May 2008

While Steve holds down the business fort in San Diego, my daughter and I are on the final day of our death march in New Orleans. We call it the death march, because if we had simply spent the week walking in a straight line, we would be back in San Diego by now.

I have been accused of writing a real estate blog here (on occasion, anyway), but today I am thinking about real estate in a different way. Having spent  four days in this great city, my first trip, I am beginning to see the plight of New Orleans like that of a grieving widow. The initial tragedy brings much attention, with the attendant throng of supportive visitors bearing food, prayers and well-wishes. As time passes, though, the crowds return home to their own lives and routines, and the widow is left alone to pick up the pieces, with her personal pain all but forgotten by those who attended the initial memorial services.

The tourist destinations are intact; if one had missed the Katrina memo, nothing would seem out of place with the exception (I am told) that Bourbon Street was a lot more crowded two years ago. I have no basis for comparison. What is not okay are the neighborhoods, the places where the people running the hotels and the tour buses and the frozen Daiquiri machines lived, where the musicians playing the jazz clubs returned home each early morning. It has been nearly two years, and with so much to accomplish, normalcy is a very distant point on the horizon.

How long have the residents been displaced? This long:

This is the sign on a gas station which, over two years later, remains closed in St. Bernard Parish. Or in the 9th Ward. I’m really not sure, because the devastation looks about the same from one neighborhood to the next. Their former hospital is now a MASH unit. The sewer systems are still being pumped manually, and the buildings which formerly housed the services, like the homes, remain abandoned testaments to the devastation. The water marks are still visible on the homes, some just one or two feet above the ground, others above the doors on the first and even the second stories. How high the water rose, and sat, we learned really doesn’t matter. The water sat at these levels for three to five weeks, and a mere six-inch prolonged salt water bath in this climate is enough to render an entire structure uninhabitable. It puts our San Diego mold inspections in perspective.

Here is a home near one of the levee breaches, and you can see the refrigerator still on the roof. By the way, the owners didn’t put it there.

In a “Let them eat cake” moment, one man on our tour asked the driver, whose home is tagged for demolition tomorrow, “Why would you want to come back?” Because it is home. Floods wreak havoc on bricks and mortar, but it takes much more than standing brackish water to break the human spirit.

We learned about the oil spills. This same tour guide opened her safe deposit box to find it full of the black gold and everything inside unsalvageable. Today I am embarrassed that I didn’t grasp the full depth of the loss. You really can’t unless you live it.

As my daughter and I sat reflecting on what we had seen last night, on all of the people we had met who remained without homes but were still finding a way to carry on, the magnitude began to sink in. “I bet this put the real estate community out of business,” she said. And a lot of other people, sadly. Many of the hotels have skeleton crews — a combination of fewer tourists and fewer residents to man the front desks. Too many victims of the “x’s” on the front stoops.

The top of the “x” is the date of reentry, and reentry of the homes we saw generally occurred a month or more after Katrina. Katrina hit New Orleans on August 26, 2005, and the date on this home reads September 30th. The left side of the “x” refers to the National Guard group responsible for this particular neighborhood, with the number on the right referring to how many people were found when they finally came through.

Housing bubbles, a mortgage crisis, contingency periods, and even gas prices start to seem trivial after a week in the Big Easy. They aren’t of course, but all things are relative. Eighty-percent of this city was under water, and it was the eighty-percent where the people lived. The one theme repeated this week was the sincere gratitude expressed by the residents and business owners in New Orleans for our simply being here. They reminded us that the return of tourism is critical to the recovery effort.

Drew Carey may have sent us here on our first trip, but we will be back. We found a wonderful, vibrant city with a deep and rich culture. And, I really do like gumbo!

A rerun from November, 2006…

“Junk fees” we often hear them called. Those are all those fees that the buyers and sellers pay during the transfer of real property. Buyers and sellers alike groan over the need to pay the final tab, and the complaint I hear most often relates to the charge for Title Insurance.

In San Diego and in most cities, it is the seller that pays for the preliminary title report (PR), with the buyer responsible for obtaining additional coverage for their lender. A preliminary title report is a document that is intended to identify situations which may “cloud” title to a buyer’s new home. These situations might include outstanding taxes or assessments, easements, liens, and encumbrances. The PR will also identify anyone with special rights to the property (such as Crazy Uncle Bob who loaned the seller $14.72  twelve years ago and consequently appears on the loan and the recorded deed). The preliminary title report then becomes the final title report at closing, where the foregoing conditions become exceptions to title and therefore exclusions from the buyer’s title insurance coverage. 

In any real estate transaction, the buyer’s acceptance of the title report is a contingency of sale. Therefore, it is incumbent on the buyer, with the help of their agent, to review, understand and accept the report’s findings within their contractual due diligence time frames.

Seems pretty simple, yet it is astounding how few people actually take the time to read and understand this document. I do not blame the buyers for this; they are typically ear-deep in confusing fine print paperwork when the PR lands in their lap. Conversely, I blame their agent for not reviewing the PR carefully for any issues of potential concern. We are supposed to understand the reports when our clients may not. That it precisely why it has been our policy (Steve’s and mine) to initial every page of our copy of the PR before filing it away; it gives evidence that we have touched every page, and therefore forces us to read and understand it. Call it accountability.

Now for our latest real-life example of how the information contained in the PR can be of consequence and material to the transaction. This is Steve’s example, actually. He was representing a client in a home purchase here in San Diego. To the client, one of the big appeals of this particular home was an unusually large side yard. (We are talking “large” in San Diego terms, so don’t get too excited). A week into the transaction and during the contingency phase, the buyer, who currently lives in another state, flew in for the property inspection. Steve dutifully scurried to make sure that all disclosures were available with the intent of dispensing with all of the disclosure “formalities” during the buyer’s brief visit. While reviewing the PR prior to meeting with the buyer at the property inspection, Steve noticed an innocent little dotted line running along the side yard on the plat map: An easement. Now, easements by their very nature are not evil. It simply signifies that someone other than the underlying property owner has use rights to a portion of the land. We see them all of the time, and they can be blanket easements (non-specific, for instance those dealing with utilities) or specific, as was the case here. This one happened to be a sewer easement. Again, not a big deal, except…

The buyer wanted a pool some day, maybe. They admitted they might never build the pool, but then again they might. One of the conditions of your typical public easement, however, is that no permanent improvements be located within the easement boundaries. If the city needs to get in and replace a pipe some day, they obviously don’t want a guest house in the way. The bottom line is that Steve immediately summoned the buyer and pointed out the issue, knowing that the transaction was toast. It was his fiduciary obligation. The bad news was that the buyer was into the process for one very expensive plane ticket and a lot of time and energy. The good news was that he didn’t end up owning a home that didn’t offer a feature important to him - room for a pool.  Six hundred dollars or six hundred thousand dollars? I think it turned out to be a small price to pay, and that is precisely what a buyer contingency period is for.

In reliving the events leading up to the revelation, Steve and I had lengthy discussions about how or if this could have been avoided. Ironically, the buyer was grateful, saying he didn’t pay any attention to the PR himself and would have never known about the easement issue had it not been pointed out. Should the listing agent have known? Certainly the seller should have disclosed this up front. But absent a seller disclosure, the agent would have to smell something fishy, and it simply wasn’t that obvious (not all large yards involve something sinister). Should Steve have known? For the same reason, probably not. I think all we can learn from this is that the system worked, and one man’s “junk fee” is another man’s treasure.

Photo credit: Kris Berg (aka Mother of the Year) from her cell phone.

This is the week Drew Carey is sending my daughter and me to the Big Easy. As we were chilling in the San Diego Airport Terminal 1 yesterday, I was reminded that Terminal 1 is not nearly as new or nice as Terminal 2. It is, however, the only terminal which serves breakfast burritos. And after enjoying one of these, I can tell you that the burrito distinction is in fact another vote in favor of Terminal 2. I was also reminded of a another thing. You get what you pay for.

