The TRID Nightmare: What Buyers And Sellers Need To Know

Most consumers have never heard the acronym TRID.  It stands for Truth in lending Respa Integrated Disclosure.  If you asked me, they got the name wrong.  It should be TIRD because that’s what it is, a big turd.  It’s government over reach at its worst and this from a life long Democrat.

TRID kicked into effect on October 3, 2015.  It was originally supposed to launch in August, but no one was ready for it.  BLOG-changes-ahead-signWe still aren’t ready for it.  So what is it and what’s it for?  The idea behind TRID is to force lenders into full disclosure of costs, rates and fees up front and then force them to compare the original estimate to the actual at the end of the process.  It sounds like a good idea right?  I get a quote on costs from the mortgage person and then I get to cross compare before close.  Keeps them honest.  If the numbers are different and the difference exceeds a narrow threshold, the lender gets fined.  It protects the borrower from getting the old bait and switch or stuck with some outrageous charges at the very end when it’s too late to do anything.  Perhaps some charges that were never disclosed.  Sounds like a great program to protect the borrower from unscrupulous loan agents.  So where’s the problem you ask?

To begin with, TRID requires a new 3 day review of disclosures up front that we didn’t used to have.  It used to be, apply for a loan and order the appraisal.  Now you have to wait 3 days to order the appraisal.  The next most obvious problem is since the banks are responsible for the penalties should a discrepancy take place, they are freaking out.  They’re concerned that escrow will make a mistake that the banks will be held responsible for and get fined (Up to $1M per offense!) so they’ve taken an active role in the estimated final HUD 1 (Estimated Closing Statement).  This means there’s a new layer at the end of the process.  Moreover the TRID rules state that the final HUD 1 or “closing disclosure” has to be in the borrower’s hands a minimum of 3 days before the loan documents can be drawn up and can be up to 5.  Now imagine, for most borrowers it takes 3 weeks to get a typical loan approval, then add the 3 days up front and another up to 5 on the back side and you end up with a whole lot of time and delay.  Forget a 30 day escrow, that’s nearly impossible under TRID.

OK, so no more 30 day closes, what’s the big deal?  Well sellers don’t like it, they want their money and to be moving on.  69 Seabury MLS-12Buyers don’t like it for very much the same reason, they want the house and to be moving in.  And how about that it costs the borrower more?  That’s right it costs the borrower in several ways.  First and foremost a bank offers its most compelling rates with a short term lock; it used to be 12 days got you the best rate.  But 12 days doesn’t work under TRID as we’ve already discussed because the disclosure up front has to match the one at the end.  This means the consumer no longer has the option of “floating,” which is in fact a type of gambling; gambling that the rates will drop as they near closing.  Can’t do that under TRID.  Moreover the consumer can no longer shop around because the process takes so long now, the borrower has to commit to the lender right away or they the borrower will require even more time to close.

So who wins in this scenario?  The big banks.  Why?  The big banks win because the threat of the fine will drive the smaller ones out of business or force them to sell to the big banks.  The banks in general win because the banks no longer have to offer the lowest rate for a short term lock because the borrower can’t float.  All rates are locked at 45 days, the most expensive rate, because it’s so far from closing.   Banks also no longer have to compete like they used to.  Before, a borrower could always jump ship to a different lender if the rates dropped but this is not possible now because the process under TRID takes so long that a borrower could never start over and reset the whole timeline to close.  No seller is going to agree to an extension so the borrower can change lenders midway through the process.  Especially not with the 3 days up front and 5 days at the end.

The net outcome of TRID is the process is more convoluted, difficult, slow, more expensive to the borrower and restricts free trade.  Other than that, it’s great.

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A Disturbing Trend And The After Effects Of The Great Recession

Like many of my friends and clients, the Great Recession took its toll on me and my financial wellbeing.  Keeping a small business afloat while sending kids to college and paying for all the many personal highlights a family experiences over nearly a decade cost a lot of money at a time when everyone’s revenue was cut.  The problem for my generation is that the down turn couldn’t have come at a worse time: the middle of our peak earning years.  Those 7 years of top earning power cannot be replaced and the replenishing of personal savings as a result is challenging.  am gothFortunately for some of us, The Great Recession devastation wasn’t at the end of our peak years and we still have some time to build things back up.  For others it encompassed the final years of peak earning and we are just now seeing how difficult their recovery, or lack thereof will be.

Case in point on a recent listing presentation I met with a couple in their mid to late 60’s, in the process of downsizing.  The Great Recession had hit them hard.  The yard was a lot of maintenance, home they owned was more than they needed and besides it was 2 stories.  As we chatted, I knew their story already: kids gone, they were slowing down and bad knees or a bad back or just age in general was pushing them into a single story home (Search for one story homes here.) Realtors everywhere are seeing this a lot lately as the first Baby Boomers hit 70.  There’s no escaping Father Time.  What I hadn’t anticipated was their lack of equity.  I’d sold them the home nearly 20 years ago for a pittance of what it was worth today, so I hadn’t bothered to look at their loan balance on title.

