What It Takes To Be A Good Landlord

Many property owners have a fear of being a landlord, yet in a time where the real estate market may be in correction, some owners will choose to become landlords instead of sellers.  So what’s it take to be a good landlord?

The first step to being a good landlord is understanding what a tenant thinks “good” means.  RentalFor many landlords, it’s been a very long time since they themselves were tenants.  The second step is understanding why a landlord wants to be a good landlord.  To a tenant, a good landlord takes pride in their property.  They are interested in maintaining the home and understand and respect the value of a good tenant.  I often tell my landlords, a good tenant is worth their weight in gold.  That’s not to say a landlord should ever be beholden to a tenant or that the tenant should be allowed to dictate terms.  The homeowner is always in charge.  It’s their home.  A good tenant should be grateful that the landlord is allowing them to rent their home, regardless of how qualified that tenant is but in return, the landlord has to live up to certain responsibilities and understand their tenant’s expectations.  It’s a two-way street that requires mutual respect and cooperation.

When a tenant begins searching (Search Listings Here) they’re typically looking to move within 30 days.  This is a good thing since most landlords want their, soon to be or already vacant rental to be rented yesterday.  Therefore, the first thing a good landlord needs to do before listing their property for lease is to get it in tip top shape.  Tip top shape of course can mean different things to different people.  I have one landlord I often joke with by asking, “Are you a slumlord?”  IMG_2934For him, getting the home ready consists of wiping down the counters and baths, taking a lawn blower and “blowing out the home” and then vacuuming.  While this method may work for him, it’s not the approach I recommend.  I am of the opinion that the more pride a landlord takes in the condition of their property, the better the tenant will treat and respect it.  Obviously, there are always going to be tenants that get into a place and are total slobs and disrespectful.  However as a Realtor who’s done my share of lease applications, we do our best to try and screen this type of thing out.  Looking at credit history is one obvious data point, but these days we also Google our applicants and look at their social media pages too.  It’s a lot easier to truly find out about people by this method than just looking at credit or income.  I tell my kids, be careful what you post, you never know who’s going to see it!

Regarding condition, a good landlord should pay attention to the obvious: cleaning.  If your rental is spic and span, it will rent more quickly.  This means, be sure to focus on the caulking, the grout and things like the window tracks.  Look at the light switches and the outlets.  Not only does a clean rental show better and raise the likelihood you’ll get a high quality tenant and a better price, it makes the eventual move out easier because if it starts out in great condition, the tenant needs to return it great condition.  In California a tenant is entitled to “reasonable wear and tear.”  This admittedly is subjective, but I tend to think wear and tear applies in large measure to the paint and sometimes the carpet depending how old it is.  I always put in my leases that the tenant must have the home and carpets professionally cleaned (Contact Tim Here) at move out.  I tell my landlords to expect to have to do paint touch up and often recommend to tenants, that they allow a pre-move out walk through to establish what the expectations are for both parties at move out.  As a landlord you have to expect that when a tenant moves out, that there’s going to be touch up required.  This means down time.  The longer the tenancy, the more painting will be required and the longer the down time and down time is money.  In any event, if you deliver it in A-1 condition, you can reasonably expect it to be returned in A-1 condition for the most part.

Next up in our “Tip top shape” definition for a good landlord, is “In working order.”  Broken microwave handles are a no-no.  For that matter, broken anything should almost always be repaired by the landlord before the tenant moves in.  If it’s not discovered prior to possession and the tenant calls it out, a good landlord will hop on the repair right away.  That’s not to say a landlord jumps at every little thing the tenant asks for, but if it’s broken, it should be repaired and in a timely manner.  Also keep in mind, if a property is delivered with broken blinds or window latches, torn screens, door handles etc. the tenant is going to be sent a message.  That message is, “I don’t care” and if you don’t care, neither will they.  Some of you out there have old homes that aren’t in the best of shape and your rent reflects it.  Heck, my college apartment in Isla Vista was a total dump.  And we were hard on it, but that’s a college apartment and for the purpose of this article, I’m focusing on more “Regular” suburban homes, not low income or college town housing.  I started by suggesting that some of you might consider becoming landlords because as the real estate market softens, some owners will elect to rent their place instead of selling in a buyer’s market.  If this is you, all I’m saying is make sure everything is working before you put it out there for lease.

