In December of 2009 I wrote a blog taking a look at the San Diego market so buyers and sellers would have a better idea on how to handle a purchase or a sell. The data gathered at that time was only useful for a short period of time because the real estate market is continuously changing.
Because of the popularity of this information I will be evaluating the San Diego real estate market on a quarterly basis. To learn how this information can be used visit my December 2009 blog “Buyers’ Market vs. Sellers’ Market”.
Absorption rate is used to determine the supply vs. demand of real estate. It is calculated by dividing the amount of inventory by how many properties are selling in a month.
1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market
The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of April 5, 2010. First we look at San Diego County by geographic regions then break down the numbers by price.
All of San Diego County
Active homes for sale: 10,188
Contingent homes: 4576
Sold homes in last 30 days: 2532
Absorption rate of active homes: 4.0
Absorption rate of active and contingent homes: 5.8
North San Diego County
Active homes for sale: 4063
Contingent homes: 1460
Sold homes in last 30 days: 990
Absorption rate of active homes: 4.1
Absorption rate of active and contingent homes: 5.6
Central San Diego County
Active homes for sale: 3073
Contingent homes: 1119
Sold homes in last 30 days: 750
Absorption rate of active homes: 4.1
Absorption rate of active and contingent homes: 5.6
South San Diego County
Active homes for sale: 1155
Contingent homes: 1378
Sold homes in last 30 days: 480
Absorption rate of active homes: 2.4
Absorption rate of active and contingent homes: 5.3
East San Diego County
Active homes for sale: 1163
Contingent homes: 502
Sold homes in last 30 days: 225
Absorption rate of active homes: 5.2
Absorption rate of active and contingent homes: 7.4
Up to $200,000 Homes
Active homes for sale: 1740
Contingent homes: 1645
Sold homes in last 30 days: 595
Absorption rate of active homes: 2.9
Absorption rate of active and contingent homes: 5.7
$200,001 to $400,000 Homes
Active homes for sale: 2894
Contingent homes: 2204
Sold homes in last 30 days: 1092
Absorption rate of active homes: 2.7
Absorption rate of active and contingent homes: 4.7
$400,001 to $600,000 Homes
Active homes for sale: 2107
Contingent homes: 557
Sold homes in last 30 days: 539
Absorption rate of active homes: 3.9
Absorption rate of active and contingent homes: 4.9
$600,001 to $1,000,000 Homes
Active homes for sale: 1809
Contingent homes: 243
Sold homes in last 30 days: 307
Absorption rate of active homes: 5.9
Absorption rate of active and contingent homes: 6.7
$1,000,001 to $1,500,000 Homes
Active homes for sale: 813
Contingent homes: 45
Sold homes in last 30 days: 70
Absorption rate of active homes: 11.6
Absorption rate of active and contingent homes: 12.3
$1,500,001 to $5,000,000 Homes
Active homes for sale: 1022
Contingent homes: 34
Sold homes in last 30 days: 50
Absorption rate of active homes: 20.44
Absorption rate of active and contingent homes: 21.1
$5,000,001 plus Homes
Active homes for sale: 174
Contingent homes: 1
Sold homes in last 30 days: 3
Absorption rate of active homes: 58
Absorption rate of active and contingent homes: 58
Note: Small towns and communities far from the major populated areas were not used in the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.
It is easy to see that San Diego County is in a sellers’ market for the majority of the categories but compared to December 2009 it is moving toward a normal market. I don’t expect prices to rise as long as there are distressed homes on the market but once they are gone don’t be surprised to see prices jump 15% to 20% within a year.
Even though it is a sellers’ market there are still good reason to buy real estate now.
Historically low interest rates (There are predictions the Feds will raise rates about two more times in 2010)
Cost of renting similar to that of owning
$10,000 tax incentive for first time buyers or $10,000 for the purchase of a new home
Depressed prices
If you want to know the absorption rate of a particular area contact us at 877homes@gmail.com
Tuesday, April 6, 2010
Buyers’ Market vs. Sellers’ Market – 1st Qtr 2010
Thursday, March 25, 2010
Owner Financing or Carry-Back Loan
An owner financed or carry-back loan is when the seller usually owns the property outright and is willing to either hold the loan themselves, rather than a bank, or lease/rent the property to the buyer for a fixed period allowing the buyer more time to obtain favorable financing. For a buyer the key is to find a seller that will offer this possibility. In the present real estate market, many of the homes on the market are distress sales, which mean there is little chance of making a deal with the seller.
How does Owner Financing Work?
When a buyer is having trouble obtaining a loan or favorable financing, they may request their agent to contact the seller on their behalf, requesting seller financing. The seller loan can take the form of a first mortgage or a second mortgage. If the property is fully paid off then the process is simple. The seller and buyer come to an agreement on the sell price and the monthly payment and the sell has a first mortgage on the property. On the other hand if there is already a loan the process is the same except that the carry back loan will take a second position (second mortgage) to the existing loan. The buyer in this instance will need to be more careful because if the seller collects the buyer’s monthly payment and fails to pay the mortgage on the first loan the bank could foreclose on the property leaving the buyer with nothing. Another scenario is the buyer obtains a first mortgage loan but does not have sufficient funds the down payment so the seller finances a portion of it. Be sure to work with a qualified attorney for any carry back loan contracts.
Why Use Owner Financing?
If a property is old and in very bad shape, for example the foundation/slab is cracked, most banks will not consider loaning against the property. The options for the seller is to find a buyer with all cash, someone willing to obtain a hard-money loan, or provide the financing themselves. Second, for a buyer there are several good reasons to do a carry back loan. The first is if the buyer does not qualify for a loan due to poor credit, bankruptcy, or a foreclosure on a previously owned property. The second reason is if the buyer is self-employed or most of his/her income is from commission. The third good reason is to avoid closing costs for a loan, which is about 2% of the purchase price. And the finally reason is the whole purchase process can be done rather quickly if the buyer is in a hurry to move into a place.
