Appraisals

The concept of an appraisal works like this…when a buyer purchases a home and gets a loan, their lender sends out an appraiser to verify the home’s value and make it safe for them to lend you money. In the very hot market we’ve just departed from, it seemed like homes appraised for whatever amount the buyer wanted to pay. For a long time, homes appraised well over comparable sales value. In 2004 I had a listing in San Mateo that we priced at $650,000, and at the time that represented the most money ever paid for a 2 bedroom, 1 bath house in that neighborhood. After receiving multiple offers we ratified with an offer of $778,000. I was secretly worried that these buyers would not be able to get an appraiser to bring that value in…but one did!

Well, that’s no longer the case. A seller can set a price and even if the buyer agrees to it the buyer’s lender will only finance the appraised price…and that may be lower than what was agreed too. What that means is the buyer will need to bring more money to the table or the seller needs to accept a lower offer. If the buyer has a contingency for that appraisal they can cancel the deal and get their money back if the seller won’t agree to negotiate downward.

Truly, it was crazy before and and I’m sure there was quite a bit of pressure placed upon appraisers in the past to bring values in on some of these crazy overbids. I remember in 2000 there were several sales in Palo Alto that came in $1,000,000 over asking…let’s hope they all paid cash! Can you imagine trying to appraise those? I think the return to sanity in the market we’re in is a good thing.

The Perfect Fixer Upper

 

 

 

 

 

 

How about these before and after shots! Frequently, I’ll hear clients tell me that they would like a house that needs some work. They’ve heard, acurately, that buying a fixer upper is a great path toward building equity and thus maximizing their investment. The clients of mine that have bought and fixed up homes have made the most money of any of the people that I’ve ever worked with. Take the case of the house in these photos. This young man bought his first house in San Mateo Village in 2002 for $485,000…it was a fixer. He, along with his family, fixed it in stunning fashion and sold it in 2004 (with 26 offers!) for $778,000. He then bought this house in Hayward Park for $551,000…and did a whole bunch of work. We’re talking lot’s of work, roof, plumbing, electrical…you name it. I wish I could show all of the interior photos too! He sold it in 2006 for $1,288,000…and bought a fixer in Hillsborough where he lives now. From a 2 bedroom, 1 bath starter home fixer upper in San Mateo Village to Hillsborough in 4 years!

I have several other stories similar to this…and they all have one thing in common. Each individual had some degree of skill or other with being able to fix these homes up themselves. Lots of the folks that ask me about buying fixer uppers have no skill at all with repair. They would need to contract out everything. Keep in mind that there are fixers…and there are FIXERS! I’m not talking about a house with original kitchens and bathrooms that need updating, I’m talking about houses that need everything! One of these houses came up in San Carlos last week on the west side priced at $675,000 and some clients of mine got pretty excited about it’s possibilities. The problem is that what they would pay $100,000 for, a buyer who’s a contractor or other skilled person could do themselves for $30,000…plus they would be trying to live there in the midst of the work. A fixer is also not an ideal situation if you’ve got little kids either.

It’s something you really have to balance. I do think you can get some really good buys on homes that are cosmetically challenged as well…and you can live through a kitchen remodel. It might not be easy, but it’s do-able. In Foster City, recently, there was a 4 bedroom fixer on Chrysopolis that closed escrow at $838,750. I really thought that was a good buy, it’ll be interesting to see if they turn it in a few years.

 

Fun For The Entire Family

You’ve spent a ton of time getting ready for this big step. Hours and hours scouring the 1001 internet sites pertaining to Real Estate and home buying. You’ve been to Borders and bought books. You’ve talked about this with friends, co workers and your parents until you’re blue in the face. You search multiple online listing sites like MLSlistings, Trulia and Zip just to make sure you’re not really missing anything and what’s really amazing…you’ve entered into a relationship with a Realtor! After months of looking and several sleepless nights the time has come, you’ve made an offer and you’ve ratified! You did it…you bought your first home!!

Now comes the really scary part…bringing your family over to see it! Naturally they want too…after all, they’re helping with the down payment. It’s just that…you know they’ll be critical! Even if your parents are out of state you still don’t get a break, in fact, it may be worse! When we bought our first house in 1999 my Mom gave us $10,000 toward our down payment and she lived in Colorado. Here’s the way the conversation went:

Me: Hi Mom, well we finally did it, we bought a house! It’s a really adorable little 2 bedroom, 1 bath place with a terrific view…I think you’ll love it!