I often hear people criticize homeowners that pulled their equity via Home Equity Lines of Credit, or refinancing.  “They used their home like an ATM,” people will say.  It is true some people did that.  Loans were easy to get 10 years ago but since these homeowners were making good money at the time, the kind of money one makes at age 55 or 60, paying for a larger loan was no big deal.  Home improvement, weddings, college, bar mitzvah’s, helping the kids to buy their first home, was all made possible by tapping into their home’s equity.  Fast forward ten years and a couple of things have happened.  First, the loans these homeowners took out were based on valuations before the market crash when these homeowners had plenty of equity.  Using some for family events and needs was no big deal.  No doubt the market has recovered but not yet to the level of 2006.  The recovered value allows them to sell, unlike a few years ago when so many homeowners were upside down on the mortgage and unable to sell at all.   But the partial recovery leaves them with very little precious equity to move to the next stage in their life.  Foor Sale signMoreover, those loans were made at much higher interest rates.  Many of our older homeowners are no longer able to refinance into a lower rate because they no longer qualify based on their declining income.  Because this is California home of Jumbo mortgages, many homeowners are not eligible to refinance under the Government’s no equity/no income refinance program called H.A.R.P. 2.0, where loan amounts are capped at high balance conforming loan amounts ($603,750 in Ventura County, $625,000 in Los Angeles County.)  These property owners would never consider defaulting and we know how unhelpful the banks have been with loan modification, so they are left with mortgage rates as high as 8% in some cases.  I can’t tell you the feeling of heartache I have when I tell an older homeowner what the value of their home is and I see in their eyes the look of deep sadness.  They are looking to me to give them answers (Need help?  Contact Tim here.)  They will exchange glances.  The plan they had that lead them to call me, up in smoke.  They have a home they can either no longer afford or one that makes them climb a staircase when it’s getting harder and harder to do so.  I had one seller run into serious and unexpected health issues.  This happens.  They were already in a one story house, but had used the equity to help their son buy his first home 10 years ago.  Because the husband could no longer work, they simply couldn’t afford their home any longer and had to sell.  For them the issue became, where do they go with so little equity to buy?  A mobile home perhaps.  In both cases, neither family sought pity, on the contrary, this is a proud generation and they faced their reality with grace and dignity.  “We did what we did for our kids,” they’ll say.

Recently the city of Camarillo was brought a development plan for a 13 acre parcel owned by the Catholic Church.  The land had been part of a seminary that the Church no longer used and they wanted to divest themselves of the burden of owning this property.  A developer was happy to take the land off their hands, provided they could develop it and turn it into homes.  Anticipating the “Not in my back yard” attitude of cities today, they decided they would create a senior housing project.  Their thinking was simple: this is an urgent need and they’ll have to approve.  After a rather short debate, the Camarillo City Council, declined the developers plan, citing traffic concerns.  I guess seniors must still be working and commuting, thus contributing to the traffic.  Either that or their golf cart and walker traffic would slow other cars as they made their way slowly through the crosswalk…

The issues that Baby Boom seniors face: the lack of housing, lack of equity, lack of savings and the inability to re-earn all that was lost in The Great Recession are only now becoming evident.  The Great Recession hit the Baby Boom generation hard but its wake is only now rolling to shore and with it comes debris and devastation that no one had considered.

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Goldilocks And The 3 Real Estate Markets

We all know the story of Goldilocks and The Three Bears. Tasting the Bear’s 3 bowls of porridge Goldilocks remarked, “This one is too hot.”  Then, “This one is too cold,” and finally, “But this one is just right.”  goldilocksSo goes the story of Golidlocks and the 3 Real Estate Markets.  In 2006 the real estate market was too hot.  Fueled by easy lending practices that allowed anyone to obtain a mortgage and despite an average a 30 mortgage interest rate of 6.41%, homebuyers were abundant.  That market was too hot and we saw what happened then.  Nearly a decade of decline.  In March 2009 the DOW Jones Industrial Average stood at 6,500 and home prices were down an average of 30%.  No one wanted to buy.  It was like trying to catch the falling knife as home values plummeted.  If you were brave and had the money, you could pick up a fantastic property for a song.  That market was too cold.  To quote Warren Buffet, a smart investor should “Buy when there’s blood in the street.”  Heck, the market was a bloody Mississippi River after Katrina.dow jones 6500  Which brings us to today’s market and this one is just right.

I have to admit, I’m loving this real estate market. (search for listings here)  Every Realtor is.  It’s strong but not crazy strong, though I’ve never been busier.  Buyers are abundant so sales volume is up.  Prices are rising, but they aren’t skyrocketing and inventory is gradually rising to meet the increasing demand.  Yes, this market is just right from my vantage point.

To understand any real estate market, you have to consider first and foremost, the state of the national economy.  We all see the news on unemployment, more people are working.  Unemployment rates are the lowest since right before the real estate market collapse.  So the winds of an improving economy are at our backs, propelling us forward.  We also know the Federal Reserve has kept interest rates at all-time lows, though they are no longer “priming the pump” through their bond buying policy they called Quantitative Easing.  So we have an improving economy and low rates.  We also have more confidence.  Confidence is paramount when it comes to real estate because as we saw in 2009, no one is buying if they aren’t confident they will be employed or be able to afford a mortgage.  Low unemployment.  Low rates.  Consumer confidence.  We also have improving inventory and increasing demand due to changing demographics: The Millennials have arrived; albeit in drips and drabs and largely confined to urban centers.  Yes this market is just about right.

If you’re a buyer today, you are probably seeing that prices are rising just a bit.  You’ll notice in our area along the Los Angeles/Ventura County line, you are having to pay about 2-3% more than you might have paid 4 months ago.  Solid appreciation.  This is different from spring 2013 when the market jumped 10-15% in a matter of 6 months.  No, this is nice and easy.  Constrained by naggingly slow wage inflation, prices have not been able to really jump like most sellers would like.  We just aren’t making “that much” more money to buy “that much” more house.

