2705 Mathews Street, A Charming Condo Alternative in Berkeley’s Culturally Rich Left Bank

Vintage clothing stores abound

Left Bank/West Berkeley Neighborhood

What makes this one of my favorite neighborhoods in all of Berkeley?  Culturally Rich, West Berkeley has one of the most diverse mixes of people from all over the world of anywhere I know.  There is a wonderful mix of straights, gays and lesbians, single people and families, and young, old and everything in between.  With that said, you can get almost any kind of food, every nationality, you want without getting in your car. They even have a yearly ethnic food festival. Every foodie will love that. In fact, this is one of the best Eco Friendly areas I know with a relatively flat terrain.  If you have a hybrid vehicle, it’s one of the few places you can drive around and get those miles per gallon that the dealer says is possible.  What’s more West Berkeley is a center for commerce generating over 44 percent of the cities sales tax revenue.  There are over 1,500 companies that employ over $15,000 workers.  You can work, grocery shop, go out to eat, go to specialty stores, take care of all of your business and pleasure, do everything without having to own a car.  No wonder it is growing in popularity each year.

 

Cafe

The part of this neighborhood near Dwight Way and San Pablo has recently been coined the Left Bank by Real Estate professionals and is beginning to catch on in the community.  There you will find Café’ Trieste, a coffee house that I was told has the best cappuccino this side of Italy.

Singer at the Cafe

I checked it out myself this week and they were so right. You can also get breakfast items, soup, salad, and many taste deserts.  They often have singers providing entertainment and you will always find it busy at whatever time of day. 

Good Vibrations Store

Next door to Café’ Trieste is a specialty shop that started out in the San Francisco Mission District and then opened with a new store in Berkeley, Good Vibrations, www.goodvibes.com.  You can find all kinds of special sexually enhancing devises in this shop, and reading material as well.  Women run, this is not your local porn shop. In fact it has nothing to do with that. This is a store dedicated to helping people learn how to pleasure themselves and each other and has been in business for over 30 years. 

Sea Salt

As you continue down the block you come to Sea Salt, an exceptionally good restaurant to go out for any special occasion. This is a sea food only restaurant where the chief, who is obviously of very high caliber, prepares a mouth watering combination of American, California Cuisine, Mediterranean, and Greek sea food dishes. 

www.seasaltrestaurant.com

There are a variety of vintage clothing shops,

Hand Made Jewelry

a hand- made jewelry store owned by Melissa called Kiss My Ring with beautiful things, all original art from local artists.  Perhaps this would be a good place for some holiday shopping, www.kissmyring.com. There is a candle and scent store with many cards and gift items, and many other shops.  I had a small feeling of being in Greenwich Village in New York only on a much smaller scale.  There are many artists living in the neighborhood running shops that sell their art works and crafts. 

Down San Pablo a bit further is my favorite nursery, East Bay Nursery. They have one of the most beautiful selections of plants, shrubs, trees, and flowers to satisfy any gardener’s needs.  There is another popular nursery within a few blocks of this one whose name I can’t remember right now. The new addition soon coming to the Left Bank is the West Berkeley Bowl.  They are scheduled to open next spring and are located just a few blocks from 2705 Mathews street.  This will for sure increase the areas desirability.  Close to the Berkeley bowl is the Orchard Supply Hardware Store as well as a store for people with back problems needing special chairs or cushions. 

West Berkeley Bowl Opening in the Spring

Childs play area in San Pablo Park

San Pablo Park

and Berkeley’s Aquatic Park is also within walking distance.  Major bike paths funnel into the area.  Indoor and outdoor activities abound in West Berkeley.  If you are disabled, the sidewalks are mostly user friendly with wheel chair ramps on almost every corner. There is clearly something for everyone here. 

aquatic park

 

 

 

 

 

 

 

Should you get tired of the local fair, in 20 to 25 minutes you can walk to the West Berkeley BART and go wherever your heart desires.   About the same time takes you to Downtown Berkeley and a little longer and you can be at the UC Berkeley Campus.

West Berkeley has always had a history of being on the forefront of change from the Norwegian settlers who first started their outdoor saunas in the area to the civil rights movements. 

Omega Too

Today you can see that once again the West Berkeley Left Bank is on the cusp of the new age with many Eco Friendly Building stores such as Omega 2, a store with lots of recycled doors and home fixtures and

EcoHome

EcoHome, http://www.ecohomeimprovement.com/, where I’m going tomorrow to get some environmentally friendly stain for my new fence and arbor that the plants growing on it won’t mind.  The owner ladies, Nina and Taja, moved to the neighborhood from San Francisco several years ago and have been quite successful with their new operation that supplies home building and remodeling products that leave a lower carbon footprint on the environment.  They are located on San Pablo Avenue at Carleton and you can get everything from zero VOC (volatile organic compounds) paints that are environmentally friendly to kitchen counter-tops, carpets,flooring, and cabinets. Everywhere you go in the neighborhood there are people thinking about global warming and changing things to make a difference. I came across a really cool place near Café’ Trieste called the Ecology Center.  They are located in the same building as the Sierra Club Headquarters. This organization is a non-profit anyone can join that offers classes on different things having to do with lowering our footprint on the Earth. They have a library of tapes and books. They put out a monthly magazine called Terrain. I am going to become a member myself as I feel it will enrich my knowledge of going Green.  They have a website at www.ecologycenter.org.

 

Sweet Craftsman Bungalow

The House – 2705 Mathews

 

 

 

 

 

 

So now that I’ve made you want to move to this neighborhood yesterday, let me tell you that you actually can.  2705 Mathews Street, www.2705Mathews.com,  is located a short walk from all that I have been talking about. A great condo alternative, this 800 square foot 1910 craftsman bungalow is full of charm and character.  It is located on a quiet tree lined street and has a lovely front porch where you can take in the late afternoon sun.

 

Dining Room

The home has a beautiful dining room big enough to have small dinner parties with a window seat, built-ins, wainscoting, hardwood floors, and a decorative fireplace; a living room with a pillared entrance, window seat, picture molding, and hardwood floors; a tastefully remodeled kitchen with eco friendly butcher block countertops, smartly tiled back splash, farm house style sink, and energy star appliances. The old finished cedar floors also bring character to the kitchen. 

Remodeled Kitchen

 All the rooms are nicely apportioned.  There is a laundry room with newer front loading machines. The bath has wainscoting, a large pedestal sink, and a claw foot bathtub to soak in.  There are several other houses on the street that have similar floor plans where the owners have expanded into the garage area and the attic to create extra living space.  The back yard is extremely private with a large redwood tree. There is even an old chicken coop on the side of the house. 

There is plenty of natural light all day long in every room. This is the perfect home for a single person or young couple. It is a great place for a person downsizing.  The current owners took care of most of the pest report excluding some windows that had some rot in them.  The home has been painted with eco friendly paints from the EcoHome store a few blocks away. The only other immediate need is for the floor furnace to be replaced with a new heating source. 

Back Yard

Priced at just $439,000, if you are sitting on the fence, now is the time to get off.  You can live in this very charming home for a very affordable price in Berkeley in this hip and happening neighborhood.  Come on out and see it this weekend.  It won’t last long, even in today’s market. 

Written and Edited by Dan Joy

Preparing Your Home for the Winter Weather

As a home owner, there are seasonal maintenance items that should be addressed prior to the winter weather.  Here is a list of what to do.

Cleaning out gutters prevents damage

Maintain gutters

Remove leaves, acorns, sticks and other debris from gutters and downspouts so rain water can flow freely. You may also consider installing gutter guards which are available in most hardware and home stores.

gutter guards being installed

Gutter guards are screens that prevent debris from entering the gutter and direct the flow of water away from the house and into the ground.

Check Sub-areas, basements, or crawlspaces after heavy rains

The biggest damage to home foundations come from water getting under your home. Fungus, mold, and mildew can be other problems caused from damp soil conditions due to moisture being present.  Check to make sure your sub-areas are dry. If there is excessive moisture getting in, have a professional take a look to see if you need to install a french drain (a trench dug and filed with pipe and rock that connects downspouts and deverts water away from your home to the street) or sump pump to take care of the moisture issue. Your agent can usually give you good recommendations of professionals to use.  

Trim trees and remove dead branches

Rain and wind can cause weak trees or branches to break, damaging your home, car, or injuring someone walking on your property.

Check insulation

Go green. Install insulation in your attic.

Add extra insulation to attics, basements and crawl spaces. Ideally, the attic should be five to ten degrees warmer than the outside air. Well-insulated basements and crawl spaces will also help protect pipes from freezing. Be sure that if you have knob and tube wiring present in your attic space that you have a licensed electrician certify that the wiring is safe before placing the insulation in the attic over knob and tube wiring.  

