So Cal Real Estate News

Breaking News!  Congress has moved up the 2010 buying season!
Congress acted today, Thursday, 11/4/2009, to extend the$8,000 first-time home buyers’ tax credit until 4/30/2010, even expanding the credit to include many move-up buyers!

That should extend the current mini-boom in starter homes through the winter, but will probably result in a slowdown in April or May, maybe sooner!

Unlike the previous deadline, which required homes to close escrow by 12/1, homes now need only be (more…)

(12/19/08) Back on August 30th we essentially called a bottom this winter for single family homes in established neighborhoods in Southern California’s coastal plain. Then the time bomb that was the real estate crisis finally exploded, threatening to take down the global economy.

This being an election year. the government sprung into unprecedented action. . . repeatedly. Just this Monday we saw the Federal Reserve dramatically slash the fed funds rate to. . . zero!

Where’s that leave the Southern California real estate market. Pretty much where we were back on August 30th, when we wrote the following:

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 plain 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.  (From “Who should buy Southern California Real Estate between now and Christmas?”)

Please don’t misunderstand.  We continue to believe that we’re in uncharted territory and nobody can be absolutely certain what will come next (see our classic post from November, 2007: “How low will prices go?“).  But the further we get into this dramatic downturn, the more clearly we can see what may well be the bottom.

What we know:

You don’t sell Southern California real estate for 30 years without learning a few things about our real estate cycle.  And we can observe a few other things from current market activity–activity that Data Quick won’t report until mid March when today’s purchase contracts show up in the February medians.   So here’s some things we know for sure or are fairly certain of:

1. The bottom for sales volume in Southern California real estate was passed last winter.  Year-over-year sales figures are up dramatically, fueled by the foreclosure bargains and other distressed sales such as “short sales.”
2. The volume of sales entering the foreclosure market is beginning to decline, especially in the stable (established–not new) areas of the Coastal Plain.  Homes financed with the worst of the subprime loans have already been foreclosed and resold.  There is not an infinite supply of such homes.  In addition, a variety of federal programs for distressed homeowners are beginnning to kick in.
3. Most well-priced bank owned homes in Southern California’s coastal plain are getting competing offers.
4. Interest rates are exceptionally low.
5. The fed is working hard to get banks to lend more, relaxing their over-reaction to the mortgage crisis.
6. Real estate sales and prices almost always bottom in December (which is reflected in DataQuick closing stats for February and March).
7. Even in the unlikely event unemployment reached 10%, 90% of the population would still be employed.
8. Home prices in Southern California have been rolled back to 2003 levels.
9. Combining low prices with low interest rates makes Southern California homes more affordable than they have been in many, many years. . . possibly since the bottom of the last recession.
10. Dramatic cut backs by builders are reducing the available supply of housing units.
11. Southern California still has the best climate, most diverse economy and most innovative economy in the nation.

All in all, there’s a very good chance this may be the best time to buy.

(11/17/08)  The following links to resources for fire victims are pasted in from the California Association of Realtors’ website.  Feel free to post other helpful information as a comment.  (No comment box below?  Click the blue “Comment(s)” just under the headline.)

Help is available.  Take it one day at a time and, by the grace of God, you’ll get through it.

What To Do After the Fire

Apply for FEMA Disaster Relief Funds
http://www.fema.gov/assistance/index.shtm
Those affected by the California wildfire should apply for assistance by calling toll-free to (800) 621-FEMA (3362).  Disaster victims may register by calling this number.  You do not have to wait to go to a disaster assistance center.  The number for speech and hearing impaired individuals is (800) 462-7585.  Federal disaster assistance available for residents and businesses in the affected counties includes temporary housing assistance, disaster loans and other needs assistance grants.

CARe!
http://www.carehelp.org/
Provides free disaster recovery help, information and guidance in the Poway, Rancho Bernardo, Lakeside and East County.

C.A.R. Legal and Tax Assistance Links
C.A.R.’s legal What’s New page offers links and information on tax, legal and other issues for wildfire victims.

FHA Mortgage Insurance for Disaster Victims
http://www.hud.gov/offices/hsg/sfh/ins/203h-dft.cfm
The Section 203(h) program allows the Federal Housing Administration (FHA) to insure mortgages made by qualified lenders to victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home.

Governor’s Office of Emergency Services: November Southern California Fires
http://www.oes.ca.gov/WebPage/oeswebsite.nsf/Content/BE714C2AD6CF5CC088257503000412BE
The California office of Emergency Services provides information and links to various sites for information about assistance programs for wildfire victims.

San Bernardino County Office of Emergency Services
http://www.sbcfire.org/oes/site_links.asp
The County of San Bernardino has launched a temporary phone service to offer information about resources for wildfire victims, including information on shelters, school, road closures, and various social services.

American Red Cross: Picking up the pieces after a fire
http://www.redcross.org/services/disaster/0,1082,0_569_,00.html
Created by the American Red Cross, this information encourages you to take precautions to help stay safe and speed up your recovery after a fire.  It also offers ideas on what you can do to help make yourself and your home safer in the future.

Disaster Recovery: A guide to financial issues
http://www.redcross.org/services/disaster/beprepared/FinRecovery/
This free guide offered as a public service of the American Institute of Certified Public Accountants (AICPA), AICPA Foundation, the American Red Cross, and the National Endowment for Financial Education® (NEFE®), provides financial recovery information to victims of disaster.

Claims personnel from Farmers Insurance Group of Companies® deployed to SoCal
http://www.farmers.com/FarmComm/catastrophe.html
Customers who have been ordered to evacuate, have suffered damage, or lost their home because of the widespread wildfires, should immediately contact Farmers’ 24 hour claims hotline (800) HelpPoint (435-7764) for immediate assistance.  Customer care centers have been established at
• Kennedy High School, 11254 Gothic Avenue in Granada Hills, CA
• San Fernando High School, 11133 O’Melveny Avenue in San Fernando, CA
• Sylmar High School, 13050 Borden Avenue in Sylmar, CA 91352

Mercury Insurance standing by to assist wildfire victim customers
http://mercuryinsurance.com/corporate/pdf/SoCalWildfiresRelease111608.pdf
Customers of Mercury Insurance who have suffered property loss and/or damage can report claims 24 hours a day, seven days a week by calling (800) 503-3724.