If you are a prospective seller, you are seeing your neighbor sell their home for more than it would have a few months ago, 1217 Arroyo View LR-13but not quite where you might want it to be for you to become a seller.  So you wait.  Plus even if you wanted to sell, you don’t see many homes that you like better than the one you own now.  Inventory is better but it’s still not great.  Where are all the new homes you wonder?  Naturally I can only comment on my immediate market.  I’m not selling everywhere, but I suspect most coastal California communities are in the same boat.  No new homes in the areas people want to move so inventory is limited to only those homes that people want to sell.  This is why we are seeing appreciation.  The standoff between buyers and sellers that I’ve written about in recent months is finally being won by the sellers, just as I predicted.  It was only a matter of time with conditions so ripe for appreciation that the sellers finally won out.  Thus buyers are begrudgingly paying that extra few percent to buy a home.  At some point one side will always capitulate.

Exacerbating the inequity in the supply and demand equation is the skyrocketing rents.  This frankly, comes as quite a surprise.  You may have heard about the large Real Estate Investment Trusts or REIT’s like Blackstone for example, that purchased hundreds of thousands of distressed properties with Wall Street money at or near the bottom of the market, essentially monetizing the home rental industry.  The expectation was that eventually the conversion of so many single family homes from principle owned residences to income property, was going to make property values rise because all these new rental properties could no longer be purchased.  They were now and possibly forever, destined to be rentals.  It was also a concern that all these rentals would drive down rental rates as this huge influx of rentals meant greater competition for renters and that would bring down rents.  That has not happened.  In fact rents are higher than ever.  Hello Millennials and welcome to adulthood!  Rising rents mean buying and owning is cheaper than renting and just paying.  By the way, did you know that you can buy using an FHA loan, with just 3.5% down and that in Ventura County if you or you and your partner earn around $100,000 year, you can borrow as much as $603,750?  That means you can buy a home valued at $625,600 with just $22,000 down plus closing costs and that your payment would only be around$3,600 including principle interest, taxes and insurance?  After tax write offs, that’s the equivalent of  $2,600/mo in rent but now you own!  And parents, you can even gift the down payment to your kids too!  That is unbelievable.  And don’t forget that when your $625,000 home appreciates 10% it goes up $62,500.  That means that your $22,000 investment just tripled in value and you own your own home to boot!  That’s called leverage and that’s the power of home ownership.  (Have questions? Ask Tim here.)

Demographers have been talking about the dawn of the Millennials, previously referred to as “Generation X,” for years.  Their numbers exceed that of the Baby Boomers.  This is the group of young people, the grandchildren of the Baby Boomers, that have been late to the party;  They are staying in school longer; living in their parent’s basements into their late 20’s; not having children until their mid 30’s and frankly on the slow boat to China of adulthood.  But guess what?  They’ve arrived and they are going to keep arriving for the next 15 years.  Yes this market is just right, but it won’t stay that way forever.  At some point rates are going to rise in an effort to slow inflation.  At some point the Millennials are going to decide urban living was great fun before kids, but urban schools will push them to the suburbs.  At some point the economy will overheat and at some point it will slow and the market will slow along with it.  For now however, this market is just right.  It’s a great time to sell and it’s a great time to buy, yes indeed, this market is just right.

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Handling Multiple Offers

What happens when you are selling a house and you find yourself in multiple offers?  This is becoming more and more of a thing these days as the real estate market improves while the supply of available inventory remains constricted.  It’s a little like the Wild West.  I recently had four listings go into multiples.  In each case my clients sold for more and secured better terms than they thought possible.  This wasn’t by accident, (Contact Tim here) so let me share how we handled each one.

Listing #1 had been on the market for quite a while, when as sometimes happens, there was suddenly more than one person that wanted the home at the same time.
Dining Room DetailNow I don’t know why this happens, but any seasoned real estate veteran will tell you it’s almost like something happens in the “ether” and a home that’s been sitting, suddenly gets really hot.  Often it’s totally out of the blue and bam, there are two offers on the same home.  When a home is in multiple offers there are several different ways to handle the negotiations.  Some agents will choose the method the banks used when they would have 30 offers on a property and send out a counter of “Best and Final.”  This is basically creating a blind auction where all potential buyers submit their best offer in a “take or leave it” fashion and then the seller selects the one they favor the most.  Quick note: Remember that when negotiating a sale we are negotiating price and terms.  Terms can sometimes dictate the winner in a multiple offer over price.  An example would be when one offer is lower but is all cash.  A seller may take that offer even though it isn’t the highest price because it had superior terms.  I am not a fan of “Best and Final.”  While some buyers prefer it, most hate it.  The feeling is, that if a seller would just counter offer them with their number, a buyer can decide if they want to accept or not.  Some agents feel that “Best and Final” will get the seller the real market value of the home.  Myself, I prefer to send out a number.  The seller has a number in mind, they always do.  And while they might romanticize about going over that number when in multiple, more often than not they are better off pursuing their number and be satisfied if they get close to it.  So with listing #1, Buyer B out offered Buyer A by just a few thousand dollars but what sealed the deal was that they also offered a multiple month lease back so the seller could find a home and fix it up if necessary.  The time “term” coupled with the higher price made the decision pretty obvious and Buyer B got the house.