Another thing that makes a good landlord is being responsive.  If you are moving out of area, it’s best if you hire a property manager.  If you are nearby, be sure and get back to your tenant when they have issues.  Some landlords buy a home protection plan and instruct the tenant that it’s there for their use, but they are responsible for the service call fee.  Sometimes this works and sometimes it doesn’t.  If a tenant doesn’t want to pay the $75 for the service call, things in the home that stop working correctly can quickly become neglected.  Sure, the tenant may be held responsible for this down the road at move out, but that’s really not desirable.  Plus, if following the move out a tenant objects to the landlord’s withholding of a deposit and chooses to take that landlord to small claims court, the landlord should know, the landlord often loses.   This is especially true in California where courts tend to side with the tenant.  Better to take care of your home’s health than depend on a tenant to do it only to charge them at move out.  Some long term tenants ultimately treat the rental home like their own and take care of things out of pride, but you shouldn’t expect this as a landlord.  It’s a big bonus when it happens but it isn’t all that normal, especially in this day and age.

Speaking of what a good landlord should take care of, gardening is at the top of the list.  Many landlords are willing to give the tenant a reduced rent if they take care of the garden.  I don’t like this approach however.  When I was a renter, I would have agreed to care for the yard for a reduction in rent.  overgrown yardLet me tell you, you would not want to have me care for your yard.  I only kill gardens and can’t grow squat.  Since there’s no way to know if a future tenant has a green thumb or not, there is no benefit to the landlord to give the tenant the option of caring for the yard.  Landscaping replacement is expensive and most deposits won’t cover the cost of a new lawn or plants and flowers.  A good landlord offers gardening with the rent, it’s in their best interest.

Finally, there’s the issue of pets.  DidiMost landlords apparently don’t own pets – not sure why that it is but it’s true, while most tenants do.  I make it a policy to try and get my landlords to accept pets.  There are a couple reasons for this approach.  The most obvious is that it’s easier to rent your home if you accept pets.  Second is that a tenant who has a pet could lie and bring the pet in anyway and while this is a violation of the lease terms, it’s difficult to police.  Another more recent issue is that under nondiscrimination laws, if a tenant has a service animal you can’t turn them away.  By the way, it’s easy to get a dog certified as an Emotional Service Animal.  If you look online, there’s a bunch of online services.  Last year I had a landlord turn down 7 applicants including one willing to pay a full year in advance because they didn’t want pets.  Finally, we found a tenant who didn’t have a pet and took even less than asking when accepting them.  She moved in without a pet.  Two months into the lease there was a school shooting at USC where her daughter attended.  The daughter ended up moving home and commuted to school.  Since it was determined that she was suffering from PTSD, her doctor recommended she get a service dog.  It helped her immensely but the landlord who so adamantly refused a pet, ended up taking a pet anyway and without compensation in the form of “Pet rent.”  By the way, in California a landlord can only take up to two times the monthly rent as a deposit.  That means not 2 months plus pet deposit.  The total deposit cannot exceed 2X rent.  When a prospective tenant comes forward with a pet, the way the landlord gets compensated for taking a pet is by charging a little more rent for the pet.  I call it pet rent.  $25 or $50 helps offset any extra potential wear and tear that a pet brings and most tenants don’t object because after all, they love their pet and it’s a small price for them to pay to get the home they want and keep their pet.  On a side note we are seeing many of our military service members come back from war and they have service animals with them.  It’s just become a fact of life.

Being a good landlord pays dividends in many ways.  It usually leads to better quality tenants and better tenants tend to take care of the property.  This means less down time doing repairs after a tenant vacates which in turn saves the landlord money by getting it turned around and rented faster.  The downside to being a good landlord?  None that I can see.

 

 

#TimFreundCRS #LuxuryRealEstate # RealEstate #RealEstateInThousandOaks #RentalProperty #ConejoValleyRealEstate #RealEstateForLease #PropertyManagement #LandlordAcceptsPets #GoodLandlord #ForLease

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Buying My First Home: An Online Discount Broker Experience

I’d like to relay a story to you…

My name is Sam Lottner.  I’m 34 years old, a programmer by education and trade and the time had come for me to buy my first home.  Some of my friends have already bought and even sold and bought again, but I live in Southern California and between the high cost of housing and my student loans it’s taken me longer to buy my first home.  I am comfortable doing my own research so I chose an online discount brokerage, one that would rebate me some of the commission. 

I had a pretty good idea of what and where I wanted to live by the time I contacted an online real estate broker.  It all seemed pretty easy really.  An agent met me at the property I’d selected and over the course of time I got to seeCivic Arts and Gardens shots 025 most of the homes on my list.  Like anyone, I wasn’t really sure what I liked at first but through research and seeing some homes, I got a pretty good handle on it.  There were a couple of homes early on I wanted to see but wasn’t able to get in to and that was frustrating.  Apparently, some traditional agents wouldn’t set up showings because my assigned agent wasn’t able to provide them with information about me like my preapproval letter and down payment funds etc.  At the time, I wasn’t inclined to give that up since I wasn’t always working with the same agent.  It hadn’t occurred to me that not having a single, established local agent who knew about me interfacing with the listing agents meant I wasn’t being taken as seriously as I might have been otherwise.  By hiring the rebate broker and doing my own research I planned to save about $5,000 which I thought was a lot of money.  In hindsight, what I thought I understood and expected about the home buying process wasn’t entirely accurate. 

