chart 2 below, prices for homes 3,000 square feet and larger are still inching downward.

Chart 2: Average price for Single Family Homes 3,000 sq. ft. and larger: 2008-2009

Those looking for homes at the top of the market are discovering that there is room to maneuver. Quite a lot, in some cases. There ARE deals to be found and prices are flexible. However, the vast majority of buyers are currently looking at the BOTTOM end of the market: this explains why the lower market segment is so volatile and why it is SO different than the top of the market.

The reality is this: you have to play by the rules that govern the segment of the market you are operating within.

Based on this, I have five observations:

1.    If you want a home in the lower segment of the market, you have to pay the going rate.

Seems simple enough, but I’m amazed at how many buyers are still not willing to effectively compete in multiple offer situations. This isn’t designed to be a dialogue on the “ethics of the market” (the underlying psychological issues driving the market). I’m not here to say the current market is “right” or “wrong.” It just “IS.” And if you want a house in the lower segment of today’s market in the Bay Area, you have to compete to get it. It’s like buying gold or stocks: if you want the commodity, you have to pay the going rate.

2.    Continuously underbidding hoping to eventually land something is a futile exercise.

It’s like fishing without any bait on your hook alongside others with barbs loaded with PowerBait. The only way you’ll catch anything is if a fish accidently runs into your hook and catches its tail. Odds aren’t real good. I see this with our own listings: we get multiple offers at and above asking price, then we get a few offers way below asking. I look at them and ask, “Why? What were they thinking?”

3.    Establish a budget and then stick to it.

We got ourselves into this mess by (i) greed, (ii) over extending ourselves beyond logic, (iii) having access to faulty loan products that fueled our ambitions and (iv) being totally irrational about the future of the market and economy.

The way out of any financial mess is constraint: by spending less than you bring in.

By establishing financial boundaries and staying within them. By NOT following the example of our government with its rampant deficit spending. By setting a realistic budget for a home and then not exceeding the limits. To this some will say, “That’s what we are doing, and that’s exactly why we’re submitting so many lowball offers.”

Which brings up observation #4.

4.    Be realistic about the type of home you can buy.

It’s called “champagne tastes on a beer budget.” Wanting to have something you cannot have at that moment but trying for it anyway. I’d like to rephrase it; “SFR (detached single family homes) tastes on a condo budget.” Let’s be real here. I know that most everyone wants to live in a detached single family home with a nice rear yard and so on. No one is faulting your dream. However, if you can’t afford it right now, then be realistic and focus on what you CAN afford. And get over it. I’d personally love to live in a three million dollar home atop the hills high over Oakland looking out onto a 4-bridge view. There’s a good reason I’m not there, and it’s not because I don’t WANT to be.

I hear buyers tell me on a daily basis, “We don’t want a condo or a townhouse.” Like they’re bad, or something. Truth is, they provide wonderful housing for a good percentage of the population here in the Bay Area and they can be a good investment if you choose carefully. As for HOA fees, it’s just another way of paying the same costs you’d pay if you were in a single family home (click here for a related post).

I’ve seen many prospective buyers actually price themselves out of the market because of an unwillingness to get in at the level they could afford. It’s sad to see – some of them have lost the only chance they may ever have, given their financial constraints. If I were faced with the choice of buying a condo or not getting into the market at all, I’d go with the condo, and then slowly work my way up as the market changed.

5.    Pay attention to the future.

The winds of change are blowing and this is a good time to keep your eye on the horizon. The tax credit is expiring soon and no one knows if it will be renewed. There is no doubt that it has helped fuel the current Bay Area market, and many believe the market will slow down once the credit is removed. I agree. In addition five national trends will be shaping housing prices as we head into the summer. I personally do not believe we’re going to see a large dip in prices, however, I think we may see a slight decline and then stabilization as we head into the fall.

BOTTOM LINE: if you want an entry-level home today, you have to pay the prevailing rate. If you want to hedge your bets on a lower market later this year, do so THEN – don’t try to get the market to come to you TODAY.

It won’t happen, and you’ll frustrate everyone in your path, including yourself.

Finding a “young” house IS.

Using Castro Valley, CA as an example, county records reveal 19,030 properties on the tax register. Of these, only 632 were built since 2000. That’s a minuscule 3.32%. In 2009, 480 properties were sold in Castro Valley. How many were less than 10 years old? 14. That’s a mere 2.92%. Most cities in the Bay Area have very similar statistics. Yet buyers want newer homes. Since I represented a large number of buyers last year, and MANY of them told me they wanted a “newer” home, it’s safe to say that I could have sold all of the newer homes in Castro Valley … by myself. News flash. Didn’t happen. Or any other agent, either.

A LOT of people ended up buyer older homes.

Avoiding older homes because of potential issues is a common misconception. It’s simply not correct, and If you stick with that mindset, you may end up with no home at all. Reality is, your budget limits the type, location and age of property you can buy. In fact, in many cases, especially with first-time buyers, older homes may be your only option.

I personally prefer older homes. Driving through San Leandro’s Estudillo Estates, I marvel at the “Old World” character and quality and lament that it’s missing in newer homes. I’d love an older home in Piedmont, San Carlos … heck, why not … Nob Hill. My personal residence, a 1968 “vintage” house, is on a 10,000 square foot lot on a tree-lined street in an established neighborhood about 100 feet from a lake – it’s a wonderful place to come home to. Homes like mine just aren’t available in newer neighborhoods.

Maintenance is usually the primary concern of those wanting to avoid older homes.

Houses are like puppies. They are SO cute when they're young, but they ALL grow old. The cuteness wears off after a while. In the same way, ALL homes need maintenance and upgrading at various points in their existence. I’ve seen 200-year old homes in wonderful condition and 3-year young dwellings with extensive dry rot, trashed carpets and more. I’ve toured 20-year old homes needing new furnaces and visited 60-year old houses with state-of-the-art HVAC systems, home theaters, etc. You have to evaluate every home on its own unique merits. Speaking of older homes, I could move into Hearst Castle tomorrow!

Unless brand new, the condition of any property depends on the care and attention of its’ previous occupants. Some provide wonderful care and improvements. Others … not so much.

Everything starts with your budget. As much as I love old houses, unfortunately, I won’t be living in Atherton anytime soon. Once you’ve dialed in your financial constraints, establish a relationship with a REALTOR® who is familiar with the various aspects of older homes. You don’t just want someone to show up and open the front door, you really need an expert who can advise you while you are looking at any given property. As an example, since I’m also a licensed general contractor, I’m able to tell my clients exactly what they’re looking at when we see problems while touring listings. I can assess problems and provide ballpark numbers for repairs. While a contractor’s license is certainly not something every REALTOR® carries in their back pocket, a competent agent CAN help you locate properties that fit your budget AND are in good condition. Get extensive inspection reports, read them carefully and get estimates, if necessary.

New isn’t necessarily better … it’s just … newer. And “newer” can come with severe liabilities as well.

Here are five reasons “new” may not be a good choice for you:

1.    Location

In many parts of the Bay Area, newer homes are located in “in-fill” areas. “In-fill” is typically land that wasn’t built on earlier because of its proximity to railroad tracks, BART, freeways, airport glide paths and so on. One particular in-fill development comes to mind right away: it’s snuggled between BART and the main North-South Union Pacific railway lines (which also accommodates Amtrak), is next door to a concrete plant and across a very busy street (think LOTS of truck traffic) from BART’s maintenance facility. Other than that, it’s a great place to live!

2.    Lot Size

Most newer homes have small lots. Postage stamp sized lots, in fact. With VERY narrow side yards. You can sneeze in your bedroom and hit the far bedroom wall – in the house next door. You can hear “discussions” that occur when family matters next door “heat up.” Since most newer homes are two stories, and there are usually no mature trees to speak of in the rear yards, from your bedroom windows you can see what is happening in the rear yard of your neighbor … six houses down.

3.    Price

Newer costs more. Values of existing homes actually go down because the house itself is a depreciating asset. It’s the LAND that increases in value … remember the age old cry that began with the sale of the very first cave … “Location, Location, Location.” New homes are built on land that costs a lot and are built out of new materials – that cost a lot. It’s also why, in many cases, it’s cheaper to buy an existing home than it is to buy land and build a new home (assuming that you can find any land in this area, of course).

4.    Availability

Newer can also be tougher to get into, especially in the current market with its extremely limited inventory. You might just get priced out of the market by increasing prices as you wait for that “newer” home to come along. Even if it does, you can guarantee multiple offers over asking price. And waiting lists are back in vogue at many new home builders in the area.

