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Rate Increase vs. Buying Power
With out a doubt, the current buzz about today’s real estate market is how low the interest rates are to finance a home purchase. Potential home buyers are currently being offered rates as low as 4.99% for a 30 year fixed rate mortgage and as low as 4.39% for a 5 year interest only adjustable rate mortgage (ARM). From a historical standpoint, today’s rates are about as low as they’ve ever been. So what does that mean for the current buyer who is actively in the market to purchase a home? The short answer, it means a lot.
With real estate values off as much as 30% from their highs at the peak of the market, maybe more in other areas, it goes without saying that there’s great deals being made everyday a property closes escrow. Combine that with locking in an interest rate so low that it makes other home owners envious of the current deals being offered, how could it not put a smile on the face of the person who just made their purchase? However, if you look at the perspective of some who say that real estate values still have another 10% decline in value from now until the middle of 2010, it’s impossible to wonder why one wouldn’t hold off on making their purchase until prices are at “rock bottom.”
Although it’s obvious that it makes sense when you think about it from this perspective, it’s also important to examine all of the details that are on the table before making a decision. At today’s current interest rates, the purchasing power of a buyer is significant. For example, if a buyer were to make a purchase on a property and get a loan amount of $400,000 at an interest rate of 5.0% fixed for 30 years, their monthly payment would be approximately $2,147.28. Let’s say that you as a borrower are comfortable with this figure and not a penny more, what would happen if interest rates increased from 5.0% to 6.0%? In order to keep your monthly payment the same, the maximum that you would be able to borrow at a 6% interest rate would be approximately $352,000 for the same loan. In other words, for every 1% increase in rate, you as the borrower loose $48,000 in purchasing power for the same monthly payment. This is a significant amount considering that the $48,000 you once qualified for is no longer available to you, thus pricing you out of the market on a property that you once could have had.
It is important to note that every person’s reason or motivation to purchase a home is not the same. While some may be purchasing for the long term because a property has the square footage and school district they desire for their children, others may be purchasing as a place they use for the time being with the intent to sell in the next 5 to 7 years down the road. Either way, it’s important to be aware of all the different options that are available, and apply them to best fit your personal situation.
Appraising the Problem
Given the amount of bank-owned (REO) properties to flood the market over the past couple years, it goes without saying that changes within the lending industry were inevitable. With that being said, nobody would have thought the guidelines & restrictions put in place as a result of this crisis would have made the banking & mortgage industry what it’s becoming today…a moving target. It’s not so much the industry itself is in transition, more the notion of governing influences now in play that are adding to the chaos and complexity of the already delicate situation. In particular, chaos in real estate appraisals.
It goes without saying that real estate is looked at and evaluated on local level. Because all markets differ from town to town, county to county, one might ask the question as to why would someone be asked to give an opinion of value in an area they are not familiar with? Seems like a good question, right? Not the case with the recent adoption of the Home Valuation Code of Conduct (HVCC) that went into place May 1st of this year. It’s purpose was to put an end to the mishandling and misrepresentation of appraisals. While it’s design and intention was meant to reinforce the industry as a whole, its creation has since proved to be causing more setbacks as opposed to solving problems.
The main role of the HVCC has to do with the selection of appraisers to give an opinion of value on a property. In the past, home mortgage consultants and loan broker’s had a degree of influence over choosing an appraiser. Today, the answer is to put the decision of selecting an appraiser in the hands of a neutral 3rd party known as the Appraisal Management Company (AMC). The AMC is now an intermediary in the transaction and is the one in charge of selecting an appraiser from one of their “approved appraiser’s list.” Seems like a good idea and the right solution to the problem of having parties with “invested interests” involved in a transaction. Unfortunately, it appears the entity is creating more problems. Appraisers from the approved lists are being pulled from out of the area to go give an appraisal report in neighborhoods that are foreign to them. If they don’t have the same access and area knowledge as a local appraiser for example, the opinion of value most often is compromised which can create major problems in transactions.
As I mentioned before, the banking and lending industry today is a moving target. You simply cannot predict or even prevent what’s going to happen regardless of how many times you’ve been through the process or how qualified you may be. If you are in the process of applying for a home loan or refinance, be prepared to run some fire drills. All parties involved need to be aware of the situation and be flexible with whatever comes up during the course of the transaction. If not, you might just be in for a disappointing experience.
Tax Credit Provides Outstanding Opportunity for Home Buyers, but Time is Running Out!
If you have been thinking about taking advantage of the government’s $8,000 first time home buyer’s tax credit, you are quickly running out of time. The tax credit is available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.
To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as a "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.
Additionally, there are income restrictions. To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. Beyond that, the tax credit is calculated by income, up to $20,000 above the maximum. Just as an example, if a single taxpayer has an income of $95,000 they will not qualify for any of the credit. If they have an income of $85,000, then the credit amount is calculated according to that income. Your tax advisor can help you figure the actual amounts based on your income, if you are over the full credit income guidelines.
