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BrokerSteveO's RE Blog

Getting above the noise on topics that matter.™

By Steve Ornellas | Broker in Fremont, CA
  • Dual-Agency: look here before you go there!

    Posted Under: Home Buying in California, Home Selling in California, Property Q&A in California  |  April 12, 2014 1:56 PM  |  432 views  |  1 comment
    A BRE licensee in CA can simultaneously act as a Buyer and Seller's Agent in a transaction; provided consent of both Buyer and Seller is documented. In fact, an undisclosed Dual-Agency is a felony in CA. The decision to enter into a Dual-Agency (DA) should not be taken lightly.

    What's all the fuss about?


    The topic of DA was covered quite deeply during my Accredited Buyers Representative (ABR® www.rebac.net) Certification. The following is a "crash course" in an Agent's duties to a Client in order to assist both Sellers/Buyers in making the right DA decision for themselves.

    First, an Agent has certain Fiduciary duties to a Client (a fiduciary duty is the highest standard of care possible). These can be boiled down to:

    • Loyalty
    • Obedience
    • Diligence
    • Disclosure
    • Accountability
    • Confidentiality


    Here's the CORE ISSUE of a Dual-Agency:

    A single Agent cannot provide the Fiduciary duties of full Disclosure and full Confidentiality at the same time! 

    To avoid this conflict, a Dual-Agent may not place either Client into a beneficial position over the other (i.e. provide advantageous advice to the Buyer or Seller during the transaction).

    Many times I have read posts from Agents commenting on DA and recommending; rightfully so, that entering into this type of relationship is a questionable endeavor, which I am pleased to see.

    However, I have also read comments such as, "...the agent's first duty is to the REO owner or bank, and, secondly, to you." which would clearly be cause for concern if a DA has been established. If an Agent were to demonstrate such a preference this would leave them, and their Broker, open to serious legal exposure.

    Problematic examples

    A Dual-Agent can provide the Listing price of a home to a Buyer but would be stepping into un
    ethical ground if they provide advice as to its appropriateness of the List price which could constitute "advantageous advice". Similarly, say a Dual-Agent performs a Comprehensive Market Analysis. The findings can be shared between the two parties, but not interpreted for either Client. 

    In all situations where one of the represented parties may be put in an advantageous position, the Agent would be wise to allow the parties to resolve the issue jointly or through the advice of independent third parties (i.e. specialty inspector, lawyer, etc.). Property inspections that come back with material issues can also be a landmine.


    It's a personal choice

    The decision to allow and/or enter into a DA is a personal choice. However, you should be asking yourself what identifiable benefits you are gaining by allowing a DA. This same question should additionally be directed towards the proposed Dual-Agent. Based on the responses you can make a more informed decision. You may also want the Agent to provide referrals you can contact to see how prior Dual-Agency transactions went (ask the former clients if they would do it again and what they would have done differently).

    Whether Buyer or Seller, would you not expect to receive the most advantageous advice during one of the largest transactions you make in your lifetime?

    In the end, the type of agency does not matter if you are working with a Realtor® who possesses uncompromising ethical and professional standards. However, if advice that may lead you to advantageous position is important to you ... well, now you get the picture.


    A Message to Buyers and Sellers

    Since the Seller pays the commission to the Buyer's Agent there really is no reason not to obtain the benefits of dedicated professional advice / guidance from your own Realtor® when purchasing a home. This is even more important if significant benefits of a proposed Dual-Agency are not present, and the ethical strength of the proposed Dual-Agent cannot be established. After all, the Seller starts off with dedicated representation, as a buyer I would highly suggest you seek the same.


    BRE licensees are NOT bound to a Code of Ethics; only Realtors® take that oath; a summary of which can be viewed here:
      http://docs.Steven-Anthony.com/RealtorCOE.pdf

    You can check to make sure an Agent is a Realtor® by going here: http://www.realtor.org/rofindrealtor.nsf/pages/FS_FREALTOR?OpenDocument

    You can check the status of a BRE Licensee and their Broker here
    http://www2.dre.ca.gov/PublicASP/pplinfo.asp 


    Whether Buyer or Seller, 
    I wish you the very best Agency representation!


