Real Estate Contracts: Read before you sign!

By Joel Persinger (Your Real Estate Dude)

It has long been my policy to carefully explain real estate paperwork before asking my clients to sign. You might be as amazed as I usually am to find out that most of my clients have never had anyone take the time to explain contracts to them prior to their experience with me. Even more surprising is the fact that most folks I run into are accustomed to signing real estate related paperwork without ever bothering to read it.

Given the fact that most of my clients have never suffered financially as a result of signing without first reading what they sign, it would appear that a great percentage of the time such trusting behavior does not leave any lasting negative effect. But does the appearance of a low percentage of problems brought about as a result of signing without reading make the policy a good one? I suppose the same question could be asked about the policy of young ladies walking out to their cars alone in dark parking lots late at night. I am sure that most of the time the young ladies make it to their cars just fine. But, most people would agree that making a habit of walking into dark parking lots alone is foolish in the extreme.

I try to stay away from absolutes when giving advice. However, in this case an absolute is warranted. It is always a good idea to read and clearly understand any paperwork before you sign it. The general appearance that things seem to work out for most people regardless of whether they read first does not change the fact that just like young ladies in dark parking lots not everyone escapes unharmed.

I am aware of one case in which a real estate loan “professional” left a wake of destruction involving several families who simply trusted that he was looking out for their best interest and signed whatever he put in front of them without question. Some time later, when the consequences of the deals the lender had struck came to light, each of these families were stunned that the loan broker would put them in such precarious financial positions. Each declared they had no idea what kind of loans they were signing up for.

As a new real estate agent in early 1990, I was present at “training” appointments with sellers during which their agents simply flipped through the paperwork while saying, “Initial here, sign here, initial here, sign there, etc, etc.” The agents never bothered to explain the details and the sellers never asked. It surprised me then and the fact that it is apparently still a regular occurrence with some agents surprises me now. I should probably mention that I was also privy to the “explosions” that occurred when those sellers finally realized what they had signed. In these and countless other examples, it was the clients who were hurt most when things went bad.

I know that we live in a world in which all of us would like to have less responsibility and have reason to point our fingers at the other guy when things go wrong. In the examples I have given we might be justified in doing so to some degree. After all, the other guys in these examples were not as upfront and forthright as they should have been. Just the same, this does not absolve us of our responsibility.

When we sign things we make agreements or promises and you and I will likely be held to those promises even if we claim not to have fully understood them at the time. “I didn’t know” or “He hoodwinked me” are weak defenses at best. My hope is that having read this article, you will be better prepared and more willing to safeguard yourself from such an eventuality by following this age old and simple advice; before you sign it, read and clearly understand it.

Is your rental property an asset or a liability?

By Joel Persinger

It seems that were ever I go someone says, “I understand you’re in real estate.” This last week a fellow said exactly that and began to quiz me regarding his rental properties. As it turned out, he had some rentals which were clearly assets and others which were liabilities and he could not figure out the difference.

In school we are taught that an asset is something that we own and a liability is something that we owe. But, this is not exactly correct from an investment point of view. Somebody once said, “When you’re not working an asset with feed you and a liability will eat you.” I don’t know who said it first. What I do know is that my grandfather must have said it to me a zillion times as I was growing up and I’ve read similar quotes in several books I could mention. The question is, “What does it mean when we apply it to real estate?”

Real estate investments come in all shapes and sizes, but for the purpose of this discussion we’ll break them into two categories: short term/speculation and long term/cash flow. Both of these investments can yield a positive result as long as you don’t get them confused.

Short term or speculative real estate investments are like stocks you buy and sell as a day trader. You buy them low and sell them high. Generally, there is a quick turn around measured in weeks or months at the most. This practice is commonly called “flipping” and is basically the practice of buying distressed properties, improving them and selling them. Since these properties are held for a very short time before being sold they are very seldom rented out. They are not really the assets of an investor as much as they are the inventory of a dealer.

Long term or cash flow properties are purchased for the money they generate in rental income. There are also tax benefits, but we’ll get into those another time. When an investor purchases a long term rental property, cash flow is king. The property has to bring in more money in rent than the cost of having it. If the property generates a positive cash flow, it puts money in the investor’s pocket each month after all the bills are aid.

When the market’s hot, some folks buy properties as rentals with negative cash flow speculating that values will go up so they can sell the property in a year or so and make money. What they have done is mix the concepts of long term cash flow and short term speculation. The result is that they have a long term investment that takes money out of their pocket every month and cannot be sold in the short term for profit. As I am sure you can imagine, this is not a good situation to be in.