Insurance-Related Issues

California Department of Insurance Wildfire Information
http://www.insurance.ca.gov
DOI can be contacted for general information and guidance about insurance claims by calling (800) 927-HELP (4357).

United Policyholders Addresses Insurance Issues
http://www.unitedpolicyholders.org/disaster/tip_recovery.html#CA
United Policyholders, a non-profit charity, publishes reliable, free buying tips and honest, “road-tested” practical claim advice.

Fire Preparedness Information

What to Take When You Evacuate
http://www.redcross.org/services/disaster/0,1082,0_6_,00.html
A list from the American Red Cross about what to take during voluntary and immediate evacuations.

Animals Lost in Disaster
http://www.disastercenter.com/pets/animals.htm
Information for people who have lost pets, livestock, or other animals during a disaster.Tips to Mitigate Risks and Losses Resulting from Fire
Prepared by the American Red Cross http://www.redcross.org/services/disaster/0,1082,0_584_,00.html

Spanish-language information:
http://www.redcross.org/services/disaster/foreignmat/resfispn.html

Talking About Fires with Children
http://www.disastercenter.com/guide/fire.html
Information from the California Disaster Center to help prepare families for fire, including developing a family disaster plan.

Information from the American Red Cross about Disasters and…

Children: http://www.redcross.org/services/disaster/0,1082,0_602_,00.html

Seniors: http://www.redcross.org/services/disaster/0,1082,0_9_,00.html

Pets: http://www.redcross.org/services/disaster/0,1082,0_604_,00.html

Farm Animals: http://www.redcross.org/services/disaster/0,1082,0_11_,00.html

Financial Preparedness: http://www.redcross.org/services/disaster/0,1082,0_605_,00.html

Creating a Family Disaster Plan
http://www.disastercenter.com/guide/family.htm
Steps to take to create a family disaster plan to expedite voluntary and forced evacuations in the event of an emergency.

(The following information is pasted in from the California Association of Realtors’ website and is general in nature.  It is provided as a courtesy and resource for Californians affected by the wildfires, and also has some interesting items related to fire damaged real estate in general.  You should consult an attorney if you require specific legal advice.)

Introduction

The seasonal firestorms we experience in California raise several legal questions for REALTORS® and their clients. The following questions and answers may be helpful for property owners and residents who have suffered a loss, or for buyers who are in escrow to purchase property involved in the disaster.

Q 1. What are the general rules concerning who bears the risk of loss in a real estate transaction where an “Act of God” or other disaster, such as fire, affects the property?

A If the purchase contract between the parties does not specify who is to bear the risk of damage or loss to the premises during the time between the execution of the contract and the transfer of title, the liability of the parties is governed by the California Uniform Vendor and Purchaser Risk Act (Cal. Civ. Code § 1662). Under the provisions of this statute (assuming no fault on the part of the buyer), the risk of loss or damage to the premisesis carried by the seller until the buyer receives either title or possession. (Note: C.A.R.’s Residential Purchase Agreement and Joint Escrow Instructions, Standard Form RPA-CA, revised 10/02, does not dictate how risk of loss is allocated between a buyer and a seller.)

If all or a material part of the premises are damaged before title or possession is given to the buyer, the buyer can cancel the contract and recover any portion of the purchase price paid. It is not clear whetherthe buyer can alternatively elect to enforce the contract with a reduction in the purchase price equal to the loss of value or cost of repair.  (Cal. Civ. Code § 1662.)

After the buyer has taken possession or has received title,the buyer bears the risk of loss or damage to the premises (assuming no fault on the part of the seller). Therefore, if the premises are damaged, the buyer must still complete the contract and pay the balance of the purchase price.  (Cal. Civ. Code § 1662.)

If the purchase contract does contain a risk of loss provision, that provision will govern to the extent it is different from or more specific than the Uniform Vendor and Purchaser Risk Act (Uniform Act) (Cal. Civ. Code § 1662).

Q 2. May a buyer get out of a purchase contract under the Uniform Act if the damage or loss caused by fires to the property is minor?

A Probably not. The Uniform Act implies that the seller may still enforce the contract if the damage is not material.  However, a purchase agreement may require the seller to repair such damage.  For example, Paragraph 7A of C.A.R.’s Residential Purchase Agreement requires the property to be maintained in substantially the same condition it was in on the date of acceptance.  Under this language, a seller could be obligated to repair fire-related damage to his or her property.

Q 3. May a buyer get out of a purchase contract under the Uniform Act if the damage or loss caused by fires to the property is major?

A Yes. To repeat, if (1) neither legal title nor possession has transferred from the seller to the buyer, and all or a material part of the real property is destroyed by fire, and (2) no express contract provision to the contrary exists, then, under the Uniform Act the seller cannot enforce the purchase contract and the buyer may cancel and recover any portion of the purchase price already paid.  (Cal. Civ. Code § 1662.)

Q 4. If the damage is not severe, does the timing of the fires (whether they occur before or after an inspection) affect the right to cancel?

A Yes. If the damage occurs before the buyer has removed an inspection contingency in his or her purchase contract, the buyer can, of course, exercise any inspection, disapproval, and cancellation rights provided by the contract.

If the damage occurs after the buyer has removed his or her inspection contingency, the buyer generally does not have an automatic right to reinspect the property and approve or disapprove of its condition under most purchase contracts (including C.A.R.’s Residential Purchase Agreement).  However, the seller may be obligated to repair the property.  See Question 2.

A purchase agreement may, however, require a seller to disclose fire-related information, which in turn may give a buyer a right to cancel a transaction, even if he or she has already removed contingencies.  For example, Paragraphs 5A(3) and (4) of C.A.R.’s Residential Purchase Agreement provide that if,prior to the close of escrow, the seller becomes aware of adverse conditions materially affecting the property, the seller must provide a subsequent or amended disclosure or notice, which then gives the buyer a right to cancel the agreement.