Applying for the credit is relatively easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.
Here are some of the key guidelines for the $8,000 tax credit:
● The credit is available on home purchases between January 1st, 2009 and December 1st, 2009
● Available only to first-time home buyer’s
● Home purchase must be for a primary residence
● The tax credit is not a loan and does not require repayment
* If the home is sold within 3 years, the tax credit must be re-paid
● Income restrictions of $75,000 for singles and $150,000 for couples
● The tax credit reduces the home buyer’s tax liability; if the buyer’s liability is less than $8000, the remaining credit will be issued as a check
● The credit is not eligible if the seller is a relative of the buyer
● The borrower must agree to homeowner by an approved debt counseling agency
Because it now takes longer to get all your paperwork and loan documents approved through underwriting, you need to make sure you have the process started no later than October 15th to insure you will close before the deadline! Don't delay. Take advantage of this government gift, reduced home values and historic low interest rates.
Go Green!
It's a tough time to sell a house. Some analysts are calling today's real estate market the most troubling they've seen since the Great Depression. With inventory rising buyers are becoming pickier than ever.
The good news is you can gain a leg up on the other houses for sale in your price range by making smart and quick eco-renovations. Energy efficient products and household goods are attractive to buyers. Things such as better insulation, replacing old windows, caulking, and adding skylights can increase value. These green remodeling ideas can help you slash your monthly energy bills, reduce your water usage, clean up your indoor air quality, and leave the planet a better place. And make your home stand out from all of the rest.
Home utility bills have seen double-digit growth in the past few years, spurred by record-high oil and gas prices and water shortages. That means if you can show lowered utility bills to potential buyers, it makes a big difference in today's market. The key is to make improvements to your home's energy efficiency, and document how the monthly bills change over time. Highlight the savings to your broker and any potential buyers, and provide comparisons to typical bills for similar-sized houses in your region.
Small steps add up. So, how do you get started? The first thing you should do is to replace as many light bulbs as you can with CFLs (compact fluorescents). CFLs use a quarter of the electricity as regular bulbs, and lighting accounts for 20% of home energy use. The next step is to upgrade any old or questionable appliances with new Energy Star-certified models. Make sure cracks are tightly caulked and leaks are sealed. Consider replacing or beefing up your current insulation. Put on a fresh coat of the new and now widely available “low-VOC” paint.
Another potentially untapped market is to capitalize on making your home as healthy a space as possible. There are many people with allergies, asthma, chemical sensitivities and so on who consider top indoor air quality a necessity. Old carpets can be a real turnoff, and can emit allergens and toxins. Exposing any hardwood floors is a good way to bring out your home's beauty and value, but if you don't have that option consider new, eco-friendly carpeting.
All of these ideas will go a long way in attracting a buyer and as an extra bonus, you may qualify for federal, state or local tax credits by going green.
Last but not least, call the pros. The best thing you can do when considering selling your home green is to call in experts to make recommendations.
Counter Offer Number One
Whether you’ve been on the market 5 days or 105 days, it’s always exciting to get the news you’re about to receive an offer on your home. Supposing the offer on the table hasn’t offended you on a total personal level, which it never should, what is your next course of action in order to respond to the buyer’s offer? Price almost one-hundred percent of the time is the first consideration, followed by terms of the purchase agreement typically come second. So how do you structure your response? What terms of the offer do you reject or counter out, and what terms of the contract do you accept? How much do you come off of your asking price in response to the buyer’s offer?
Once again, assuming the fact the offer that’s been presented to you is within a reasonable ball park of what you were expecting, the next step is to look at the terms of the offer. If they’re offering a 30 day escrow period you need to ask yourself, is that enough time to get all my belongings packed and completely moved out within that time period? Keep in mind that’s 30 calendar days, not business days. Maybe a 45 day escrow or sooner would be more suitable for you. How much of an earnest money deposit are the buyers putting into an escrow account in return for taking your property off the market while they conduct their due diligence? How long is the proposed due diligence period, including time for loan and appraisal contingency? What personal property like your refrigerator, washer, dryer, flat screen TV, etc. has been asked to be included in the acquisition of your home? These are all items that should be considered before making your response back to the buyers in regards to price.
After you’re comfortable with the terms of the contract you’re going to counter out/back, it’s time to consider the price you are willing to sell the property based off the information that currently sits in front of you. This is entirely based off your motivation to sell. It doesn’t matter what the market is doing, it doesn’t matter what the most recent comparables are, and it doesn’t matter if the market is going up, down, or sideways. It’s based purely off your motivation to move on to the next chapter or stage in your life. This therefore will ultimately result in the price you decide to offer back to the buyers. You may come off your purchase price a lot, maybe a little, or maybe nothing at all. The good news is the decision is entirely up to you. The one thing you should always keep in mind is that it doesn’t matter what market you are in; good, bad, or ugly. Everything sells… at the right price.
