Frankly Speaking

Family First, House Second

2011-11-28T13:21:00.001-08:00

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Over the past couple of weeksI have spent a great deal of time exploring why now is the time for you to buy.And, I firmly believe that it is…if, you are able to do so. While I have beenespousing the many benefits of homeownership, I have unintentionally ignored alarge subset of the current housing market. They are those who are losing theirhomes because they can no longer carry the weight of their obligations.I bring this up because I meta couple recently who are more typical then they might realize. Most likely they are in their late twentiesto early thirties. They have two adorable children and they are living in thehouse of their dreams. A massive home by any measure, they got it for a greatprice and believed that this would be the family home for years to come.

It is often very sad how lifesometimes makes a mockery out of our best plans and intentions. You see, thisfamily is now another statistic of an economy struggling to rebound from nearmelt down.

A job downsizing, and areassessment of property values which raised taxes dramatically plus the costof heating, cooling, and living in a three thousand three hundred square foot home have combined to create aperfect storm from which they cannot stay in the home and recover.

The stress their situation isputting on the family may very well break up the family. And that, is a trueAmerican tragedy.

This couple did not make abad business decision. They purchased a home that they could afford. At a priceguaranteed to seem like a steal in the years to come. They lived within theirmeans. And, they must now sell or lose their home.

Few people will ever know thepressure that the loss of a home or, any other financial crisis can put on thefamily dynamic until they experience it for themselves. The first time you wakeup, look in the checkbook, and at the stack of unpaid bills on the desk andrealize there is no way to bridge the gap between the two, it feels like youhave been punched in the stomach and all the air has been pushed from yourlungs.

At first you feel ashamed. Itis often difficult to look in the mirror without a certain level ofembarrassment. Life in an instant seems almost unbearable. It is not longbefore you and your spouse begin the blame game.

And blame comes all toooften. And the barbs of blame become more painful and penetrate ever deeperuntil soon a family who once dreamed of forever can no longer see tomorrow.

When I am in front of afamily who is facing this scenario I often counsel them that the home they viewas the anchor of their future may in fact be acting as if it were a boat anchorattached to a drowning man attempting to tread water for survival.

The fact is that for manyfamilies living this nightmare that once they come to the conclusion that inorder to survive as a unit they must regroup and hold onto the things thattruly matter (specifically each other), life often gets immediately better.

Once you recognize what youmust do, you can begin the process of healing. Soon, you are no longer afraidto answer the phone or read your mail.

Better yet, almostimmediately the stress of regret and, the fear of uncertainty is replaced withhope and more importantly clarity.

I know that this column istypically about the business end ofowning a house. But reality is that ones primary concern should always be tofirst protect the integrity of the family. Every home you ever buy will be sold sometime in the future.

In other words, homes arereplaceable. Families are not. And while we can certainly reconfigure ourfamilies, once broken, they are never the same. Like the couple in my story, nomatter what your situation, you will have the opportunity to own again.However, you only get one chance at building your family.

I will say this to you,owning hone should be part of a bigger plan. By selling their home, this familywill have a chance to put themselves back in order. And, the truth is no matterhow disastrous your financial incident is, time is your friend. And, with time,credit can be repaired, wealth can be built. And, there will be a day in thenot too distant future when you can be a participant in the great Americandream of home ownership once again

So on this Thanksgivingweekend, I hope you gave thanks not for what you have but for who you love, and for wholoves you. The rest will work itself out in time

The Power Of Mindset

2011-11-21T10:35:00.001-08:00

The power of mindset is trulyan amazing thing. By way of illustrating this fact I offer the following foryour consideration.

This past week, I was inAnaheim for the National Association of REALTORS ® business meetings. And, atthose meetings, I had the occasion to hear the President of the CaliforniaAssociation of REALTORS ®, The Hawaii Association of REALTORS ® and the Guam Associationof REALTORS ® all speak to us about their markets.

This is what they said.Properties listed are selling quickly at or near list price. Inventories arelow by traditional standards. In all three places, prices have been stable oron the increase for a protracted period of time and yet they are in a buyer’smarket.

Think about this for asecond, demand is higher than supply. Prices are (in many areas) rising andthey are in a buyer’s market. For the life of me I cannot remember the lasttime that this scenario has played out like this.

The classic law of supply anddemand is that when you have demand exceeding inventory you have a seller’smarket. This means that the seller in most cases can control the terms of saleie: price, length of escrow, concessions (if any) you get the idea. In marketswhere these conditions are prevalent the sellers are king and the buyers knowit.

So to find ourselves in abuyer’s market despite all the conditions prevalent which would be indicativethe contrary there has to be an explanation. And, I would contend that this isonly explainable if you take a close look at the mindset of the typical buyertoday.

In most markets the typicalbuyer is purchasing their first home. All around them they see the remnants ofthose who had bought before them only to see the market collapse and valuesfall nearly as fast as they had risen.

This buyer no longer trustwhat he sees as being fact. In the early to mid- 2000’s everywhere you lookedhome values were going up at a rate of ahundred thousand dollars a year. Mosthomeowners made more in appreciation then they did of their day job. And, fromthe outside looking in there was no end in sight. Houses continued to sell,buyers continued to get loans and on the surface the gravy train seemed to haveno end.

But what we now know is thatthis market was built on quicksand. It had all of the structural integrity of ahouse of cards. And that the only possible scenario would be that it would (andultimately did) collapse under its own weight.

You see, that market wasfueled by buyers who could by with little or no qualification. The typicalbuyer did not need to prove income, he only needed to have a nominal creditscore and he could purchase almost anything he wished to purchase without fearof rejection.

What we now know is thatwithout safeguards from the lending industry no market can protect itself fromcollapse.

And, that is why we probablywill not see this type of collapse again for a very long time.

You see, today’s buyers musthave a much higher credit score to purchase. They must have verifiable income.They must provide proof of past income (tax forms and W2’s). They must also have sufficient reserves(cash) to sustain themselves in the event of a downturn in the economy. Inshort the buyer of today is protected from himself because even the mostqualified of buyers must jump through more hoops then they have had to inalmost any other time in our history.

In short today’s buyer mustprove that he or she is worthy of the title “homeowner” before that loan isgranted.

So, this brings me back tothe mindset theory. In a market where inventories are low, sales numbers are ator near traditional numbers. And, values have been stable for the past coupleof years. The only explanation that makes sense is that the mindset of today’sbuyer is that this market is not real.

Unfortunately for those whofall into this false sense of insecurity for them it will mean most likely thatultimately they will miss a truly great opportunity to purchase the home oftheir dreams for less than they could build the same home.

Now I have seen this scenarioplay out (over the course of my career) before. And there are only two possibleresults of subscribing to the mindset that says today’s great values are notreal or sustainable.

One will be that the buyerwho has this belief will wait until prices are rapidly increasing and he or shewill pay far more for their home than they could today. The second possibilityis that the buyer will wait too long and be priced out of the market altogetherthereby losing the chance to purchase at all.

So today, I would say to youthat it is very safe to believe what you see. To refuse to acknowledge theobvious is to put at great risk your opportunity to share in the great Americandream of homeownership.

The First Offer You Get...

2011-11-15T14:49:00.001-08:00

Recently Ihad a transaction where after due consultation the seller agreed to list thehome at the price which I suggested. I arrived at this price by doing a indepth analysis of the current activity within a half mile of the subjectproperty.

In attemptingto arrive at the best possible price point (the point at which someone wouldoffer on the home) I looked at the most recent sales of similar propertiesincluding those which were in escrow, but had not yet closed. And, at theactive listings (those currently on the market but not yet sold).

I look atthe recent sales for obvious reasons. These are the homes which had completedthe sales process. By studying these properties, I can see where they werepriced when listed, how long they were on the market. And, what the final salesprice was.

All of thisis vital information when determining where to price your listing. If a home ison the market for a protracted period of time without selling, it most likelywill sell for less than it would if the home were properly priced in the firstplace.