Example:
The seller and the buyer agree on a sell price of $100,000. Since the buyer is self-employed the bank requires him to put down 50%. The buyer only has $10,000 to put down so the seller agrees to finance $40,000. To sum it up the buyer puts down $10,000, the bank loans $50,000 and the seller finances the remaining $40,000. The seller will have a mortgage note (Deed of Trust) for $40,000 with an agreed interest rate.
In this example the buyer does not have to worry about the seller defaulting on the first loan since it is in the buyer’s name.
If you still have questions contact us at 877homes@gmail.com
How does Owner Financing Work?
When a buyer is having trouble obtaining a loan or favorable financing, they may request their agent to contact the seller on their behalf, requesting seller financing. The seller loan can take the form of a first mortgage or a second mortgage. If the property is fully paid off then the process is simple. The seller and buyer come to an agreement on the sell price and the monthly payment and the sell has a first mortgage on the property. On the other hand if there is already a loan the process is the same except that the carry back loan will take a second position (second mortgage) to the existing loan. The buyer in this instance will need to be more careful because if the seller collects the buyer’s monthly payment and fails to pay the mortgage on the first loan the bank could foreclose on the property leaving the buyer with nothing. Another scenario is the buyer obtains a first mortgage loan but does not have sufficient funds the down payment so the seller finances a portion of it. Be sure to work with a qualified attorney for any carry back loan contracts.
Why Use Owner Financing?
If a property is old and in very bad shape, for example the foundation/slab is cracked, most banks will not consider loaning against the property. The options for the seller is to find a buyer with all cash, someone willing to obtain a hard-money loan, or provide the financing themselves. Second, for a buyer there are several good reasons to do a carry back loan. The first is if the buyer does not qualify for a loan due to poor credit, bankruptcy, or a foreclosure on a previously owned property. The second reason is if the buyer is self-employed or most of his/her income is from commission. The third good reason is to avoid closing costs for a loan, which is about 2% of the purchase price. And the finally reason is the whole purchase process can be done rather quickly if the buyer is in a hurry to move into a place.
Example:
The seller and the buyer agree on a sell price of $100,000. Since the buyer is self-employed the bank requires him to put down 50%. The buyer only has $10,000 to put down so the seller agrees to finance $40,000. To sum it up the buyer puts down $10,000, the bank loans $50,000 and the seller finances the remaining $40,000. The seller will have a mortgage note (Deed of Trust) for $40,000 with an agreed interest rate.
In this example the buyer does not have to worry about the seller defaulting on the first loan since it is in the buyer’s name.
If you still have questions contact us at 877homes@gmail.com
Sunday, February 28, 2010
Lease-to-Own with the Option-to-Purchase
I have met a number of people over the years that ask for Lease-to-Own places and I tell them they’ll have better luck looking for rentals. The simple reason is Realtors do not make money on Lease-to-Own transactions, unless he/she is paid upfront. But since this is a poplar subject for people who want to own property I’ll discuss the merits of it and mention a better option.
Lease-to-Own Example
The concept of Lease-to-Own is to have a portion of the rent go to a down payment for the purchase of a property. The renter will pay above average rent with an option to purchase the property at a future date and a predetermined price. For example, if the average rents are $1,500 per month a renter with a one year Lease-to-Own contract might pay $2,000 per month. The extra $500 would go into a separate account and at the end of the contract the renter has the option to purchase the property at the predetermined price with $6,000 for the down payment already saved. If the renter does not choose to purchase the property they typically forfeit the whole down payment.
The Benefit of Lease-to-Own
The advantage to the renter in a Lease-to-Own contract is they get to learn about the neighborhood first hand but more importantly if real estate values increase the seller cannot back out of the deal. In other words the renter is hedging that real estate values with increase more than the agreed to future price. On the other hand if real estate values decrease it is not likely the renter would exercise their option to purchase hence forfeiting their down payment. If the renter has poor credit it does not make sense to enter into a Lease-to-Own contract because they will not be able to obtain a loan and they will have to forfeit their down payment.
Lease-to-Own Contract
It is important that the agreement is in writing. This sounds simple but I have met many renters that believe they are in a Lease-to-Own contract after having a conversation with their landlord with a Lease-to-Own option being discussed. A Lease-to-Own with the Option-to-Purchase contract needs to be formalized in a written contract that specifies the monthly rent, the portion of rent that will go toward the down payment, the sales price and the expiration date of the option. There are other factors that should be in the contract like the right to have an inspection, who decides on and who pays for escrow and title along with many of the same factors found in a real estate purchase contract.
Lease-to-Own Responsibility
During the rental period the owner is responsible for property taxes, insurance, repairs and maintenance of the property. Like with all rental property the landlord would suffer a loss if the property were damaged or destroyed by a natural disaster that occurred during your Lease-to-Own period. However the renter is responsible for their personal property so it is a good idea to have renter’s insurance. Of course, once the renter purchases the property after exercising the Lease-to-Own with the Option-to-Purchase contract, the new owner is responsible for the taxes, insurance, and repairs related to the home.
Because Lease-to-Own agreements can be complex I recommend contacting an attorney to make sure your interests are protected. (I can provide some qualified attorneys)
Another option is Owner Financing, also called Carry Back Loan. I will discuss this next month. If you still have questions contact us at 877homes@gmail.com
Lease-to-Own Example
The concept of Lease-to-Own is to have a portion of the rent go to a down payment for the purchase of a property. The renter will pay above average rent with an option to purchase the property at a future date and a predetermined price. For example, if the average rents are $1,500 per month a renter with a one year Lease-to-Own contract might pay $2,000 per month. The extra $500 would go into a separate account and at the end of the contract the renter has the option to purchase the property at the predetermined price with $6,000 for the down payment already saved. If the renter does not choose to purchase the property they typically forfeit the whole down payment.
