Being a Prepared Buyer in a Seller's Market

I am encountering, over and over, a situation where a buyer contacts me to see properties, but I have no information about this person at all.  Besides some safety issues that could be involved, and precautions I must take, I otherwise have no information about what kind of fit, financially and otherwise, this person actually is for the property he/she is interested in.

It seems that it can never be said enough that in this very tight market, the buyer must be prepared.  How can a Realtor take a buyer to show properties without having information? Very few buyers prepare themselves before contacting me to see a home.  If they contact me because they don't know where to start and are looking for a Realtor's help, then that is exactly what I'll do, which means getting started with loan pre-approval while getting to know their hopes and aspirations about what type of home they would like, and then fitting in their loan scenario with homes available to show.

Here is the mantra, as very well stated by a Realtor in New York:

“Time kills deals,” says Andrew Sandholm of BOND New York Properties in New York. “Dragging your feet means you could wind up paying more in a bidding war situation or missing out on the property altogether.” Buyers need to be ready with their paperwork, such as bank statements, a preapproval letter, and documents supporting proof of funds, from the day they begin house-hunting mode. That way they can pounce quickly with an offer when they do find a home they like.

Yes, folks, time kills deals.  You think you won't find something right away, and that you're not prepared.  So think at a minimum:  LOAN PRE-APPROVAL, PROOF OF FUNDS whether financing or all cash, and PRE-APPROVAL LETTER.  These things should be available at a moment's notice, and please keep in mind that providing this documentation to your Realtor is a normal part of your home search, and next, it's required in the contract.  Realtors do much much more than get the door key out, they make sure that you eventually get the key to the door you want.

You may believe that you have have plenty of time, but I know better. You think you're not ready to buy yet, and you're right if you've done nothing to prepare.  But you may also be wasting your own time.  Your Realtor has the ability to help you find the right home, but you're wasting that Realtor's professional expertise if you don't do these basic things.

This is a multiple offer environment for many homes in multiple cities and states, and while I've never thought it wise for the buyer to waive all their usual contingencies in order to beat out another buyer, it's important for buyers to present a very reasonable offer.  The article about making an offer states very good points to keep in mind for buyers.

How Much Property Information Does An Agent Have?

It's not unusual for members of the public, including a Realtor's client, to think that the listing agent probably knows all there is to know about a property. There are indeed certain obligations an agent has, especially with the sale or lease of residential property such as houses, condominiums, or any property that legally is considered to fall within a 1-4 unit configuration. 

Realtors are required to do a visual inspection of the property, which means walking around and noting conditions that are visually accessible, and this requirement also includes disclosure of defects known to the broker but unobservable to the buyer.  The California Civil Code also says  that the required inspection "does not include or involve an inspection of areas that are reasonably and normally inaccessible . . .".  An agent therefore is not required to go under the house, or into the attic space, or know the condition of walls within a locked closet if there seller has not given access. This also includes personally researching the property, although the agent should be able to point the client to outside resources for a buyer's due diligence during escrow, for example. An agent's duty of inspection also does not include the common area or other units of a homeowner association when the buyer is being provided all relevant HOA information required by the contract with the seller. So the Realtor may have no knowledge about the pool or spa and is not required to go inspect it, but if the agent has done previous transactions in the HOA, then perhaps that agent has some knowledge learned from prior transactions, and should disclose that information.

Both the buyer agent and listing agent are required to do a visual inspection and give a copy of their report, referred to as an AVID (Agent Visual Inspection Disclosure) to both the buyer and seller.  Neither agent is required to interpret the reason or source of a dark stain on the wall, for instance, but only to make a note of its existence in order to advise all parties.  It is up to the buyer to inquire further of the seller or hire a professional to get further opinion on such an issue.  Nothing in the law "relieves a buyer of . . . the duty to exercise reasonable care to protect himself or herself, including those facts which are known to or are within the diligent attention and observation of the buyer...".  So the buyer has the obligation to inspect the property, and all the conditions as spelled out in the contract, to his/her own satisfaction.

If an agent does learn "material facts" about a property, whether or not by visual inspection, ie., or if listing agent makes a disclosure to the buyer's agent, or other information was disclosed in the multiple listing service about lack of permits, then the agent is certainly required to disclose that information to the client.   So sellers, when the listing agent starts walking around your property to take a look, this is because they need to do this to help you get your property sold.