Real estateprofessionals call this process chasing the market. You list high (hoping toget a high offer) then you begin the process of adjusting the list price downover a period of time until you get an offer.

The problemwith this method of marketing is that most of the activity you are ever goingto get on a listing happens in the first six weeks, after that the listingbecomes stale, and usually will require a more substantial price reduction tostimulate activity in the listing again.

I look atthe pending sales for the same reason. By examining transactions in escrow, Iget to determine what they were originally priced at and, how long they were onmarket. What I do not get to know is what they sold for because this is usuallyprotected information until escrow closes.

Finally Ilook at the new (or active) listings. This tells me a couple of things. Onething it tells us is where the market is trying to go. For example, are thelisting prices going up or down? How long at this sales point are they onmarket before they get an offer? Or, how much do they have to reduce (and howquickly) before they start to show activity?

So, now backto my story, I took a listing and as I said determined a good list price toplace the house as the home to buy if you were purchasing in that price range.And, within a week we had our full price offer.

Unfortunately,the sellers decided that was an indication that we had priced too low andrejected the offer and upped the price by twenty thousand dollars. And it sat,and sat, and sat. So, we reduced the price by ten thousand and again it sat.

Finally, wereduced the price back to the original list price. And, right away we got anoffer nineteen thousand below list. We countered and we negotiated until wewere able to get the buyers to pay nine thousand under asking.

The sellerslost nine thousand when comparing the offers along with a lot of time. I tellyou this story (and I could have told you a hundred more just like it) toillustrate the need for you to trust the REALTOR® you hire. And, more to thepoint hire a REALTOR® you can trust.

It is a factthat in a flat or down market the first offer you receive may in fact be thebest offer you receive. And, to dismiss any offer without proper negotiationcould cost you thousands of dollars.

In thismarket, it is imperative that you properly position your home to sell.Amenities which traditionally add value to the property in this market simplyad incentive to potential buyers to purchase your home.

So, listenclosely to the advice you receive from your REALTOR®. Examine the reasoningbehind their valuations. And, recognize that in a market that is stronglyfavoring buyers, if your home sells quickly, your REALTOR® got it right.

Drunk Monkey's

2011-10-17T12:07:00.000-07:00

Recently Ispent the weekend in Long Beach watching my fiancé run her first marathon. For the record, shewas amazing. Finishing the 13.1 mile trek in a scant two hours and forty six minutes.

This ofitself is noteworthy and should be proclaimed for all to read in a publicationsuch as the press enterprise. However, while I am very proud of her effort, Iam actually writing for a completely different reason.

For the twoweeks leading up to this event, she was filled with self-doubt. Was she readyfor this challenge? Did she train as effectively as she could have? Would it betoo hot or too cold? Would she be able to go the distance which was 3 milesfarther then she had previously run?

And as wediscussed her concerns (call me silly) I actually started thinking of all theinsecurities that buyers have to overcome in order to create a mindsetconducive to buying.

Is this theright house? What about the neighborhood…Will my family be safe? Are theschools going to offer my child the best opportunity at a quality education?Can I buy the house cheaper by waiting a little longer? Should I even beconsidering purchasing today?

I think youget the picture? Here’s the thing. There are always these emotional hurdlesthat buyers have to go through in order to position themselves mentally topurchase. The typical buyer finds a house that they love beyond question. Andthen the drunk monkey on their shoulder starts talking to them.

And, boydoes he talk. He ask are you sure? Did you see that spot on the wall? What doesthat mean? Is the house safe? The lawn is dying, is there a major problem withthe soil? The faucet is leaking; do you think the plumbing is shot?

Here is thething. I tell my agents all the time. If you want to do more business, quittalking to other REALTORS®. They will only give you reasons why you cannotsucceed. It is the same with buyers. If you ask ten people if today is a goodtime to buy. You will have spoken to at least nine who either lost their home.Or, are so far upside down that they will not see sunlight for many years tocome.

These arenot the people you should be talking to. Talk first and foremost to youraccountant, second, talk to your lender. And, finally make sure that you lookwithin yourself to determine your reasons for buying.

Owning ahome is without question a key component in a secure financial future. Today,in most areas you can purchase a home for less then you could build it. And,that is unprecedented in our lifetime.

The truth isthat buying a home is very much like deciding to get married or have children.The timing is never going to be perfect (on that you can rely). But, doing socan be the most rewarding decision thatyou make in your lifetime.

Today, interestrates are at record low rates. Tomorrow is anyone’s guess. But smart money isbetting that interest rates cannot stay this low much longer.

Today (as Isaid) you can purchase for less than you can build, once again I would notguess that this will be true in the near future. And, you should not bet yourfuture on things remaining as affordable as they are today.

So please,take my advice. If you are considering purchasing, talk to your accountant tomake sure it makes sense for you. Then speak with your lender to make sure thatyou get the best rates offered today. And finally, select a REALTOR® whounderstands the neighborhood and housing requirements that you need in order tofeel comfortable with your purchase.

And finally,go shopping. The selection is amazing. We are truly in unique times. But don’tdelay because as is always the case, this market will change to a seller’smarket before you know it.

So take adeep breath, and go out there and buy something.

Lessons of 911

2011-09-19T14:31:00.001-07:00

Today(September 11, 2011) as I write this I am preparing to board a plane bound forHawaii. Part vacation and part work this trip in and of itself is a statementto those who would bring America to her knees if they could.

We as acountry have never settled for defeat. And, I pray we never will. Ten yearsafter the last plane fell from the sky. Ten years from the time the last towerfell. Ten years from the time the last hero breathed his (or her) last breath.We continue to remember those who we lost, and those who were saved.

As I awaittakeoff I cannot get enough of the television coverage marking this historicdate in a most appropriate manner. And, front and center in the celebration isarguably the most famous piece of real estate in America, Ground Zero.

Ten yearsago almost to the minute this hallowed ground having just seen her twinmonuments to capitalism fall, and the land now intrinsically holding littlevalue. In the world of commercialdevelopment the value of land is offset by the cost of preparing the land to bedeveloped and the cost of rebuilding was incalculable. However, on that momentthe value of that land was that it held the collective pride and resolve ofeach and every American man, women, and child.

Today, fromthe ashes and the rubble now mostly gone, on this once devastated piece ofground rises a statement to the world.America has not forgotten. We have however recovered.

And, on thismost sacred anniversary, I want those of you who say that after the crash of2007 when for a moment (just like the land at Ground Zero) our homes seeminglyheld no value, that they could never put the true value of our homes at zero.

I lectureall the time that the true value of a home is the sense of security that thefamily feels when they know where theywill live tomorrow. It is in the memories we have of our past, and it is in thesecurity that our home gives us today.

Now, allthat being said, the truth is that unlike the stocks of companies of which wehave no control, our homes can never be zero. And, our best indication offuture home values is the past. In virtually every housing collapse givenproper time to recover, housing has always bounced higher than it has fallen.

And, Ipromise that the market malaise that some relish the opportunity to tout as areason against homeownership, will someday be but a faint memory. And we willmost certainly see better times.

For thosewho are capable of buying, today is a day full of opportunity. And, for those who would like to sell and move up to alarger home, but do not want to sell at the price your home

Would sellfor today, I offer you this thought. Let us say that if you sold today it wouldsell for three hundred thousand. And, that this is twenty percent less than youcould sell it for in two years. This would mean that if you waited for valuesto rise you could make sixty thousand more then you could today.

However,that new home that you ultimately would like to purchase would have alsoincreased by twenty percent. So if your new home could be purchased for fourhundred thousand today, you would pay four eighty in the future. Simply statedyou would lose twenty thousand in this transaction because you waited to sell.

Now let’ssay that you sold it today for three hundred thousand and moved up to that newhome for a purchase price of four hundred thousand, and two years later it isworth four eighty. Even considering that you could have sold for sixty thousandmore by waiting, your net increase in equity is twenty thousand today with thepotential for far more.