Honey, I think we have a flood.

Maintain pipes

Wrap pipes with heating tape and insulate unfinished rooms such as garages that frequently have exposed pipes. Also, check for cracks and leaks. Have minor pipe damage fixed immediately to prevent much costlier repairs in the future.

Keep the house warm

The temperature in your house should be at least 65 degrees. The temperature inside the walls where the pipes are located is substantially colder than the walls themselves. A temperature lower than 65 degrees will not keep the pipes from freezing. Most homes in the west side of the San Francisco East Bay have the bay to keep the temperatures more moderate. We do have times, especially if you live in the hills, where the temporature drops below freezing so it would be especially important during those days or nights to keep your home temporature at 65 or higher.

Check heating systems

The proper use and maintenance of furnaces, fireplaces, and wood-burning stoves can prevent fire and smoke damage. Have furnaces, boilers, and chimneys serviced at least once a year.

chimney fire, call the fire department immediately.

Make sure that smoke and fire alarms are working properly and consider installing a carbon monoxide detector, especially if you have an oler floor, wall, or gravity furnace.

Maintain steps and handrails

Broken stairs and banisters can become lethal when wet from excess rain. Make repairs now to prevent someone from falling and seriously being injured.  I once knew a lady who’s lover was killed from falling off a deck with a loose railing. She sued her landlord as a result. Property owners must be diligent regarding this issue.

Get to know your plumbingLearn how to shut the water off and know where your pipes are located. If your pipes freeze, time is of the essence. The quicker you can shut off the water or direct your plumber to the problem, the better chance you have to prevent the pipes from bursting. 

Also, if you develop a sudden plumbing problem, knowing where the main water shut off is can prevent costly damage to the interior and contents of your home.

Hire a licensed contractor

Have a professional survey your home for any structural damage, especially if you have owned your home for a long time or know of possible problem areas from your original home inspection which have not yet been addressed. If damage is discovered, have it repaired immediately so further damage will not occur during the winter. Plastic coatings for internal basement walls, sump-pumps and other methods can prevent damage to your home and belongings.

Plan for being away

If you are not going to be in your home this winter for an extended period of time, have someone check on your home on a regular basis. If there is a problem, it can be fixed quickly, thus lessening any damage. I once showed a home to buyers and when we walked in water was flowing down the hardwood steps from two floors above. A washing machine hose had burst and the home was vacant. I called the agent immediately and she was able to get someone out there before further damage was done.  If you are planning to be away, it would be wise to shut off the water to your cloths washer as this is a common thing to have happen. Also replacing your hoses after a couple of years is another good idea.

Activity at your home will also reduce the likelihood that it will be burglarized. Install timers to lights coming on and off at different times to make it appear that someone is home. Be sure to have a neighbor or someone pick up your mail so it doesn’t appear that no one has been there for a while. With the economy being as it’s been, there has been an increase everywhere in burglary. The more you get to know your neighbors and tell each other about your comings and goings, the better protection you will have for your home. Consider developing a neighborhood watch group or having a soup night for neighbors to get to know each other. A neighbor in my neighborhood did that recently and it was a really big success.  If you see anything going on in the neighborhood that looks suspicious, call the police. Catching the criminal in the act is the best way to rid your neighborhood of a potential problem.

Written and Edited by Dan Joy

The Agent – Client Relationship, Open Clear Communication is the Key to Success

Hi faithful readers.  I apologize for the long delay in my writing. First it was the elections that distracted us all.  Then for me, there has been a time of evaluation going on regarding this year working in this rather challenging market.  The reason it is challenging to agents is that there are far less sales than usual.  This means taking a huge pay cut for most agents as we only get paid when a transaction closes.  I have been struggling with what I wanted to write about and decided that it was time to take a look at what the relationship is all about between the agent and the real estate client.  I want to start with the basics of this business relationship and then get down to the nitty gritty.

First let us discuss how it is agents get paid. We are not W-2 employees. We do not get a salary. We do not get any money at all from our company for doing the various things we do. Realtors get paid by the seller who agrees to pay a commission when they sign a listing agreement with the listing agent, which is due when the home is sold and closes escrow and comes out of the proceeds of the sale.  Every transaction has two sides, a selling side and a listing side. The commission is paid in part to the listing company and in part to the selling company. The company then pays the agents depending upon their split with the agent, for example, the agent may have a 70 percent split where the agent gets 70 percent and the company gets 30 percent of the commission for one side of a transaction. Until the home closes escrow all the costs associated with that transaction come for the most part out of the agent’s pocket. The costs for gas, marketing, advertising, computers, professional membership fees like the multiple listing board and local board of realtors, Errors and Omissions (E & O) insurance, etc, etc all come out of the agent’s pocket before they even make a dime. 

Why am I saying all this?  I want to start with this because this year I have found in this very challenging market that buyers and sellers often forget these facts and are sometimes not very respectful of the agent’s time and resources.  It is important to have respect going in both directions in order to have a successful agent/client relationship.  Buyers and sellers both can be extremely unrealistic this year which adds to the already present problems in the market place.  Buyers have unrealistic fear and sellers have unrealistic expectations about what they think their house is worth.  While buyers and sellers are caught up in their particular issues they often want to blame the agent or just forget to act in a respectful manner when it comes to the relationship.  Over and over again there is failure to have open and clear communication.  I would like to take some time in this article to focus on the buyer/agent relationship in particular.  There are similar dynamics with sellers but I will spend a future article focusing more on the seller/agent relationship.

Buyers, or So They Say

There are several kinds of buyers that I would like to talk about here.  The first category is the Dreamers. The Dreamers are the kinds of people that go out with their new boyfriend or girlfriend on a Sunday afternoon to look at homes because it’s a fun fantasy. There is no harm in that.  Why not try it on? These are window shoppers. 

Dreamers love fantacy and pretend games.

 It’s a fun activity but they are not serious. Sometimes they pretend to be serious however. They may even engage the help of an agent to take their fantasy further. I will give you an example of someone I worked with. I will change the names to protect their privacy.  Jake called up our relocation department one day and said he would like to come down from Sacramento to Piedmont with his fiancée to look at homes in the 1.5 to 2 million range. When I spoke with him he told me he was going to be coming into a large sum of money from his mother who was dying. Jake was in his 70’s and had met his bride to be online. She was from another state and would be in town for the next week and he wanted to look at the San Francisco East Bay area as a potential place to move to together. We went out and looked at homes on a Saturday. They were an enjoyable couple. Afterwards Jake then told me he wanted to check out Marin. I referred him to a Marin agent that I knew. 

What

I kept in touch with them and the other agent for about one and a half years. At some point I spoke with Katherine when I called and she told me that in fact she had sold her house out of state and had moved into Jakes mobile home in a trailer park outside of Petaluma.  About 6 months later the Marin agent told me Jake had called her and come to look at a $2 million dollar home with a new girlfriend and that she was suspicious about the whole thing. I encouraged her to call Katherine’s cell phone number which she had. When she did she found out that Jake was a complete scam artist who seduced his women by the promise of his future riches as well as his charm and had actually turned out to be abusive.  Fortunately I am still in touch with Katherine who moved back to her home state and is now doing fine. She is a very nice lady. This is certainly an example of what can happen with long distance internet dating. This is of course a very extreme example but there are many more dreamers that are far less extreme who engage agent’s services just to show off to their partner or to get into some big fantasy that they have no plan to go through with.  This is clearly not a respectful way to be dealing with a professional.

The second category is the Researcher Buyer.  This is the person or couple who are researching the market in order to buy or not sometime in the future.  There are lots of researcher buyers out there right now. They research because they are afraid and they feel if they collect enough data that will protect them from being harmed in a downturn market. 

The researcher will spend hours looking at a house with no intentions of buying it.

Hello, we are already there.  But they think it will go down further and somehow they will loose everything. This is an example of an unrealistic fear. It is unrealistic because it does not realize that the market operates in cycles and that what comes down will eventually go back up. Some degree of researching is always a good idea. But when I meet with buyers I always ask them the question, “if we find a house that you really like and can afford, are you prepared to make an offer on it?”  If you are a researcher, you should answer no to that question. That is being honest and clear in your communication and intention.  It is fine to research.  If you are a researcher, I won’t turn you away.  After all, you may one day become a “real buyer”.  But I will work with you differently.  I will point you in the right direction. I will send you the Sunday open home guides and do whatever services seem to make sense to assist you with your research that do not take too much of my time and energy.  But what I will not do is drive all over creation looking at houses with you that you have no intention of buying. That does not make sense of my time or resources.

