So Cal Real Estate News

Note: Special 2 hour, $5 buyer seminar with Blair & Dave set for Saturday, October11 at Lakewood’s Mayfair Park (Clark and South St.). We designed this to help buyers make the most of this fall and winter’s unusual buying opportunites. Class size is limited to allow interaction. Sponsored by Lakewood’s Community Services Department. Details here. No, we’re not selling tapes, cds, books, or DVDs!

It wasn’t that long ago that Blair and I thought Southern California home prices were most likely to begin to rebound in spring of 2010.

Near the end of July we made an upbeat revision in our forecast, giving a 40% probability Southern California home prices would bottom this coming winter, a 40% chance of our price bottom coming the following winter, and a 20% of our bottom coming after that.  We also began specifying which areas and price segments can be expected to bottom first.  (For details and our rationale, check out “An optimistic update on our projections of a home price bottom.”)

Now we’re getting even a bit more optimistic, largely due to modest declines in homes going into foreclosure combined with the rapid decline in prices over the past year.

Nobody can say with certainty when Southern California home prices will hit bottom (See “How low will prices go?“).  DataQuick’s numbers won’t reflect that bottom until long after it’s passed (see “Two big problems with DataQuick’s monthly median price reports“).  However, there comes a time before the price bottom in every market cycle where the wise buyer starts looking very seriously.

I think that time is now.  In fact, last week I put in my first offer on a California property in over ten years.  (Last month I also decided to run for my local City Council for the first time ever, but that’s another story for another blog.)

Let’s take a close look at some questions this raises, including where, what, and why to buy now:

Where to buy now: While we believe recovery for the desert area and the Inland Empire may not come unti spring of 2010, we now believe the next four months are likely to present the best buying opportunities for most property classes in the coastal plane of Los Angeles and Orange Counties.

Why? As we’ve indicated in “Our Two R.E. Market Cycles,” in most years both sales volume and prices for homes going into escrow tend to bottom in November and December. People are too busy preparing for the holidays to buy homes but lenders and builders are trying to unload inventory before year’s end.  It’s almost like an annual “year end clearance” sale for real estate.

With the number of homes going into foreclosure beginning to decline and effects of the federal housing relief bill beginning to kick in (see “The good news about the ‘Housing and Economic Recovery Act’ “), we think the odds now are that this winter’s apt to be as good as it gets for buyers looking in the more built out areas of So Cal.

What’s more, interest rates are still near historical lows and are expected to gradually rise over the years ahead.  Very low prices and rates make for an excellent buying opportunity.

Finally, there are literally hundreds of thousands of buyers sitting on the fence right now waiting for the market to bottom.  Once they all sense the time is right, you’ll have far more competition from other buyers than you have right now.  If you’re not early, you’ll be late.   Once everybody recognizes a golden opportunity, it’s too late to take advantage of it.

Due to the annual cycle, we know activity’s apt to pick up starting 12/26, we think the prudent buyer should at least get her feet wet in the market now.

Who should buy now? Buyers who have fairly decent credit, access to a down payment of at least 3.5% (the new FHA minimum), stable income, and who aren’t planning on selling in the next five years.  (3-5 years used to be the rule of thumb for accumulating enough equity to cover selling costs.  1-2 year “flipping” for anything besides severely distressed property is probably a thing of the past.)  It’s also not a time for negative amortization loans, or adjustable mortgages with low teaser rates and payments that will rise dramatically.  We recommend 7 - 30 year fixed, fully amortizing loans.

What to buy now? We think lower end Single Family Homes (SFRs) will rebound first, as they’ve been driven down the most by foreclosures.  Starter condos, which were overbuilt more than SFRs in LA & OC, will probably lag behind.  Quite likely move-up homes will also lag, since most buyers need to build up equity in their current home in order to move up.

We also like the discounts available on “short sales.”

What’s a “short sale?” In a  “short sale” the current mortgage holder accepts a reduced, or “short” payoff at close in order to avoid foreclosure.  It actually takes longer than a normal sale or a bank foreclosure, and you can expect the current mortgage holder to attempt to renegotiate or even cancel the sale.  I got plenty of experience with short sales back during the 1991 - 1996 SoCal real estate crash, and so far Blair and I have closed every short sale we’ve opened.

Why the discount on short sales? For agents, short sales are twice the hassle for 1/6 less commission, since the mortgage holder always insists on reducing the commission as a condition of accepting the short sale, if they’re willing to accept it at all.  Buyers would also rather avoid the renegotiation hassles not to mention the chance of the current lender disallowing the losing the home 30 - 60 days into the escrow.  As a result short sales often go for 5% - 15% below market.  And market is already 25% - 40% below what it was at the peak.