Ten yearsago we thought our country’s finest days were behind us, and yet we (like thesite at ground zero) have risen from the ashes and are now well on our way torecovery.

Four yearsago we thought our housing industry had been decimated beyond all hope ofrepair. And yet today opportunities abound. And, for those willing to dream,dreams are becoming reality. And, the family histories of tomorrow are beingbuilt on the foundation of our homes today.

Finally apersonal thought. God bless this country and keep her strong. And let us alwaysknow that the price of freedom is never free. Special thanks to those who paythe price.

Congressman Calvert Member of the REALTOR(R) Party

2011-08-29T17:38:00.001-07:00

I had the pleasure of sharing lunch with Congressman Ken Calvert from the 44^th District a week ago. And, I have to tell you, if it is your hope to once again have a robust economy. One in which the housing industry plays a prominent role, we need more leaders who think like the Honorable Mr. Calvert.

Over the course of lunch our conversation ranged across many topics. But, as you can imagine real estate was the main course of this meal.

We started out the meal oddly enough, by his asking me what the residential market was like currently here in the Inland Empire. My response was that our average days on market appears to be rising. And, despite the fact that money is on sale (we are seeing historically low 30 year fixed rates) buyer activity is still tepid.

He in turn advised me that the commercial market is very similar. And, that a high percentage of sales are coming from investors who have pulled out of the stock market and are positioning themselves in the “historically” more secure real estate market. And, for the most part they are paying cash.

If you are a regular reader of this column you know that I referenced this very trend in the residential market just about a month ago. In fact fully 35% of the homes sold today are sold to investors looking for safe shelter and a reasonable return on their investment. And, they (more and more) are finding that shelter in real estate.

I have often said that you do not need to reinvent the wheel. Rather, it is always wiser to look at what the successful people are doing and mirror their behavior. Restated, I want you to understand that the investors are investing in real estate because today it is more affordable and offers the potential for a greater return than almost any other time in our history. So, emulate their behavior and buy if you can. There is no safer harbor for your money. History has never seen the day when a house and the land it sits on was worth nothing. The same cannot be said for some of the offerings of the stock market.

Another topic of great interest to me was our discussion regarding the dissolution of Freddie and Fannie. The congressman was right on point when he said that it would be irresponsible to arbitrarily dissolve these behemoth organizations without a privately funded secondary market firmly entrenched in the place of Fannie and Freddie. He cannot see that scenario materializing in this economy. And, we both agree that the process to make all of this happen could take ten years or more to achieve.

So, with this in mind he feels the most likely scenario would be a restructuring of Fannie and Freddie so that they remain fiscally sound. And, by doing so we are providing the country a sense of security that only comes with a reliable secondary market. Something the housing industry needs if it is to right itself.

We also spoke of the holy trinity of tax deductions, that being mortgage interest deduction, charitable donations, and Health Care. These issues have always been hot potatoes and today there is no difference. When talking about possible reforms to these and other tax related issues these were his thoughts as to the most likely scenarios.

In regards to the mortgage deduction, he felt that it was unlikely that the mortgage interest deduction would go away completely. A more likely result might be that the interest paid on the amount of a mortgage over five hundred thousand dollars would not be deductible. This would impact a relatively small percentage of homeowners. The deductibility for second homes or income properties however might not survive.

And, while most who buy investment properties like the idea of the tax incentives, few do so specifically because of them. Most people do so as a hedge against inflation, and as a future source for passive income.

In regards to US corporations keeping their profits overseas he had this to say. The United States has the highest corporate tax rates in the world. It is inevitable that companies such as General Electric would invest in foreign countries in order to shelter their income. In fact we incentivize that practice with our tax code. He suggested that one possibility would be to lower our corporate tax rates to Regan era levels thereby making it more desirable to invest at home.

Finally, on tax reform the congressman said it all when he said that it is a fact that forty one per cent of all Americans pay no taxes at all. And, if there is to be true stabilization of our economy, we must broaden the tax base. Take away the Earned Income Credit, and in doing so get a higher percentage of our population sharing the load.

Suffice to say that, I am bullish on our housing industry. It has been my career and passion for the past 19 years. I truly believe that today our discussion led to possible solutions which have haunted the housing market for years. I believe we are moving towards a better market. In part because our leadership understands that the foundation of this economy is the housing industry.

Now go buy something. It is good for the economy, and it is the foundation for your future.

Old Solutions for Today's Problems

2011-08-05T15:58:00.003-07:00

Today, I read an article in the newspaper that said Congress had passed a bill asking the banks to rent out their foreclosed homes while they waited to market the homes for sale. The idea is that this will stabilize neighborhoods impacted by a high number of foreclosures. And, in doing so preventing further erosion in values.

On the surface this seems like a reasonable request. One well founded in reason. And, this is one possible solution to a concern certain to impact neighborhoods across the country.

However the real solution is not in a temporary fix like this. Instead, the solution is to see that these loans become performing loans once again.

Now before I go any further, I must say that the ideas, I am about to discuss are not my own. In fact, they come from Bruce Norris (of whom I spoke last week). As I said in my last article, I have a tremendous respect for Bruce. His understanding of our market borders on genius. And, having followed his projections for the past fifteen years, I know now that he is right far more often the not.

I want to first say that the banks currently do not have to record a loss on their books until they take the home to market. So, they can conceivably sit on tens of thousands of homes, each worth maybe up to half of the amount secured by deed of trust.

So when they finally do start taking these homes (rumored collectively to be in the millions) to market many banks will be severely downgraded in terms of their book value.

=but, what would happen if the foreclose homes started to perform again? This could happen by simply changing the way we handle the trust deed sale on the courthouse steps. Currently, the bank looks at what is owed on the property and what the home is currently valued at.

Then, they set a maximum loss the investor should take. And, so long as the winning bid (paid in cash) falls within these parameters, they allow the home to be sold. And in doing so assure themselves or their investor of a loss which will ultimately be reflected in their balance sheet. This process will repeat itself over and over again.

Now what would happen if instead of setting the opening bid at a guaranteed loss. The banks, set the starting bid at the cost of the payments in arrears and, any accrued interest and late fees. Now let’s take this one step further by saying that in curing the note the buyer now assumes the rate and terms of the pre-existing contract guaranteeing that the investor do not realize a loss.

Now let us take this one step further. In the seventies and eighties, we had this wonderful loan that was fully assumable with little or no qualification. This was a gift from heaven. Let’s say that I were a self-employed person who thanks to the generous write offs available to the average business owner, had plenty of cash flow but showed little income. And, let’s also pretend that you could no longer afford the payments on your home. You are endanger of losing the home.

I cannot qualify for your home even though I can afford your payment. And, you protect your credit by allowing me to assume your loan. It worked in the past. It certainly could work today.

I guess to coin a phrase that Bruce Norris used, we know what worked in the past. And, it certainly will work today. The economy of our nation, is tied (like it or not) to our housing industry. We need sensible, historically sound solutions to the problems we face.

If we want to know how to deal with the problems of the present, we need simply to reach for the very recent past.

Norris Speaks I Listen

2011-07-29T14:43:00.001-07:00

For nearly 20 years now, I have been a faithful attendee of the Thursday morning breakfast meeting held at The Inland Gateway Association of Realtors. Over these past two decades I have built many strong friendships. And, I have secured many transactions that might otherwise have been missed.

But the main reason that I have religiously attended these meetings is that on this one day every week I am forced to focus on my craft. And, I am given access to information that I might not otherwise receive because of the speakers that they invite to enlighten us.

This past week I sat in pure awe as Bruce Norris, a man whose opinions I respect greatly spoke to us at great length about the current real estate market. And, the challenges and opportunities that this market offers those willing to participate.

There is no way that I can possibly cover in any detail all that he shared with us in such a limited space. I will however do my best.