Mom: That’s great, honey…how much was it?

Me: Well…we got it for $412,000. I think we did really well.

Mom: (dead silence)

Me: Mom…are you there?

Mom: $412,000!!! Why, do you know that you could buy the Governor’s Mansion here for $412,000? It’s got how many bedrooms?

Here’s the concept…Even though (in her mind) every body else was paying $65,000 for their 2 bedroom, 1 bath houses, she figured I went ahead and paid $412,000…just cause I’m impulsive or something. Needless to say, we worked things out…and she loved the house.

I’ve lost count of how many parent/family visits I’ve been a part of. 99% of them have turned out fine. For parents I think it’s very important to remember that buying a home is comparison shopping. If they’re not kept in the loop, when they see the house for the first time they don’t have the ability to compare it to all of the other places their kids have seen and sometimes get nervous about the inevitable flaws that exist in every house. For buyers, I think it’s a very important thing to keep the families close to the process, send them links to the homes that look interesting and discuss pertinent disclosure info with them. Often, family members really do have the ability to see things that the kids overlook.

Honestly, I’m serious about the title of this post. I do believe that the home buying process can, and should be fun for the entire family. When everyone works together as a team…that’s exactly what happens.

Changing the Locks

When you bought your home, did you change the locks? Probably not, since the folks you bought from sure seemed nice…and most likely they are. What you don’t know is who those nice folks gave their key to while they lived there. Could be they gave a copy to their babysitter, or the neighbors, or Mr. sellers ex has a copy from way back. I recently had a sale where the seller had 5 different keys to open 3 separate exterior doors. Who knows how many copies of these are floating around?

The point is that as the owner of your new home you really don’t know who else has a key. Of course the chances are good that nobody will ever use one of those keys to gain access to your home when you’re not there…but you never know.

When buying a property it’s always a good idea to change the locks…and have all of them work off of one or two keys maximum.

The Other Side of the Coin

After I came down from my soap box the other day when I discussed how agents are being left behind amidst the advances in technology that apply to Real Estate, I thought I’d go ahead and climb back up there and have a look at the other side of the coin in this area…that is the pitfalls of using technology in Real Estate.

I remember a few years back having a conversation with someone who seriously advanced the notion in the near future buyers would purchase homes strictly online. He said that the technology would be so outstanding that it could be done without ever actually visiting the property. Can you imagine that? Spending a million dollars on a house sight unseen? Virtual tours are great…but I can’t remember one that showed the crack house next door, or the fact that the 2800 square foot, completely remodeled house you’re looking at is actually overimproved in an area of 900 square foot 2 bedroom, 1 bath starter homes. There are obvious limits to shopping online. You need to see the home…and the surrounding area.

Again, this is obvious. What’s not so obvious are some of the potential trap doors existing on some internet sites that offer help and advice to the consumer. There are several sites offering online discussion areas, such as Trulia Voices and Smalltown, in which consumers ask questions which local “local Real Estate Professionals” offer answers. When I look up alot of these agents in the MLS database I discover that the vast majority of them are very inexperienced and have only sold a home or two in their careers. I often have to laugh as well at the fact that many websites that come up at the top of the Google search I’m doing is for an agent who, likewise, has no experience. He or she just has a good knowledge of how SEO pluggins enhance their site’s recognition by that search engine.

So I guess when I boil it all down right now I think we have alot of experienced Real Estate agents who are intimidated and frightened by the technology available to them and several technology friendly Real Estate agents who are very inexperienced when it comes to selling homes. I think I should state what’s obvious to me, that it’s important to work with an agent when buying or selling a home. A good agent will help you navigate some pretty treacherous waters. When you’re looking for an agent to work with as a buyer (or a seller for that matter) it’s a good idea to find a happy medium with respect to technology.

Adversaries

It’s no big secret that Real Estate is a competitive business. I recently heard that there are roughly 550 homes selling per month in San Mateo county…and there are something like 3300 Realtors. Needless to say, competition is keen and as a result it’s not uncommon for alot of us to become adversaries, particularly when competing for business! If I discover that I’m competing against certain agents, whether it be in a multiple offer scenario representing buyers or for a seller’s listing, the competition takes on a sort of Dodgers-Giants quality to me. I simply can’t lose to them! In fact I won’t lose to them!