What about foreclosures? Once the bank takes the home back, the hassles of a short sale and the reduced commission are both eliminated, so the demand increases.  Some REOs (”Real Estate Owned,” or lender-owned, foreclosed properties) are initially overpriced.  When an REO is underpriced, the lender may wait 7 - 10 days before accepting an offer, essentialy holding an auction so that the price will get bid up, sometimes actually selling above market.

When should I start looking? Preferably September or early October.  That way you’ll have time to look and to familiarize yourself with your options.  Some experts say you should look at 20 similar homes before making an offer.  With the internet, it’s not that hard.  You can search for yourself using the links to Southern California Multiple Listing services in the column to your right.  Better yet, we can set you up on the MLS’s “Listing Book,” which allows you to sort out the listings you prefer.  (Just shoot us an e-mail at BlairNewman at verizon.net.  (You know what the “at” represents, but most web-crawling e-mail harvesters don’t.)

It’s also good to start looking now so that if you find a short sale you like you’ll have time to give it a shot, & still have time to look and write other offers if the current lender plays hardball 45 days down the line.

What if prices continue to drop next year? We think the odds are against that, but nobody can say for certain.  What we do know is that prices have already fallen by about a third from the peak.  By staying in developped areas, you minimize the risk of dramatic additional falls.  Of course, if the economy takes a major turn for the worst while you’re looking, you can always wait.  Check back with us, or sign up for our RSS feed, to see our take on future developments.

How do we get started? First, talk to an honest, reliable lender (if you don’t know any, we do.  562.822.SOLD).  Find out what you qualify for on a fixed loan, if you need to work on your credit, how much down you’ll need, etc.

Then find an honest, experienced, diligent full-time agent.  Not someone you know at work (they’re not full-time, no matter what they say), probably not a relative, and not a friendly person you meet at an open house.  At least five years in the business, at least 50 closed sales, at least 5 of them in the neighborhood you’re interested in.   Again, with 30+ years in the business, we can probably find someone good for you if you can’t.  If you’re thinking southeast L.A. County (Long Beach, Lakewood, Norwalk, Cerritos, etc.) or west or North Orange County (Cypress, Rossmoor, Seal Beach through La Mirada and La Habra), we’ve got many years experience there ourselves, with over 500 homes sold.

You may decide you want to wait a little longer, but you may also find your dream home & be able to negotiate a great deal.  Whatever you finally decide, now’s a great time to get started.  There’s a very good chance it may be the smartest financial decision of your life!

This is the second of three posts on three homes that recently closed escrow on the same block in Lakewood, CA. The first was “A Tale of Three Listings: The probate seller’s big mistake,” and in a few days we’ll post the last, “The team that made it happen.”

I “flipped” my first house back in the late 1980s, before those cable networks that made “flipping” popular were even invented.

As an experienced Realtor who has advance access to listings & who can save on commissions, you might think that I’ve flipped scores of homes since then, but you’d be wrong. I’ve actually only flipped a handful or two of properties over the last 20 years. That’s partly because I’ve become more of a buy and hold investor, but it’s also because “flipping” is much harder than it looks.

In the early 90’s a colleague and former partner of mine began “flipping” homes as a business. He developed a model that worked well for him, with some unique means of acquiring the properties you won’t find at a seminar or on a DVD or TV show. According to him, the key to success was acquiring the property substantially below market. As he explained it to me once, “We’re basically pirates. The key is to steal the property.”

Each flip has to be carefully evaluated, but I want to pay at least 20% below market, preferably 25% - 30%. My colleague prefers more than that.

I have to laugh when I watch “Flip this House” and similar shows, especially the part at the end where they compute their “profits.” After spending way too much overdoing their improvements, some bright-eyed young Realtor is brought in to rave about the house & tell the flipper how much they’ll get for it.

These agents may be young, but they’re well schooled in the number #1 way to get a listing–tell the seller what she wants to hear (see ” Top 5 ways NOT to pick an agent“). They generally quote an unrealistically high price. Then on the screen the show computes the flipper’s mythical profit, completely ignoring costs of purchase, selling costs like commission, or holding costs like monthly mortgage payments.

Well, that approach to flipping may sometimes work when homes are going up by thousands of dollars every month because everybody and his dead dog can qualify for a loan (see “How we got into this mess“). But in a flat market, let along a down market, flipping calls for skills that even most Realtors don’t have.

As is illustrated by this sad story.