Sometimes researchers will say yes to my question because they want to use me to help them collect information and are afraid if they are truthful, I will not give them what they want.  This behavior sets up a dynamic that in the end is doomed to failure and will result in the researcher loosing what could have been a really good resource for them in the future when they are ready to buy. Maybe they feel there are lots of realtors out there so what is the harm if we burn a couple out on our way to buying our first home. Well for one thing it’s creating bad karma.  Using people is never the best way to go.

Sometimes people can start out as real buyers and turn into researchers out of fear. If that happens for you, communicate what is going on directly with your agent. Don’t give him this line, which one of my clients gave me recently – “we are not in a hurry to buy”.  What does that mean?  This person was very evasive and didn’t really tell me what was going on at all.  We had looked at houses on a couple of occasions. I had taken them on the “grand tour” that I do with my real buyers showing them everything in their price range in all the different neighborhoods. They had shown interest in one house in particular. But in the end decided they wanted to lower their price range in a time when inventory was shrinking. For sure I get the picture here that these are not serious buyers. But the difficulty is I, as an agent, am left wondering exactly what it is that is going on with this person.  For sure they are afraid of something. They have plenty of down payment money and there could not be a better time for them to buy. But for some reason they have gotten scared, changed their mind, or maybe are thinking in a whole new direction.  Why not communicate whatever that is with me? Again, how can I be helpful when I get no information? I literally do not know what to do now with this person. They are giving me blow away dialog rather than just telling me where they are at. It’s ok to transition into being a researcher, but have respect for the person you are working with and share what is going through your mind so your agent can fully understand where you are coming from and know how they can best be of service to you in this phase of your home buying process.

The third seeming buyer is the Schemer.  This is the person that thinks the way to get ahead is to scheme and manipulate a situation.  They are not really good at deep relationships on a whole and bring this same quality into business. 

The schemer is always trying to steal something.

The schemer is always thinking that maybe if they try a little of this and a little of that, they will get a better deal.  In real estate they will often be working with more than one agent at a time but of course will not disclose that.  I recently had a couple like this as well. For some reason they felt the agent they knew for many years would be too busy right now so they used me for 3 months to figure out where they wanted to buy, what they wanted to buy, what they needed to do to prepare their house for the market, and then they went back to the agent they knew for a long time to handle the transactions. This of course left an extremely bad taste in my mouth.  They seemed to be very serious buyers and sellers, and for all appearances, had made it seem they had decided to work with me. They even wrote an offer for a house, although they didn’t follow my advice in what they needed to offer so therefore didn’t get it. But what they got to learn from all that was exactly what they would need to offer next time a house in this particular neighborhood with these particular features came on the market. That’s when they transitioned back to their lifelong agent.  If you are a schemer, all I can say is please stay away.  It is dishonest to behave this way and lacks integrity and of course in the end will also generate lots of bad real estate karma.

The final category is the Serious Buyer.  The serious buyer is one that has decided that this is a good time to buy and that they want to take advantage of the huge price reductions in the market place. 

The serious buyer will eventually buy a house

 They tend to be focused and ready to take action if they find the right house that suits their needs.  They may take a long time to find exactly what they want but they are faithful in their commitment to the process until they eventually get what they want.  These buyers tend to be more realistic as to the neighborhoods that they can afford to buy in and will focus on those areas.  If you are one of these buyers, you will for sure want to pick an agent to work with that listens to what you like and what you don’t like as you are out looking at homes together. This should also be someone that you feel completely comfortable sharing your thoughts and concerns with. You will want someone trustworthy who will put your needs above their own need to get a pay check. This type of agent will be patient and provide you with an enormous amount of service from showing you homes to getting you valuable information you need to understand the condition of a home. They will connect you with good resource people such as home inspectors and mortgage brokers that will also provide a high level of service on your behalf.  They will advise you in the offer making process and educate you to all phases of the home buying process. They will negotiate for you to get you the best possible price and the best possible terms. They will act as professionals and take you and what they do for you seriously.  Once you have found this type of agent your job is to communicate fully with them. That is how they will be most helpful to you. If something comes up that changes your situation or ability to buy, you will not want to talk with your agent right away about that.

Serious buyers are communicating.

The clearer the communication is between the agent and the buyer, the more helpful they will be to you. Holding back on some relevant piece of information is where the trouble can start that breaks down the relationship, and that applies to the agent as well. It’s a two way street and if handled well can become a lifelong mutually beneficial relationship and friend.

Written and Edited by Dan Joy

News Flash on Home Loans

The deadline for funding loans under the temporary conforming loan limit is December 15th 2008.  Some banks are cutting off funding on December 1st.  Loans between $417,001 and $729,750 absolutely have to fund by these dates.  The maximum conforming limit for 2009 will be $625,500 and we are not sure which areas in the San Francisco East Bay areas will qualify at the new limits. Some areas will most likely not qualify for the maximum.  We don’t really know how different markets will be affected by this change. 

If you are a buyer who wants to put no more than 10% down and you are looking at buying a house for a little over $800,000, your time to buy is quickly approaching a deadline.  Jumbo loans require at least 20 to 25 percent down and offer much higher interest rates. 

If you are a seller considering selling your home in around the $800,000 price range, I suggest you get your house on the market immediately and price it right so that it will get immediate action. The pool of buyers able to purchase your house after the middle of November is going to be greatly reduced.
There is no information yet available as to how the interim period between December 15th and the beginning of next year will be handled. 

After taking Meal-on-Wheels to Grandma, the small, good wolf co-signed home loans for all the little pigs

On another lending front, for any of you that are having trouble with your payments, Countrywide has come out with a plan aimed at borrowers with subprime mortgages, or pay-option adjustable-rate home loans, which would temporarily cut interest rates on some loans to as low as 2.5%. Some borrowers who owe more than their homes are worth could even see their loan balances reduced, giving them equity once again in their properties. The idea is to modify a loan’s terms just enough to create a new monthly payment, including principal, interest, taxes and property insurance, equal to 34% of a borrower’s verified monthly income. Bank of America, who will be slowly taking the name “Countrywide” out of circulation, says they have obtained permission for the modifications from the vast majority of the big banks, investment funds and institutions to which Countrywide sold most of its loans while continuing to service them. 10 other major mortgage-servicing companies have been given an ultimatum by the Senate to adopt programs similar to the Countrywide plan.  Thank-you Bank of America for being pro-active.  Now let’s see how this shakes out.

There may be a bright side to our financial crisis

Here is something to leave you thinking about as we go into our last week prior to elections.
The next time you hear a politician use the word ‘billion’ in a casual manner, think about this. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of it’s releases.

 
A. A billion seconds ago it was 1959.
B. A billion minutes ago Jesus was alive.
C. A billion hours ago our ancestors were living in the Stone Age.
D. A billion days ago no-one walked on the earth on two feet.
E. A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spending it.

I think it’s time for a major change, don’t you?

Edited and Written by Dan Joy

This video touched me.  It’s great to see young people so involved in our country’s politics again. Thanks to this Marin kid. 

http://www.youtube.com/watch?v=3iojPaw8yX0

Buying a Bank Owned Property (REO)

You are out with your agent looking at potential homes to buy.  You come to the door of a house and as your agent  is most likely trying to negotiate some type of combination code lockbox and complaining about how these agents never use the standard supra key lockbox, you hear this periodic “cherrrrrrrrrp” sound coming from inside.  That is the welcome sound to let you know you are now entering a REO (bank owned property).  The sound you are hearing is the sound of a smoke detector that has not had the batteries changed in a very long time.  Here is the first warning to you as a buyer – the listing agent probably has never even been here.  You wonder how that can be.  If you are one of my clients who get a buyers book at the start of our work together you remember something in there about agent inspections needing to take place by both the buyer’s and seller’s agents.  Although that is a California law, few listing agents of REO properties actually do an agent inspection or even go to the home. They send out assistants to put up signs and install lock boxes.

The state of California is a state that in many ways leads the nation in its efforts to protect buyer rights in the purchase of a property.  A REO property is one that the bank has foreclosed on the previous owners and has now taken the property back.  Often the original bank sells their foreclosed property to another company that takes care of the selling of the asset and buys the property from the first institution at a slight discount and then goes about marketing the property.  These companies are not necessarily from around this area, they may not even be in California.  Their main goal is to get the property off the books fast and with as little cost as possible. There is an asset manager assigned to each property.  That individual then contracts with a listing agent to sell the property.  The listing agent may not be from the immediate area either.  You will often have agents from Pittsburg or Vacaville selling property in Oakland.  These agents get a small percentage as a commission, like 1%. They therefore specialize in volume and may at any given time have as many as 50 to 100 listings of REO properties. They are specializing in volume sales, not quality of their marketing.  They have someone put up a sign in front of the REO properties, install a lockbox, and put the property on the MLS (multiple Listing service) for other agents to see.  They then fax offers to the institution. Often they don’t even have a contact name or number, just a fax number or e-mail to send to. That is the extent of the agent’s marketing efforts and due diligence concerning the sale.