    -Steve

    4/9/14 Update: 
    New Case Holds Different Salespersons Under the Same Broker Are Dual Agents.
    CA Appellate case: Horiike v. Coldwell Banker Residential Brokerage
    Quoting CAR: "It is well established that a dual agent owes a fiduciary duty to both the buyer and the seller. This case ruled that when a buyer and seller are working with different salespersons in the same brokerage - even different offices - that both the broker and the salespersons are dual agents. Therefore, the case held that whether the broker is a natural person or a corporation, the salespersons on either side of the transaction owe a fiduciary duty to both the buyer and the seller."


  • The Top 4 Challenges Buyers & Sellers will face in 2014!

    Posted Under: Market Conditions in California, Home Buying in California, Home Selling in California  |  October 24, 2013 11:43 AM  |  1,004 views  |  5 comments
    Below, at the very bottom of this post, you will find an infographic summarizing CAR's latest consumer survey. Buyers are both optimistic housing prices will be increasing in 2014 and for the next five years. While I believe an aggregate increase in prices is a safe bet over the next five years, I'm a bit more reserved about next year. This is due to the fact Real Estate still has some big challenges as we transition into 2014.

    Potential Buyers need to be aware of the following:


    1) "QM"

    As it stands right now the new "Qualified Mortgage" (QM) rules will be greeting us come January 10th. We really will not know what the final QM will look like given it's still in a state of change. For now, I would classify this effort under the category of "good intentions, bad execution". As it stands right now, QM may be knocking would-be Buyers out of the Market. Seriously, what percentage of Buyers have 20% down? ... Oh, what's that? You say minimum downpayments of 30% are a possibility? 


    2) The "PATH Act"
    The "Protecting American Taxpayers and Homeowners Act of 2013" (yet another misnomer from the politicos) has the potential of reducing the capability to own a home by raising interest rates via the phasing-out of the GSEs (FannieMae/Freddie Mac) over a five-year period, and therefore, any Federal backing of the secondary mortgage market via loan payment guarantees. If you happen to think the GSEs need to evaporate into thin air you might want to check out the three links below:

    Vid: NAR Chief Economist comments on the PATH Act
    (02.10 to 04:28)

    Vid: National Real Estate Post
    : 
    "Quit Kicking the GSE Dead Horse" (00.27 to 05:04)

    "Lawmakers intent on dismantling Fannie, Freddie even as they return billions."

    "Don't take the government out of mortgages, argues economist"


    3) The Fed Taper
    The Fed recently took heat for sending confusing signals regarding their Quantitative Easing (QE) Tapering policy. In June of 2013 Fed Chair Bernanke informed the world Tapering could start when the US unemployment rate hit 7%. In August, the unemployment rate dropped to 7.3% and many investors believed the central bank would start Tapering in September. Based on the belief the stimulus QE roller-coaster was heading downward, yields on 10-year Treasury notes and mortgage rates rose in anticipation. However, in September the Fed found themselves like a deer in the headlights of an approaching car, unwilling to move forward on the Taper due to uncertainty of the US budget and credit fight on Capitol Hill.

    The 9/18/13 decision by the FED to NOT start tapering means they will continue purchase Agency Mortgage Backed Securities (Ginnie Mae, Fannie Mae or Freddie Mac) at a pace of $40 billion per month and longer-term (remaining maturities of 4 to 30 years) Treasury securities at a pace of $45 billion a month. You can bet all eyes will be on our new incoming Fed Chair and the timing of Tapering. 
    Truth be told, we just do not know when the FED will start Tapering; one thing is for sure, once the Fed does move forward Mortgage Rates will increase due the removal the FED's purchasing “ and they have been on quite a spending spree! Here's a "Millions of Dollars" chart of the FED's purchasing as of September 13th: http://docs.steven-anthony.com/QE1-2-3-toSep13.pdf

    Some "QE" History: Quantitative Easing (QE), now referred to as QE1 was introduced to the common vernacular in late Nov of 2008. One of QE1's goals was to purchase $600 billion worth of Mortgage Backed Securities to keep mortgage rates low. QE1 was followed by QE2 on Nov of 2010. In Sept of 2012 QE3 was announced (it's also called "QE-Infinity" because of its open-ended nature).