The Benefit of Lease-to-Own
The advantage to the renter in a Lease-to-Own contract is they get to learn about the neighborhood first hand but more importantly if real estate values increase the seller cannot back out of the deal. In other words the renter is hedging that real estate values with increase more than the agreed to future price. On the other hand if real estate values decrease it is not likely the renter would exercise their option to purchase hence forfeiting their down payment. If the renter has poor credit it does not make sense to enter into a Lease-to-Own contract because they will not be able to obtain a loan and they will have to forfeit their down payment.
Lease-to-Own Contract
It is important that the agreement is in writing. This sounds simple but I have met many renters that believe they are in a Lease-to-Own contract after having a conversation with their landlord with a Lease-to-Own option being discussed. A Lease-to-Own with the Option-to-Purchase contract needs to be formalized in a written contract that specifies the monthly rent, the portion of rent that will go toward the down payment, the sales price and the expiration date of the option. There are other factors that should be in the contract like the right to have an inspection, who decides on and who pays for escrow and title along with many of the same factors found in a real estate purchase contract.
Lease-to-Own Responsibility
During the rental period the owner is responsible for property taxes, insurance, repairs and maintenance of the property. Like with all rental property the landlord would suffer a loss if the property were damaged or destroyed by a natural disaster that occurred during your Lease-to-Own period. However the renter is responsible for their personal property so it is a good idea to have renter’s insurance. Of course, once the renter purchases the property after exercising the Lease-to-Own with the Option-to-Purchase contract, the new owner is responsible for the taxes, insurance, and repairs related to the home.
Because Lease-to-Own agreements can be complex I recommend contacting an attorney to make sure your interests are protected. (I can provide some qualified attorneys)
Another option is Owner Financing, also called Carry Back Loan. I will discuss this next month. If you still have questions contact us at 877homes@gmail.com
Friday, January 29, 2010
18 Common Home Buyer Mistakes
When doing something for the first time, like buying a home, mistakes are expected. Some say, “learn from your mistakes” I say, “learn from the mistakes of others”. Many first time and repeat home buyers are smart enough to do research to educate themselves and the Internet is a great source but not the only source. I typically spend one to two hours with first time buyers going over all the ins and outs including common mistakes. I have jotted down many of the areas real estate buyers should keep in mind during the home buying process.
1. Know how much home you can afford
Many first time homebuyers spend time researching neighborhoods, looking at homes on the internet, and even driving around before fully considering the cost of purchasing a home. One of the first things buyers should do is meet with a loan officer and get pre-approved for a mortgage. To make sure you are dealing with a quality loan officer ask if they typically use a processor. If they do then chances are they don’t fully know the loan process and the processor is probably working with several loan officers juggling many loan applications. Try to find a loan officer that is a control freak, as they are good at avoiding unforeseen problems and always meet with at least two loan officers. Be sure to get a Good Faith Estimate from each loan officer and compare.
2. Document and maintain your financial status
If you are pre-approved for a loan, do not change your financial status without consulting your loan officer. Purchasing large ticket items like a car, a boat, furniture, a washer and a dryer, or canceling a credit card, or not paying rent are all reasons why a loan could be denied before closing do to the change in your financial status.
3. Choose a qualified real estate agent
Unless you are a Realtor or an attorney you should find a good Realtor early in your home search process instead of waiting until you find a place. Since Realtors have direct access to the MLS (Multiple Listing Service) it only makes sense to use their knowledge and resources to get a jump start. The trick is to find that qualified Realtor that you will work well with. Experience, education, intelligence, and availability is a good starting place to help distinguish Realtors but you’ll have to make the choice and don’t be afraid to change Realtors if your needs are not being met. Also because of all the legal forms involved in a real estate transaction you will need a professional on your side.
4. Be cautious of Foreclosures
Just because a place that sold for $500,000 several years ago and is now offered for $300,000 does not make it good deal; maybe the place is only worth $250,000. Normally foreclosures are worth less because most homes owned by lenders or banks have been sitting vacant for months and many have been vandalized. Extensive repairs will probably be required and don’t expect the bank to repair anything before the close of escrow; foreclosures are typically sold-as-is.
5. Control your emotions
For the amount a home costs don’t let your feelings override your common sense. Owning a home is not cheap and neither is remodeling. Try to see the big picture and take everything into account. Many homebuyers don’t anticipate the additional cost for repairs and maintenance, or for an increase in utility costs. Consider the age of the place you want and how well it appears to have been treated by the previous owners. Buying a home is not just about the money that you spend upfront; it's about all the rest of the money you have to spend beyond that. Find out what the property taxes are, what your water bill might be and what a standard electric bill is in that home. You also want to factor in furnishings you may need to purchase before you can move in.
6. Do not assume your first offer will get accepted
As home prices become more affordable and with the tax credit competition has increased. Don’t be surprised to hear that a new home on the market as 20 offers. To increase the chance for your offer to be accepted you need to be quick in submitting the offer and have a strong offer. Having more money down and offering more money are two parts to having a strong offer. There is a third part to make an offer stronger but if I divulge it my clients will loose their edge.
7. Always have the property inspected, its cheap insurance
The importance of a physical inspection can’t be stressed too much. A physical inspection cost between $300 to $500, which is a small price compared to the price of a home. Wouldn’t it be nice to know that the pipes leak before closing so you can get the sellers to repair them or reduce the sell price? There are a lot of things a home inspection can reveal about a property that are not visible to the naked eye. Be sure to hire someone with credentials and verify them, as there is no branch in the government that monitors inspectors. Your agent can steer you to sources but the choice is yours.
8. Contract contingency clauses are important
A mortgage financing contingency clause protects the buyer in the event you can’t get financing because a loan officer did not do due diligence, the place you wanted did not appraisal high enough, or your financial status changed. Should one of these events occur the buyer gets back the deposit money. In California this clause is on the first page of the Purchase Contract, make sure the small box is checked.
