Lack of Homes for Sale Boosts Sales Prices

Tight housing inventory hurts September home sales

A continued shortage of available homes for sale lowered California home sales in September, while the median price reached the highest level in more than four years, C.A.R. reported this week.  Sales in September were down 5.2 percent compared with August and down 1.2 percent compared with September 2011.  The statewide median price of an existing single-family detached home inched up 0.3 percent from August’s $343,820 median price to $345,000 in September.  The September figure was up 19.5 from a revised $288,700 recorded in September 2011, marking the seventh consecutive month of both month-to-month and year-to-year price
increases.  September’s median price was the highest since August 2008, when the median price was $352,730.  The year-to-year increase was the largest since May 2010.
“For the state, at 3.7 months of supply, unsold inventory is still less than half what it would be in a normal market,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  “As a result of the constrained supply at the moderate and lower end of the market, sales of homes priced under $200,000 dropped nearly 28 percent, and homes priced $200,000-$300,000 fell more than 15 percent in September.  By contrast, in the upper price range, where inventory isn’t as much of an issue, sales of homes priced $400,000-$500,000 rose more than 14 percent, and those priced above $500,000 increased more than 15 percent.”

Tax-Deferred Exchanges…Just the Basics

Exchange of Property: The transaction must be structured as an exchange, rather than as a sale and purchase.   A qualified intermediary should be involved with the sale of the relinquished property and acquisition of the replacement property.  The investor must sign an exchange agreement, assignment of the purchase contract, as well as other documentation before the relinquished property sells, and the intermediary must hold the proceeds until they are used the buy the replacement property.  As long as the appropriate documentation is signed, the intermediary does not need to take title to the property.

Like-Kind Requirement: The like-kind requirement is fairly broad for real property exchanges.  Basically any real property held for investment qualifies as like-kind.  Vacant land can be exhanged for an office building; a single family rental home can be exchanged for an office building and so on.

Same Taxpayer Rule: The same taxpayer selling the relinquished property must purchase the replacement.

Deferring All Tax: The property the investor is purchasing must be equal or greater in value, equity and debt, but the debt can be replaced with cash.

Timing and Identification: The investor has 45 days from the closing of the relinquished property to identify the replacement property.  The investor can only acquire property which has been properly identified during the 45-day identification period.  If an investor wants to identify more than one replacement, there are several options:  The Three Property Rule: The investor may identify up to three properties without regard to their fair market value; The 200% Rule: The investor may identify any number of properties so long as the total fair market value of all of the listed properties does not exceed 200% of the value of the relinquished property.

Once escrow closes on the relinquished property, the investor has the lesser of 180 days from the date of closing or the date on which the investor’s tax return for the year the relinquished property was sold is due, to close the purchase transaction and complete the exchange.  For exchanges closing in the final quarter of the year, the taxpayer will need to get an extension to file his tax return to get the full 180 days.

I have completed a tax-deferred exchange for my own investment properties.  We sold a four-unit apartment house and purchased a condominium.  The condo needed deck repairs and the seller was going to credit us with $10,000 at close of escrow.  I contacted the intermediary and was told that that $10,000 could be construed as “boot,” which is not allowed in an exchange.  We arranged for a price reduction in that amount, so we were able to complete the exchange.  One of my clients was asked to carry a 2nd trust deed on the relinquished property and was told by his accountant that the note could be considered boot as well.  It is critical to keep in mind that the investor cannot receive any cash (boot) from the exchange.

Be sure to check with your tax advisor before entering into an exchange of investment property and I highly recommend that you use an intermediary.

Home Sales Are Rallying in the Palos Verdes Cities

For the last couple of months I have been searching for the very best homes to show out-of-state buyers.  Because their trip to California has been delayed, I have to keep adding homes to the list because so many of those that I have found have sold.  This is really good news for Palos Verdes area homeowners who have been waiting for the market to turn around before selling.   A home recently listed in Malaga Cove had nine offers and sold for $200,000 over the asking price!  Our inventory of homes for sale is approximately 40% of the inventory of homes on the market last year and demand is exceeding the supply.

It is still important to price your home as accurately as possible, to cooperate with agents wanting to show your home and to spruce up your property so those buyers will fall in love with it as soon as they walk in the front door.  Contact me for a free market evaluation of your home.