5.    Community

Many older homes are located in communities close to amenities such as shopping, good schools and so on. Frequently, they also have tree-lined streets with large trees, bountiful landscaping and more. There’s often a more diverse neighborhood mix as well: newer communities have a tendency to attract younger families. Older neighborhoods have a great mixture of established older families, retired couples, middle aged families, singles and so on. This diversity can provide rich blessings simply not available in many newer neighborhoods.

“Grow old along with me!” states Robert Browning. “The best is yet to be…”

My knees won’t necessarily concur, but when it comes to houses,

I totally agree!

Strange how some things are hilarious on TV but in real life … not so much. In fact, the bay area housing market is currently experiencing a “missed it by THAT much” scenario that’s no laughing matter. Not even close. In reality, it’s turning out to be VERY upsetting to buyers, sellers AND transactions.*

Low appraisals. LOTS of them.

Used to be that home values were set by the buyers. In fact, the real value of anything is what someone is willing to pay for it. In the current market, however, this has changed. Values are now being set by an arbitrary appraiser. I use the word “arbitrary” because of the current lack of uniformity, both in procedures and outcome. And unfortunately, since the inception of HVCC, the quality of appraisals has taken a sharp downward turn.

That comes squarely under the category of, “I told you so…”

It’s no surprise that there has been intense pressure on appraisers resulting from the market melt-down. Since appraisers are hired to justify values, the finger has been pointed directly at them for allowing the previous market values to escalate to hitherto unknown heights. While it’s a boatload of hooey to blame it on appraisers, people have tried nonetheless. Just to set the record straight, greed got us here – greed from buyers trying to buy homes beyond their means and banks willing to lend them obscene amounts of money at ridiculous terms to do so.

So … take a solid dose of intense pressure on appraisers, fold in HVCC, factor in rising market prices, blend in appraisals being performed by out-of-area appraisers with no knowledge of local conditions, boundaries, neighborhoods and the like and ...

You have a recipe for low appraisals.

WAY low. I recently had an appraisal come in at 79% of the offering price. We were not offering a price that was pushed too high by multiple offers - we were offering at the same price as other recent, previous closings. The deal was killed and our buyer, after paying $400.00 for the insulting appraisal, was back out trying to find another home. With the current extremely limited inventory and escalating prices, that’s an almost impossible task. To add injury to insult, we just had another home appraise for $30,000.00 less than an identical home that had just closed a week prior.

There’s a basic fact to remember about appraisals: Banks will only lend to the appraised value.

If an appraisal comes in low, something has to happen to change the parameters of the transaction. If nothing changes, the deal is dead.

There are four possible solutions:

(1) Try to negotiate a lower price with the seller.

This is VERY unpopular, especially in the current seller’s market. Sellers are more likely to cancel the deal and put the home back on the market, hoping for (i) a buyer with more cash or (ii) a better appraisal the next time. Been there. Seen that.

(2) Come up with extra cash to make up the difference.

This option is very difficult for most buyers, especially FHA borrowers. And it comes with a bit of emotional baggage as well. “What if,” buyers say, “The appraiser is actually right? We don’t want to actually overpay, do we?”

(3) Challenge the appraisal.

Ask for a copy of the appraisal and carefully evaluate the comps (comparative properties used). If it looks inaccurate, you can challenge the appraisal (but it will take time and the success rate is not high). Many sellers are not interested in waiting around while you try to challenge the appraiser’s findings.

(4) Pay for another appraisal, hoping it will come in higher.

That will be another $400.00 please with no guarantee of a different result. It may actually come in lower.

There is a fifth option, but it’s brand new and no one really knows if it will actually make a difference: file a grievance or complaint about the appraiser. Truthfully, it may be too little too late: again, most sellers are not going to wait for the outcome.

Click here for more information on the grievance process.

Bottom line: If you can’t make it work, then you’re dead in the water. The deal is cooked and any money you’ve spent investigating the property is down the drain. And you’re out looking again. All the emotional equity you’ve invested goes from your heart to your gut, producing a significant Maalox moment. Instead of a new home, you’ve “missed it by THAT much.”

This makes it easier for buyers with FHA loans to get a home in the current marketplace.

Until now, a typical scenario has reenacted itself frequently causing much grief, angst and substantial heartburn:

1.    A Realtor takes buyers looking for homes and they locate a gorgeous, upgraded property that is not an REO (foreclosed) or short sale.

2.    They write an offer, get it accepted, open escrow, get the appraiser out … and then discover that FHA will not approve the loan because the property is a flip (unless the property is being sold more than 90 days AFTER the date of original purchase by the investor).

3.    The deal falls apart, the property goes back on the market and sells to someone with cash or conventional financing. The first group of buyers slowly move on, looking for another property … sadder, wiser, more desperate … and SEVERELY frustrated.

So what’s the deal with a flip and why is it an issue for FHA buyers?

A flip is a property an investor purchased at a discounted rate either on the courthouse steps or by some other means. They may or may not renovate the home (at a minimum, in our area, they most often paint and replace carpets), then put the home on the retail market at full market value.

What’s wrong with that, you ask? Evidently, HUD (U.S. Department of Housing and Urban Development – http://www.hud.gov/) feels the need to “protect” buyers from the practice of flipping which, in their minds, suggests “predatory” investors are buying homes cheap and then selling them to “unsuspecting” buyers at a higher price.

While I understand HUD’s concerns, a more typical scenario is as follows, and provides 3 significant benefits to buyers:

1.    Benefit #1:

An investor buys a foreclosed home at wholesale on the courthouse steps. This is a place “normal” buyers should avoid at all cost, and is a venue typically frequented only by seasoned investors – it’s a bit like sending the Marines in first to do the dirty work. And it can get REAL dirty. This could include unpaid obligations such as property taxes, HOA fees, it might mean rousting the current occupants, dealing with extensive damage and the like.

2.    Benefit #2:

No matter how “dirty” it gets, the investor assumes all the risk! ALL the risk!

3.    Benefit #3:

In many cases, flipped homes are in VERY good condition by the time they hit the retail market. Any title and lien issues have been cleaned up and removed. The investor invests money UP FRONT to upgrade the home and then puts it on the market at a fair market price.

Bottom line:

These homes are usually in better condition than REOs (foreclosed homes), have all outstanding title issues removed and, in most cases, are correctly priced and represent a wonderful opportunity for buyers. And unlike short sales, they run like a normal transaction with regular time frames. The investors make a bit of money, the buyers get a decent home at fair market value and everybody wins!

And now, thanks to HUD, “flips” will actually qualify for FHA loans as well (some conditions apply)!

It’s a good move designed to provide relief for the current market and, in our books …

It’s about flipping time.

A neat thing used to happen. Realtors talked to each other. Buyer’s agents, after showing homes, would call up listing agents to discuss price, terms, reports and other details necessary to craft a well-written offer. In the deliberations that ensued, good offers were often hammered out before pen ever set ink to paper. This preamble established meaningful relationships, paved the way for smooth transactions and frequently removed obstacles prior to an offer’s acceptance and resulting escrow.

They referred to it as, “greasing the skids.”

It was also called “negotiation,” and was defined as, “to confer with another so as to arrive at the settlement of some matter; to deal with (some matter or affair that requires ability for its successful handling); to arrange for or bring about through conference, discussion, and compromise a successful conclusion of a matter.” It was the hallmark of an accomplished Realtor; what set him or her apart from the rest of the pack. In addition, this skill-set was used throughout the transaction as various needs arose; as an example, negotiating for repairs.

Unfortunately, it’s a skill that’s seemingly disappearing from the current real estate market.

Negotiated purchase agreements are currently being replaced with “Highest and Best” offers. It literally means “Do Not Call, Do Not Ask, Do Not Discuss, Do Not Even Think we will give you any information or negotiate: simply write your offer based on your best shot and hope you succeed. PERIOD."

It’s not good for consumers and, if I were to continue the Star Wars overtones, I’d say, “It’s a plot hatched by an evil galactic banking empire designed to expedite the buying process and remove the heart and soul from real estate transactions.”

Call it what you wish: it’s the death knell of negotiation.

It’s especially true when dealing with REO listing agents. Buyer’s agents who try negotiating in the current market frequently run into a wall. Instead of being able to call the listing agent to discuss price, terms, property condition and number of offers already submitted, many foreclosure listing agents refuse to answer their phones or respond to emails. They instead post comments such as, “Highest and Best by next Tuesday at 5:00 p.m.”

There is no attempt to communicate or negotiate with buyer’s agents. Zip. Nadda. Zilcho.

With no communication, buyers and their agents are forced into a scenario where they have one shot to write an effective offer. They must do so with:

(1) No information of any kind from the listing agent.

(2) A guess as to how many offers they might be competing against.