9. Put yourself in the sellers shoes
The average homeowner only stays in a home for about five years. When purchasing a home, consider the reason you want the home, is a good reason some else may want the home later. The same goes with remodeling. Converting the garage into another room might sound like a good idea but many garage conversions are converted back into a garage; this would deter many future buyers.
10. Avoid Dual Agency
A Realtor representing both the seller and the buyer is like an attorney representing both the defendant and the plaintiff. This practice is called dual agency and is frowned upon by the DRE (Department of Real Estate). The seller’s agent primary fiducially responsibility is to the seller so home buyers may innocently disclose confidential and material information about their buying needs, financial abilities and negotiating strategies to the seller, especially when not aware of the roles of the Realtor involved.
11. Discount the seller's Decor
Remember that you are buying the house, not the items inside it, so make sure you see beyond the decorations. Focus on the location, the floor plan, and the square footage. If there are furnishings you want you can write them into the contract; it doesn’t hurt to ask.
12. Use your Realtor as an asset
Realtors work only on commission so if a transaction is not completed he/she does not get paid and when the transaction is completed their commission typically comes from the seller not the buyer. Working with a good Realtor can save money as they can provide you with data on a comparable place to give you a general ideal of the value of a place before you engage an appraiser and inspector. A great Realtor can even get your offer accepted in a sellers market without having to offer thousands over the listing price.
13. Research the neighborhood
It's absolutely critical that you research the neighborhood before you buy. Check out the area, amenities and the school system to be sure that your address corresponds with the correct school district. Also attend a community meeting, if possible. You're not just buying a home; you're buying a piece of real estate and the land around it. Check the commute by driving to the neighborhood you are interested in early in the morning then drive to work during rush hour. Do the same after work to see if you can live with the drive five days a week 52 weeks a year. Walk the neighborhood a few nights and see what is going on.
14. Don’t treat real estate like stock
When the real estate market is really hot and is appreciating really fast, people tend to look at it like it's the stock market. But playing real estate is nothing like the stock market; when you invest in real estate, you really need to take a long-term approach. I know people will disagree with this eight years ago but look where we are today.
15. Buy with appreciation in mind
The less expensive houses will pull down the value of the most expensive house on a block. The opposite is also true. Also, the more expensive houses are usually not the first houses to sell because they are usually overbuilt for the neighborhood.
16. Be proactive at closing
At the end of a transaction closing documents need to be signed and there is no reason you can’t have a copy before hand to review at your own pace. Most of the closing documents come from the loan officer so have your loan officer give you a copy a day or two before. One of the documents is called a HUD (Housing and Urban Development) and it is a form that lists all the charges; you can legally obtain it in 24 hours before closing. Try to sign the documents at the office of the escrow company so you don’t have to pay the notary traveling fees and have the loan officer there to answer any questions.
17. Choose the best way to take title
In July of 2001 husbands and wives owning real property in California can opt to take title in the form of Community Property with Right of Survivorship. When a husband and wife hold title as Community Property with Right of Survivorship the full interest in the property will vest, by law, in the surviving spouse immediately upon death of the first spouse. Title insurers will be able to vest title free and clear of the deceased spouse’s interest merely by the recommendation of an Affidavit similar to the one used to clear the interest of a deceased joint tenant. The survivorship feature will, in most instances, avoid the lengthy escrow delays caused by probate proceedings and other legal actions often associated with the traditional community property form of title. (See an attorney for the best way to take title)
18. Fully review the CC&R’s, meeting minutes, and financials
Buying a condo or a single family house in a community with HOA fees means there are CC&R’s (Covenants, Conditions, and Restrictions) and Bylaws. Get a copy of CC&R’s and Bylaws and go through them to make sure you can meet them. Some places might have restrictions on pets like the quantity and the weight. It might even be a good idea to have a real estate lawyer review them for you. Take some time to review the meeting minutes of the condo association board to see what the owners have been complaining about, if possible try to go back 12 months. Finally, get a copy of the last reserve study; they are required to be done once a year. Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. In reality there are not many condo communities that have the necessary reserves. Condo communities that have low fees more likely than not will have low reserves. In other words the fees will be going up and/or there may be some pricey assessments in your future.
If you still have questions contact us at 877homes@gmail.com
Visit us at www.877homes.com
1. Know how much home you can afford
Many first time homebuyers spend time researching neighborhoods, looking at homes on the internet, and even driving around before fully considering the cost of purchasing a home. One of the first things buyers should do is meet with a loan officer and get pre-approved for a mortgage. To make sure you are dealing with a quality loan officer ask if they typically use a processor. If they do then chances are they don’t fully know the loan process and the processor is probably working with several loan officers juggling many loan applications. Try to find a loan officer that is a control freak, as they are good at avoiding unforeseen problems and always meet with at least two loan officers. Be sure to get a Good Faith Estimate from each loan officer and compare.
2. Document and maintain your financial status
If you are pre-approved for a loan, do not change your financial status without consulting your loan officer. Purchasing large ticket items like a car, a boat, furniture, a washer and a dryer, or canceling a credit card, or not paying rent are all reasons why a loan could be denied before closing do to the change in your financial status.
3. Choose a qualified real estate agent
Unless you are a Realtor or an attorney you should find a good Realtor early in your home search process instead of waiting until you find a place. Since Realtors have direct access to the MLS (Multiple Listing Service) it only makes sense to use their knowledge and resources to get a jump start. The trick is to find that qualified Realtor that you will work well with. Experience, education, intelligence, and availability is a good starting place to help distinguish Realtors but you’ll have to make the choice and don’t be afraid to change Realtors if your needs are not being met. Also because of all the legal forms involved in a real estate transaction you will need a professional on your side.
4. Be cautious of Foreclosures
Just because a place that sold for $500,000 several years ago and is now offered for $300,000 does not make it good deal; maybe the place is only worth $250,000. Normally foreclosures are worth less because most homes owned by lenders or banks have been sitting vacant for months and many have been vandalized. Extensive repairs will probably be required and don’t expect the bank to repair anything before the close of escrow; foreclosures are typically sold-as-is.