Q 5. Must a seller disclose major fire damage that has not been repaired when attempting to sell the property?

A Yes. For sales of residential one-to-four unit properties, the Real Estate Transfer Disclosure Statement (TDS), Section II (Seller’s Information), paragraph C.9, asks:

“C. Are you (Seller) aware of any of the following: . . . 9. Major damage to the property or any of the structures from fire, earthquake, floods, or landslides.
______ Yes ______ No.”   (Cal. Civ. Code § 1102.6 (emphasis added).)

In addition, for both residential one-to-four unit and other properties, the seller is required to inform a buyer whether the property is located in a “very high fire hazard severity zone” (which has certain maintenance requirements) or a “state responsibility area” (which may contain substantial forest fire risks and for which the state has primary financial responsibility for fire prevention and suppression). (Cal. Civ. Code §§ 1103.2 et seq.)  The disclosure of these and other natural hazard zones is discussed more fully in C.A.R.’s legal article, Natural Hazard Disclosure Statement.

For all types of property, the general requirement of disclosing known material facts affecting the value or desirability of property applies.

Q 6. Must a seller disclose the fact of a fire when there was no major damage to the property?

A Yes, if it is a material fact affecting the value or desirability of the property to the buyer.    Even though the property may not have suffered major fire damage, the seller may be aware of other factsrelated to the fire that the buyer might not be aware of.  Of course, a buyer must also exercise reasonable care to protect himself or herself in a real estate transaction, and is not excused from discovering problems that are within his or her diligent attention and observation.

Q 7. Must a seller disclose the fact of a fire when there was major damage to the property but it has been repaired?

A California law does not clearly answer whether a seller must disclose past property defects and repairs.  At the present time, the law does not appear to require disclosure of past defects and repairs unless the problems may be persistent.  In other words, a defect which has been fully repaired and no longer threatens the value or desirability of the property probably need not be disclosed.  On the other hand, defects which are difficult to remedy and which may continue to plague the property may have to be disclosed.  Given some uncertainty in this area of the law, many sellers may prefer to resolve doubts infavor of disclosure to minimize the risk of liability.

Q 8. What are the tax effects of destruction of a property?

A Federal income tax law provides for the deduction of “casualty losses,” which include destruction of property by “Acts of God” including fire, theft, and certain other types of losses.  (See 26 U.S.C. §165.)

The following is a brief summary of the rules:

1. (1)  For business property, the casualty loss is fully deductible. (26 U.S.C. §165(a).)
2. (2)  For non-business property of individuals, losses from “casualties,” including floods, earthquake, fire, storm, or other natural occurrences, are generally deductible only to the extent that the total of such losses exceeds 10 percent of the taxpayer’s adjusted gross income for the year of loss. Any loss is deductibleonly by a taxpayer who itemizes deductions. Each loss is subject to a $100 floor. The amount of a casualty loss is the lesser of, (a) the difference between the value of the property immediately before and after the loss, or (b) the adjusted basis of the property immediately before the loss. (26 U.S.C. §165(c)(3) and (h).)
3. (3)  If the loss results from a disaster that the President determines to be eligible for federal assistance, the taxpayer has the choice of deducting the disaster losses on his or her return either, (a) for the year in which the loss occurred, or (b) for the preceding tax year. (26 U.S.C. §165(i).)

See the Internal Revenue Service’s website for more information.  For a copy of the IRC code, go to U.S. Code Online and enter 26 for the title and 165 for the section and click on search.

Please contact an accountant or tax attorney for further details about the tax effects of fire losses on a particular transaction.

Q 9. Can a landlord or tenant terminate a lease or a rental agreement if all or parts of the premises are destroyed by fire?

A Yes. Under California Civil Code Section 1933(4), the agreement is terminated automatically if the entire premises are destroyed, unless the parties have agreed to something different.   In the event the premises are only partially destroyed, the tenant can terminate the lease by notice to the landlord if the landlord had reason to believe at commencement of the lease or rental agreement that the portion destroyed was a “material inducement” to the tenant to enter into the lease (Cal. Civ. Code §1932(2)).

Again, any contrary agreement between the parties will govern.

Q 10. Can a landlord collect further rent after the lease or rental agreement is terminated due to destruction of the premises?

A No. The obligation to pay future rent is extinguished when the rental agreement is terminated. However, a tenant maystill owe back rent.

Q 11. Where can I obtain additional information?

A Additional information is available on the Real Estate Resources page on C.A.R. Online.  Look for the category, “Fire Disaster Assistance.”  This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit C.A.R. Online at www.car.org.  For a list of important contact numbers, please see Appendix A below.

Readers who require specific advice should consult an attorney.

This is the third in a series of of three posts on three listings on the same block that closed escrow earlier this year. The first two are good examples of costly but common seller mistakes. (See “A Tale of Three Listings: The probate seller’s big mistake” and “The “flipper” Realtor who didn’t think.”)

Today we look at the third listing, a good illustration of what’s going on throughout Southern California right now. It shows how we got into this mess and what it takes for homeowners to get out of it.

Meet the Johnsons:

This seller first called us around the first of the year. We’ll call them Mr. and Mrs. Johnson. They had purchased the home in June of 2002 for $275,000 with 20% down. They refinanced two years later for $325,000 and again in 2006 for $338,000.

Refinancing every two years is generally better for the mortgage broker than the homeowner, but these owners were relatively conservative. Not only did they avoid negative amortization loans, they also resisted the temptation to pull out the bulk of their equity. Otherwise, they could easily have owed over twice as much as they did.

When we first met, there were about six home listed within 150 yards of their home, including “short sales” next door and across the street. That sounds like an Inland Empire or ghetto listing, but was actually just an unlucky block in a decent part of Lakewood.