My advice to you as the new investor is to keep it simple. Throw the get rich quick ideas out the window and buy properties that have positive cash flow. The rent money will come in whether property values are rising or falling and the next time we bump into each other you won’t have a problem in mind when you say, “I understand you’re in real estate.”

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March 17, 2007
10:00 a.m.
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Poway, CA 92064

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Selling real estate short

By Joel Persinger (Your Real Estate Dude)

During the boom market we experienced not so long ago, sellers were reaping record profits and buyers were snapping up every property they could find in the hope of getting into the game before home prices were out of reach. In the midst of that feeding frenzy, loan products popped up that made it possible for people to buy homes they could never have purchased otherwise. Often such purchases were made with no money down.

Some folks who already owned homes used such loans to pull out most or all of the equity from their home so they could “invest” in more homes. Being new to the real estate investment business, many purchased homes as “investments” which had negative cash flow. That is to say that the rental income did not cover the expenses associated with the rental house. This means the “investor” would have to go into his pocket every month to make up the difference.

It was a miraculous time in real estate during which many people I talked to spoke of getting rich quick and riding the boom all the way to retirement. But, as history teaches plainly, after every boom there is a bust. Along with the market slow down has come a long line of troubled home owners. Many are in a financial bind with their personal home, others with an “investment” property and some with both. In many cases, the owner owes more on the property than it would sell for in the current market. The owner cannot refinance because he already owes too much on the property and he can’t sell because he can’t sell it for enough to pay off the current loans. The property owner is truly between a rock and a hard place. Quite often the property has to be sold to avoid eventual foreclosure. When this happens and the property must be sold for less than what is owed on it, it is called a “short sale” or “selling short.”

There are an astounding number of people in this unenviable position at present. I showed some properties to clients a week or so ago in Oceanside and was amazed at how many “short sales” we encountered. Of the ten homes we planned on visiting that day, five were being sold short. The sellers were obviously in financial distress and I am sure they would have loved to have my clients offer to purchase their homes.

The problem is that selling short is a very complicated and challenging thing to do. Among other things, it requires the approval of the lenders in questions. As you might have guessed, lenders are not thrilled about losing money. Gaining the lenders approval can be an exercise in jumping through multiple hoops of fire. There are also potential tax consequences, damage to the seller's credit rating and a host of other issues that must be dealt with in order to get the property sold.

The bottom line is that selling a home short is not for the faint of heart. Neither is it for the inexperienced real estate professional. If you are forced to sell your property in a short sale, my advice is hire a seasoned professional Realtor who has experience with short sales. Don’t forget to also seek both legal and tax advice before you proceed. If you are selling short, you have a perilous road ahead of you. The last thing you want is to get waylaid by unforeseen dangers along the way.

The Consequences Of Following Bad Advice

By your real estate dude

This week has been busy with phone calls from folks whom you might say, enjoyed the hot real estate market of a couple of years ago a little too much. At the time, money seemed to grow on trees, or at least on houses at any rate. Just like kids in candy stores many folks grabbed all they could eat without realizing that a belly ache was just around the bend.

Lenders were coming out of the woodwork to offer “miracle loans” with interest rates bordering on 0%. There were loans for everyone and just about any desire could be realized. Mortgage people were like magicians waving their magic laptops like wands and producing money out of thin air. People were magically purchasing houses they could never have bought before. Others were buying toys galore by pulling the equity out of their homes at interest rates that almost made it look like free money. All the while, long time real estate and loan professionals were being called “old school” and “out of step” because we urged our clients not to go for the money grab. Happily many listened, but sadly many did not. The truly sad thing is that often the lenders and agents who helped these folks get into a mess abandon them when it comes time to clean it up.

A broker friend of mine in El Centro called me about just such a tale. A woman called him to complain that she had purchased a home from another broker and was now in serious hot water. Her broker, who also acted as the lender, had sold her an $800,000 home with a “no money down, fully adjustable, negative amortization loan”. “Negative amortization” means that the monthly payment is less than the actual interest owed for that month. “Fully adjustable” means that as interest rates rise, her house payment rises as well. The net result is that, her house payment has doubled due to rising interest rates and the woman actually owes more on her home after making the payment than she did before. Her payment is not enough to cover the interest that is owed on any given month.

She was able to finance the $800,000 because the appraisal that was performed at the time of the purchase inflated the value of the property. My broker friend estimates that the home was never actually worth $800,000. It was worth closer to $750,000 at the time of purchase, but the appraiser overstated the value to get the loan funded. Due to the softening real estate market, the current value of the house is about $700,000, but the owner now owes over $800,000 because the unpaid interest is adding up.

When my friend explained this sad news to the woman she was heartbroken. She told him that her broker had advised her to make this purchase, that he had brokered the loan for her and selected the appraiser. She said she did not truly understand what kind of loan she was getting at the time. My friend had never spoken to the woman before and naturally asked who had referred her to him. There was a long pause after which she said, “The broker who sold me the house.”