5. Control your emotions
For the amount a home costs don’t let your feelings override your common sense. Owning a home is not cheap and neither is remodeling. Try to see the big picture and take everything into account. Many homebuyers don’t anticipate the additional cost for repairs and maintenance, or for an increase in utility costs. Consider the age of the place you want and how well it appears to have been treated by the previous owners. Buying a home is not just about the money that you spend upfront; it's about all the rest of the money you have to spend beyond that. Find out what the property taxes are, what your water bill might be and what a standard electric bill is in that home. You also want to factor in furnishings you may need to purchase before you can move in.
6. Do not assume your first offer will get accepted
As home prices become more affordable and with the tax credit competition has increased. Don’t be surprised to hear that a new home on the market as 20 offers. To increase the chance for your offer to be accepted you need to be quick in submitting the offer and have a strong offer. Having more money down and offering more money are two parts to having a strong offer. There is a third part to make an offer stronger but if I divulge it my clients will loose their edge.
7. Always have the property inspected, its cheap insurance
The importance of a physical inspection can’t be stressed too much. A physical inspection cost between $300 to $500, which is a small price compared to the price of a home. Wouldn’t it be nice to know that the pipes leak before closing so you can get the sellers to repair them or reduce the sell price? There are a lot of things a home inspection can reveal about a property that are not visible to the naked eye. Be sure to hire someone with credentials and verify them, as there is no branch in the government that monitors inspectors. Your agent can steer you to sources but the choice is yours.
8. Contract contingency clauses are important
A mortgage financing contingency clause protects the buyer in the event you can’t get financing because a loan officer did not do due diligence, the place you wanted did not appraisal high enough, or your financial status changed. Should one of these events occur the buyer gets back the deposit money. In California this clause is on the first page of the Purchase Contract, make sure the small box is checked.
9. Put yourself in the sellers shoes
The average homeowner only stays in a home for about five years. When purchasing a home, consider the reason you want the home, is a good reason some else may want the home later. The same goes with remodeling. Converting the garage into another room might sound like a good idea but many garage conversions are converted back into a garage; this would deter many future buyers.
10. Avoid Dual Agency
A Realtor representing both the seller and the buyer is like an attorney representing both the defendant and the plaintiff. This practice is called dual agency and is frowned upon by the DRE (Department of Real Estate). The seller’s agent primary fiducially responsibility is to the seller so home buyers may innocently disclose confidential and material information about their buying needs, financial abilities and negotiating strategies to the seller, especially when not aware of the roles of the Realtor involved.
11. Discount the seller's Decor
Remember that you are buying the house, not the items inside it, so make sure you see beyond the decorations. Focus on the location, the floor plan, and the square footage. If there are furnishings you want you can write them into the contract; it doesn’t hurt to ask.
12. Use your Realtor as an asset
Realtors work only on commission so if a transaction is not completed he/she does not get paid and when the transaction is completed their commission typically comes from the seller not the buyer. Working with a good Realtor can save money as they can provide you with data on a comparable place to give you a general ideal of the value of a place before you engage an appraiser and inspector. A great Realtor can even get your offer accepted in a sellers market without having to offer thousands over the listing price.
13. Research the neighborhood
It's absolutely critical that you research the neighborhood before you buy. Check out the area, amenities and the school system to be sure that your address corresponds with the correct school district. Also attend a community meeting, if possible. You're not just buying a home; you're buying a piece of real estate and the land around it. Check the commute by driving to the neighborhood you are interested in early in the morning then drive to work during rush hour. Do the same after work to see if you can live with the drive five days a week 52 weeks a year. Walk the neighborhood a few nights and see what is going on.
14. Don’t treat real estate like stock
When the real estate market is really hot and is appreciating really fast, people tend to look at it like it's the stock market. But playing real estate is nothing like the stock market; when you invest in real estate, you really need to take a long-term approach. I know people will disagree with this eight years ago but look where we are today.
15. Buy with appreciation in mind
The less expensive houses will pull down the value of the most expensive house on a block. The opposite is also true. Also, the more expensive houses are usually not the first houses to sell because they are usually overbuilt for the neighborhood.
16. Be proactive at closing
At the end of a transaction closing documents need to be signed and there is no reason you can’t have a copy before hand to review at your own pace. Most of the closing documents come from the loan officer so have your loan officer give you a copy a day or two before. One of the documents is called a HUD (Housing and Urban Development) and it is a form that lists all the charges; you can legally obtain it in 24 hours before closing. Try to sign the documents at the office of the escrow company so you don’t have to pay the notary traveling fees and have the loan officer there to answer any questions.
17. Choose the best way to take title
In July of 2001 husbands and wives owning real property in California can opt to take title in the form of Community Property with Right of Survivorship. When a husband and wife hold title as Community Property with Right of Survivorship the full interest in the property will vest, by law, in the surviving spouse immediately upon death of the first spouse. Title insurers will be able to vest title free and clear of the deceased spouse’s interest merely by the recommendation of an Affidavit similar to the one used to clear the interest of a deceased joint tenant. The survivorship feature will, in most instances, avoid the lengthy escrow delays caused by probate proceedings and other legal actions often associated with the traditional community property form of title. (See an attorney for the best way to take title)
18. Fully review the CC&R’s, meeting minutes, and financials
Buying a condo or a single family house in a community with HOA fees means there are CC&R’s (Covenants, Conditions, and Restrictions) and Bylaws. Get a copy of CC&R’s and Bylaws and go through them to make sure you can meet them. Some places might have restrictions on pets like the quantity and the weight. It might even be a good idea to have a real estate lawyer review them for you. Take some time to review the meeting minutes of the condo association board to see what the owners have been complaining about, if possible try to go back 12 months. Finally, get a copy of the last reserve study; they are required to be done once a year. Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. In reality there are not many condo communities that have the necessary reserves. Condo communities that have low fees more likely than not will have low reserves. In other words the fees will be going up and/or there may be some pricey assessments in your future.