(3) Absolutely no idea what the highest price might actually be.

(4) The knowledge that properties must be purchased “AS-IS” with no repairs of any kind, but with no reports and, in many cases, 5-day Inspection Contingency removal time periods.

It’s like a blind auction, and it completely removes the need for listing agents to be involved in any negotiation. To add injury to insult, it’s a practice now being picked up by listing agents of “normal” listings as well.

It’s a cancer spreading throughout the market, doing a tremendous disservice to both buyers and sellers alike.

As a practice, this has the following 5 consequences. It:

(1) Removes the opportunity for a buyer’s agent to negotiate a deal that “fits” their buyer.

(2) Eliminates the possibility of a seller’s agent actually negotiating a true “highest and best” offer for the seller.

Since everyone has to guess, there is no opportunity to see what kind of offer could be negotiated if only the attempt were made. Counter offers have become quaint relics of a bygone era: instead of countering to get the best price and terms, the seller simply picks the highest offer.

(3) Eradicates the need for Realtors to be expert negotiators; a valued skill that’s always been at the heart of our craft.

(4) Takes “the high-road” by removing the necessity of talking to buyer’s agents.

This means that listing agents can spend as little time as possible negotiating a deal for any listing. In many cases, there is absolutely no negotiation of any kind. In this manner, they can handle a large number of listings at any time WITHOUT giving proper care and attention to them and/or … their clients.

(5) Artificially drives up prices and may, in fact, be contributing to the reemergence of the exact same situation from which we are currently trying to escape.

Additionally, since sellers (read “banks”) are aware that offers are now coming in higher than a property’s ability to appraise, they are beginning to demand that offers be accepted ONLY if the appraisal contingency is removed.

This is unconscionable.

Tragically, it seems that “Highest & Best” offers are here to stay. It’s a shame, because, while this practice DOES shorten the work load for listing agents, it actually removes the need for these same listing agents to represent their sellers with their own personal “Highest & Best” efforts. Whether this practice originated with banks or their agents, it’s hard to say. Regardless of the origins, it is most certainly used by them en-masse.

I just read that President Obama is angry at banks. To which I would respectfully respond, “Get in line.”

With negotiation out of the way, “win-win” is gone, and the result is a “no-win” scenario in every way. It’s truly a very sad day.

“We don’t have the down payment.”

To which I ask, “If you didn’t have the down payment a few years ago, and don’t have it today, what are you doing to have it by next year?” And the inevitable response is, “Gee, we just can’t seem to save anything.” It's a problem that is far too common. Seems they teach everything in school these days except some of the basic fundamentals you REALLY need to know.

Let me help.

Here are the Top 10 ways to get started:

1.   Take stock of your current situation.

This is the hard part – examining the “whys” behind your finances. You need to be brutally honest with yourself. Finances that are out of control can actually contribute to depression. If married, they can add considerable stress to the relationship. You may need to identify and come to grips with obsessive or compulsive behaviors either in you or others who have access to your finances. And you may even need to get professional help. The biggest question to answer is, “Why do I spend money the way I do?” Follow up with the question, “How does spending make me feel?”

2.   Write out a plan and stick to it.

In fact, there’s a Proverb that states, “The plans of the diligent lead to profit.” Sit down and write out your target WITH those who need to participate in the plan with you (e.g. spouse), and someone who can give you constructive input (lender, financial adviser, friend with wisdom, etc.). Once your plan is written, post it in a very visible place and stick to it. Open a savings account and set a target amount every month.

3.   Take the emotions out of your spending.

Purchase things because you need them, not because you “want to” or it “makes you feel good.” Sentences like, “Oh, I just HAVE to have it,” need to disappear from your vocabulary. This goes back to your plan: what do you need? Buy only your needs and put the rest of the money in savings. It’s tough at first. It’s called self-denial, and it is the “secret sauce” behind successful financial planning. Go to stores … ONLY when you have a list of items and ONLY buy what is on the list. NO IMPULSE PURCHASES ALLOWED! Can’t do it on your own? Bring a friend with you who will slap your hand when impulses kick in. And avoid the Shopping Channels at ALL cost …

4.   Research your purchases.

A little research goes a long way: as an example, what’s the difference between a store brand’s sugar and a national brand? Other than a lot of money, nothing. As for large purchases such as a refrigerator, don’t go for the “chrome” – get the basic model (they ALL keep your food cold), and carefully research for the best price. Buy the fancy fridge AFTER you have your new home. IF you have the money.

5.   Evaluate your wheels.

It’s so nice to have a fancy ride, but SO unnecessary. After all, the purpose of a vehicle is to get you to your destination, not communicate to others you have arrived. In fact, most that own upscale cars and don’t own a home have only arrived … in debt. And debt is the number one enemy of owning a home of your own. The primary item keeping many from owning a home? You guessed it … their car(s). And hold off on the shiny rims while you are at it. Boat? Harley? Don’t be silly.

6.   Develop better food habits.

Start keeping track of the money you spend on food. Most spend WAY more on food than they realize. Change your food purchasing habits. Learn to cook! Buy less processed food and more basic items. Avoid the fat – buy chicken! Stop lining your larder with junk food, and if you REALLY can’t live without soda and chips, save them for parties. Buy from stores that offer bulk discounts off the items you truly need (not a seven year supply of Mostustostideritos). Eat in more often (and out less). There are two reasons for this: the more processed your food is, the more you pay for it and, typically, the higher the fat content. The last time I checked, restaurants score high in both categories. Not good for your wallet, not good for your gut. If you TRULY want to save money, eat at home. And that goes for Starbucks as well …

7.   Keep tabs on your energy output.

If you are responsible for paying for energy and fuel, be aware of how it is being used. Look for ways to improve the energy efficiency of your home AND vehicle. This might mean weather stripping your digs and moving down to a smaller ride (see #5 above).

8.   Evaluate your insurance.

Life insurance is not a good vehicle for saving: go with cheap term insurance and invest the remainder yourself. Evaluate the deductibles you are carrying on auto and residential insurance: set your deductibles higher and put the difference in savings.

9.   Reward yourself … carefully.

The long-term goal is to save enough for a down payment for a house. Set short term goals or milestones as well and, when you’ve reached them, reward yourself! Go out for an inexpensive dinner or buy something you’d like but don’t really need (set a budget limit and don’t exceed it!). Enjoy yourself, then get back on track to achieve the next milestone.

10. Use credit cards wisely.

We personally use credit cards for everything. EVERYTHING. And we pay them off ENTIRELY at the end of every month. WITHOUT EXCEPTION. Even if it means eating saltine crackers for a month. Why do we use credit cards instead of cash? Convenience AND … air miles! Since we are going to be spending anyway, why not get a benefit for it as well? And you can use the air miles for #9 above.

Did I mention that you have to pay your cards off EVERY month?

We can help. We've counseled many and have watched them go from despondent to owning their own home. Call or email - we'd love to work with you or recommend you to someone who can get you going in the right direction.

Some only need a gentle nudge and minor direction to reach their financial goals. For others, it will be Battle Royale – and will involve blood, sweat and tears. BUT … it will be worth it – the reward will be a home you can call your own and, more importantly, the financial skills to STAY in your home once you achieve it. Many lose their homes because, once they’ve arrive, they lose their minds, completely forget the financial sacrifices they made to get there and spend themselves …

OUT of house and home.

Guaranteed.

2009 was what we call a “transitional” year – the market shifted from one type of market to another – in our case, from a buyer’s market into a seller’s market. Reacting to the long slide in home values, the Alameda County housing market finally bottomed out in April, 2009, then began to slowly rise. Catching many by surprise, the transition happened much faster than anyone imagined.

Contributing to the uptick were record low prices, rock-bottom interest rates and the $8,000 tax credit. These factors combined to produce thousands of buyers that hit the market like a flood of ants. They stripped market inventory clean and left it looking like the left-over bones of your Christmas turkey. And there’s been no rush of sellers stepping up to replace depleted inventory: buyers looking to get into new digs for the New Year currently have almost nothing to choose from.

I predict that 2010 is going to be a revolutionary year, but that it won’t be from any single item or issue.

It’s going to be the result of many small things compounded together. If you’ve ever tried to go to sleep with a mosquito buzzing around your ears, you know the power of small things. Add a couple of small things together and suddenly you have something significant.

A few years ago, I visited war-torn Northern Uganda. There was no power in my hotel room in the afternoon, and so, without knowing it, I inadvertently left the lights on. Power came on later that evening and, since the room was directly ventilated to the outside, I came back late to a room that represented the only light source for miles … and walls completely covered with every insect in Northern Uganda. To say I was horrified would be a HUGE understatement. One or two bugs I could handle … hundreds of unknown potential terrors was more than I was prepared for. Did I mention that some of the bugs were extremely large? I shook the insects off my mosquito netting, hastily crawled underneath and prepared for the bug version of Armageddon. Sleep did not come easy that night.