Like most sellers, the Johnsons knew that values were down, but still had unrealistic expectations for their home. Even in normal markets, most sellers tend to overprice their home, giving value to personalized “improvements” that actually are negatives to most buyers, and overlooking negatives they’ve grown accustomed to.

When we prepared for our appointment, we were pleased to see that they still had equity in their home, but it was far less equity than they had expected. However, their personal situation was such that it was a good time for them to move. They wisely chose to let their personal situation guide them in an uncertain market, rather than speculate on when the bottom might come (see “What to do when nobody knows what’s next“).

Getting Ready

Unlike many sellers, they were willing to listen to our recommendation, not just on pricing but also on timing, preparation, and staging (see “How to sell your So Cal home for top dollar in 30 days“):

• Preparation: We suggested adding some flowers in the front, fertilizing the lawn, and repainting the chipped & peeling front porch, and removing posters and repainting the teens’ bedrooms.
• Staging: This was a large home with an unusual floor plan, including a huge master bedroom with some unused space and a small utility room with a half bath.

Partly because the average seller is about 20 - 40 years older than their most likely buyer, most sellers aren’t aware of how visually dependent their buyers are. Verbal suggestions aren’t nearly as effective as properly staging a home.

In this case, we suggested using a bookcase to seclude a part of the master as a semi-private office or retreat. We felt that the utility room with a private half bath should be staged as a bedroom, and offered the use of one of our inflatable twin “instant” beds. This would also enable us to list the home as a four bedroom, two bath rather than a three bedroom with utility room, without potential buyers asking “Where’s the bedroom.”

As almost always, we also recommended removing or relocating some furniture to make the home look larger, as well as eliminating knick-knacks and clutter.

• Timing: Aware of the coming onslaught of foreclosure listings we strongly recommended the Johnsons waste no time getting their home on the market.
• Pricing: Correct staging and preparation would significantly improve the sellers’ bottom line, but locating and closing a qualified buyer using today’s tighter lending standards is often a major challenge.

The first week a home is on the market is the best opportunity to get competing offers.  So it was critical to hit the market with all staging and preparation done, and to hit it at an aggressive price. Our hope was to obtain competing offers within the first two weekends, not only so we would be in a stronger negotiating position, but also so we could focus on the buyer most apt to close the escrow.

• What not to do: Fortunately, the Johnsons called us early in the process of deciding what to do. Not only did that allow us to encourage them to speed up the process to take advantage of early spring activity in a falling market, but it also allowed us to help them focus their preparation efforts on the most productive items.

As is commonly the case, there were several repair items they wanted to fix that we felt would be better left for the physical inspection once we had a buyer. That not only saved time and effort, it also allowed the buyers to pick the repair items that were most important to them.

The Team Effort:

In order to get things moving quickly, we completed the listing paperwork that night, with a target of getting the home on the market in a few weeks, once the work was done. We agreed on a tentative list price, which would be adjusted as needed just prior to putting the home on the market.

We were amazed at how efficiently the Johnsons went to work. The bedrooms were painted and lawn fertilized within a few days. Furniture was moved out, and our “instant bed” was moved in.

There were, however, a few areas where disagreements arose. The master retreat was set up with a desk from the former utility room, but the bookcase screen never made it.

We never fully agreed on pricing, although we were only off by a few thousand dollars. In a challenging market like today’s, accurate pricing from the start is quite important. As with proper staging and preparation before hitting the market, “you never get a second chance at a good first impression.” That’s especially true now that listing information travels at the speed of light over the internet.

Still, it’s the seller’s house, and all we can do is explain our recommendations. We were very fortunate the Johnsons worked so well on preparation, staging, and timing. And we weren’t that far off on pricing, but things might have gone smoother were the initial price just 1% lower.

Our Part:

It’s not just the seller who has to work hard in this market, however. As the Johnsons were preparing the home we began working on our marketing plan into play. We’re constantly looking for and trying out new ideas, and over the last three decades we’ve incorporated quite a few that have proven effective. Selling a home for top dollar fast isn’t rocket science, but it does involve doing lots of little things right. In the Johnson’s case, this included:

• buying the home’s address for the domain for the home’s website & getting a sign printed with the domain. (1234Main.com, for example–much easier to remember than “12J75jKR Wxyz@prudential.yahoo.homes.com or whatever)
• videoing the virtual tour
• photographing, writing & printing the color flyers for inside the house & for the brochure box
• preparing 19 photos for the MLS & adding captions
• recording an audio tour & put up our call-capture “audio tour” sign so we could follow-up with buyers while they were still in front of the house.
• putting up our personalized “for sale” sign with only our cell number on it, so all calls would go to one of us, not some 18-year-old receptionist who’d never seen the house (or an agent taking “floor time” who’d rather sell the buyer his own listing).
• holding open houses with about two dozen strategically placed signs.
• over 400 flyers delivered throughout the tract to neighbors who might have friends or family looking to buy in the neighborhood.
• Bringing our local office through on tour.
• Precisely timing the inputting of the listing into the M.L.S. and onto the internet to maximize the possibility of multiple offers (we’ve actually go this down to not just which day of the week but also what time on that day.) (Sorry–that’s our secret, but we know what works. It changes based on the market anyway.)

The Results:

The good news was, we had an offer within the first two weeks, and were able to negotiate a mutually acceptable price and terms. The “challenge” (we try to avoid words like “bad news” or “problem”) was, the buyer wasn’t as strong as we would like, in terms of qualifying for the loan. They weren’t terrible, probably a little stronger than average. They were even “pre-qualified,” but that really doesn’t mean much if you check out the fine print. They were still weaker than we’d prefer.

So we dragged out the negotiating process a bit, checked with other potential buyers, but nobody else appeared, and that initial burst of activity when a new listing hits was dying down. The home was fairly unique, which also limited our pool of buyers. The seller was firm on their price, so we went with the only buyer we had. In this market, you can be too choosy.

Unfortunately, in these days of ever changing lender requirements, the lender modified the loan requirements during the escrow, if the buyers’ agent is to be believed. (BTW, the buyers’ agent is never to be believed, but there’s only so much a third party can verify. Shoot, even Presidents have been known to lie under oath!)