If you still have questions contact us at 877homes@gmail.com
Visit us at www.877homes.com
Tuesday, December 29, 2009
Buyers’ Market vs. Sellers’ Market
Is it a buyers’ market or a sellers’ market? Why does it matter? These are two important questions I’ll answer here.
First, why does it mater? If you are looking to purchase a property and it is a buyers’ market you can try offering a price lower than the asking price, ask the seller to pay some or all of the closing costs, and during escrow ask the seller to pay for repairs. On the flip side if it is a sellers’ market the buyer needs to consider offering more than the asking price, have sufficient funds to cover their closing costs (about 3% of the purchase price), and be selective on requests for repairs made to the seller. Obviously it’s important to be aware of this so one can take advantage of their position or beat out the competition. The difficult question to answer is what type of real estate market we are in.
When there is more supply than demand it is a buyers’ market and when there is more demand than supply it is a sellers’ market. So now the question comes down to supply vs. demand. A common way of assessing this is to calculate the Absorption rate, i.e. how quickly a home will typically sell in the current market. Absorption rate is calculated by dividing the amount of inventory by how many properties are selling in a month.
1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market
The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of December 26, 2009. First we look at San Diego County by geographic regions then break down the numbers by price.
All of San Diego County
Active homes for sale: 8491
Contingent homes: 4280
Sold homes in last 30 days: 2661
Absorption rate of active homes: 3.2
Absorption rate of active and contingent homes: 4.8
North San Diego County
Active homes for sale: 3267
Contingent homes: 1382
Sold homes in last 30 days: 984
Absorption rate of active homes: 3.3
Absorption rate of active and contingent homes: 4.7
Central San Diego County
Active homes for sale: 2425
Contingent homes: 1035
Sold homes in last 30 days: 710
Absorption rate of active homes: 3.4
Absorption rate of active and contingent homes: 4.9
South San Diego County
Active homes for sale: 883
Contingent homes: 1110
Sold homes in last 30 days: 504
Absorption rate of active homes: 1.75
Absorption rate of active and contingent homes: 4.0
East San Diego County
Active homes for sale: 745
Contingent homes: 459
Sold homes in last 30 days: 232
Absorption rate of active homes: 3.2
Absorption rate of active and contingent homes: 5.2
Up to $200,000 Homes
Active homes for sale: 1589
Contingent homes: 1571
Sold homes in last 30 days: 647
Absorption rate of active homes: 2.5
Absorption rate of active and contingent homes: 4.9
$200,001 to $400,000 Homes
Active homes for sale: 2227
Contingent homes: 2006
Sold homes in last 30 days: 1170
Absorption rate of active homes: 1.9
Absorption rate of active and contingent homes: 3.6
$400,001 to $800,000 Homes
Active homes for sale: 2403
Contingent homes: 729
Sold homes in last 30 days: 713
Absorption rate of active homes: 3.4
Absorption rate of active and contingent homes: 4.4
$800,001 to $1,500,000 Homes
Active homes for sale: 1265
Contingent homes: 80
Sold homes in last 30 days: 163
Absorption rate of active homes: 7.8
Absorption rate of active and contingent homes: 8.3
$1,500,001 to $5,000,000 Homes
Active homes for sale: 977
Contingent homes: 27
Sold homes in last 30 days: 47
Absorption rate of active homes: 20.8
Absorption rate of active and contingent homes: 21.4
$5,000,001 plus Homes
Active homes for sale: 190
Contingent homes: 2
Sold homes in last 30 days: 2
Absorption rate of active homes: 95.0
Absorption rate of active and contingent homes: 96.0
Note: Small towns and communities far from the major populated areas were not used in the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.
It is easy to see that San Diego County is in a sellers’ market for the majority of the categories. I don’t expect prices to rise as long as there are distressed homes on the market but once they are gone don’t be surprised to see prices jump 15% to 20% within a year.
Even though it is a sellers’ market there are still good reason to buy real estate now.
- Historically low interest rates (There are predictions the Feds will raise rates about three times in 2010)
- Cost of renting similar to that of owning
- $8000 tax incentive for first time buyers, $6500 for other buyers
- Depressed prices
If you want to know the absorption rate of a particular area contact us at 877homes@gmail.com
Visit us at www.877homes.com
Friday, November 27, 2009
California Real Estate Buying Process
Purchasing a home in California is different from other states. First of all, California does not use attorneys to consummate real estate transactions, which is common practice on the East Coast.
Real estate transactions in California do use a third party called an Escrow. After one finds a home and begins the buying process, one will hear about "opening escrow" and "closing escrow".
Also, there is not a final closing meeting. Very rarely do the buyers and sellers even meet each other.
The following Timeline shows the steps and process of a real estate transaction in California. The Timeline is not all-inclusive nor the days exact as the Purchase Contract will dictate what is required and when. With that said the Timeline is however, a good guide for the ideal and typical real estate transaction.
(Day -1) Buyer has met with at least two Loan Officers and has in hand two GFE’s (Good Faith Estimate). Seller has all Disclosures Forms and a Wood Destroying Pest Inspection completed
(Day 0) The purchase offer is signed by both buyer and seller
(Day 1) Escrow is opened
(Day 1-3) Buyer’s earnest check is delivered to escrow
(Day 1-7) By the 7th day the seller has delivered the following items to the buyer
- Seller’s Disclosures
- Wood Destroying Pest Inspection Report
- Natural Hazard Zone Disclosure Report
- Preliminary Title Report
(Day 1-17) By the 17th day the buyer has the following items completed
- Reviewed and signed seller’s Disclosures
- Reviewed and signed the Wood Destroying Pest Inspection Report
- Reviewed and signed the Natural Hazard Zone Disclosure Report
- Reviewed and signed the Preliminary Title Report
- Ordered, reviewed and signed a Physical Inspection Report
- Ordered, reviewed and signed any additional Inspections the buyer deemed necessary
- Submit a Request for Repairs to the seller
- Remove all required Contingencies
(Day 18-29) Seller has all the work in section 1 of the Wood Destroying Pest Inspection Report and all agreed items in the Request for Repairs completed
(Day 26-30) Buyer does a Final Walkthrough of the property
(Day 30) Buyer signs closing and loan documents
(Day 31-35) The loan is funded, the property recorded and the buyer receives the Deed and keys for the property, which closes escrow
When you are ready to learn more about San Diego real estate give me a call or shoot me an email. Together we can find the perfect fit for you. www.877homes.com
Real estate transactions in California do use a third party called an Escrow. After one finds a home and begins the buying process, one will hear about "opening escrow" and "closing escrow".