Back to the beginning paragraph -- I have heard some members of the public say that they chose to use the listing agent to represent them as a buyer because the listing agent must know more about the property.  But nothing could be further from the truth, because the listing agent probably hasn't crawled under the house either, and whatever significant information the listing agent does have, is required to be shared with the buyer.  

Which Projects Are the Right Ones for Your Home?

When selling or buying, it's always good to think about remodel or fixup projects and how they fit with the home.  The return may vary with the region in the country, but there is a trend on what used to bring higher returns which may be lower now.  For instance, garage door replacements didn't used to be at the top of the list, but as kitchen remodels have become more common, other home features are getting more attention. For instance, vinyl windows are, in my opinion, a good investment whether house or condo--they block noise, keep a home better insulated and add attractiveness.

Long Beach Market Prices for Houses and Condos Feb. 2017

Long Beach prices Feb. 2017

The average sales price for a house in Long Beach in February was $672,000 (an increase of 7% over same time last year); the average price for a condo was $413,000 (an increase of 8% over same time last year.)

What is going to happen to interest rates?  For a while they were predicted to go up to 5% this year, but today (Friday), they are 4% or 4.125% depending on the loan level for conventional loans, and 3.75% or less depending on loan level for FHA/VA loans.  What will happen in the future depends on a lot things that are currently going on in Washington DC, and predicting the future is not a sure thing.

One of the biggest problems is still lack of inventory, as one can see on this report, it's gone down from last year (it can't get much lower, by the way), and it's not just the case in this city, this is across the board.  This has made the market get much more competitive (who thought it could get worse?), and the days on market figures are showing that, less time on market means the properties are getting snapped up faster and there are multiple offers.  The chart shows average figures, they vary greatly according to price range and location.  A $450,000 house in excellent showing condition will not last, but the $1,000,000+ range offers more selection and more time: there are 75 active listings in CRMLS in Long Beach over one million, and days on market is also 75.  Apparently, in Arcadia, per a conversation with a fellow Realtor this morning from that area, it's the $5,000,000 properties that are hot and moving fast.  Every market is different.

Lakewood: Average SFR selling price - $546,000; Condo $401,000.
Cerritos:  Average SFR selling price -  $743,000; Condo $335,000.
Huntington Beach: Average SFR price - $906,000; condo $510,000.

If you're thinking of making a change, please contact me

Help for Buyers Who Want a Condo

California Association of REALTORs Housing Affordability Fund’s Homeowners Association Grant Program will provide qualified first time California homebuyers up to six months of HOA dues, not to exceed $2,500.  C.A.R.’s Housing Affordability Fund has allocated one million dollars towards this program.

How to  qualify?
• Homebuyers must use a California REALTOR® in the transaction (REALTORS® must apply on behalf of their client)
• Purchase a primary single family residence* in California with the intent to occupy the property as your primary residence for 2 years
• Be a first-time homebuyer*
• Buy a home with applicable HOA dues/fees
• You must have used financing to purchase the single-family dwelling
• The purchase price of the Single-Family Dwelling* must not exceed 150% of the mortgage limit set by the FHA for one-family units in the county in which the Single-Family Dwelling* is located

Please note: HAF must receive all program requirements no later than thirty (30) days after closing escrow.
Want to know more? Please contact me by phone or email

New Credit Reporting Policy Change May Affect Many Consumers Positively

Equifax, TransUnion and Experience will, as of July 1, 2017, require tax lien and civil judgment data to contain three of four information requirements in order for that information to be included in an individual's credit report.  The consumer's name, address, and either a social security number or a date of birth must be included, and current data not reflecting that information will soon be removed from credit reports.  According to Mortgage News Daily, many liens and most judgments don't currently include that information, and their removal, although sparking a controversy, will probably be viewed as happy news by many consumers.  Already, other types of negative data have been addressed in settlements of lawsuits:

It appears that the changes announced by the credit reporting companies are at least partially in response to a recent report from the Consumer Financial Protection Bureau (CFPB). 

* * * *

The Wall Street Journal reports that settlements of lawsuits brought by various states have already pushed the credit reporting companies to remove some categories of negative data from reports such as information related to library fines and gym memberships, and required changes to the timing of medical collections information.

The net effect is that many consumers will have an increase in their FICO score, perhaps an upward boost of about 20 points.

Take Advantage of Tax Savings if You're Moving to Another California Residence, Prop. 60 and Prop 90

Long Beach Queen Mary

Thinking about moving, possibly away from familiar sights? If so, some advance planning might help you to take advantage of one of these two propositions which may grant some considerable property tax savings.  **See 4/12/17 update below**

As of June 5, 2015, the following eleven counties in California have an ordinance enabling the Prop. 90 intercounty base year value transfer (CA State Board of Equalization source):

Alameda, Orange,San Diego, Tuolumne,El Dorado, Riverside,San Mateo,Ventura, Los Angeles,San Bernardino, and Santa Clara.