I finally found a home I liked.  It was older, somewhat fixed up and was vacant.  1396 Calle Yucca Web-43I looked at it a couple times with 2 different agents from the firm before finally writing an offer.  I had a lot of questions about the property but had trouble getting answers.  Turns out that I was asking many of those questions too early, so I was frustrated for no reason.  My agents didn’t explain the process and I didn’t know to ask because the people who were showing me the property were always different.  The seller always had the same agent interface with me but I was getting different people.  I didn’t realize this was what happens with most online brokers.  You don’t work with the same person throughout the process.  I later found out that this approach is common to online discount brokers.  My “main agent,” the one who wrote the offer, recommended an inspector whose reviews were solid and so I went with it.  I didn’t actually meet my main agent for the first time until the inspection.  Not knowing any different, I was like, “Okay…”  During the inspection, my agent said to me on more than one occasion that the “Seller would take care of this or fix that.”  Imagine my disappointment when the seller balked at most of my requests for repair.  I didn’t expect a “new home,” but I thought surely the seller would fix pretty much everything that I thought was wrong or I was going to have to correct right after I moved in.  My agent made it sound like fixing everything I wanted was common place.  Maybe if I had a stronger relationship with my Realtor this would have been explained better.  News flash: Sellers don’t see the world from the buyer’s perspective.  What negotiating repairs comes down to I found out, is how much did I want to buy the home vs. how much did the seller want to sell?  It’s from that place that we’d negotiate repairs.  Turns out, there is no guarantee the seller was going to do all the repairs I’d like done.  It would have been helpful to have known that going in.  Maybe had I not had a revolving door of agents I would have had a better relationship with my agent and would have understood this better.         

At the final walkthrough I met yet another agent from my broker, the 4th.  The seller’s agent who I now knew as well as my own, said that the seller had made the agreed to repairs and even did a couple extra things.  I pulled out my list of requests and said “What about these?”  The listing agent pulled out the list he said we’d negotiated and said, “This is what the seller agreed to fix and they fixed it.  That other stuff wasn’t agreed to.”  I looked to my agent but she had no clue as to what I’d asked for, what had been discussed or what the seller had agreed to.  She didn’t have the inspection nor the repair request I’d signed.  After a few more frustrating exchanges the seller’s agent said that the seller was “reasonable” but that every home is sold “As-is” in California with the exception for repairs agreed to and that some of my expectations and requests weren’t reasonable, like the level of how clean the garage should be for example.  What??  I am about ready to lose it.  He said it’s a 50 year old house and there’s bound to be cobwebs and dust in the garage.  I wasn’t happy.  The seller had agreed to clean out the debris from the garage.  It was abundantly clear who the seller’s agent was working for.  Unfortunately for me, my main agent wasn’t there to help.  Finally, my “walkthrough agent” called my main agent and they advised that I should wait to write down anything that wasn’t correct in my mind, until after we spoke later.  I wanted to deal with this now at the walk through, but I couldn’t.  I had no one I trusted to help me.  I was alone and at this point I was pissed.  Why was my main agent not there?  No one said that if I received a rebate on commission I’d be dealing with some “division of labor” approach and get different agents at each step of the way.  I couldn’t help but wonder what if?   What if I’d chosen a different type of agent?  How different might my experience have been?

My dad used to always say, “The buck stops here” in teaching me about being responsible.  HS TrumanI felt like I was in this process on my own and had no one working for me.  There was no “Here” for the buck to stop at because I didn’t have “My” agent, I had a bunch of different people, apparently paid an hourly rate or salary or some totally bare bones commission.  There was no one person that had an incentive to be there for me.  This was not the experience all my years of paying off debt and saving should have been.  I deserved better and clearly, I’d made a mistake in choosing the discounted approach.  I should have hired a real estate agent I knew or was referred to by someone I knew and trusted.   If nothing else, I would have felt more confident and satisfied with my decision and definitely less angry and taken advantage of. 

#DiscountRealEstateBrokerage #OnlineBrokers #FirstTimeHomeBuyer #RealEstateStories #SamSpeaksTrue #TrustSam

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The Curious Case Of This Real Estate Correction

As I’ve been suggesting in my most recent posts, the real estate market of 2018 is showing sign of correcting.  The funny thing, is that this curious correction looks different than any I can recall.