Hopefully, you have been spared such a horrible experience and are not suffering from the money grab belly ache. But, just in case you are ever tempted when the market booms again, I remind you of an old children’s poem by Mary Howitt called “The Spider and the Fly.” The spider hoodwinks the fly and has her for dinner by flattering her and telling her just what she wants to hear. The moral of the poet’s story and this column are the same and I don’t think I can improve upon Mrs. Howitt’s rendering; “And now, dear little children who may this story read. To idle, silly, flattering words, I pray you, ne’er give heed. Unto an evil counselor close heart and ear and eye, and learn a lesson from this tale of the spider and the fly.”

Getting divorced & selling a home

By Your Real Estate Dude

A few days ago, I received an email from an old client asking me for any advice I might have for a friend of his who is going through a divorce and needs to sell a house as a result. I gave him a list of the basics, and after looking through them I thought perhaps I might share some of these things with you. Hopefully, you will never need them.

It goes without saying that divorce is a very emotional process. It is quite common for couples to let things go during a divorce simply because they are overwhelmed. Sometimes they do so because they are feeling hurt and want to cause the other party harm. Either way, emotions run high. As a result, the house can be a major bone of contention. It is with this in mind that I generally make the following five suggestions to my clients who are in this situation:

1. As far as you are able, put your differences aside in order to get the home sold. Couples will sometimes use the sale of the home as a weapon against each other. This is generally in neither side’s best interest. My advice is, put aside the emotional desire to lash out and do what it takes to get the house sold and move on with your lives. That means: pitch in to make the payments or agree to split the profit or whatever it takes to save as much of the equity you’ve built up as possible. Nobody wins if the house doesn’t sell and you lose thousands of dollars in the process.

2. Hire an agent who works with divorcing couples often. If you and youre spouse cannot communicate with each other without arguing, your agent should be able to help you come to some basic agreements regarding the house. I represent divorcing couples often and have found that the agent can make or break the process. The agent should: refrain from taking sides, work to the best interest of both parties, listen patiently and be diplomatic but truthful and forthright even when it’s difficult. When the agent spends more time hiding then helping, you have the wrong agent.

3. Keep the house payments current. I cannot tell you how many couples have come to me after their house payments are three or four months behind hoping for help. In most cases, they could have made the payments but were unable to come to an agreement regarding who paid for what. If the payments are not made, the bank will probably foreclose and you risk losing your entire investment.

4. If you are in a financial bind over the house, price it aggressively in order to sell it quickly. This means you will walk away with less money in the end, but something is better than nothing.

5. Don’t confuse your Realtor with your attorney. Your attorney represents only you and is there to look after your best interest in your dispute with your spouse. By contrast, your Realtor represents all of the owners of the home equally and has a fiduciary duty to each of them. He is there to look after the best interest of both of you in the sale of your home. Therefore, he cannot and should not get involved in your dispute or take sides.

I realize that none of these suggestions are easy to accomplish and hopefully you will never find yourself in need of them. But if you do, following these guidelines might just save you from losing not only your marriage but your shirt.

Foreclosures are up. So, what’s the big deal?

By Joel Persinger
YourRealEstateDude.com

It seems that wherever I go these days someone is talking to me about something discouraging they have read or heard about the real estate market. Last week, a client of mine had a party at his home to show off all the improvements he’s made prior to putting the home on the market. While I was there, I ended up in a discussion with a friend about foreclosures and what effect the rise in foreclosures is going to have on the market in the coming years.

Based upon the rise in foreclosures and the “struggling economy”, this gentleman has become convinced that home prices are going to drop like a rock in the coming year; perhaps even to the level of prices some five years ago. Since his argument was based upon his impression that the economy is struggling mightily and that foreclosures are a major indicator of coming trends, it might be instructive to take a hard look at the economic facts.

With very few exceptions, economists tell us that the nation’s economy is doing quite well. The same can be said of the local and state economies. The forecasts offered by the Burnham-Moores Center for Real Estate at U.S.D which were released in December are prime examples. But, if you still aren’t convinced, just talk to the retailers who cleaned out my wallet over the holidays! They’re probably still counting their profits.

It is true that some sectors of the economy are not doing as well as others and that the real estate sector has experienced a slow down. However, it is quite normal for some economic sectors to out-perform others. In fact, I can’t remember a time when this was not the case. Nevertheless, unemployment is down, consumer spending appears steady and even though fewer California homes sold in 2006 than in 2005 the price of homes in California still went up! The California Association of Realtors reports that the median price of an existing single-family home in California increased 1.4 percent in the month of November alone. This increase isn’t huge, but it flies in the face of the conventional opinion that home prices are dropping like stones. Appreciation has slowed dramatically, but home prices are holding steady and even increasing ever so slightly on average.

