Are There Deals in Real Estate

House bargains

“Deals” And “Bargains” In Real Estate

The myth: It is widely believed by the public (and even by many real estate practitioners!) that there are “deals” or “bargains” to be had in real estate. The thought is that, in good markets or in bad, somehow a property can be purchased “below market price”.

The reality: There are three factors in real estate that combine to forestall the possibility of a below-market-price-deal:

1.) supply and demand that is reflected in

2.) price movement that is

3.) constantly tracked in real time in both the quasi- and wholly-public record.

The result is a ready reference of so-called “comparable” properties against which all other properties of like kind, condition and location are measured.

An example: No one would argue that in the market at the end of the last decade a property purchased for $325,000 that sold for $600,000 three years earlier is a “deal”; but once that property has sold for $325,000, all the comparable properties in the neighborhood take on the value of that sale. The identical model sitting next door or across the street can no longer be said to be “worth $375,000”, whether the $325,000 sale price was the result of a distressed sale (short payoff, bank owned, etc.) or not.

Another factor: A further element to be considered in a declining market is the effect of competitive pricing. In a balanced or rising marked, the most recent sold comparable (several, actually) will establish value for surrounding property. When prices are in a downward spiral, the asking price, when lower than those of surrounding properties, will to a great degree, serve as the “comparable” rather than recent neighborhood selling prices (would you pay $25,000 for a new car if the same model was available across town for $22,000 and you could be made aware of that fact with a few strokes on a keyboard?).

Bottom line: If there truly were “deals” in real estate, professionals would be grabbing them up; there is little evidence, even anecdotally, that such has occurred.

“LOWEST PRICE” VS. LOW INTEREST RATES

The dilemma: The thoughtful buyer must make a judgment about the direction of both pricing and interest rates, then strive to optimize the “tradeoff” between the two.

Tradeoff example: buyer can pay only $1,500.00 monthly principal and interest:

Home Price: $312,500 –  Down Payment: 20% – Interest Rate: 6% – Monthly Payment: $1,499.88

But move the interest rate up just one percent, and . . .

Home Price: $281,250 –  Down Payment: 20% – Interest Rate: 7% – Monthly Payment: $1,499.88

Consequence: In any given market, the buyer can acquire a property that has about 10% greater current value (read “more house for the same payment”) if interest rates are 6% than if they are 7%! It may not be wise to wait for the “bottom” of the market when interest rates are rising!

Things to Consider Before Buying a Home

House Disclosures

Buying a home can be stressful. There are a lot of moving parts and a lot of things that can go wrong. Working with a professional Realtor, knowing the process and your due diligence is what will keep your home purchase on track. During the transaction, usually in escrow or before, a buyer will receive several disclosures. One will be something called the Natural Hazard Disclosure. There, you will find out about various things that affect the property, there, locally and a bit further away.

Below is a list to consider of items that may affect the property you are about to purchase. Sometimes we don’t think about these things but they are still something to consider.

Airport Noise: Certain airports located in the area may be in proximity to the Property and Buyer should be aware that airport traffic and noise exists throughout much of the counties of Los Angeles, Ventura, San Bernardino and Riverside.

Licensed Care, Correctional and Custodial Facilities: Licensed care facilities may be found in any neighborhood and are protected by State law. Numerous local, county and state custodial facilities are to be found throughout Southern California.

Wildlife: Certain types of wildlife are indigenous to Southern California including, but not limited to, rabbits, squirrels, rodents, cougars (mountain lions), deer, coyotes, snakes (venomous and non-venomous), bear, bats, bobcats, raccoons, possum and various birds of prey.

Private Sewage Disposal System or Septic Tank Inspection: Some residential properties, even in long-established communities, have septic tanks and are not attached to the public sewers.

Fireplace Inspection: Many properties have one or more fireplace installations. Depending on age and prior maintenance, some may be a hazard under certain circumstances.

Reservoirs and Dams: Major reservoir/dam facilities may be found in the area in which the Property is located.

Future Development: Future construction or other development of the area surrounding the Property and/or development in the general area may affect the Property.

Landfill (Waste Sites): The Property may be situated in the vicinity of a landfill site.

