YOU JUST WROTE AN OFFER, WHAT HAPPENS NEXT?

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

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

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

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

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

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

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

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

 

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Stuff: To Stage And Declutter Or Not, That Is The Question

This past weekend I did a listing presentation of an older client I sold a home to some 17 years ago.  It was pristine.  It had been painted within the past couple years and the carpet had been replaced then too.  Clean as you could want.  The issue facing us however was do we approach this home like we do most listings where we get it cleared out of excess stuff, take the pictures off the walls, remove a bunch of furniture etc. and make it look staged and sparse or do we do some light decluttering and put it on the market right away?

One of the things to keep in mind when selling real estate is that every seller is different and therefore the approach to each home requires flexibility.  This may seem obvious enough, but in my experience the approach of declutter and stage to get the highest and best price is still the best.  The question becomes even if true, is that always the right approach?

Let’s take this example and break it down starting with, what do we know?  We know if we make it look like a model home it will sell faster and for more money.  We also know however, that our seller has a lot of stuff.  That stuff would need to be removed and disposed of as part of the staging and decluttering process. The thing is, whether done as staging or moving, that stuff needs to be dealt with and disposed of  at some point.   As you may or may not know, stuff doesn’t have much value.  Unless it’s rare or museum quality, its value is not generally significant.  Stuff is just stuff.  We all have too much of it and selling it is difficult at best.  If you are in a restrictive HOA and you can’t have a garage or estate sale, the challenge is magnified.  This is really where the individual seller’s needs need to be assessed.  In our example the question is, is it better to hold off selling while the family tends to the stuff or get the stuff stored and deal with it at a later time?  It has to be dealt with eventually so deciding when is the question, rather than if.  Either approach postpones selling some, but storing and dealing with later at least accelerates the listing date.  Most people don’t opt for this though because moving and storing feels like twice the work.

In our example we also have the option of selling with all the stuff still in the house.  The price likely wouldn’t be as high but it would put off the need to address the stuff issue prior to selling.  Once the home is sold the clock is ticking and now the stuff must be dealt with.

Not every seller is after every dime.  Some would rather take a little less and address the issue over the time of marketing and escrow.  Market conditions also enter the decision process.  One advantage our area has, is that the market is very strong and inventory is low.   Standing pat and doing a few little things so we can sell right away might not have a big impact on sales price.  It certainly wouldn’t be so huge as to make the decision obvious.

So the answer of stage or not to stage is not as clear cut as it was in the down market.  Much will depend on the individual seller.  In most cases, staging is still the best choice (Check out  my website here for homes that have been staged to sell, can you tell which ones have, let me know).

Staging almost always yields a higher sales price and in a shorter amount of time.  My role as agent and advisor is to help my client make the best decision for them, in the current market, for their current situation.  As for this seller, I’m leaning towards sell “as is” and take advantage of the lack of competition in the market place.  A month from now, I might not recommend the same approach.

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Tax Reform: The probable Effect On California Real Estate

The 2017 Republican tax bill that just passed includes several provisions that will have a direct impact on California real estate.  Most are not good, but there’s often some silver lining if you look hard enough.

Preface to say, I am not an accountant, so take this for what it is, it’s just what Tim thinks.  The most obvious, most painful and most significant tax change affecting California, is the cap of $10,000 on state and local tax deductibility or SALT for short.  If you are unfamiliar with this component, it’s a provision that caps how much local tax you can deduct.  Because we in California are an income tax heavy state and pay as much as 10.5%, state income taxes, most coastal California home owners will exceed the cap of $10,000.  To keep this real basic and simple, if you have a fire fighter and school teacher couple earning $150,000 per year, the 10.5% state income tax exceeds $10,000.  If you are a scientist or engineer and your spouse an attorney and you make $350,000 a year, your state tax is over double the cap.  This means that you will have to pay federal income tax on the tax you pay California.  This is called double taxation, paying tax on tax paid.  So if you had to pay Federal income tax on $25,000 California state tax you would have to pay an additional $8,000.  ($25,000 x 32% tax rate).  Why the 32% highest tax rate you ask?  Because the addition of taxable income at this income level is added to the top line which is taxed at your highest rate.  $315,000-400,000 income is now being taxed at 32%.  This all by itself knocks nearly $700 a month off your monthly take home and therefore drops your ability to borrow/pay for a mortgage by over $100,000.  In other words, you’ll be paying a lot more in taxes and therefore have less money to pay for that higher monthly mortgage.  Do you think the nearly $1,000 a month take home might influence how much house you buy?  Probably.