Tips on Reading an Inspection Report
When interviewing a home inspector, ask the inspector what type of report format he or she provides. There are many styles of reports used by property inspectors, including the checklist, computer generated using inspection programs, and the narrative style.
Some reports are delivered on site and some may take as long as 4 - 6 days for delivery. All reporting systems have pros and cons.
The most important issue with an inspection report is the descriptions given for each item or component. A report that indicates the condition as "Good", "Fair" or "Poor" without a detailed explanation is vague and can be easily misinterpreted. An example of a vague condition would be:
Kitchen Sink: Condition - Good, Fair, or Poor.
None of these descriptions gives the homeowner an idea what is wrong. Does the sink have a cosmetic problem? Does the home have a plumbing problem? A good report should supply you with descriptive information on the condition of the site and home. An example of a descriptive condition is:
Kitchen sink: Condition - Minor wear, heavy wear, damaged, rust stains, or chips in enamel finish. Recommend sealing sink at counter top.
As you can see, this narrative description includes a recommendation for repair. Narrative reports without recommendations for repairing deficient items may be difficult to comprehend, should your knowledge of construction be limited.
At the end of the inspection your inspector may provide a summary with a question and answer period. Use this opportunity to ask questions regarding terms or conditions that you may not be familiar with. A good inspector should be able to explain the answers to your questions. If for some reason a question cannot be answered at the time of the inspection, the inspector should research the question and obtain the answer for you.
We recommend that you accompany your inspector through the entire inspection if possible. This helps you to understand the condition of the home and the details of the report.
Read the report completely and understand the condition of the home you are about to purchase. After all, it is most likely one of the largest investments you will ever make.
Get a home loan
The critical steps in the mortgage loan application process are to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower.
Down Payment & Closing Costs
Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan. Take extra care to document the sources for any monies to be used for the down payment or closing costs.
Acceptable Down Payment & Closing Costs Sources
- Cash in a bank account
- Mutual funds / stocks / IRA / 401K
- Proceeds from the sale of another property
- Gift from an immediate relative
Assets
Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.
Common Assets Considered in a Mortgage Loan Application
· Stocks, bonds, mutual funds, 401K and retirement accounts
· Life insurance
· Personal property estimate - cars, boats, antiques, jewelry, etc.
· Other real estate or property
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment. Documentation requirements vary depending upon a number of factors - including the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.).
Debts
Your lender will want to review a list of all your current debts. This along with your credit report will provide the lender with a snapshot of your obligations. The lender will want to confirm that you will not be overextended when the mortgage payment is added to your current debt load.
If there is one thing to remember about positioning yourself to obtain a mortgage it’s this, do not take on any new debt until you have closed escrow. Once the home is yours, then go get that new car you’ve been thinking of… not before.
Determining Property Values in Today’s Market?
If you're planning on selling, knowing the right market value is critical to increasing your chances for a quick sale. Having a good REALTOR® helping you make this decision is crucial.
There are several tools we use to determine the price. In today’s market –where there are short sales and bank owned properties to compete with – figuring out the real value of your property can be difficult. The comparable sales method is most commonly used. The homes used for comparisons are referred to as comparables, or comps. Compare your home against homes with similar features, in the same general area where your home is located, and that have been sold as recently as possible. In this changing market, it is best to use sales within the past three to six months. Some common features used for comparables are:
- Number of Bedrooms
- Square Footage
- Lot Size
- General Condition
- Age of Construction
- Landscaping
- Neighborhood Location
In addition to comparing features that the homes have in common, take a look at the features you don’t have in common such as views, fireplaces, and a swimming pool. You may need to deduct value if your home lacks amenities. Another key factor to weigh in pricing it right is your motivation. The reason for selling should be factored into your pricing strategy, and remember that a strategy could include scheduled price reductions if you home does not sell.
Of course, it isn’t possible to get a private tour of all the homes that have been sold in your neighborhood, but a good REALTOR® would have. REALTOR’S® consistently preview new listings and compare features and pricing. In addition, a REALTOR® has full access to a Multiple Listing Service (MLS) database that contains information about property taxes, how long a home as been on the market, and what the home’s original asking price was.
There are no guarantees when it comes to selling a home, but the best way to increase your chances for a quick, successful sale is to hire a good REALTOR®, and price it right… right from the start.
Weekend Projects
When it comes to our homes, many of us take on the notion that we have the wear with all and knowledge to take on a multitude of projects around the house that will ultimately add to the overall value of the property. This resonates further when a close friend or neighbor tells you, “That’s easy, you could finish the whole job in less than a weekend.” If you are getting ready to tackle this weekend’s project on your home, there are a couple of things you may want to consider before diving head first into your project.