    12/18/13 Update:
    Fed to Begin Tapering QE
    "The more accelerated the timeline (of the taper), the greater the sell-off and the higher the rates will be, said Bryan McNee, vice president and senior bond analyst for MBSAuthority.com.
    FOMC enacts $10B in cuts per month 

    Defying conventional wisdom from analysts, beginning in January, the committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, a 12.5% cut. The committee will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month, an 11.1% cut.


    4) US Budget and Credit

    The budget deficit and debt ceiling "issue" has only been kicked down the road. Under the October 16th agreement to reopen the government, the House and Senate are directed to hold talks and reach an agreement by December 13th on a long-term blueprint for tax and spending policies over the next decade. How do you think this will go? Another shutdown just before the Holiday Season would not be a welcome present!

    The bottom line: markets hate uncertainty surrounding economic policy. Uncertainty (a.k.a. risk) triggers a conservative mentality which reduces economic growth. Future potential Buyers who are prepared to move forward would be well advised to consider getting ahead of all the uncertainty above before the end of 2013
    .


    one cool thing optimism
  • The Key Features Buyers Value in a Home (2013)

    Posted Under: Market Conditions in California, Home Buying in California, Home Selling in California  |  October 8, 2013 8:55 AM  |  718 views  |  No comments


    What-Features-Do-Buyers-Value-in-a-Home.jpg
  • CAR: The Top 10 Overlooked ?s To Ask When Buying A Home

    Posted Under: Home Buying in California, Property Q&A in California, Investment Properties in California  |  September 24, 2013 11:46 AM  |  853 views  |  1 comment

    This "Top 10" list was produced by the California Association of Realtors®. I have added some important key notes & suggestions at the end of the list. -Steve


    one cool thing overlooked

    Q1) Actually, there are multiple "Seller Disclosures". Here's what you should be receiving in most transactions:

    a) Real Estate Transfer Disclosure (TDS), b) Seller Property Questionnaire (SPQ) or  Supplemental Statutory Disclosure (SSD) [only needed if SPQ not used], c) Water Heater/Smoke Detector Statement (WHSD), and d) Carbon Monoxide Detector Notice (CMD). In addition, a 3rd Party Natural Hazard Disclosure Statement should be provided which includes many other statutorily required disclosures and other disclosures are required depending on when the dwelling was built. You may want to request a CLUEs report. A Comprehensive Loss Underwriting Exchange Report provides dates of claims, insurance company(ies) involved, the type of policy, whether loss was related to a named catastrophe (flood, etc.), location of the loss (on or off property), the amount paid and cause of the loss.

    Q2) Zoning guidelines are important to know if you suspect you might want to change the footprint of the existing structure. Better yet, take a trip down to the permit office and investigate prior permits - or the lack thereof if it's obvious the home has been modified.

    Q3) Seller's do sometimes provide 3rd party inspection reports; the question is how professional is the inspection company the Seller has chosen. Be aware one DOES NOT need to be licensed in CA to be a Home Property Inspector. I would suggest you at least confirm the Seller's Property Inspection was performed by someone from one of the three property inspection certification associations: www.nachi.org  www.nahi.org  www.creia.org

    A "Wood Destroying Pests and Organisms" inspection (aka termite inspection) and Roof Inspection are both prudent in any purchase transaction (only possible exception being a tear-down or when the HOA is responsible for such issues). Thankfully, these two trades are under the jurisdiction of the Contractors State License Board. You can find and confirm the status of licensed contractors by searching via this link: https://www2.cslb.ca.gov/OnlineServices/CheckLicenseII/CheckLicense.aspx

    Q4) Simple enough, right? I also recommend you consider talking to a few Neighbors and checkout the Neighborhood in the morning, afternoon and evening! (... and for safety, bring a friend ...)

