El Nino’s Coming, Tips To Protecting Your Home

You’ve owned your home for many years.  Perhaps you’ve even done some remodeling.  Remodeling and building maintenance are two very different things.  One you get to enjoy the fruits of your labor, the other you just get peace of mind.  Here are a few things that you really need to pay attention to and this is never more true than in an El Nino year.

With winter upon us and predictions of heavy rain throughout California, the first most obvious thing to attend to is your roof.  1Most people only think about their roof when it’s already leaking, not exactly a great strategy.  So what to do?  You need to call your local roofer or your local Realtor for a referral (Contact Tim Here) if you don’t know a roofer and ask for a roof tune up.  A typical roof tune up costs around $350 to tune up and should be done every 7 years or so.  When a roofer does a tune up they’re looking for broken tiles that might need repair.  Most people don’t realize that the tile does not keep the home dry, rather it’s the paper or “Felt” underneath that does.  The tile is there to protect the felt.  When there is a slipped or broken tile, the paper is exposed to UV light and this causes the paper to become dry and brittle.  This in turn is a quick path to a leaky roof.  The second thing the roofer looks for is the mastic around the flashings… huh?  That is, the rubberized industrial adhesive that is used to seal the gaps between the sheet metal vents that breach the roof, paper and tile.  This includes along the edge where the chimney meets the roof.  Next time you’re at home, go across the street and look back to your home.  Imagine that each vent pipe you see sticking out of your roof is a hole cut in the felt and roof tile.  Mastic seals the flashings however, over time mastic like any tar or rubberized material, dries over time and cracks.  Cracks in the sealer mean a greater likelihood you’ll get a leaky roof.  Cleaning gutters is another reason for the roof service as well as cleaning valleys.  The valley is the “V” shaped sheet metal at the joint where two angles of the roof meet.  Those valleys however become easily blocked by leaves, dirt, pine needles etc.  Don’t think for a minute that having debris on your roof is giving you, “an extra layer of natural protection.”  Quite the contrary, it’s a leak waiting to happen.  Like all water, water coming off a roof flows downhill, but when the valley is blocked by debris, a dam is formed.  Then water backs up essentially flowing up hill.  Since the paper overlaps to allow for runoff, water flowing up will go under the paper and cause a leak.  I recently closed on a home where the owners had lived for 26 years.  There had been some roof leaking above the master bed in the past but had been repaired.  Unfortunately, what no one realized was that while the roof had been repaired and the ceiling repainted, the wall behind the seller’s headboard had not dried out properly and, you guessed it, this led to a mold problem.  Making matters worse was the fact that the mold problem wasn’t discovered until the day the furniture was moved out, which in our case was the day of closing.  Thus the seller had to attend to the mold issue after close to avoid a lawsuit.  We quickly had the area scrubbed and the mold eradicated to the tune of $1,800.  Of course the seller absorbed this cost even though they had no idea prior to furniture removal that such a condition existed.  Had the roof been serviced every 7 years as it should have been, this prickly and very stressful situation could have been avoided.

Another important winter repair are your drains, both yard and sewer.  Because California has been in the grip of a drought for 3 years, our trees have become very thirsty.  Thirsty trees will find water wherever they can and this includes your yard drains and sewer pipes.  Both these pipes can usually be cleared out by a plumber using a combination of a snake with small saw blades to cut up the roots and high pressure water to blast the debris out.  flood picFailure to do this can lead to flooding and backed up sewer lines.  Wait too long and the hydro will no longer clear out the debris and this means re-piping.  When my mom recently replaced her driveway I suggested that she have a plumber run a camera down the sewer pipe to determine if it was clear since it would never be easier to repair than when the driveway was torn up.  It cost about $150 to get a DVD made with the camera in the line and don’t ya know?  The tree roots invaded the line and the connection to the City main was broken!  That ended up being an $8,000 repair, at least the driveway didn’t have to be torn up and re-poured.  By the way, do you now whose responsibility it is to repair the connection of a home’s sewer line to the sewer main?  The home owner, even though it is under the street and past the property line.

