The San Diego Home Blog

This morning, a beautiful gift basket was delivered to our door. It is actually a gift basket for one of our clients who just closed escrow on her new home. Imagine the audacity of purchasing a home in this market! What was she thinking? Didn’t she heed the warnings of all of the passionate folks talking ad nauseum about the real estate bubble? Does she know that this decision to purchase brought her one step closer to financial ruin? For shame. The gift basket, by the way, is beautiful. The basket lady does a fabulous job. This time last year, she was very busy. Unfortunately, as the market has slowed, so have the orders.

Now, I am bracing myself for a dozen comments to this concering gift baskets. Funny how that goes. Back in September, I wrote a nice little piece thanking an agent/mortgage broker for a smooth transaction. The 23 resulting comments dealt with option ARM financing. Earlier this month, Steve had a moment of reflection in which he was enjoying the San Diego weather which generated 32 comments on the impending crash of the real estate market. And in November, I wrote about anticipated December market activity, which of course resulted in 12 comments all pertaining to… rabbits.

I recently wrote a post for the Bloodhound which I’ll call my group therapy. I will admit that one catalyst for my post was a rather hateful little remark (personal attack) that was made here, but the article itself was intended to suggest that not all (or even most) real estate decisions are based solely on the financial bottom line but on more personal considerations. I wrote that home buyers and sellers define “return on investment” in different ways, and it is not always defined in terms of dollars. Case in point, in the past month Steve and I have seen our clients make their decisions to buy or sell based on divorce, need to accommodate a growing family, downsizing for impending retirement, downsizing in response to the last child leaving the nest, relocation both to and from San Diego, and simply a desire to purchase a larger home. In not one of these cases did the state of the market drive these decisions, nor was it a major consideration.

What my remarks were really about was this: Real estate is personal. Our business involves real people making real, emotional decisions. While many choose to see real estate as a purely financial investment (and this is obviously true of those that hold income property as a part of their investment portfolio), real estate to the masses represents a home, a life style, a life, and there is nothing impersonal about this. Be the market good or bad, people will continue to buy and sell for a variety of reasons and, while these reasons may not seem financially sound to the bubble bathers who do indeed seem to revel in the bad news, they are absolutely valid from the personal perspectives of my clients.

So, of course, my post quickly morphed into a perceived public service announcement promoting homeownership, with the comment thread evolving yet again into a realtor-bashing party in which those “passionate” about the market changes we are seeing questioned the ethics of agents and mortgage brokers, the intelligence of anyone who would purchase today, and even Jeff Brown’s earnings.

Which brings me to the basket lady. In the Bloodhound post, I stated the following (perhaps, a little too testy) in reference to the bubble babies:

I am finding this recent proliferation of to-hell-in-a-hand-basket reporting nothing more than childish, ambulance chasing tripe of which I have grown weary. Get a hobby, read a book, play with your children, but stop taking perverse pleasure in the misfortune of others. Grow up and stop blaming your personal unrest on NAR, economists, real estate agents, mortgage lending practices and everything and everybody in between.

Now, I admit that was a little harsh, but I really am fed up with the venomous animosity being spouted by many against an entire industry, the energy they spend on espousing their sense of impending industry doom, and the seeming thrill they derive from the same.

One commenter wrote:

Your industry has hyped this market and it has worked for your personal benefit. You should not feel offended when someone makes a comment against the industry that you are a part of.

For the record, I am not offended, but I do take it personally. I have no issues with those who are more bearish than I on the future of home prices or even those that despise real estate agents. I appreciate and respect their opinions, but would appreciate more thoughtful balance in the message and more compassion in the delivery. The clients I work with are not poor saps that have been swindled by an industry run amok, and they are not misinformed little lambs heading straight for the slaughter due to industry hype. They are real people making real decisions regarding a very real need - Housing. And to those that revel in the down market and use the opportunity to portray industry professionals as overfed, money grubbers who are finally getting their just desserts, loathe agents and mortgage brokers if you must, but don’t detest an entire industry. Take a moment to consider the basket lady. I feel sorry for her. While we are at it, let’s consider the printer who prints our property flyers, the carpet cleaner who shampoos the rugs prior to closing, the handyman who performs the buyer’s requested repairs, all of the many, many others who provide support services to the industry, and, of course, the three past clients of mine who called this week about buying and selling due to divorce. For them, real estate is very personal.