There may be a few sleepless nights ahead of us in 2010 as well.

Add up all the “little things” that could be coming down the pipe in 2010 … and it is starting to feel a bit like that hotel room in Uganda. Although we live in an economic region that differs substantially from much of the remainder of the country, external forces still shape local economics and will continue to do so into 2010. Real Estate columnist George W. Mantor has outlined 9 national trends for 2010 that will undoubtedly impact Alameda County.

I believe 5 of these represent the TOP 5 National trends that will affect local housing:

1.    Rising Interest Rates:

Two wars and massive bailouts have produced unprecedented Federal borrowing. Historically, soaring national indebtedness has always led to increases in interest rates. Think “Jimmy Carter.”

2.    Rising Energy Prices

If you’ve lived any length of time, you’ve discovered that nothing gets cheaper. Fuel is no exception. Low reserves and worldwide “green” initiatives will lead the pack in 2010 to ensure that we never see cheap fuel again.

3.    Rising Food Prices

This is Economics 101: take the first two items, add in rising costs of labor and … you do the math. You also have to factor in efforts to provide more stringent food production regulations due to the recent salmonella issues. It’s going to add yet another layer of expense to food production costs and you know it will be passed along to consumers.

4.    Rising Inflation

No rocket science required: higher interest rates, energy costs and food prices coupled with wage freezes … and most will experience less bang for their spending buck. Where I come from, that’s the basic definition for inflation.

5.    Rising Taxes

Even as the economy appears to be turning and corporate profits are starting to increase, the damage has been done. Many predict that the only way out of the hole is increased taxes across the board. If you’ve been watching the rhetoric coming from Sacramento, you gotta know what is coming. And with Democrats in control in Washington … raising taxes is their birthright. Even local cities and municipalities are looking for ways to get more money - many local agendas are being crowded with proposed point-of-sale ordinances.

Will these TOP 5 trends affect local housing?

Absolutely. With local housing prices (at the bottom and middle of the market) on the rise and inflation predicted to increase, local housing hopefuls may find themselves squeezed out as the year progresses. We’ve already seen one layer of buyers pushed out of contention – it’s very likely that another stratum will find themselves priced out before too long. This WILL mean higher prices and rising loan rates.

Couple this with the current lack of inventory and we could have some tough sledding ahead of us.

While some are predicting a glut of REOs to hit the market soon, I do not believe this is going to happen in the Bay Area any time soon. I’ve discussed that in other posts and will continue to in the days that lie ahead.

While currently conjecture, these trends could easily become reality in short order. As we welcome 2010 into being, we can only wait and see …

And hope it ain’t so.

Beef Jerky.

Who knew? That’s all we need … juiced up deer hunters with too much coffee, RockStar, brewskies and … caffeinated Perky Jerky pounding through their systems. Midwest hospital emergency rooms are already too full during hunting season as it is.

I prefer espresso.

LOTS of espresso. I confess: I’m a caffeine junkie. I self-administer it in doses strong enough to curl your toes – my brew of choice comes straight out of the Pasquini espresso machine in my kitchen, and, in true Italian style, is down the hatch before the cup knows it was there. It comes in small cups and has enough punch to keep a small flock of fireflies going for a week. Some call it “rocket fuel,” others call it “high-octane-go-juice” … I simply call it …
 
Necessary.

In fact, if not for caffeine (and, of course, my strong belief in God), I’m not sure how I’d have made it through this past year. It’s been a BIZARRE year to say the least, but we are extremely grateful as well. In a year that’s seen thousands of Realtors firing up their exit strategy and heading out, our business has grown. In fact, it’s been the best year we’ve ever had. And we are VERY grateful.

Truth is, if it really gets down to it, our success hasn’t been the result of caffeine at all. It’s fun to joke about it, but there is a far more fundamental ingredient to our business that has helped us carry the day. Without this key factor, we wouldn’t be in business. It’s the fundamental element in our business, and to it we really owe our success. We extremely grateful for it, tremendously blessed by it and seriously humbled by it all at the same time. And we want to say THANK YOU for it!

So without further adieu, the secret of our success is …

YOU. THANK YOU! 

Some are even paralyzed with fear at the prospect of … decorating.

One of life’s little recognized secrets is that MANY people are seemingly born without the “designing” gene. Say it ain’t so. Although Martha Stewart wannabies, they’ve secretly concluded that no matter how many decorating magazines they subscribe to, they couldn’t rub two decent decorating ideas together to save themselves. For these folks, the skill-set required to decorate their living room is right up there with putting men on the moon. It can be done, but only by highly skilled “others.”

I have a practical suggestion for you. Give YOURSELF a gift this year. Hire a stager to help you set the stage for the holidays.

One of the groups hit hardest by the market have been staging companies. We’re not talking scaffolding here: these are the individuals that come in and make an ordinary, cluttered room look like a centerfold from HG. With so many foreclosed homes on the market sold “AS-IS”, “normal” sellers have been reluctant to put their homes on the market. Although staging homes has proven invaluable and can actually help increase a home’s value, REOs (foreclosed homes) usually aren’t staged. Same with short sales. They’re sold on price alone and, since they’ve represented so much of the market, demand for staging is down. WAY down. In fact, many stagers have seen dramatic decreases in business over the past two years.

With the market rebounding, staging demand is starting to pick up. However, many staging companies are actively looking for business.

And the price can be right – with work levels down, stagers are willing to negotiate fees.

“We’d love to help you decorate your home for the holidays!” declares Sheryl Medford, ASP, IAHSP, professionally stager with The Next Stage. With the motto, “Facilitating the next stage in your life,” Sheryl points out that many of her clients aren’t selling a home. “They either staged their previous home for sale or bought a home that was staged; they loved the look and feel of the staging and made a decision to live that way every day,” she states. “Instead of ‘Staging for Sale,” we call it ‘Staging for Life’.”

I’d call it, “Setting the stage for the holidays,” and it might be the best gift you’ve ever given yourself: the confidence needed to welcome your loved ones into your home this holiday season. Or the rest of the year, for that matter.

Announced just last week, the Treasury Department has unveiled new guidelines for short sales that, at first blush, provide relief and hope for those faced with selling their home “short.” Originated in May, 2009 with the seriously unfortunate acronym FAP (Foreclosure Alternative Program), the first short sale relief plan did not facilitate smoother short sales transactions as anticipated. In fact many were less than excited by the plan.

Will these new guidelines fare any better? Don’t hold your breath.

The concept is full of good intentions and is welcome news: Alameda County is full of those who, because of adjusting mortgage rates, loss of jobs and more, can no longer meet monthly mortgage obligations. Many have tried loan modifications to no avail. The next alternative, in lieu of being foreclosed, is to opt for a short sale. If successfully negotiated, a short sale can reduce the hit to their credit AND save the banks the cost of foreclosing.

If only it were that simple.

Short sales are anything but short: they’re long, arduous processes which, in our own experience, can take up to nine months to complete and historically have no more than a 20% chance of success. It’s an extremely invasive and demeaning procedure for sellers (right up there with a colonoscopy) and has been known to be excessively frustrating for buyers. As popular as wasps at a picnic, short sales are avoided by many Realtors because of the complexity, aggravation and low odds of success. We’ve had a good deal of success with short sales, but can verify that the process can be VERY frustrating to all parties concerned.

For sellers to qualify:

· The property must be the homeowner's primary residence.

· Loan(s) must have originated before Jan. 1, 2009.

· Loan(s) cannot exceed $729,750.00.

· The owner’s total monthly mortgage payment obligation(s) must exceed 31 percent of their pre-tax income.

· The homeowner must be delinquent on the loan or default imminent.

The new plan standardizes timelines, documentation and processes and even provides cash incentives for participation. $1,500.00 is even included to assist the seller with moving costs.

And loopholes could render the new help powerless.

First, lenders do not need to implement the plan until April 5, 2010. IF they implement at all. If history is any guide, that’s a big IF. So if you were looking for something to brighten the Holiday Season … scratch that. Secondly, the plan only allows $3,000.00 for second lien holders. That might work if the second is a small loan. However, if it’s a large loan, no lender is going to be very eager to settle for only $3,000.00. We’ve personally seen many creditors in the second position hold out for more, try to hit up the buyer for funds OR … short-circuit the entire process in order to be able to go after the borrower.

While too soon to really tell, we can only hope that the new guidelines will actually help. It would add injury to insult if the promised assistance looked good on paper, but, when put to the test, actually comes up … short.