Stove missing from REO kitchen

You continue your walk through the house and notice that the kitchen has many holes in it where appliances used to be. Often the stove or stove top, ovens, vent hood tops, refrigerator, dishwasher, built-in microwaves are all removed. 

Dishwasher missing from REO kitchen

I sold one REO property where the kitchen faucet was missing as well and the plumbing had all been disconnected.  Add that to your expenses you need to incur in the purchase. Bathroom fixtures can also be missing such as sinks, vanities, toilets, medicine cabinets, light fixtures, shower heads, anything of value.  Many people in losing their home decide to strip it of everything of value they may have added.  I have seen houses missing the front doors and missing windows as well, although these days that is less common as the banks are coming to realize that those houses stripped to that point are not selling.

Bathroom sinks, vanity, and plumbing all removed in this REO.

 

bathroom sink plumbing left behind after vanity and sinks removed

Much of the time the electricity, water, and sewer have been turned off.  This makes it hard to check to see how things are working.  If this is the case, be sure when you write an offer on the property you include in it a clause requiring the listing agent to have the public utilities turned back on for inspections.  One house I went to with a buyer earlier in the year had an infestation of some kind of strange insects I had never seen before in a glassed in patio area.  Watch out for the alien insects!!

Here are the things you need to know as a buyer purchasing an REO property.  First there are no disclosures at all.  There is no seller transfer disclosure statement so you have absolutely no history of this house whatsoever.  There are no pest inspections or reports, unless the home has been in contract and fell apart and the listing agent provides those reports to you.  That means you need to plan on spending about $1,000 to do the minimal inspections for the property that are necessary to determine what you are getting into. Once you do those inspections there is no guarantee that if you find more that is needed than you expected that the bank will negotiate with you.  They feel they have priced the home low to begin with and therefore do not like to see the price going down any further.  I have had luck in negotiating a lower purchase price and credits back to buyers however, especially when you document everything as though you are preparing for an IRS audit.  The bank people that you are dealing with are paper pusher people. As an agent, I have to start thinking like they think. 

When you write an offer for an REO it could take up to a week to get a response.  I have seen one situation where the bank responded immediately on a Saturday, unfortunately for my buyer who wanted to put an offer in.  I had gotten my buyers there the first day it came on the market, the MLS sheet said 0 days. When I called the agent to submit an offer he said that they got an offer within an hour of it coming on the market from a neighbor who was watching the house and to his surprise the asset manager was working on Saturday and approved it.  So the bottom line is you never know how fast or slow your offer will be responded to.  It really depends on the asset manager and the institution you are working with.

The other thing that REO’s require is for the buyer to sign a bank originated addendum to the contract.  These addendums can be as long as 10 pages full of legal language.  There is a notice at the beginning of the addendum stating that this document supersedes the original CAR purchase agreement and that anything written in your offer that conflicts with what is written in the addendum, the addendum shall control.  Here is a common phrase written in the addendum that is worth noting.  “Seller’s Unlimited Right to Cancel:  At any time after the execution of this agreement, the seller shall have the unlimited right, at Seller’s complete and sole discretion, to deem this agreement null and void.”  This means that after they have signed the agreement for you to purchase the property and maybe you have spent $1,000 on inspections, that if another better offer came along that they wanted to take, they could cancel your offer and move on.  This in my mind is a lawsuit waiting to happen. 

Another common buyer right violation is that in California the buyer gets to choose what title company to work with. With REO’s the seller chooses and they often do not tell you this upfront. In one situation we wrote in the addendum the name of the title company we were choosing. The bank signed the purchase contract and the addendum with Fidelity National Title being the title company agreed upon.  After opening escrow with Fidelity the title officer called the listing agent, the agent promptly called me saying that the bank was choosing their own title company. I argued that they had already signed the contract agreeing to Fidelity and that they had picked up the buyer deposit check made out to Fidelity Title.  The agent said that you can go ahead with that title company but the bank will never close on this transaction because the title officer will never be able to get a hold of the mysterious asset manager.  Only the bank’s chosen Title Company will be able to communicate with the asset manager.  In this case it turned out to be a title company in southern California where title and escrow are broken up between two companies instead of just one and the fees for the buyer were higher than they would have been at our chosen company.  Although this could be considered a serious breach of contract on the bank’s part, they don’t seem to care about this.  The listing agent was not paying attention to anything written in the contract and did not notify us ahead of time of the fact that we had to use the bank’s title company.  Again, here is another lawsuit waiting to happen. 

It is extremely important for you as the buyer to read carefully everything written in this addendum. If you have questions regarding the addendum, it would be important to consult with a real estate attorney regarding them.  The reality is that most of these asset managers have little attachment to anything other than getting this paper off their desk as quick as possible.  So with that in mind, they usually do try to complete the transaction with the buyer they are working with.

One other thing to be aware of in your purchase of an REO property is that your lender may require that appliances be in the property by the time of the close of sale.  When the appraiser comes out and takes pictures of the kitchen missing all the appliances, the mortgage underwriters will often feel the house is not habitable without appliances being in place. This could become a problem with funding  your loan and closing the transaction, especially if you are putting 10% or less down on your purchase.

So why buy a REO property?  The price is often below market value and you can end up getting a great deal on a purchase.  That is the main reason. They tend to go faster than a short sale.  I have seen some incredible deals this year that were REO listings.  Sometimes the price is worth the loss of some rights in the process.  I am also seeing more agents from reputable companies getting REO listings.  This will also be a positive change.  Perhaps the banks are beginning to become aware of their liabilities with the independent agent companies and are deciding to go with agents that will better protect them from future lawsuits.  The most important thing to you as a buyer is that you have a very competent and knowledgeable agent representing you on these transactions.  Using your brother-in-laws sister who is giving you a deal but lives in San Jose may not be the right choice if you are planning to buy one of these properties. (I rarely see this being a good choice for the buyer as they will lack representation they need. Why not pay a referral fee to the relative instead) You need a local agent to alert you to local concerns.  You need an agent knowledgeable about possible home defects that are glaring that may save you the $1,000 on inspections only to find out the home needs a new foundation and you don’t want to take that on. You need an agent that is constantly looking out for your interests and not just wanting to complete a sale so they can get paid.  You want an agent that wants to work with you in the future when you are planning to sell your home.  That kind of agent is helping you evaluate what is a good investment and what is not.

Written and edited by Dan Joy

http://www.youtube.com/watch?v=XuTLFppftsA Here is a more entertaining way to look at the news.

The Goldman Report for October 6, 2008

I told you to hold on to your hat. Even though the economic rescue plan was signed last week by the President, the stock market reacted as if it didn’t get the news.  Two points to note: first, this economic upheaval is a global issue, not just national.  The stock exchange reacted based on what happened in earlier time zones. Although we have a plan, many other nations are still grappling with what to do. Iceland is in dire straits and could become an iceberg. And secondly, this is not just about housing any more. We are in a recession and the market is reflecting the economic woes.

The main purpose of the plan was to unclog the financial system and keep credit flowing. The plan was to act like an ad hoc Drano with the intention of getting money flowing for businesses and home loans. The Treasury will need to quickly begin implementing in order to make sure the plan has it desired effect. Nearly seventy percent of our GDP is based on consumer spending. And therefore our financial health depends on the free flow of credit.

The plan will not stop the recession, but it may lessen its harshness and reduce the period of time it will take to recover. It is a step in steadying the patient—the economy. We will know it is working by watching four credit market signs according to Kathleen Pender’s article in last Sunday’s SF Chronicle. The four markets include: 1) Three month treasury bill yields—yields have been driven down to under a half percent. It needs to get back to 2 percent.  2)  The Libor rate—the rate at which banks loan to each other. It should be close to the federal funds rate—2 percent.  Last week it was at 6 percent. 3) The Ted spread—this is the difference between the 3-month Libor and the 3-month Treasury yield. It is about .5 percent and it needs to get above 1 percent. 4) Corporate bond spreads— this is the difference between high-grade corporate bonds and junk bonds.  The spread currently is about 6.5 percent. In May 2007 it was 1.5 percent. A reasonable rate would be around 4 percent.  These are the litmus tests. If they return to more reasonable numbers then the plan will have worked.  Now you know what to watch for.

How does all of this affect the housing market?  Our September sales, both open and closed, were up over last year, however average sales price was down by an equal amount. The lower end of the market continues to dominate the number of sales driving both median and average price down.  The higher end of the market has been less active due in part to the cost and terms of jumbo loans (those loans over $729,750) and that buys in the higher price ranges are more discretionary.