The other piece of the argument was foreclosures. It is true that the number of foreclosures has increased and such events make great headlines. But, what no one seems willing to tell you, is that the number of foreclosures is such a miniscule percentage of the number of homes sold or owned at any given time that it makes the foreclosure number hardly worth mentioning.

According to data provided by San Diego based InnoVest Resource Management, mortgage lenders recorded 9,058 notices of default in San Diego County in 2006. This is just under twice as many as were recorded in 2005. A notice of default or N.O.D. is the document that is filed by a lender to start the foreclosure process. The filing of a N.O.D. does not automatically mean the home will be sold in foreclosure. On the contrary, there are many opportunities for the owner of the home to make good on the loan and keep the house. The statistics on InnoVest’s website show that less than 20% of the homes for which a N.O.D. was recorded in 2006 were actually sold by the lender. That means that over 80% were never actually foreclosed upon. If we then take the 20% figure as the actually foreclosure number roughly 1,812 properties were sold as a result of foreclosure in San Diego in all of 2006. That is less than 7% of the homes sold, not including duplexes, vacant land, etc. The figure would actually be lower still if the month of December were accounted for. November is the last month for which current data is available from the San Diego Association of Realtors for 2006 sales.

The foreclosure number becomes even less significant the more we work the figures. For example: if you divide the number of foreclosed upon properties by the total number of homes in San Diego County on which there is a current mortgage loan, the resulting percentage doesn’t even hit the radar screen.

So, as you’re listing your new year’s resolutions for 2007, consider a resolution to look on the bright side. There are good things just around the corner for real estate and I wouldn’t want you to miss out by listening to the naysayers.

Reading the tea leaves of real estate. What's up for 2007?

By your real estate dude.

You may not have noticed this, but our national culture has become one in which “talking heads” and “experts” rule the day. Just about every “news” program on television spends the better part of the broadcast segment asking experts to give their opinion about whatever they think is going on. Newspaper and magazine articles often do the same. The “experts” forecast and analyze everything from the weather to the war and we read or watch their opinions with great interest allowing our moods and thoughts to be shaped along the way. I do it, and I know you do too. Look at you. You’re reading this column!

This past Monday (December 18th) was a field day for talking heads. It was the “Seventh Annual Residential Real Estate Conference” put on by the Burnham- Moores Center for Real Estate at USD. The gathering of developers, investment gurus, real estate prognosticators, mortgage lenders and economists was quite large with many of the “movers and shakers” present and accounted for. During the presentation, a group of PhDs and industry experts gave their predictions for the coming year. As an official “talking head”, I was invited to attend. Here is how it went.

A well known investment guru and two PhDs in economics made lengthy, complex and impressive presentations, followed by a panel including an economist, a major developer and the president of a major San Diego real estate firm. The first presenter’s message was upbeat and optimistic. In his opinion, the market is experiencing a normal correction, there never was a real estate bubble and all will be well going forward. As I followed along with his presentation I was feeling pretty good about the market and wrote in the margins “Don’t worry, life is good”.

Just about the time I was feeling great about the coming year, the second presenter took the stage. This PhD spent his allotted time depressing the life out of everyone in the room with dire predictions of a sagging market. My note in the margin read “The sky is falling”.

Then, at the very pit of the room’s despair, the third presenter bounced upon the stage with a grin. His twenty minute message left my margin note proudly stating “It’s a normal market; no big deal; life is good”. Just as I wrote this the lady seated next to me leaned over and whispered, “I’m not sure if all this is good or bad”.

To put the icing on the cake of our confusion, the panel took the stage. Not surprisingly, they could not seem to agree on much. During the question and answer period I asked how so many experts can possible read the same data and come up with so many differing forecasts. They’re only response was, “Welcome to economics”. My margin note read, “They haven’t got a clue”.

So, where does that leave you and me as we try to sneak a peek at the future of the real estate market? It leaves us with the only valuable thing coming out of Monday’s conference. It was both the simplest piece of information to gather and the last presented.

Almost at the conclusion of the conference, the host decided to close with a parlor trick. Each table had an electronic keypad to allow the audience to answer three simple questions about the coming market. It was a gimmick meant to compare the audience opinion with that of the “experts”. But then, the audience was full of experts. It took only five minutes. Each table voted and the votes were tallied and presented on the big screen. My margin note… “The opinion of the audience was overwhelmingly positive; it’s going to be a good year”.