Proposition 60 allows transfers of base year values within the same county. Proposition 90 allows transfers from one county to another county in California and it is the discretion of each county to authorize such transfers. The County Assessors will require a copy of the tax bill from the other county and a copy of the applicant’s birth certificate to be included with the application. Also, include a copy of the grant deed for the new purchase and a copy of the closing statements of both sale and purchase.

Eligibility:

The seller of the original residence, or a spouse residing with the seller, must be at least 55 years of age as of the date that the original property is transferred. The replacement property must be of equal or lesser “current market value” than the original.  See the Los Angeles County Tax Assessor website for specific information on equal or lesser value. The base year value of the original property cannot be transferred to the replacement dwelling until the original property is sold.

The replacement property must be purchased or newly constructed within two years (before or after) of the sale of the original property. The owner must file an application within three years following the purchase date or new construction completion date of the replacement property.  This is a one-time only filing. Proposition 60/90 relief cannot be granted if the claimant or spouse was granted relief in the past. The taxpayer is not eligible for the tax relief until they actually own AND occupy the replacement dwelling as their principle residence.

Update April 12, 2017 from California Association of Realtors State Legislative Weekly Update:

AB 1322 (Bocanegra) Property Taxation: Intercounty Base Year Value Transfers - Under Proposition 60, homeowners 55 years of age and older can currently transfer the base year value of their home to another home located within the same county. In addition, under Proposition 90, these same homeowners can transfer the base year value of their home to another county if that county has opted into the Proposition 90 program; however, only about ten counties have elected to do so. C.A.R. supports AB 1322, which remedies this situation by allowing homeowners 55 years of age and older to transfer their property tax base year value to any other county in the state if the companion constitutional amendment, ACA 7 (Bocanegra), is approved by the voters. AB 1322 passed out of the Assembly Revenue and Taxation Committee this week. 

Easing The California Housing Demand: A New California Law for Adding Second Units

Signed into California law last year, effective January 1, 2017 is a statewide law allowing the creation of 2nd units, not exceeding 1200 square feet, in otherwise single family and multifamily zones.  This bill, AB2299 (Bloom) imposes a state-mandated local program, and which deletes previously existing additional space parking requirements.  Existing driveway parking may now meet the parking requirements under this law.  This is significant for some property owners who had the space to build a unit, but did not have a large enough lot to meet new parking requirements as well.
Now referred to as Accessory Dwelling Units (ADUs), there are certain guidelines that a local agency may create but which may not be more restrictive than the new law, including the following:

• The unit is not intended for sale separate from the primary residence and may be rented.
• The lot is zoned for single-family or multifamily use.
• The accessory dwelling unit is either attached to the existing dwelling or located within the living area of the existing dwelling or detached from the existing dwelling and located on the same lot as the existing dwelling.
• The increased floor area of an attached accessory dwelling unit shall not exceed 50 percent of the existing living area.
• The total area of floorspace for a detached accessory dwelling unit shall not exceed 1,200 square feet.
• No passageway shall be required in conjunction with the construction of an accessory dwelling unit.
• No setback shall be required for an existing garage that is converted to a accessory dwelling unit, and a setback of no more than five feet from the side and rear lot lines shall be required for an accessory dwelling unit that is constructed above a garage.
• Local building code requirements that apply to detached dwellings, as appropriate.
• Approval by the local health officer where a private sewage disposal system is being used, if required.
• Parking requirements for accessory dwelling units shall not exceed one parking space per unit or per bedroom. These spaces may be provided as tandem parking on an existing driveway.
•  Off­street parking shall be permitted in setback areas in locations determined by the local agency or through tandem parking, unless specific findings are made that parking in setback areas or tandem parking is not feasible based upon specific site or regional topographical or fire and life safety conditions, or that it is not permitted anywhere else in the jurisdiction.
• When a garage, carport, or covered parking structure is demolished in conjunction with the construction of an accessory dwelling unit, and the local agency requires that those off­street parking spaces be replaced, the replacement spaces may be located in any configuration on the same lot as the accessory dwelling unit, including, but not limited to, as covered spaces, uncovered spaces, or tandem spaces, or by the use of mechanical automobile parking lifts.
• The ordinance shall not be considered in the application of any local ordinance, policy, or program to limit residential growth.