First it starts with our current interest rates. I have said often that Money is on sale. In fact according to Mr. Norris, interest rates today are less than half of what they were in 1990. Now I ask you can you name anything else that cost less today than it did in 1990? I sure cant.

In fact with a median sale price of over two hundred seventy five thousand, statewide and nearly three hundred and fifty thousand in Corona, homes today still have great value.

Even more interesting is the mix of values when separated by types of sales. First the traditional sale (non-distressed) is still king, with a median sale price of over three hundred and fifty thousand dollars. But, now is where it gets interesting. The short sale listing has a median sale price of approximately two hundred seventy five thousand dollars state wide while the bank owned (foreclosed) property has a median sale price of two hundred thousand. This once again demonstrates the need for lenders to cooperate at a much higher level with short sales.

Today (according to Norris) nearly seventy eight percent of all first time home buyers can afford the median priced home. That number drops to fifty percent when all potential buyers are considered.

In terms of home sales overall, 2010 saw a much more robust market and, the sales numbers were better than they were in 1998. In Riverside County, sixty five percent of all homes sold were distressed sales twenty four percent short sales, and forty one percent bank owned properties. This would indicate that thirty five percent of all home sales were traditional equity sales.

At the end of 2010 (the latest date we have statistics for) forty four percent of all homes were purchased by first time buyers. And, today all indications are that we are experiencing more of the same in 2011.

The big problem with first time home buyers today isn’t that they can’t qualify. Instead it is because they just are not that excited to buy. We are seeing for the first time major publishers questioning the value in homeownership.

On the cover of the September 2010 issue of TIME Magazine, was the caption ReThinking Homeownership Why owning a home may no longer make economic sense. Besides the obvious wealth building aspects of homeownership, there are other positive realities of a neighborhood that is mostly owner occupied. On average owners invest far more time and energy in the maintenance and care of their home then absentee owners or renters. Crime rates tend to be lower in a neighborhood that is mostly owner occupied. All of this contribute to the fact that values will remain (on average) more stable and overall the homes will be much more desirable.

When you look at real estate, you have to examine how it performs over time. Most of us have a tendency to look at snapshots of the market if you will. For example, some would look at the peak of 2006 and the free fall to where we are today and conclude that real estate is a volatile and risky business.

The fact is, if you look at the market over the last twenty years, (1990 to 2010) real estate in Riverside County has appreciated by twenty percent. In Corona, property values have appreciated by over thirty percent over the same time frame.

Real estate can build great security when invested in over time. However, like any commodity, if your intent is strike it rich in a short period of time, you are just as likely to crash and burn as you are to succeed.

As for Norris, when explaining his feelings on the market today, he says (as I have) buy. Don’t wait. Buy now. And, he illustrated his belief that this was the right thing to do by advising us that he has purchased over one hundred homes this year. And, he is not done.

More Seller Financing Options

2011-07-22T10:32:00.001-07:00

Over the past couple of weeks we have been examining the some of the benefits and risk associated with creative alternatives to conventional financing. And, I hope that you have found the information helpful.

Today, we will explore two more methods to complete an otherwise difficult sale. They are the seller financing options of holding a first or second note on the property.

First you might wonder why anyone would want to carry the note on a home that they intend to sell. Great question. And the answer is more common than you might think. Let us assume that our seller is older and he holds title to his home free and clear. And, that he has sufficient assets to retire comfortably. Selling his home will provide him with cash he may not need at the time and expose him to tax liabilities that he does not want to pay at the moment.

In this scenario, if the seller decided to carry the note, he could structure the loan over thirty years, with an interest only payment and require that the note be paid off in five years.

This would preserve his equity position, provide the seller with passive income, and it is secured by a deed of trust which simply means that if the buyer defaults, the seller retains the right to foreclose and take the property back.

For the buyer, it means easier qualification criteria, an interest only payment that will be a lower payment than the fully amortized loan from a conventional lender. And, should the buyer have verifiable income but, poor credit. This scenario will allow the buyer to have all the benefits and incentives of homeownership while repairing his credit.

I have said many times that for any transaction to work it must have a “win-win” component to it. This one truly does. Because the seller, is able to sell but defer the tax liability to a future date. And, the buyer is provided the opportunity to purchase when he might not otherwise qualify.

It should be noted that in these types of transactions most sellers require a 10-20% down payment to consider the offer. It is a fact that buyers who have no skin in the game, are far more likely to walk away from their home in a difficult period than those who are well invested in the transaction.

In the nineties one of my favorite types of transactions was those which involved a seller financed second mortgage. At that time they were extremely common because in many transactions that was the only way a deal could be made.

This is because the interest rates were very high and the only way a buyer could qualify for financing was when the seller carried a second note at below market rates.

Today the guidelines for seller financed seconds have changed dramatically. So much so that I reached out to Craig Doty, from PrimeLending, a PlainsCapital Company, of Corona to get his feedback on these types of transactions in today’s market. The following were his comments.

“In the big picture, seller financing, also known as seller carry-backs, are still allowed. The primary advantage of using a seller carry-back with conventional financing is that it helps the homebuyer avoid paying private mortgage insurance on the underlying first mortgage, and all payments are therefore applied to principal and interest. In a high interest rate environment, if a seller agreed to provide a below-market interest rate, then a borrower who might not qualify at market rates may be able to obtain a loan with the lower rate offered by the seller.

These loan structures have also been popular with lenders because it lowers the lender’s risk and engaged a third party (the seller) to help ensure the homeowner made their payments. These loans are used less in markets with low equity or a high percentage of bank-owned homes.

A typical financing scenario would be a 5percent down payment from the buyer combined with 15percent seller carry back and the buyer obtains a first mortgage equal to 80percent of the purchase price (known as an 80-15-5). Also popular, is what we call an 80-10-10, where the buyer makes a 10percent down payment and the seller carries another 10percent and the buyer obtains an 80percent leverage first mortgage.

Seller carry-backs are not as popular with FHA loans because all FHA loans require mortgage insurance regardless of the buyers invested down payment.”

I hope that the past three weeks have demonstrated that there is always more than one way to skin a cat. When you are faced with obstacles that cannot be overcome any other way, you now have a couple new of tools that will allow you to get the job done.

The Short Book on Short Sales

2011-07-15T13:06:00.001-07:00

Last week we spoke of two “creative” methods of transacting the sale of your home when you have insufficient equity to do so through traditional means. They were the Land Contract and AITD (wrap around mortgage).

Each of these methods can be useful “tools” and a skilled professional should be well versed as to when to pull them out of their “Toolbox”. That being said, each of them do have their own risk and benefits for both the buyer and the seller. And, they should only be used when traditional methods are not an option.

Today, I thought we should all talk about the five hundred pound gorilla in the room. We all know he is there. And yet we refuse to discuss his presence for fear of dire consequences. That is the Short Sale.

I actually did my first short sale in 1993 shortly after receiving my license to conduct real estate. It truly was a fluke. While attending a breakfast meeting at the then Corona Norco Association of Realtors, a gentleman got up and started promoting his book called “The Short Book on Short Sales”.

This book could not have been more than fifty pages. And, it was no larger in width and height then a pack of chewing gum. In this book there was something so amazing and, (until I read the book) unthinkable. It explained in great detail how to convince the bank to accept payment of less then what was owed as payment in full.

And, while agreeing to lose tens of thousands of dollars, the bank also would release their lien against the property and the borrower. All of this was revolutionary in my eyes and I capitalized on every opportunity to use this amazing technique.

I wish I could remember the author of this book. I would love the opportunity to thank him. Because with his brief five minute presentation. And, his equally brief but informative book on this topic, he provided me with a set of skills that I have been able to use over and over throughout my career.

On average a short sale could be completed in sixty days or less. And, there was little or no acrimony between lender and borrower.

Fast forward to today and the tale is somewhat different even though the process is changing in a positive direction.

