Financing Options in Southern California

About 25% of buyers, especially first time buyers, are reporting in a recent survey by HSH.com that they are having trouble with accumulating funds for mortgage down payment.  Another 25% say the price of the housing market is slowing them down, keeping them from buying.
The actual breakdown as to the biggest hurdles to home ownership in this survey where the respondents were given these choices: here is how they responded:

• Credit score: 12.8 percent
• Home prices: 23.5 percent
• Property taxes: 7.3 percent
• Down payment: 22.9 percent
• Interest rates: 12.6 percent
• No issues: 20.9 percent

(The last category is interesting, because it's made up of predominantly female respondents who said they had no problems at all, and 29% of this category were also older buyers over 60.)

What is often not in the minds of people is how they can eliminate some problems with saving money for down payment if they're willing to eliminate expenses in their lifestyle.  This may be unthinkable, but yes, it should be done.  Why should a very well-off national/international coffee franchise be continually supported by you when it is not returning the favor by contributing to your down payment?  The point being that the daily disappearance of a few dollars is not thought of on an annual scale, but it makes a difference.   For instance, Chipotle is a place I love for lunch.  Even if I just buy my favorite steak bowl there, with no drinks or chips, it's now $8.07 including tax because they just had another price increase.  Let's say I go there 5 times a week:  $40.35 x 4 = $161.40 month x 12 = $1936.80 a year!  Just do that same calculation with your favorite lunch place and see what it adds up to.  You can do the same with weekend food, breakfast restaurants, or whatever. I love to select restaurant/dining out food as an item for economizing, because there's more opportunity to control it by eating at home more often.

If you are approved to buy a $450,000 home, your FHA downpayment will be at the rate of 3.5% (plus upfront MIP costs which can be folded into your loan amount).  That's $15,750 for the down payment.  Could you get there faster by figuring out where to economize?  This is the part where you priorities get prioritized if you want to buy.  Gas prices and student loan payments are non-negotiable areas, but there are many personal choices which can be changed and deposited into an interest-bearing account for the future!

REALTORS® vs Real Estate Data and Your Home

Real estate data on the internet exists in multiple forms and multiple places.  I think the paradox is  that with all the available sources of data, many people are actually less knowledgeable about real estate "facts" due to the growing number of multiple choices to view real estate listings on the internet.

Issues:

• Non-REALTOR® internet sources are not obligated by a code of ethics, and are not required to be licensed real estate professionals. Commercial sites obtain permission (in most cases) from MLS (multiple listing service used by REALTORS®) sources which contain the original listing information, and then publish it on their sites. Active listings syndicated from MLSs are not "public information" similar to what could be found in a search of property tax records for sold properties, but are the result of listing contracts signed between sellers and their licensed brokers which are then published on other commercial sites. Not all sellers want their addresses published this way, and some refuse to do so.  The National Association of Realtor code of ethics not only requires certain higher professional standards of REALTOR® members, they also may have a legal impact as well. For instance, in California an agent, governed by state law and by a code of ethics, may represent both buyer and seller in single transaction with the parties' agreement, but dual agency is a violation of the law in Colorado and Florida.
• Skews data--i.e., days on market is undetermined when "pre-listed" as a "coming soon" listing on the internet that is not yet in the MLS . The number of days on market in the MLS is significant for seeing a trend between demand and supply--the more days on market may indicate more properties for buyers to choose from, or there may be a seasonal effect such as cold weather where showings are slow, or there may be more buyers have financial qualification problems so that properties are falling out of escrow and properties are coming back on the market. This information is just one fact not available when properties are sold off the MLS, and is not available for analysis by the many legitimate providers of real estate analysis, such as real estate appraisers, who utilize MLS information.  This is just one of factors in off-MLS listings.
• Are off-MLS listings getting, you the seller, the best price and the most money for your property?  Off-MLS listings are may also be known as "pocket listings" or may be listed on specific non-MLS sites for individual sale.  Generally, a seller can be more assured of receiving a fair market price when his/her property is exposed to a broad market of potential buyers.  Since the MLSs exist nationwide as cooperative organizations composed of over one million REALTORS® each with their own database of clients, please see this article about determining what is in a client's best interest when choosing a private venue in which to sell property:  http://www.realtor.org/news-releases/2014/06/coming-soon-properties-can-create-consumer-confusion.