A reader asks:

If the buyer cancels the contract within 17 days based on an unfavorable inspection report, does the seller have to refund the deposit within 17 days from the date of the cancellation? How would one proceed to get the deposit back?

If using the California Association of Realtors Residential Purchase Agreement, and assuming that the default 17 days for removal of the property inspection contingency is in effect, the buyer may within this timeframe give the Seller a notice of cancellation. However, it is important to keep in mind that the Purchase Agreement is a bilateral contract. In other words, it takes two signatures to get enter into contract and two signatures to get out of it. The contract states that, if written notice is provided, “Buyer and Seller agree to sign mutual instructions to cancel the sale and escrow and release deposits to the party entitled to the funds, less fees and costs incurred by that party.”

The “pickle” occurs when the Seller does not agree to sign a release of funds, and I have seen this happen. Escrow, as an independent third party, can not release the deposit until all parties have signed, so failure to sign by the Seller would delay disbursement. According the the Cancellation of Deposits provision, “Release of funds will require mutual signed release instructions from the Buyer and Seller, judicial decision or arbitration award.” So what is to keep an ornery Seller from releasing a Buyer’s deposit when he is entitled to its return? A couple of things, actually. From a contract standpoint, “a party may be subject to a civil penalty of up to $1,000 for refusal to sign such instructions if no good faith dispute exists as to who is entitled to the deposited funds.” This is the legal hammer. The practical hammer is that a Seller could be unable to close escrow with a subsequent buyer if a previous, open escrow exists. When things get to this point, Sellers usually find it in their best interest to allow return of the Buyer’s deposit if he is entitled.

In a worst case, return of a Buyer’s funds could require legal challenge. From a personal standpoint, I have never been involved in a transaction where the Seller wasn’t anxious to return an unwilling buyer’s deposit (one to which he was contractually entitled) and move on. Afterall, a Seller is trying to “sell”, and delays only hamper that goal. As we often say, in real estate, time is never on your side.

Merry Christmas, Athol!

I had to post something to get Noah’s blog swap entry off of my front page. A fine post it was, but it was time to reclaim my territory.

On the day of the big Yankee Blog Swap, I slapped his article on our site and piled in the car with the rest of the nuclear family (including Simon-the-world’s-dumbest-Golden Retriever) for our annual Christmas trek to Lake Arrowhead. Seventy-two hours later, I wouldn’t say we have reached the Zen moment of relaxation, but we are settled in and operational. The fax machine has been tested with the successful outgoing 21-page purchase offer transmission and my fingers are at the moment frozen to the keyboard of my little laptop. It is a balmy 40 degrees on the deck of our cabin (warmer today), and I am ankle deep in snow. I am armed and dangerous with a cup of coffee to my right and a bowl of peanuts to my left, the latter being for the extremely agressive and overfed squirrels that surround me at the moment. My first screenplay will undoubtedly be of the horror genre and will involve these fuzzy little fanged rodents storming my home while I sleep, wearing little army fatigues and combat boots, in search of yet more unsalted snacks.

Real estate typically begins to wind down this week. There are escrows and listings to manage of course (always), but buyers, sellers and agents alike tend to take a little break before the January crazy days are upon us. The first week of January always marks renewed activity. Agents are lining up listings in a holding pattern, all of which will be ready to be unwrapped before we have broken our first New Year’s resolutions. Buyers are hanging out in anticipation of a full stocking of new inventory from which to choose.