The second thing that hits Californians is that state income tax isn’t the only tax we pay.  We also pay property tax.  So, if I bought a median priced home in Los Angeles for $750,000, I’d be paying $9,375 in property tax.  If you add $9,375 to your top line, you’ll have to pay the IRS and additional $3,469 or $289 a month.  Added to the additional Federal tax you’ll pay on your state income tax, you now have $1,100 less a month.  You will however save some money with the lowered tax rates.  I mean that was the whole point of the legislation, right?  But using our $350,000 income example, I calculate you’ll save about $7,500 a year or $625/mo. But you’ll pay $1,100 more.  As you can see, the cost of losing the full deductibility of your SALT by capping it at $10,000 and the subsequent double tax you will be required to pay on the difference, marks a reduction in monthly income of about $500.

The third thing that affects many, albeit not all Californians, is the reduction of the mortgage interest deduction for loans above $750,000.  Currently you can deduct $1.1M ($1M first trust deed and $100K 2nd.)  This deduction cap drops to $750,000.  This equates to an additional $5,180 in Federal income tax or another $431 a month less in the pocket ($350,000 x 4% divided by 12 months).  Admittedly, many will not feel sorry for someone with a million dollar mortgage not getting the extra write off, but it is going to have an effect on high balance borrowers and that is going to trickle down.  In other words, am I willing to pay $1.3M for that home now that I have $800 less income every month?  The answer to that question gives us an indication on what is going to happen with values.  By the way, that’s equal to a $200K loan payment.  Yeah, the math is not good.  There’s also the issue that second home interest is no longer deductible and that could lead some people to sell and/or not buy a second home.

About that silver lining I alluded to at the outset is my expectation of declining property values.  Because I believe this tax revision will inevitably lead to some decline in California property values, theoretically more people will be able to afford them and we desperately need that.  Of course, affordability is not just the price of a home, it also reflects the money we have to spend on a home.  But more homes at a more affordable price isn’t a bad thing for many Califorinians.

Finally to the question of, “With this knowledge should I still consider buying and/or selling?”  The answer is yes.  You should buy but you should also crunch the numbers.  It may not be the time to stretch to the breaking point.  Be a little conservative.  If you’re a seller, heck yeah, sell now (and call me).  If you are considering moving in the next few years, now is probably the time because the effects on our net income won’t manifest until 2019 when we realize we will owe more than we did in 2018 (2017 tax year.)

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People Die, Get Over It

This has to do with the odd stigma of “in home death” and the increasing trend of people choosing to die peacefully, with dignity, in their home.

I showed a home awhile back – a little one story. It was filled with “old people” furniture; you know the kind: the narrow backed, scalloped couch with a quilt like stitching, in a silky floral fabric. It was a Grandma’s home. In my grandmother’s home, we were never allowed to sit on that furniture and the same was true in many of my friend’s homes too… plastic carpet runners and arm rest covers. In this particular home, the closet was filled with clothes; women’s clothes, no gentleman’s clothing. Since I see a lot of homes, I make it a habit of sleuthing the story behind the seller. This can often shed light on their motivations and give my client an advantage when it comes to negotiating. For example, if there are only women’s things in the bath and closet, I might surmise there was a divorce forcing the sale, especially if there are no pictures of the dad or husband around, but title shows ownership in two names. Or if there are only women’s clothes and toiletries but there are husband/dad pictures all over, this often indicates the spouse has passed away and the surviving spouse has to sell, perhaps for financial reasons. I know, you might be thinking that this is sleazy or low, because it gives the buyer an upper hand in negotiating, knowing that the seller is in a disadvantageous or distressed position. Remember however, that my job is to represent the buyer in this scenario. The seller has their own representation and when I am the listing agent, I educate my sellers on the importance of “neutralizing” our situation… If you’ve been reading my blogs, you know I maintain that not all Realtors are the same.