Of course, I delude myself because sometimes I win and sometimes I don’t. Often times, when I’ve sold a home and we’re inside of an escrow, it can feel adversarial with the agent on the other side of the transaction. Most of the time things work out just fine, we do our jobs and everybody ends up happy in the end.

Having said all that, it’s very, very common for both buyers and sellers to feel adversarial with each other to some degree too. Everyone has some degree of suspicion toward each other and often that becomes distrust. Buyers can become suspicious of the sellers inspections, sellers worry about the buyer’s inspection contingency, sellers (and listing agents) worry about the validity of the buyer’s pre-approval letter, buyer’s get suspicious about why the sellers are moving in the first place, sellers feel like the buyers are trying to take advantage of them when they write an offer under their asking price and buyer’s feel like the sellers are greedy for asking that much in the first place! And the world goes round and round.

Recently I had this experience: The seller’s loan amount is slightly higher than our asking price on her 2 bedroom condo. Neither she nor her family want her to lose the property to foreclosure and so she’ll get help financially to bring the necessary cash to closing so that she won’t have to endure a short sale. She’s experienced alot of emotional suffering about this situation. A buyer comes along who makes an offer $20,000 under the asking price and I suggest that she take it. She understandably wants to counter offer $10,000 higher so she won’t have to ask for as much help from her family. The buyer thinks about it overnight and gets feedback from friends and family…who advise her that her first offer was too high and she should go $30,000 under the original asking price. She came back with a counter offer $10,000 under her original offer. Her sphere of influence convinced her that the market for this type of property was still going down and that her original offer was too high…even though it was lower than the last comparable sale. Honestly, given the input that she got her thinking was perfectly understandable too. We couldn’t put it together and the buyer walked away. I’ll bet both parties here felt like the other was greedy…and I really don’t think either side was.

Here’s the bottom line….buying and selling a home is a very emotional event in almost everyone’s life. It’s easy and human for us all to misunderstand each other during this process…and become adversarial. It’s a mistake when we do.

The Buyers Deposit

 Over the years I’ve seen lots and lots of confusion, from both buyers and sellers regarding the subject of the buyers deposit. In our area there are two commonly used contracts used for purchasing homes and on both the deposit looms large right on top of page 1. Buyers in this area enter into a contract by depositing earnest money into an account with a Title Company who holds these funds until close of escrow where, typically, they’ll apply to the buyers down payment. Both contracts are written to allow for both an initial deposit as well as a increased deposit that is usually made after 10 days in an escrow or after the removal of all of the buyers contingencies. These dates are negotiable.

It’s been a practice in our area for awhile, and I’ve been a fan of this practice as well,  for the buyer to make a full 3% deposit up front. In my experience, one of the seller’s biggest worries is often whether or not the buyer can afford their home and if not, will their deal fall through later on. A 3% deposit up front tends to demonstrate the sincerity of the buyer and helps to allay seller anxiety more than $1000.00 initial deposit does. If a buyer has suffient funds making the full 3% deposit up front gives them a stronger offer over all and these funds can be placed into an interest bearing account should the buyer request that. It’s very important to note that buyer’s deposits are protected by the contingencies they have written into their contract and will be returned should the buyers change their minds during that period. I’m going to have to do an entirely separate blog post about contingencies one of these days otherwise this post will go on forever, but let’s just say that it’s in this area that confusion often arises. If a buyer changes his or her mind after 48 hours, and they have a contingency, they get their deposit back. If a buyer has a contingency and does inspections that frighten them and want to back out…they get their deposit back. I’ve seen sellers be surprised by that fact. The buyer’s deposit is most likely at risk if they back out after removing all contingencies.