Steve and I will be back to sharing stats and waxing philosophical on the industry soon. In the meantime, we are going to try to wind down a bit ourselves. We are looking forward to the next five days of Forced Family Fun. If history repeats, we should make it well into Sunday before the kids start fighting in earnest and the dog throws up. By then, I hope to have finished my Year in Review blog post. Now, that’s dedication!

Today is the much-anticipated Real Estate Yankee Blog Swap. Bloggers from all across the country agreed to switch places for a day. My formidable opponent is Noah Rosenblatt of New York Urban Digs fame. I am the first to admit I am no match for this big-city guy, and am honored to have him guest-host the San Diego Home Blog. You can read more about the Yankee Blog Swap here.  Of course, we all owe a big shout-out to Mary at RSS Pieces for organizing this circus!

TO SELL OR NOT TO SELL

A: When making the ultimate decision to sell or not, you MUST understand your own personal situation both financial and other before making a decision. Believe it or not, there are wrong reasons to list your apartment for sale, especially if you will owe a hefty tax bill because you don’t meet the primary residence tax benefits or 1031 exchange requirements.

I want to briefly go over the two most popular types of tax benefits that real estate investors can cash on when they report a gain, as failure to achieve either benefit could be reason NOT to sell your home:

1. PRIMARY RESIDENCE OWNERSHIP & USE TESTS (Out of 5 YR Period)

2. 1031 Exchange (’Starker’ Exchange)

Allows a tax payer to defer the paying of taxes on a gain when an investment property is SOLD & a new property of like or greater value is PURCHASED. In other words, if you first purchased a property for $400K, and then 1 year later sold it for $500K, you can then defer the payment of taxes on the $100K capitol gain in this transaction, as long as you purchase another property worth $500K or more.

Now, lets get right into selling for the right reasons.

REASONS TO SELL

Relocation - If you are being relocated for work, or plan on moving permanently, than making the decision to sell is no decision at all. Price your apartment aggressively based on the last comparable sale in your building or neighborhood, and list your property now. Don’t wait to see where you might be headed or to see if the housing market might turn around in the near future, because chances are it will take longer than you expect to get a bid that is acceptable to you.

Need To Upgrade - If you have outgrown your property and need more space, buying an upgrade is a very good reason to sell. If you dont qualify for the USE & OWNERSHIP tests that are required for the main primary residence tax benefits of your gain, you can use a 1031 exchange to buy a property of LIKE or GREATER VALUE than your sale and DEFER tax payments on the gain until the next sale. Buying an upgrade is a necessity, not a luxury, especially if your family is growing and space is tight in your current home!

QUICK TIP: It’s always better to SELL first before signing any contract on your new home. While I am a firm believer of knowing product knowledge and being comfortable with the available inventory that you might be buying into, I worry that your home may not sell as quickly as you think; especially if you test the market and price high. Keep in mind the possibility of paying 2 mortgages if you decide to buy first, and whether or not you can weather that kind of financial storm.

Financial Hardships - If you bought more than you can chew, or experience a pay cut or layoff, than you should seriously consider selling your home. The worst thing you can do is to pull money out of your home just so you can continue to get by! Wasting equity in your home is like wasting money on unnecessary luxury’s. It’s just not a smart financial decision.

If you find yourself increasing your bad debts (i.e. credit card debt or taking out a HELOC to afford your current lifestyle), than sit down and seriously consider cashing out your home and paying off these debts to regain your financial independence. Chances are you still have some great equity left in your home and cashing out a hefty gain to avoid bad debts will never be the wrong move. Suck it up and rent for the short term until your luck improves and your income gets back on track! If your not making it, then stop spending it!

Plans To Sell In Near Future - Assuming you qualify for tax benefits, if you were planning on selling your home within the next 12-24 months, you might be best listing your apartment for sale now, rather than later. The housing market is a market like any other and as such does have its ups and downs. Because of its illiquid nature, that is that doing a real estate transaction takes time (unlike a stock trade), once the housing market turns from its peak it may be years before a bottom is realized. Right now we are still searching for a bottom that could be many years away!