With Listing #2, we had 3 offers in the first 3 days, but all were low.  Because there were more than two we chose the “Best and Final” approach.  However, this didn’t work because none of the offers came up to our number.  Thus we were back to square one.  I kept the channels of communication opened with all 3 buyers and with the seller’s permission, told all the potential buyers what the seller’s bottom line or “Magic” number was.  A week later, one of the buyers stepped up to that number and got the house.  The other two were disappointed because it was only 1% above their original offers.  In this scenario, the agents that represented the buyers that didn’t “win” either didn’t do a good enough job of demonstrating the silliness of losing a home over a handful of dollars or the buyers just weren’t educated enough in the market.   Many times a buyer has to lose a few homes before they realize that they should listen to their agent…

Listing #3 saw ultimately three offers too, but unlike #2, all the offers were at or above ask.  In this example an offer came in immediately at full price.  All they asked was for a quick reply.  However before the seller could reply a second offer came in but this one was contingent on the buyer closing on their home that just went into escrow.  Knowing that their offer would be inferior as compared to a non contingent offer, they wrote $10K over ask.  Man Signing ContractSmartly played by them.  While we mulled over these two offers a 3rd offer came in all cash, $11K over ask.  Wow.  Seems obvious right?  Take the higher all cash offer.  But that’s not what happened.  Because Buyer A did not have the knowledge that we were in multiples when they wrote like buyers B and C did, the seller felt compelled to let Buyer A rewrite.  The cash buyer had never actually been in the home.  They were late to the party and didn’t get in before the deadline so they wrote sight unseen.  This posed a risk that the seller wasn’t comfortable with.  The acceptance of the contingency of Buyer B only made sense if Buyer A wouldn’t come up, so I asked the seller, “If I could get Buyer A up to contingent Buyer B’s price, would the seller accept Buyer A’s offer?”  She said yes.  I then clarified with the seller that it would be OK to tell Buyer A what the number had to be to win and she said that was OK.  Now you may be thinking, “Wait a minute.  You told Buyer A what Buyer B’s offer was?  You can’t do that, it’s confidential.”  A reasonable response for sure, but not correct.  Remember who I work for.  I work for the seller.  My job is to get the seller the best possible price and terms.  “But you have a fiduciary responsibility of fair dealing and in good faith,” you say.  Not exactly.  I have a fiduciary duty to the seller, not to the buyer.  To the buyer I have a duty of honest dealing and  good faith and confidentiality of offers is not a requirement unless specifically asked for in writing by the buyer and agreed to by the seller.  This did not happen, so there was no violation of my fiduciary duty to the buyer and the seller authorized the price disclosure to Buyer A.  While this might strike you as unfair, consider the seller’s reasoning: Buyer A was non contingent and agreed to come up in price, a better deal for the seller.  Moreover the seller felt that Buyer A stepped up first and therefore deserved the opportunity to get the house if all things were equal.   Conclusion: Buyer A got the house and the seller got $10K above ask and felt good that Buyer A got the house since they stepped up first.

Listing #4 had received a blind, unsolicited offer before ever coming on the market from a neighbor who heard about the upcoming listing.  Because the buyer had no idea what the asking price was going to be, their offer was low.  Nothing came to pass at this point because the seller wanted to wait until they hit the open market, though we did tell them what the projected asking price was going to be.  Then another potential buyer appeared also before we went on the market.  Still the seller wanted to wait to go on the multiple listing before entertaining any offers.  At this point we sensed that based on the level of interest, perhaps our asking price was a little low and subsequently raised the price from what we’d told the neighbor we were listing at.  On the market we go (Search all available listings here) and a week passes with nothing.  No offers and only a few showings.  At first glance it appeared that perhaps we’d over shot on the asking price.  However during week two the showings picked up.  The neighbor must have sensed this because they came back with a better offer, but still below ask.  This did not please the seller so they didn’t rush a counter back rather waiting to the day of the offer’s expiration to respond.  The seller came back to the neighbor with a counter that was below ask.  However rather than accept, the neighbor still wanted it for less and though they increased their offer some, they were below the seller’s counter, not pleasing the seller.  Then it happened; that “ether” thing again and a 2nd offer came in at a higher price.  Complicating the matter was a rent back option that the neighbor’s offer contained.  So the seller asked if I could find out if Buyer B would consider matching the rent back terms and to my surprise their agent said yes.  So now our terms are the same for both and we counter, but above the counter we had previously made to the neighbor because the situation had changed.  In this particular case the seller countered both buyers the same, but this is actually not required in a multiple counter and in fact many times some specific terms or omissions necessitate a different counter.  Out the multiple counters go.  Neighbor counters us again below our counter while Buyer B accepts.  Buyer B got the house and seller got almost ask with amazing terms.  By detailing out the specific counter number and the desired terms rather than “Best and Final,” my seller got just about everything they could have hoped for.  Interestingly, the seller did ask, can we go back to each and ask them to come up even further if they both had accepted our counter.  I said yes.  However, while this potentially could yield them a higher number, it could very possibly blow up in their face with both buyers deciding they didn’t like dealing with the seller and both could walk.  This happens, I’ve seen it and it’s pretty upsetting for everyone, not the least of whom is the seller who’s left with no buyer at all.  To make this point I will tell a seller the Aesop fable about the dog with the bone, also known as The Greedy Dog. dog_bone If you’ve not heard it, the story goes like this: A dog has a bone and while walking across a bridge he sees his reflection.  Not realizing it’s himself in the reflection, he lunges for what he perceives is a superior bone in the mouth of another dog, dropping his bone in the process and ending up with nothing but a mouthful of water.  This usually gets the point across and we make the deal.