I’m sure you’ve noticed at times you need to paint.  Eaves, garage and window trim, exterior doors, decks… If you have wooden windows you’re probably used to painting them regularly, same for a deck.  If you don’t, you may think that you can wait to do doors and trim until the next time you paint the whole house.  This deferred maintenance is a mistake.  Exposed painted wood further deteriorates due to weather and the sun and failure to repaint will lead to water and weather damage and wood destroying pests like dry rot.

Wet weather can cause other problems too.  If you normally don’t use a key to enter your French door to the back yard or the door from the side yard into the garage, chances are the key isn’t going to work well if at all.  While WD40 may be a good lubricants for hinges, they are a disaster on door locks.  The way to lubricate a lock is with graphite.  Your local hardware store sells graphite and often the little tube it comes in actually has a key on it.  Graphite gets ‘Puffed” from the small tube into the key lock and into the door latch itself.  Do this and it will operate as smooth as silk.  I can’t tell you how many sellers provide me with a key that barely works or is sticky.  “Yeah that lock is kind of difficult,” my clients will say.  I then break out my tool kit (As a Realtor I carry a little tool kit for just such an occasion) and with a quick puff of graphite, Ta-Dah, the key and lock work just fine.  You can take the mechanism apart and dust in graphite on some of the interior moving parts, just stay away from the greased portions.  Graphite costs a couple dollars.  A new side door lock could be $100 and your front door can run as much as $1,000.
So when it comes to El Nino and maintenance in general, remember the old adage: An ounce of prevention equals a pound of cure.

Posted in Real Estate | Leave a comment

Happy Holidays: Real Estate 2016, What You Can Expect

As we move into 2016 there are many questions hanging over the real estate market, both locally and nationally.  The impact of certain events and behaviors of certain policy makers leave plenty of room for changes in direction, but I’m going to go out on a limb and try to shed a little light on what I think is going to happen, and hopefully spread a little holiday cheer as 2015 draws to a close.

The most often discussed event casting a shadow of uncertainty over the market is the impending rise in interest rates.  Let’s get something straight right now: rising rates do not necessarily cause a slowdown in the real estate market. In fact in moderation, rising rates are a boost to real estate values and the market in general as people who have been sitting on the fence about buying or selling, choose to accelerate their plans to “Get in before the rates go up further.”  4(Find a home here today!)  Moreover, it is a common misconception that higher rates drive prices down.  The thinking is of course, that higher rates mean higher costs thus lower affordability and that means prices have to drop.   While it is true, higher rates mean higher monthly payments and therefore lower affordability, lower affordability is offset by higher incomes.  Ask yourself this, why do rates rise?  Answer: Inflation.   What is inflation?  Rising prices, rising costs.  Rising prices include real estate and rising costs include the cost of labor.  Thus rising wages offset higher interest rates… to a point.  Naturally, moderation is the key phrase here but modestly rising interest rates and moderate inflation do not a market kill.

Here’s a concept:  Globalization and international currency relationships effect rising interest rates.  Let me explain.  Unlike decades ago where every economy was an island unto itself, today investors from economies all over the world are chasing return on investment and greater yield.  They are looking to any and all nations to find that safe return and where is the safest place to invest your money?  No place is safer to invest than the U.S.

So what happens when the U.S. has a better rate of return than other developed nations?  People buy U.S. Treasuries.  In Germany for example, the 10 year bond pays sub 1% and in Japan it is a negative number, meaning if you want to buy a government bond in Japan, you actually have to pay them.   So what is going to happen when the U.S. Federal Reserve begins raising interest rates, offering a higher and safer rate of return while other developed nations?  Investors will flock to U.S. Treasuries, even more than they do now.  And what happens when demand increases but supply doesn’t follow?  Prices go up and when the prices of bonds go up the yield, which moves in the opposite direction, goes down.  This means that even as the Fed raises, interest rates go lower or stay flat.  So even if the Fed raises, rates will likely move only moderately as demand increasingly exceeds supply.