    Q5) Since radon is a by-product of disintegrating rock, it is more likely to be present in rocky areas or where subterranean rock formations are known to exist, especially granite. See http://www.epa.gov/radon/zonemap.html and http://www.epa.gov/radon/radontest.html for more information on this hazard.

    Q6) Sellers are pretty good about both Smoke and Carbon Dioxide Detectors and these items are the duty of the Seller to install per the Seller's required disclosures (see #1 above, Water Heater/Smoke Detector Statement (WHSD), and Carbon Monoxide Detector Notice (CMD). However, be sure to go online to confirm installation instructions as manufacture's recommendation for placement can vary.

    Q7) Yes, another great question! If a mold inspection has been performed you want to know exactly what the issue was and how it was remedied, hopefully. Even if the issue has been addressed by a licensed mold removal contractor (check CSLB website above) keep your eyes and nostrils open while you tour the home.

    Q8, 9 & 10) Realtors® typically do not comment on "crime & safety" due to "Anti-Steering" liability exposure; the following are other reasons:

    a) One does not know the threshold of a Buyer's comfort level. A property crime may or may not have the same weight as a more serious event -- in a Client's mind, b) As citizens, we typically hear very little of what actually goes on in a City every day. I went through the Citizens Police Academy in my local area a few years back and I can absolutely tell you the typical city resident only hears about 2% of what actually happens on a daily basis, and c) A nice area can convert to a bad area in the blink of eye subject to sensitivity of the individual processing the information concerning a particular event.

    As far as researching an area I recommend:
    http://www.meganslaw.ca.gov
    https://www.crimereports.com
    http://www.nixle.com
    The local Police Department

    Once more, I also recommend you take a friend and checkout the Neighborhood in the morning, afternoon and evening!

    -Steve

  • Distressed Property Purchasing: Understand Your 4 Risk Options!

    Posted Under: Home Buying in California, Foreclosure in California, Investment Properties in California  |  September 19, 2013 11:11 AM  |  1,304 views  |  No comments

    Many Buyers start with a strategic property search misstep; this being only focusing on distressed property due to a belief they are cheaper and less difficult to buy than non-distressed property which is simply is not the case.

    Basically, there are four types of "distressed/foreclosure" property. Here's a quick relative risk/difficulty scale for distressed property (1 being the most risky):

    1) Trustee Sale-

    You personally go to the County court house and bid on a home you probably have never seen the inside of, nor will have the opportunity to fully investigate. Seasoned investors need only apply. Cash/Cashiers check only, no financing. You may be interested in this video from Foreclosure Radar entitled Foreclosure Auction Guide

    2) Auction Company Sale-

    A little better, at least you have a seat in a packed room where the auctioneer's primary job is to get the highest offer from a much larger group than #1 above has. You are buying AS-IS. Do you have the ability to gauge cost of repairs you might see? This option is best for those who can walk a home and calculate refurbishment costs on the fly IF an investigative period has been allowed. If you are "gung ho" about an auction of this sort perhaps you should go through the steps to vet the property yourself and consider attending an event to see how the sausage is made" and how comfortable you would be if you went this route.

    Also, understand the Auction Company may charge you an auction service fee or buyer's premium used to compensate the real estate broker representing the buyer and/or Auctioneer. For example, according to their website, Auction.com has a fee of up to 5%: For winning bidders only, this is a fee added to the Winning Bid Amount. The Buyer's Premium amount is typically equal to 5% of the Winning Bid Amount (or $2,500 for residential and $10,000 for commercial, whichever is greater), and will be added to establish the Total Purchase Price.