REASONS NOT TO SELL

No Tax Benefits - One reason why investing in real estate proves time and again to be a savvy long term investment is because of the tax benefits afforded to the buyer both in monthly tax deductions and exemptions in gains at resale. If you don’t meet the primary residence tax benefits requirement and you do not intend to buy a new property of like or greater value, than you MUST talk to your accountant to see if selling is the right choice.

I almost had a sales client that was thinking of downsizing and selling her 4BR home and buying a 2BR home to cashout and keep the difference. Only one problem. She only would get a 250K exemption from capital gains on what would have been a $1.7M profit or so since she bought the home 35 years ago. Thats $1.4M or so of taxable gains and her accountant advised her that a tax bill of $300,000-$350,000 would be due the following tax year. If she sells for $1.7M, then buys a $900K-$1M property, after taxes she would have very little left. The numbers just didnt make sense. So, do yourself a favor and crunch the numbers and ask your accountant what tax benefits you will get or not get by selling your home.

To Increase Quality of Life - If your only reason for selling is to be able to afford more vacations, or a wedding, or a car, or some other type of temporary luxury, than you are selling for the wrong reason. We Americans are a spoiled bunch. We like to spend when we should be saving. The equity in your home is no different. Too many people have used their homes as ATM’s over the past years and lowered the equity they now own in their home. Do yourself a favr and make the right decision. Don’t sell and hold onto your home equity for a real rainy day or bigger payoff down the road when the housing market turns around again!

You Found A Incredible New Home - I’ll keep this short and quick. If you are super rich and could afford it, fine, go for it. But assuming you work hard for your money and like most people, have to work even harder managing it, than keep EMOTION OUT OF YOUR HOUSING DECISIONS! I’m not saying don’t buy the home you fall in love with. I’m saying don’t sell your home now because you found an inredible new home, that is much bigger and much more expensive that you normally would buy. Too often I see buyers reaching way beyond their budgets to buy a home that is $100K, $200K or sometimes $300K more than their actual budget. In this day and age, even the worst credit history’s can get a huge loan. So, you must exercise discipline and learn to not fall in love with any new home, especially if you can’t afford it!Selling your current home to get the cash to buy the home of your dreams is a big no-no! Trust me, you don’t want to sacrifice quality of life to live in a incredible home that could very well be the spark to a financial fire!

Thanks, Noah, for taking my place today! Here are the other Blog Swap participants. Check them out!

Transparent Real Estate’s Pat Kitano vs. Zillow’s Drew Meyers

This from a reader:

I have an offer in on a house that I like but I am worried something better might come on the market. If the seller accepts my offer, can I keep looking and cancel if I find a better one?

I see two issues here. First, I will give you the contractual answer. If you are using the standard California Association of Realtors purchase contract, and assuming that the default time frames apply, you have 17 days during which to “commit” to the sale. By this, I mean you have a period of time during which you may ensure that you can get loan approval, obtain a satisfactory appraisal, review all disclosures and investigate the property condition. At the end of the 17 days, you will be expected to remove all contingencies in writing, after which time a cancellation could be considered a breach of contract. Prior to contingency removal, you as the buyer have cancellation rights without penalty. In other words, you can take your money and go home. So, I suppose there would be nothing to prevent you from continuing to home-shop and from even making offers on other homes during the contingency phase.

The bigger issue I see is the lack of commitment. Why would you possibly enter contract on a home with which you are less than thrilled? It is like planning your divorce on your wedding day - Something must be wrong. We have actually been asked this question more than once by buyers we have represented, and our answer is always technically, “yes” but, practically and ethically, speaking “no”. You should only, in my opinion, make an offer on a home and enter contract when you are 100% committed to the purchase. It is not fair to the seller (whose home you have taken off the market), the agents involved, or yourself.