First and foremost, you want to examine the scope of the intended work you are about to perform. Start by developing a conceptual game plan as to what steps you are going to take before you start tearing holes in walls, digging up the front yard, repainting the interior/exterior, knocking down fences that separate your property from the neighbor(s) etc. Secondly, you want to examine the opportunity costs of how much time and energy are you physically and mentally committing yourself to with the project at hand. What happens if you’re not able to complete your project in a single weekend? Will you finish it during the week after work? Is it a job that can be left unfinished for another day? Will leaving the unfinished job create an eye sore in the neighborhood until it’s complete?
With these kinds of lingering questions adding to the pressure and stress that’s already built into a project, what happens if the finished project doesn’t end up looking the way you anticipated? What if your “upgrade” actually ends up being a “downgrade”? Hopefully then you will consider getting the opinion of a professional tradesman to at least look at the work you are considering doing for your next home improvement project. There’s nothing worse than walking into a home that appears as though the weekend warrior was rushed for time on every upgrade. Eventually when it comes time sell your home, potential buyers will pick up on this instantaneously and will start examining every inch of the property with a magnifying glass or even worse, write the property off completely.
Trick questions
It’s a question we get asked all of the time, “what’s going on in the market?” In all honesty, to a REALTOR® in Santa Barbara it’s a trick question. How can this be, when it seems simple enough for a professional to answer? The reason is that our local real estate market is unlike most. Where else can you find $35,000,000 dollar estates mixed in with $250,000 condos, and everything in-between all wrapped up in one market place?
Considering this phenomenon, Santa Barbara has about six or seven markets each with different trends. So when a professional REALTOR® is asked “how’s the market?” Most of them are thinking what part of our market are you talking about. Depending on what price range and location the questioner has in mind, the answer can be dramatically different.
For example, the entry level single family home market is as hot as the sun. These are typically tract homes featuring three bedrooms with one to two bathrooms on smaller lots in Goleta and sometimes Santa Barbara. This piece of the market hosts over 90% of our bank owned inventory and is priced in the $500,000-$600,000 range. When these properties hit the market it’s like throwing meat in a piranha tank. The activity is ferocious and competitive. Most of the winning buyers are offering all cash and paying full or above asking price.
In contrast, the high end market above $5,000,000 has cooled off considerably. Once the resilient shining jewel that continued to push our median price up, now inventory is growing and the numbers of sales are dropping. This sector is evolving daily and it seems as if it may take some time before we know where it will land.
Whichever market you are referring to, one common thread exists for all of us – we live in an amazing, beautiful town and our market will always be better than most for this reason. We are not immune to the latest economic trends – but we fight them off better than the majorities do – and when the market turns around and prices start to go up again look out… it’s going to get crazy.
Santa Barbara Group, I have a question?
Recently a reader emailed us and said, “I am a first time buyer looking to buy a home this year. Can you explain what escrow is?”
If you have never purchased real estate in California, the word escrow may sound pretty foreign to you. Many states do not even use the escrow system that we use in California. The process of selling property can vary from location to location, but here in California we use escrow to complete the transfer of ownership in real property. So what is escrow and what does it do?
Well, in California, to finalize the sale of a home, a neutral third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property before the purchase price is fully paid.
Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections and real estate commissions). Title to the property is then transferred to the buyer and appropriate title insurance is issued as outlined in the escrow instructions.
To sum up escrow, consider this analogy. The escrow company is like the ring in a boxing match. The escrow agent—the person who mediates the transaction—is like the referee. Escrow provides a neutral service to interpret and execute the requirements of the transaction, much like the boxing ring provides the location for a fight and the referee keeps it fair. The neutral third party is designed to make the real estate selling process fair and thorough while the buyer and seller duke-it-out.
If you have a real estate question you would like us to answer please send us an email at info@thesantabarbargroup.com
Increase the appeal of your home… for free
In order to sell your house in a buyer's market, you must make your house stand out from the rest. The first way to do this is to clean your house completely. A thorough cleaning includes de-cluttering. You can use this time to get rid of items that aren’t adding anything to your life - other than something to move aside, shove away, or trip over. This will not only enable you to stage your home more efficiently, it will also lessen the stress of having "mess" to clear away before every home showing. Cleaning up and de-cluttering can gain you thousands of dollars at the time of the sale and cost you as little as nothing. It's all about getting organized to increase the chances of selling your home.
Your home may be in good condition and well built, yet simple clutter will create a perception of chaos, confusion, and disarray. The purchase decision is an emotional and intellectual response, based on a level of trust in your home. When buyers see clutter, they assume that the home has been neglected, with more to fix than meets the eye. This perception undermines your home's market value.
Before you put your home on the market, have a garage sale; throw some things out, and box stuff up. Your move will be easier, and you will create an open, spacious, simplified look that buyers love. When it comes to selling your home, less is truly more.
Where to begin? How about the front yard, entry, living areas, kitchen, bathroom, bedrooms, any of these places will work, but make sure not to overlook the closets. Buyers are certain to open them up and check them out for space. Remember, it doesn't matter how big the closet are -- if it looks crowded, the buyer still thinks it's a small closet.