Speaking of affordability, have you taken a look at rents recently?  I can only opine on areas that I know firsthand (Contact Tim Here), however my perception is that rising rents are not a phenomenon unique to Southern or for that matter Northern California.  In Los Angeles, rents consume the greatest percentage of income of any city in the country.  That’s right, a higher percentage than New York or San Francisco.  Why?  Because in LA people earn less than the Bay Area or NY Metro and so while the average rent for a unit is lower in LA, rent uses a greater % of people’s income to pay.  But higher rents increase demand for purchasing because purchasing provides a lower housing cost on a monthly basis than renting.  I suspect areas that have lower wages are experiencing a similar phenomenon and their rents are rising relative to their local wage growth.  Increased demand equals rising prices, so long as the supply remains tight.  And it is tight.

So let’s talk California.  Where are all the new subdivisions?  They aren’t as common as in years past.  This is in part due to a shortage of raw develop-able land, environmental constraints etc., but also because builders just haven’t building like they used to, at least not yet anyway.  Complicating our tight inventory is the fact that from 2008-2013 it has been estimated based on historical population and building trends, California is nearly 800,000 units of housing short.  In other words, we didn’t build nearly as many homes when there were mountains of foreclosed properties as normal.  Demand was scant during those dark days so who would be building?  However as the economy improved and demand resumed, we find really miss all those units that would have/should have normally been built during years that encompassed The Great.

Demographics.  Much has been made of the Millennials and their slowness to come into the real estate market.  Well it’s now happening.  Better late than never and boy is it coming.  As the millennials move into family formation and home ownership, they being the first generation larger than the baby boomers, are putting tremendous pressure on available inventory.  This trend is going to continue for years to come.  It’s been said that Millennials want walkability and neighborhoods.  They want urban and not the mansions of the suburbs that their parents wanted.  That’s what people believe anyway.  But here’s the thing about that: While it is true that the Millennials may want those things today, it is highly unlikely in my opinion that they will want those things 5 or 10 year from now when they are having kids and looking for quality schools.  Bring on the Burbs!  The Millennials may not want what their parents or grandparents want today, but what young person does?  So does that mean they never will?  Highly unlikely.

Ultimately the real estate market will have appreciative gains and then give backs.  This is the ebb and flow of real estate.  This is the nature of all markets in all commodities.  The shortage of supply and the ever increasing population will however, culminate in rising real estate values in both the near and the long term.  Interestingly, do you know who recognizes this better than most Americans?  Everyone else.  The Europeans, the Chinese, the Russians.  rus comThey are coming to the United States and buying premium properties and paying premium prices because they understand what we in America often forget: There is no better place in the world to live and no safer place to invest than right here in the good ‘ol U.S. of A.  So that’s my stocking stuffer of 2015, real estate is going to keep rising.  It will go up, perhaps drop only to go up again, because that is what it does, what it’s always done and what it will always do.  Like Mark Twain so famously said, “Buy real estate because God ain’t makin’ anymore.”  Let me leave you with this saying you’ll find at the bottom of every email I send: “You don’t wait to buy real estate, you buy real estate and wait.”  And that, is some good holiday cheer indeed, wouldn’t you agree?

 

Posted in Real Estate | Leave a comment

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.

Posted in Real Estate | 1 Comment

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.

Posted in Economics, Home Selling, Real Estate, Refinancing | Tagged , , , , | Leave a comment

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.

Posted in Demographics, Economics, Home Buying, Home Selling, Real Estate | Tagged , , | Leave a comment

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.

Posted in Home Selling, Real Estate | Tagged , , , , , | Leave a comment

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.

Posted in Home Selling | Tagged , , , , | Leave a comment