July 2007

I have decided to make Sundays a real estate-free zone here. Steve is out of town, so I can do pretty much whatever I want. (He would tell you that I do pretty much whatever I want regardless). On that note… 

We blog ourselves silly on issues that we think are important to our readers and on topics that amuse us. Sometimes, though, I wonder, are we are really connecting with our audience?

This morning, the answer is a resounding Yes! During this lazy Sunday morning filled with self-doubt, my spirits have been lifted. Read what our readers have to say and you will understand why my sense of worth has been buoyed, my ego inflated, and my optimism for the future of our blog restored:

•  Cool website! Keep up the great work. Many thanks. Thanks! dytiiod@gmx.de (You are so welcome!)
• Good job and great design! I love this site! feaewp@kadhbgz.net (Well, not to sound immodest, I started with a template but did sort of redesign it myself.)

There’s more! One devoted reader has left me many comments, each more complimentary than the next:

• Looks good! Good resources here. Good stuff. I will be back! uyiofik@gmx.de
• I found lots of intresting (sic) things here. It (sic) very impressive. I will bookmark! uyiofik@gmx.de (He did come back, and now I’m bookmarked!)

Also:

• Fine and pretty site! Very good owner! aafuge@mjrlbqs.com (”Very good owner!”? I’m blushing.)
• Fivos fedejina gukma. vepopel@yahoo.com (Fivos? Well, we do try.)

And this was just a trip through my spam folder. I am hopeful that I can assist “uyiofik”, who goes by the screen name “Viagra”, with his next real estate transaction. In the meantime, I am heading off to review my eBay buyer and seller feedback. I hear they are saying a lot of really nice things about me over there too. I rock!

For many industry professionals, this is old news (say, a week or two). For many consumers, it may be unwelcome news.

Loan underwriting guideline changes are coming soon to a neighborhood near you. First Capital had this to say:

Effective August 12, 2007, The Office of Federal Housing Enterprise Oversight (OFHEO), the agency which oversees Freddie Mac and Fannie Mae, has announced key underwriting changes that will have a substantial impact on the way borrowers are qualified for interest only and some adjustable rate mortgage loans. These changes will have a dramatic impact on purchasing power. Lenders nationwide will now be required to qualify borrowers applying for interest only loans at the fully amortized rate; those applying for an adjustable rate mortgage (with the potential for negative amortization) must now qualify at the fully indexed rate.

They gave the example of a 5-year fixed, full-doc, interest-only loan at 6.375% for a buyer with a 740 FICO score. Currently underwriting guildelines would result in purchase power for this buyer of approximately $700,000, while the new guidelines will result in buying power for this same buyer of $570,000.  Put that calculator down: That’s a reduction of 20%.

Oh, and another thing:

Additionally, borrowers applying for negatively amortized loans will need to qualify for an even higher loan amount (typically 120% of the original loan) since the potential for negative amortization exists. A borrower applying for a $100k loan, for example, will need to be qualified at $120k, using the fully indexed rate.

Now clearly, having been burned, Feds are trying to return some sanity to lending practices, to protect the lenders and to protect buyers (often, from themselves). But, do you think this might have an impact on the overall real estate market?

Yeah - Me too.

 (For the record, Rhonda Porter did a great job covering this a little over a week ago at Rain City Guide. Since I just received the First Capital report today, I thought it was worth revisiting here in case one of our three readers missed it).

My Dad didn’t originate the title phrase, but he selectively employed it when things got tough in my life. Today, the second shoe dropped - the Commerce Department announcement of new home sales was a worse than expected -6.6%. Yesterday, the National Association of Realtors dropped the first shoe in announcing a 3.3% drop in existing home sales (vs. last month) and an 11.4% drop versus last year. Together with credit issues potentially becoming worse than expected, the stock market took an ugly dive. An overreaction? Probably. A delayed reaction? Most likely. Regardless, we’re in for a bit of a rough ride for a while until this all sorts itself out.

With the combination of events in the credit markets and the mostly negative national sales statistics, one may overlook another important statistic, though. The Commerce Department also reported that sale prices of existing homes actually rose fractionally last month. While this may be an aberration, it suggests what we have seen for a while now - a very tenacious inelasticity in home prices.

But national statistics are a very macro view. A buyer or seller in the market today can be poorly served by these numbers. To be effective, one must understand their local micro-market. For example, in our core market of Scripps Ranch many homes doubled in value from 2000 to 2005. This morning I checked some statistics for Scripps Ranch (per SANDICOR) and found that the average sale price (per foot) is down about 6%. from last year. Not bad after the 100% increase in five years.  But if you were to look at some of the individual transactions (the nano-market?) you can find homes that have actually appreciated in value over the past year, while some homes have lost 10-15% in value during that same period. Huh?? Remember, most statistics are just averages, subject to fluctuations depending upon specific characteristics such as the age of home, condition, upgrades, lot size, location, views, etc. This is where an agent can be most helpful, if the buyer or seller is willing to listen. 