The buyer really wanted the home, and kept searching for a loan that would work, but after a few weeks we put the home back on the market to see if we could find a stronger buyer. Unfortunately, we were right about the declining market as well as the uniqueness of the home. We couldn’t find another buyer quite as willing to pay top dollar, but after about a month back on the market we did find a buyer who was able to successfully close the sale in less than a month within 2% of the original asking price.

The sellers are now happily moved into their new home and are getting on with their lives in the location that’s right for them. Meanwhile, four of the other six listings on their block have not yet sold, and the other two both eventually sold but for almost 20% below their original asking prices.

Bottom line:

• Sellers today need to be flexible and willing to expend some effort.
• Find an experienced, honest, diligent Realtor (or two) as early as possible.
• Take your agents’ advice very seriously.
• Beware of letting market timing or wishful thinking trump your personal needs.
• Get it right the first time–condition, pricing, staging, marketing & listing agent.

That’s what we think–we’d love to have you add your comments, thoughts, or questions below.

Today we take a look at the first of three listings on the same block that closed escrow in the last few weeks. Two of the homes illustrate common but very costly mistakes sellers make. The other illustrates both pitfalls and strategies for success in today’s market.

Let’s call them “the probate seller who didn’t listen,” “The “flipper” Realtor who didn’t think,” and “The team that made it happen.” Today we’ll take a look at . . .

“The Probate Seller who Didn’t Listen”

We first met “Sue” last fall, shortly after her mother died. Sue was the executrix, and wanted to talk to us about selling her mother’s home.

We met at the property in late September . The home had a lot of deferred maintenance, but Blair & I both thought the family would be wise to get the home on the market quickly. We were pretty sure that the market’s downward spiral would only be made worse by the approaching winter slow season (see “Predictions 101: Our 2 market cycles“).

We felt with a little intense effort the home could be in escrow before the winter holiday slowdown, and we were happy to do our part to help. That included advancing money for some needed work, assisting with several other things to speed things up.

We knew what needed to be done in the face of a market we knew was moving down quickly, and we were willing to devote “over and above” effort to make it happen. I’d rather spend a few hours moving furniture in October than days sitting a slow open house in December.

We also had another reason for trying to move things along. After years of handling probate sales, we’ve learned that closing the sale on the family home, while difficult, invariably helps the family turn a page and move forward. The family almost always thanks us for moving things along.

A Lesson from an Earlier Probate Listing

We’ve closed several such sales of family homes over the last two years, and invariably the family tends to drag things out while prices decline. For example, on one Long Beach sale the two daughter-in-laws wanted to spend an estimated six months sorting, boxing, and holding garage sales on the things their father-in-law had accumulated over fifty years in the home. We advised the family that not only would that prolong a painful process, but the home was almost certain to decline by thousands of dollars every month they delayed.

“You’ll waste six months of weekends, make a few hundred dollars on the garage sales, and lose tens of thousands of dollars on the sale of the home,” I advised them. “Do you really think that’s what Dad would want?”

Most husbands know it’s dangerous to get in the way of a wife with a plan. (I imagine wives experience the same issues with husbands with a plan, since all of us tend to be stubborn, but I can only speak as a husband.) The two daughter-in-laws had their game plan, but fortunately for everyone, the husbands took our advice.

It only took the family one weekend to get what they wanted out of the house. We’ve developed a lot of resources for situations like this, from wholesale auction houses to antique dealers to non-profit thrift stores like the Salvation Army and Food Finders that will actually clear out your cupboards for you. Not to mention painters, handymen, and rehab people. In fact, I’ve got to finish this post pretty soon so I can get over & check on a crew that’s refinishing floors and painting the inside of a listing we just took.

Amnyway, in about two weeks, that home was on the market, in another two it was in escrow, and our swift action saved the family at least $50,000 of their inheritance. By the time we were done, the whole family was glad they listened to us.

A Different Story This Time

Back to the seller who didn’t listen. To speed things up, we began some initial work right away, arranging for a garage sale and large item pick up to help with the staging as well as a termite inspection to identify what required corrections we might want to take care of in advance to improve marketability.

The seller wanted us to meet with her and her husband to complete the listing agreement, and we kept encouraging her to move things along, but other things kept coming up. First they were going to be out of town, then they had guests visiting, then it was something else.

October is generally a decent month for selling, but as you move into November things slow dramatically, and we knew this winter was going to be especially brutal. (DataQuick and other closing reports reflect this slowdown in the months when those sales close escrow, which is why January and February are normally bottoms for closings, as we explain in “Two big problems with DataQuick’s monthly median price reports“).

We were just trying to move things along in a timely fashion, but the Sue the executrix/seller just had other priorities. We knew that this wasn’t going to be as difficult as Sue thought, & we were ready to help expedite things to make it easier on the family.

There is a tendency for people to list with someone who just tells them what they want to hear. We were telling Sue that the winter holidays were breathing down our neck, and time was of the essence. We also felt some minimal cosmetic improvements would go a long way to maximizing the family’s proceeds. And we were willing to advance the money and arrange for the work.

Now, you can’t survive in this business for 28 years without learning how to be diplomatic, but sometimes people just don’t want to hear the truth no matter how diplomaticly it’s presented.

So Sue went out and found an agent who would tell Sue what she wanted to hear, and that was the last we heard from Sue.

Three months later, near the end of January, the home was listed with a fairly experienced local agent who apparently saw no time urgency nor any need for cosmetic improvements. By then, prices had dropped about $40,000 in the neighborhood. No painting, staging, or corrective work was done, another big mistake in our opinion, but not as big as the delay to market. A few months later the price was reduced by $40,000. Two months after that it went into escrow for $30,000 below that reduced price.

It finally closed escow in mid May for $320,000. I’m fairly confident that, had the seller followed our suggestions and time table, we could have sold it for around $425,000, with around $5,000 of painting and work. So in exchange for not having a “pushy” Realtor, Sue lost her and her two sisters about $100,000 and six months.