As you gradually come closer to your goal, you will not only have staged your home as you want it, you will have removed unnecessary things from your life. This also helps you deal with the stress of selling your home and moving. The sooner you get your house ready to sell, the better decisions you'll make. The better decisions you make, the sooner you achieve your goals.
Escrow is opened… don’t celebrate just yet.
Whether you are a buyer who has been searching for that perfect home for the past several months, or a seller who has endured 120 long hard days of market activity, striking a deal and opening escrow can be one of the most exhilarating feelings one can experience. But, as anybody who has either bought or sold a property in recent years knows, opening escrow is only the beginning. You still need to navigate the results of the inspections and in many cases a request for repairs.
The California Residential Purchase Agreement states that any subject property is to be sold in its present physical condition. Because a seller may not be aware of all defects and issues affecting the property, the contract advises the buyer to conduct their own inspections in order to learn more about its present physical condition. Based on the information discovered in those inspections, the buyer may either cancel the agreement, re-negotiate for a credit to repair what was discovered, or request that the seller make necessary repairs, traditionally outlined in a “Request for Repairs” document.
The request for repairs can call on the seller to correct one or many different items discovered through the buyer’s due diligence inspections. According to the purchase agreement contract, the seller has no obligation to agree or respond to the buyer’s request for repairs. However, depending on the circumstances, sellers usually opt to exercise one of four options. 1) Agree to make all necessary corrections the buyer has requested. 2) Not agree to ANY of the buyer’s request. 3) Agree to make some of the buyer’s requests, but not all. 4) Not even acknowledge the buyers request by not responding back to the buyer.
Whatever transpires, it is important to keep in mind that this is essentially another period of negotiations for both buyer and seller. This is one of the many times in a transaction that it is most important to have a strong team of Realtors on your side, fighting for your prosperity and defending your bottom line.
How do Realtors get paid?
It is something that is happening less and less these days for a lot of Realtors… getting paid. Real estate is a notoriously tough business to succeed in, but there is money to be earned if you know your stuff, and show up everyday. So when a deal closes and commissions are distributed, who can be paid and what is the cycle of that commission?
To understand this you must first know the difference between a Broker and an Agent. Agents can not be paid directly from a transaction. An agent must hang his or her license with a Broker who gets paid and then pays a portion to the agent. An agent will negotiate a split percentage with their broker, how much they keep and how much the broker keeps.
Brokers get paid and they split it with the agent, so what is the cycle of that commission? Typically an agent will sign a listing agreement with a property owner who wants to sell. In the contract there is a provision for sharing the commission with the other agent representing a buyer. For example when a seller agrees to pay a 6% commission, 3% will go to the listing agent and 3% will go to the buyer’s agent. The broker for each of the agents receives the 3% earned by their agent and splits it with them, which can start at 50/50.
So at the end of the day that 6% gets split between four parties, not counting Uncle Sam. In today’s market we are seeing more and more Realtors getting out of the business. No longer can one survive by cherry picking a deal here-and-there. This is a healthy adjustment that benefits the public because they will be left with true professionals who can offer the best service. Succeeding in today’s markets requires the ability to think outside the box and offer more to the client. Thriving in a down market is exactly what good Realtors do.
Buyers are Getting off the Fence
Now that the holiday season is behind us, buyers have awoken to extremely low interest rates. Mortgage applications for the month of December hit a five year high. Fixed 30-year conventional mortgage rates dipped below 5.0% plunging from 6.47% at the end of October. Things started to heat up after the Federal Reserve announced their intentions to purchase up to $500 billion in mortgage-backed securities. The good news… the Federal Reserve began purchasing these securities last Monday. Most analysts believe the interest rates will continue to remain low.
Locally these rates have had a huge affect on our real estate market. There has been a refinancing boom up over 400%, which should free up much needed cash. The bank owned single family market is red hot. The majority of these properties are selling as soon as they hit the market with multiple offers. Buyers are taking advantage of historically low interest rates, and two years of declining property values. Properties are becoming more affordable.
It is easy to look at the negative economic news in the headlines and say there is no sign that 2009 is going to be any better than 2008, but there is a different perspective to consider. More and more buyers are felling positive and motivated to do something. There is a real sense of urgency that we have not seen in a while. Buyers are telling us “I have to have that house!”
We feel the government’s intervention to aggressively push interest rates down is working to stir up activity. Add in the expected stimulus package, and lower prices at the pump, there is a good chance we could see a gradual transformation from the downward cycle in home prices to a slow rebound by the end of the year. How’s that for positive!
Many buyers who were previously on the fence are realizing that there are opportunities out there, and are purchasing properties. Getting off the fence is difficult… it can be scary, but Santa Barbara real estate is some of the best dirt you can buy!