Also, there is not a final closing meeting. Very rarely do the buyers and sellers even meet each other.
The following Timeline shows the steps and process of a real estate transaction in California. The Timeline is not all-inclusive nor the days exact as the Purchase Contract will dictate what is required and when. With that said the Timeline is however, a good guide for the ideal and typical real estate transaction.
(Day -1) Buyer has met with at least two Loan Officers and has in hand two GFE’s (Good Faith Estimate). Seller has all Disclosures Forms and a Wood Destroying Pest Inspection completed
(Day 0) The purchase offer is signed by both buyer and seller
(Day 1) Escrow is opened
(Day 1-3) Buyer’s earnest check is delivered to escrow
(Day 1-7) By the 7th day the seller has delivered the following items to the buyer
- Seller’s Disclosures
- Wood Destroying Pest Inspection Report
- Natural Hazard Zone Disclosure Report
- Preliminary Title Report
(Day 1-17) By the 17th day the buyer has the following items completed
- Reviewed and signed seller’s Disclosures
- Reviewed and signed the Wood Destroying Pest Inspection Report
- Reviewed and signed the Natural Hazard Zone Disclosure Report
- Reviewed and signed the Preliminary Title Report
- Ordered, reviewed and signed a Physical Inspection Report
- Ordered, reviewed and signed any additional Inspections the buyer deemed necessary
- Submit a Request for Repairs to the seller
- Remove all required Contingencies
(Day 18-29) Seller has all the work in section 1 of the Wood Destroying Pest Inspection Report and all agreed items in the Request for Repairs completed
(Day 26-30) Buyer does a Final Walkthrough of the property
(Day 30) Buyer signs closing and loan documents
(Day 31-35) The loan is funded, the property recorded and the buyer receives the Deed and keys for the property, which closes escrow
When you are ready to learn more about San Diego real estate give me a call or shoot me an email. Together we can find the perfect fit for you. www.877homes.com
Friday, October 30, 2009
Can Foreigners Buy Real Estate in America?
The simple answer is: Yes they can. There is no difference between a US citizen and a foreigner when buying property in California. But a foreigner will need a valid Visa and proof of residence for country of origin to get a loan and get into the US legally.
There are many types of Visas from work Visas to student Visas. A permanent Visa can take years to get but a foreigner looking to invest $500,000 to $1,000,000 can get on the fast track to obtaining a Visa. (Contact an expert at 877homes@gmail.com for more information)
The process of buying real estate in California is simple: 1) select a property 2) make an offer 3) negotiate and sign a contract 4) contract for and inspections and read and agree to all disclosures 5) finally pay for the property.
1) Finding and Selecting a Property
Though self-explanatory for the best results select a reputable real estate agent and provide them with your personal parameters such as price range and square footage. Since, most people like to be independent ask your agent for access to properties meeting your parameters listed on their websites and in the MLS (Multiple Listings Service). Agents will have access to all the contact information necessary to set up appointments for your viewing and inspection of selected properties. As your agent we feel we are best qualified to meet your needs, Contact an expert at 877homes@gmail.com it’s FREE)
2) Make an offer
To make an offer certain legal forms need to be filled out and submitted to the seller. One can try to do this themselves, or hire a lawyer, but in most cases the use and assistance of a real estate agent has been shown to produce the best and most timely results. In most cases the seller will counter the offer and negotiations could go back and forth between the buyer and seller several times before an agreement is reached.
3) Sign a contract
Like in most countries, real estate agents are certified to process real estate purchase contracts. When the purchase contract and all counter offers are signed this commits both the seller and the buyer to the sale. The contract will be subject to certain conditions such as the buyer obtaining a mortgage (if money is borrowed) and the seller ensuring that the title to the property is “clean” and all inspection issues resolved. The buyer should be aware that the commitment to certain dates is binding. It is important to adhere to dates and conditions set out in the agreement, otherwise the seller might take the opportunity to pull out of the sale, particularly if a better offer has been received.
Typically there are fees incurred at the time of purchase. These fees will vary according to factors dictated by the purchase agreement and the method of payment the buyer selects. A good rule is the fees will range between 3% and 5% of the purchase price of the property. Most of the fees are associated with the origination of the loan so if you are offering all cash then your fees will be notably less. Typically the closing fees are for setting up the loan (application fee, credit report, mortgage insurance, appraisal, etc.), physical inspection fee, title insurance, and escrow fee.
4) Inspections and Disclosures
Once the purchase offer has been accepted the buyer has typically 10 to 17 days (the number of days depends on what is in the contract) to complete all inspections and review all disclosures. If the buyer has no problem with the property after reviewing the inspection report and disclosures then all that is left is paying for the property. If on the other hand, some damages or defects are discovered the buyer can request the seller to repair them or reduce the price. The buyer can also back out of the deal even if the seller is willing to do the required repairs or reduce the price.
5) Paying for the Property
When the buyer is using a loan, foreign or US, to assist in buying the property the lender/bank wires the money to escrow. If the buyer is using all cash then they would do the same; wire the money to escrow. Once escrow has all the money, the title insurance, and Grant Deed and everything checks then the purchase is complete except for the final signing of forms at which time the buyer gets the Grant Deed and keys.
