March 2007

You do, or at least you should. Whether you find yourself on the buying or selling end, the issues facing the mortgage lending market will certainly have an effect. Just how much of an effect stricter lending policies will have on the real estate market remains to be seen.

Inman News reported yesterday on a report issued by Banc of America Securities (BAS) on the potential short-term repercussions of tighter lending standards.

Problems in mortgage lending go “well beyond subprime“, and the tightening of loan underwriting standards now underway is likely to push demand for homes down 15 percent and depress prices by 5 percent this year”.

Blah, blah, blah, you say. But the BAS report goes on to caution that the problem will be most acute in Nevada, Florida and California. Hold on a minute! We’re in California! Now it’s getting personal.

The Golden State, we know, is a high-cost housing market, and we have enjoyed a tremendous appreciation in home prices over the past decade. This is all just ducky if you are a seller, except your buyer pool is diminishing. Your buyers have been priced out of home ownership in increasing numbers, and BAS points out that more buyers in our state are dependent on little or no-down financing options. These no-ante plays are becoming more difficult to sell to the underwriters.

Just yesterday, a San Diego loan officer from First Capital Mortgage cautioned us that the days of 100%, no-doc (stated income) lending for buyers with lower credit ratings (FICO scores below the mid-600’s) are swiftly coming to a close. For the time being, at least, 100% financing options are still available for consumers with better credit, but …

The report may even be underestimating the impacts of the tightening of credit under way, because it assumed lenders would still be willing to fund mortages with 98 percent or higher loan-to-value ratio for borrowers with credit. If all lenders stopped making zero- or near-zero-down loans altogether that could cut demand for housing by 22 percent.

That’s the science; now, here is the art-interpretation. Steve and I are representing sellers on several lower price-point properties right now. One, a small condominium listed in the low $300,000’s (this is San Diego, after all) has had three offers to date, all of them involving 100% financing plus seller-paid closing costs. This is the market for our particular condominium, and with an elimination of no-down financing by lenders would come an elimination of potential buyers for this home. It could represent one of the best real estate opportunities since the Louisiana Purchase, but no buyers means no sale. No sale means the move-up buyer (our client) won’t be moving up, and so on and so on. It is the trickle-up theory of real estate.

Much like condo-conversions in our market had a significant impact, so may the shifting tides of mortgage lending. The sky is not falling, but sellers would be wise to understand the dynamics currently at play. Just yesterday, we were generally complacent in the knowledge that anyone could get a loan for anything. The sloppy”pre-qualification” letter which has historically accompanied the offers we see (the product of a phone conversation in which the lender asks what you make, what you owe, and then responds “sounds good to me”) no longer gives sufficient comfort that the buyer can perform. Today’s buyer-qualification vetting process needs to be more thorough. And, if you are a would-be buyer with less than stellar credit or little cash, you may be feeling squeezed.

You should care.

There are simply times you don’t want to be recognized. So it was yesterday, as I found myself at the mercy of the stylist charged with restoring the “natural” highlights to my lovely locks. The “natural” part is in quotes, because it is really anyone’s guess at my age what my true, God-given hair color is. In a mere 30-minutes, Mina saw that I was transformed from a somewhat uncoiffed but fairly presentable figure into Buckwheat after an unfortunate encounter with a roll of Reynolds Wrap.

They are taught that in cosmetology school. Take an average-looking subject and make them appear as hideous as possible. Who could possibly be unhappy with your handiwork if moments before they were a human reenactment of the periodic table? (Starring Kris Berg in the role of Al, aluminum). Break them down to build them up. And, honestly, I am not entirely convinced that the foil wrapping is necessary. Mina could just have easily smeared meatloaf on my head in the name of beauty, and I would have eagerly gone along.

None of this is the point, of course. The point is that at the moment I am looking like Medusa on a really bad hair day, yet I know a reunion of massive proportions is about to ensue. It is inevitable that, at these times, everyone I have ever known (friends, parents of children’s friends, clients, college crushes) will parade past… and recognize me! I am today’s featured guest on This is Your Life, yet all I want right now is anonymity.

So, as I was waiting for the kitchen timer on my head to go off, I naturally drifted to another thing that really bugs me. Why do so many agents in the MLS list the seller’s name as “KTB” (Known to Broker)? When I am calling to make an appointment to show a home, I consider it a social nicety to actually refer to the person on the other end of the phone by name. “Good morning, Mr. On File” just doesn’t pack the same punch. Someday, it may just be that the seller’s name is “Ima Seller”, but I am programmed to resort to mystery mode when any label looks the least bit fishy. “Uh, hello, Mr. Withheld, uh, sir, this is Kris. I would like to show your home the home the property at 123 Main Street at 2:00. Oh, could you tell your dad I called”?

“Neener, neener, I got a listing, and I’m not telling who”. Why do so many agents feel compelled to guard the identity of their clients? Forgetting for a moment that the owner’s name is a matter of public record and that my teenaged daughter can in three minutes find their name, mortgage debt and shoe size on the Internet, what is the point of making me sound impersonal on the phone? That, I fear, is precisely the point. Perhaps, just perhaps, it is an agent’s insecurity at play. Let me assure you, I am not going to steal your client, and if I am nice to them, they are not going to cancel your listing contract. Well, maybe they eventually are, but not for that reason.