Maybe it’s just how corrections always are, and I frankly don’t remember their onset.  Kind of like when your kid had colic as a baby, you vaguely remember the sleepless nights, but it’s usually part of some affectionate recollection rather than tacit unpleasant recall.  As I suggested in my last post, it’s my supposition that you can’t have a strong economy with a weak housing market.  Yet by all measures, we have a strong economy.  Low unemployment, corporations flush with cash from the corporate tax cut and a booming stock market.  Looking at the real estate market fundamentals, you’d have to think a slowdown isn’t likely.

Supply is low.  Builders aren’t building enough to meet rising home buyer demand.  They haven’t built enough to satisfy a growing population not since the Great Recession and they still aren’t.  A shortage of buildable lots, available tradesmen, rising material costs and a general fear about over building are the common explanations.  Part of the collective memory of an industry that exploded a decade ago I suppose.

Moreover, sellers in general aren’t selling either.  This is for a variety of reasons not the least of which is they’ve got a super low interest rate on their current mortgage so any move up in price is exacerbated by higher borrowing costs and higher taxes.  Senior sellers can’t find the one story they want, in the neighborhood they want to live and are choosing instead to put in lifts or move downstairs.  More and more baby boomers are electing to die in their home rather than move too and that further constrains available inventory.

Then there’s the demand side of the equation.  Millennials are just now starting family creation and beginning to purchase homes.  Given this group is the largest generation on record, that’s a lot of buyers, a lot of demand.  The booming economy means more people are working and one would think this would spur home buying as well and it has.  Therefore, there will be a permanent shortage in supply of homes to sell and an ever-increasing demand from buyers wanting to buy.  When taken in totality, there is every reason to believe that a down turn in the real estate market is a statistical impossibility.  Still, the market is slowing.

When I began thinking about this conundrum, I looked back at previous bubble-corrections.  They were all fueled by some sort of artificial demand component.  Speculators artificially driving up prices, easy loans artificially propping up buyers etc.  So that lead me to thinking about the appreciation we’ve had steadily since 2012.  “Artificial appreciation, fueled by a shortage of available homes,” that’s it!  No, that doesn’t make any sense.  Supply and demand dictated the rise in prices: tight supply combined with low rates and a strong economy drove demand and that fueled that appreciation.  Despite this, we are in fact seeing pressure on prices and a slowdown in sales activity.  All this evidence is consistent with a market correction.  Where does that leave us?

Here’s my belief: The unabated 6 years of appreciation and the rise in rates, coupled with stagnant wage growth, has caused the buyers to hit the ceiling of affordability.  Most of the supply lies in price ranges that exceed the affordability for the buyer of that given type of home.  In other words, buyers can’t afford what they want, and they don’t want what they can afford.  As a result, they’ve it the ceiling, rebelling and refusing to buy.  I tell my sellers all the time, a home is only worth what someone is willing to pay for it (Want to know what your home is worth check out my home valuation program ).  If a buyer isn’t willing to spend $600,000 on a 3 bed, 2 bath, 60 year old, slightly improved home in Newbury Park, Ca then it’s not worth $600,000.  If a buyer isn’t willing to spend $2M on a 3600 SF somewhat improved home in Westlake Village, Ca, then it’s not worth $2,000,000 (Check out my website for more local info ).  Just because someone paid that much for a similar sized home in the same neighborhood, doesn’t mean that all homes in that neighborhood are worth that.  There are factors like condition and turn key, that must be considered.  In fact, turn key remains a big reason why some homes sell at outlandish prices.  Most homes however, are far from turn key and therefore can’t command the turn key premium.  One thing we know for certain, buyers today don’t want to do any work.  If Millennials were like the first-time buyers before them, they’d buy older homes, improve them and build equity hoping to fuel their move up a few years and a kid or two, down the road.  But they aren’t.  Today, those buyers are often dual income, much older than previous generation first time home buyers and simply don’t have the time to remodel nor have the cash after buying to remodel, but they see remodeled homes online and on HGTV and that’s what they want.   If they can’t get it in their price point, they won’t buy.  There is a lack of incentive.  Prices aren’t low and rates aren’t super low like they were, two big incentives for fueling our recent housing demand.  Moreover, the discount or negative premium buyers today demand of under improved homes is substantial, which runs in contrast with the asking prices of those same homes following years of broad appreciation.  (As opposed to the premium they’re willing to pay for turn key remodeled.)  This problem is exacerbated by the home builder’s failure to build more entry and mid-level homes.  Most analysts fail to consider the impact that new homes have on the overall health of real estate market.  People sell their existing home to buy a new home.  That existing home is then added to the supply of available inventory.  If builders aren’t building where the demand is, then we end up with an over supply in homes people don’t want (or can’t afford) and a shortage of those people do.  What happens when there is an over-supply of homes in a price range where there is a limited supply of buyers?  That’s right, price corrections.