For foreigners if the purchase will be with all cash then the process is simple but if financing is needed, there will be some additional work. Banks will typically require 20% or more down and will charge about 1% more on the interest rate. You should compare loan opportunities in your country versus the US.
Cost of Homeownership
As an owner of a house or condo you will have some responsibilities and the main one is paying property tax. Property tax in California is about 1% to 1.25% of the purchase price and increases no more than 2% of the original amount per year. Property tax is paid twice a year, February 1st and November 1st.
If you purchase a condo or a house in a gated community there will be HOA fees (Home Owner Association). The amount of the HOA fees varies from a few hundred dollars to over a thousand dollars per month.
Another fee that is common in newly developed areas is the Mello Roos. The Mello Roos for all intent and purpose is a property tax. Basically the Mello Roos happens when a developer builds many homes in an area the city will require that a new school and/or fire station be built or other improvements made. Instead of adding this cost onto the homes the developer will sell bonds (typically 20 year bonds) and have the new homeowners pay the bonds off. To avoid the interest the homeowner can pay their share of the bonds off early.
What is Title Insurance?
Title insurance protects the buyer of real estate in the case where a situation arises in which the title to a property is clouded. This happens when a person or entity has an interest in the property that was not found or disclosed at the time of sale. (This is very common in countries like Mexico) For example, a lender may have a lien on a property that was not discovered for some reason. The title insurance protects the new owner from any expenses or loss that may occur as a result of this defect in the title.
If you still have questions contact us at 877homes@gmail.com
There are many types of Visas from work Visas to student Visas. A permanent Visa can take years to get but a foreigner looking to invest $500,000 to $1,000,000 can get on the fast track to obtaining a Visa. (Contact an expert at 877homes@gmail.com for more information)
The process of buying real estate in California is simple: 1) select a property 2) make an offer 3) negotiate and sign a contract 4) contract for and inspections and read and agree to all disclosures 5) finally pay for the property.
1) Finding and Selecting a Property
Though self-explanatory for the best results select a reputable real estate agent and provide them with your personal parameters such as price range and square footage. Since, most people like to be independent ask your agent for access to properties meeting your parameters listed on their websites and in the MLS (Multiple Listings Service). Agents will have access to all the contact information necessary to set up appointments for your viewing and inspection of selected properties. As your agent we feel we are best qualified to meet your needs, Contact an expert at 877homes@gmail.com it’s FREE)
2) Make an offer
To make an offer certain legal forms need to be filled out and submitted to the seller. One can try to do this themselves, or hire a lawyer, but in most cases the use and assistance of a real estate agent has been shown to produce the best and most timely results. In most cases the seller will counter the offer and negotiations could go back and forth between the buyer and seller several times before an agreement is reached.
3) Sign a contract
Like in most countries, real estate agents are certified to process real estate purchase contracts. When the purchase contract and all counter offers are signed this commits both the seller and the buyer to the sale. The contract will be subject to certain conditions such as the buyer obtaining a mortgage (if money is borrowed) and the seller ensuring that the title to the property is “clean” and all inspection issues resolved. The buyer should be aware that the commitment to certain dates is binding. It is important to adhere to dates and conditions set out in the agreement, otherwise the seller might take the opportunity to pull out of the sale, particularly if a better offer has been received.
Typically there are fees incurred at the time of purchase. These fees will vary according to factors dictated by the purchase agreement and the method of payment the buyer selects. A good rule is the fees will range between 3% and 5% of the purchase price of the property. Most of the fees are associated with the origination of the loan so if you are offering all cash then your fees will be notably less. Typically the closing fees are for setting up the loan (application fee, credit report, mortgage insurance, appraisal, etc.), physical inspection fee, title insurance, and escrow fee.
4) Inspections and Disclosures
Once the purchase offer has been accepted the buyer has typically 10 to 17 days (the number of days depends on what is in the contract) to complete all inspections and review all disclosures. If the buyer has no problem with the property after reviewing the inspection report and disclosures then all that is left is paying for the property. If on the other hand, some damages or defects are discovered the buyer can request the seller to repair them or reduce the price. The buyer can also back out of the deal even if the seller is willing to do the required repairs or reduce the price.
5) Paying for the Property
When the buyer is using a loan, foreign or US, to assist in buying the property the lender/bank wires the money to escrow. If the buyer is using all cash then they would do the same; wire the money to escrow. Once escrow has all the money, the title insurance, and Grant Deed and everything checks then the purchase is complete except for the final signing of forms at which time the buyer gets the Grant Deed and keys.
For foreigners if the purchase will be with all cash then the process is simple but if financing is needed, there will be some additional work. Banks will typically require 20% or more down and will charge about 1% more on the interest rate. You should compare loan opportunities in your country versus the US.
Cost of Homeownership
As an owner of a house or condo you will have some responsibilities and the main one is paying property tax. Property tax in California is about 1% to 1.25% of the purchase price and increases no more than 2% of the original amount per year. Property tax is paid twice a year, February 1st and November 1st.
If you purchase a condo or a house in a gated community there will be HOA fees (Home Owner Association). The amount of the HOA fees varies from a few hundred dollars to over a thousand dollars per month.
Another fee that is common in newly developed areas is the Mello Roos. The Mello Roos for all intent and purpose is a property tax. Basically the Mello Roos happens when a developer builds many homes in an area the city will require that a new school and/or fire station be built or other improvements made. Instead of adding this cost onto the homes the developer will sell bonds (typically 20 year bonds) and have the new homeowners pay the bonds off. To avoid the interest the homeowner can pay their share of the bonds off early.
What is Title Insurance?
Title insurance protects the buyer of real estate in the case where a situation arises in which the title to a property is clouded. This happens when a person or entity has an interest in the property that was not found or disclosed at the time of sale. (This is very common in countries like Mexico) For example, a lender may have a lien on a property that was not discovered for some reason. The title insurance protects the new owner from any expenses or loss that may occur as a result of this defect in the title.
If you still have questions contact us at 877homes@gmail.com
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