* (Me being TOTALLY silly … Canadians have been trying to legalize the weed d’jour for years)

 


Since many have asked me to put these in one “easy-to-access” place ... 

Here they are ... the top 10 posts for Sellers … including our ALL-TIME “most-read” post (close to 10,000 hits and climbing!).

1.    Top 15 Things A Listing Agent Won’t Tell Sellers … (But REALLY Should …)

The title says it all … 15 things you REALLY need to know if you are selling your home … (this is our #1 post - EVER!!)

2.    Testing The Market NOT A Good Idea: Top 4 Reasons Explained

I’ve heard this concept from SO many sellers – this explains why it is a TERRIBLE idea …

3.    When Does A Home For Sale Resemble A Snow Ball In Orbit Around The Sun?

As in … when your sale doesn’t have a CHANCE of succeeding … a critical fact you need to know …

4.    How To “Play” Against REOs With Your “Normal” Sale – A Critical Factor Required To Win

With so many REOs on the market, how can you compete? We explain how in this post …

5.    How Does Your Listing Compare With a Banana?

What do you do with ripe bananas? How about bananas that have gone black? How this applies to your listing …

6.    What Realtors HATE When Showing Homes To Buyers – Top 10 List

10 practices you need to avoid when selling – and as you’ll see from the comments, plenty of Realtors agree …

7.    Price It Right or Pay The Price! (Part 1)

Why pricing is critical … and why you cannot afford to start too high …

8.    Price It Right or Stay Home! (Part 2)

Why pricing is critical (Part 2) … and why you still cannot afford to start too high …

9.    Failure To Disclose a Low Appraisal Can Cost You Plenty: 5 Critical Conclusions

With the new appraisal guidelines (HVCC), many are trying to hide low appraisals. This explains how this practice could harm you badly …

10.   Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems

REOs and short sales are typically priced artificially low … this explains how this practice can do serious damage to your listing …

I decided to make it easy for you to find all of these without digging back through the archives.

Here are the top 10 posts for Buyers.

1.    Use The Gut, Luke (The Most Important Thing To DO When Buying A Home)

How do you make difficult decisions when buying a home? We provide practical suggestions …

2.    Why You DON’T Want A Dedicated Buyer’s Agent

A dedicated buyer’s agent can actually prevent you from getting the best deal possible …

3.    Top 10 Things I HATE About REOs: AND 3 Startling Consequences

Buying an REO can be like walking through a minefield blindfolded …

4.    Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems

Think you can buy a foreclosed home for the advertised price? That’s silly … here’s why …

5.    I WISH You Would Use My Lender - 6 Critical Reasons Why You Should

What else can I say? If you plan on using me to help you buy a home, you REALLY need to read this …

6.    How To Buy An REO – Top 17 Questions Answered

Answers to the top questions when buying an REO. Everything is here except …

7.    Lookin’ For an REO? 8 Things to Expect When You Open the Front Door.

This will help prepare you for your first visit to an REO … sort of …

8.    What Do REO Lowball Offers Have In Common With Tyrannosaurus Rex?

I still bump into buyers who think they are going to offer $100,000 less than the asking price for an REO …

9.    How Good Is YOUR Timing? 3 Important Reasons NOT to Time the Market

Waiting for the bottom of the market? Trying to hit it on the head? Is your name Rip Van Winkle …

10.   You TOO Can Purchase A Ticking Time Bomb! One Easy Step!

Buyer beware … it looks good at the beginning, but could cost you BIG TIME down the road …

I swore off the Flight Deck, Vortex and Invertigo rides at Great America.

I like the park. And I’m not against the rides. My kids can ride them all they want. Me? Not so much. I know my limits, and, unfortunately, my inner ear sensitivity appears to be on the increase since grey strands have begun poking their way through my scalp. I no longer enjoy the sensation of having my inner organs totally rearranged as I’m propelled upside down through the machinations and turns of the local twisters. And, the truth is, I don’t need a roller coaster with the word “Demon” in it to get an adrenalin surge these days.

The Bay Area real estate market this past year has provided a more volatile, thrill generating, gut wrenching and nausea inducing ride than any theme park death defying machine I’ve ever been on.

This post is not going to explain the tax credit. A recent search on Google revealed thousands upon thousands of hits for articles doing just that. As an example, Laura Saunders of The Wall Street Journal does a great job of explaining everything. And there are tons of posts here on Trulia chiming in as well. If you don’t understand the tax credit by now, your name might very well be Rip Van Winkle.

I want to ruminate on the EFFECT of the tax credit.

If the buyer mania resulting from the previous tax credit was any indicator of a consumer-based response to a government incentive program, then I predict that the newer “improved” tax credit will cause an even larger ripple in the months that lie ahead.

I believe a serious analysis of the past 12 months would verify that the credit performed as hoped in the Bay Area. After carting around dozens and dozens of hopefuls and putting record numbers of first-time homebuyers into their first home, I can vouch from personal experience that there can be no doubt that the tax credit incentive played a large part in the market mania this past year.*

And mania it was: standing in line to view homes, competing in multiple offers on virtually every property in sight and watching as diminishing prices at the bottom of the market screeched to a halt, waivered for a brief moment and then began to climb.

It’s been quite a year. And, it appears, we ain’t of the woods yet.

The tax credit has been revived. Not just brought back to life, either. It’s been reincarnated as a bigger-badder version of it’s previous self. In addition to re-upping the existing $8,000.00 credit to first-time homebuyers, now we have an additional $6,500.00 credit for existing homeowners as well.

I therefore want to make a couple of predictions. This is not Realtor-hype to get you to “Buy Now!’ or self aggrandizement. It’s not belly-button gazing or myopic wishful thinking. These are the careful thoughts of a seasoned Realtor based upon real market conditions and a bag full of experience.

Prediction #1: The market is going to continue its red-hot pace for the next six months or so.

Please say it isn’t so. Wish I could. We’ve had to reinvent the way we do business to keep up with the market. We’ve had to devise new strategies to compete with the dearth of inventory and excessive number of buyers and multiple offers. It has not been easy – in fact, it’s been a lot of very hard work. Exhausting work. I seriously want the market to slow down. I wish it would take a chill, sit back, get a load off its feet, sip a cool one and mellow out.

Don’t think it’s going to happen, unfortunately. As the window for the previous credit drew to a close, the market visibly cooled. However, as soon as the new credit was announced, my phone started to ring again. And ring. With continued low rates and record low prices and now the new credit, I believe we are going to keep rolling.

Prediction #2: In addition to the existing record number of first-time buyers entering the market, we’re going to see an additional second layer of buyers enter as well.

It’s no secret there are thousands of buyers out there right now. Thousands upon thousands. And I believe the new credit for existing homeowners will add yet another entire layer of buyers to the market. As if things weren’t crazy enough already.

Here is where it gets interesting: I’ve personally seen rabid buyers willing to pay an additional $40,000.00 for a property just to get the $8,000.00 tax credit. I know – didn’t make any sense to me either. Knowing human nature as I do, I don’t think it’s too hard to imagine a fence-sitting seller seeing this new credit as the incentive needed to get off the rails and get their house on the market in order to move up. Even if it costs WAY more than the credit to do so.

And there are others of the saner persuasion who’ve realized that now really IS the best time to move up – the margins are as low as they will ever be, the lower segment of the market is slow inching upward … it just makes good financial sense. The credit will probably be the gentle nudge they’ve needed to get going.

If this happens, we’ll see much needed inventory entering the market, especially at the bottom. We might also see the soft “middle” segment of the market start to firm up – it’s been very soft in most regions of the Bay Area. Unfortunately, I don’t think this will affect the top of the market very much – there are currently too many factors pushing the top of the market down.

However, we’re still going to have a SERIOUS problem to contend with.

With an extra layer of buyers out there, we’ll need MORE inventory. And inventory has been at an all-time low. The rush of buyers to get in before the credit expired literally drained inventory bone dry. If banks continue to regulate the flow of REOs (and I think they will), then we could be in for another long haul. I personally do not believe we’re going to see a flood of inventory that will adequately meet market need any time soon.

Keep in mind: THIS IS FOR THE SAN FRANCISCO BAY AREA.

There are many other parts of the country (and California, for that matter) that are going nowhere fast. Which brings up a sidebar (read “pet peeve”): I WISH the National Association of Realtors would stop trying to spin the market. NAR's Chief Economist Lawrence Yun recently made comments at NAR’s annual conference in San Diego that, while probably true for some segments of the Bay Area market, are VERY doubtful for many other sections of the country. It’s embarrassing to hear the continued hype and Pollyanna promises. And posts across the country are already mocking the comments and predictions … My intent in this blog has always been to present opinions and projections based on real market data and having both feet in the local market on a daily basis. The fact that we do a large volume of transactions hopefully adds to our credibility: this is not wishful thinking here.