The “Free” Public WiFi is indeed properly priced. Three airports later, I had yet to cash in on the bargain that is cost-free Internet connectivity. Other happy travelers were by all appearances doing important on-line things, while I was left frantically and repeatedly pushing the refresh key to be greeted by a not so happy 404 Error message. Even my broadband wireless has mostly failed me so far.

While I have every intention of posting from afar (I always do), the reality is that I will probably be mostly absent this week and by Friday in need of emergency Gumbo detox. In the meantime, we will be enjoying a few reruns here. My hope is that two year’s worth of posts have left me with at least a couple of timeless articles worthy of revisiting. Or not.

For now, I am enjoying the deep south. My keyboard is literally sweating at 7:00 am, and I look like I am wearing a Brillo Pad on my head.  Maybe there is something to that dry heat after all.

I will leave you with this view from our hotel room. Eat your heart out, and thanks, Drew Carey!

 

photo credit: maveric2003 

This issue rears it’s ugly head on occasion, and I saw it happen yet again. The Multiple Listing Service property input included moveable appliances in the “equipment” category, the subsequent (accepted) offer did not include the washer, dryer or refrigerator as personal property to convey, and at close of escrow the buyer was surprised to find big, gaping voids where these items once resided.

It’s you old “theirs versus ours” dilemma. We have a brief rundown of items which are considered fixtures versus personal property here, but it is worth repeating. When it comes to the stuff in the house, fixtures convey unless they are explicitly excluded in the contract. Personal property, on the other hand, goes away with the seller’s U-Haul unless specifically included. In between, there is a vast gray area.

The popular test for fixture versus personal property is the method of attachment, and even here you can get yourself into some trouble. If the bookshelves are attached with eighty-seven anchor bolts, the buyer will soon be assuming the dusting duties. On the other hand, if the eighty-seven photos in the hallway recounting the building of Fenway Park are affixed with penny nails and coat hangers, the buyer can (thankfully) kiss these good-bye. A simple toggle bolt can send everyone straight to mediation, so it is better to write the pot rack in or out just to be sure.

This is the language in the current version of the California Association of Realtors Residential Purchase Agreement (updated hourly):

NOTE TO BUYER AND SELLER: Items listed as included or excluded in the MLS, flyers or marketing materials are not included in the purchase price or excluded from the sale unless specified (below).

ITEMS INCLUDED IN SALE:
(1) All EXISTING fixtures and fittings that are attached to the Property;
(2) Existing electrical, mechanical, lighting, plumbing and heating fixtures, ceiling fans, fireplace inserts, gas logs and grates, solar systems, built-in appliances, window and door screens, awnings, shutters, window coverings, attached floor coverings, television antennas, satellite dishes, private integrated telephone systems, air coolers/conditions, pool/spa equipment, garage door openers/remote controls, mailbox, in-ground landscaping, tress shrubs, water softeners, water purifiers, security systems/alarms.

Of course, every item in this list is here because someone at some point tried to pack it up on their way out of Dodge. As goofy as some of these items may seem, Steve and I actually watched with amusement as a neighbor, during his escrow (not our listing), started removing palm trees from his front yard under the cover of darkness. We had to assume that they had some sentimental value. And, don’t gloss over the word “existing.” We even had one situation where our buyer came to the final walk-through and found that light fixtures, switch plates and even the microwave oven had been replaced by not-so-like likenesses.

Now, back to the fridge. No one can argue that a refrigerator is a fixture. In other parts of the country, it is quite customary to ditch the appliances when selling a home. In San Diego, however, it is more common to take them with you. The MLS is an offer of compensation to the broker who brings the buyer; it is not a contract between principals. The MLS remarks may indicate that the home comes with the washer and dryer, the Toro lawnmower on the side yard, and a pony, but unless the buyer writes these things into the contract, it is being taken strictly on faith.

When it is time to list your home for sale, do you list with the agent who personally knows every expansion joint in your neighborhood sidewalks? They are the neighborhood expert, after all. Or, do you list with the agent you personally know, but one who needs a compass and a thirty-minute head start to find your home?

We have been on both sides of this decision lately, and I will tell you that the answer is unequivocally this: The best agent to list your home is the best agent.

