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Low Ball Offers Should You Write One?

May 21, 2012 by 3 Comments

Low Ball OffersThe Simi Valley Real Estate Market has lost as much as 50% or more in many tracts since the “bubble burst”  Last year the market lost 12% alone when many were trying to proclaim recovery.  Those looking to purchase property continually ask the question “Are we at the bottom?”

We know that timing the bottom of any market is impossible and falls more on luck.  If we all knew where the bottom was in any given market, then investing would be routine, automatic and easy for anyone to do.  I can think of the Movie “Back To The Future II” where Biff grabs the Sports Almanac from the future and gives it to his younger self in the past, thus giving young Biff all the outcome in major sports for many years.  I can only pause and think this is what people are desiring for the real estate market, to know how it is all going to turn out before they make a purchase.

So you find a property you are interested in, you want to write an offer and you want to protect yourself from any more declines in the market; you decide that a low offer is in order.  However, every time you submit an offer, you get beat out by other buyers and are soon out looking at other properties.  How should you proceed?

Here are some of the key point to consider before writing your offer.

  • Short term investments in residential Real Estate are extremely difficult.  If you are looking at this purchase to hold less than 7-10 years, then your upside is going to be very very limited with most properties that are listed on the open market.
  • Understand Market Value. For example, every 3 bedroom, 2 bathroom home in Simi Valley has a given market value, in it’s present condition, even if it is not completely upgraded.  Sellers will want market value and are very unlikely to sell their property under market value.  Just because it is going to cost you money to carpet, paint and make the house “yours”; does not translate into a dollar for dollar discount in the price of the home.
  • Short Sales may offer some under market value, but don’t expect a deep discount.  The Lender that is going to approve the sale for less money than what is owed, has investors to answer to.  Consider that these corporate employees do not like to deviate from their corporate guidelines and do not like to go to upper management with reasons why they should let the property go for less.  Job security for these corporate employees is more important than your purchase.
  • Foreclosures – Deep discounts on foreclosure properties take time.  If the bank has recently started to market a property, it will need to sit on the market quite a long time before they will start significantly discount the property.
  • Deep discounted properties usually come with issues.  These properties either have defects, seriously deferred maintenance or Title issues.  Even with the deep discounts on these properties, it will take money to rehab these properties.

Looking at the trending market reports for Simi Valley Real Estate, properties have average selling prices of 5%-8% the original list price.  Now that the inventory is extremely tight,  the ratio between the original list price and selling price is narrowing, money is cheap with low interest rates and home prices are lower than last year, the opportunity for success with low ball offers is going to be very rare.

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Why Zillow, Trulia & similar sites cause buyers so much frustration

April 17, 2012 by 1 Comment

Trulia Zillow Simi Valley Homes For Sale

The National Association of Realtors 2011 Buyer and Seller Profile report has some interesting data, but really not that surprising when I compare that data to what I see in the field every day.  The reports stated:

eighty-eight percent of home buyers used the internet as one of the information sources in their home search process…

the second most used information source was the real estate agent. eighty-seven percent of buyers used real estate agents during their home search process…

the internet and real estate agents have remained the two highest-ranking sources by usefulness consistently for several years,

The National Association spends significant time and money on this research and if you have been looking for homes online, you will probably have a few stories to tell about the process.

The State of California is a very pro-consumer protection state. The Department of real estate and the requirement of a sales license is a pro consumer protection device. The licensing requirements in the state of California set the expectation as to how real estate can be transacted. Each individual listing contract is a private employment contract between the home seller and the real estate broker. Real estate brokers created the multiple listing service to pool their private employment contracts together under a universal compensation agreement. Essentially, this means that the various brokers will agree to compensate each other, if they sell each other’s listings.

Prior to the Internet, home buyers were only able to get information about the properties for sale in a given market by directly contacting a real estate agent. Today, during the internet age, home buyers have the ability to go online and search for homes at any time of the day or night.

What is unknown or often misunderstood is that very few websites have a complete inventory of homes are for sale on the market. Sites such as Trulia and Zillow offer information about properties for sale, but because there are not brokers, these have very limited access to the properties for sale in any given market. They rely on brokers supplying information about homes brokers have for sale. Unfortunately for Trulia and Zillow, not all brokers provide their inventories. Additionally as homes are sold or entered escrow, many times the information is not reported to Trulia and Zillow, so the information listed on those sites could overstate or understate the actual available inventory.