SO …

A credit extension, more projected buyers, record low inventory levels, unbelievably low interest rates and talk of ARMs (adjustable rate mortgages) being reintroduced … you do the math.

Whatever happens in the Bay Area, it won’t be boring. So take a quick breath … and then hang on tight. The first half of 2010 promises to be quite a ride.

(*I’m not discounting the effect of record low prices and interest rates – all in all, there were seven factors contributing to the market mania.)

Attend the seminar, buy the books and CDs and NOW … you are ready to become a real estate expert.

Herein breeds the notion that there’s a possibility that “you too” can get the deal of a lifetime if you only have the right connections or know the hidden “secrets.”

I am contacted almost daily by prospective buyers who’ve seen an internet link for a property that appears to be listed hundreds of thousands of dollars under market value. Buyers I know spend hours looking for such illusive deals. They’re hoping that maybe, just MAYBE today will be their lucky day, the Blue Fairy will wave her magic wand and, in the same way that Pinocchio became a real live boy, their fantasies will materialize into a real live house.

To be honest, you have a better chance standing in front of a one-armed bandit* in Reno feeding in a bucket full of coins.

Let me clarify two things as clearly as possible:

(1) If it’s too good to be true … (do I REALLY need to finish this)?

(2) If that deal was possible, I’d have bought it myself. WAY.

Here are the top four myths:

1.    There is a “secret sauce.”

Wrong. No sauce. No secrets. And just like there’s no secret sauce that magically adds fifty years to your life, there are no “magic deals” out there. Bargains, if they’re to be found, are the result of meticulous groundwork, tedious searching and lots of hard investigative work. Once in a while, if you’re constantly searching, a “deal” might fall into your lap. But the amount of time required tracking down deals such as this, the hours spent pounding the pavement, knocking on doors, making phone calls, sifting through endless pages of tax documents, running multiple cost analysis spreadsheets … adds up to more than a full-time job in and of itself. Come to think of it, they actually have a job title for someone doing that … “investor.” And the normal prerequisite for the job description is a large supply of cash …

For the remainder of mortals with normal 9-5 jobs and a limited bank account, the best place to find a home is to contact a highly trained Realtor and have them search the MLS (Multiple Listing Service – the place all Realtors place their listings) for you.

2.    There is a secret source of listings.

This myth declares that banks have a secret source of listings you can access once you know the “secret handshake.” Also not true. Foreclosed properties are currently found in two places. If you are a well-connected, savvy investor, you can bid for foreclosed homes on the courthouse steps (see Myth 1 above). But beware - it’s not a place for the timid. As for the remainder of foreclosures? Try the local MLS. Banks have figured out that’s where they’ll get the most bank for their buck.

3.    You can get a great deal at an auction.

Thinking “Auction”? Nowadays, the only properties that make it to the auctions are those rare specimens that aren’t lucky enough to get sold on the MLS or by other normal means. Think … TOTALLY TRASHED, DUDE. As in … black mold. Serious physical damage. Contractor’s special. Serious fixer-upper. Fire special. Etc. Not the kind of home Suzy-First-Time-Homebuyer is really going to realistically buy. And … you will have other people bidding against you. Buyer beware – if you aren’t careful or don’t have a lot of experience, you’ll end up paying WAY more than it’s worth. Click here to read more about auctions.

4.    Pre-foreclosure is the way to go.

How about “Pre-Foreclosure?” Let’s make this one REAL simple. Once a home goes into pre-foreclosure, it shows up on sites like RealtyTrac.com, ForeclosureRadar.com and others. That single action triggers a frenzy of activity which results in the unlucky homeowner being bombarded with countless “invitations” to various methods of disposing of their home. It’s at this point that most of these poor folks stop answering phones and start throwing out huge amounts of unopened mail. As for knocking on their door to talk to them? Get in line. And don’t be perturbed when they don’t answer …

Or introduce you to Max the Doberman. 

In addition, in the current market, 99% of these properties are upside down (they owe WAY more than the property is worth) and to get the property, you’d have to pay off their existing obligations (even an intellectually challenged individual can figure out that this is not a smart option) OR negotiate a settlement with their banks. The last time I checked, this latter option was called … a short sale. You can find a ton of those already on … the MLS.

One last thing here … RealtyTrac advertises on Trulia, and therefore posts notices of defaults that look like listings. What often looks like a spectacular bargain is just … an advertisement to sign up for RealtyTrac. IT IS NOT A CHANCE TO BUY A 3,000 SQUARE FOOT HOME IN MISSION SAN JOSE FOR $36,564.67. Pullleeeez … Click here for more information.

Looking for a great deal? And who isn’t?

My advice is to find the best Realtor you can – one who can teach you the ropes and negotiate on your behalf and let them lead you …

Home.

(*A “one-armed bandit” is a Vegas-style slot machine gambling device. I was just informed some people don't know what these are. Who knew?)

Additional links:

Gone In a Flash (Auctions - Part 1)

Get Out Your Magnifying Glass (Auctions - Part 2)

When Is The Price Not The Price? (I’m TOTALLY Frustrated About This…)

Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems

Unfortunately, while vets may have helped win wars on foreign soil, their VA loans are losing the battle here on the home front in the Bay Area.

On the surface, VA loans look great. Introduced in 1944, VA loans enable veterans and other qualifying military personnel to buy a home with no money down. To ensure a decent living environment, the loans require homes being purchased to meet minimum standards for health, safety and property condition. Additionally, the properties must appraise for the sales price. Finally, sellers are required to pay a substantial chunk of the transaction closing costs.

Viewed separately, these guidelines, designed to protect and provide for veterans and their families, appear wonderful. Add them together, however, and they establish a formidable defensible perimeter difficult to assail here in Bay Area counties. In fact, it could be said that the very regulations designed to get vets into a decent home are actually keeping them from using VA loans to secure those very homes.

It is causing a lot of frustration.

Due to the current Bay Area market’s significant housing inventory shortage, almost every available property in the lower half of the market is garnering multiple offers. With bidding wars in full swing, it’s not unusual for offers to be driven higher than the value at which a property will actually appraise. While not a problem for cash offers, sellers entertaining VA loans must ensure that the price DOES NOT exceed appraised value. To add injury to insult, VA appraisers have been known to appraise on the low end of the scale. It's a lose, lose scenario.

Leslie Berkman, The Press-Enterprise states, “Some real estate professionals accuse VA appraisers of being too conservative, while others applaud them for exercising prudence that was lost in appraising during the real estate bubble.” Whatever the reason, and no matter how noble it may be, in the current Bay Area economy it most often means “no home.”

With sellers calling the shots and multiple offers to choose from, they typically select those providing the best price and terms. Strike One. Paying a vet’s substantial closing costs as required by VA loans also fails to pass muster. Strike two.

And then there’s strike three – property condition. Many homes being sold are foreclosures (REOs) or short sales. In both cases, they’re sold “AS-IS” by banks very unwilling to pay for any repairs required to bring properties up to VA standards. And it goes without saying that many REOs have issues that must be fixed BEFORE escrow can close.

It’s easy to understand the VA rules requiring homes to have both a Section 1 AND Section 2 clearance. However, VA appraisers have been known to be very tough when evaluating homes. In some notable cases, issues called out by VA appraisers that had to be repaired prior to close of escrow have included relatively minor items such as peeling paint. In many cases, vets have had to pay for repairs out of their own pockets BEFORE a property closes just to ensure that the deal will go through. And that violates the very concept behind VA loans.

While a great idea that has helped many vets across the country get a home of their own, here in the Bay Area, VA loans are not winning the day.

The bottom line is this: in multiple offer situations where VA loans are contending with other loans or cash offers, they get outflanked every time.

And that is just not right.

Many of those who gathered for this event are regular contributors to Trulia Voices, the largest online real estate community in the world. It was a wonderful opportunity for those present to actually meet other individuals whose online contributions have contributed to the success of the Trulia Voices platform.

Trulia was represented by Vicky Gkiza, Sr. Product Manager, Community Products (responsible for the oversight of Trulia Voices) and Irit Epelbaum, Product Manager, Agent Products (administrator of the Trulia Pro program). Those in attendance were provided with a presentation of the new Trulia Pro Plus platform and opportunity was given to ask any questions regarding Trulia’s various venues and products. Practical advice was also given for establishing an effective online presence.

Some in attendance affirmed that they’ve built their client base as a result of their interaction on Trulia.com.