So, to Mr. and Mrs. KTB, I know you want to sell your home, and I want to show it to my clients. If I call to make an appointment and am not showing the decency to address you by name, it is because I wasn’t properly introduced by your agent. If you would like to discuss my social faux pas further, we can chat at the salon. You will recognize me, of that I am certain.

Who says this isn’t one scary business?

At a recent Broker Open House, I was greeted with this warning:

 Manufactured from glass shards? Dangerously plush pile? Too much fiber for my diet?

And then, this sent to me from an alert reader:

This ad just screams “Fire your agent”. Or, maybe it was the carpeting…

The transaction fee - It is seldom talked about yet frequently used. I find the practice (at the risk of ruffling more than a few feathers) despicable.

Frankly Realty Blog did a good job of addressing the subject awhile back. A transaction fee is a fee charged by the real estate agent to “cover” the handling of your transactional documents and coordination of the process once your purchase or sale is under contract. I call it a junk fee. For those of you, like myself, who have made an online purchase for, say, $10 only to learn later that shipping and handling costs have nearly doubled the bill, you can understand my objection to this fee. It is a profit center, pure and simple, intended only to increase the provider’s bottom line at your expense.

For the unenlightened, most agents use the help of an assistant (we call them Transaction Coordinators, or TC’s) during the course of a property transfer. TC’s are valuable in performing the more routine or even mundane tasks involved including ordering reports, uploading documents, and ensuring the flow of paperwork and the timely receipt of signatures to name a few. Whether the TC is on your agent’s own payroll or works on behalf of all agents in the office, there is a cost involved for these services of anywhere from $300 to $500 per transaction.

What happens so often is that the agent passes this cost through to the principal in the transaction. Sadly, the fee is often inserted as a throw-away afterthought by the agent, and the client either doesn’t realize it is there or doesn’t question it, assuming the fee to be customary and non-negotiable.

We have never charged our clients a transaction fee nor will we ever. Thankfully, our company has adopted a policy that prohibits the practice, but we are the only ones that I am aware of who have taken this position. My position is this: We are compensated for our services through payment of a commission at closing. What is the client paying for if it isn’t for our services, all of them?

In nearly every contract I see, the cooperating agent has slipped a TC fee slipped in under the “allocation of costs” section. I assume the theory is that this nickel and diming will be lost among the lengthy laundry list of title, escrow, recording and other fees being charged to the principles (that approximate 1% closing cost component). And from the agent’s perspective, recovering $300 over the course of, say, 20 transactions equals a lot of enchiladas. Too bad. It is a cost of doing business, a business for which we are compensated handsomely.

Just this week I received an offer on one of our listings from an agent who had included a $495 TC fee to be charged to the buyer. This buyer was attempting to purchase their first home. In order to do so, they would be needing 100% financing and a significant credit from the seller for closing costs and loan buy-down. Do you think $495 was nickels and dimes to them, truly inconsequential? Being a first-time buyer, did they even know that they were being taken advantage of by an agent who would ultimately be taking a 3% paycheck? 

Despicable.

Continuing our series, today we feature two adjacent condominium projects within Scripps Ranch Villages. Ivy Hill and Ivy Crest (The Ivy’s) were built in the 1999-2000 timeframe by Western Pacific Housing. Very similar in size and appearance, the Ivy’s provide an excellent opportunity for first-time homebuyers or even move-up buyers. Boasting an excellent location just north of Scripps Poway Parkway, these neighborhoods afford to their owners excellent access to the Scripps Ranch Marketplace, a Vons-anchored community retail center right across the street, as well as easy access to both I-15 and Poway via Scripps Poway Parkway.

Designed in the popular Mediterranean style architecture, both Ivy Hill and Ivy Crest offer four floor plans ranging from approximately 910 square feet to 1,387 square feet. These include two single-level, second story two-bedroom models, one two- and one three-bedroom townhome model. The plans in each complex are generally similar, with the homes in the newer Ivy Crest project being slightly larger. All units offer two-car garages which are, in most cases, attached. The exception is that some of the Plan 1 and Plan 2 units in each complex offer a two-car detached garage. All units offer a balcony or a patio/yard area. Many homes enjoy fabulous views.

Both communities feature amenities including pool, spa, barbeque, and tot lot. Homeowner’s Association (HOA) fees are generally in the $150 to $160 per month range, and both of these projects have a Mello Roos fee. Sale prices for 2006 ranged from a low of $318,000 to a high of $557,000. Children living in the Ivy’s attend distinguished Scripps Ranch schools, which are a part of the San Diego Unified School District. At this time, Ivy Hill and Ivy Crest are within the attendance boundaries of  Dingeman Elementary School, the brand new Marshall Middle School and Scripps Ranch High School. As always, those interested in school assignments should contact the school district directly, as boundaries are subject to change (and they do).

January, 2007

 Closed Escrows = 19 (vs. 21 for Jan., 2006)  - Sale price per sq. ft. = $309/ft (vs. $328/ft for Jan., 2006)                         

February, 2007

Closed Escrows = 19 (vs. 16 for Feb., 2006) - Sale price per sq. ft. = $338/ft (vs. $336/ft. for Feb., 2006) 

For the moment, 2007  sales and sale prices appear to be stabilizing at levels similar to early 2006. All stat’s per SANDICOR.