City-Required Records and/or Inspection Reports: Certain cites may require the Seller to obtain from the City, a report of residential building records; said cities may also require a city inspection.

Escrow Process: While the purchase agreement will indicate a specific escrow closing date, the complexity of a real estate transaction may require extension (or extensions) of that date

City Inspection for a Real Estate Sale

City-home-inspector

Some Southern California Cities Require A Pre-Sale Inspection, A Report Or Both!

Whether selling or buying a home, it is well to learn if the jurisdiction in which the property is located requires that representatives of that jurisdiction (invariably cities; counties usually do not do this) must enter and inspect the property before close of escrow.

The practice, almost unknown 10 years ago, is becoming widespread. In certain cities, an inspection is not carried out provided certain forms have been completed and signed by real estate agents or others. In many cases, a city report is required.

So, if you’re buying (or selling, responsibility is on the seller) in any of these cities, know that there will be city intervention of some sort.

CAUTION: just because a city is not on the following list does NOT mean that there is no inspection requirement. Ask City Hall!

Azusa

Los Angeles ( *) (Form RPR-9)

Bell

Manhattan Beach

Beverly Hills

Maywood

Carson

Monterey Park

Compton

Newport Beach

Cudahy

Orange

Culver City

Oxnard

El Monte

Palos Verdes Estates

El Segundo

Pasadena

Gardena

Port Hueneme

Hawaiian Gardens

Rancho Palos Verdes

Hermosa Beach

Rolling Hills Estates

Huntington Park

San Diego

Industry

San Marino

Inglewood

Santa Monica

Laguna Beach

Signal Hill

Lawndale

Thousand Oaks

Lomita

Torrance

Long Beach

Westlake Village

Each city has its own set of rules: some merely require a form to be completed and signed, others require that a City Inspector examine the property and improvements and create a list of items to be corrected. All charge a fee.

WHETHER BUYING OR SELLING, WHEN IN DOUBT CONTACT CITY AUTHORITIES REGARDING REPORTS-INSPECTIONS!

(*) The City of Los Angeles has more than 40 designated community names that are NOT cities in their own right. Los Angeles Report-Inspection rules apply to these areas. The best known are: Hollywood, Brentwood, Pacific Palisades, Playa del Rey, Marina del Rey (some portions are County area not subject to the City’s rules), Van Nuys, Venice, Westchester, San Pedro, Wilmington, Northridge, Canoga Park, Woodland Hills, Tarzana, Sherman Oaks, Encino, Studio City, North Hollywood, Sylmar, Sunland, Tujunga, Eagle Rock and Highland Park. There are many others.

DISCLAIMER: Compiled as a guide for real estate practitioners from sources believed to be reliable but not definitive. Information subject to change per city or community.

Lease Option To Buy

A lease-option agreement should be looked at as “buying the right to buy at some future time”.

The objective is to assure both the tenant/buyer and landlord/seller that the property may be
transferred at a presently-agreed price at the end of the time period stipulated in the lease-option agreement.

Steps to the creation of a lease option to buy:

A purchase agreement (RPA-CA) must be completed and executed concurrently with the lease option agreement (and most often, with a lease).

The elements of the option are:

Parties must agree on the future purchase price.
Parties must agree on the time period for the lease (usually one year).
Parties must agree on the amount of the “option money”.
The option money can be any amount (typically one to three percent of the agreed purchase price), must be passed to the landlord/seller by the tenant/buyer at the time of execution of the lease and will remain, irrevocably, the property of the seller/landlord.
Option money is not to be confused with the security deposit for the lease itself; these are two completely different matters and two different sums of money.
Several variations on the accumulation of the down payment should be considered:
Should all or part of the option money be credited toward down payment?
Should any portion of the monthly rent be credited toward down payment?

Once the lease option agreement is executed by both parties, the landlord/tenant is obligated to sell under the terms of the two contracts (OA and RPA-CA), but the tenant/ buyer is not obligated to buy. The tenant/buyer is a tenant only until close of escrow and the landlord/seller may not jeopardize title (liens, judgments, etc.) during the term of the lease.

Considerations:

Property may be worth less than the agreed price at the end of the option period.

Tenant/buyer may not be able to qualify for a loan at the end of the option period.