Go Ahead; Make the Offer

The inventory of homes on the market in the Palos Verdes  is only 40% of the inventory last year; therefore, some homes are getting multiple offers at present. If you find a home you like, make an offer.  My listing partner and I recently put a very desirable home on the market and held it open to the public the Sunday after we took the listing.  We did not advertise in the newspapers, but we put out ten lead-in signs.  We opened at 1PM and planned to close at 5PM.  We had so many people viewing the home that we did not close until 6:30 PM; definitely one of the best open houses ever.  One couple came through and said they wanted to submit an offer through their agent.  They said the house was over priced and asked me what they should offer.  I told them to talk to their agent, as I represent the seller.  Their agent called me and said they might make a low offer or simply wait until the price came down.  I told the agent, “That won’t happen with this property.  It will be sold by the end of the week.”  Another couple came through who really liked the home.  The wife is an agent and I told her not to wait and to make the best offer they could because there were other people interested in the house.  They wrote a good offer and the house sold for near the asking price.  The couple who were waiting for the price to come down were very disappointed and their agent called me urging me to let him know if anything went awry with the accepted offer.  Again, if you find a home you love, make the offer.

I had another listing recently where a prospective buyer asked me to find out what the sellers’ bottom line was because he did not want to go back and forth with offers and counter offers.  I got the sellers’ bottom line and relayed it to the buyer, but he continued to dally.  Another offer came in and I called the dallier.  The bottom line is that he ended up paying a hefty sum more for the home than he would have had he made the offer before another offer came in.

I know that there is still a lot of fear about paying too much for a home in today’s market, but remember that a home is more than just an investment.   Your home is where you will live and not just any home will do. When you find the home that you love, make an offer.

 

Home Seller Pitfalls to Avoid

Six years after the market peaked in 2006 and prices started to decline, many sellers are still in denial about the current market value of their homes.  It is difficult for most sellers to accept the reality of today’s home-sale market, whether they bought at or near the peak and will lose money selling today, or bought decades ago but are still stuck at 2006 prices.  One homeowner recently remarked that she was aware that home prices had dropped quite a bit over the last five years, but she felt that her home had not lost any value.

It is hard for homeowners to divorce themselves emotionally from a home they have enjoyed.  This is what sellers need to do so they can make rational decisions about a list price that will actually result in a sale.  This decision should be based on listings that have sold in your area that are considered comparable to your home.  Some sellers go to open houses to evaluate the competition.  If you are still emotionally wrapped up in your home, the exercise can be futile.  You return home feeling that the other homes are not as good as yours.

Put yourself in the buyer’s shoes.  Your house needs to be listed at a price that is enticing to buyers because it represents a good value.  In most areas, buyers are buying ibn a market knowing prices may continue to decline before the market fully recovers.

House Selling Tip: Be wary of real estate agents who tell you that your home will sell for a higher-than-supportable price just to get the listing.  Then they work on you over time until you reduce the price to market value.  Agents refer to this as buying a listing.

Its hard to resist the temptation of trying for a higher price than the comparables indicate.  However, you will not be happy if your home is on the market for months with no activity, and each time you drop the price it feels like too little, too late.  You can end up selling for less later if home prices in your area are still declining.

Listing your home based on what you want or or need to net from the sale will not motivate buyers to pay more.  Buyers pay market value.  They will not overpay in today’s market.

If your home needs a lot of work compared with the competition, you will either need to have work done before selling or discount your price accordingly.

For best results, be realistic about the current market value of your home and what preparation it needs in order to sell successfully in this market.

Understanding Short Sales

A short sale is a sale of a home that is worth less than the mortgage owed.   Because these properties are often listed at a price lower than their values, you may be able to get a good deal, if you have a tremendous amount of patience.   The problem is that the only motivated people in the transaction are the agents and the buyer.  If you decide to make an offer on a short sale, it will generally be submitted by your agent to the seller for acceptance, subject to the short sale lender’s approval.  This can take months, so I tell the buyers, “This will take a lot of time, so don’t call me up, whining about it.”  There really is nothing you can do to speed up their decision.

It is very important to structure the purchase contract such that it gives the buyer an out of the contract if an acceptance is not obtained within a certain time-frame.  Also, it is best to have the different time-frames for inspections, putting the deposit into escrow, obtaining the loan, and so on begin at lender approval of the deal rather than at seller’s acceptance.  We have a very good short sale addendum that is required for every short sale transaction.

It is very important to have a short-sale property inspected by a professional home inspector.  Many times the upside-down seller has not maintained the property.  Very rarely will the short-sale lender agree to pay for any repairs, so it is a good idea to get a contractor’s bid to repair the items so you will know if  the cost is unaffordable.

The short-sale lender will come after the buyer and the agent for money.  One of my buyers said, “Tell them to go pound sand!”  The lender stopped asking him, but then they came after me for some the commission.  If there is more than one lender, the sale is even more tedious.  Unless the lender in first position comes out with what is expected, they will try to cut down on proceeds going to the junior lien holders.

Someone purchasing a short-sale property should just be prepared and patient and don’t get mad (they don’t care!) and a good agent comes in handy, too.