Finally I’d like to leave you with is this: These 4 examples are all real and all from the last month.  When you make the decision to sell your home, there are going to be a multitude of potential scenarios and situations.  Each will offer opportunity and each offer challenges and each is a little different.  In other words, real estate is full of variables.  Managing negotiations is a craft and an expertise.  Unless you sell homes for a living, finding and hiring a top level, experienced real estate agent is critical.  Your home is your biggest investment and you can’t afford to mess around.  Having a strong agent who not only knows the market, but knows how to market and knows how to handle intense and complex negotiations, is essential to getting top dollar and the most favorable terms.  This skillset is what makes some agents great and others not and you should be prepared to pay a little more to have them on your side. But if you do, you’ll increase the odds that you’ll get more for your home and that you’ll have a smoother transaction. There’s an old adage in sales that experience doesn’t cost, it pays.  This has never been more true, than it is in today’s challenging multiple-offer-world of real estate.

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Getting The Highest Price Starts With Cleaning

You’ve made the decision it’s time to sell your home.  You’ve hired a Realtor to advance this cause and now you have to prepare your home for sale (Contact Tim Here).  There are several things you can do to get more money that don’t cost a lot of money, but none are more important than cleaning.

This may sound ridiculously obvious so let me elaborate.  When I mean clean, I mean really clean.  To a buyer, clean tells them the seller has taken pride in their home and if they’ve done a great job of keeping it clean, perhaps they’ve also done a great job with the maintenance of the home.  Living Room 2Clean also means they can move right in.  Upgrades, no upgrades, if it’s clean, they can move in.  If the home isn’t clean no one is moving in; not until it’s been cleaned.  This takes time and time is money; your money, money that you leave on the table because the home wasn’t clean enough.  So here are some tips about cleaning.

Take a granite counter for example.   If you have expensive granite counters, don’t ignore them.  They should never be sticky or gritty.  If you have granite counters, wipe them down with a clean sponge or cloth and then dry them.  Then use a product like Granite Gold to really polish them up.  A clean granite counter should feel smooth and polished to the touch and when you look at it in the light from a low angle, you shouldn’t see any wipe marks.  Make sure you feel under the bullnose too.  This is where sticky likes to hide and your buyer will notice it.  If you have tile, attack the grout.  For some kitchens you will need to bring in outside help in the form of steam cleaning.  This is a process much like carpet cleaning, where a hand held steam cleaner injects hot cleaning solution and then extracts the dirt and soap out of the grout.  This will make your gray and dark grout, sparkle like new.  It’s really quite remarkable.  The hardest part of this process is finding the company that does it.  It works on the nastiest kitchen grease or shower mold.  This also works wonders on your tile floors where repeated mopping and kitchen grease has embedded grime and darkness into your grout.  Steaming will make it sparkle!  And don’t forget to re-caulk afterwards.  The caulk that came with your home 15 years ago has long since dried and separated.  In a shower it turns pink or has irremovable black spots.  Get a razor blade and a tube of white latex caulk.  Cut out the old and squeeze a nice even bead around your sink and toilet base, wipe away with a damp towel.  In the shower use clear silicone.  Not handy enough?  No problem!  A handyman can knock it out in no time for cheap and man will your bathroom thank you and so will your buyers.

Speaking of grease, take a look at your stove vent hood.  Odds are you’ve not cleaned the underneath nor the wire filters recently, most of us don’t.  But every time you turn on your hood, air, dust and grease are passing through those filters.  Put them in the dishwasher along with you metal cooktop grates and wash them.  If they don’t come clean, consider buying new ones, they’re not expensive and it makes a world of difference for both sight and smell.  If you have the old style, non-sealed burners, another part you might consider replacing is the tin pans under the grill; a clean piece of foil is lame, don’t do it.  Take that a step further, look at your oven racks.  If you’ve used the self-cleaning feature with the racks in, the stainless steel shine will have come off and they’ll be difficult to slide and may even look a little dusty or rusty.  If this is the case, buy new ones.  They’re not super expensive and can make your oven look a lot newer inside.  I’m not making this up, buyers look at this stuff and the nicer every detail looks, the more move-in ready your home appears.  That has real value to a potential buyer and they will pay extra for it.

One area that’s missed a lot is the outlets and switch plates… I have a seller right now that has the cleanest home on the planet.  I mean to tell you, her home is clean.  (See for yourself.)  One of her tricks is Clorox wipes.  She uses these on her switches and outlets.  If you take a moment and look at the tops your switch plate covers and the switches themselves, you will probably see a small line of dark dust.  You should clean this.  Try a dry brush first and see if that does it and then go with the wet clean, it’s a little easier if you get the first layer off before using the wipes.  Here’s the thing, often when you turn the switch on to clean, you don’t notice the dust.  That’s because it’s usually in the off position  for most of the day’s hours so the top of the actual switch gets dusty but when you flip the switch on, you can’t see it anymore.  I like to say that the way you can tell a really clean home is by the switches and plate covers.

Every Realtor will tell you to have your windows and screens done, but don’t forget the tracks.  This is especially true for lower windows that sometimes get hit by outside sprinklers.  The dust in the tracks becomes like a grimy, gritty sludge and if you have a dog, it will often have dog hair in there too.  Totally gross and you may have never even noticed it!  This is some tedious work, but do it and it will mean more money in your pocket.

On the topic of dust, be sure you dust your light fixtures, ceiling fan blades, tops of your door jams and behind things like plants, TV’s, pictures and inside bathroom drawers and medicine cabinets.  Hair in the brush drawer is not saying “Buy me” to any prospective buyer and neither is a rusty old medicine cabinet.  You can easily replace a medicine cabinet.  “Whoa” you say, “Really?”  Yes really.  If you think for one minute that not doing this won’t enhance your home, then you really need to do it because if you don’t think it matters, you’ve never done it.  It matters!  Remember, the thinking is, if you’ve got a super clean home then you probably have maintained the integral components of the home too, like A/C and roof.  When a home looks neglected on the cleaning, it often portends to other neglect that will cost the future homeowner big money down the road.  Remove this potential objection and you’ll sell faster and net more money.