Tenant/buyer may damage the property, then leave at the end of the lease period.

Landlord/tenant may have to evict the tenant/buyer at the end of the lease period.

If, at the end of the lease option period, both parties are willing to extend the period, the length of the extension and additional option monies to be paid must be agreed and the lease-option extended in writing by amendment.

Real Estate Sale Contract Basics

The Law Of Contracts – A Few Basics

There’s an old proverb that says “In California, if it ain’t in writin’, it ain’t real estate’.

The Statute of Frauds in the State says that all real estate undertakings must be reduced to writing. The real estate industry, via its Trade Association, the California Association of Realtors, has evolved a series of several hundred documents that cover virtually every contingency that might arise from a short term lease to the purchase of a multi-unit high rise.

But there is a small body of underlying rules that govern any of the contracts that might be created. Briefly, those rules are these:

To be binding on the parties, a contract must:

– Be for a lawful purpose
– Have consideration (usually we mean money in exchange for a house)
– Be mutually agreeable (called “mutuality”: everyone signs agreeing to everything)

Also, there is a little known corollary to this which has to do with bringing a binding contract into existence. The offer must be:

– Presented
– Accepted
– Delivered

When an offer is prepared fully, completely and can be said truly to represent the Buyer’s wishes, it is signed by the Buyer and presented to the Seller, usually through a listing agent. After a Seller reviews an offer one of three things happens:

– The Seller rejects the offer outright
– The Seller makes a counter offer
– The Seller accepts the offer as written

If the response is a Seller-signed acceptance, that acceptance must be delivered to the Buyer or, if another party (usually a brokerage) is designated, then to the alternate party. UNTIL AN OFFER (OR A COUNTER OFFER OR SERIES OF COUNTER OFFERS) IS DELIVERED, NO CONTRACT CAN COME INTO EXISTANCE.

Also, here are two additional, seldom considered, twists on the law of contracts:

When an agent, whether representing buyer or seller, presses the principal to make a decision and to respond, there is another element: time. Most offers and counter offers carry a three day limit after which they are void.

When an offer is presented and the Seller wishes to make a counter offer concerning any part of the original offer, the original offer is no longer “good”, that is, the creation of the counter offer automatically relieves the Buyer of an obligation to continue with the contract unless the Buyer signs the Seller’s counter offer.

Proposition 60 And 90 And Tax Transfer

Proposition 60 And 90 And Tax Transfer For Those 55 And Older

Proposition 60 allows any seller of seller-occupied real property who is 55 years or older at the time of sale to transfer the property tax of the sold property to any other property intended as the seller-turned-buyer’s principal residence to the new residence.

Provided:

1. The new residence is in the same county as the residence that was sold.
2. The purchase price of the new property is less than the selling price of the property sold.

Proposition 90 allows the same privilege of property transfer to another county provided that the county to which the prior tax is being transferred has opted to accept that transfer.

Counties which have adopted a Proposition 90 ordinance:

Alameda

Santa Clara

El Dorado

San Diego

Los Angeles

San Mateo

Orange

Ventura

Riverside

San Bernardino

Seller Financing, What is it?

Giving-house-keys

Seller Financing (So-Called “Seller Cadrries”)

 

So-called “Seller Carries” are getting to be more common as landlords or empty nesters age and want out. The advantages, generally, are these:

– The Seller may get a slightly higher price.

– Although the interest on the note is taxable, it is additional income for the life of the note.

– It may enable a sale that would otherwise be difficult because of the Buyer’s position with a conventional lender.

 

Some rules of thumb if the Seller is to carry the entire loan:

– To protect the Seller, there should be a fairly good down payment, 20% minimum, 30% preferred.

– The Seller carried note must be secured by an immediately-recorded deed of trust.

– The Seller must be a named insured on both the fire/liability and the title insurance policies.

– The Buyer must provide full credit and employment history as well as references.

A bit easier if the Seller is carrying a note for partial value (say 10%), Buyer 10% down, bank 80%:

Same rules regarding a note and an immediately recorded deed of trust.

– Same rules about insurance: Seller must be completely covered

– Seller may not need so stringent a credit check since the lender is giving 80% L.T.V.