So where’s the best place for home buyer to look for property on the Internet? Well if you look at the results of the report I quoted above, the real estate agent plays a very important part in filling in the gaps of what’s available online.

From personal experience, many, many, many times buyers have come to me with a list of homes they have found on the Internet and 90% of those homes are already under contract in escrow. As a member of the multiple listing service, I have access to the real-time data reporting of the current inventory. While the property searches on real estate agent websites are coming from a more direct feed of the listing data, those sites can only provide limited data.

Don’t feel like you are coming up empty handed. If you understand the property search sites are limited in scope and that the pro-consumer protection posture of the state of California wants home buyers and home sellers to interact with licensed real estate agents, you can use the information online conjunction with licensed real estate agent and find a home for you.

 

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Garage Conversions – How they might affect a home buyer or seller

April 16, 2012 by Leave a Comment
Garage Conversion Simi Valley Real Estate

Yellow lines denote where the main Garage Door was prior to conversion, this one was not permitted

Garage Conversions.  In Simi Valley Garage Conversions are pretty common; not that every one has one, but I run into them often.  It is understandable why people convert Garage space to more living space, but these conversions seldom comply with local building codes.  Here are the most common issues involving a garage conversion.

Setback – Local building codes require a set back from the street to the front of the house.  Twenty-five or more fee may be required.   This setback will make it next to impossible to put covered replacement parking in front of the garage.

Required covered parking – Local codes typically require covered parking.  This covered parking may allow only a carport style cover, but this structure needs to comply with setback requirements.

Water Heaters and Laundry Hookups – Many garages are the location for the water heater, laundry hook ups and even the Heating and Air Conditions systems.  Because these systems can use natural gas, local building codes will specifically dictate how these systems are properly ventilated when installed in living space areas.

Heat – The converted garage will require heat as per local building codes.

Converted Garages that are not permitted may not receive any value consideration on an Appraisal.  So if a seller perceives value with the conversion over surrounding homes,  a buyer may not be able to get a loan to cover an increase sales price due to the garage conversion.

While this may not be an exhaustive list of all the issues a buyer or seller should consider, these are the more common issues.  The city of Simi Valley Building & Safety Department is very accessible and easy to visit for details about permits on a property and they can answer questions right over the counter about the requirement to convert a garage.

Related Articles:

The Appraisal Bottleneck

Top 5 Upgrades

Home Staging a No Brainer

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6 things you can do to prepare for the loan approval process

April 15, 2012 by Leave a Comment

Loan Application Home PurchaseGetting a Loan to purchase a home can seem complex and difficult.  Adding that there are a number of mortgage brokers  looking for your business, it is import you understand that you can quickly size up who you are considering to handle your loan application by being aware of the 6  things below.

1.  Reserves – make sure savings and reserves are well seasoned.  If you have cash you need to deposit, do that well ahead of time, months before you plan to buy a home.  Have access to these banks statements.

2. Have the last 3 years tax returns available for you  and if you are married for your spouse too.

3.  Be ready to prove your income.  W2′s, pay-stubs, 1099s, investments etc., the lender is going to make you prove your income there is no way around this.

4. Be honest about all your monthly expenses, if you understate your expenses, it will be picked up during the application process and your loan will be refused if your debt ratios are too high.

5. Do not make any large purchases or open any new lines of credit.

6. A pre approval is not worth the paper it is written on.  Until a lender can get a look at your actual – provable income and expenses, a pre approval has not gone in-depth enough to give you the assurances to know if you can get a loan.  Ask what it will take to get a DU approval.

If the lender you are working with is not asking these questions and not nagging you for documentation then consider looking for a new lender.  You don’t need to in the middle on an escrow with money spent on inspections and appraisals only to find out you can’t get a loan because your lender did not to enough front end work.

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Carbon Monoxide Alarms – Do you have them in your home?