In November of 2007 I recognized early that the tide was changing. And, I knew that I would once again need to dust off my skills and put them back into action. But, this time it was different. You see the banks were not prepared for what was about to hit them. They did not have the people in place to negotiate short sales. And the result was frustrating for Seller, Buyer, Realtors, and lenders alike. For those of us who knew how the process should go, our job was doubly difficult in that we had to teach the negotiators we were working with how to process a short sale. And more importantly, we had to teach them why a short sale made sense for everyone concerned.

Here is the reality, on average a home that is sold through a short sale nets the bank 24% more than a home that is foreclosed on and resold. Second, a home that is owner occupied and sold through a short sale is more often than not, in much better condition when compared to one that has been foreclosed.

You see, when you allow the seller to orchestrate his own exit, you allow him to maintain his dignity. And, in doing so they tend to treat the home with respect right to the very end. The opposite is true when foreclosure is inevitable. Once faced with the reality that the home will be taken by judicial mandate (with force if necessary). The property owner resigned to the inevitability of his fate will start to look for mitigation of his loss. The lighting that he installed often comes up missing. The lawn he planted with great pride is no longer watered.

I think you get the picture. The home that the bank often receives is no longer a dream home. It is in fact a nightmare in need of repair. And the bank is left on the hook to make the home saleable.

If you are considering doing a short sale, here are a couple of tips that I hope will make your decision to do so an easier process. First, hire a REALTOR® who has experience in short sales. You should know that in processing a short sale, we are not allowed to ask for any upfront fees. So this should be a big red flag if the person you hire requires them.

Second be honest with your agent, provide him or her with all the documentation they request.

Third be patient. While the time frames have shortened, they still can be quite long. And, there is never a time when it is 100% certain that your short sale will be approved and closed until it happens.

Also, you must understand that there may be tax and other implications involved in a short sale. So, seek the counsel of your tax advisor or attorney before making your decision to proceed final.

There are plenty of reasons why a short sale can be of benefit to you, make sure you are fully apprised of the facts.

The Up (And Down) Side Of Creative Fincancing

2011-07-05T16:26:00.001-07:00

Back in 1993 when I began my real estate career, we had many options to sell a home (few of which were conventional). At the time interest rates were higher than FHA limits would allow. Many of the best houses offered for sale were upside down in value. And, selling a house was a real challenge.

We had a number of alternative methods to overcome the hurdles we had to cross all effective. And, all of them had risk or benefits for the principals involved in the transaction.

First there was the wrap around (All Inclusive Trust Deed): This simply stated allowed the buyer to take title to the loan while the sellers name remained on the loan for the term of the contract. It worked something like this. Your home might have been worth ninety thousand dollars. But you might have owed one hundred and twenty five. The buyer with the full understanding of the value might offer the seller five thousand in cash in return for being deeded to the house.

The upside for the buyer in this scenario is simple, no credit report or loan qualification. And, most importantly no risk to credit if he is unable to make the payment. Usually these arrangements were made with a specific term in which the buyer had to refinance the home and take the seller off of the loan. And, the payments typically were made to a third party who in return paid the mortgage.

The risk for the seller in this type of transaction can be huge or very nominal depending on how the arrangement is written. In the event the buyer defaults, the seller has lien rights and can in fact foreclose just as any other lien holder. He must however, cure any default of the senior lien holder.

That being said, let’s say the seller finds himself in a life changing event that requires that he either lose the house and destroy his credit. Or, sell via this method and have the opportunity to save his credit rating this option can be very beneficial with the right buyer. Because, the sellers credit is maintained or in some cases improved once the payment is paid in a timely manner over a protracted period of time.

Another option was the “Land Contract”. In this transaction, the buyer in return for some consideration took “equitable” title to the property. He has all the rights to use the property in any fashion he deems fit so long as it does not conflict with zoning regulations. What he has the right to claim the tax deduction for interest paid against this purchase. What he does not have is the right to further encumber the property without first paying off the first lien holder and the seller.

This is very similar in concept to the Cal Vet program that many veterans have used to purchase homes for generations. And, it is a secure method of sale with few risk for either buyer or seller.

In order to protect both buyer and seller, the seller usually will execute a grant deed in favor of the buyer which is held by a neutral third party until such time as the buyer is in a position to pay of the obligation. At which time the deed is transferred to the buyer and recorded. In this type of transaction the neutral third party also would be expected (for a fee) to collect all payments from the buyer. And, make all payments to the seller and the lien holder.

This is a brief look at Creative Financing 101. Next week we will take a look at other alternatives such as sellers carrying seconds, and short sales.

As a caution I would tell you that most loans written in the last few years have a clause in them that says simply that if the property owner at any time conveys his interest in the home to another party, the lender may call for the loan to be paid in full on demand. This is called an acceleration clause. And, while it is rarely (if ever) enforced on a performing loan, you must be aware of the possibility of this occurring should you enter into any type of creative financing arrangement.

Market Showing Mixed Signs

2011-06-16T16:08:00.001-07:00

Recently DataQuick released its report showing that the Southern California Real Estate Market was still feeling the effects of the collapse we experienced at the end of 2007. In the Southland home sales overall are down slightly in year to year comparisons.

On a similar note the median sales price from across Southern California has fallen modestly from a year ago to today (280K from 285K). The total number of sales in the six county area was down nominally for the 10^th straight month when compared to the previous year.

This comes at a time when we are usually building some momentum as we head into the peak selling season. What this tells us really is that there is still some buyer hesitance to be dealt with.

According to DataQuick, “sales have been below average for a protracted period of time. And, there is little doubt that there is a pent-up demand out there”. Buyer hesitation seems to be coming from a continued fear of prices falling further combined with the reality that qualifying for a home loan is not a certainty today.

And then, there is still the foreclosure problem to be dealt with. Like it or not the bank owned properties totaled nearly 33% of the sales during the first four months of the year. This coupled with the overwhelming number of short sale transactions means that the distressed sale is the dominant player in our market today. And, will be for the foreseeable future.

The investor market represents 25% of the buyer activity out there.

I often say that Real Estate is a local business conducted neighborhood to neighborhood. And, that you have to analyze the data on a local level if you really wish to understand the market that you are in.

I regularly receive a copy of “City Overview” published by Jon Sterling. His company utilizes the very finest analytics to determine what is happening in your neighborhood. And, his April report for the South Corona community that shares the zip code 92881 is the foundation of the following.

Currently the median list price in this community is three hundred twenty four thousand nine hundred dollars. There has been twelve hundred ninety five homes on sale for an average of one hundred and thirty seven days (thank you short sales).

According to Jon, inventory and days on market data is basically unchanged. However the Market Action index is increasing. All this means that home sales are outpacing the advent of new inventory. All of this loosely translates to “demand is beginning to exceed supply. And because of this what we are experiencing is most definitely a buyer’s market which is becoming further entrenched.

Jon advises us to keep an eye for improvement in one of the sectors (high end, moderately priced, or low income housing) for improvement, this will most likely be the bell whether of a shift in the market. And, this would also be an indicator that the market is over all on an improving trend.

All of this is further validation of my theory that if you are going to buy in the next six to twelve months, today is the day to become purposeful about it. As I have stated before, no one can accurately guess when the “bottom or peak” have occurred. Your goal has to be to buy before the bottom (already happened) or shortly thereafter, and sell before the peak.

Remember the lecture I give to my agents, the market is never static for long. It in fact is constantly shifting like a never ending pendulum from a buyer’s market (high supply, low demand) to a seller’s market (high demand, low supply).

During a buyer’s market there is a natural downward pressure on the price and concessions made to the buyer. And, in times when demand is high and supply is low, prices tend to be higher and concessions are generally not offered.

If you are a buyer (I’ll say it again) now is the time to buy. Don’t miss this opportunity. It will not last.