One Big Mistake

Sue’s main mistake was ignoring the advice of an experienced agent who knew what he was talking about. Instead, she listed for the most common wrong reason out there: Sue found an agent who told her what she wanted to hear (see ” Top 5 ways NOT to pick an agent“).

Disclaimer: I’m not saying experienced Realtors are infallible. (For example, in December of 2007 it appeared to me that the market had bottomed. That was based on an unseasonable December increase in sales and prices. Indeed, that pickup I noticed resulted in DataQuick’s reporting a peak last spring. But I didn’t see last spring’s increase in interest rates, and greatly misjudged the impact of the sub prime crisis. On that one, I relied on the input of the “experts” like DataQuick’s John Karevoll. A really big mistake!)

But I am saying that a thoughtful, honest, experienced table probably knows things the average seller doesn’t. His or her input is worth considering. It’s foolish to simply reject something you don’t want to hear. It’s even more foolish to pick an agent just because he tells you what you want to hear, no matter how enthusiastic he is in agreeing with you. But that’s much easier said than done.

Telling the sellers what they want to hear is the easiest way to get a listing, and almost every agent knows it. In this market, it’s also the easiest way to cost the seller money and to take a listing that expires.

Never make your decision based on the agent’s analysis–instead, check out the agent’s track record and experience, and talk to sellers that agent currently has listed (ask her to bring a complete MLS print-out of all their listings for the past two years. Then ask another agent to print out the same list and make sure the two lists match.)

In a difficult market, picking the right agent is probably the most important decision you’ll make. For more tips on agent selection, you might also want to check out “<a href=”http://socalrealestatenews.com/blog/top-10-ways-not-to-pick-a-listing-agent/” target=”_blank”>Top 10 ways NOT to pick a real estate agent</a>”.

So that’s the sad story of “the probate seller who didn’t listen.” Next is the case of “The “flipper” Realtor who didn’t think,” a home across the street and down from Sue’s, and how that home, like Sue’s contributed to the entire neighborhood’s decline in value.

Please feel free to add your thoughts or questions as a comment below.

Friday update: The DataQuick OC median numbers discussed below came in this morning, and my predictions yesterday (see post below) came out real close to the actual numbers. Wish I could say the same for my predictions for the Duck in the playoffs. Oh well.

The interesting news is that in every category, DQs actual numbers were stronger than I predicted. What’s that mean? Read on. . . .

OK, here’s my call for tomorrow’s “DataSlow” OC house sales update, which I should be for the 4 weeks ended about 4/21. (We’re still a week away from “DataQuick’s April Median numbers, one of the “Two problems with DataQuick’s median prices.”)

Sales (closings) will be up a decent amount from the prior 4-week period but way down from the year before. Right around 1900 total, off about 40% y-t-y. Continued gradual improvement, typical for deals going into escrow in February.

BTW, April closings, when they get released around 5/15, will be up about the normal amount from the very low March closings (but way below last year). It looks like May will do even better on sales.

Price is another matter. Especially median price. Down a small tad below 20% from a year ago, and up a small tad from the last DQ reported median of $506,000. Maybe $508,000.

However, if you look the details, like in the last report, I think you’ll see the new construction pulling down the overall index with both prices and sales down more than for resales. Resale SFRs and even condos aren’t doing as badly as new construction.

What it means is subject to interpretation. I think if long term mortgage rates (not to be confused with short term fed funds rates) started coming down further, we might have passed the bottom, especially with the activity Steve Thomas and I both are seeing in new escrows.

However, rates are already moving up, and instead of passing fiscal restraint issues to push long term rates down, our beloved Congress continues to try to borrow their way out of this mess with massive bailouts from Bear Stearns to folks who lied to get loans on home they never should have bought or refinanced.

With the interest we’re seeing from buyers, I really think if Congress passed long term fiscal reform, we could put the worst behind us. Things like a line item veto for the next president, cancellation of earmarks, a gradual move to a balanced budget with mandatory across the board cuts and tax increases to force discipline on our free borrowing legislators.

That would be a real mortgage relief bill!

I’ll post links to DQs numbers when they’re available, & you can see how we did.

I’d also like to get a more detailed post up about our thoughts about real mortgage relief. Trouble is, I’ve got to get to work on my real job so I can pay my mortgage. Because I really don’t want Barney Frank forcing my grandkids to eventually pay it for me.

Friday 5/9 postscript: DQs actual numbers (click here for OC Register blogger Jon Lansner’s  DQ graphs & comments for today) indicate even greater strengthening than I expected. Still having some optimism left in my troubled soul, I’d like to hope this means we really have reached a bottom.

In fact, I’ll go so far as to say that if long-term mortgage rates dropped 1% instead of continuing to go up, and if lenders adopted more reasonable underwriting standards, I’m pretty sure we could call last winter as the bottom for both prices and sales.

But I doubt either of those will happen soon. Instead, I think rising mortgage rates (not to be confused with the fed’s overnight, short-term rate) will combine with continuing over-reaction by investors and lenders with tougher than necessary standards to cut this party short. The large pool of homes entering foreclosure is also a negative indicator.

It looks to me like we have passed the bottom in terms of sales activity, but the bottom in terms of price probably (or should I say “maybe?”) still lies ahead this coming winter or next.

DataSlow’s lagging and confusing median prices will continue to improve for another 2 - 5 months, but we’ll see price month-over-month price declines kick in later this year, even as the year-over-year percentage drops decrease.

Overall, I’m beginning to become more optimistic, and am willing to admit that the bottom may, indeed, be past. But only if mortgage rates come back down, which I really don’t see happening.

Bottom line: We’re not deviating from our November post, “How low will prices go?” Nobody can really know what’s next.

For the next few days, we’re in the process of making several changes to this and two other blog sites.

As long as you’re aware of what’s going on, it’s all good.