When this home hit the market last September, it was priced 5% - 10% below market. It was the classic case of the lazy seller and lazy agent. The home was occupied by a pack-rack tenant who also made it almost impossible to show. The correct remedy would have been to get the tenant out & do a quick & cheap fix-up, rather than drive down neighborhood values. Instead, they priced it low & sold it quick. It was the first home in the neighborhood to list below $400,00, and the agent who bought it negotiated the price down to $390,000. He opened escrow late in September and closed it mid November, according to the SoCal Multiple Listing Service.

I thought about buying it myself, but I knew prices always move lower as we move through the winter (see “Our Two R.E. Market Cycles“), and I expected the coming winter to be especially brutal. Plus, the selling price wasn’t near 25% below market.

Long story short, it was bought by an agent who bragged to me how he’d flipped 60 homes. I hope he banked his profits. He had the concepts down, but not for a down market. During the five months it took him to close escrow on his purchase, fix it up, and put it on the market, prices plummeted. He did a nice job of sprucing it up and staging it, but he was used to prices going up $5,000 or more a month. This time, they were going down.

After wasting a couple weekends trying to sell it by owner, this Realtor put the home in the Multiple Listings for $475,000 on February 8th. He eventually reduced it to $449,000, which he told me was what he needed just to break even. I guess he didn’t, because it was later reduced to $429,900. In mid April it went into escrow and it closed on May 21 at $428,000.

That was less than 10% over what was paid for the home, and resulted in a loss of over $30,000 by the flipper’s own projections. Four months of work to lose over $30,000!

In a normal market, let alone in the current down market, flipping is not for amateurs. In this case, it wasn’t for professionals, either!

Please bear that in mind next time you’re watching “Flip this House!”

In a few days, we’ll discuss the third sale on this same block, “the team that made it happen.”

Foreclosures are up, sales are up, closings are tougher, and rental vacancies are down.  And one of the smartest investors I know is making offers again, even as he puts his own home on the market.

That’s what we’re seeing from both sides of the Los Angeles County and Orange County lines.

Total Southern California homes available for sale, from Santa Barbara to San Diego, stands at about 163,500, which is down about 3% from the 169,000 we peaked at about three months ago. In less built-out Orange County, inventory is down more dramatically.

David Haas, our favorite local property manager says his vacancies have declined, largely due to an influx of former homeowners vacating after foreclosure and/or short sale.

The managing partner at the real estate office we work out of reports new escrows for April were the best in about nine months, before the subprime crisis. April’s numbers were modestly better than February’s, with March serving as a trough in between. This is actually fairly typical in real estate–many agents tend to get one or two deals into escrow, then focus on closing them before opening new escrows.

However, escrows remain difficult to close, for several reasons. The reason you hear about most has to do with the difficulty qualifying for a loan, and who can blame lenders for tightening up, given their current onslaught of foreclosures. Of course, sub-prime loans have pretty much dryed up, and most lenders are looking for at least 10% down and good FICO scores for no-verification loans. In problem areas with lots of foreclosures, FHA is requiring 5% down, rather than the traditional 3%.

Some escrows are harder to close because they’re “short sales,” where the current lender must accept a discounted, or “short” payoff in order to facilitate a sale and avoid foreclosure. It’s not uncommon for these to fall out of escrow, either due to the lender refusing to accept the discount, making unreasonable demnads, or just taking too long to respond.

However, enough sales are falling out right now that we’re starting to put in “back up” offers on occasion.

As discussed in our prior post, DataQuick’s latest Orange County medians indicate a modest increase in prices as well.

What’s it all mean? Well, the increase in pending sales & prices is pretty typical for springtime (see “Predictions 101: SoCal’s 2 market cycles“), so that doesn’t prove anything in itself.

However, with the ever increasing number of foreclosed homes hitting the market, stabilization in prices is a good thing.

Have we hit a bottom? In number of sales, we’re pretty sure we have. In price, we’re not so sure. The dramatic and rapid decline in home values is bringing buyers back into the market, but continuing foreclosures are keeping the inventory high. As we move into fall and winter, the number of buyers normally decreases, but most indicators are that foreclosures will continue strong through November at least (See “SoCal defaults up: What it means“).

Two key factors are mortgage interest rates and the economy. Were rates to decline, that could bring in more buyers, but long term rates are slowly moving up. Rising inflation will probably continue that trend, at least over the short term.

As for the economy, it’s hard to say, but interest rates and economic indicators move in opposite directions, so there’s some automatic self-correction there. If the economy continues to falter, longer term rates are apt to decline. If the economy starts picking up steam rates will go up. Probably a wash over all, although a return to “stagflation” (stagnant economy with inflation), a possible worst-case scenario, can’t be ruled out.