Representation vs. Sales

by your real estate dude

Some time ago I closed an escrow that had me wanting to dust off my soap box, grab my megaphone and shout opinions to every passer by at the nearest street corner. Fortunately, I write this column, so I don’t have to strain my voice or get pelted with tomatoes by those who may disagree with what I am about to say.

In every industry there are things that rise to the level of pet peeves for those who work in the business, and I am no different in that I have pet peeves when it comes to real estate. While some peevish things are just irritating, others can cause genuine and lasting harm. It is one of the latter that I am going to tell you about today.

The greatest pet peeve I have with regard to real estate can be found in the fact that many do not clearly understand the difference between representation and sales. While real estate agents are often looked upon as “sales people”, the truth is that a real estate agent has a fiduciary duty to his client under the law. The fiduciary duty is one that requires the agent to act with the utmost care, integrity, honesty and loyalty in dealing with the client. In plain and simple English, the agent is to act in the best interest of the person whom he or she represents. Unfortunately, agents sometimes lose track of whose interest they are representing. Take the escrow I mentioned earlier for instance.

I was representing a client in the sale of her home. We received an offer to purchase the house and I began negotiating with the buyer’s agent on behalf of my client. My goal, as the seller’s representative, was to get the best possible deal for the seller.

The buyer’s agent made some mistakes at the outset by drafting the offer in an incomplete manner. This gave me the opportunity to take advantage on behalf of my client and save her the cost of a few items. So, I drafted a counter offer which clearly shifted the cost of certain items totaling about $3,000 to the buyer. I told my client that the buyer’s agent would surely catch it and negotiate these items out of the agreement, but it was worth a try. After all, as my grandfather use to say, “If you don’t ask, you don’t get.” As it turned out, the buyer’s agent was so eager to get the “deal” that he just had his client sign the contract as written and never raised the issues.

Twenty some odd days later, the buyer received the estimated closing statement with an itemized list of the buyer’s costs. The buyer was blindsided and upset. Right there on the list of costs were items generally paid for by the seller. But, the buyer, without being forewarned by his agent, had agreed to pay for them.

As you might imagine, the buyer expressed his displeasure and I received a frantic call from the buyer’s agent. It seems that the agent was upset that I had negotiated effectively in favor of the seller. During the call, I explained my responsibility as my client’s representative and that my job is to look after my client’s best interest. With a sound of disappointment in his voice, the buyer’s agent said, “When we started this deal, I thought you were a nice guy”.

This agent did not understand where his loyalties should have been. While I viewed my job as one of “representation”, he viewed his as “sales”. During the transaction, he was a “nice guy” and was happy to give up whatever it took to make the deal. I was pleasant to work with but took every opportunity to get the best possible arrangement for my client. While the buyer’s agent’s loyalty was to the “deal”, mine was to my seller.

Make no mistake; there are hundreds and hundreds of good, honest and trustworthy real estate professionals working hard for their clients in San Diego County. While some forget where their loyalties lie, and become more concerned with making the sale than with their client’s best interest, it is by no means accurate to label every agent as self serving and mercenary. The important thing is to be able to tell one from the other.

The easiest way to find a good agent is by referral. As the old saying goes, “Word of mouth travels faster when it’s bad”, so get referrals from friends whom you know and like and trust. If their real estate agent took good care of them, you’ll probably have a similar experience. One way or the other, if the agent seems more like “sales” than “representation”, my advice is to kindly excuse yourself and find someone else.

‘Tis the season to be buying

By your real estate dude

I know I’m stating the obvious, but in case you’ve just returned from outer space, Christmas is right around the corner. Christmas, or at least the commercialized version of it, is everywhere. The retail onslaught is relentlessly pursuing each of us on television, radio commercials, print and every other form of advertising devised by man. ‘Tis the season when retail stores try with all their might to make their sales for the year and everyone, it seems, is focused on the holidays to come.

So much so in fact, that many of us become afflicted with a strange illness about a week before Christmas called “short timer’s disease.” You’ve seen it in your workplace; people just going through the motions waiting for Christmas vacation to start. Some desks are already empty and many companies are working with a skeleton crew. Nobody likes to admit it, but most folks are more interested in shopping and company Christmas parties than they are in working as the day draws nearer. Like I said, “’tis the season.”

Just about every business has a seasonal component to it. For retail, this is the time to rake in the bucks. But, for real estate this is down time. While people everywhere are swarming the malls, raiding internet retailers and marking time at work, thousands of homes are for sale without anyone paying them any attention. If you’re trying to sell, this time of year can be a bit discouraging, but if you’re buying this is the right time for you.

Come January, things traditionally start to pick up for real estate, but from now until the end of the year the real estate market slows to a crawl. The beautiful part for buyers is the almost total lack of competition. Sellers are more likely to bend over backwards to make you a deal during this season because you will probably be the only buyer they have.