Volatility in the financial markets, increasing unemployment and uncertainty in the direction of the economy is putting up a yellow flag for a number of buyers. It is almost like putting the process on pause.  Open house activity has slowed in some markets like Marin and the wine country.  The East Bay and San Francisco are still seeing decent numbers for homes that are open for the first and second times, but the number of buyers is declining.  Transactions are taking longer to close as banks and mortgage companies are demanding more documentation and requiring buyers to meet more stringent guidelines. The volatility of the economy is also taking its toll. One buyer walked away from a large deposit due to their rapidly changing financial position. Yes, just like the financial markets, the housing market is feeling the stress. For those brave and financially stable buyers, there are rewards in negotiating exceptional values.  As has been said many times, the best time to buy is when others aren’t.

Believe it or not there are still multiple offers. Again with most occurring under the million dollar range. Those properties that are competitively priced (some would say well below market) and in the most desirable neighborhoods are receiving a great deal of attention. For example, a REO 3bedr. 2 bath home in Larkspur priced at $789K received 22 offers and, from my understanding, went over a million.  Go figure.  Most multiples are receiving between 2-4 offers and going a little below or above list price.

Next week will be the full review of September numbers around the Bay. I believe those numbers will reflect what I have been reporting over the last four weeks—sales numbers are up over last year, median/average prices are dropping, and inventories are declining as distressed properties are being sold and fewer listings are coming on the market.

Until then, buckle up.

http://www.youtube.com/watch?v=-Tze6Ir2jNY&feature=related

Written by Avrom Goldman, President CEO Pacific Union

Edited by Dan Joy

Selling Your Home in Today’s Market – Preparation and Pricing

There are two key elements to selling your home and getting the highest possible price for it in today’s market.  We are no longer in the times of seller’s glory where houses sold in multiple offers regardless of how they looked or what problems they had.  The two key components to getting your home sold are preparation and pricing. 

First I’d like to discuss preparation.  Buyer’s today are putting more of their own money into the house up front in the form of the down payment.  With all their resources going into a down, they don’t often have a lot left over for doing huge repairs on a house.  So early in the game it’s important to get a reliable pest report on a house. 

I just had a buyer in contract on a house that on the surface looked really good. The pest company the sellers used had a $4,000 pest report that was done by an unreliable company. That company just deferred away all the big ticket items and did not give a bid for them.  During my buyers investigations it became clear that a more reliable pest report was needed.  That $4,000 pest report turned into a $50,000 pest report and as one might expect, the deal fell apart. The sellers are now stuck with a house that has a very limited audience in terms of people that could actually take on the work that is needed there.  They have very little choice but to take the home off the market for a few months to do the work.  This will leave them marketing the home in the middle of the winter and in the mean time they will be carrying two home payments.  This is not a situation you want to find yourself in as a seller.

 As an agent representing you as a seller, it is my job to assist you in making the right decisions that will help you get your house sold. That does not always mean telling you want you want to hear.  It is better to get the straight story about what it’s going to take to get your house sold at the highest possible price, than to have me just go along with a plan that is doomed to failure.  In our San Francisco East Bay Real Estate market, there are still a few houses that sell in multiple offer situations. Those homes are the ones that have very little in the way of big ticket items for a new buyer to deal with, that are staged and estedically appealing, and are priced just below where they are realistically going to sell.  The houses that do not start out with all these factors, end up in a situation of price reduction after price reduction until they eventually get sold for much less than they would have, had things been done right from the start.  Some houses just never sell at all.  There are a few houses in every price range that have been on the market for over a year with little activity on them for months.

So if you are a home owner who bought one of those homes with large pest reports and you haven’t yet done the work, be aware that you should start budgeting to put money away to take care of it.  You will not be able to pass those costs along to the next buyer as was done when you bought.  The longer you wait on doing this type of work, typically the higher the costs get due to inflation and to the problem getting larger.

So once we have addressed the house structurally, we next need to take a look at it from the point of view of what it’s going to take to make someone fall in love with this house.  I believe I can best illustrate the process of home preparation by talking about a recent house I listed and sold at 3087 California Street in the Laurel neighborhood of Oakland.  Sometimes our family gets bigger and we begin to outgrow a home.  We need more space.  That was the case when I first met with the sellers of this little home.  They were all squeezed in a 920 to 940 square foot home.  Had the sellers needed to stay in the home during the marketing period, we would have had a very different situation on our hands. It would have been impossible to present the home in the best possible light with even the barest of necessities for a family of 3 to live with.  Luckily they had already purchased their next home and had been doing major repairs and remodeling to it in the months prior to my meeting them. They were now ready to move and begin to prepare their current home for market. 

These sellers were good to their home the 15 years they had lived in it.  They had taken care of many big items along the way and the house was structurally in great shape.  The pest report was a few hundred dollars.  The sewer lateral had been replaced.  There were electrical upgrades done. The homes only issue was a roof that was getting to the end of its life.  Given that they had had so many people tell them that the home was sound structurally as far as the foundation was concerned, we decided to put our efforts toward getting a reliable bid for the roof work.  It was under $7,000 and we decided that since that was really the only thing going on we could probably leave that for a buyer to do, maybe give them a credit if that were a negotiating point down the road.  Esthetically the house was really lacking. 

Before Kitchen Picture

The exterior of the home looked great as the sellers had it painted a few years before. But the inside desperately needed a paint job.  The kitchen was the original kitchen with some extra shelving put in to meet the current owner’s needs. 

Before kitchen remodel

All those open shelves made the kitchen look too cluttered.

Breakfast Nook Before remodeling

The cute little breakfast nook had been turned into an office space and the table had been removed.  Fortunately they had saved it in the basement area.  The refrigerator was too big for the space and stuck out in the door way.  Some office type drawers had been added with butcher block counter top put on them.  The stove worked fine but also looked worn. The light fixtures were some 80’s lights that didn’t really go with the bungalow style of the 1925 home. 

The bathroom was our other challenging area due to the size. The current sink was a pedestal sink but was so large that it co-mingled with the commode.

Bathroom before remodeling

This would be especially problematic for a male buyer.  The bedrooms also had shelving put up all around. We decided to begin by having my color consultant and designer, Angelisse Karol, spend a couple of hours with us giving some direction.  She gave us some invaluable suggestions and picked out the color pallet to repaint the interior of the home. 

 The sellers moved out of the house and I immediately had my painting expert, Rob Lewis and his crew, begin painting the interior.  We removed all the shelving that was attached up high around the bedrooms, bathroom, and kitchen as it detracted from the period detailing.  We decided to work with the original kitchen cabinets and sink.  We also decided to keep the office type drawers as they added needed counter-top space and storage in this older kitchen.  The painter repainted the fronts of them along with the older cabinets. 

The kitchen transformed after the remodel

 I then found period style handles for the cabinets including the drawers which made them look as though they belonged there.   I also shopped all the lighting stores to find some schoolhouse light fixtures that were reasonably priced that worked perfectly in the kitchen and breakfast nook area.  As you can see from the photos, the changes created an amazing transformation.

Other side of Kitchen after remodel

We replaced the stove and refrigerator.  We found appliances that matched the space and the older style.  And we replaced the kitchen floor with a black and white tiled vinyl floor. Does this sound like one of those shows on TV where they remodel a house on a budget? Welcome to my world.  This is one of the bonuses of working with an agent with some design skills.  The sellers saved a huge amount of money in the time that I put in to directing the work being done, shopping for appliances, cabinet knobs, and light fixtures. 

Breakfast Nook after remodel

A designer or a stager would have charged for that time.  I see it as part of my job in helping prepare a house for sale and it’s kind of fun.  The kitchen in this home, which was initially a big area of concern, actually became the area that many people gave positive comments on during the open houses.  They fell in love with the changes made and we didn’t have to completely gut and remodel the kitchen.

The bathroom was our other troublesome area.  Someone had at one time decided to seal in the old claw foot tub and tile around it. It looked very unappealing. 

Bathroom after remodel

The toilet and sink were the wrong shapes and sizes for the space. The floor and wall tiles were attractive however.  We had Yvonne Kettles from SHE Custom Building take responsibility for the bathroom area and the kitchen floor. She removed the old tub, put in a new one, found tile to match and custom tiled the new tub in to match the older tile. She found a fabulous sink that was perfect for the space and a commode that stuck out in the room less than the previous one.  The bathroom looked like new.  I picked out new lighting and towel racks. The little bathroom now worked for both men and women.  It was a success. 

After the sellers moved out of the house we realized that the hardwood floors, that we originally thought we could live with, were just not up to getting the top price for the house. We decided to have those redone as well.  A refinished hardwood floor, like painting, gives the seller the most return on their dollar. People love to see nice original wood floors. 