Ironically, a return of inflation would eventually push home values higher, but would push them down short term.

There are still so many variables, we’re not ready yet to depart from our mantra, “We’re in unprecedented territory, and nobody can really know what’s ahead.”  (See “How low will prices go?“)

Here are the things we’re relatively confident of:

• Long term interest rates will continue to climb slowly for the time being.
• There’s still time for potential buyers to begin saving a down payment, but they do need to start now.
• So Cal homes are unlikely to return to their peak prices in this decade.
• If you buy a home with a 15-year fixed mortgage and do not refinance or add a HELOC or 2nd, you will own it free and clear in 15 years.
• Most of us aren’t as smart as we think we are, so if a home you like makes sense  for you with a fixed loan, and you’re not planning on moving soon, you should seriously consider buying.  We probably aren’t at the bottom, but we may be close, and nobody will know for sure until a few years after it’s passed.
• By the same token, it makes no sense to hold off on selling until you can get the ridiculous price your neighbor got at the insane peak.  If you can do most of what you want to with what your home will net today, go for it–NOW.    The next month or two might be your best opportunity for a while.
• By the same token

The old country veteran looked me in the eye.  “It’s like wrestlin’ a bear, Dave!”

“You either give it your all, and keep wrestlin’ him ’til you finally got him down on the ground & whopped,” he continued,

“Or you just give up and die!”

With those words, spoken to me just a few hours ago in the living room of our model unit deep in the green hills of McMinnville, Tennessee, we resume our adventures in out of state investing (see “What I learned about investing out of state” for the first installment).

Hmmm, I thought to myself.  He sure didn’t use that analogy two and a half years ago when he sold me those two apartment complexes.

About two weeks ago I sent “Brother James” and his associate an e-mail exploring the possibility of disposing of the two rural Tennessee complexes Barb and I acquired two long years ago.  Tired of investing too much time and money trying to turn them around, I’ve begun exploring the option of unloading them sooner rather than later.

This afternoon, after pondering the numbers I sent him and then inspecting both properties, the investment Realtor and his partner were supposed to give me their conclusions about what sort of selling price I could expect.

Instead, it seemed to be turning into a lecture on fighting on in the gallant, life-and-death struggle to turn these properties around.

As a veteran agent myself, it’s always both interesting and educational to have the tables turned and be acting as the seller or buyer.

I’m still in the process of gathering data and evaluating how badly I really want to fight on or if I’m just ready to die, which may be better than the alternative in this case.   We have made a lot of progress, but we’ve still got a lot of “challenges” ahead (in real estate, we never have “problems,” only “challenges”).

At this point, if I had it to do over again, I wouldn’t.  But I think we’ve all had trials that helped us grow, and looking back later, we appreciate the process.  It’s had some fun moments, but they’d be a lot more fun if the cash was flowing in the opposite direction.

So I still say, keep your investments close to home.

And if you do venture far, resist the temptation to leverage yourself beyond what you’re already successful at.  In my case, I bought a complex in rural Tennessee that had three times as many units as our largest California complex, even though it cost less than half what that California complex was worth.  I should have started out with a smaller complex, and I should have at least stayed in a more urban setting at first, such as greater Nashville.

Buying several houses in Franklin might have been a smarter 1031 exchange, in hindsight, as my bar-wrasslin’ realtor suggested.

Or maybe just being content with what I had.  The pursuit of expansion for expansion’s sake does add a layer of complexity which may not be worth it.

I may add more thoughts to this post later.  But right now, I’ve got to go wrestle a bear.

A while back the Sacramento Bee ran a good article on buying foreclosures. It reminded me of a very interesting experience with a HUD auction during the last recession in 1994.

Auctions

I teamed with a fellow Realtor and friend to research and bid on a major HUD auction of repossessed properties. From experience, we knew there would be lots of bidders and lots of competition, so we decided to focus on the least desirable location with the most REOs, which was at that time was Compton, and the least desirable type of property with the most REOs, which was condos.

I spent days researching about 50 Compton properties that were on the auction list. I walked through each property, checked sold comparables and similar homes available on the M.L.S., spoke with neighbors, etc. Most of the properties, although boarded up, had been stripped of heaters, major plumbing fixtures, even light bulbs. They were being sold as-is. I carried abaseball bat as I inspected, being on the lookout for homeless people who might have moved in.