What is so difficult for buyers and sellers today is the ability to be objective. Most sellers think their home is special while many buyers believe they need to purchase for thousands below current market value because they fear we haven’t hit bottom yet.  To a degree, they both are right…and wrong. But neither are being objective and that is the key.

For the buyer- When considering a price to offer for a home you must, of course, look to current comparable sales first. It can also be helpful to drive by those homes and try to determine the differences, pluses and minuses, regarding the lot location, size and view. Have your agent provide you with pictures of the inside of the home from the MLS to determine the condition and upgrades. Hopefully, your agent has already seen the comp’s and can give you a description of the differences. It may also be helpful to know how the current pricing stacks up against the historical averages of similar homes sold over the past year or two. We see buyers failing when they ignore the fact that the current list price may actually be in line with the current trend, but still want another3-5% or more off the list price. With an average sales price of $814,000 in Scripps Ranch so far this year, 3-5% isn’t chicken feed. Of course, if the home is overpriced, as many still are, you will know that too from this exercise. The challenge is to aquire the knowledge that allows you to be more objective in your decision-making. Your agent, if he/she knows what they are doing, is indispensible in this regard.    

Sellers also have to resist the use of convenient statistics to justify a price which is too high, when there is a mountain of data that suggests otherwise. Although fewer in number these days, amazingly, we still see homes coming on the market with list prices that have most of the veteran agents scratching their collective heads wondering what the agent or the owner is thinking. 

Regardless, transactions are getting done. People still want and/or need to buy and sell. You can make it hard or easy. Take your choice. Either way, it’s a much tougher market. But this too, shall pass.       

I received a voicemail message from a friend in Scripps Ranch last week. Great news! In the course of securing a second loan on his home, he had the requisite appraisal done, and the appraiser said his home was worth $1.1 million! He shared this because he thought it would be great news for me and my client as well, as we have a similar home listed around the corner.

So what does this recent appraisal mean to me and my client or, for that matter, to the lucky appraisal recipient? Unless the appraiser was holding a prequalification letter, an earnest money check and an offer to purchase at the time, not a darn thing.

What is my friend’s home really worth? It is worth what a buyer is willing to pay. Period.

The old adage - Ask six Realtors, get six answers - applies to not only agent opinions of value, but to the opinions of appraisers and, yes, buyers. In the mid-1990’s, as case in point, Steve and I simultaneously had two separate appraisals completed on our home. One was for the purposes of a refinance (we wanted a high estimate, of course) and the other was for an appeal to lower our property taxes (we were hoping this appraisal would come in at, say, $1.95). When the results were in, the two “opinions of value” differed by approximately 10%, and guess which one was lower.

I am not suggesting that appraisers are not entirely objective, but, then again, maybe I am. They have their marching orders, they walk into the property with a target, and they try to hit it. Isn’t it curious that almost every appraisal for sale we see is within dollars of the purchase price? It would be nice to think that my pricing skills are so exceptional that I nail it every time, but the truth is that lenders get nervous when there is a large spread, even to the good, between purchase price and appraisal value. The appraisers know this, and they deliver.

So, back to your home’s value being that which a buyer is willing to pay. We always advise our clients that this true value is in reality a range of value as well. While one potential buyer may find that your extensive use of sage green Italian marble does not perfectly fit his personal needs and wants, another buyer is going to swoon over the your Zen garden complete with a vast array of decorative gnomes. One will place greater personal value in your home than the next.

Your home is worth what a qualified buyer is willing to pay, so it is essential that you expose your home to the widest possible audience in order to maximize your sale price. And, as we have said many times before, in a slower market, this requires not only proper pricing but more than a little patience.

We have been busy. Marketing busy, negotiating busy, but mostly a whole lotta spin-our-wheels busy. Thus is the glamour of real estate. And, speaking of glamour, it just occurred to me that two of our last five posts here have dealt with the fascinating, edge of your seat, “tell me more” subject of dry rot. Where’s the fun in that?

I have been suffering from a stress fracture in my funny bone, and it took this to snap me out of it:

This is how we TP homes in Scripps Ranch; in this case, my home. If you look closely, you will notice that in addition to the requisite toilet paper, the lawn is littered with napkins, and plastic spoons are rising from what was previously a lovely, manicured lawn suggesting that the dead are ready for soup. There are dozens of them! And, if that wasn’t enough, my daughter remarked (seriously and in an accusatory fashion) that the toilet paper used by our most recent little felons is so much cushier than our own. I guess I just suck as a mother.

Boy, did I need this levity. Those of you who, like me, have a birth year that causes the cashier at the liquor store to shake his head in utter amazement will remember the old Steve Martin bit. “Steve, how are you sooo funny?”  His response - “I put baloney in my shoes, and then I feel funny!” This “week” (and since Realtors define “week” as the length of time since their last day off, I mean “the month of July”), I am in serious need of some lunch meat insoles. The sad fact is, dry rot has been the most upbeat and whimsical thing I have had to deal with lately.

Let me put it another way; we haven’t been having a lot of fun lately. We tend to be mirrors of those around us and, this “week”, I have been keeping company with more than my share of seemingly unhappy people.