The real estate market correction that is just now starting, is fueled in my opinion, by a shortage of affordable supply, rising interest rates and stagnant wage growth.  It should be very interesting to see how large the drop in home values has to be, before buyers jump back into the market?  I personally don’t foresee a huge slide in home values, but there will be some – heck nothing goes up forever – at least not home prices, (that is unless everyone starts making a lot more money so they can afford what they want.)  Thus a correction is always an inevitably; it’s not a matter of if rather, when.  Then there’s the question of, how will a correcting real estate market affect the economy as a whole?  Remember, I believe as the housing market goes, so goes the economy.  Just look at how home builder related stocks have performed in 2018: the sector is down between 27-42%.  Talk about a harbinger of things to come!  If you’re looking for a crystal ball, look no further than that.  The ripple effect of a correcting real estate market is felt across the entire economy.  It affects incomes, confidence, the stock market which in turn affects, income, confidence and the stock market and so on.  That ladies and gentlemen is how we end up in a recession.  As I see it, the only way we stave off this inevitability is through substantial wage growth which offsets the rising cost of homeownership. Have any comments or questions? Feel free to send me an email, I always love to hear your thoughts.

 

Posted in Demographics, Economics, home builders, Home Buying, Home Selling, Market Conditions, Real Estate, Real Estate Correction, Recession, Tax Reform, Tim Freund | Tagged , , , , , , | Leave a comment

When The Real Estate Market Begins To Change

When the real estate market begins to change, seldom is it an avalanche.  As one who’s been doing this for nearly 3 decades, I have been through my share of market downturns.  Some, like 2007, started like the scene in Indiana Jones and the Temple of Doom, where you heard a low rumble and seconds later there was a wall of water coming down the tunnel.  Obviously, that crash, more violent than any before burned brightest right before it flamed out.  Most other times it’s just a gradual sort of slow down and then nothing.  The market just dries up and everyone stares blankly at each other and wonders aloud, “Market’s slow, I wonder how long this will last?”  I believe this is that kind of market we find ourselves in today.

A couple days ago the new home data was released and it showed fewer sales, fewer contracts, fewer permits pulled and fewer homes being built.  This was attributed to a variety of reasons.  A lack of buildable lots, shortages of labor, tariffs (rising material costs), rising interest rates and perhaps most importantly, price fatigue for today’s buyers. Oh yeah, and not enough entry level homes where the demand is greatest.  Tuesday, Case-Shiller reported numbers that show sales (monthly closed transactions) were down and price appreciation is slowing dramatically in all but a few markets.  Yesterday, the National Association of Realtors put up their pending sales numbers and as expected, they are similarly uninspired.  Sales are down month over month for the 7th straight month in every region and price appreciation while still a thing, is declining year over year.  The thing to understand when looking at year over year appreciation numbers, is that as a market tops out and the subsequent months go up less and less, this year’s price starts to look a lot like last year’s price and the spread between the two narrows.  If that trend were to continue indefinitely, you’d end up with a graph that is just a flat line, ie: August’s median price last year was $750,000 and this year’s is too.

For those of you who are old enough to remember Johnny Carson, I am going to put on my turban and play Canrac The Magnificent and make my prediction.  (If you are unfamiliar with Carnac, google it.  It’s funny stuff.)  Before I do, let me offer a little perspective.

The first thing to know about the real estate market is that it is never stagnant.  It’s constantly in flux.  Going up, going down, every home is different so it’s always doing something.  Right now it’s slowing.  It’s not grinding to a halt, plenty of homes are transacting, but it’s not as it was.  Let’s look to my local market as evidence (Thanks to my friend Chuck Lech of TheLechReport.com for the data.)  In August the Conejo Valley sold 12% fewer homes than they did last August.  12% is not an insignificant decline.  Inventory is 15% higher too.  Declining sales plus rising inventory means more competition for the same buyers.  Interestingly however, the median price is still up 4%, but that is a shrinking number as the year over year price begins to look the same and the curve flattens.  Property appreciation has been directly attributable to the shortage of available homes for sale.  However, if inventory continues to rise, prices will by necessity come down as more and more sellers find themselves sitting on the market.  And that ladies and gentlemen, is what we call a correction.