When we showed up at the auction, it was like a circus! Adrenalin-pumping music, thousands of buyers, many sitting in groups with their gold-coated Realtors. (I’m not ridiculing any company here, just reporting what I saw.) The chairs were arranged in sections of maybe 200, each one worked by a smiling, enthusiastic, tuxedoed Texan.

We sat calmly amidst the chaos, opening our large 3-ring binders to our detailed notes on each respective property as it was loudly announced in a southern drawl by the animated head auctioneer. Every single property we had researched was bid up way above our market value. Sometimes there were real pride-of-ownership homes on the market on the same block with an asking price well below what the HUD repo sold for. We were grossly outbid on all 50 homes.

At one point I commented to the Texan working our area, “These homes are going for way above market value.”

“Oh oh!” he said, between prodding buyers to up their bids. “That means most of these deal will probably fall out and not close.” Even auction buyers apparently get remorse and sometimes realize they overpaid.

Our conclusion: There are buyers who are willing to pay any price for a foreclosed “bargain!”

From the Bee article, and others in local papers, I don’t think much has changed.

5/30 update: I spoke today with a friend who is also a former President of one local Board of Realtors. He’s now on the homeowner’s association board where he lives, & he told me that a townhome in his mid-priced OC complex just sold in a foreclosure auction about 20%- 25% below market, so apparently there are bargains out there at auctions right now.

We still recommend that you do your homework, like we did, and be careful of getting caught up in the euphoria of an auction.

By the way, that 20% below market margin is my minimum discount for buying a “flip” in a modestly improving market. I think I’d want 30% or more before I’d buy to flip today. That townhome was apparently bought by a Realtor who does a lot of business in that tract and intends to flip it. I hope he does better than the Realtor whose flip I plan to describe in a new post in the next day or two.

Foreclosure Tips

Now here’s a summary of what the Bee says you need to know in advance about buying bank-owned properties:

- First-time buyers will need to be pre-approved by one or more lenders.
- Don’t be surprised if the bank that owns the home requires that you finance your
purchase with them.
- Expect competition. Many buyers bid on multiple properties.
- Banks won’t accept offers that are contingent on selling your home.
- The best deals generally are those homes with the longest time on the market.
- Bank-owned homes typically sell for 10 to 20 percent less than their listing price.
- Be sure to pay for an inspection and consider the cost of repairs or damaged or
missing appliances when bidding on a foreclosure.
- The bank is likely to make a counter-offer. Be sure to consider this when submitting
your first offer.
- Some banks will not accept an offer unless it is submitted by a REALTOR®.
- Banks generally are looking to close quickly, within two weeks to 45 days.

Note added 4/9: From today’s release of SoCal stats on homes beginning the 4 - 8 month foreclosure process in March, it looks like we’ll have lots more foreclosure auctions in the months ahead. (See “So Cal Foreclosures Up Again & What It Means“)

late June update: for our latest projections post, check out So Cal home price bottom near?

For our view on how we got into today’s foreclosure crisis, check out “How we got into this mess“

For seven options for homeowners trying to avoid foreclosure, see “Trouble making your mortgage payment? 7 ways to get back on track“

For what a seller should do in today’s market, there’s “Top 5 ways NOT to pick an agent and “How to sell your So Cal home for top dollar in 30 days.”

Buyers might be interested in see “Time to buy?“

If all this down market is depressing you, that means you’re a homeowner and not a buyer. To keep things in perspective, consider any of the posts in our “perspective” category in the column to your right.

Today’s market presents many challenges and opportunities. Each cycle is different, but they all come to an end. That’s one reason they’re called cycles. The sun will come up tomorrow. Especially in Southern California!

Today another chaotic day on the world’s various “Wall Streets” coincided with mop-up operations for me on a six unit apartment building. By the end of the day I was reminded that the basics work in any market.

As Solomon put it 3,000 years ago, “Be sure to know the condition of your flocks, give careful attention to your herds; for riches do not endure forever. . . .” (Proverbs 27.23-24).

Or, in my case, to the condition of your fire extinguishers. Today I figured out that my procrastinating on some fire prevention upgrades on this building may have contributed to the loss of four of the units and to making five families temporarily homeless. Fortunately, there were no serious injuries.

As I walked through the rubble with the insurance adjuster this morning, what saddened me most was the ruined possessions of the families that lived there. Ash covered family photos and drawings taped to the charred walls. A heart with a child’s printed “I love you” tossed in the rented dumpster. Clothing & furniture tossed, by residents I knew had no renters’ insurance to reimburse them.

Then came the conversation with the the resident who attempted to put out the grease fire on his neighbor’s stove. “If only we could have found a fire extinguisher, we might have been able to limit it to the stove,” he told me.