 This is a chance to ease the housing situation for family members, or for someone to add on a second unit for income without having to purchase a new property.  It's especially helpful for those who want to live individually in a residential area, i.e., Belmont Heights in Long Beach which already hosts some older residential properties with units, without the ambiance of a large apartment building.

Update July 22, 2017:  The City of Long Beach is still in the process of developing the code requirements that must match these units (i.e., fire and safety, certain construction requirements, etc.), but has also made ineligible building ADUs in the City's parking impacted zones.  The map for these zones is available on the City's website.

 

How Do HOAs Work?

When you purchase a home, there's a good chance you'll have to pay a homeowners association fee, especially in gated communities, townhouses, condominiums, and other similar planned neighborhoods. The idea is to keep common areas clean and maintained for the benefit of all, and there's usually an HOA board of directors that is responsible for setting the rules and regulations, and carrying out the provisions of the CCRs--a foundation HOA document naming conditions, covenants and restrictions.
Each HOA is different, but most have the same core elements. Most associations employ a qualified professional property manager which assists the Board. You'll typically pay your HOA fees either monthly, quarterly, or annually, and the amount of those fees are an important factor to consider when you're weighing your options for a new home. Lenders, for instance, will need to know that fee amount as part of your purchase mortgage loan approval.

So what is typically included in your HOA fees?

First, the fun stuff Amenities are typically the big perk of living in a community with an HOA. While you lose out on some of the freedom of living without an HOA, you instead get community amenities like a maintained pool, gym, clubhouse, tennis courts, and other amenities. The HOA fees pay for cleaning and maintenance, so-in theory-you'll always have a clean pool whenever you want to use it.
Protecting the community HOA fees often contribute to insurance for the community amenities, as well as a  reserve fund for unexpected repairs to damaged community property--think damage from weather or accidents. California, for instance, requires a reserve fund which is typically contributed to at the rate of 10% of total annual income (usually the HOA fees paid by owners).
General maintenance Your HOA fees will go toward maintaining the general safety and upkeep of the community. This means things like elevator maintenance for condominiums, trash/recycling services, interior roads and other "common area" features as contained in the HOA documents.
Be active in the association There may be a board of directors voted into office by the owners, who are required by law to do certain things, but homeowners associations exist for the betterment of the entire community, and every voice matters. HOA meetings--and the amenities they support--provide great opportunities to meet your neighbors and make your community a better place.

For additional information on condo buying, go to http://www.juliahuntsman.com/condo-living.html

Housing Market and Inventory Shortage in Los Angeles County

Buyers still experience a great deal of competition when submitting offers. I know of one recent instance where an offer for a $450,000 house was submitted at $10,000 over asking, but the buyers were still outbid. This is and has been a very frustrating fact of life for quite some time.

 As it happens, Los Angeles County has far more jobs than new housing permits issued compared to any other county in California. Santa Clara and Orange Counties are the next most underbuilt counties. This did not happen overnight, but happened over several years, and estimates are that it will take several more years to "catch up".

 Other reasons for low inventory is that the Baby Boomer generation and/or longtime homeowners are not moving as much as in the past. The recession featured very low interest rates, or they may have lower property taxes, or if they move there may be a capital gains hit due to rise in prices ($250,000 for single, $500,000 for couple), there is the question of where can they move to, or their circumstances may have changed and they cannot qualify for the same mortgage today--so they stay put.

In California in the 1970s, there was about a 9% turnover rate, in 2014 that rate had declined to less than 5%. In 2000, California sellers stayed put for about 6 years (national average was about 7 years); as of 2016, that average length of stay was 10 years. Californians 55+ years of age are now at their lowest rate of moving -- 71% of the 55+ crowd has not moved since 1999. Data from the construction industry reveals $3.9 billion was invested in remodels and additions compared to $1.5 billion in 1988. In San Francisco alone, there are currently between 400,000 and 700,000 rentals that used to be owner-occupied, in other words, those are properties taken out of the purchase market. Another interesting effect is formulation of households -- not as many people getting married and wanting to buy a new home for a new family! Additional effects on the housing market could be future policy changes concerning the mortgage interest deduction and outmigration to more affordable areas (which at least might put some properties on the market).
Political uncertainties and Twitter bursts are essentially wildcards for certain aspects of the housing market.
 For buyers, is it impossible?  No, but it's extremely important to be prepared with local market knowledge, and prior loan approval before shopping.