So back to the little old lady’s home… It was clear to me that her husband had long ago passed and the empty refrigerator left me with only two conclusions: Mrs. Seller had gone into an assisted care facility or she too had passed away. I pointed this out to my client and that it was very possible the woman had passed away in her home. My client immediately said that I needed to find this out because if she had passed in the home that would, “creep him out”. I said “Really? People die all the time…” but he had a real problem with it. As it turned out she did die in the home; peacefully, surrounded by her family, at the tender age of 92. Lucky lady, don’t you think?

My wife’s 82 year old uncle passed away several years ago. He was given the choice of dialysis which would mean just 3 good days a week and maybe prolong his life a few months. This man was a tough guy from Detroit. They called him Big Al because he backed down from no one. Al was 5’6″. Given the options presented to him, he told his wife from his hospital bed, “Take me home sweetheart, that’s where I want to go.” He died 10 days later with his family around him, in the bedroom he and his wife spent virtually every night in for the past 35 years. He went on his terms. Lucky guy.

In California a seller is required to disclose “death on property” for three years. It’s considered a material fact that “affects the value or desirability not known to or within the diligent attention and observation of the parties”. The problem I have with this is that the Baby Boomers and their predecessor the “Greatest Generation”, are more and more electing to die at home rather than in the hospital or hospice. And can you blame them? Yet this “material fact” costs those left with the property, thousands and thousands of dollars because of the requirement they disclose the death on property. If they could afford to wait to sell for 3 years and one day, they would not be required to sell at a “death on property discount”. Hardly seems right.

Some years back, I sold a home where a young man took his own life. It was messy and very, very sad. The parents had cleaners come in, cut out the stained carpet; it smelled of bleach. They then packed their clothes and a few essentials, never to return. They depended on me to get the home “sell ready”. We painted, carpeted, refinished cabinets, scrapped ceilings, put in recessed lights, granite and new appliances. We re-plastered the pool. But we had a “Stigma” house and there was no way around it. In this scenario, I absolutely should tell prospective buyers about the suicide. It really was a material fact. Think about buying O.J.’s home or where the Manson murders took place. Clearly there is a duty to make a buyer aware of what had taken place. By the way, to combat the “stigma” of the young man’s death, I brought in a holistic healer, who burnt sage and spent an hour in the home, “cleaning up the vibe”. She said to me, “doesn’t it feel warmer already?” I figured what the heck, who am I to say there’s not something to it? I sold that home in three weeks in a brutally bad market, but at only about a 10% discount – not bad considering the events that had taken place.

My point here is that there are differences in deaths. Natural death does not seem to me to be a disclosure that should be required. Unnatural or violent death, that’s something different and I understand the need to make a prospective buyer aware of this. But if someone goes naturally I think we need to have a discussion about how “material” that event is. I mean consider England or Europe; there’s probably not a 300 year old home that hasn’t had someone die in it at some point. But here in America, where we are a relatively young nation, and especially so in California and those of us within the suburban sprawl even more so. We know the history of these homes because they just aren’t that old. But this is going to be an ever increasing problem as more and more people over the next 30 years are going to choose death with dignity, and want to pass in their home and it’s just not right that the choice should result in a lower sales price. We consumers and we real estate professionals are going to have to accept this and come to terms with it, because one thing is for certain, we all will go at some point and hopefully like Big Al or Grandma of the little one story, in our home, surrounded by our family and buyers are just going to have to deal with it and get over it.

 

 

 

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GETTING THE HIGHEST PRICE STARTS WITH CLEANING

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

This may sound ridiculously obvious so let me elaborate. When I mean clean, I mean really clean. To a buyer, clean tells them the seller has taken pride in their home and if they’ve done a great job of keeping it clean, perhaps they’ve also done a great job with the maintenance of the home. Living Room 2Clean also means they can move right in. Upgrades, no upgrades, if it’s clean, they can move in. If the home isn’t clean no one is moving in; not until it’s been cleaned. This takes time and time is money; your money, money that you leave on the table because the home wasn’t clean enough. So here are some tips about cleaning.Take a granite counter for example. If you have expensive granite counters, don’t ignore them. They should never be sticky or gritty. If you have granite counters, wipe them down with a clean sponge or cloth and then dry them. Then use a product like Granite Gold to really polish them up. A clean granite counter should feel smooth and polished to the touch and when you look at it in the light from a low angle, you shouldn’t see any wipe marks. Make sure you feel under the bullnose too. This is where sticky likes to hide and your buyer will notice it. If you have tile, attack the grout. For some kitchens you will need to bring in outside help in the form of steam cleaning. This is a process much like carpet cleaning, where a hand held steam cleaner injects hot cleaning solution and then extracts the dirt and soap out of the grout. This will make your gray and dark grout, sparkle like new. It’s really quite remarkable. The hardest part of this process is finding the company that does it. It works on the nastiest kitchen grease or shower mold. This also works wonders on your tile floors where repeated mopping and kitchen grease has embedded grime and darkness into your grout. Steaming will make it sparkle! And don’t forget to re-caulk afterwards. The caulk that came with your home 15 years ago has long since dried and separated. In a shower it turns pink or has irremovable black spots. Get a razor blade and a tube of white latex caulk. Cut out the old and squeeze a nice even bead around your sink and toilet base, wipe away with a damp towel. In the shower use clear silicone. Not handy enough? No problem! A handyman can knock it out in no time for cheap and man will your bathroom thank you and so will your buyers.

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

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

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

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

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

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

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

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

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

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Redfin Goes Public

Friday Redfin, the online real estate brokerage went public.  Investors liked it and the stock RDFN, went up 45%.  Yet even with that, it’s market cap is under $2B.  Why is that I wonder?

Real estate is and always will be a local business.  It’s also a very personal business.  It is true that Realogy which owns Coldwell Banker, Century 21 and Sotheby’s as well as relocation behemoth Cartus and Warren Buffet’s acquisitions of Real Living, Prudential and Brookfield Relocation are examples of corporate investment into the local business of real estate, it is equally true that the only thing those companies really bring to the local business of real estate is some branding.  Relocation is the jewel here because relocation is corporate.  In the end, those companies are only as successful as the individual efforts of the individual agents.  Kind of like Herbal Life is only as successful as it’s network marketing sales people.  It’s all about the people working the business, not the corporations.  So where does Redfin fit into this minefield of local entrepreneurs and can it be successful?

In 2011 I was at a conference of my brokerage’s new relationship with Real Living and Brookfield in New Orleans when I found myself in the elevator with the CEO of Brookfield.  I introduced myself and asked him, why the heck they were trying to reinvent the wheel and develop new software when all they had to do was buy Redfin.  They had the best software in the industry I explained.  He had no idea what I was talking about.  I explained that my younger clients loved Redfin.  Moments later in the same elevator going down, I found myself standing next to then Real Living CEO Harley Rouda Jr.  I introduced myself and he said, “You’re the guy that told Brookfield to buy Redfin.”  I love it when my reputation precedes me…  My idea was then dismissed I was told, because Redfin was in huge debt and an acquisition like that would prove very expensive.  To Harley Rouda who is currently running as the Democratic challenger to Congressman Dana Rohrabacher of Orange County, I think you’ll be great, just don’t cite passing up on Redfin as one of your great achievements.  Redfin has great software, they really do.

The problem with Redfin isn’t that Redfin agents are somehow less qualified or unprofessional, this is not the case nor is it that traditional agents discriminate against them, as some have asserted, rather that real estate is a relationship game.  And while I’m not going to give them my secret sauce of success, I will say that until they understand what a Realtor does, they will only be a marginal player.  Discounts only go so far.  Redfin is banking on the Millennials to be their fodder for the future.  I can assure you, aging baby boomers probably think Redfin is a fish or a bird and they are not going to be hiring some internet person to sell their home.  Truth be told, Redfin is really more of a buying site than a listing broker.  It is also true that Millennials are very comfortable with doing their own research and for this Redfin is outstanding.  In many ways, it is superior software to my Multiple Listing Service, but that’s a whole other discussion.  However, while research is a big part of house hunting, going through the home buying process is another thing entirely.  I have been in escrow with Redfin agents.  Gad zooks is what I say to that.  There’s always someone different you’ll be working with.  Unlike when you hire me, you work with me, Redfin’s model is based on a division of labor and different folks do different jobs throughout the process.    Recently I completed one deal that was a Redfin listing.  The representation of the seller was at best distant and un-involved.  I mean the agent wasn’t at the inspection, didn’t deliver the keys, the owner did, wasn’t at the walk through… It was basically a for sale by owner.  There was one agent as the contact but I never met him.  There were other people handling the papers, someone else doing disclosures.  It was pathetic really.  I felt terribly for the seller.  He left $1000’s of dollars on the table which was just fine by us, but as a career real estate broker it was unpleasant to watch.