First, we’re launching the first of several blogs we plan which will be devoted to one specific community or region.  We’re starting off with Lakewood, where I (David Emerson) grew up and where Blair now lives.  Other regional sites we’ve got in the planning stages include Long Beach and several regions of Orange County.

For a few more days, however,  LakewoodRealEstateNews.com will be forwarding automatically to SoCalRealEstateNews.com, because almost all of our posts here are quite relevent for Lakewood buyers and sellers.  If you were looking for LakewoodRealEstateNews.com, we suggest you click on some of our “Top Posts in the sidebar to your right, then come back in a few days when the Lakewood site will be fully functional.

Second, we’re in the middle of switching our domain from wordpress to our own host. So right now, you’ll find “SoCalRealEstateNews” in two places, SoCalRealEstateNews.com (that’s where you are now, with a closeup of green leaves at the top, for now) and SoCalRealEstateNews.wordpress.com (which has a photo of Blair and Beth at Crystal Cove across the top.)

For now, when you click on “internal” links, you’ll sometimes find yourself switched to the other site, but the posts themselves are the same.

Having our own hosting gives us greater flexibility, so eventually we will phase out the wordpress site.

If this is all confusing to you, don’t worry about it.  Just scroll or click through either site, enjoy, & give us your suggestions and feedback by leaving your comments by clicking “comments” at the end of each post.

Thank you for your patience, and for visiting SoCalRealEstate News.com.

To find out more about who we are and what we do, just click here.

I used to try to avoid Jury Duty; now I figure it’s just part of being a good citizen. However, being self-employed, I try to limit the amount of days I have to put in.

It’s always an interesting experience. As a bonus, I usually take some things back that relate to real estate.

After getting up early to write our April Fool’s Post, I spent last Tuesday at OC’s “West Justice Center.” This time it confirmed some of my suspicions about the difference between lawyers and Realtors.

Shortly after checking in & donating my felt tip marker to the officer at the door, I was sent up to a courtroom to be in a jury pool with about a hundred of my new best friends.

After instructions from a bemused bailiff we were given our numbers & sworn in by the court clerk. Then we all rose so the judge could come in.

His honor told us this was a criminal case that would take 5-6 days of our lives if we ended up on the jury. I had figured a day or two was about all I could do, but it sounded like this judge wasn’t going to buy that. “Jury duty is like military service,” he said. Guess he hadn’t heard that the military draft was abolished decades ago. “Unless this would cause a life-altering hardship,” the judge continued, “you need to serve.” Wow–life altering!

Then we got a summary of the case from the judge and each of the two attorneys. (I thought there were 3 attorneys, but one turned out to be the defendant.) There were 3 charges–assault with a gun, endangering a child, & something else like making terrible threats.

The defendant’s attorney said his client was a wonderful guy with a PhD from Stanford. He turned out to be a 60-something guy who I thought was another attorney.

What actually happened, the defense lawyer told us, was some slimeball got some road rage and was banging on this poor old guy’s window, flipping him off, & yelling terrible things. When the slimeball went back to his car, the poor old Stanford PhD, who felt his life was threatened, decided the best way to protect himself was to find something to confront the slimeball with.

I would have thought the best way to protect myself would be to just drive off, but I don’t have a PhD from anywhere, so that shows you how much I know. Anyway, this poor old guy looked in the back seat of his car for something to protect himself with. According to the attorney he was looking for a flashlight, but instead decided on a BB gun that looked exactly like a 22 rifle.

I don’t make this stuff up. I think you need a law degree to do that. Or a PhD from Stanford.

Then the prosecutor said she thought it was probably a real 22, but even if it was a BB gun it was still a firearm. (From the questions she later asked potential jurors the gun somehow had disappeared.) That child endangerment charge was about a kid in the back seat of the slimeball’s car. (She didn’t call him a slimeball, but from the questions she asked prospective jurors about gang members having rights you could tell he probably was.)

At this point it looked to me like this whole thing should have been settled out of court and somebody was just wasting our time & our tax dollars.

In one regard lawyers & realtors basically have the same job–settle a difference of opinion between two parties. A big part of my job is negotiating an agreement between a seller who wants top dollar and a buyer who wants to pay as little as possible. We work hard to try to find common ground and differences that allow us to come up with a “win-win” resolution that works for everybody.

Over my 30 years in real estate, I’ve had lots of opportunity to be in court (probates, divorces, etc.), to interact with lawyers, and be deposed a few times myself. I’ve concluded that most lawyers, who are generally paid by the hour, have a financial incentive to drag things out. So it’s not in their best interest to get a deal done, which is really court hearings come in.

Realtors, on the other hand, are paid by the job, so we try to get the deal done as quickly as possible.

I think if lawyers were paid by the job, like realtors, most cases would be settled in record time and very few would go to trial.

I was pretty sure that we were looking at a simple traffic dispute that should never have gone to trial. Two jerks got into an argument, the police were called & arrested one of them. Then the D.A. threw the book at him expecting him to plea bargain down to something more minor. But somebody’s ego got in the way & the deal never got done. So now I and 100 of my new best friends were wasting a day so somebody could prove a point. Probably not the attitude an impartial juror should have.

At this point the first 18 prospective jurors were called up to be questioned by the judge and the attorneys. Eventually about half of them were “thanked and excused” by either the judge or one of the attorneys.

After a ten minute potty break another 9 were called up, same drill, & this time maybe 7 of them were “thanked & excused,” along with one or two of the remaining 9 from the first group. Almost a wash.

Lunch break–and we were warned to be back at 1:30 sharp. Went home to do some work & eat simultaneously, got back a few minutes late, then waited 10 minutes for them to open the courtroom. Apparently punctuality is more important for jurors than for judges. I’m guessing here–I don’t have a law degree either.

Same drill again, but they kept most of them this time. By now they had 12 jurors and 1 alternate, & only needed one more alternate. Maybe 30 of us remained in the pool, & my odds were looking pretty good.

But I got called up third of the final 6 to be examined. 1 in 6–pretty good odds, I thought.