Living room before remodel

Living room after remodel

 

 

 

 

 

 

 

If you are thinking about covering up those hardwood floors with Pergo because you think it’s cheaper – PLEASE STOP NOW.  DON’T DO IT!!!!  You will immediately lower the value of your home.  Most buyers who are willing to pay the most do not like laminate floors.  They just do not feel good to walk on. 

Finally, once all the work was done on the house, we were ready to have it staged.  Many times I hear sellers say they are not willing to stage a house.  They grumble about the cost.  They say they don’t like the staging they see most of the time, that it is too Pottery Barnish.  It is vital in today’s market more than any other, to have the home staged.  We are now in a time when buyers are doing their home shopping online before coming to any open homes. Gas is expensive and time is short.  People are not wasting time or money if they do not see pictures that draw them.  We use professional photographers for all our listings at Pacific Union.  But even the best of photographers (which by the way I have), cannot bring perspective into the shots with just 4 walls in a room.  75% of buyers do not have imagination.  They can’t picture themselves in the home without seeing what the house could look like if decorated nicely. Staging is crucial.

Bedroom after painting, refinishing the hardwood floors, and staging

In this house we used Cordelia DeVere with New Moon Designs who is a unique stager.  I knew when I first visited this home that she was the one who would do the best job with it. She tends to put more things in the home than the average stager and doesn’t leave the place feeling bare and unlived in. She also uses original art and puts up nice curtain rods with beautiful curtains. Her textiles are really nice including had woven rugs, decorative pillows, and expensive looking bed linen.

In the end, these sellers spent $21,000 on getting their home ready for market.  This included all the work discussed above plus some outdoor work painting the garage, touching up the house where a cat outdoor fenced area had been,  putting on new railing to an outdoor deck, and removing a metal door from the front of the house.  Some landscaping was done mostly in cleaning up the back yard and re-doing the front landscaping to open up the house  to the street and create CURB APPEAL – my favorite thing.  But what did this translate into in terms of gain?

Home before front landscaping

Curb Appeal Achieved after a little bit of Landscaping

 

 

 

 

 

 

 

We originally priced the house at $449,000.  Where did we come up with this price?  I brought all the current comparable sales to the sellers.  These included homes that were currently on the market, ones that were pending (i.e. had gone into contract in the last 30 days or so), and those that had sold in the last couple of months.  It doesn’t make sense to go back any further than that in this market where prices have been coming down.  We needed to see what had been happening right now.  It was also important to look at the square footage of the home as buyers are doing that these days. Smaller houses are harder to sell. This is because buyers are looking at needing to stay in a home longer than they did before. Buyers realize they might outgrow it more quickly than the market may appreciate so they will pass on the smaller home. Finally we looked at the houses that were currently on the market.  We looked at the number of days they had been on the market and how many price reductions they had done.

When we began the process we didn’t really know how or what we were going to do to the house to prepare it. I told the sellers that we would re-evaluate the price prior to bringing the home on the market once it was all ready.  I also agreed to have several agents from my office give pricing suggestions to assist us in coming up with the right price.  After the home was ready I believed that the best asking price to get the highest price was $479,000.  I had several agents come out and that price was confirmed.  My sellers were not sure of this. They wanted to price it at $489,000.  I believed that $489,000 felt like more of a stretch for the buyer in the $450,000 range.  If we got the home priced within their reach we may end up with more than one buyer coming to the table which could mean a higher outcome for my sellers.   If we priced it high to start with, we could end up with getting less than we would otherwise.  Buyers tend to jump on something they see that is priced right to begin with.  When they think it is overpriced, even a little bit, they decide to play the waiting game to see if the price will come down.  As a seller, that is the worse game to be involved in.  My sellers had moved into their new house, they wanted immediate results, and they wanted to get their debt level reduced as quickly as possible.  The great thing about the sellers is they listened to their expert. They asked lots of questions and looked at all the data given them and decided the price made sense. 

We came on the market at $479,000. Before the first open house there were lots of agent showings.  Several agents asked for disclosure packets.

I want to diverge one last time to point out the importance of seller disclosures. I spent a whole evening assisting my sellers in filling out the “Seller’s Transfer Disclosure Statement” and “Seller’s Questionnaire”. My sellers were very thorough.  They had lived in the house a long time so there was a lot to tell about the things they did along the way. When buyers read these disclosures, I’m sure they relaxed because they felt the sellers were doing their due diligence and reporting everything they knew about the house.  Completely filling out those disclosures and telling all the things you know to be wrong with your house is vital to protecting you from lawsuits down the road.  In addition, it is another thing that helps your house to get sold because it answers questions and illuminates uncertainty. 

After the first open house it became clear that there were 4 parties that wanted to place offers on the house.  We decided not to wait for the second open house and took offers at the end of the week following the first open.  All 4 offers were over asking.  The winning offer was for $503,000. My sellers were very happy and relieved.  The buyer’s inspection went smoothly.  We closed escrow in twenty-one days after going into contract.

I firmly believe that had we done nothing to the house to prepare it, we would have had a hard time selling it at the original list price of $449,000.  It would have taken much longer, that is for sure.  So by spending $21,000 my sellers got a sales price $54,000 more, a gain for them of $33,000.  We did exactly the right amount of home preparation to gain a quick sale for the highest possible price.

I just want to point out that there are several other properties that are now for sale on that street with other agents.  One of them just went pending after a price reduction of $43,700 and 23 days on the market.  I heard it had multiple offers after the price reduction.  The other house that is very similar to the one I just sold is still on the market after 27 days.  It has an extra space on the back and is a very attractive little house.  It has a big pest report with a portion of the foundation needing to be replaced. Again, buyers get daunted by all this and don’t act.  This house is also priced at $499,000. 

The moral of the story is pick an expert to work with that takes an active part in the preparation phase and will tell you the truth, not what you want to hear, and then listen to them.  Good results can still be had for sellers.  You have to realize prices have come down and the playing field looks very different than it did two years ago.  Prepare and price your home right and most of the time you will have successful results.

Written and Edited by Dan Joy

Have we Reached the Bottom Floor Bargain Basement Yet? Market Stabilization in the East Bay Real Estate Market

Do you want to buy a house but are afraid the market may be going down even further?  With the recent stock market crash this week and all the other grim financial news reports broadcasting gloom and doom everywhere you look, I cannot blame you for thinking things could get worse before they get better.

There is no national market when it comes to real estate. The real estate world is local – meaning the markets are like wine regions, there are many micro-climates.  As a whole, the countries prices may come down more.  But in the good neighborhoods of the San Francisco East Bay, market stabilization seems to on the upswing.  In my office at our weekly staff meeting we have nearly 40 agents present. Most agents, for the past few weeks, have reported very high turn out to open homes with many new buyers showing up.

Interest rates have come way down in the last week.  One of my clients locked in at 5.75% on a 30 year fixed.  We haven’t seen that low in a long time.  They have generally been around 6.375 or so.  This presents an incredible opportunity for new home buyers to buy a house and pay much lower payments than they would at the higher rate.  And with the conforming loan amount being $729,750 only until the end of the year (next year it will go down to $625,500) there is motivation for buyers to get something now while they still can afford it.

 We also talk about new listings that are coming up in our staff meeting.  Another trend that is happening is a reduction in the amount of new inventory coming on the market.  I have several clients in the $500 – $600,000 price range and there is almost nothing new coming on the market in the next month from our office in that range and really not much coming on period. Typically September and October are times where lots of new inventory comes on the market. So people are holding back putting their houses for sale. YIKES!!  Are we going to have an early winter? But I can already hear you saying, “So what?  How do I know we’ve really hit the bottom?” 

If this is you, it’s time to look at the statistics and figure it out for yourselves.  From what I am seeing, we have hit the bottom and are now stabilizing.  The opportunities for the best deals will soon be gone in the nicer neighborhoods.  But a picture is worth a thousand words.

There are 2 things we look at in evaluating the state of the union concerning the real estate market locally. The first is the number of months of inventory on the market.  That figure is derived from looking at the number of active listings (these are the ones you can still buy) on the market, the number of pending listings (things that have gone under contract in the last 30 days usually), and the number of sold properties in a given month.  You are evaluating how long it will take with the current number of houses being sold to sell the rest of the inventory on the market. 

Are you following me here?  Statistics were never my strong suit in college.  Thank God for my wonderful manager, Pam Hoffman, who uses the Broker Metrics section of our multiple listing services to put all this together.  You can thank her for the pretty graphs coming up. Unfortuantely the pretty graphs do not publish directly on the blog. You will see a link where they belong. You will need to click on it and go back and forth between the article and the graph – sorry about that.