Another area of confusion has also been at what point the check gets cashed. When you write a check to a Title company for your deposit and your Realtor negotiates with the seller and their agent your check doesn’t get deposited until there has been mutual agreement between both parties…and that could take a number of days in some cases. It’s also important to remember that once that agreement has been reached and you’ve been happily informed that you’ve bought that wonderful new place your check will be sent to the Title Company…and they will cash it. “What?” you say. On several occasions earlier in my career I’ve had buyers call me after we had been in escrow a week and said “Hey, the Title Company tried to cash my deposit check! I don’t have any money in that account! I thought they just held it?”…No, they cash it. Having said this, it’s perfectly understandable to be flustered and stressed when buying a house and I’m not making fun of anybody, but I have this conversation now with every client. When you ratify, your deposit gets cashed…it’s a good idea to have funds in that account.

Following the Herd

 

In his book, Markets,Mobs and Mayhem, Robert Menschel writes about how our world suffers from herd mentality. He notes that bubbles and busts have shaped history and that today with the scope of the media and technology allowing so much access to information we’re more at risk than ever. Whenever we find ourselves caught up in the herd and the panic of the moment we can make poor decisions that often have long term consequences.

A couple of weeks ago I was chatting with a friend who was relating the number of people she knows who are on the fence about buying a home and she said that it was “obviously a bad time to buy”. It made me really think, if now is “obviously” a bad time to buy when was a good time to buy? Was it in 2004 when every property got 10 offers and went $100,000 over asking? Was it when you competed for a house with serious structural damage that didn’t really fit your needs and you didn’t like that much anyway? Was it when you wrote offers that were completely “As Is” and had no contingencies of any kind and you just hoped and prayed that no glitches appeared during escrow and you lost your deposit? I wrote an offer in 2005 that was $210,000 over asking, “As Is”, no contingencies of any kind, all cash with a 2 week closing and offering the seller a free rent back for 30 days…and we finished 3rd! Now that was herd mentality!

Now we have a different, yet very real, kind of herd mentality. Now we have buyers who found it perfectly acceptable to write fat offers, well over asking, who won’t write an offer under the asking price. I say this to people alot so I figure I might as well put it on the blog. I don’t believe losing money in a declining market is really a central issue to buyers. I believe it’s far more important for buyers to have the emotional support that comes with competition to motivate them to take the plunge. It makes no sense to be OK with writing an offer $100,000 over the asking price, but not be OK writing an offer under the asking price. It also makes no sense to smoke cigarettes…but people do it.

This all played out in Foster City in the last week.  Just as I was about to write a post about us entering a real buyers market because no single family house had sold for almost 2 weeks, the SF Chronicle runs a front page story about positive April sales numbers and actually tiptoes around the concept of the market nearing bottom. Within 48 hours of that story being published offers started to come in and since then 6 houses have sold and I know of at least 2 others who are reviewing offers right now too. I have to say that my batting average is .750 as 3 of the 4 houses I touted in my post on May 3 have sold. The Chronicle’s done negative pieces since then so maybe the herd will ebb again. Here’s a interesting fact about this current market…it’s not like everywhere else. Every open house I’ve been to recently has been crowded. There’s lots of people looking around out there! One of these days some emotional green light will come on for people and multiple offers will ensue. Why not write an offer now, when you can get a good buy?

Down Payment

In the “never a dull moment” world of lending it sure seems like the programs offered, along with the criteria expected, changes every week. In fact, the criteria has gotten signifcantly tighter. Maybe the most significant area among these changes are the minimum down payments lenders are now requiring before they’ll give you a loan. For many lenders those minimums are now 15% and some are even 20%.  Long gone are the zero down, stated income, days of the past! 5% down deals were not uncommon last year and I had several sales this year where the buyers had 10% down but those options have shrunk considerably as 2008 has progressed. You can still buy with less down, several lenders offer FHA backed loans that will allow 3% down, until the end of this year, but there’s alot of hoops to jump through to get them. If you’re a lender don’t hesitate to comment about your lower down programs. My point though, is that the chances are that to get a really good loan product you’re most likely going to need more cash going in.

If you’re moving up from an existing residence the chances are pretty good that your down payment is coming from that source but in many other cases, and especially with first time buyers, acquiring a 15% down payment around here could pose a bit of a challenge. A typical first time buyer in Foster City is going to be looking for a condo or townhouse and the median price for one of those right now is $552,000…thus a down payment of at least $82,800 will be needed. Certainly, there are plenty of folks who are good savers and plenty of others who have great options but there’s also many out there who’re going to feel like it’ll be years until they can save up enough to make this crazy dream work. For those folks, here’s my advice: Ask for help.