The internet, and competing housing data sites, is here to stay.  Buyers have become accustomed to searching online before even finding a REALTOR® to work with, and there may be certain advantages to that if the buyer is prepared with some prior market knowledge by the time a REALTOR is selected. 

For sellers who want to get market value, there are sites offering an "instantaneous" home evaluation price, based on property tax sales data and certain other measurements built into various proprietary software.  The software does not do what a human does, however, which is go inside the property for sale and develop human judgment about it.  Such software can be wildly inaccurate on price -- Zillow by its own admission can be as much as 30% away from actual sale price.  Companies such as CoreLogic may be a little more accurate, but no one should pinpoint the value of their property based on a software system alone. The illustration at right is from the Realtors Property Resource program and is an actual estimated 2014 value for a Long Beach property, showing an extremely large range with two stars for its level of confidence.  In an area of fewer matching comparables based on the data available to the software, it's tougher to come up with a tighter price estimate.  Don't you think the buyer would choose the lower price, and the seller wants the higher price?  A further illustration of comparisons of sold price vs. Zillow's Zestimate for actual Long Beach properties sold in 2014--due to CRMLS policies only the sold addresses can be sold--as provided by CRMLS.

Online source for housing values:

Metropolitan Sales Areas - Housing Data and Map--National Association of REALTORS®.

See Interactive Market Stats for California Counties

Learn About Tableau

Or go to full page display here

Long Beach Homeownership Fair, June 28th!

Find a Homeownership Fair near you. 

Pacific West Association of REALTORs and California Association of REALTORs are hosting one this weekend at the Museum of Latin American Art on Saturday, June 28, 9:00 am to 4 pm, 628 Alamitos Ave., Long Beach.  This event is for both buyers and sellers:

A message from California Association of REALTORs:  "The Homeownership Fair promises to be a great resource for anyone interested in purchasing or selling a home whether you’re looking to re-enter the market or this is your first time purchasing or selling a home – we have the resources for you! Exhibitors will be on hand to provide you information and answer any questions you might have.  We’ll also have workshops sessions throughout the day on the wealth development, what is a REALTOR®?, How to get your offer  accepted? Down Payment Assistance programs, plus free giveaways throughout the day and much, much, more."

There are numerous 30-minute presentations throughout the day on topics including: the current state of the real estate market, buyer assistance loans and grants in California, successfully purchasing HUD homes in California,  building positive credit and credit repair.

Other fairs are being scheduled for  San Gabriel, East Bay, Fresno, and Sacramento

Don't miss this opportunity!

California Smoke Detectors Requirements on July 1, 2014

Are you concerned about your smoke alarms? You should be.  The law is changing as of July 1, 2014 in California.   According to CA's Health and Safety Code, all smoke alarms installed after July 1 must have none-replaceable battery with a 10-year battery life.  If you have currently have smoke alarms installed, you are not required to replace it until you replace it with a new smoke alarm.


Also,beginning January 1, 2015, the State Fire Marshal will require all smoke alarms to:

• display the date of manufacture;
• provide a place where the date of installation can be written; and
• incorporate a hush feature.

Landlords should be careful to note rules regarding their rental units/properties, and though there is no time schedule for inspections of smoke alarms," if a smoke alarm defect can be reasonably ascertained visually during a landlord’s visit to the unit, the landlord needs to repair or replace the device."  This also includes notifications by tenants of any problems.

Property owners applying for building permits will also have to review their smoke alarms when there is more than $1,000 of work to be done.

Sellers of property will be required to make all disclosures on their Transfer Disclosure Statement concerning the status of smoke alarms.  See the full article.

According to the National Fire Protection Association, between 2007-2011, the leading cause of  non-fatal home fires was cooking equipment.  The leading cause of home deaths by fire were smoking materials.  One-quarter of all fire deaths were caused by fires started in the bedroom. See full article.

Are Flipped Properties Always a Good Deal?

While many buyers these days have gained more knowledge about obtaining disclosures when buying a property, they don't always know what to ask for.

Walking in to a clean, newly painted home with brand new flooring and granite counters in the kitchen and bathrooms is often a time of easy decision-making, largely because of the assumptions made by buyers and oftentimes their agents. 