– The structure of the note/deed must be done using the CAR Form SFA (Seller Financing Addendum).

The Seller Financing Addendum

– The “originator” of the loan is supposed to prepare the SFA and, by definition, that is the Selling Broker/Agent.

– Few brokers, let alone agents, know of or how to complete an SFA; be certain the creator of the document knows what he/she is doing.

– If the Buyer has used a first deed loan as partial payment and the Seller’s note is a second, it must run for the life of the first (Dodd-Frank January 2014)

– The Selling Agent has an obligation to provide credit/income history, etc., Listing Agent is obligated to see that this is done!

The downside for the seller:

– The Buyer may not make the monthly payments

– The Buyer may default on the first loan to the bank

– The Buyer may fail to pay taxes or insurance premiums.

 

The upside for the seller:

– The payout over a term of years may favorably effect the Seller’s capital gain

– The majority of buyer/borrowers refinance within about seven years, so the note may not run to 30 years.

– The property has already been bought and 90% paid for; if compelled to foreclose, the Seller stands to make still further appreciation

6 California Buyer Assistance Programs You Need to Know

assistanceCalifornia is a Buy State

California home values continue to rise at over 20% in 2013, and more owners are starting to sell!

This is great news for homebuyers tired of fighting tooth and nail for the few homes available for sale in your community.

With foreclosures and short sales fewer and further between, home buyers have the pleasure of working with real people again, and not banks.

Live Online Class Schedule

It can be very confusing knowing which is the best program, what can be used with what other programs, which limits do you follow?  We have a couple of live online classes scheduled in the next couple of weeks.  CLICK HERE to see Current Online Class Schedule

Low Interest, No Interest, Don’t Pay it Back

The programs we are going to discuss here are all available throughout the entire State of California.

CalHFA FHA – Is a first mortgage loan for low to moderate income, first time homebuyers.  This is one of two first mortgage programs offered by the State of California.  Interest rates are set by CalHFA and published online here.

CalPLUS + ZIP – CalPLUS is the same first mortgage as the CalHFA FHA, however, with a little higher interest rate, you are automatically eligible for ZIP.  ZIP stands for Zero Interest Program and can be used with ECTP & CHDAP (just not at the same time).

BCA – The Broadview Community Access is a FHA Alternative loan that offers reduced mortgage insurance to eligible borrowers.  This conventional qualifying qualifying limits borrower’s income from exceeding 140% of the Area Median Income for the County they are buying in.

CalHFA CHDAP – The State of California Homebuyers Downpayment Assistance Program is the only CalHFA program available to use with a non-CalHFA first mortgage.

ECTP – The Extra Credit Teacher Program has returned with newly expanded guidelines making it available even more California Teachers, Staff, School District Employees.  This program offers between $7,500 to $15,000 in high cost areas to eligible borrowers working in low API (1-5) schools or districts.

CHF Platinum Grant – This homebuyer grant is available throughout the entire state of California.  You must use a CHF first mortgage program, and interest rates are set by Grant Program.  The CHF Platinum Grant does not have payments and is not paid back

Qualifying Highlights

As with most down payment, or first time homebuyer programs, expect to find some of these common requirements:

  • First Time Homebuyer Requirement – Ask about Targeted Area and Veteran Exceptions
  • Income limits – There are 4 different income limit guidelines out of the 6 programs listed above.  Some limits will also vary based on how many will live in the home.
  • Sales Price Limits – Limits set by County for most programs.  Some programs will offer higher limits in federally designated target areas

How it All Fits Together

Many of these loan programs can be used along with each other, or even any FHA or Conventional loan.  Homebuyer specialists can

CalHFA FHA – Can be used with the Extra Credit Teacher Program (ECTP), or CHDAP, but not at the same time.

CalPLUS + ZIP – Borrowers eligible for CalPLUS are automatically eligible for the ZIP  Zero Interest Program. Can also be used with the Extra Credit Teacher Program (ECTP), or CHDAP, but not at the same time.

BCA – Can be used with CHDAP for 100% Financing until November 16th, 2013.  Can go to 98% Loan to Value after that.