April 9, 2012 by Leave a Comment

carbon moxide alarmsBeginning July 1, 2011, the Carbon Monoxide Poisoning Prevention Act brought by California Senate Bill – SB 183 now requires all single-family homes with an attached garage or a fossil fuel source to install carbon monoxide alarms by July 1, 2011. In Simi Valley almost every home I have been in, has a natural gas furnace in the house or attic and most homes have gas appliances in the kitchen. These gas appliances and the furnace trigger the installation of the carbon monoxide detectors.

The alarms are required to be installed outside of each sleeping area and at least one per floor of living space. The mounting height according to the National Fire Protection Association (NFPA 720), appears to not effect performance. I have read that density of carbon monoxide is similar to that of air at room temperature, and carbon monoxide generally mixes readily with air. Considering that the CO alarms come in a plug in style, battery operated or hard wire installation mounting height may not be an issue.  However, some firemen I have spoke to recommend a lower installation height rather than up on the ceiling. You can buy a combination smoke alarm/carbon monoxide alarm, but plug in CO alarms are readily available and require no mounting hardware. Smoke alarms are still required, this new law does not change the smoke alarm requirements.  For those who want to be extra cautious you can place a CO alarm in each bedroom.

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The Difference Between Updating & Remodeling your Simi Valley Home

April 8, 2012 by Leave a Comment

Simi Valley Real Estate Udating or UpgradingThe primary reason anyone should have when improving their personal residence should be for their own enjoyment and comfort factor. The side effect or secondary benefit of adding to the comfort factor of your own Simi Valley home, is that those improvements could add value to your home if at some point you decide to sell. These improvements have a much shorter lifespan than most homeowners understand.

As of September 1, 2011 the new Uniform Mortgage Data Program® (UMDP) has gone into affect to provide common set of requirements for appraisal and loan delivery data. This program was established by Fannie Mae and Freddie Mac.  I have included some of the definitions and ratings to give you a better idea how the GSEs are trying to create more uniform standards for appraisals.

Not updated -  Little or no updating or modernization. This description includes, but is not limited to, new homes. Residential properties 15 years of age or less often reflect the original condition with no updating, if no major components have been replaced or upgraded. Those over 15 years of age are also considered not updated if the appliances, fixtures, and finishes are predominantly dated. An area that is not updated may still be well-maintained and fully functional, and this rating does not necessarily imply deferred maintenance or physical functional deterioration.

Updated -  The area of the home has been modified to meet current market expectations. These modifications are limited in terms of both scope and cost. An updated area of the home should have an improved look and feel, or functional utility. Changes that constitute updates include refurbishment and/or replacing components to meet existing market expectations. Updates do not include significant alterations to the existing structure.

Remodeled -  Significant finish and or structural changes have been made to increase utility and appeal through complete replacement and/or expansion. The remodeled area reflects fundamental changes that include multiple alterations. These alterations may include some or all of the following: replacement of a major component (cabinet(s), bathtub, or bathroom tile), relocation plumbing/ gas fixtures/ appliances, significant structural alterations (relocating walls, and or the addition of square footage). This would include a complete gutting and rebuild.

Below are a sample of a few of the ratings and definitions to give you an idea what this may mean to the value of your home.

Condition Ratings and Definitions (C1-C6)

C1 – The improvements have been very recently constructed and have not been previously occupied. The entire structure and all components are new and the dwelling features no physical depreciation.

C2 -  The improvements  No deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished or rehabilitated. All outdated components and finishes have been updated  and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completed or renovated and are in similar condition to new construction.

Quality Ratings and Definitions (Q1-Q6)

Q4 – Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standards or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Material, workmanship, finish and equipment are of stock or builder grade and may feature some upgrades.

Q5 -  Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a plain design using readily available or basic floor plans featuring minimal fenestration and basic finishes with minimal exterior ornamentation and limited interior detail. The dwellings meet minimum building codes and are constructed with inexpensive, stock materials with limited refinements and upgrades.

The above sampling was created by Fannie Mae and Freddie Mac and any loan underwritten with Fannie and Freddie guidelines is going to be appraised with this new system.  So if you are planing updating or remodeling, keep this in mind so you can maximize your investment.