The second thing we look at is the Basic Absorption.  Here we look at the actual inventory on the market in terms of that which is under contract (pending), that which is new properties just coming on that month, and the residual inventory (those houses that didn’t sell in a given month and stay on the market). Together these 2 things can give us a local picture of what the market is doing.

I’m focusing this article on the broader picture in terms of looking at these 2 dynamics by city. You can look at these dynamics by zip code and neighborhoods within the city as well and they will look very different, for example if we compared Rockridge with East Oakland there would really be no comparison as Rockridge has stayed stable throughout this real estate and financial crisis.  Prices have come down mind you, but month’s supply of inventory in Rockridge has always stayed low and still favors a seller’s market.

Let’s start with Oakland. months-supply-of-inventory-oakland-aug06toaug08

As you can see from this graph, the market peaked with 15.7 months of inventory last December.  Since then it has steadily come down to what it was in August, 4.5 months of inventory.  That would be considered a balanced market as far as the advantage for sellers or buyers being relatively similar, whereas even in July it was 6.1 months and would be considered a buyer’s market.  If you look at what it was in August of 2006 (4.1 months), when the market prices were much higher, we are nearly down to the same number of months of inventory.  This is for all single family dwellings in every price range.

When inventory is low and demand is high, that is when prices begin to go up.  With so many people wanting to own homes but waiting for the market to go down some more, we are getting an increasing pent up demand that sooner or later will result in people deciding to come to the table and buy something. At that point, we will begin to see the home prices going up.  The thing is, we will never know what the bottom truly is until it starts going up.  If you find a home you really like, do you really want to wait and risk potentially getting priced out of the market again? I remember when I lived in Boston I used to go shopping at Filene’s Basement.  I always hoped the Armani shirts I liked would eventually appear down there where the bargains were outstanding. But most of the quality wears never reached the basement.  This may be true for you homebuyers waiting for the bottom. You may not find anything you want when you get there.

Next we will look at the basic absorption for the Oakland market over the past 2 years. 

basic-absorption-oakland-aug06toaug08

In this chart you will notice that we have an increase in the number of homes currently under contract of 27% since August of 2006.  People are deciding to take advantage of these prices and buy homes.  On the other hand the number of new listings coming on the market is down 27%.  Sellers are not selling their homes in this market if they don’t have to, or if they can’t move up to something better.  (This can be a good time to move up if you have owned your home long enough.)  And we have an increase of 96% of residual inventory (houses that don’t sell) from 2006.  Wow, you say!!! But when you look at the trends of this chart the gap between the red and the blue lines are narrowing. This means we are beginning to sell most of what comes on the market that is priced right at this point and there are fewer numbers of houses adding to the residual group.

For those sellers looking at this chart you should focus on that residual area and make new decisions if you have one of the homes contributing to that residual number. Either take your home off the market and make other plans or do significant price reductions.  Buyers are not willing to buy houses that are overpriced and they will continue to pass you up, no matter how stubborn you are or how desperate your situation.

Given that Oakland is a balanced market, (requiring equal admonitions) here is a reality check for you buyers out there as well.  Unless the house of your dreams is one of the ones that linger on the market for more than 45 days or so, don’t be thinking the houses you go see and love will come down more.  From what I can see, homes that are priced right and do not have major flaws such as big pest reports, location problems such as near a freeway or busy street, neighborhood issues, or are just unappealing for some reason esthetically; are selling within the first couple of weeks on the market.  If you are working with a good agent who is looking out for your interests and not their own, they will be able to give you a good idea of what might be overpriced and encourage you to make an offer for under asking; and which ones are priced right and may even go up a little bit if other people come to the table on an offer date.

The greatest thing keeping most buyers from buying right now is fear that they will lose their nest egg.  With all the foreclosure news out there it is no wonder you are afraid. But the reason that people are in the situation they are in nine times out of ten is because of the lack of funds they put into the home in the first place.  In the past 8 to 10 years we have had a certain political party (the name I will not mention) that has taken upon themselves to destroy all the protections that were put in place after the great depression that my 90 year old mother lived through as a little girl.  These protections were governmental controls on the way financial institutions did their business. By legislation passed through our congress in the recent years, lenders were allowed to do things they were not allowed to do previously such as subprime loans, lowered qualifications for borrowers, etc. In my opinion, they did this so that a few people could make a bundle and steal from the middle class. It is very important that you know this when you go to the polls in November.  But it is also important that you realize that at this point in time, if you are getting a loan to purchase a property and your job situation is stable, you will not end up in a bad way.  At this point the lending institutions are making sure that sufficient down payment and qualifications are met to give you the money to purchase your home.

By now my readers are noticing that I have taken a detour from my subject, and for this I apologize.  Just know that my goal here is to help both buyers and sellers get information they need to make good decisions and with the election time upon us and the status of the nation being what it is, I cannot help but diverge from my topic.

On to the Berkeley market. months-supply-of-inventory-berkeley-aug06toaug08

Now if you ever wanted to see an interesting micro-climate, Berkeley is the place, in more ways than one.  As you can see from this graph the number of months of inventory is only 2.1 months (a seller’s market) which is actually better than it was 2 years ago at 2.5 months.  Berkeley is like its own country.  Their worst time was last January when they had 5.3 months supply of inventory.  The overall monthly supply of inventory is down 13% of what it was 2 years ago. basic-absorption-bekeley-aug06toaug08  When we look at the basic absorption for the most part new inventory is selling at a reasonable pace and the residual supply seems to have remained relatively consistent for the past year with mild fluctuations (sorry, I only have the chart for the last year as opposed to the last 2 but I think you get the idea).  We see an increase of 48% of properties under contract (UC blue line) and, here is a difference from Oakland, the amount of new listings (red line) is up 14% from 1years ago.  Totally wild!!!!  I guess if you don’t want to conform to the current economic status of the country, move to Berkeley.  They have their own rules.

months-supply-of-inventory-el-cerrito-aug06toaug08 El Cerrito has a 3.7 month supply of inventory which is up from the previous few months. It is a much smaller city so a few properties can cause a really big effect here. And I know them all.  The high was last November which quickly recovered in December and then went up and down until April when it gradually went down until August where it rose again. (wow, this sounds like the same climate as our lending situation over the past year, a rocky road of ups and downs)Overall the number of month supply of inventory is up from August of 2006 by 91%.  basic-absorption-el-cerito-aug06toaug08 Looking at the basic absorption rate in El Cerrito clarifies things quite well. There is actually a balance of what is coming on the market and what is selling (red and blue lines above Aug 2008).  In reality the number of properties under contract is down 52% and the number of new listings is down 72% from what they were in 2006. On the other hand the residual inventory is up by 55%. There are some properties on the lower end of the market that are not selling, a few that are actually great deals but could be ever better ones if someone would just make an offer.  Then there are a couple at the top end of the market that were always way over priced and continue to be way over priced for the current times, in one case on the golf course maybe for any time.  Most of the houses lingering on the market are in the north end.  Come on folks, it’s just one more BART stop away.  For the most part sellers in El Cerrito are staying put, especially those with nicer houses. That’s why the 72% reduction of new listings. The more desirable houses that are coming on the market, mostly sellers moving up, that are priced right are selling. Many of the houses lingering for more than a couple of months have issues of some kind or another.  One is an overpriced house that is a tear down and rebuild situation.

I could go on and talk about other micro climates of the East Bay but if you’ve held in this long with me, you are a very good sport.  I apologize for the length of this article. Talking about the market right now relates to so many things, sometimes I have to diverge in order to paint the whole picture.  I hope this is helpful to some of my readers and, as always, I appreciate comments and feedback. Again, thank-you for your time.

 
Written and Edited by Dan Joy

Selling Income Property and the 1031 Deferred Exchange

Selling income property or rental units creates different tax consequences than selling owner occupied dwellings.   Many people get confused by the differences so I would like to discuss them both and also talk about some changes that will come into effect January 1st, 2009 that have raised some eyebrows.

 
Prior to the recently passed housing tax bill that goes into effect the beginning of next year, homeowners could enjoy tax-free capital gains of up to $250,000 for a single person and up to $500,000 for a married couple if they were selling and used the home as their principal residence for at least two of the previous five years.  Under the revised law a homeowner can no longer enjoy tax-free capital gains from the home during the years it wasn’t the seller’s principal residence. For example, if a homeowner uses the house as a vacation home for three years and as a principal residence for the next two, the owner will have to pay capital gains taxes on three-fifths of the gain, which represents the three years the home is not their principal residence. Previously, the homeowner would have pocketed the entire capital gain up to the limit.  The same is true if the home was used as a rental property for part of that time.  It is not uncommon for a property owner to buy a rental property and rent it for a number of years and then move into it for the last two years of ownership before selling and thereby avoid capital gains or having to do what is called a 1031 exchange.  Now they will have to commit to living in the home at least five years prior to selling if they want to avoid the tax consequences.  If you only owner occupy your home as your primary residence, then you can still enjoy the $250,000 tax free gain as a single person and $500,000 as a married couple if you have owned the property for at least two years.  Is your head swimming yet? If not, wait until you take in the next part.