Ironically, three hours before the fire started, I was in a fire prevention store ordering fifteen fire extinguishers. Delivery is scheduled for next week. I’d intended to get around to it months ago. I thought we had some extinguishers in the office, but also thought we should try some wall mounts outside, in cases, to see if we could make them more accessible while minimizing vandalism.

I had been thinking about mounting one just outside the door of the unit where the fire started. A $60 expense that might have prevented a $100,000 loss. Solomon got it right–pay attention to the basics. Know what’s going on. Don’t get so caught up in what the market’s doing or in what’s new to neglect the basics.

We still need to keep up with current trends. We’re getting more resident leads from Craig’s List today than from newspaper ads, for example. But the basic, unglamorous things like fire safety, grounds keeping, resident selection and screening, cost containment, client satisfaction are still what will make or break any business. That goes for rental property and for home ownership.

Part of the problem is that the Urgent is rarely Important, and the Important is rarely Urgent. But that “stitch in time” still can save nine stiches later.

The city Fire Chief recommended 5 pound (net) rechargeable fire extinguishers with metal heads & spouts, rated ABC (trash/wood, grease, & electrical fires). Actually at least 2A10BC. Around $40 at Lowes, slightly less in quantity at Maintenance USA. Roughly another $35 for the safety case. You might want to pick up one to keep near your kitchen or garage at home. And at least one more for any rental properties you own.

The same principal applies to what’s much more important than possessions: Family, relationships, health, friendships, our walk with God. Pay attention! Don’t neglect the important for the urgent. Keep your priorities straight. Do some preventative maintenance. It’s easier to install fire extinguishers than to gut & rebuild apartments, but apartments can often be rebuilt much easier than relationships. It’s far easier to fix ruined buildings than ruined lives.

That’s not to say there isn’t hope for even the most hopeless situation. That’s just one of the many wonderful messages of Easter. Just today I passed a church with a sign, “Nothing is Too Hard for God.” Guess someone knew I needed that today. Just like eleven discouraged disciples 2,000 years ago, after their Messiah was arrested, unjustly convicted, and crucified. But, as one of my favorite sermons says, “It’s Friday, but Sunday’s coming!” God can redeem any situation if we let him.

But the first step could be to prevent the situation from getting any worse. Take it from someone who learned that lesson the hard way!

Selling for top dollar fast isn’t all that hard, even in today’s slow market. Last month we took three listings, and had all three in escrow within 14 days of hitting the market.

In fact, our 30 years of experience has taught us that if you don’t sell in 30 days, you almost certainly won’t get top dollar. You’ll also be more frustrated with the whole process.
It’s not rocket science, either. The technology’s changed, but the basic steps to selling fast for top dollar remain the same. We’ve been teaching classes on them for almost two decades. There are only six key steps, yet very few agents or sellers complete even four of them correctly:

1. Preview & plan with a trusted adviser, often a Realtor with at least 15 years experience–one who’s been through a few slumps before. Actually, the most important step seems to be picking the right agent, and then picking his or her brains as early in the process as possible. We recommend starting by checking out our “Top 5 Ways not to Pick a Listing Agent.”

Develop priorities for steps 2 & 3 below, discuss what would be the best time to get the home on the market, and get a rough idea of the price & net you can expect.

2. Prepare the property. By now you should have determined which repairs and upgrades deserve your attention, and the time you have to get them done. Most sellers focus on the wrong things–things that bug them, as residents, but that most buyers don’t even notice.

Concentrate on things that a person would notice when just spending 60 seconds touring the home, because the first 60 seconds are the critical first impression period. That means the front yard, the front room, the kitchen, baths, & master bedroom. Don’t even think about fixing broken things that aren’t obvious, like an inoperable dishwasher. Those will be negotiated after the home inspection, and the buyer may not even care.

3. Stage the home. This is putting your best foot forward–like shining your shoes before a job interview. It usually involves removing clutter and some furniture throughout the home. Sometimes we recommend adding or changing furniture so that the home will appeal to the most likely buyer. For example, many sellers have converted a bedroom into an office or den after their kids have moved out, but frequently buyers need an extra bedroom more than a den. We actually have an inventory of what we call “instant beds” to use in such a situation. The slower the market, the more critical this step is.

We also instruct our sellers how to stage the home before each showing, which usually includes turning on extra lights and moving to the front yard while the home is shown. We usually discuss the questions they can expect from buyers and agents, and the best ways to respond (rule #1 is “Never lie.”)