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Top 5 Upgrades Simi Valley Home Buyers look for in a Purchase

April 7, 2012 by 1 Comment

top upgrades for simi valley home sellersSimi Valley home owners considering selling their home who would like to know what upgrades will make the difference when it comes time to sell, should look at the following list to understand what kind of competition they may be up against in the market place.  Home owners not looking to sell, but who are trying to figure out where to put their money should look at the following list as a good place to start:

1. Upgraded Kitchen – This tops the list.  Don’t start anywhere else in your house before you tackle the kitchen.  The home remodeling channels, cooking channels, and the numerous infomercials for kitchen products are enough indicators that the kitchen the focal point of any house.  A full kitchen remodel can run from $15,000 to $100,000 depending on the size and what people desire.  If you have the ability to do work yourself and hire subcontractors then the saving can be huge.  Buyer will know the difference between new cabinets and old cabinets dressed up with new doors and paint. Old outdated tile, vinyl flooring and old appliances can make the entire house feel tired and detract form other updates that may have been done.

2. Master Bathroom – This is where the new home owner is going to spend their mornings getting ready for the day and at night getting ready for bed.  Before putting money into a hall bathroom or guest bathroom, the master comes first.  As little as $5,000 can go a long way.

3. Windows – Simi Valley has plenty of homes built in the 1970s and 1960s with single pane aluminum framed windows.  Old windows shout loudly to potential home buyers that your home is going to be expensive to keep warm in the winter and cool in the summer.  Simi Valley can get windy and older windows also allow plenty of dust in your home in the high winds.  A standard bedroom window, vinyl-dual pane with low-E glazing from Home Depot can run as low as $400 for a retrofit window.  There are a ton of do it yourself videos on Youtube that show how the retrofit windows are measured, ordered and installed that you might be able to handle a window upgrade on your own.

4. Heating and Air Conditioning System – Much like the problem with old windows in Simi Valley the HVAC system on your home is important.  AIR CONDITIONING is not optional.  If you dont have it, you home is going to suffer in the market place, and when you finally do get an offer, it is going to be a big negotiating point with the potential buyer.

Why?  If you have an old furnace, good luck finding a reputable HVAC contract that is willing to risk placing a new Air-conditioning system on an old inefficient furnace.  The point really is that California has minimum energy standards and you may not be able to keep your old furnace.  A complete system installed in Simi Valley for heating and air condition on a 1500 – 2000 square foot home is going to run around the $8000 range.  An important issue to consider on homes built before 1980 is that the ducting system in the attic is most likely going to contain asbestos with will keep the the price of the system upgrade up around that $8000 price tag.

5. Roof – The majority of homes selling in the hast 3 years are in neighborhoods where composition shingle roofs dominate the material used.  This style roof will last 20-30 years and some simple maintenance along the way can gain the longer lifespan.  The ridge caps on this system will fail long before the field shingles.  replacing the ridge caps will make the whole roof look better and help prolong the life of the field shingles. When you have the ridge caps replaces have your roofing contractor tune up the whole roofing system by resealing around all penetrations and spay painting vent pipes and roof vents with a matching color.  One of the common problems I have run into with cement tile roofs with leaks is cracked tiles and failing underlayment.  A roofing contractor can remove the tiles carefully and replace the underlayment paper.  IMPRORTANT NOTICE:  Anytime you have your roof replaced or in the case of replacing the underlayment in a tile roof  replace any wood damaged by dryrot, insects and/or termites – it will be less costly in the long run.  If you think you have termites, get a termite company out for treatment.

 Look for my follow-up article “The difference between upgrades and a remodel” comming soon

 

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The Lighter Side of Simi Valley Real Estate – The Marijuana Clause

April 6, 2012 by Leave a Comment

Yes that’s right, I said it … MARIJUANA!  It’s almost hard to believe that it’s already 12 years since the Medical Marijuana ballot initiative Proposition 215 passed.  If you are planning to purchase a home in Simi Valley, we have a disclosure to inform you that the property you are purchasing could have had Medical Marijuana grown on site and that you should do further investigation to understand the potential risks if that was the case.