Trulia is currently rolling out a new Trulia Pro product, and a demonstration was given with an opportunity for those present to try the new Trulia Pro Plus application for free.

The event for real estate professionals was from 3-5:00 p.m., and then opened to the general public for a Twilight Open House from 5-8:00 p.m. A number of individuals stopped by hoping to meet Trulia Voices they’d seen online, sample the buffet and to see the wonderful home in which the event was hosted.

Special thanks to Glenn and Donna Gebhardt for allowing the event to be hosted in their lovely home.

For many real estate professional attendees, this was a watershed event providing a much needed impetus to help move their careers to the next level. Some, who drove in from as far away as South San Jose and Walnut Creek, are clamoring for similar events to be held in their own specific regions of the Bay Area. Others, unable to attend, are already asking for another local event so they can be present the next time.

All in all, it was a tremendous success and the beginning of a Trulia networking phenomenon that may have national implications.

One can only hope.

In the words of Rudy Bachraty, Social Media Guru at Trulia …

“Trulia, along with Trulia Mayor Carl Medford, is hosting a free educational, social networking and wine tasting Open House event in Fremont, California. When it comes to social media, some people refer to it as an online cocktail party. Well, we’re bringing the online connections that have been made, offline for a little party of our own.”

Part 1 (3-5 PM): Real Estate Professionals Educational & Networking Session

· Meet Trulia Personnel

· Learn Online Marketing Tips

· Learn the Power of Blogging and Establishing a Significant Online Presence

· Network with other Real Estate Professionals

Part 2 (5-8 PM): General Public - Networking event open to all

· Welcome to all Home Buyers, Sellers and all fellow Trulians!

· Meet local Trulia Voices you’ve seen online

· Wente wine bar, espresso bar, hors devours

The hardest sell in the universe ...

Is not selling refrigerators to Eskimos, snow shovels to Egyptians or timeshares to Hawaiians ... it's convincing a homeowner to list their home at market value. More often than not, they have an “emotional” value they’ve established for their home and they won’t be happy listing for less. Even though all the data, logic and reason state otherwise, they believe their home is “special” and deserves SO much more than the identical house down the block ... 

This mindset often gives birth to the notion of “testing” the market. Wanting the best price and terms, they figure they’ll price their home higher than it’s logically worth, “Just to see what happens.” After all, there must be at least one person out there who shares their “unique” perspective about their home and is willing to pay over market value … just because.

There are some SERIOUS flaws with that logic:

1.    Buyers avoid overpriced listings.

They figure if the seller didn’t have enough sense to price it right, they’ll probably be unrealistic other ways as well. And most often, this is correct.

2.    Buyer’s agents are looking out for the best interest of their clients.

If a buyer does look at an overpriced listing, their agent will run the comps and show them what the true price really should be. And any offer will reflect the current comps, not the seller’s “emotional value.”

3.    If it’s priced too high, it won’t appraise.

WON’T. Even if a buyer is willing to pay your price, an appraiser will only assess your home at market value. To make up the difference, a buyer will need to contribute extra cash. The odds of a buyer willing to pay way over market who also has a lot of extra cash are up there with a snowball in a hot place. And this has been made even worse by the recent advent of HVCC (The Home Valuation Code of Conduct). MANY appraisals have been coming in lower than expected.

4.    Listings become stale and lose value very quickly.

Overpriced homes get fewer showings, quickly grow “stale” and lose value. In fact, overpriced listings usually end up selling for less than if they’d been priced correctly to begin with. If they sell at all.

So where did this idea of testing the market come from?

From manufacturers of cosmetics, cleaning products, breakfast cereals, and the like. They “test” the market with their new ideas. Marketing groups inject their product into specific geographical and demographic areas, evaluate reactions to their products and then determine an effective price point. If they don’t get a good response in one location, they’ll change the product a bit and then go to a different locale. If necessary, they’ll change the product and try again. And again. They also keep changing locations until they find an area that accepts the product. They keep at it until they either get it right or determine that they need to scrap the idea and move on.

And … newsflash … the price they’re determining will actually be slightly UNDER market value. When they launch their new product, it will be at a low, promotional price in order to gain market traction.

So how does this relate to “testing the market” with your home?
 
NOT AT ALL!

Whereas a manufacturer has: 

· An extensive R&D Team ...

· A skilled marketing department with a budget of millions ...

· Multiple chances to test a product in varied markets ...

· The ability to “tweak” the product as they go ...

· The financial stability to launch the product UNDER current market value …

A home seller has …

One house. One market. One chance.

So leave "testing" the market to those making jalapeño chewing gum and moose musk shaving lotion. Because if If you don’t get it right the first time, the only true test will be of your patience as you lose time, money AND, potentially,  ... 

A sale.

That I didn’t think of it first! 

Having the “distinction” of successfully closing a large number of REO (foreclosed homes) transactions in which we represented the buyers, this video "highlights" many of issues we’ve had to contend with. While watching it the first time, I couldn’t figure out if I should laugh or cry …

You decide.

For additional musings on REOs, see the following posts:

(1) Top 10 Things I HATE About REOs: AND 3 Startling Consequences

(2) How To Buy An REO – Top 17 Questions Answered

(3) Bank Tactics Causing Repeat Of Crash Conditions in San Francisco Bay Area

(Thanks to San Diego Castle Realty and Kris Berg for producing the video!)

Bottom line: failure to fully inspect your potential purchase may end up costing you way more than you’ll gain from the tax credit.

Typical inspections for a single family detached home in this area include property, termite and roof inspections. All together, they can cost between $500.00 to $700.00 dollars. Some companies offer discounts if you buy packages that include all three. Some offer additional savings in you buy their home warranty plan. All in all, it represents a decent chunk of change. And if these reports reveal concerns, you might be looking at additional inspections including the following: foundation, chimney, heating and air conditioning, structural, soil stability, pool, electrical, sewer, mold, lead paint, asbestos … and so on.

And then there is the issue of unauthorized “upgrades.” If it looks like there have been illegal renovations or additions, you’ll want to make sure you check with applicable city or county building departments to confirm the existence of permits. You’ll also want to check conformance to local zoning ordinances and whether or not there are any recorded notices of code violations.

Fully inspecting a home can add up to a lot of time AND money. And many current purchase agreements (especially REOs – bank owned foreclosures) state that inspection contingencies must be removed within seven to ten days. That makes it almost impossible to fully inspect a property. So why bother?

Think of inspections like insurance.

You may spend time and money doing inspections, however that investment of a few hours and a few hundred dollars could save you thousands. I’ve personally seen “cute” homes that, once inspected, have revealed some issues that were downright ugly. Such as a home in San Leandro I recently visited that looked like a tremendous bargain … until we discovered that the foundation was brick on dirt with crumbling mortar. Not good. How do you spell, “NEW FOUNDATION REQUIRED?”

Try, “VERY EXPENSIVE.”

No one likes paying auto insurance, but, if you’ve ever been in an accident, you’ll never question it again. It’s the same with inspections. Do your due diligence, pay for inspections up front and move into your new digs with the tax credit coming your way. In addition to the tax credit, the peace of mind you’ll have will be …

Priceless.

“Home Values in San Leandro Decreased.”

My thought was, “What planet is this person on not to know prices are INCREASING right now?” Alameda County home prices in the lower end of the market are definitely up. And rising.

I clicked through and … it was from Zillow. While the first to agree that Zillow has some fun tools (I have Zillow’s app on my iPhone), as a professional REALTOR I don’t rely on Zillow to do my job. Especially when it comes to establishing property values. Nor do professional appraisers. And, if you really think about it, if appraisers had a tool that would make their job more effective and easier, they’d use it.

Unfortunately, home buyers and sellers DO.

I wish I had a dollar for every time someone ran a “Zestimate” past me. Truth is, it means almost nothing. It’s Zillow’s name for a “Guesstimate” – which, no matter how cutely you frame it, is still a guess. The word “zest” refers to spices, garnishes or spirited enjoyment. Tack that onto an estimate and you have a “spirited or spicy GUESS.”

· Buyers employ them to justify how much they’re willing to offer for a specific property.

· Sellers believe they can utilize them to justify selling prices way above actual market value.

Wrong on both counts.

Zillow takes previous sales from the MLS and factors in information from the county tax records. In other words, they use current data and records from a few years ago. As everyone knows, outdated data provides speculative results. Which is why two identical houses beside each other on the same block can end up with drastically different Zestimates.

Zillow is justifiably very proud of the algorithms behind the “guesses.” They state: “It is not an appraisal. It is a starting point in determining a home's value.”

I beg to differ.