CalHFA CHDAP – Can be used with CHF Platinum Grant, CalHFA FHA, CalPLUS with ZIP, Broadview Community Access, any FHA or Conventional loan as allowed by first mortgage guidelines on community seconds.  CHDAP cannot be used with the ECTP Extra Credit Teacher Program

ECTP – Can only be used with either the CalHFA FHA or CalPLUS first mortgage loans offered by CalHFA.  ECTP can be coupled with ZIP when used with the CalPLUS mortgage.

CHF Platinum Grant – Can be used with a CHF first mortgage which can be either FHA, VA or USDA.  The interest rates for this program are set by the administrators of the program daily.

Live Online Class Schedule

It can be very confusing knowing which is the best program, what can be used with what other programs, which limits do you follow?  We have a couple of live online classes scheduled in the next couple of weeks.  CLICK HERE to see Current Online Class Schedule

6 California Buyer Assistance Programs You Need to Know was originally published on FindMyWayHome.com.

Patient Homeowners Take Advantage of Freak Market

fam2Home values in the State of California have been in an uncharacteristically steep rise since the beginning of the year 2013.

While many worry that this steep rise in home values is a sure sign of another Real Estate bubble, the reality is that while values continue to increase, patient homeowners are crawling into positive equity positions.

With interest rates increasing over 1% in the past 30 days, even more homebuyers have come out of hiding to close in on the dream of homeownership before affordability passes them by.

Making Sense of Rising Home Values

Looking at the chart above, you can see where low housing inventory is causing more buyers to compete, which drives up values.  The far right column shows a decrease in the volume of home sales.

The decrease in the availability of homes translates into more buyers competing to buy fewer homes for sale.  This drives up home values and trickles down to patient homeowners.

MTM & YTY

The first two columns show the increase in home values from April 2013, to May 2013.  In southern California, only Ventura County saw month over month decrease in values.

Homeowners in Riverside, San Bernardino and San Diego Counties should pay close attention to how the market is affecting home values.

Across California, owners are in a much better situation today than they were last year with home values Statewide increasing 31.9% for single family homes, and an unbelievable 38.8%

Low Equity Options

A positive equity position of as little as 3% opens up many refinancing opportunities for those that do not qualify for a FHA streamline, VA IRRRL, or HARP 2.0 underwater refinance.

FHA financing still offers a very viable and widely available option to homeowners that find themselves with high debt to income ratios or lower credit scores.

The Pros of FHA

  • Can refinance with as little as a 640 credit score

  • Interest rates remain lower than Conventional in most cases

  • 5/1 ARM is great option for accelerating equity

  • Debt to income ratios up to 56.9% allowed

The Cons of FHA

  • Requires Upfront Mortgage Insurance of 1.75% of loan amount

  • Requires Monthly Mortgage Insurance regardless of LTV

  • Monthly Mortgage Insurance is Permanent as of June 3rd, 2013

  • Rising interest rates make Streamline Refinance more difficult

Conventional financing offers many more flexible options for high loan to value homeowners.  With the resurgence of Private Mortgage Insurance, and much more affordable and flexible options, it makes sense to take a close look at both FHA and Conventional as options.

The Pros of Conventional Financing

  • Can refinance with as little as 640 credit score

  • Can refinance with as little as 3% equity

  • No upfront mortgage insurance

  • Mortgage insurance scales according to loan to value

  • Discounted PMI available if income qualify

The Cons of Conventional Financing

  • Requires good credit for lowest closing costs

  • Debt to income ratios of 45% required (up to 50% allowed)

  • Interest rates can be higher than FHA in some cases

Exploring Your Refinancing Options

The loan program you choose depends on more than simply interest rates.  You have to also consider how long you plan to stay in your home.

Adjustable Rate Mortgages (ARM) may be the best option if you plan to stay in your home for 10 years or less.  With loan programs that offer fixed rate and payment mortgages for 5,7 or 10 years, it’s worth exploring.

If you plan to stay in your home for more than 10 years, a Conventional loan with a slightly higher interest rate may save you tens of thousands of dollars over permanent FHA mortgage insurance.

Working with a loan officer that is willing to educate you with all of the options that are available, and present you with the options that might best meet your specific and personal goals is key to making an informed decision.

Patient Homeowners Take Advantage of Freak Market was originally posted on FindMyWayHome.com