I can’t tell you how many first time buyers I’ve worked with who have been in that position yet have been either absolutely terrified of asking for help or are adamantly opposed to it. When Lesley and I bought our first house we, too, were terrified. The thought of asking my parents for help was horrific! I wanted to prove something to them, after all, plus I was certain they would say no. I was wrong…both of our families turned out to be highly supportive and we couldn’t have done it without them. I had clients a couple of years ago whose entire immediate family raised $1.2 million in cash so it would be easier for them to compete in a multiple offer frenzied environment. After they bought they refinanced and paid the family back. I had a client who is the pastor of a church whose congregation raised money for their down payment so they could buy a home, and I also had some clients who casually mentioned to a group of friends at dinner one night that they were considering moving out of the Bay Area so that they could buy a house…and discovered that a few weeks later their friends had formed an investment group who put in $350,000 so that this family could buy and stay here. All this because somebody asked for help. I’ve also seen clients that I worked with 10 years ago, when the median price of a single family house in Foster City was $500,000, continue to rent to this day because they refused adamantly to ask family for help…it wasn’t that they asked and were rejected, they just wouldn’t ask. I don’t know why I was so uncomfortable with the thought of asking my family for help with our down payment…I really look forward to the day when my daughters come to me and ask for assistance. What a privilege it will be to help them!

Presenting Your Offer

Writing that post the other day about Love Letters made me think about the bigger picture of buying a home, that is presenting your offer. The truth is that the toy pictured above is quite possibly the most common way that Real Estate agents present their client’s offers. The offer is faxed to the listing agent who then presents it to the seller. I don’t know about you, but very few things drive me as crazy as fax machines. They always seem to jam on the 10th page of an 11 page fax, I’ll get an error message or a paper jam or something. Sometimes the fax machine sends 3 or 4 pages through at once and I then have to try and figure out which pages were received and which were not. It seems like I’ve spent half of my life next to a fax machine. It’s actually much easier, and less stressful to hand deliver the originals….even if it means going to Detroit! It would be a really, really rare scenario for me to fax a client’s offer to a listing agent, but when I’m the listing agent I see it alot.

Over the years I’ve seen this scenario more than once: 2 hours after my clients and I have reviewed offers on their home I get a call from Joe Jones of XYZ Realty. “Hi Jim, I just wanted to touch base with you about the offer I faxed you earlier today”

ME: “….ummm, I didn’t get an offer from you earlier today. What time did you send it?

Joe ” Oh, no, about 2:00PM?, remember I talked to you about it yesterday?”

ME “Sure, I remember the call…but I got 5 offers today and you didn’t call to confirm. Did you?”

Joe “…ummm, well actually no. But I know it got sent!”

ME ” Sorry Joe, I didn’t receive it…and we just ratified anyway.”

Bottom line….faxed offers are highly problematic! Certainly there are plenty of situations where sellers are not present to review offers, but in those cases a presentation should be made to the listing agent…in person. I honestly think it’s the single most important task I can do for a client. In a presentation I get to convey the heart of my buyers to a seller, or sellers. Typically, here’s how it goes: I contact the other agent and let him/her know that I’ve got an offer on their property and set up an appointment to present it to both the listing agent and the seller. When we meet I’ll chat a little with the sellers about who they are and about where they’re going…we’ll also talk a bit about their house and the things they’ve done to it. I’ll describe my clients to them and present the buyer’s love letter, and give them time to read it, before I go over anything else. After that I’ll give the contract to the listing agent along with the signed disclosures and I’ll give a one page summary that I’ll have prepared to the sellers highlighting again who the clients are and the key features of the offer in bullet points, price, initial deposit, pre-approval letter, close of escrow date, percentage of down payment, total contingency days, any unique terms..ie, whether or not there is a rent back provision…etc. These bullet points speak directly to the key areas that sellers are most concerned with and we can thus eliminate a long winded description of contract boilerplate that ultimately could bore everybody to tears anyway. Often, the terms are more important to the sellers than the price is. It’s actually relatively short, sweet and painless…and most importantly it’s far more effective than faxing! If you’re a buyer in this market and you’re coming in under the asking price doesn’t it make sense to have an advocate…in person?