So call me Santa and take my advice. If you’re ready to buy, take a break from the malls, grab your Realtor, go house hunting and make an offer. You might be surprised by the happy result. After all, ‘tis the season to be jolly!

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You don’t have to be smart!

By Your real estate dude

Just the other day, I found myself talking with a fellow who had asked me for advice some time back and not taken it. He probably doesn’t remember asking me or the advice I gave him at the time.

It was a strange scene, becoming almost surreal as he began to speak, like one of those movie flashbacks. There I was, standing next to him listening as he lamented his current circumstances. His face looked long and tired. Suddenly, it was as if I was transported back in time. In my mind’s eye, I could see him standing in almost the same exact spot a year or so ago excitedly asking me for my advice regarding his plan to take out some very risking loans in order to realize his dream of becoming a landlord. I was about to give him my answer, to share the advice he so quickly discounted, when I was thrust back into the present once again just in time to hear him tell me what a terrible financial mess he was in. As he finished his tale, his last words were, “but, you know more about this real estate stuff than I.”

As I walked out to my car, I couldn’t help remembering a rule my grandfather had taught me when I was growing up. It has echoed in my memory ever since, “You don’t have to be smart, just hang around smart people.” Sure, Grandpa was a do-it-yourselfer when it came to some things, but there were certain things, according to my grandfather, that you just didn’t take on by yourself. You didn’t do your own taxes, you didn’t represent yourself in legal matters and when it came to investing, you didn’t do much of anything without first consulting professionals who had been successful at what you were trying to do. And above all, when they gave you advice you listened!

Over the years, I have surrounded myself with smart people who have experience and knowledge in areas I don’t, and who are more interested in my welfare than a paycheck. When I have a tough investment decision to make, I start asking the right people and listening carefully to what they say. I’m not perfect at this you understand. On a couple of occasions, I have gotten too big for my britches and thought I knew better. I ignored the advice I received and believe me, I paid for it just like the fellow I told you about a few paragraphs ago.

The important thing is what I get to pass along to you. I have learned that my Grandpa Charlie was pretty smart after all. He knew what he didn’t know and he was smart enough to heed the advice of others who did. In doing so, he increased his chances of being successful and you can too.

Wants verses needs

By your real estate dude

When I was a kid my mother used to say that my eyes were bigger than my stomach. I was constantly piling more food on my plate than I could ever possibly have eaten. It was never more evident than during the holidays, which is probably why I thought to write this. Thanksgiving and Christmas dinners were feasts at which every member of my family was magically transformed into a glutton, often with a bellyache not far behind.

Over the years since, it could arguably be said that I have spent most of my adult life working with people, many of whom suffer from the same disparity between desire and necessity. Consequently, I have come to the conclusion that most of us have an almost uncontrollable desire to have more than we really need. I have not yet decided whether we are born with it. However, I do know that our culture teaches us to be materialistic to the extreme and often to our own detriment. I see this phenomenon regularly in real estate.

Earlier this year I received a call from a young lady who stated with some urgency, “We need a bigger house. I’m having a baby and we need more space.” Naturally, I asked, “How big of a house do you have in mind?” Without hesitation she announced, “At least 3,500 square feet with no less than 5 bedrooms.” It seems that her current home was about 2,800 square feet in size with 4 bedrooms and 2 and one half baths. I was thinking to myself that this new child must be her fifth or sixth when I asked, “How many children do you have?” As if it should have been obvious to the most casual of observers, she replied, “Oh, this is our first.”

After I recovered my composure, my next leap in logic was that she must have some elderly parents or other family members living with her that would account for such an urgent need for a 3,500 square foot house. In fact, her family consisted simply of her husband, herself and the child she was about to deliver.

I inquired about her financial picture briefly and it became quickly apparent that she and her husband were going to be stretched to the absolute limit if they purchased the new home she was describing. In fact, they were already uncomfortably tight in their finances. Frankly, I was very concerned for their welfare and spent the next few minutes explaining my concerns and trying my best to talk her out of it. No deal. She was dead set on making the purchase and insisted that her husband was as well.

Obviously, this is an extreme example, but it is one of many I could cite and they all have the same theme. The couple’s desires far out stripped their needs and their finances, in many cases to their own detriment. You might say their material eyes were much bigger than their financial stomachs. The result is often a bellyache of a situation in which the house they buy owns them rather than the other way around.

In spite of the strong desire for “more” and “bigger”, there are some ways to keep from finding yourself in such an unenviable position when buying a home. One is to make a list of your needs and your wants with the understanding that the two are not the same. I generally suggest to my clients that they make two columns: one entitled “must haves” and the other “would be nice”. It is most important that you be honest with yourself and that you write in the “must haves” column only those things that you absolutely need. Everything else goes under “would be nice”.