I believe you should START with a REALTOR rather than a “proprietary formula.” That way, all of the guessing is out of the way from the start. No matter how sophisticated a mathematical formula, it cannot replace a pair of trained eyes from a professional REALTOR sifting through all the market data to do a CMA (Comparative Market Analysis).

That’s not to say that there are not individuals out there who cannot crunch the data themselves. I’ve met some amazing engineers who’ve managed to nail the market spot on. But it takes a lot of work and daunting spreadsheets. Plus, the data is hard to gather in a cohesive format and doesn’t automatically update. Most average Joes are not up to that kind of a challenge. Which is why Zillow’s approach appears, on the surface, to be an ideal solution.

NOT.

To use Zillow’s own figures for Alameda County their accuracy is as follows:

· Within 5% of the sales price: 30%

· Within 10% of the sales price: 55%

· Within 20% of the sales price: 77%

· Median error: 8.8%

In other words, for a $400,000.00 home, there is a 70% chance they will be off by MORE than $20,000 up or down – a differential of $40,000.00. 70% chance. 45% chance they’ll be off by more than $40,000 either direction. That’s a lot of chances. And the last time I checked, $20,000.00 is a lot of money.

In contrast, REALTORS have the data and the tools at their fingertips and can perform an accurate CMA quite quickly. Accuracy or a guess? Which has more value at the end of the day?

Where are all these foreclosed homes?

A quick look around the bay area reveals precious few REOs (foreclosed homes) hitting the market. REO inventory is WAY down from the highs of a year ago. Many attribute this to the California Foreclosure Moratorium and are quick to point out that, since the moratorium just ended, we should be seeing more REOs very soon. If you’ve been watching, there’s been a lot of chatter recently on Trulia and other venues forecasting an impending wave of REOs to cascade onto the market.

On the surface, this seems to make sense. With the moratorium over and the national foreclosure rate moving along at a crisp rate, this should translate into more REOs coming soon to a neighborhood near you. Right?

Not so much.

Back in April of 2009, in anticipation of the lifting of the national foreclosure moratorium, many pundits were forecasting a deluge of foreclosed homes. I personally wrote an article for the San Leandro Times and Castro Valley Forum that appeared on April 29, 2009 declaring, “Foreclosure Flood Is On Its Way.” Along with others, my optimism was a bit misplaced. All the data seemed to suggest we were right. We all, however, failed to understand one critical detail”

The banks held a wild card that no one (at least no one I know of) was able to foresee.

It has been this one factor that, in my opinion, changed the market. Permanently. And it’s my #1 reason for there not being another flood of foreclosures.

1.    I believe banks have learned to regulate the flow of REOs to the market in order to control market prices.

Although there are many foreclosures out there, it appears that banks have concluded it’s in their best interest to mete properties out slowly and thereby control market values. They’ve succeeded. And will continue to do so. Which brings up Reason #2:

2.    I believe flooding the market would be in any bank’s WORST interest.

As banks have begun to get a taste of rising prices and the ability to control the market, I believe they are responding like bears to honey. Like Winnie the Pooh, they are willing to go WAY out on a limb to get what they want. And they are most CERTAINLY getting it. If you’ve dealt with any REOs recently, you’ll have discovered that bank tactics have drastically changed the real estate landscape. It’s become a VERY unfriendly place for buyers as banks now dictate terms that are in their best interests only.

3.    I believe banks have used the bail-out funds to sustain themselves and rebuild so there is no longer any urgency to divest themselves of foreclosure inventory.

I am no subscriber to conspiracy theories and I have no ability to prove this point – but I personally believe this is what is happening. I have no definitive proof or smoking gun … BUT, I think the theory holds water. Banks stand to lose a lot of money if they put all their properties on the market right now. If they have a home on their books at $400,000 but sell it for $200,000, they have to capitalize the loss. However, if they can hang on for a while and help the market gain momentum in an upwards direction, they don’t lose as much. They don’t take the loss until they sell. If they don’t have to sell right away … you do the math.

If the above is true, then there are some serious implications that will flow from this:

1.    Market prices have already begun to rise and will continue to do so.

There are a number of factors currently affecting the bay area market:

a.    The tax credit has fueled a steady stream of buyers into the market.

Although this is slated to end on November 30th, many of the buyers who were attracted to the market for the credit have stated they will remain in the market after the credit expires. And if the credit is extended, all bets are off.

b.   Interest rates continue to be at low levels and will most likely remain low until the 2nd quarter next year.

The Fed has stated that they will be rationing out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. Instead of continuing to buy, they are going to wean off the program gradually. This will more than likely mean a very gradual rate increase through the first quarter of next year. In the meantime, low rates will continue to feed the market.

c.    Current low prices have galvanized many buyers into action.

Many buyers have realized it’s now or never. They’ve looked at all the factors and decided to jump in now.

d.   Very low inventory has fueled multiple offers on almost every property out there.

If there is no impending flood, then inventory will remain low for a number of practical reasons.

e.    Banks have been listing REOs at artificially low prices to attract multiple offers.

This practice continues with no end in sight.

f.     The northern California economy still remains stronger than the rest of the state and/or country and will continue to do so for the foreseeable future.

The San Francisco Bay Area has, since the inception of Silicon Valley, become a unique economic entity. Although we suffer the same issues as the remainder of the country, we’ve always demonstrated the ability to rebound quicker.

g.   There is a strong investor base currently buying properties.

And they are paying cash. As an example, not only have we represented a number of cash buyers in the past three months, in just the past few weeks we’ve received cash offers on four of our listings. Strong offers. Investors understand that the market still offers good values and they also see that prices are moving back up.

Looking for bargain basement prices on REOs? Those days are gone. I believe we will see a minor price adjustment at the end of the year or early in 2010. This will produce a minor market correction, and then I believe bay area prices will see gentle movement upward through the summer of 2010.

2.    More “regular” sales are coming into the market.

With the past glut of REOs and short sales, “normal” homeowners held their properties off the market. It made sense: no point competing to be the low price leader. Until recently, normal sales were typically confined to probate, divorces or relocations. However, with inventory tightening, I’ve personally seen a tremendous increase in normal listings. With less pressure from REOs and subsequent rising prices, sellers are feeling more confident. In some areas, normal sales now actually exceed other types of sales. This trend will probably increase as we head into 2010.

3.    Market values for “normal” sales are correcting.

Whereas most REOs list low and sell high, normal sales tend to list high and sell low. This has given the appearance that the market is still decreasing. Nothing could be further from the truth. What is actually happening is this: normal sales are correcting downward to actual market values. It may take a bit longer, but normal sellers eventually get it. If they actually want to sell, that is. In fact, price per square foot is actually increasing in most cases.

4.    There is an exception to this: the top of the market is still VERY sluggish.

The “top” of the market varies from area to area; however, if your property is viewed as the “high end” of your local market, you’ve probably already discovered that the market is still very soft. I believe the high end of the market will continue to deflect downward as we see the current wave of ALT-A defaults moving through the high end of the market and there is still a severe shortage of money available to finance high-end homes.

So there is it … and it’s based on a lot of market watching, detailed analysis and a good measure of conjecture tossed in to complete the recipe. I’m sure there will be many who disagree. Time will tell who’s actually right. I’ve been know to have been wrong before, but I’ve also nailed it a bunch of times as well.

Personally, I’m betting that this time … I’m right!

Disclose, Disclose, Disclose.

And therein resides a significant, emerging problem. Appraisals. Many sellers, having received a low appraisal that subsequently quashed a sale, are now unwilling to disclose those inadequate appraisals to other prospective buyers. While totally understandable, failing to disclose a low appraisal has the potential to harm sellers in the long term. This issue is actually becoming a bit of a hot potato: not all real estate practitioners agree on the best course of action. While some think it’s OK to conceal lousy appraisals, others insist that all material facts must be on the table and that hiding low appraisals is a violation of disclosure laws.

How did we get here?

If you haven’t noticed, the bay area market is currently experiencing an upswing. Whenever a market moves significantly within a short time span, appraisers have difficulty keeping up with market values. While not only true for the current market, the present situation is actually worsened by three compounding issues:

(1) Blame placed on appraisers.

Appraisers have taken a tremendous amount of heat for the housing market’s recent collapse. Made scapegoats by many who’ve insisted it was appraiser’s willingness to overvalue properties that lead to an artificially inflated market and subsequent collapse, many appraisers are now understandably gun shy about placing high values on homes.

(2) The introduction of HVCC.

The recent advent of HVCC (the Home Valuation Code of Conduct) has drastically changed the way appraisals are done and has literally thrown the entire system into disarray. As a consequence, many appraisals are now being done by out-of-area appraisers not in touch with local markets. It’s not hard to connect-the-dots to see how some appraisals might be considered sub-standard.

(3) Current market conditions.