Shower doors and enclosures are often a problem.  This can be a little tricky if you have really hard water.  Calcium deposits can be impossible to clean and can even etch your enclosure.  This means you may need to buy a new glass enclosure.  This can cost $1,000 or more, but we’re talking about relatively small money in the big picture and if a buyer looks at your nasty shower door hinges, their immediate reaction is going to be “I need to remodel the bath.”  Cha-Ching!  They’ll want a big remodel discount off your price.  That’s not to say that if your bath needs to be remodeled a new shower door or enclosure is going to save the day, but if your bath is in otherwise decent shape and just the corners are gross and the glass has impossible to clean calcium, spend the money and get new glass.  $1,000 out of pocket to potentially make thousands is money well spent.

Carpet cleaning, carpet stretching, carpet patching.  If you can’t afford new carpet or just won’t do it and assuming it’s not entirely hideous (in which case replace it no matter what!) at least have it professionally cleaned and if it’s buckling, have it stretched.  By the way, if there’s a stain, get a carpet guy to cut a piece from somewhere and patch it in.  Many times you can “steal” from one room or closet and use that to patch with, while buying a new bit to put in its place.  You can always find a little remnant for an out of the way closet that no one will notice if the carpet is just a little different. But an ink, bleach or pet stain in an obvious place is going to cost you.  So if you won’t replace, at least patch.

Pets.  Oh how we love our pets, but pets smell.  Make sure you bathe your pets and then go buy them new pet beds, toys and blankets.  BluzySo often I walk into a home and it’s Dog City.  The house is clean but the dog bed reeks of stinky dog and it makes the whole house smell.  Buy them a nice new cedar filled bed and you’ll thank me for it.  Heck, so will your dog.  Same for cat box.  Clean your cat box daily and change the litter often.  Even if you’ve got the battery powered, cover kind of box and clumpy litter that lasts a generation without changing, change it anyway!  By the way, don’t forget about the land mines in the back yard.  Don’t wait four days and do a bulk yard pick up or wait for the gardener to do it.  Your buyer is going to walk into your back yard and if it’s gross it reflects negatively on your home and you.  Worse, what if they step in it and track dog poo onto your carpets.  Yikes!  And don’t forget to sweep regularly especially along the wall and in corners where pet hair gathers.

Finally about smell, don’t get plug ins and be very careful about infusers.  You don’t want to over power the room.  The buyer will immediately be turned off and assume you are hiding cigarette smoking or pet odors.  Instead pick up some pleasant smelling potpourri. Subtlety is key when battling odor.

I could go on and on about cleaning tricks and tips, but I think you get the idea.  Cleaning is the least expensive and best thing you can do when preparing your home for sale.  Take the time and do it right and be thorough.  If need be hire someone to do it for you.  You don’t want a little cleaning to stand between you and the maximum sale proceeds you’re entitled to, but failure to clean properly will do just that.

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You Just Wrote An Offer, What Happens Next?   

You just wrote and an offer, the seller accepted and you’re telling your friends you just bought your dream house.  (Search for homes here.)  You are super excited, but what happens now? hands The first thing that happens is your agent is going to make sure all the papers are correctly signed by all parties, then they or the other agent will send the contract to escrow who in turn assigns an escrow number.  This is called opening escrow.  Escrow is the neutral third party assigned the task of being the hub, through which all buyer and seller, lender and agent documents pass.  The escrow officer is the person in charge of your escrow.  Escrow is going to order a preliminary title report or “prelim,” along with all the other necessary reports as required by local ordinance or other government statute, including Home Owner Association (HOA) docs and any particular items requested by the lender.  Once open, escrow will send you a package that will also include the escrow instructions.  Escrow instructions will reiterate the terms of the agreement including address and names of the parties.

Assuming you are financing a portion of the purchase, you will be speaking with a lender and providing them an executed contract.  They will need your financials including W-2, tax returns, asset statements etc. and they will run your credit.  Truthfully, you have probably already done this since no offer is taken seriously today without 3 things: The proof of funds (evidence of down payment), preapproval from a reputable lender (preferably local) and the purchase contract.  As a result of recent changes in the lending world specifically as it relates to the Dodd- Frank legislation, there will be a 3 day period after you apply for the loan to look over the lender disclosures. Anytime the loan terms change substantially, the lender is required to re-disclose and another 3 day wait ensues.   This delays everything which is why you really need to sew up your loan decisions quickly.   Often times a buyer wants to shop for the best interest rate and they do this in the days immediately following their offer’s acceptance.  (Contact Tim for help here.)  Please note that while you should absolutely look for a lender who has competitive rates, finding a mortgage lender you trust is really the most important thing to seek in my opinion.  By all means, explore different companies, but remember time is of the essence and it will take the better part of 3 weeks to get a loan approval.  The longer you wait to begin the process, the longer it takes to get an approval.  Since the California Association of Realtors (C.A.R.) Residential Purchase agreement (R.P.A.) defaults to 21 days for due diligence, loan approval and appraisal (your investigation and loan contingency periods), you really don’t have the luxury to play the loan rate game.  Given this reality, I recommend you ask your agent for their favorite lender or lenders and see if you “click” with them.  More important than the interest rate on a given day from one lender to another, is whether you connect and develop trust the person you are dealing with.  Customer service and watching out for your best interest will always eclipse an 1/8 percentage point one way or another in my opinion.  Don’t get me wrong, we all want the very best rate but since rates are changing every day and sometimes several times a day, having someone you trust to have your back, is essential.  Give me customer service every time over a slightly better rate.  Getting a loan is hard enough already, hire a mortgage person who is going to help you; someone who you can meet face to face.  Seriously, you’ll thank me later.