    3) REO-

    When a property does not sell via #1 or #2 above you eventually see it come on market via a Realtor® MLS. You will still needs the skills to evaluate property condition and the good news is your Realtor® will be helping you to do so along with professional property inspectors you hire. The downside of an REO is the Bank typically only sells "AS IS", which basically means you are taking the property with all of its faults; meaning, the Bank will not typically make repairs even if you identify an issue. Also be aware the Seller's property disclosures are limited to what is statutorily required by law.

    Before moving on to 4, 1 thru 3 above have a higher probability for issues with Title, referred to as "Title Defect" or "Cloud on Title", which means you would not have clean/clear ownership - not a comforting thought.

    Some examples of situations affecting Title are:
    Existing violations of equitable servitudes or covenants
    Outstanding future interests of others in the property
    Outstanding mortgages/liens-Restrictive covenants
    Variations in the names of grantors and grantees
    Encumbrances-Easements on the property
    Variations in the chain of title
    Outstanding dower interests
    Adverse possession claims
    Zoning restriction violations
    Structural encroachments


    Here's video from the auction trenches: "Wells Fargo auctions off house they don't own"


    Here's another interesting situation I have run into re: REOs:

    REOs: How Buyers Can Avoid Hidden Unsecured Property Tax Liens

    4) Short Sale-

    While there is nothing chronologically short about this option (plan on 60-90+ days before a Lender approval) it nonetheless is the closest relative to the non-distressed sale (where the Seller is selling "AS IS" / no Seller credits or repairs). The only real risk with these transactions is the underwhelming boredom and the overwhelming mystery of why it takes so long to obtain Lender Approval(s)!

    Conclusion:

    If you enjoy the "thrill of the deal" proceed with options 1 thru 2. If you like to know what you are getting for your money stick with 3 or 4 and non-distressed property.

    Aside from Wall St. Portfolio Hedge Fund sales, most actual foreclosures are sold via their corresponding Local MLS!

    -Steve

  • Top 5 Reasons Why You Need a REALTOR® (2013 Results)

    Posted Under: Market Conditions in California, Home Buying in California, Home Selling in California  |  September 11, 2013 7:18 PM  |  1,153 views  |  No comments

    Simply put, your Realtor® will be able to answer initial key questions and professionally guide you through the entire transaction process.

    Were you aware CA Dept. of Real Estate licensees are NOT bound to a Code of Ethics?  In fact, only Realtors® take this type of oath (see one page summary).You can check to make sure an Agent is also a Realto® by going to Find a REALTOR
    ®


    5ReasonsYouNeedaRealtor
  • NAR: Real Estate Provisions in the Fiscal Cliff Bill

    Posted Under: Home Buying in California, Property Q&A in California, Investment Properties in California  |  January 13, 2013 7:49 PM  |  1,827 views  |  No comments
    Re-post from NAR's original Article "Real Estate Provisions in “Fiscal Cliff” Bill"


    On Jan. 1 both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2.

    Below is a summary of real estate related provisions in the bill:

    Real Estate Tax Extenders

    • Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014
    • Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
    • 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012
    • 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012

    Permanent Repeal of Pease Limitations for 99% of Taxpayers

    Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  These thresholds have been increased and are indexed for inflation and will rise over time.  Under the formula, the amount of adjusted gross income above the threshold is multiplied by 3 percent.  That amount is then used to reduce the total value of the filer’s itemized deductions.  The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.

    These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years.  They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012.  Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income. 

    Capital Gains

    Capital Gains rate stays at 15 percent for those in the top rate of $400,000 (individual) and $450,000 (joint) return.  After that, any gains above those amounts will be taxed at 20 percent.  The $250,000/$500,000 exclusion for sale of principal residence remains in place.

    Estate Tax

    The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax.  After that the rate will be 40 percent, up from 35 percent.  The exemption amounts are indexed for inflation.

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