When the hardship question came up, I explained that I was self employed, sole source of income for the family, and dealing with some health issues with my 87 year old mother as well. I could tell that wasn’t going to fly. Since the defense lawyer had implied that the case might take longer than six days, I stated that it was extremely difficult for me to be away from my job for 6 days, & if the case went longer, I wasn’t sure I could remain objective, which was a true statement. How did the judge know how long these guys would talk, or how long the jury would take, anyway. He was probably giving us a best case scenario.

“The time frame I gave you is correct,” his honor responded, & at that point I wondered if I might be held in contempt of court. I guess they teach you how to predict the future in law school, too. I should have asked him when the housing market would hit bottom, but it didn’t look like I was going to get a chance to ask any questions.

Then we got to “Is anybody in your family or any close friends in law enforcement or lawyers?”

“No,” I responded, “but over my 30 years in real estate, I’ve developed some strong feelings about lawyers that could bias my view of this case.”

The judge asked for an explanation, so I told him my theory that attorneys just drag things out and that this whole thing never should have gotten this far. I heard some positive mummers from the jurors behind me, & kept going. “In fact,” I said as I looked at the attorneys, “I’d almost guarantee that the judge has already told you that.” From their reaction, I’d guess I was right.

Wow–venting to two attorneys & hopefully getting myself “thanked and excused” all at the same time. Does it get any better?

Later I wished I’d added that I thought at least one of the lawyers and/or the defendant had no regard for wasting a day out of the lives of 80 potential jurors, nor a week out of the lives of the 14 jurors & alternates selected, let alone the court’s time. Somebody at those two tables had a pretty big ego. Maybe three somebodies.

Not all that different from today’s sellers who reject a reasonable offer because his neighbor got more two months ago. Except those sellers aren’t wasting 80 innocent people’s time.

Well, the defense attorney now started to hammer me about if I could be impartial to his client. A regular cross-examination. I actually went to Biola University on a debate scholarship, so I kind of enjoy this sort of thing.

“Can’t you set aside your beliefs to give the defendant a fair trial?”

“My convictions are part of who I am.”

“But can’t you simply consider the case on it’s merits?”

“I will consider the case based on my life experiences.”

“But. . .” yadda, yadda, yadda. . . .

“I believe we’re here because someone’s being a jerk and not settling, and once I figure out who that person is, I will not have a very positive view of their case.” That was the truth, but I also figured it should get one of the two attorneys to “thank and excuse” me.

“Well. . .” yadda, yadda, yadda. . . .

“Sir, if your client is innocent, he has nothing to fear from me.”

The judge actually gave this guy extra time to cross examine me. Go figure. I don’t even own a bb gun.

Well, when all the dust settled, nobody objected to any of us 6.

Fortunately, the judge took the first guy called up of our group, and all the rest of us got to go back to the jury waiting room. By the time I got there they were letting everyone go home.

Wednesday, I was almost tempted to show up in the audience to see what the real story was. For about 25 seconds.

Sellers, you should be aware that after escrow closes your buyer will probably get several friendly letters from lawyers checking to see if there were any problems they could help clear up.

Under California law, I’m told you are not only responsible for errors and omissions you make in the sale, but also for any committed by your agent. Another reason to look for an honest, experience agent (see “Top 5 ways NOT to pick an agent“). Maybe even one who’s spent some time in jury duty.

In about ten days, there will be much media noise as DataQuick releases their So Cal median price figures for March.

We expect sales will be up from February, but down from March ‘06. Some analysts will be surprised. Prices will be down from a year earlier, but not down nearly as much as expected from a month earlier. In fact, the median price for Orange County might actually be up slightly from February.

But it’s not really news. And it’s not even what you think it is.

It’s not news because they’ll be reporting what took place back in January and early February, when those homes that closed in March actually went into escrow, as we explained in “Market Predictions 101: Our Two Real Estate Cycles.” By the time “DataSlow” reports them, they’ll be almost 3 months old.

“DataSlow’s” median price numbers aren’t what you think because any average, median or mean (for you mathematicians), can be skewed by shifts between market segments, as was so clearly pointed in a recent statistical study by Zillow’s number-cruncher.

For example, let’s say DataQuick started reporting “median grocery prices” at your local Vons. In November, when lots of people are buying expensive items like turkeys, that median would go up. Now the prices of things might actually be down (at least in our hypothetical, if not in the real world right now. Turkey might be cheaper than it was a month earlier. But because more people were buying turkeys instead of hamburger, the median price would still go up.

Same thing in the real estate market. When there are more first time, low end, buyers the median goes down. When there are more high end buyers, it goes down.

That’s why through most of 2006 DataQuick’s median price kept moving up, even as prices in most neighborhoods were dropping. As subprime loans stated to dry up, activity was switching from the low end to the middle and higher prices. So the median average moved up, since more of the sales were in higher priced neighborhoods, even as the prices in those neighborhoods fell.

More recently, there’s been an increase in lower end sales as lenders foreclose on many subprime borrowers in starter homes, then quickly unload the property at whatever price the market will bear. Meanwhile, most high end homeowners moved up and put a substantial down payment into their home, so there are far fewer foreclosures and distressed sales in the higher neighborhoods. Instead, those homeowners for the most part have decided to just wait out the current down turn.

In 2006, DataQuick’s median price was going up while actual prices were dropping in most neighborhoods. Lately, DataQuick’s median has been dropping faster than actual prices in most neighborhoods. We believe the actual drop in So Cal home values from top to current bottom is about 25 - 30% (less in higher end areas, more in condos, starter areas, and areas with lots of new construction).

In our next post, which should be out soon, we’ll combine that last little nugget of information with our Bernanke post and our Predictions 101 post to update our own predictions.

In the meantime, your thoughts and questions are always welcome. If there isn’t a “Leave a Comment” box below, then click on the “0 comments” or “2 comments” comment-counter just below this paragraph on the right. Make up a “Name” or just use your first name, as that will be public. Your e-mail will remain entirely confidential, but we can use it for a confidential response if requested. Thanks for visiting!