Prices need to find an equilibrium that spurs increased interest from buyers. The thing to bear in mind is that real estate always adheres to the basic economics of supply and demand.  Prices go up when demand goes up and when demand declines prices follow.  Naturally demand is affected by affordability which factors in the cost of borrowing money (interest rates) and the strength or lack there of in the economy.  When it comes to supply, things like speculation and the ease and availability of financing are big considerations.  In the bubble of 1989, there was plenty of new construction going up but speculators were buying and flipping driving up prices more than the actual market would have otherwise supported.  In the bubble of 2006, financing became so easy, anyone could get a loan to buy, falsely inflating demand.

The strength in the economy is a big factor on the demand-side. When people are feeling good, working and making money, they buy houses.  The economy is also a big factor on the supply side.  If the economy is doing poorly, people don’t buy homes and often times are forced to sell homes, increasing the supply.  So one could say, as goes the economy, so goes the housing market; or is it, as goes the housing market, so goes the economy?  This begs the question: Can we have a strong economy when the housing market is in correction?

According to everyone you listen to, the economy is humming along nicely and there are no signs of a slowdown or recession.  GDP is up 4.2% and that’s the strongest it’s been in 4 years. We are also at or near full employment: everyone is working and making money.  If we accept the premise that the economy is in great shape, then we can safely say the real estate demand component should remain strong and builders should continue to press forward, boosting production in an effort to increase supply.  Buyers having steady employment, will feel good about making a home purchase.  If this is the case then, the slowdown we are experiencing is almost certainly attributable to normal seasonal components rather than anything else. Ie: August is the slowest month of the year (it is); parents are taking their last vacation and preparing for school to start back up (they are) and as has been the case as long as this Realtor has been in business, the pattern of a slow end-of-summer continues.  The thing is, that does not explain why the number of sales are declining 7 months in a row.  This suggests something else is at play.

If you don’t subscribe to the “Economy is humming along” school of thought, then you might say the slowing trend is only a precursor of things to come; that a slowing real estate market foreshadows a slowing economy.  I believe you can’t have a strong economy without a strong housing market.

We know that after 6 years of rising home prices and rising interest rates, affordability has declined.  The only way affordability improves is either prices come down or we make more money.  Formerly unemployed people are making more money, but wages are not increasing at the pace of inflation.  When our wages are growing slower than the prices of the goods we purchase (like a home), our confidence gets eroded.  Since consumer spending represents 2/3 of our GDP, confidence is king to a growing economy.  The failure of salary growth to keep up with inflation reduces confidence, which leads to slower homes sales and eventually declining home sales prices which is what?  Another confidence shaker.  So which is it?  Are we in a good economy where everyone is sharing in the spoils of growth and prosperity or is the prosperity largely limited to the most wealthy?  Carnac here is in the latter camp.  I think the tax cuts and budget deficit spending are primarily helping a small group of Americans and for this reason, I predict a correction is afoot and a recession on the horizon.  I don’t however see a major recession or housing correction coming (To share your thoughts with me click here). For housing, we simply are not building enough homes for our growing population.  This will keep inventory tight and that puts a floor on home values.  And as for a recession, there’s always a recession coming, it’s just a question of when and how bad.  As for my guess on home values?  I am predicting a 5-8% adjustment but that’s just a guess.  So, what does a home buyer or seller do?  If you’re thinking of selling, sell now because you’re not leaving much money on the table and be a little more aggressive on price than your competition.  If you’re thinking of buying, buy now because prices may decline some but not collapse and nothing like 2009 (search for homes here ).  Just be a little more aggressive on your offer, especially if the property you like has been sitting.

 

 

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If The Market Is Slowing, Then What?

By the looks of things, the real estate market is slowing.  This can mean any of a variety of things.  So what if it is, then what?  Should you hold off buying, selling?

As I always write, real estate is local and can even be hyper local so observations I might have for my area along the LA/Ventura County Line, (Search listings here) may or may not be applicable to your neighborhood.  LA’s westside shows little signs of slowing down except that maybe at the ultra luxury level of 8 and 9 figure homes.  That said, there are strategies for how to approach real estate buying and selling when a market shows signs of stress and is slowing down.

If I’m a seller (Check out Tim’s listings here) and I see the number of homes for sale increasing in my neighborhood, should I change my plans and not sell, waiting for a better market or should I sell anyway?  If I’m a buyer should I wait and see if the market is going to go down more, or do I buy now?  Let’s start with selling and come back to buying as the strategies aren’t the same.

If you are selling, the answer is, that it depends on why you are selling?  If you are selling because you either really want to be somewhere else or perhaps you have to be for work, staying is not an option, you sell.  If my grandkids are in Prescott, AZ and darn it, I want to be with my grandkids, I’m selling.  If the market is slowing you have to ask yourself, is it going substantially lower or is this just a seasonal blip?  Obviously if you had a crystal ball that said prices were on the path of a 10% correction, you’d price more aggressively than your competition and get it out there and sold right away.  Unfortunately, we don’t have a crystal ball.  In the face of a correcting market however, I usually assume the worst.  I’d rather get out early, leaving a little money on the table, than look back and say I should have sold then.  It’s a bit like musical chairs and I just want to make sure I get a chair.