It’s a tough time to be a real estate agent, and I’m not speaking in terms of monetary reward. Emotionally, for the agent and their clients, the home buying and selling process has become more complex and trying. The issue is really two-fold. The shift in our market has resulted in many people who don’t want to move but must and who want to move but can’t. Longer market times, fewer buyers, market values which fail to live up to expectations are all to blame.

Secondly, and not inconsequential, are the industry dynamics. There is a prevailing distrust among consumers of both agents and of other principals in the transaction which I have never before seen. The Internet has given consumers the perception that it is easy, the perception that they can navigate their own transactional waters without a guide, and just enough information to make them dangerous. Buyers want blood from the sellers, sellers want blood from the buyers, and both want to see some serious pain and suffering on the part of the agent.

A bad day at the office? Kick the dog. Didn’t do your homework? Blame the dog. And, this week, that dog would be me. Lest you are readying yourself to bring “whiney charges” against me (again), allow me to make a clarification or two. My issue du jour is not that I object to hard work, nor is it that I can’t play the punching bag roll with dignity and panache. Rather, it is the human condition that saddens me this week. I am being reminded that somewhere along the way so many of us have become too jaded, too lacking of empathy, compassion and respect for others. It has become too easy to shun responsibility and place blame, too easy to treat others carelessly and insensitively, and too tempting to mistake bullying for superiority.

As clarification, last “week” was fun not because it was easier or because (preemptive strike here) I made more money (I didn’t), but because it was more rewarding. My reward has never come from the paycheck, although that is admittedly a nice residual benefit, but from the satisfaction derived from doing a job well, from delighting clients with my efforts, and from being respected and appreciated as a result.

Recently, a colleague was commiserating about a tenuous escrow we are involved in and pointed out, in an attempt to comfort, that we have two others scheduled to close that same day, so all would not be lost. Funny! I never think about things that way. I never see transactions as dollar signs but rather as profession tasks, missions to be accomplished, and the best agents out there will entirely agree with me. A troubled escrow does not trouble me in that I might lose a paycheck, but it does trouble me in that my client’s interests will not be served; it represents a failure on my part to deliver the service and results for which I was hired. Do your job well, work like you don’t have to, and the money will follow. If, as a consumer, you perceive that your agent sees you as a dollar sign rather than a person, fire him summarily. Too many of us out there truly find our reward in your satisfaction. We, like you, like to be liked, like to be respected and appreciated. That’s what I call fun.

Next “week” will be fun again. In the meantime, if you are responsible for planting the place settings in my front yard, please identify yourself. I would like to send you a Thank You note.

Another Pest Inspection issue from our Ask the Brokers email bag this morning. It must be our week for wood rot in San Diego. 

I bought a townhouse with attached garage in (San Diego) about 5 months ago.  When I asked about the no guarantee verbiage on the Inside Termite Inspection certificate I was told that the exterior was covered by the Homeowners Association.  Today I have an estimate for $400 for single treatment of two of my eaves and beams surrounding the patio and the management company and CCRs seem to concur that homeowner management company, due to our small $125 dues, does not cover any exterior maintenance. What can I do to the seller or just pay for and what about my regular homeowner’s policy.

Like every good “who should I sue” question, I will begin by reminding everyone that I am not an attorney. I will give my best opinion, but ultimately it is just that - my opinion.

My first question here is, who told you that the Homeowner’s Association covered the exterior maintenance in the first place? If it was the pest inspection company, then you don’t have much recourse as they are not a party to the transaction. If it was anyone else, then the issue of misinformation becomes a little stickier.

If your agent or the seller’s agent (acting on the seller’s behalf) gave you this information, then you may have grounds for a claim against them - Or, you may not. (Remember the part where I told you I’m not an attorney?) 

Whether you were told this or not and by whom is probably of lesser import than the fact that you admit the CC&R’s and HOA documents are clear on this point. You will recall that review and approval of these documents was a part of your all-important contingency rights. By receiving the CC&R’s and Homeowner’s regulations during escrow and by subsequently removing your contingencies and closing the sale, a case could be made that you were effectively on notice and accepting of the limited HOA responsibilities.

Back to the attorney part - Only your lawyer, not I, could properly advise you on the extent to which others may be liable for misrepresentations when, in fact, you had official information to the contrary in your possession. Further, only your lawyer could suggest whether a failure on your part to read or understand these important disclosures provided to you by the seller during the contingency period would constitute a valid defense.

On a more general note, it sounds like the product you are referring to is what we call a “detached condominium”. Traditionally, we think of condominiums as attached units when, in fact, it is not the presence or absence of common walls which defines this property type but the nature of the ownership. In a condominium, the owner enjoys 100% ownership of the inside space (unit) but has a fractional, undivided interest in the land including common areas.

Most of the time (not all), condominium homeowner’s associations assume responsibility for exterior maintenance, including pest control and clearance. When the condominium is detached, it is more common to find that the homeowner assumes the exterior maintenance responsibilities. As a buyer, it is essential that you are absolutely clear on which applies in your particular case. Sadly, I have seen this detail misunderstood or overlooked too often.