Look And You Can Clearly See

2011-06-03T09:33:00.000-07:00

Last week while in Austin Texas for some training, while reading the local newspaper, I came across the story of Zach Thibodeaux. Zach is an eight year old boy who is suffering from a degenerative disease known as Cone-Rod Dystrophy.

This disease is rapidly robbing Zach of his sight. In fact, at this point in his life, he has already lost 75% of his vision in one eye, and 85% in the other. Soon he will be blind.

Currently Zach is on a fast paced tour of New York City, in a feverous attempt to see all that can with the hope that those visions will be committed to his memory.

His story is tragic, incredible, and inspiring all in one. And it made me think…Why is it that despite all the opportunities that we have before us, we often can’t see them before it is too late.

I have said many times (in many different ways) that today’s market offers buyers and sellers many opportunities. And, yet we fail to see them. Quite probably because we take today’s opportunities for granted.

A seller today, may very well be selling his or her home for less than they would like. However here is something for you to consider. Let’s say that a seller agrees to sell his home today for three hundred thousand dollars. And, if he waited for two years he could sell it for three hundred and thirty thousand dollars. By selling today instead of waiting, the seller will potentially lose 10% (or $30,000).

However, if that seller takes the profits of this sale and purchases a five hundred thousand dollar home (a move up purchase) over the same two year period he will gain 10% in equity which translates to a fifty thousand dollar gain.

Investors will also see an abundance of opportunities in this market. Let’s say that you have a single family home worth three hundred thousand, and it rents for two thousand a month. If you sold your home through a tax deferred (1031 exchange) transaction and purchased a four- plex for say three hundred and fifty thousand dollars (very doable in this market) and each unit were to rent for one thousand a month your cash flow would double.

I want to stress to you that this truly is a buyers time to buy!. Today in many areas of the Inland Empire you can buy for less than the cost of building. Other than the Great Depression, when did we ever see these kinds of opportunities?

Certainly not in my lifetime.

So, while Zach’s condition is incurable. And, we wish him all the best. Yours requires only that you open your eyes and look around you. The world is ripe with opportunities so beautiful and, you need only look to see.

Until next time…Go out and buy something!

Buyers Need Representation Too!

2011-05-18T17:28:00.001-07:00

Last week we explored the value for the seller of working hand in hand with a REALTOR®. Today we need to delve into the much misunderstood relationship between a buyer and his or her agent.

It is this relationship above all others that is at the heart of who we are and what we do for the consumer.

First let me tell you of the very real, very common scenario. One that replays itself each and every day. A buyer decides to begin the process of looking for a home. Usually they will start out either searching on the internet, or driving neighborhoods looking for homes that address their needs.

When they see a listing that interest them, they call the listing agent and ask for a showing. This is their first mistake. You see the listing agent already has a relationship with the seller. And it is to their mutual benefit to see that you pay the highest price possible for the home that you covet.

While this is in no way unethical, it is a reality. And, because of the obligation that the listing agent has to the seller, it could cost the buyer tens of thousands of dollars in principal and interest payments.

As we have discussed in a previous article the difference between appraised value and market value can be substantial because of the lag time in a shifting market that it takes for the appraisers to react to the shift.

So while a listing agent may be certain that a home will appraise for a higher dollar mount then current market value (defined as the amount a seller will sell at and a buyer will pay for) he has no obligation to communicate to the buyer that the market value may in fact be lower then that of the list price.

Prior to listing a property for sale, every agent worth his or her salt will do a comparative market analysis (CMA). This is a compilation of data which identifies the most recent sales activity of like properties. The size of the inventory and average days on market and, the trending pattern that these factors are showing.

He does this to make sure that the seller gets top dollar. Well guess what? Any buyers agent worth his or her salt does the exact same thing prior to writing an offer on behalf of his client.

By studying the current market trends, the buyers agent can determine if the asking price is a fair representation of the current market value. And, no buyer should sign on the dotted line without being absolutely certain that they are getting the best value for their dollar.

This does not mean that you should be writing intentionally low offers in the hopes of getting a steal. What it does mean is that this…the best deals are those that leave the seller and the buyer satisfied with the result.

The likelihood of this happening is greatly enhanced when the buyer has proper representation and is fully apprised of the current market data so that they can write an offer that is based on a solid education of the market of the day. And, not that of the past.

Today’s buyer must be an educated consumer. One who aligns himself with professionals who can help him navigate the sometimes confusing road to home ownership.

When our industry works best is when the buyer and the seller seek their own council. Ours is an adversarial relationship when it is at its best. In that the sellers agent and the buyers agent diligently work to see that the deal that hits paper is one in which their clients best interest is met.

Seller-Realtor Value Proposition

2011-04-21T11:41:00.000-07:00

Good market or bad there is one constantly nagging question that is consistently asked by home sellers (and buyers) and that is “why do we need to use a REALTOR®?

I thought that this week would be a great time to truly explore the value proposition that working with a highly skilled professional can bring to the transaction no matter what side of the aisle you are on.

The number one argument is that of commission. Be it 4%, 6% or (you pick the number) it is often said that these cost cannot be justified. That the skill sets required to negotiate a purchase or sale do not warrant the cost.

So it is this premise that I will first address. It is a fact that a home listed and properly marketed by a licensed real estate professional will in fact sell for 24% more on average than that of a home that is for sale by owner (FISBO).

This fact alone would argue the point. It has been proven that the average seller would have a net profit that is at least 18% greater from his sale if he engages the services of a REALTOR® when compared to a transaction negotiated without professional assistance. This would suggest that the REALTOR® pays for himself.

However, the higher net profit is but a small piece of the puzzle. I think we all can agree that ours is a truly litigious society. Involving the REALTOR® in the transaction offers both buyer and sellers some level of protection from each other through the proper execution of a well crafted series of disclosures.

Here are but a few examples. Preliminary Title Report. This is one of the first documents that you receive. And, it is critical to the transaction. In this document, matters that could affect the sellers ability to deliver clear title are addressed and the ultimate success or failure of the sale could hinge on what is discovered in this report.

Second (and equally important) is the Natural Hazard Report. This report is statutorily required and any seller who fails to provide it subjects himself to penalties. The seller is required to provide the buyer with information as to whether or not the home is in a seismic zone, a flood zone or, if the property was ever utilized as a toxic waste site. It will also identify former munitions stored on property.

If the land has a high level of methane gas beneath it, this to will show up in the zone disclosure report. Furthermore, required disclosures such as Megan’s Law are also required and should be disclosed in this report.

The seller is also required to notify the buyer of all known defects in the property and, whether or not someone has died in the home over the past three years. The seller furthermore must accurately provide the buyer with a full disclosure of all of the amenities of the property. This would include but not be limited to the type of sewage system, heating and air systems. Whether or not there is a pool, if the stove is gas or electric. What type of fireplace (if any). I think you get the picture.

These are but a few of the items that a seller is required to disclose. I would contend that the average seller would have a difficult time gathering the information and disseminating it in a format that would meet the requirements fully. And, failure to do so could result in an unhappy buyer and ultimately in litigation.

The real estate professional makes sure that the seller meets his obligations of disclosure fully to the buyer. He assures the seller that the information has been received and communicated properly to the buyer and that the buyer’s questions are addressed.

This is but a small snapshot of the REALTOR® value preposition. On top of all that we do, we are governed by a strict code of ethics. And, any breach of that code is dealt with in a serious manner with great expediency.

Next week we will look at the value that the buyer receives from working with a REALTOR®.

NAR and CAR Respond

2011-04-06T14:43:00.000-07:00

First let me say that last week’s article caused a flurry of responses asking for more information. So if you will indulge me, I will expand on the topic. And, add a couple of divergent opinions in an attempt to draw even more of you into the debate.

First, on February 11, 2011 in response to the White House’s floating the idea of dissolving Freddie and Fannie over the next few years, the California Association of Realtors (CAR) had the following response.