Buying is a little different because if I sense the market is getting soft and I can afford to take my time and be selective, I seek out a home that I really like and then, not lowball, but definitely try and use the softer market to my advantage.  Ask your agent about the absorption rate.  Are there 3 month’s supply of homes or 9 month’s?  If I’m in the lower end of that spectrum (3 being balanced for my market here) then it won’t feel like a buyer’s market and therefore the seller won’t believe it, but if the absorption rate is north of 6 months, I’m pressing the seller and they’re likely to know it and be more pliable (Contact Tim here).  In this scenario, every seller is competing for the same buyer, me.  That gives me the opportunity to push the seller of the home I really want.  Keep in mind the best transaction is a win-win, so success will usually come if you aren’t totally obnoxious, trying to grind every penny out of your seller.  This is how I’d approach buying.  Ultimately since no two homes are the same, there will be one you favor more than the others and on this one, make your lower offer but don’t insult the seller and don’t lose your dream home over some principled “the market is crashing don’t you get it?” approach.  If the market is really crashing and obviously so, then that’s a different discussion.  Remember, this is advice for you buying your home, not an investment where it’s “All about the deal.”  Since most corrections are modest in nature, the goal shouldn’t be to steal the property, rather to get a better price, move in and live happily ever after!

Posted in Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Seller Advice | Leave a comment

VA Benefits Helping High Dollar Purchasers

I recently opened escrow on a $2.2M listing (see here for my recent sales) . The buyers were a super power couple with clearly income to spare. The husband was a veteran and as well qualified as they come. What made the file unusual was that the buyer chose to use their VA eligibility to finance the purchase. In other words, this was a very high balance VA loan.
Many Realtors frown on VA financing as do their sellers. There are certain costs  a seller must absorb like both Section 1 and 2 of a wood destroying pest inspection and a VA buyer can’t pay escrow, although there are ways around this. A typical VA loan requires as little as zero down but has a high balance loan cap, which while varying from county to county, can reach as high as $679,650. For most of greater Los Angeles area this is the cap. But VA doesn’t actually have a loan limit and a VA borrower who has sufficient eligibility, can seek a virtually unlimited loan amount. The catch is that borrower must put down 25% of the loan exceeding the county cap. ie: A vet buying a home for $1,679,650. The amount borrowed exceeding the county cap is $1,000,000 ($1M + $679,650 = $1,679,650). The vet then has to put 25% down on the excess $1M which is $250,000, while putting zero down on the first $679,650. This is great for a vet because a normal borrower would have to put 20% down on the purchase amount of $1,679,650 which would be $335,930 (20% of $1,679,650) while the VA borrower only has to put down $250,000 (25% of the amount above the cap). That’s a difference of $85,930 that the vet doesn’t have to put down. Other VA benefits include a typically lower interest rate and up to 60% back end debt to income ratios. Back end ratios are the mortgage plus any other debt divided by gross income vs. front end which is only the mortgage divided by income. The benefits of doing a VA loan therefore, are substantial (contact me for more info). 
I handled another purchase at $1.2 in January also a vet buyer, using their VA benefits to finance the purchase. In this case, instead of putting 20% down on $1,200,000 ($240,000), the buyer only had to put 25% on the borrowed money exceeding his cap of $679,650 or $130,088. This represented a reduced down payment to the tune of $109,912! That’s huge.
Finally, what I’d like to leave you with is this: There are lots of vets who are well established in their post-military careers.  A vet who at 20 served in Afghanistan in 2002, is now 36 and a vet who served in the 1991 Gulf War, is already in their late 50’s and making the best money of their life, so we aren’t talking only about young first time buyers just getting started after their service. As a seller, selecting a veteran buyer means you are not only on the moral high ground but you can feel confident that from a financing perspective, regardless of purchase price, VA financing can work just fine and in many ways, even better than conventional financing.