4. Price accurately. Not too high, not too low. Based not just on recent sales but also on an evaluation of your competition–the best priced, most attractive homes currently on the market. Not based on what the seller values, but on the values of the most likely buyers, who are usually quite a bit younger than the seller. Here’s another place where an inexperienced, dishonest or lazy agent can cost you tens of thousands of dollars. Also one who isn’t familiar with your neighborhood.

5. Wise, aggressive marketing. This involves doing dozens of things right: flyers, Multiple Listing Information & photos, web photos and virtual tours, property search placement, web and print advertising, open houses, etc. There’s a right way and many wrong ways to do each one.

For example, the only phone numbers on our signs and flyers are our cell phones. Sign calls don’t go to an 18 year old receptionist who’s never seen the property, but to one of the two listing agents, day or night. We’re even careful about the time of day and day of the week we input our listings. We shoot our own virtual tours because Blair’s a great photographer and we know what buyers are looking for (for an example, check out LosAlDreamHome.com.  Each home gets it’s own website with an appropriate domain we buy just for it. Our goal is to obtain competing offers the first weekend or two. By the way, we’re counting the 30 days to sell from the day it hits the market to the day you accept an offer.

5. Negotiate wisely. Again, dozens of things that need to be done right. Herb Cohen’s You Can Negotiate Anything is one of my favorite layman’s books on negotiations, but the real secret is to find an agent who’s an expert at it. It’s not just about price–terms, time frames, repairs, deposits, release of deposits, and the buyers’ ability to qualify & intention to close are also critical.

6. Disclose wisely, follow up regularly, and don’t blow it during the escrow. My mentor used to say 90% of our work is done once the escrow’s opened. With today’s crazy news and lending climate, that’s even more true today than it was in 1980.

We’re talking about correct execution of basic fundamentals.

“Gentlemen, this is a football.”

“Back to basics.”

And yes, you still can sell your home for top dollar in 30 days, with the right approach and the right help.

For a real-life example of the sort of teamwork necessary to implement this approach in today’s market, including some of the challenges, check out “The team that made it happen.”

As always, your questions, comments, and feedback is appreciated. You can also call us directly at 562.822.SOLD.

Dave here, with a sad, true story that might make you think twice before investing out of state.

Back in 2004 I decided that ten years was probably about it for our California real estate boom. (Turns out it should have been. Unfortunately, I was about two years early with that call–see “How we got into this mess.”) (For our current market forecast, see “A Change in Our Predictions?“)

Barb & I are buy & hold investors, but it seemed it might be time to liquidate at least one or two of our local rentals. To avoid capital gain taxes, we decided to use a 1031 Starker delayed exchange to purchase in an area where prices might be nearing a bottom. The ultimate in market timing–something I’d wished I’d done back in 1991, the last time our local market peaked.

After researching markets from Las Vegas to Florida I found a complex with upside potential in a small town with a fairly strong economy. As an added plus, we have family living fairly nearby.

So we sold a rental house in Lakewood, and bought 90 some units in 12 brick buildings in McMinnville, Tennessee. The 90+ units only cost two and a half times the house’s selling price. Sure looked like going from the top of the California market to the bottom of the rural Tennessee market to me. (Perhaps this whole experience has influenced my thoughts on market timing.)

Well, Barb & I have been spending time & losing money in Tennessee ever since. I knew it was a major turnaround project, but we’ve had great success with turnarounds before. But those were nearby in Southern California, not two time zones away.

I recently discussed my Tennessee challenges with David Haas, the best property manager I know in So Cal (or anywhere). He’s been following my saga for several years, offering helpful pointers along the way. This time he nailed it.

“You know, Dave, a number of my owners exchanged out of state over the last few years. It’s gone badly for every one of them.”

He went on to detail the particularly sad saga of one landlord who eventually lost his equity and his Texas apartments and then took a huge tax hit from the capital gains he’d deferred when he exchanged into it.

There are several reasons for this common woe, most of them obvious. Most experts agree your property should be close enough you can drive by it occasionally. What I didn’t realize is that letting locals know you live out of state is like walking around with a “Kick Me!” sign taped to your back. Or a bullseye on your wallet. And once a Californian opens his mouth in rural Tennessee, they know you “ain’t from aroun’ heah.”

I also had no idea how much looser disclosure and construction standards are in rural Tennessee. Our seller disclosure laws aren’t perfect here, but to me California looks like consumer heaven compared to Tennessee. And building codes in unincorporated areas? Non existent, as far as I can tell!