“The elimination of government involvement would raise borrowing cost for home buyers. And, severely restrict a safe and affordable flow of financing, further impeding the still fragile housing market recovery”.

“A reduced government presence in the mortgage market will raise the cost of homeownership and make mortgages less available,” according to CAR President Beth Peerce. She goes on to say “Congress needs to understand that during economic downturns, the housing market needs government involvement to ensure capital stability”.

CAR and NAR (National Association of REALTORS®), believes that Fannie Mae and Freddie Mac government sponsored enterprises (GSEs) should be converted into government chartered non-profit corporations. According to CAR and NAR in a joint statement “such an entity would ensure government’s role in a stable real estate finance system, while eliminating the conflict created by the GSE’s current charter allowing for a private profit and loss structure”. They go on to surmise that such an arrangement accompanied by an expressed government guarantee would insure continued low interest rates and foster investor confidence.

The White House has also proposed taking the maximum loan amount (for a conforming loan) back to six hundred and twenty five thousand dollars. In most of California’s higher priced neighborhoods.

This is important because California is the Jumbo Loan leader and any such reduction would severely hamper our housing and economic recovery according to CAR.

I should explain that the conforming rate is the maximum rate that Fannie or Freddie can purchase and/or guarantee.

By CAR’s estimates the home buyers of San Francisco, Santa Clara County, Orange County, and San Diego County would see and average of approximately seven percent of their homes rendered ineligible for GSE financing, and nearly thirteen and a half percent of the same homes would no longer qualify for FHA financing.

It should be noted that nationally the maximum home rate for Fannie and Freddie is four hundred seventeen thousand. And the higher rates only apply to areas of the country where the median sales price exceeds that amount.

According to CAR, an efficient and properly regulated secondary market is a vital key to providing affordable mortgages to consumers. Without a secondary market CAR goes on to say, “interest rates would be unnecessarily higher and unaffordable for many Americans”. And, the lack of a viable secondary market would impede the overall economic recovery.

Representative Paul Kanjorski (D-Penn) I believe would agree with many of the positions which CAR and NAR have taken. In a recent interview with Jennifer Schonberger was quoted as saying the following “ My judgment is that we do need something that will continue to stimulate housing and take the valleys and hills out of the problem…Fannie and Freddie existed for a good number of years and were very successful in gaining a constant growth and prosperity in the residential real estate field”.

He went on to say “Can they survive now”? And, answered his own question by saying “they probably could be rehabilitated, but that would be expensive and take a long time”

The final decision will be made in Washington. But the ramifications of this situation and any possible “cure” will most certainly be paid for on Main Street. Any modification of our current system will most certainly affect the interest rates paid on the mortgages of tomorrow.

And that truth will determine who in this country will be able to sell or buy in the real estate market of the future.

Your opportunity is now. I truly hope that you recognize that fact and seize moment and opportunity of today.

Goodby Fannie and Freddie

2011-03-29T09:08:00.001-07:00

Recently the Press Enterprise ran a story about the Obama administration’s planned phase out of industry giants FANNIE MAE and FREDDIE MAC who combined hold over half of the nations mortgage securities.

The stated motivation for this move is to lessen governments role in the real estate industry.

The big question is twofold first what does this mean for us today? And, what will it mean for us in the future?

It should be noted that the prevailing thought is that in order to avoid a catastrophic collapse of our financial system the transition will need to be stretched out over a protracted period (probably five years or more).

So for the short term this will hardly cause a ripple. However, in order for our secondary market to survive (which is in our best interest) the private sector will need to fill the void left by the exit of Fannie and Freddie from the market place.

The likelihood of this happening today is very slim. You see not only is America on sale (evidenced by the most affordable housing cost in history) so is her money.

Today interest rates are at or near all time lows thanks in no small part to influx of cash and guarantees from our federal government. And if we are to attract private money into the secondary market, the cost of money will need to go up.

You see the private sector has this quirky need to see potential risk be offset by potential income. The reason for this is simple. Unlike the federal government (who can print money when they need to) the private sector exist by the good graces of a finite supply of money. When they invest they have the expectation of making a profit.

So the private sector will do one of two things when a market shifts and profits are scarce, they either pull out and reinvest elsewhere. Or, they increase the cost of their money in order to offset the risk of loss.

To put it another way, they increase interest rates. Unlike the federal government who rarely has an expectation of profit from investment, the private sector can’t survive without profit. And, they cannot print money to make up for a loss.

So, in order for us to enjoy a healthy secondary market (this is critical to the health of our economy) interest rates will need to go up. Nothing short of substantial rate increases will make it enticing for private money to stay in the secondary market for the long haul.

So what I am about to say now may shock you. But I promise you it is 100% true. Today is the day you should jump off the fence. Today is the day you should consider buying your next (or, your first) home.

Interest rates are at historically low levels. And, housing has never been more affordable. I promise you that there will be countless consumers who fail to heed this call to homeownership, who wake up one day only to find themselves once again priced out of the market.

Don’t let this happen to you. Prices are going to increase. Interest rates are going to go up (they have to).

If It Smells Fishy...

2011-03-10T16:14:00.000-08:00

It never ceases to amaze me the level of creativity that exist out there when it comes to those who would use illegal means to capitalize on a shifted or down market. The internet has spawned a new level of sophistication to the scams of yesterday. And today, the buyers and sellers would be well advised to ask questions and look before they leap.

It should come as no surprise that currently the vast majority of fraud occurring is in the short sale and loan modification arena. This niche market (which currently represents over 50% of the transactions in our area) has been inundated by those who would use fraud and deception for their own financial gain to the detriment of those on whom they prey.

In November of 2010, the Federal Trade Commission (FTC) implemented the Mortgage Assistance Relief Services (better known as MARS) act in an attempt to protect distressed homeowners from the ever increasing list of foreclosure relief scams.

The primary function of this new rule is to make it illegal for any Mortgage Relief Company to charge upfront fees of any type until or unless they have provided the troubled homeowner written shortsale approval complete with terms that are agreeable to the seller. In addition the service provider must also provide the distressed homeowner (in writing) with full disclosure of all changes, modifications, and new terms of the mortgage. Or, if applicable, the terms under which the lender will cooperate with a shortsale. And, at this point the seller must agree to all of the specified terms and conditions of lender approval prior to fees being due and payable to the Mortgage Relief service provider.

Another area of fraud is perpetrated through the unwitting cooperation of the buyers and sellers of a transaction. If you are a seller and you are promised payment outside of escrow that is considered to be fraud on the lender and is a federal offense.

Consequently if you are a buyer who is asked to pay for certain fees outside of escrow to avoid showing those payments on the final HUD. That also is considered to be loan fraud. In etiher case my advice is simple…Don’t do it.

Over the past 18 years I have often been challenged by my clients as to the need of title insurance. And there were times when I was stumped for an answer that really had teeth. Today, I have answers that will certainly make you appreciate the value of this product.

First let me tell you of a story I heard involving a home purchase at the courthouse steps (at the foreclosure auction). The investor properly doing his due diligence prior to bidding on the property inspected it and found the home to be vacant.

When he won the property at auction, he immediately went to the property only to find it occupied. The occupant had what appeared to be a valid lease. And, immediately called her “landlord” and requested that she come to the home to clear up the situation. As an aside the Sheriff’s department was called to effect eviction of the unauthorized occupant. The officer upon viewing the lease refused to be involved stating that this was now a civil matter.

When the “landlord” showed up, she had in her possession a notarized and recorded deed to the property from her to herself. Obviously this will be a relatively simple matter to unravel. But even so, will require legal action and time. All of which cost money.

In another situation a property was advertised for sale by an unwitting real estate professional as being free and clear. The seller had a recorded re-conveyance document from the lender and the home sold.

In short order the new owner was notified that the home was in foreclosure by the sellers lender. As it turns out the re-conveyance was a forged document. One so convincing that the title insurance company in question believed it to be valid. Without a title insurance policy in place, this buyer would have been devastated financially.