The Out of Area Agent

Your first cousin’s friend from the office knows a guy in the church group. He comes highly recommended. Through either a sense of kinship or obligation, you give him the business. What’s the big deal? If he is the best agent in town, you have made the right decision. But, what if he isn’t the swiftest ship in the fleet?

Yesterday, an agent from our team was holding a home open for us in our neighborhood. During the traditional 4:00 sign removal ritual, he ran into an out of area “friend” who was holding her own open house one block away. “Do you know this neighborhood?” she asked? It seems that during the previous three hours, she had been bombarded with questions about mysterious listings on streets with mysterious names, with inquiries about schools she knew nothing about and local fees, a topic on which she was a little fuzzy. Meanwhile, a brochure box at yet another home was trumpeting the name of the subdivision, only it wasn’t quite the right name nor was it spelled properly.

In these cases, the sellers have made a sacrifice in the name of friendship. True, the buyers do not care if the listing agent flew in from Detroit this morning; they simply want information. But, if your agent is ill-prepared to discuss in depth and at length the topic du jour, your home, then your checkbook toting opportunity for a sale may be moving on.

The Neighborhood Specialist

Your personal trainer’s brother is licensed, and he even sold a home last year. He happens to live in the neighborhood, so you give him the business. Or maybe you hire that woman whose sign you have seen so many times. Each of these agents knows your community. Going with one of them is a no-brainer, no? Unless their level of care and expertise is superior, and unless their marketing plan and willingness to commit resources to your success are superior, then no.

Many, many elements are involved in selling a home, and the first of these involves exposing the home in the broadest and most compelling way to the potential buyer. Marketing is no longer local. It is global, and the fact that we share a trash day is not enough. Have you considered your agent’s marketing strategy, the quality of their ads, and the quality and extent of their web presence? Have you considered their knowledge of market trends and dynamics or their grasp of buyer attitudes and expectations? A good agent can become an expert on neighborhood sales and schools and fees and other particulars in one solid morning of diligent research. A great agent will have spent years developing skills and systems and marketing plans to help you succeed. These things are both essential and transferable.

So, which is it? Should you select the Neighborhood Specialist or the more familiar agent from across town? It’s simple, really. The best agent for the job is always the best agent.

I was looking at a summary of median housing price trends for San Diego that came through my inbox yesterday and was again reminded how stupid statistics can be. Actually, they can be downright dangerous if you don’t know what you are really looking at.

Of course, I honed in on the I-15 corridor communities, our core area, and specifically on Scripps Ranch, where we make our home. Based on annual median prices alone, one would conclude that everything is coming up roses. In fact, median sale prices were shown as increasing slightly in 2007 as compared to 2005. It’s a great time to buy!

Speaking as one whose feet are literally on the ground in this market, I assure you that 2007 prices did not outperform those of 2005, our peak year. That is, not if you are comparing “like” fruits. Using the data available through our Sandicor Multiple Listing Service, here is what I found:

The MLS data tells us that home prices haven’t changed a bit in the past two years in Scripps Ranch. Woo-hoo! Then, why all the whining about some housing market correction? Well, the median prices per square foot have changed. The median home purchased in 2007 was bigger; buyers are getting more for their money. And, of course, there are far fewer buyers.

This supports what I have been saying all along. Would-be buyers do exist, but they will commit when they perceive value. They are generally spending the same amount on a home, but they expect that home to be a better value than it was in 2005.

As a cautionary note, there are a couple of other things which are messing with even my statistics. First, in 2005 we had new homes flying off the shelf in Scripps, but those were rarely listed in the MLS. The builders didn’t need to do anything but put a few flags and balloons outside the models, and they certainly didn’t need to cooperate with the buyer’s agent. Today, the remaining unsold new home product is among our largest and pricier product, and list them in the MLS they must. Second, the statistics don’t reflect what I know to be true from my daily experiences. Even like-sized homes are not created equal. The homes which are selling at the higher price points today are generally in superior condition to their 2005 counterparts. Buyers expect granite counter tops now; they expect highly-upgraded and absolute turnkey for less than they would have paid for mediocrity two years ago.

Statistics can be enlightening, but just we careful that you know what they are really telling you.