 
Now let’s talk about selling income property or rental units.  Capital gains tax is tax on a gain of value between what you purchased the property for (referred to as the “Basis”) and what you sold it for, less any improvements you have not already deducted in your yearly taxes as maintenance costs and less the selling costs.  Woops, there is one more thing we have to take into account.  When you own rental property you are able to depreciate it for tax purposes each year which amounts to a bigger savings on your yearly taxes. This depreciation has to be factored into the equation to figure out your capital gains tax by subtracting the amount of depreciation over the years from your “Basis”. For example, say you bought a property for $150,000 and rented it for a number of years.  Over those years you deducted a total of $28,000 in depreciation. Now your basis is $150,000 minus $28,000 for a new basis of $122,000. Then you remodeled the kitchen and bath for $38,000 prior to putting it on the market to sell.  You then sold the property for $350,000 and had sales costs of $24,500. To calculate your gain you would take $350,000 minus 38,000 minus $24,500 minus $122,000 which would leave you with a gain of $165,500. I’m sorry folks, there is no way to make this discussion simple and you have to get your head around all these numbers.  The capital gains tax you will pay will be on that $165,500. Both federal and state taxes have to be calculated to come up with your total amount due for capital gain tax.  Stay with me now. It gets even more complicated.  The federal rate for capital gains is 15%.  The state tax is based on what your state tax rate is.  Most likely it will be somewhere around 9.0 to 9.2%.  On top of that there is a separate gain paid on your depreciation you deducted of 25%.  Wow!  I have learned more myself than I bargained for in writing this article.  So the bottom line is using the example stated above the approximate capital gains tax would be $42,520.  That’s a lot of money!  You can see why you now want to know about the 1031 tax deferred exchange.  Believe me; the IRS does not make it easy for you to not pay this tax.  But if you follow all the rules, it can be avoided or better termed deferred.

 
The tax deferred exchange, as defined in Section 1031 of the Internal Revenue Code of 1986, allows investors to sell investment property, use all the equity to purchase replacement property of equal or greater value, defer the capital gain tax that would otherwise be paid, and leverage all of their equity into the replacement property.  There are many rules to this transaction that would be impossible to cover in this one article. But I want to discuss a few highlights.

 
You cannot do a 1031 exchange on your principal residence. With the loss in values recently experienced people want to try to capture the loss in their taxes by calling the property an income property. You can’t do that if you owner occupy the property.  If, on the other hand, you own a duplex and you live in half of it and the other is a rental property, then you would consider the portion of the property you live in as the owner occupied portion subject to the $250,000 tax free gain if you have lived there for at least 2 years and the other portion would be subject to capital gains tax and available to use for a 1031 exchange.

 
Next, you must exchange like for like property.  What does this mean?  It refers to the nature of the property, not the condition the property is in.  Most of the time, real property is “like-kind” as to all other real property as long as the Exchanger’s intent is to hold the property as an investment or for productive use in a trade or business. In other words, you could sell a rental property and exchange it for an office building that you planned to run your dental practice business in.  You could sell undeveloped land that you rented out for pasture to purchase a multi-unit building.  It’s all considered real property and your intent is to collect rents from it. So the rule here is pretty broad.

 
When doing an exchange you are called an “exchanger”.  As an “exchanger” you must hire a “Qualified Intermediary” to facilitate the exchange otherwise known as a “facilitator” or “accommodator”.  Before selling your first property you enter into an agreement with the “accommodator” to handle the exchange for you.

Flow chart of the 1031 exchange process

This is different from the title company that handles the transaction. The title officer will actually be in contact with the “accommodator” during the period of escrow and will be getting them the necessary information for your sale.  The “accommodator” holds the funds after the sale until the replacement property is purchased.  At that time they transfer the funds to the title company handling the replacement property for the purchase and you pay the “accommodator” their fee.  If there are any extra funds that the exchanger receives from the sale that do not get transferred into the replacement property, those funds are called “boot”.  Yes, it’s like a kick in the pants.  You get the boot and thereby pay capital gain on that portion. 

 

 
Probably the most significant factor in doing a 1031 exchange is the time frames by which you must comply in order to defer the capital gains tax.  You have 45 days after the Exchanger transfers the first relinquished property to the “accommodator” to identify the new property or properties to be purchased.  You then have until the 180th day after transfer from the first relinquished property to close escrow and take ownership of the replacement property.  If you are selling more than one property to exchange into one purchase, you can see how complicated that becomes.  That is why in selling the relinquished property to the new purchaser that we ask the new buyer to sign a disclosure form saying that they are agreeing to cooperate with the seller’s 1031 exchange.  Part of that cooperation may involve delaying a close of escrow in order to accommodate the exchanger’s needs.  The new buyer may not want to do that, and if they are also exchanging it may not work in their schedule.  All of these items have to be negotiated during the sale of the relinquished properties in order to make the 1031 exchange successful. 

 
There is much more information out there online regarding a 1031 exchange but I think I have hit some of the highlights.  There is a good website I found managed by one of the companies providing accommodator services.  I don’t know anything about the company but their website has a lot of informative information and a great calculator to figure out what your capital gains tax would be should you want to pay it and fund Bush’swar. The website is http://www.ipx1031.com/lit.html. The calculator portion of the site is http://www.ipx1031.com/cap_tax_form.cgi. The National Association of Realtor’s also has an information site regarding tax deferred exchanges at http://www.realtor.org/library/library/fg408. I also found a good u-tube video regarding the 1031 exchange that I think you can find informative.

 
Written and Edited by Dan Joy  

http://www.youtube.com/watch?v=lhpszceiRFQ

The Importance of Funding Your Living Trust

Signing your Living Trust is only half the process if you are concerned about protecting yourself and your loved ones in case you become incapacited or die.   The funding of your Living Trust is actually more important in completing proper estate planning.

What does “Funding your Living Trust” mean? It means transferring title of your real property and other assets out of your name as an individual and into the name of your Living Trust.  Think of your Living Trust as a bucket that holds title to your real estate and money accounts.  The Trust language identifies who is to manage your assets and what they are to do if you become incapacitated, and also who is to receive your assets after you’re gone.  If you don’t transfer your assets to the Trust while you’re alive and competent then the Probate court has to do it for you before the terms of your Living Trust can control the disposition of your estate. 
 
Funding real estate into your Living Trust requires recording a new deed for each piece of property in the county the property is located.  Transferring money accounts requires signing new paperwork with each of your financial institutions.  Simply signing a letter that states that all of your assets and real estate are now part of your Living Trust doesn’t cut it.  

In California, assets which are held in an individual’s name alone and do not pass through joint ownership or beneficiary designation must go through Probate if they total more then one hundred thousand dollars.

Probate is a public proceeding so anyone can go into court and find out what you had and who you left it to regardless of whether they are related to you or not.  Probate is time consuming and takes a minimum of seven to eight months and often longer. During this time the assets are frozen and hard for your loved ones to access if they need them.   Probate is also expensive.  In California,   attorney’s fees to Probate an estate are written out in Probate Code Section 10810 and are based on the size of the estate and the fair market value of the real property.  The statutory attorney fees to probate a one million dollar home whether it has fifty thousand dollars of equity or is fully paid off is the same in both cases and will be twenty three thousand dollars.  Executors get paid the same as the attorney and these fees do not include other court costs, fees and expenses.   

If you become mentally incapacited without having funded your trust then there is nothing in the bucket for your successor trustees to manage on your behalf.  They will need to initiate a conservatorship in Probate Court so a Judge can decree that they have the power to manage your assets.  The judge then continues to supervise your conservator until you recover or die, and like a death Probate, it will be public, expensive and time consuming. 

An unfunded Living Trust is just a Will.  Make sure your Living Trust is properly funded.

Written by Barry W. Finkelstein, Edited by Dan Joy

Barry W. Finkelstein is an attorney at law that specializes in providing counseling to couples, families, individuals and business owners throughout the bay area on estate planning, asset protection, wealth preservation and business succession. He believes that providing his clients with a thorough understanding of the estate planning process is the first step to creating successful preservation of assets and resources should one die or become disabled. He works collaboratively with other professional advisors such as financial planners, insurance agents, and CPAs to ensure desired results at every stage of life. For more information visit Barry’s website at http://www.alamedalaw.com/index.php.