Document forgeries are becoming much more prevalent. In some cases the scammers are so adept at deception that they are able to determine the home state of an absentee owner and create notary stamps that appear to be from the home state of the absentee owner so that they can transfer ownership of the property without the knowledge of the homeowner. These homes are then resold. And once again without a title policy the financial impact on the defrauded buyer could be devastating.

I regularly offer the following advice to the agents in my office, which I now offer to you. If it doesn’t pass the smell test, don’t move forward without having your concerns fully appeased.

2011 Changes In The Law

2011-03-01T12:19:00.000-08:00

2010 was a busy year for our state legislators. And as a result there were a number of new laws crafted which affect the homeowners of California. The following is a brief synopsis of the regulations that have the greatest impact on you as a homeowner.

First, it never fails to occur that once you purchase your new home, you immediately become inundated with documents offering to provide you with copies of your grant deed (for a fee), or a homestead document (for a fee). These solicitations are well crafted solicitations that cleverly mimic government documents. As a result an unsuspecting homeowner might be paying a premium price for a document he could get for free, or a service he does not need. AB1373 restricts these companies from these practices as of January 1, 2011.

Next on the new law hit parade is SB 183. This law mandates a couple of things. First it requires that a Carbon Monoxide detector be installed in every unit or dwelling intended for human occupancy statewide. This can be either a battery operated unit or one that is hardwired. The law takes effect July 1, 2011 for all single family units. And, on or before Jan 1, 2013 for all other existing units. Failure to do so will result in a fine of $200 for each occurrence.

In the case of a residential rental unit, the tenant has an obligation to notify his or her landlord of inoperative or defective carbon monoxide device.

This next new law (AB 1864) affects one of the most curious laws on our books. And that is the law of Adverse Possession. This law states that if a claimant making an adverse possession claim occupies the property for a period of five consecutive years and makes payment of all property taxes during this period. The claimant is entitled to claim ownership of the subject property. The law is amended as of the first of the year to require that the taxes be paid in a timely manner, as established by certified records of the county tax collector.

Existing law requires a legal owner of vacant residential property purchased at a foreclosure sale to maintain the property with penalties for failure to do so of up to $1,000 per day, per violation.

The law (SB 1427) requires the government to provide the owner of the property purchased at auction with a notice of the violation. And, to allow a reasonable time to cure the condition. The only exception for this requirement is if the violations provide a public health or safety concern.

This is important because some cities were assessing excessive fines that bore no relationship to the cost of remedying the violation. I had a listing in a nearby (un-named city). Upon beginning my due diligence on behalf of the bank who had purchased the property at auction, I discovered that the home had an unpermitted second story that resulted in the city red tagging the home (deeming it to be uninhabitable).

I worked non-stop with the building and code enforcement department to rectify the situation. This required the city department to initiate a construction audit which ultimately determined the construction standards of the city to have been met.

While all of this was going on in code enforcement, the city had created a new department (without my knowledge) which oversaw REO properties within the city limits. This department in a period of sixty days had amassed fines in the amount of over ninety thousand dollars against the property which we had sold for $80,000 to a cash buyer.

Ultimately we were able to negotiate the fines down to nine thousand which still is substantial given that they did no work on the property and therefore had accrued no actual loss.

And finally, we have AB 1800 which took effect at the first of the year. This law actually makes it a misdemeanor for any person to claim ownership, and or take possession of someone else’s residential property for the purposes of renting or leasing it out to another party without the expressed consent of the owner. Penalties for this offence allow for fines up to $2,500 and or imprisonment for up to one year in a county jail.

Historically this has been a major problem in a down market. Someone breaks into an abandoned home, rekeys the locks, advertises the property for lease. And collects rents for as long as he can until the home is foreclosed on. And, until now this was a civil matter which usually resulted in an eviction with no criminal penalty.

Timing The Market

2011-02-18T15:06:00.000-08:00

One of the most difficult things to do in the real estate industry is to accurately time the market. Many have tried, many more claim to have the secret, but the truth is that no one can determine when a market has peaked or hit bottom (except by sheer luck).

In fact by the time the media gets around to telling you we have hit the top (or bottom) of a real estate cycle, more often than not we are already well on our way in the other direction.

And waiting (for the peak or bottom) can often cause more financial hardship then jumping in. If you will indulge me for a moment, I will explain.

I have often said that the best time to sell is just before the peak. During that period, you maximize your profits while facing the least amount of competition. Remember 2007? Once the general public realized that the market had peaked, everyone who was inclined to sell listed their home. And in doing so, ran head on into the law of supply and demand. You see, when supply exceeds demand, buyers dictate terms (price, concessions etc.) and prices fall.

In the case of 2007, they continued to spiral out of control well into 2009 at which time the market finally began to rebound. Those sellers who waited too long, lost (in some cases) up to 50% of their home value. And any hope of a conventional sale.

The lucky ones were able to hang on hoping for a strong recovery. Others successfully negotiated short sales and were able to extricate themselves from the transaction (although not always without sever repercussions). And, many fell victim to foreclosure.

Today, we see buyers playing that same game (Russian Roulette) with the home purchase decision process. The buyer of today who thinks he can time the market is waiting for the ever anticipated avalanche of bank owned properties. Because (they rationalize) when that happens, prices will fall. And, they will get a better deal than they can today.

There are two problems with this scenario. First The banks understand the law of supply and demand as well as anyone. And, they remember the effect they had on pricing the last time they flooded the market with foreclosed properties (prices fell). I would be willing to bet that they will take a more strategic approach to dissolving their inventories this time.

Second, (and probably more importantly) today money is on sale! Rarely in our lifetime have we seen 30 year fixed mortgages at such insanely low rates. There are a number of factors that have brought us to this point, but suffice to say that interest rates cannot (and will not) remain this low forever. They can’t.

The Corona Norco Real Estate Market

2011-02-08T14:17:00.000-08:00

Virtually everywhere I go, I am asked if this is a good time to buy or sell a home here in the greater Corona Norco (and now Eastvale) market. And without hesitation my answer is always the same. Yes it is.

Simply stated, I believe that we are in an era where home value, affordability, inventory, and interest rates have created a perfect storm. Rarely in our history have we seen so much home, sell for so little, with interest rates that just a few short years ago could not be obtained by even the most highly qualified buyer. In fact in many cases, the homes offered for sale today cannot be built for the price for which they are sold.

Now, I know that the national media would have you feeling like the sky is still falling. But real estate unlike any other business is transacted on a local level. And, to truly understand the condition of the market we are in, you must study the transactional data of our market.

Most, economist would agree that the 4^th quarter of 2007 marked the point in time in which our market began a continuous downward spiral which would continue into the second quarter of 2009. It was during this time period, that we witnessed the median sale price drop from a high of $425K to a low of $305K.

Since then we have seen six consecutive quarters in which we have seen steady increases in the median sales price (currently $325K). For most of us, this would represent a less volatile more stable market. And, one that is well on its way to recovery.

Further illustrating the resurgence of our market is the fact that in the fourth quarter of 2007 there were only 350 homes sold in our market. Compare that with 700 home sales in the final quarter of 2010 and again we have evidence of a housing market well on its way to recovery.

In the last quarter of 2007 we saw 1656 active listings expire without selling. Today that number is down over 70% to a very manageable and more traditional 493 listings expiring.

If we look at some of the other common barometers of the real estate market such as Days on Market (the number of days from list to sell) and months of inventory, our market data shows again that we are stable, and that our market is edging quickly towards one that closely mirrors healthy traditional markets as opposed to those in a depressed or declining markets.

Today, we have approximately 3 months inventory compared to the final quarter in 2007 when we had to endure 18 months of inventory and a buyer’s pool that nearly evaporated. Our days on Market data is equally exciting. At the end of 2007 we saw homes stay on the market for more than 95 days without selling. Today, that number has dropped to a very respectable 74 days.