Redfin agents often show my listings and to their credit they will do more transactions than I will ever because discounting by definition, is a volume game.  Redfin is a discount broker.  The rebates however don’t come close to the money I have personally witnessed being left on the table by the Redfin client.  If you are not paid by commission and you are a volume discount person, what kind of representation would or should you the consumer expect?  Get real right?  If you don’t think you get what you pay for, you’re nuts.  We are talking about the single most important investment of your life!  When a local Redfin agent calls to show one of my listings, before I even set the appointment, I find out what they know about the client and if they can’t demonstrate a good knowledge of their  pre-qualifications and the client’s situation, urgency, motivation etc., I don’t waste my time anymore.  Redfin may sell a lot of homes, but they must show far more homes than a traditional broker because they don’t know their buyer.  The same agent may or may not work with the client.  Since the buyer does the research they initiate the contact.  By contrast a traditional broker is paid by successfully finding and negotiating the transaction.  And unlike a Redfin agent who is paid on salary, the traditional agent wakes up unemployed every day.  Eating is a great motivator to work really hard, do the best possible job for your client and hope your brilliant efforts are rewarded by a referral of a friend or family member in the future.

So Redfin has great software.  I even use it myself sometimes and they may even increase their market share over the coming years, but my experience has shown that Redfin corporate doesn’t understand the real estate business yet.  Most corporate real estate entities do some training but are primarily tasked with branding and recruiting.  In the end, real estate is all about relationships; the relationship with the client and the community not the relationship with a corporation.

So my advice?  Use Redfin for your research if you like but call me so I can help you.

 

Posted in Home Buying, Home Selling | 2 Comments

What The Heck Kind Of Market Is This?

I have some clients that just love real estate.  They watch HGTV and Millionaire Real Estate Agent, Fix and Flip etc.  They are on Zillow or Redfin all the time, it’s a passion for them yet when it comes time to buy or sell, they’ll call me because no matter how much they learn online, they don’t want to mess with a major financial decision without a professional’s help.  “The Real Estate Guru” one young client said his parent’s call me.

One of the things that I help my clients with is interpreting the market.  For example, a couple of my clients are convinced we are in a bubble, rates are going to rise and the market is due for a correction.  That would be great for them as buyer’s… if only it were true.  As you probably know if you follow my writings, I am a stat guy.  I follow my local numbers as close as anyone except maybe my friend and manager Chuck Lech (checkout the LechReport here). He’s given me some great data this month and I’d like to interpret that data for you.

Currently the Conejo Valley has just 350 active listings (search available inventory here).  This is very low. supply_demandv2 In fact, it hasn’t been this low since we had 281 active listings in February 2013.  The important thing here is that back then, from January to June of 2013, prices rose on average between 15-20%.  Demand out weighed supply so prices rose.  Also noteworthy today, is that the number of homes priced under $750,000 is down a whopping 48% vs. 2015 and 34% vs. 2016.  Plainly put, prices in this range are rising as demand out strips supply.  Delving  deeper, I’m drawn to the contrast of homes between $750,000-1,000,000 vs. $1,000,000-1,500,000.  Naturally one would assume that as the price range rises, demand would wane, inventory would rise as affordability declines and it would become harder and harder to find buyers as you go up in price.  But that is not what is happening, to a point anyway.  The data shows us that in the $750-1,000,000 the inventory is virtually unchanged when compared to both 2015 and 2016.  Here we are finding many of the homes that were in the sub $750,000 range but as prices have risen, were pushed up to the new category.  That explains a little bit of why the sub $750,00 inventory is so low.   When looking at the $1-1.5M range, inventory in 2015 and 2016 were identical but that number is down 35% in 2017.  Once again that means prices are poised to rise in this range.  But what about this $750-$1M range?  Shouldn’t the pattern of lower year over year inventory apply here as well?   And if it doesn’t, what gives?

