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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House and Senate leaders signed off on a conference report for a
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Probate Sales in California

The probate process is a court-approved process that is designed to sort out the transfer of a person’s property at death.  I have been involved with several sales of properties in probate, as the listing agent or the selling agent or both.  Probate sales are different from regular sales in that once an offer has been accepted by the administrator or executor of the estate, the sale has to be approved by the court, unless full authority to administer the estate has been granted unter the Independent Administration of Estates Act (IAEA).  It has been my experience that IAEA probate properties are easier and faster to market, as some buyers and agents are intimidated by the court-approved sales process, often because they do not want to fall in love with a home, just to be out-bid in court and also because they have not really bought the property until it is approved by the court.

Some tips for selling probate properties:  There may be a lot of personal property that was left by the decedent and the problem of removing furniture, etc., can be burdensome.  The last listing I sold was filled with old computers, old furniture and old CDs and DVDs.  The heirs should carefully go through the property and set aside items that are precious, such as family photos and other memorabilia.  There are companies that can remove the other unwanted items.  A property in probate is listed just like any other with the asking price based on recent sales in the neighborhood.  Where court approval is required, the price may be more attractive because the process is more lengthy and complicated cialis vente internet.  Once an offer is accepted by the personal representative, the attorney for the estate will set a court date, which is probably at least a month out.  During this waiting time, notices about the court date are placed in the local newspapers to attract additional offerers.  There is a statutory formula for the first overbid.  It is an additional amount equal to 10% or more of the first $10,000 and 5% on the amount of the original bid in excess of $10,000.  If the court receives an acceptable overbid, the court will ask for additional overbids.  The judge will usually establish minimum increments as to the additional overbids.  All overbids will be taken into account based on the gross amount of the bid. .  If you are a prospective bidder on a probate listing, it might be advisable to set a limit on the amount you will pay, in case the price is bid up beyond the value of the property.  This is a simplification of the process, and only an attorney can give proper advice.