Someone in the real estate blogosphere started a little game of Get to Know the Blog Host, the challenge being to share five things that people might not  know about you. The “All About MeMe” challenge…hmmm. Greg Swann bared his sole, yet was I the only one who found his revelations so in character as to not be revelations at all? I am fairly certain I will fall short of being seen as a paradox as well, but here goes.

1. I was a five-day champion on “Super Password”, as in, they kicked you off the show in those days after five days of non-defeat. A walking thesaurus, I am. Subsequently, I was able to count Bert Convey, Patty Duke Aston and Gopher-from-the-Love Boat among my new best friends. For inquiring minds, the former two were delightful; the latter was a jerk. I have always remained hopeful that Fred Grandy’s days in Congress brought him a much-needed sense of humility. And, by the way, being a California girl, I was also a four-day champ on “Card Sharks”, a big loser on the big loser “Hit Man”, and a moderate success on Concentration (seven days in Australia, a diamond necklace and an armoire that still resides in my bedroom among the booty from that venture).
2. I have a Master’s Degree in Civil Engineering but, given a choice (money), I would have pursued physical anthropology as a career (almost my minor). Jane Goodall was my early idol and my early inspiration for my liberal (agnostic) leanings.
3. I am a sports brat. My father was raised in Green Bay, Wisconsin. Before I was out of diapers, I was the family holiday entertainment. My father would hold up a page from the professional football program showing pictures of the various team helmets, and, as he pointed to each, I would dutifully call out “AFL” or “NFL”. “66?” “Ray Nitschke!”. The Real Estate Zebra will appreciate this - My father would yell out the penalty, and I would have to act out the corresponding signal and call out the penalty (”Clipping,15 yards, loss of down”). Black and Blue Division, Frantic Francis, the Purple People Eaters, the Ice Bowl - All stuff of my childhood. My best Christmas? Ambushing Bart Starr in his driveway (he was wielding a snow blower at the time) for an autograph. During my formative years (high school), my father was a drive-time radio sportscaster and the voice of the Houston Rockets. His pay was, as he said, all the tickets you can eat. I had been to two Superbowls by the time I was 16 years old - in the Press Box. I subsequently put myself through my first year of college running an illegal sports book out of my dorm room. Now, I can’t name more than three starters for the San Diego Chargers. Alas, the competing demands of old-age wore me down.
4. I flunked my driving test twice before finally passing on the third try (a pity license). As my last tester put it, I am easily “attracted and distracted”. Driving on the sidewalk (only for a minute!) didn’t help. I am still a menace to the road. I have never had an at-fault wreck, but many in my vicinity have no doubt driven into ditches (or bayous, as they call them in the south) avoiding me. I used to drive a Lexus, but now drive a VW Beetle rag top, and I consider it the best car I have ever owned!
5. I read the Brothers Karamazov and actually enjoyed Dostoevsky; I have dabbled in everything from Bronte (both sisters) to Lenin (not the Beatle) to Steinbeck to Ayn Rand, and I like to consider myself somewhat cerebral. Despite this, I stink at geography and can barely find Canada on a map. And I understand about one-quarter of everything Greg Swann writes.

Our cyber-chain letter has so far followed this path of destruction:

• Drew of Drew’s Marketing Minute
• Starbucker
• Trevor Gay of Simplicity
• Phil of Make it Great
• Kammie of Passion Meet’s Purpose
• Success from the Nest
• Dave of Rothacker Reviews
• Andrea Learned of Learned on Women
• Ann Handley of the Marketing Profs Daily Fix
• Nedra Weinreich, Spare Change
• Toby Bloomberg, the Diva Marketer
• Paul Chaney, Strategic Blogging
• Mark McKnight, RSS Pieces
• Jim Cronin, The Real Estate Tomato
• Greg Swann, The Bloodhound

Now, in the spirit, I’ll tag Daniel Rothamel, the one and only Real Estate Zebra (under the circumstances, a fitting passing of the baton), and of course, Steve Berg.