The buyer is urged however, to look more closely, because many flipped properties were bought out o foreclosure by an investor.  Investors are just that--they are looking for ways to maximize profit by buying homes they can realize a profit on, so if they buy a "fixer", they are usually experienced in knowing how much money to spend in that local market in order to come away with cash after the sale.

In some cases, property enhancements are reasonably good quality, after all, no one can expect an investor to fix up a property with the most expensive custom  features available.  However, buyers need to still take a careful look, and ask for as much information as possible from the seller.  Just because it's an investor doesn't mean he/she is exempt from disclosure.  One of the fastest ways to find the prior condition of the property is to look for the previous listing's photographs (but many times there is only one exterior photograph, the required minimum for the MLS) and property remarks, which may be revealing.

There is not necessarily a horror story behind every foreclosed property, but more commonly there may be prior deferred maintenance because the prior owner could not keep up a property due to long-term financial problems which led to the foreclosure.  And, the prior owner may have blown his/her budget and spent a lot of money upgrading the house, and then ran out of money.  Either way, the current buyer should go to some effort to find out as much history as possible on a flipped property.

Barbara Nichols, owner of a general contracting firm in Beverly Hills and an expert witness for real estate lawsuits, advises buyers to ask such questions as:

• What was the property's condition when it was taken back in foreclosure?
• Are there receipts from licensed contractors for work performed by seller?
• Is there written documentation on what was done to correct defective conditions?
• Were there unrepaired defects?
• What work was done by a handyman? 
• What work was done with permits, and what work was done without permits?

Finding out if work was done by a licensed contractor is significant, because if the seller is claiming that thousands of dollars of improvements were made, it should be done with permits and not by a handyman.

Will all flippers be able to answer these questions to the buyer's satisfaction? The buyer will have the chance to find out, and then decide if he/she wishes to go forward with the sale by the time their contract contingencies are acted upon.



See the story here.

Do You Own Income/Investment Property? Read This about Proposed 1031 Changes

I just received this in my e-mail this morning:

• "There are currently three different proposals that the federal government is weighing, which would significantly alter Section 1031:
•  Former Sen. Max Baucus (D-Montana), who became U.S. ambassador to China earlier this year, released a draft proposal when he was chairman of the Senate Finance Committee that would potentially eliminate 1031 exchanges. His proposal, which is still before the Senate Finance Committee for discussion, contains other provisions unfavorable to real estate investments, including lengthening depreciation schedules for commercial and residential properties from 39 and 27.5 years, respectively, to 43 years for both and characterizing gains from real estate sales as ordinary income, instead of capital gain.
•  U.S. Rep Dave Camp (R-Michigan), chairman of the House Ways and Means Committee, has released a proposed tax bill eliminating all Section 1031 exchanges beginning Jan. 1, 2015.
• President Obama, in his 2015 budget proposal, wants to limit the amount of capital gains deferred in a 1031 exchange to $1 million (indexed for inflation) per taxpayer per taxable year, beginning Jan. 1, 2015." 

As so often happens, legislators propose laws that probably won't accomplish what they intend, in this case, raise tax money.  Property owners benefit greatly from the 1031 tax exchange laws, and should changes occur which prevent or greatly affect the benefits which have been in existence since 1921, many owners just won't make a change.   Sizeable tax consequences can be faced by some investors, so they could very well hold onto their properties rather than sell.

Real estate transactions generate business for many professionals, ancillary businesses and services. The ripple effect from a change in investment and/or commercial sales will impact not only the brokers, but many other job holders, i.e., environmental companies, appraisers, title and escrow personnel, contractors who restore/rehabilitate such properties.

Currently, the company that sent me this email has just exanded their office space on the East Coast because they are currently doing much more business.   But curtailing 1031 exchange activity may curtail many jobs and other economic activity.

"What can you do to help preserve Section 1031 exchanges? Contact your representatives in Congress to express support for Section 1031 in its current form, and the economic activity and job-stimulating aspects of this powerful tax code section."

California Propositions 60 and 90, Still a Good Tax Tool

These propositions allow for the transfer of a property's tax base, meeting certain requirements, for persons over the age of 55.