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Thoughts On Online Brokerages

I was on a listing appointment the day before yesterday and the issue of Purple Bricks, an online discount brokerage out of Australia came up. They had taken a listing up the street which had been marketed by several Realtors prior to the latest incantation with Purple Bricks and it had finally gone into escrow. The seller mentioned this home and that the commission was just $3,500. Another Realtor might have been taken aback by this revelation, I however, just smiled. I love the opportunity to talk about the value a Realtor like me brings to a transaction. I explained that his information was incorrect, that the MLS states the seller’s broker was paying a 2.5% commission to the agent who brought a buyer. Since the home as listed at $1.2M, that meant a $3,500 listing office commission plus an additional $30,000 selling office commission. The client then said it was still

2026 Warble Court in Rancho Conejo

only $3,500 for the for the listing side, a savings of $26,500. “Was it really?” I said. I pointed out the obvious first: The new listing was priced at $1.2M when it had previously been listed for $1,399,000, $1,299,000 and $1,239,000 over the past Christmas holidays. I suggested that not only did Purple Bricks list the home for $200K below where the seller started, but that by listing it for what they did, when they did, they’d not priced it correctly for the season. Had they hired me instead (check out my new listings here) , I would have listed their home higher because the lack of success over the holidays is irrelevant when compared to listing in spring when it’s the best time to sell and prices are always higher. Without reservation I said, I would have listed and sold far above where the discount broker with their discounted service had. I then pointed out that we still don’t know what they actually sold for but that while I researching the property prior to our appointment I had to actually look at the previous listing agent’s photos to remind me (I’d shown it back when it was $1.4M) because the Purple Bricks photos were thumbnails, making them impossible to see. Proper photos and marketing would have helped it sell more quickly, which usually means more money. And while thumbnail pictures are admittedly an easy fix, the listing still showed the amateur photos 51 days after hitting the market. No one bothered to even notice. The seller then said he would have never considered them himself for his most important asset. He just wanted to see if I knew about it. He said he wanted someone he knew was local, established and was someone he could trust. Smart guy.
The trend of using the internet for commerce is nothing new and discount

Morrison Estates Sutton Valley

Morrison Estates Sutton Valley Home

real estate services are nothing new. The combination of the two is nothing new either. Redfin, an online discount broker with a great website, has been around for at least 10 years. They use salaried agents which allows them to offer the discount, but who by definition have no incentive to fight for a better sales price. Redfin tries to limit the risks of being a Realtor (a commissioned sales person spends time and money but makes nothing if they can’t close your transaction) by limiting their marketing to the MLS and their website’s traffic and placement on Google. They offset the demands of being a Realtor by using a “division of labor” approach. The agent that shows a property, isn’t the agent who handles the inspection, the appraisal or the paperwork or the interface with the other agent, escrow, title etc. My one experience with a Redfin listing was that the other agent was missing in action. The seller handled everything as if it were a “For sale by owner.” Showing, open houses, all on the owner. Like the Purple Bricks example earlier, that seller left money on the table, which was fine by me as it benefitted my buyer.
While there are other examples of online brokers espousing cheap fees, some of whom aren’t even Realtors or members of the MLS. A company called REX comes to mind who advertises 2% total commissions. They are licensed but they aren’t Realtors. They don’t follow a nationally implemented Code of Ethics like Realtors do (more info here) They do however, keep all of that 2% commission to themselves, doing nothing but put your home on a hard to find-if-you-don’t-know-where-to-look website, and hope someone sees it. Pretty hard to imagine them selling for the true market value when no one knows you’re even on the market and the Realtors with buyers aren’t compensated to show their clients your home.
Real estate is a tricky business. It’s stressful and is filled with many emotional ups and downs. There are lots of moving parts and while it may look easy from afar, it is nothing of the sort. How could it be, with so much riding on it? Dividing the labor demands into multiple people may save money and even be more efficient in a production line kind of way, but this is no way to handle any transaction with such far reaching implications and financial importance. With me, the buck stops here. Online, there is no “here” for the buck to stop. And this doesn’t begin to address the significance of the emotional support and counsel a quality Realtor can provide to a buyer or seller. I can tell you that at times I am a therapist, an accountant, an attorney (not really but I feels that way) and a marriage counselor. I am a financial advisor, retirement planner, crystal ball reader and by the end of an escrow, a virtual member of the family, because there is nothing more important when buying and selling real estate, than trust (so call me if you want advice ).
Ultimately there will always be changes to the real estate industry as a result of many factors including online brokerages, but again, change is nothing new to our industry. Real estate has come a long way from the days when the only way to learn about available properties was to hire an agent who could pull out their “Listings Book” and drive you around. But for all the changes, real estate remains a local, personal, one on one business. And while the internet will empower people with knowledge, knowledge alone is not experience, nor is transacting a home purchase an everyday event. Liability is greater than ever, regulations and requirements change, time passes and inevitably you forget most of what you learned the last time around. Thankfully however, there are ethical local professionals, who carry the label Realtor; neighborhood experts who will bring value and insight to the most important transaction of your lifetime: The buying or selling of your home.

Posted in Corporations, Home Buying, Home Selling, Real Estate, Seller Advice | Leave a comment