Who needs a buyer’s agent…
Back in the days before the Internet, the public had limited means of researching homes for sale and relied on working with an agent to access the multiple listing service. Today’s buyer can camp out on real estate websites, monitoring the market for new listings. So with all of this information at your fingertips, what is the benefit of working with an agent when you want to buy?
There are several reasons for hiring a team of good Realtors as soon as you start thinking about buying. By collaborating with a professional, buyers get clear about what they want and need, while determining what features they desire. If you choose wisely, a good Realtor can listen to a buyer and interpret what their needs are and show them properties that really work for them.
Finding the right property can be all about networking. A good Realtor has established networks in the local real estate community. One of the most compelling services offered by a Realtor is their ability to network in search of the right home for you. Pocket listings are properties that are not on the market so you won’t find them on the Internet, but are quietly available through networks. An agent’s ability to network with other Realtors in a productive office is very valuable. They can announce your need and get you a jump on a new listing before the public knows about it.
Often times just finding the property is only half the battle. You need to learn about the seller’s situation in order to prepare the most effective offer. You need to write the offer so that the terms in it reflect and protect your interest. Then you have to navigate escrow, inspections, and renegotiations successfully. This is much easier to do when you’re working with an agent who understands your needs, and is someone you can trust.
The bottom line is that it will not cost you any more to start working with a team of Realtors as soon as you decide to buy. Even if you are all over the Internet every day there are deals being made on properties that you never saw. You will dramatically increase your chances of finding the right home while getting the best possible deal when you’re working with a buyer’s agent.
Get it Sold in a Buyer’s Market
Time is not always on our side and for you the time has come to sell your home. If you need to sell in today’s market you’re probably feeling a bit anxious about it. Yes it is true we are in a buyer’s market and prices are softening, but let’s look at the bright side, our home values went up nearly 100% from the years 2000-2005, and on average we have only lost about 15%-25% of that appreciation.
So, if you must sell you should know some proven strategies that will dramatically improve your chances for success. To get the most money for your home it needs to look it’s best. The secret is appealing to the masses, which means removing clutter and personal effects, neutralizing colors, and adding some design flare. So roll up your sleeves and get out your checkbook because it takes money to make money.
Step one: Remove the clutter and personal effects like knick-knacks, family photos, anything you take pride in collecting, excess furniture and toys, clear off counter-tops, and do away with anything stored in your front, back, and side-yards.
Step two: Neutralize colors on the walls and floors. Choose an earth tone beige color for the walls and paint the trim, molding, and baseboards white. Carpet color should not deviate much from your wall color. Wood floors look great and if you choose to install them avoid the fake laminate type.
Step three: Add design flare inside and out. Start where your first impression is made, outside curb appeal. Prune trees and bushes, plant flowers, add mulch and potted plants, upgrade your garage door, paint your front door and replace the hardware. Inside should be cleaned including windows, and consider rearrange your furniture or even adding a couple of new pieces. Look online for design ideas or ask your agent for advice. Vacant homes should be staged. Hire a home stager to turn your vacant home into a model.
These tips will make your home stand out above the competition. You will save by doing it yourself and don’t be afraid to ask your Realtor to help. Finally, price it competitively or else your hard work will be wasted, and always make sure to eliminate any foul odors because… if you can smell it you can’t sell it.
Avoid capital gains 1031 exchange
The theory behind Section 1031 is that when a property owner has reinvested the sale proceeds into another property, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer's investment is still the same. Therefore, it would be unfair to force the taxpayer to pay tax on a "paper" gain. In general the 1031 Exchange is essentially a 3-step process.
Step One: Sell your current investment property. It is important to state that you will be engaging in a 1031 exchange in the sales contract BEFORE closing. You must have a Qualified Intermediary receive the net proceeds at close and hold the money until you close on the new investment property. If you do end up closing on the property without doing both of these things, you will not be able to do a 1031 exchange.
Step Two: Identify the replacement property. You must identify the new replacement property within 45 days following the sale of the relinquished property. This must be done in a signed, written document and delivered to the party assisting you with the exchange. As a general rule of thumb, you may identify up to three properties as potential replacement properties. We recommend that you review multiple tenant in common properties, (if only to identify as "back up properties") if for whatever reason your top choice does not close. Not identifying multiple replacement properties is one of the most common reasons an exchange blows up and you’re stuck paying taxes!
Step Three: Purchase the replacement property. You must obtain the replacement property within 180 days following the sale of the relinquished property. One stipulation for deferring your taxes with an exchange is that, among other things, the replacement property must be of equal or greater value to the relinquished property.
The like-kind exchange under Section 1031 is tax-deferred, not tax-free. When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax. The tax-deferred exchange is a great way to maximize your wealth. By keeping your investments growing without immediately paying taxes, you can do wonders for your net-worth.
Remember that this article is to provide basic information only. If you are planning on doing a tax-deferred exchange, you really need to speak with a professional that handles these transactions on a regular basis.
Tea Fire, how will it affect our real estate market?