Proposition 60 allows for the value of an existing residence to a replacement residence within the same county, for every county in California.  The replacement home must be of equal or lesser value, and must be acquired or constructed within two years (before or after) the sale of the original property.  Transfers between parents and children will probably not qualify, as the original property must be subject to an appraisal (or re-appraisal).

Equal or lesser value of the replacement property is determined at 100%, 105% or 110% of the original property depending on the timing of the purchase/construction: before the original property is sold, within the first year, or within the 2nd year, after the original property is sold.  The guidelines are definite, and the replacement property will not qualify for the tax base transfer if the criteria is not strictly met.

A change from the recent years is the increase in number of counties honoring intercounty transfers.  At one time there were only five counties, there are now nine: Alameda, Ventura, Santa Clara, Orange, Los Angeles, Riverside, San Mateo, San Diego and El Dorado Counties.  These nine counties have passed ordinances which all intercounty base year transfers.  These counties will accept a value transfer from any other county in California as long as all requirements are met.

For the seller thinking of relocating, this is an opportunity to move from, for example, the higher cost areas within Orange or Los Angeles Counties to a lower cost area in a county among the above group of nine. This can work well for someone leaving a condominium to purchase a house in a different area.


If you are considering such a move, I would be happy to provide a list of available properties from several of these counties! Please contact me via phone or e-mail for available properties in areas you might be considering, and also for an estimate of current home value of your current residence.

The California Legislature Considers Tax on Homeowners

 

The state legislature has been considering a tax that would be imposed on homeowners who need to record certain documents with their counties. This $75 per document tax will be imposed on a variety of documents, which will include, for example, documents related to refinancing properties, taking properties in and out of trusts, making lot line adjustments, obtaining constructions loans and upon the death of a spouse.

The tax also applies to foreclosures (the owner would be responsible, not the lender) and filing mechanics liens. For instance, it’s not untypical in a refinance, for six documents to be subject to the new tax, resulting in a tax total of $552. If a spouse dies, up to five documents need to be recorded, creating a total tax of $440 including existing recording fees.

SB 391 is in the Assembly Appropriations Committee. The CALIFORNIA ASSOCIATION OF REALTORS® is opposing this bill. 

Listings Under $300,000 in Long Beach

My last post was in July, 2013, when there were 47 SFR active listings in this price range, the rest being condos or own-your-owns. 

Surprisingly, the number hasn't really changed since then:  As of today in Long Beach there are 49 active single family home listings, with a total of 162 of all types.  See current listings  here.

Since the majority of these are condos, it's good to know that downtown Long Beach and Alamitos Beach offer quite a few opportunities in this range.  Due to the price range, many investors consider them as good rental purchases. Condos are a good opportunity, for the right buyer.  Just some of the things important to look into, especially for a first time owner-occupant buyer: 

1. Is the HOA already FHA or VA approved if that's the loan type being used? 2. For conventional loan buyers, does your lender want to see 70% owner occupancy, or is 52% OK?  You must this before writing an offer, and you should find out the owner occ % before writing an offer.  3. If an investor, find out first if the CCRs restrict the number of rentals, or allow any at all--why waste time finding out later you cannot close escrow without it becoming a primary home for you or an immediate family member. 

For the right buyer, a single family home opportunity is at Windward Village--a community of manufactured homes converting into a Planned Unit Development meaning the owner has his/her own plot of land inside a gated community with open space and recreational facilities. These are priced in the mid and low-$200,000's for homes in the 1500 sq. ft. range.  And, as with condos, you should consider your loan type and ask all questions from your lender as to what conditions could an appraiser expect to note--these may be issues for your loan as well.

Do you think a Spanish style bungalow in North Long Beach could be a great buy at $290,000?  It could, because you might also find one that's been "flipped", or was otherwise remodeled by it's most recent owner.  And because it's in clean condition, it probably won't last long.

If you're concerned about neighborhood crime conditions, or the schools serving the area, it's easy to look up this information at the sites for Long Beach Police Department and the Long Beach Unified School District.

Currently, the average list price for a Long Beach house under $300,000 is $263,000; the average list price for a condominium under $300,000 is $205,000.

For more information about any area in Long Beach, please contact me: