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.

 

Should I buy an investment property?

Historically, real estate has been a great investment. Those with enough money to purchase an investment property and hold on to it for a number of years were able to expect appreciation in the value of the home and a steady stream of renters to foot the month-by-month bills. Are those days long gone?
Maybe not. Sure, the market has been on a real roller coaster ride for the last few years, but that doesn’t mean that you’ve missed your chance to purchase an investment property. In fact, today may be a great time, and here’s why:

  • Interest rates are historically low.
  • Home prices have dropped significantly in the last few years.
  • A large inventory of homes on the market means sellers are willing to negotiate on price.
  • Tax benefits continue to apply to owners of investment properties.

According to the National Association of Realtors, sales of investment homes soared 64.5% in 2011. If you’re thinking about getting your hands on a piece of the investment market pie, consider these tips:

  1. Assemble your team. As with any home purchase, it’s important to have a group of advisors you trust. This obviously includes your real estate agent and mortgage broker, but it also includes a home inspector, contractor, accountant, and property manager. Start asking around for recommendations from friends and relatives.
  2. Have a healthy down payment. Buying an investment property is different than buying an owner-occupied home, when it comes to the lending process. Many banks want to see a down payment of at least 25%, if not 50%.
  3. Calculate your out-of-pocket expenses. If you’re going to be using the home as a rental property, consider costs like improvements to the home in order to make it tenant-ready, ongoing maintenance, property management fees, and the mortgage payments you’ll be responsible for in between tenants. If your plan is to renovate a home and resell it, consider not only the renovation costs, but also carrying costs if you can’t sell it as quickly as you’d like. You can find great investment property cost calculators online.
  4. Find the right location. Experts agree that you should buy the worst house in a nicer neighborhood, instead of the nicest house in a bad neighborhood. If you’re going to be renting, think of what kind of renter you’re hoping for (families, students, adult roommates) and think of what they’ll be looking for in a house: multiple bedrooms, parking, a fenced yard, proximity to public transportation, or a good school district, for example. Also, research comparable sales and rental rates in the neighborhood you choose.
  5. Make your offer contingent upon an inspection. If anything, an inspection is even more important on an investment property than your primary home. Your profits can quickly go down the drain if there are significant structural, plumbing, or electrical problems in the home you purchase.
  6. Don’t go overboard with renovations. Yes, it’s important to upgrade your investment property in order to make it livable and have it appeal to potential rentals or buyers. But, that doesn’t mean you have to put in hardwood floors, granite countertops, and stainless steel appliances. Consider the wear-and-tear that renters put on a home. If you’re planning on selling the home, you don’t want to out-price the neighborhood.

With a combination of preparation, research, analysis, and a little hard work, an investment property can be a great investment in today’s market, both in terms of short-term cash flow, and long-term real estate appreciation.

Beware of Unsecured Property Taxes

A couple of years ago I marketed a home in Palos Verdes Estates for a sister and brother who had inherited the property from their mother a year earlier.  After the escrow closed, my clients phoned me to say they had received a bill for “unsecured property taxes” in the amount of $4400.  After some investigation (because I had never heard of unsecured property taxes), I discovered that when a person dies and the property is inherited, it is considered a transfer just as if the property were sold, and the property is reassessed as of the date of death of the decedent.  Because the property was sold a year after the death, my clients were charged with the difference between the property taxes owed before the death and the re-assessed value at death plus steep penalties for their being late.  Because the sales price was used as the basis for the value at death, that value was used for the unsecured property tax assessment.  My clients should have been excluded but an application for parent to child exclusion had not been submitted to the Tax Assessor.

This parent/child or grandparent/grandchild exclusion must be filed within three years after death/transfer, put prior to the date of transfer to a third party, or within six months after mailing of a Notice of Assessed Value Change, issued as a result of the transfer of property for which the claim is filed.  An application may be obtained by calling 213-893-1239.  This information was obtained from the Los Angeles Tax Assessor web site:  www.assessor.lacounty.gov.

 

Court Decision Regarding Roommates

A ruling was made in the Ninth Circuit (federal court) three weeks ago regarding roommate selection and whether it falls under the laws protecting against discrimination.  The scenario in this case was that Roommate.com requires certain criteria be inputted by the person putting themselves/their property into the system and allows for those searching to select based on those same criteria, including race, sex, sexual preference, number of children, etc.  The Fair Housing Council of San Fernando Valley brought suit against Roommate.com claiming that it was discriminatory for Roommate.com to require users to disclose certain preferences as that is discriminatory and that it  is a violation of the federal Fair Housing Act (FHA) and California Fair Employment and Housing Act (FEHA). The 9th Circuit ruled against the Fair Housing Council stating that a shared living situation does not fall within the definition of “dwelling” for either the FHA or FEHA and further that the 1st Amendment protects people’s freedom of association regarding a choice of roommate.  This is good news for those who share or wish to share their living space but only under certain circumstances or with certain types/classes of people.

Although this does not generally affect buyers and sellers, the amount of leasing going on in our area has definitely increased and people who have never had a roommate before may be leery to have one without knowing that they can control who comes into their living space.

 

For further information, see Fair Housing Council of San Fernando Valley v. Roommate.com __ F.3d __ , 2012 WL 310849, at p. 1 (9th Cir. 2012).

Real Estate News November 2011

 

 

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