Last week our community suffered a tremendous loss when the Tea Fire ripped through our foothills and canyons destroying 210 homes. Our hearts go out to those whose lives have been forever changed by this tragedy. It has been great to see our town come together and help those in need with offerings of free housing, clothing, and other items of comfort.
This is not the first time Santa Barbara has faced the aftermath of a destructive wildfire, and as we have in the past we will overcome and rebuild. While we pick up the pieces, what changes can we expect with regards to our local real estate market? No one can say for sure, but there are some conclusions that can be made with some level of certainty.
Santa Barbara is a small community and the elimination of 210 homes from our stock has an impact. It is foreseeable that the burn areas will see a short term drop in value, while other areas outside the fire zone could see a spike in demand, which may result in higher or stabilized values. Many listing agents are noticing that fire victims are out looking to buy new homes. Whatever the affects may be on values, they’re likely to be temporary.
With the immediate need for rentals, Santa Barbarians have opened their arms. Many gracious sellers with vacant homes for sale have offered them to fire victims rent-free. The new demand for rentals has depleted the inventory, and hopefully with this new demand landlords will resist the urge to capitalize by raising rents.
As the affected rebuild we will see a surge in the need for contractors, which may drive up costs. We’re not the only community facing the need to rebuild, and the ever-increasing cost of materials should rise. Hopeful the surge in construction will results in a healthy shot-in-the-arm to our local economy.
As we did after the destructive fire in our past, we shall rise up above the ashes and restore the damage. New heroes will rise to the occasion and help their neighbors when needed most. New homes and lush gardens will replace the toxic smell and moonscape left by the fire. And a new chapter will begin, a chapter where Santa Barbara becomes stronger than ever, as a community.
Tenants in common the prenuptial agreement
Real estate investing with other people, whether it be with a group, several groups, or even family members can be hazardous if you don’t outline the business relationship and obligations of each individual ahead of time. When acquiring real property, there are multiple ways to take title, or ownership of the property, especially when more than one individual is involved in the acquisition. The most common form of ownership used when multiple parties are involved is what’s known as a Tenants in Common Agreement, or a TIC. The questions to answer while investigating this option are… How does this agreement get put in place? What exactly does the agreement outline for each individual? And, how can this agreement protect me?
Your Tenants in Common Agreement can work to protect you similar to the way a prenuptial agreement does. A TIC accomplishes this by outlining the equal undivided interests of the members involved and how that interest is dissolved. The proper agreement should designate the following: how costs and expenses will be handled, how decisions affecting the property will be made, provide distribution of cash available, annual accounting of income and expenses related to the property, ensure that the terms of the agreement will be binding on each owner’s successor in interest in the event of the death or incapacity of an owner, the type of insurance to be maintained for the property, and how individual members exit the partnership.
A properly prepared TIC will create a road map for the partners to follow, to address all the issues that come with real estate investments. The agreement not only allows for an orderly resolution upon sale of the property, it also protects the most important decisions that the investors need to be in agreement with from the outset. Because real estate investments are what a lot people count on for retirement, it is important to consult with the right advisors. This means having an experienced real estate attorney, a professional tax advisor, and the right real estate team who understands how to personally structure your investment acquisition.
Help, my house won’t sell!
In today’s current market, there are many sellers scratching their heads and wondering… Why can’t I sell my house? While there isn’t a definitive single answer to this dilemma, there is a universal answer or explanation that can potentially help you understand the slump you may be experiencing.
YOUR HOUSE IS PRICED TOO HIGH! Buyers understand the market place. They are not only looking for a great buy, but a great deal as well. I know more money means more financial opportunities. Perhaps it means you can buy a larger home, new car, help pay for your child’s college education or take that dream vacation. Ahh… vacation. Anyways, the truth is it doesn’t really matter how much you think your home is worth. The person whose opinion matters is the buyer who makes the offer.
Homes sell at a price a buyer is willing to pay and a seller is willing to accept. If a home is priced too low, priced under the competition, the seller should receive multiple offers to drive up the price to market value. So there is little danger in pricing a home too low. The danger lies in pricing it too high.
Here’s what to expect if you price your home too high. Six months of wasted time. You’ll have the pleasure of buyer’s traipsing through your home on the weekends and every other conceivable inconvenient moment. Late night conversations with your agent trying to come up with new innovative strategies. Constantly answering questions from neighbors… “When you gonna sell that house?” “What’s wrong with it?” You get the idea…
Here is a general rule of thumb. If your property has been sitting on the market for 30 days without any visible sign of an offer… the price is most likely too high and you should consider a price reduction to regain the interest of buyers. The longer your property sits on the market, the more it comes under scrutiny. Buyers will look at your property as stale and dated. A market-worn home that was overpriced for too long.
For example, the Mission Canyon area currently has 9 active listings and 1 pending listing. Out of the 9 active listings, 5 have been on the market for over 100 days. The one property that is pending was on the market for 7 days. The property owner priced it correctly and had multiple offers to choose from. They had the option to choose the strongest buyer. Ultimately, saving the owner time and money.
There are many other reasons why your house may not sell. Poor condition, absent marketing, incompetent agent, etc. But the main reason is the price of the property. A successful combination of a good realtor and a well priced home will equal a winning combination that will get your house sold!
What happens now? Recovering from a house fire
This is a very difficult time for the many victims of the recent Tea fire that consumed 210 of our beautiful Santa Barbara homes. Our hearts and concerns go out to all who was affected by the fire. The Santa Barbara Group is available to help anyone who is in need of a rental or housing.
What happens now?
The first thing you should do is call your home insurer right away. An adjuster should arrive immediately to help you sort things out. Often your home insurance will cover living expenses for up to 12 months after a home fire and your claims agent will also help you document your losses.
Chances are your insurer has their own adjuster, but in many cases a public adjusters might be calling after your house fire… but be careful. Public adjusters are bonded and licensed by the state but in most places competition is fierce. Do your homework before you hire a public adjuster by checking with friends, family, and your lawyer to see who may be a good choice for you. Just make sure your information is coming from a trustworthy source.
Document all of your losses, as soon as possible. Don't rely on a public adjuster or your insurance agent to write down everything that was lost or damaged. Most often, they do not know what you had in the first place. As soon as you can, sit down and take note of everything you had stating the age, approximate condition, and the cost to replace it or buy a new one. Be realistic when it comes to cataloging your losses and damages. Just because you see value in an item does not mean that it has actual value. Insurance companies often will not pay to replace antiques, family heirlooms, or small collectible items unless it was previously agreed upon in the original contract. When placing values on your homes contents, be fair and sensible especially if the item was old, not in the greatest condition, or not really worth any money.
After you have put together a detailed list of your losses your adjuster will handle mostly everything from there. But, you do have to remain an active part of the process to make sure you get what you want.
When it comes to getting what you are entitled to, the first thing you should do is review your contract. This document outlines what rights you have, defines limitations, and describes the obligations of your insurer. As with most home insurance companies, you are entitled to having your home and belongings restored to their previous conditions. If they cannot be restored, often they must be replaced.
Keeping a level head throughout the entire process will also help things go smoother. If your home was completely destroyed, or has extensive damage, your claim is automatically going to take much more time. Be persistent and stay on top of your insurance company making sure promises are fulfilled.
The recent Santa Barbara wildfires are an excellent reminder to ask ourselves… Am I prepared? This is also a very good time to review your fire insurance policies to make sure you are not underinsured and you know exactly what it covers.
The Santa Barbara Group understands this is a very emotional and stressful time for all who was affected by the fire. Please utilize our services and let us help you rebuild the successes of your future.
“Short Sale” vs. “Bank-Owned” Two terms every buyer should know
You've probably heard the terms “short sale” or “bank-owned” before. For many there’s confusion regarding these terms. What do they mean? What are the differences? Which option might be best for you? One thing to note is that these terms fall under the definition of “distressed property”. Here's a breakdown of the terms to help answer these questions and more:
Short Sale: Occurs when a homeowner is behind on their payments and owes more than the property is worth. The home is listed for sale until an offer is received. The bank, after reviewing the owner's reasons for being delinquent, lets the owners sell at a lower price than what is owed. Not everyone qualifies for a short sale. A hardship must be demonstrated and documented. There are companies that can be hired to help expedite the short sale process.
Disadvantage… Banks are very slow to respond to your offer, often taking 3 to 6 months. Short sale properties can be in poor condition as sellers no longer have the money or motivation to perform routine maintenance.
Advantage… The possibility of getting a property below market value is the major advantage of a short sale. Often times, banks would rather take a loss on their loan as opposed to foreclosing and taking ownership of the property.
Bank-Owned or REO (Real Estate Owned): The property went through the foreclosure process and is now owned by the bank. The bank then hires a Realtor to sell the home usually pricing it very aggressively. The home is generally sold in "AS IS" condition, meaning any repairs are usually the buyers' responsibility.
Disadvantage… Obviously, the major disadvantage of buying a bank-owned property is the "AS IS" provision. Since the previous owners likely left against their will, bank-owned homes are typically not in the best shape. Additionally, banks are very strict with the purchase contract and buyers must be willing to accept their terms.
Advantages… Just like with a short sale, there is the possibility of getting a great deal. Because the property is already owned by the bank, their response to your offer is dramatically quicker than a short sale, usually within 72 hours.
Currently the hottest market in Santa Barbara is bank-owned properties. They’re aggressively priced to sell quickly. We are seeing multiple offers and some homes are even selling above their asking price. The banks are looking for qualified buyers that can close the deal in a timely manner. To be competitive you must be ready to buy. You must be fully approved for your loan and ready to close. However, you know how the saying goes… Cash is King!
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