While the escrow and lender are working behind the scenes on their stuff, you the buyer are also on the clock to do your due diligence.  Remember, the C.A.R. R.P.A.   provides for 17 days during which time you have to investigate all aspects of the home you are purchasing.  This is your contingency period, but it doesn’t go on indefinitely.  What’s that mean anyway?  Due diligence is your responsibility to investigate all aspects of the home you are purchasing.  This means, insurability, title, schools, taxes, neighborhood characteristics.  I showed a home last week where when we went outside, two monster dogs ran up to the fence and were snarling and barking so loud that we all took a step back, so we went back a second time a couple days later and the same thing happened.  My client passed on that home.  It’s impossible to know everything about a neighborhood or house when you buy it, but the 17 days afforded for investigation are there for a reason.  Do your research!  Included in all of this investigation, is the physical inspection.  I describe the physical inspection as our “first line of defense.” inspect What I mean is that there are many inspections you might want to have.   Mold, radon gas, roof, geological, sewer line, structural… but all that costs money and it adds up, so the first thing you do is hire a home inspector to give you a solid overview of the home you are buying.  If there is no sign of water intrusion, perhaps a mold test or roof inspection isn’t necessary.  Your home inspector is going to be able to give you an idea of the condition of the home you are buying and make suggestions if he or she senses further investigation is necessary.  Another practical note: many times an inspector will make a “further investigation” recommendation because they have to cover their tail.  So it’s important that you ask the inspector, “Is this a big deal?”  More often than not, the inspector will say something like, “This is a terrific home and if it were me, I probably wouldn’t worry about it, but I always recommend that if you’re concerned, you should have a detailed inspection by… a plumber, or engineer etc.”  In other words, he’s saying he wouldn’t worry about it so unless you’re worried, don’t worry.

After the inspector issues their report, there are undoubtedly going to be things that need correction.  However, some may be upgrades to new standards that weren’t in effect when the homes was built, while others may be cosmetic.  I always tell my clients that we start with “Health and safety” issues first.  It’s not reasonable to ask a seller of a 40 year old home, to bring it up to the latest codes if not required by law.  Examples of code changes that are required would be, garage door sensors for child safety, CO detectors, smoke detectors and water heater strapping.  As a buyer you can ask for anything you want but you shouldn’t get your hopes up that the seller is going to make your home like a new one.  Measure your expectations and put yourself in the seller’s shoes.  As a new homeowner there are going to be things you are going to want to update and upgrade.  This is part of the joy of owning a home.

One thing I tell my clients is that there are two negotiations: the first is price and terms: what’s the price, how much down payment, when do we close, what’s included?  The second negotiation is the “Request for Repairs,” and this is often the most contentious.  Typically sellers are resistant to fix things after they’ve agreed to a price especially if they’ve had to come off their asking price to make the deal.  One of the comments I hear a lot from sellers is, “I lived with it for all these years, so can they, it’s not a new house.”  Can’t really blame them for that attitude, but this is why I recommend health and safety first.  It’s equally hard to blame a buyer for asking for an unsafe situation to be rectified.  After health and safety comes things that should be working.  Today I was on an inspection where the gas oven didn’t ignite.  It’s a pretty safe bet that the seller is going to agree to fix the oven.  The same would be true had it been the A/C, heat, windows, garage door etc., etc.  Problems often arise when the inspector notes something like this: “The roof is 25 years old and with a life expectancy of 25-30 years you should expect you’re going to have to re-paper or re-roof in a few years.”  However, when there’s no evidence it’s ever leaked, this can be a tough sell to get the seller to agree to pay for new roof.  Same comes up on water heaters and A/C compressors.  They don’t go forever and eventually they’ll need replacement, but when there’s nothing wrong now, how can the seller be responsible or a future problem or repair?

How does a buyer protect themselves then, from a problem in the future?  Sometimes a seller will acknowledge a certain likelihood and offer a credit or reduce the price a little.  But this is why the second negotiation can be so difficult, sellers really aren’t that interested in what happens after they sell.  One possible solution is ask for a Home Protection Policy (HPP) in your offer.  There are various degrees or features of these policies which you should research, but in general the HPP will help offset many unexpected expenses in the future.  Another note is that they are renewable so you can actually keep you plan in place many years after you originally purchased.  It’s a type of insurance and it’s worth exploring especially if you purchased an older home.

Once the request for repair is done, you’ve verified insurability (can it be insured and for how much?), HOA docs, title, neighborhood noise and whatever else you can think of, it’s time to lift your contingencies.  This is a big deal but it an inevitability if a transaction is going to go through to fruition.  Lifting contingencies is a big deal because until you “lift,” you can always withdraw cancel, quit and still get most if not all of your deposit back.  You are always supposed to have a reason when you cancel but the point I’m making is that you can cancel and usually not lose your deposit.  Once you lift your contingencies however, your money is on the table.  Cancel after you lift and you will likely lose most or all of your deposit.  On a $700,000 home that can be up to $21,000.  3% is the maximum “Liquidated Damages” allowable in California, so your earnest money deposit (EMD) is typically 3% of the purchase price because the seller wants you to have the maximum amount of “skin in the game” when you buy their home.  You can’t get hit with owing the total purchase if you quit, but 3% is still serious business.