The result will be a more focused and honest appraisal of your situation. You will be able to review every interesting property based upon the bench mark you have created with your list. Most likely, you will end up with a home that fulfills all of your needs and has some of the characteristics that “would be nice”. At the same time, you may save yourself from a financial disaster. Unlike many who do not use this process, you will own your home instead of it owning you.

Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

By Shanne Sleder (the loan dude)

Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here.

Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames.

If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate.

It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.

Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.

Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.

Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.

Leverage in real estate

By your real estate dude

Ever since one of my grade school teachers taught the class about the power of the lever, I have been fascinated by the basic physics of leverage. As a matter of fact, I found leverage to be quite useful as a young man while working as a construction laborer. It took me no time at all to realize it was a lot easier using leverage when shoveling dirt than it was muscling through it and straining my back. But it wasn’t until I began my carrier in real estate that the idea of leverage took on an almost miraculous meaning.

The term “leverage” as it is used in investing, is a fancy way of describing the use of other people’s money to purchase investments rather than using your own. If I take out a loan in order to purchase a rental property, I am using the bank’s money rather than my own. I am using “leverage”. The use of leverage is very common in real estate. If you own a home, you probably used leverage when you bought it. However, it is not quite so common in other types of investments.

At one time in my life, I tried my hand at the stock market. I took a stab at various stocks, traded here and there and even made a little money on an IPO. Like many of my peers at the time, my eyes were glued to the pulsating values of my meager holdings as I tried, in vain I might add, to turn my little sow’s ear of a financial picture into the proverbial silk purse. The problem was I didn’t have enough capital to start with. If I wanted to purchase $100,000 worth of stocks, I had to cough up $100,000. I didn’t have that kind of money, so my gains in the stock market were small at best and I soon lost interest.

It was about that time that my wife and I purchased our first rental property. My grandfather had been a very successful real estate investor and I felt that perhaps I might be able to recreate his success. The market seemed to be on an upward track, so we took the leap and bought the property in San Diego for the sum of $135,000. We got it rented the first month and crossed our fingers. Two years later, we sold the property for $185,000 to the tenant. After all was said and done and the costs of the sale were subtracted, we had made about $45,000. Taking our net gain of $45,000 into account, our $135,000 property had appreciated by about 33%. That’s a pretty good return in itself, but it doesn’t include the magic of leverage.

You may remember that in order to purchase $100,000 worth of stock, I would have to come up with $100,000. By contrast, using the magic of leverage we purchased $135,000 worth of real estate with an initial investment of only $27,000. We were able to use “leverage” in order to take our light investment of $27,000 and do the heavy lifting of buying an investment worth much more. Just like shoveling dirt as a young man, I discovered that investing was a lot easier using leverage than it was trying to muscle my way through it using my own limited funds. Leverage also had the almost magical ability to increase the amount of money that we made on any given investment. For example: we spent $27,000 and in two years time made an additional $45,000. That was a return on our investment of 166%!

So, what’s my point? If you have not considered the advantages of using leverage in your investment plans, you may wish to do so. Real estate offers a tremendous opportunity in this regard and may well be the investment vehicle you’ve been looking for.

New Home Construction Continues to Decline in California

California housing starts fell for the seventh consecutive month in September 2006, declining 46.6 percent compared with the construction pace recorded one year earlier, the California Building Industry Association (CBIA) recently reported. Based on the number of building permits issued, 11,590 new housing units were started throughout the state in September, the fewest starts during a September since 1996, according to the report.

Despite the decline, California builders are on track to produce 180,000 new single-family and multifamily units this year. CBIA anticipates multifamily construction to remain strong in most markets for the remainder of 2006 but expects single-family starts to fall by 20,000 to 30,000 units compared with 155,000 single-family starts in 2005. "As expected, the single-family sector remains challenged as homebuilders work toward reducing their year-end inventory," said CBIA Chief Economist Alan Nevin.

For more on the story click on the headline!

Association of Realtors Supported Ballot Measures Approved, Proposition 90 Defeated

From the California Association of Realtors Newsletter:

Four statewide ballot measures supported by C.A.R. were approved by voters during yesterday's election. Propositions 1A, 1B, 1C, and 1E passed, authorizing bonds for highway rehabilitation projects, state housing initiatives, flood protection, and levee repair. The Association supported these public works measures because they are consistent with C.A.R. policy and stand to benefit the real estate industry.Voters also voted against two measures C.A.R. opposed. More than 75 percent of voters said "no" to Proposition 88, the measure to increase property taxes by $50 a year to raise money for schools. Proposition 90, which aimed to prohibit the government's right to seize real property, also failed to pass. C.A.R. opposed Proposition 90 because it would limit the government's authority to adopt certain land use, housing, consumer, environmental and workplace laws and regulations, and would eliminate all redevelopment in California.