Eventually, I had to hire my Tennessee son-in-law to supervise the units. He’s not David Haas yet, but he’s learning, and he’s honest. He’s now got his own management firm, Sasser and Thrasher (I’m not making this up). They’re now also managing units for other out-of-state owners, most of whom were ripped off by their former managers. Like another Californian, who flew out to inspect the six new roofs he’d paid for, only to find they didn’t exist.

As for us, I hope we’re finally starting to turn a corner. The day may come when Barb & I are glad we own The Meadows Apartments. But the price to get there was way more than we expected. We did much better during the ‘91 - ‘95 recession, when we stayed close to home and exchanged from single family rentals to multi family units.

So, before you jump on something out of state think twice. And pray thrice. At least. If it’s an area you know, maybe one you intend to retire to or have family in, it might be worth considering. But I’d start by checking out foreclosures and motivated sellers throughout Southrn Califonra before going out of state.

The Inland Empire and desert regions are about as far from home as I’d recommend going. We do think eventually things will turn around here (see “What’s Next For Southern California Housing?“) We think some parts of the I.E. may eventually bounce back like South Orange County did from the last biggie back in the 90’s.

Southern California still has lots to offer that few, if any, other places on earth can match!

When it comes to going out of state, I now think of what my mom used to tell me: “The grass is always greener in the other fellow’s lawn!” Or so you think–until you own it!

April 25 update: For the latest installment in this ongoing adventure in out of state investing, check out my April 25 post from Tennessee.

Note, 7/15: This is our classic post on the current housing turmoil. We think we’ve been proven right by subsequent events, so there’s no need to modify it, although we’ll occasionally add updates at the end. We think it’s as relevant today as it was when it was written.

Yesterday (11/27) the Los Angeles Times front page asked “Homeowners’ big question, How low will prices go?”

Today, they gave us a partial answer: “L.A., O.C. home prices decline sharply.”

We’ve got a better answer: “Nobody knows.” We first heard it at the California Association of Realtors’ economists panel in Anaheim last month. It came from Frank Nothaft, chief economist at Freddie Mac, as he was discussing how low prices would go and when things would turn around: “We just don’t know,” Nothraft said. “We’re in totally uncharted territory.” His point being that the problems brought on by sub-prime lending make this “correction” a new animal.

In a way, however, Northaft was just restating the conventional wisdom regarding any market’s cycles: “They don’t ring a bell when it hits the bottom. Or the peak.”

The consensus seems to be we’ve got 1 - 3 down years ahead of us, more if a major recession hits. Most economists also predict that Southern California real estate will take a bigger hit than the national average, just as we went up more. Prices are predicted to “correct” between 15% and 40%, with most economists in the 20% to 25% correction range. Maybe worse for outlying areas like the Inland Empire or Palmdale, and for entry level condos everywhere.

Having a bit of a contrarian nature, when everybody gets on the recession bandwagon, we start thinking about getting off. To be honest, we’ve already seen price corrections of as much as 20% in Lakewood, Los Alamitos, parts of Long Beach and Orange County and some other markets we serve.

That’s from peak to current low, and it’s comparing like homes (similar location, size, & condition), not the almost useless median selling price that takes comparing apples with oranges to an insane new level.

With interest rates dropping again and prices already down, we wouldn’t be surprised to see prices start moving upward this coming February. But we wouldn’t be surprised if they kept dropping as well. (We’re talking about prices on homes going into escrow in February, not closings. So the increase that may come this February would show up in March or April closing statistics.)

Why don’t we know? “Uncharted territory.” Too many variables: interest rates are dropping, prices have dropped, but more foreclosures are coming, and Congress may be making the “liquidity crisis” worse with the House’s proposed “reform” bill. We just don’t know. Nobody does. If they say they do, they’re either lying or deluded, or God.

What to do when nobody knows when we’ll hit bottom? That’s in the post which follows this one, (”What to Do When Nobody Knows What’s Next”).

7/15 update: Nobody knows what’s next, but that doesn’t stop us from making our best projection, which we try to update regularly as needed. For our latest posts, just look under “Recent Posts” near the top of the column to the right.

On a more uplifting note, you might also want to check out “A little perspective.”

Finally, we’ve added two links at the top of the column to your right so you can search almost all of Southern California’s Multiple Listing Services directly:

Search So Cal M.L.S. gives you direct access into the MLS covering Orange County and southeast Los Angeles County (think Greater Long Beach).

Search M.L.S. Alliance gives you direct access to a search across almost all Southern California Multiple Listing Services.

Feel free to play with them both & see which one you prefer. You shouldn’t find any ads as you use them, but you will have to deal with our picture as you search. We’ve been told you can print it & put it in your attic to deter termite and pest infestations.