Filed Under: Buyers, Sellers

The Appraisal Bottleneck Adding a Twist to our Current Simi Valley Real Estate Market

April 5, 2012 by 1 Comment

appraisal simi valley home sellersHousing inventory has plummeted to 1.75 to 2.25 months supply for Simi Valley.  This super tight market condition has real estate agents excited, home sellers excited and is creating stressed out buyers.  While sellers have become more reluctant to put their homes on the market over the last couple months; the same pool of buyers during this time frame, having fewer homes to choose from, are not ready to drive prices up and the Appraisal Value is one of the key reasons that will keep this rally in check.

Simi Valley saw in the market run up between 2000 and 2007, Appraisals that were brought in over value all the time; so much that part of the responsibility of the meltdown was related to those jacked-up appraisals. Dodd-Frank reigned in the appraisers and in some cases went too far, but as indicated by Well’s Fargo’s 2012 outlook on housing, with 2 million homes in serious default and with the large amount of homes sold as short sales,  underwriting guidelines for purchase loans will single out any attempt to jack-up prices with appraisals again.

Another factor for the Simi Valley housing market is that we have seen on average a 10% (even more in some tracts) decline in selling price over the last year and those declines were continuing in to February of this year.  The same Wells Fargo report is projects an addition 6% decline in pricing for 2012.  Since that is an over all average for the country we need to remember markets are local and sometimes hyper-local.  Could we see some bounce up in pricing for Simi Valley home sales in April and May?  It is likely, but more likely for homes in top condition. Homes with deferred maintenance and lacking core components will continue to significantly lag their updated and upgraded counter parts.  Long gone are the days where (as in 2005) buyers ignored significant issues and competed for average homes in bidding wars.

Sellers facing the current market conditions, trying to get the highest price possible for their home, now face a tougher appraisal process and more cautious buyers.  Home Sellers trying to get a handle on an appraisal value for their home should consider the following:

1. Sites like Zillow and Trulia cannot give you an accurate value,  the algorithms that are used to create their estimated values are limited by many factors that will make an accurate assessment difficult. These values can be a starting point, but only an appraisal attached to a purchase contract will give a justifiable value.

2. Draw a one mile radius around your home.  That is the limit.  Homes in that radius are going to be used as the bench mark for your home.

3. Age, Size, Bedrooms and Baths – An appraiser cannot skip over a comp.  If your home is 3 bedrooms, 40 years old and 1500 square feet and there are 15 closed sales in your one mile radius with similar characteristics, the appraiser cannot skip over those, pick a 4 bedroom and adjust your home value.

4.  90 days may be as far as the underwriter will allow the appraiser to go out for closed sales.  That number in the past was 6 months and in some cases may still be 4 months, but again if there are enough homes with similar characteristics in the one mile radius the appraiser is going to use the most recent sales and older comps are given less weight in determining value.

5. Your home may have upgrades. Your home may be the nicest in the tract, but increases for those upgrades are not granted liberally by appraisers and the value will certainly not be moved up by the replacement value.  You will receive a favorable appraisal compared to the surrounding homes, but not an unrealistic appraisal.

A tight inventory tilts the advantage in negotiations to the Seller, but the Appraisal process is going to be the bottleneck on any properties with multiple offers.  Sure we will see a few properties where the buyer will bring in additional money over the appraised value, but as we are seeing in the majority of these multiple offers buyers are responding to counter offers cautiously.

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FHA Loans are about to get more expensive

April 4, 2012 by Leave a Comment

FHA Federal Housing Administration LoansOn April 9th the Federal Housing Administration announced that the cost of mortgage insurance premiums are going up. This will affect home buyers in the following ways:

  • An increase from 1% to 1.75% in the upfront mortgage insurance premium
  • A .10% increase in the annual mortgage insurance premium.
  • On June 11, 2012 loans exceeding $625,000 will see a .25% annual mortgage insurance premium increase.

An example would be if a Simi Valley home buyer was purchasing a home with 3.5% down and financing 96.5% with an FHA backed loan, that buyer would pay a 1.75% of the loan amount as upfront mortgage insurance premium.  This would be part of the buyer’s closing costs.  The Buyer would also be charged an annual premium at 1.25% (this fee is higher for FHA Loans over $625k after 6/11/12) for all FHA case numbers assigned after April 9th, 2012.  If the buyer is borrowing 95% or less of the purchase price that annual premium is 1.2%.

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