Once you’ve made your offer, had it accepted, opened escrow, reviewed all the documents, done your inspection and due diligence, negotiated your request for repairs, obtained your loan approval and lifted your contingencies, all you have to do now is plan your move and await your loan documents.  Once in escrow, your loan documents are the last step between you and your new home.  Sign them, wire in your down payment and wait for the lender to “fund” your loan.  After your loan funds, the title company will record the deed in your name.  That’s when you get the call from your agent: “Congratulations, you just bought a home.”  And that really is music to the ears, isn’t it?

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When The Economy Changes, What Happens To Real Estate?

When the economy changes, naturally the value of real estate is affected.  But how is it affected and how quickly does the change register?  By all measures the national economy is improving.  Consumers are spending more money, the declining price of oil means there is more available money in everyone’s pocket than there was just a few months ago pump and lending is a little looser than it was.  The GDP (Gross Domestic Product) or the measure of how much the economy is growing, is on the rise and more people are employed.  Real estate, like every other aspect of the U.S. economy should be improving too… but is it?  And if it is, when do we know if it is?

The obvious answer is that real estate must be going up in value if the economy is improving. (Search for homes here)  Better job security leads to more people choosing to purchasing a home over renting and more people are selling and moving up.  More people purchasing means greater demand and as demand increases on any good or service, prices rise unless supply rises at the same pace.  With real estate, new supply is limited by the number of sellers at any given time, particularly in areas where buildable land is in short supply like Southern California.  When there is distress in the economy like we had, people are often forced to sell as they move in search of employment and when personal finances dictate they must sell.  This is what happens in a down market: the number of sellers increase but demand is slack and can’t keep up with the supply so prices drop.  When times are better, selling is more by choice; the desire for new digs, a bigger place, a different layout, a better neighborhood.  With increasing prices comes increased mobility as the afore mentioned challenges resolve themselves.  This should help boost supply but simultaneously it boosts demand.

The improving economy is allowing more people to move.  Fewer homes are under water and employers have begun paying to bring in new employees, so for the first time in years corporate relocation is increasing.  Rates are at historical lows so affordability is good even after the uptick in values in 2013.  Moreover, with arrival (finally) of the Millennial generation of first time buyers, there exists an environment where real estate should be transacting at apace not seen in years.  All this adds up to increased liquidity of real estate (because it can be transacted more easily) which should in turn lead to higher prices.  What’s throwing a wrench into the works is that buyers are resisting this notion, holding on to what was seen as softness in the market this past fall.  This leaves us with a tug of war; buyers want lower prices, sellers want the prices they had a year ago.

In December I listed a beautiful home in my neighborhood and it sold quickly for full price.  That buyer recognized the value.  Last week I listed another, smaller place in the same neighborhood for $769,000.  11Most would agree it’s one of the nicest properties under $800K in our area.  Within 4 days I had 3 offers, yet each was 4% off ask.  Strange don’t you think?  I mean a brand new listing with multiple offers in week one should mean a sales price at or above ask.  None are willing to up their offer to a price close enough to asking price for my seller to agree.  How can this be?  It’s the tug of war.  The buyers are looking at comps from the fall when the market was softer as is always the case for fall, while sellers are looking forward to spring.  Spring is the buying/selling season in Southern California.  Sellers normally achieve their best appreciation this time of year.  Now the question becomes, “Who’s going to win the tug of war?”

The latest Case Shiller numbers show a tangible increase in home values at +4.5% year over year for this past month.  This is a pretty big number when looking back just one month prior when that number was in negative territory, suggesting a market in decline.   Equally if not more interesting is the seasonal component that these figures were from December, traditionally a very slow time for sales.  In other words, the market did a 180 degree turn around in December.

But hold on, does real estate actually appreciate, “Just like that?” Or does it take time to show up in our consciousness?

Because every home is different, there are many metrics that people look to, to evaluate real estate values.  An appraiser will look at backward data, recently sold homes along with a pending sale or two, to establish to a lender whether a home’s agreed sales price is justified.  A buyer will look at these same comps (Comparable Sales) to determine how much to write an offer.  The key today I believe is to look back farther than this past soft fall, all the way back to spring.  Here I believe, is where you will find the real value of property today.  (Contact Tim to get a free property assessment on your home.)  In other words I’m suggesting fall was the exception, not the rule.  ISIS, Ukraine, Ebola, pick your distraction but it’s apparent prices dipped in the fall but that they’ve already bounced back.  If you bought in fall, you got an especially good deal.  But that was yesterday, not tomorrow.

I’m no Svengali, though I play one on this blog, but with everything in the economy improving and home supply still very tight, I believe prices are going to rise.  The tug of war is happening, but I now predict the sellers are going to win this time around.  There’s just too much demand for the limited supply to satisfy hungry home shoppers.  To me it’s not so much a question of when, they have, rather how much more?  A month ago I didn’t think this was possible especially in light of our local economics where our largest employer announced major layoffs and restructuring.  The best I’d hoped for was a flat spring (no further dip) where the new listings from laid off people would come in late spring as school gets out and that would mitigate the pressure on prices that the improving economy would bring.  While I still think that is still probably the case, what I didn’t anticipate was that we would reclaim our fall drop in values and get back to last spring prices before we flatten out.  And that’s what I believe is happening.  Buyers who recognize this are going to find that they have to pay for quality.  This is the trick: recognizing value and making your offer.  If you snooze, you’ll lose, the past is past and tomorrow is here. Now the question is do you believe me?

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