Allow me put on my speculation hat for a moment.  We know interest rates have risen over the past year.  We also know we live in an area that has not seen substantial income growth.  I’m thinking part of the problem is that homeowners with homes in the sub $750K are finding it difficult to make the move into their natural next place, the $750K-1M range so they aren’t selling (see homes that have recently sold in this price range here).  hsThis explains in part why the inventory is acutely low under $750K.  While this could be purely about affordability it could also be that they don’t like the home selection in this range as much as the home they currently own. That, coupled with a higher interest rate thus higher cost of ownership, why move?  I suspect this is magnified in the west end towns of our Valley like Newbury Park and Thousand Oaks west of the 23 freeway.  Why?  Perhaps this is a result of higher paid employment in LA; you know, Los Angeles city pay vs. local employment.  People living in the east end of the Conejo Valley, commute to Los Angeles where incomes are higher.  The recent Rotary/CLU Economic Forecast breakfast made it very clear that income growth, job growth and population growth in Ventura County is basically stagnant.  We have an aging population as younger people can’t afford to live here especially in the Conejo Valley.  While zero population growth may be the most concerning in the macro picture, slow job and income growth hits us in the wallet and that’s about as micro as you can get.  Looking at the rise in demand/shortage of inventory for the $1-1.5M range, I’d suggest that perhaps those buyers have experienced superior income growth and/or superior price appreciation for existing homeowners.  Not coincidentally, there’s a greater concentration of these properties in the most eastern edge of Ventura County and into Agoura and Calabasas.

Whatever the reason, the fact is you’d have to go back to 2005 to find more sales between $1-2M than we had in 2016.  With demand obviously high and inventory declining, one has to conclude there will be upward pressure on prices.  Supply and demand is a lot like gravity.  We might think we can defy it for a moment, but eventually it catches up with us.

To the question of are we overheated or over valued (are we in a bubble?), I’d say no. Lending is still very restrictive so only qualified people are buying. Moreover, I’ve just speculated on why some ranges are stronger than others but to the greater question of inventory, we can’t forget 2 important facts affecting California inventory: We stopped building for the better part of 6 years from 2007-2013 so our natural growth of supply is way, way behind historical averages and foreclosures. By some estimates, this number is in excess of 700,000 units. This trend (Allow me to remove my speculation hat and climb on my soapbox for a sec…) is unfortunately worsening in Ventura County as a result of poor land governance by local municipalities and by the NIMBY (Not In My Back Yard) mentality. As recently as two weeks ago the City of Camarillo turned down a proposal to build much-needed homes at the bottom of the Camarillo grade.grade Reasons cited were traffic
concerns and the loss of the “Gateway” view of a farm field (immediately adjacent to an existing subdivision mind you) entering the Camarillo plain. This fool’s errand ignores that traffic is increased by not building not the other way around. In fact, the CLU group stated that as a result of slow growth policies, 80,000 cars travel into the Conejo Valley while just 40,000 leave every day. This is because there’s insufficient housing closer in but no shortage of employment. Another reason most people are unaware of, is that our supply was shrunk incalculably by the banking industry’s behavior during the financial crisis. Just as the real estate market was showing signs of stabilizing, say around 2012, major lenders, their books filled with defaulted properties, decided it would be better for them to sell off the foreclosed assets in bulk sales to investment firms and hedge funds like Blackstone and American Homes (located right here in Agoura Hills). These firms converted large numbers of foreclosed properties into rentals. They fixed them up and they rented them creating privately held or publicly traded REIT’s (Real Estate Investment Trusts). To be clear, we are talking about thousands of homes in California alone. These homes are for all intents and purposes were permanently removed from the saleable population because of strict Wall Street guidelines governing REITs.
When you add all this up you get a picture where affordable housing is disappearing. Inventory is going to remain tight and until such time as we find ourselves in a recession, nothing is going change this course nor slow price appreciation down.

Posted in Demographics, Economics, Home Buying, Home Selling, Real Estate, Thousand Oaks, Tim Freund | Tagged , , , | 1 Comment