Real estate statistics: Are we fishing in the wrong pond?

By your real estate dude

In a recent meeting at my office, the subject of “real estate market statistics” came up. What was said might surprise you. But, before I launch into the story, let me take a moment to establish the background.

San Diego County experienced a “seller’s” market for several years. There were a great many buyers (high demand) and very few available properties (low supply). This shift in the supply and demand ratio meant that seller’s had the advantage, and that buyers were forced to compete for the few homes that were available. Consequently, prices went up. Low interest rates, high consumer confidence and a desire on the part of many to move their money out of the sagging stock market accentuated the upward price trend, and the real estate market boomed. The key phrase here is: “buyers had to compete”. If there were concessions to be made, it would be the buyers who made them.

Since that time, the real estate “tide” has turned. Consequently, we find ourselves in the middle of a buyer’s market. There are very few buyers (low demand) and a zillion homes for sale (high supply). The buyers are now in the driver’s seat. It is now the buyers who have the advantage and the sellers must compete for the few buyers available. Thus, prices have stabilized and in many cases come down.

No doubt you have scoured the business news and knew all of this even before I got the bright idea to write about it. But, what you may not know is what Paul Harvey calls “the rest of the story”. Remember, statistics can be misleading. Quite often, they do not contain all of the information necessary to paint a complete picture. As a result, the potential for coming to an incorrect conclusion based upon them is quite real, which brings me back to the meeting at my office.

The subject at hand was the frustration felt by many agents as they have attempted to explain to “buyers” that this truly is the time to buy. In the face of the media barrage of “statistics”, buyers are often reluctant to accept this advice. I experienced this myself in a similar conversation with one of my clients just two days ago. We were having a cup of coffee and talking about this very subject when he said, “People are trying to time the market. They want to wait until prices come down.” He was right, but what he had forgotten was the key to the story. Remember earlier when I said, “The key phrase here is: buyers had to compete”? But the tide has turned, hasn’t it? In our current market, buyers have the upper hand. Today’s key phrase is: “sellers must compete for the few buyers available”. Unlike the previous market, if there are concessions to be made, it is the seller who is going to have to make them.

To drive home the point, we did a little “poll” during our office meeting. Here is what we found. The agents in the office reported that the average concessions given by sellers recently, ranged from $10,000 and $30,000. The vast majority of these concessions were given as “credits” back to the buyer through escrow. For example: the sellers may have agreed to pay the buyer’s closing costs, give the buyer a credit toward repairs or pay for the first year of home owner’s association dues. In each case, the money was paid by the seller out of the proceeds of the sale of the house, rather than simply reducing the price. So, if you buy a home for $500,000 and the seller agrees to give you $20,000 in concessions through escrow, you have really only paid $480,000 for that home. Since you rapped those concessions into the purchase price, the statistics do no report the concessions. Therefore, according to the statistics the home you purchased in this example would have sold for $500,000.

Let’s take it one step further and say that the home in question would have sold before the market changed for $550,000. But, the market has shifted. You paid $500,000. Statistically, we would conclude that the price of that home dropped 10%. But, remember, the seller gave you $20,000 in concessions. Even though you financed these costs by paying $500,000 for the home, the effective purchase price of the house was actually $480,000. That equates to an actual price reduction of 12.7%. So, if you’re sitting back waiting for prices to drop, which is more exciting to see: a ten percent price reduction or a drop of twelve percent or more?

The point is simple: statistics do not always represent reality. When you take seller concessions into consideration, it becomes clear that home “prices” have come down far more than the statistics and the news media report. If you’ve been waiting for home prices to drop before you buy, this is something to consider in your decision making process. When you do the math, you may find that the time to buy is now.

California Association of Realtors Reports Home Sales Are Down, But Prices Are Up!

LOS ANGELES (Oct. 25) – Home sales decreased 31.7 percent in September in California compared with the same period a year ago, while the median price of an existing home increased 1.8 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.

“We expected a fairly steep decline in sales last month compared with a year ago, when sales were near their all-time record,” said C.A.R. President Vince Malta. “Unsold inventory is holding steady, and is close to the long-term historic average typical of a more ‘normal’ market.”

Click hear to read more http://www.car.org/index.php?id=MzY3MjQ=

Association of Realtors Expects Cooling Home Sales, Modest Price Decrease Next Year

From the California Association of Realtors newsletter:

The rate of home price appreciation will post a modest decline next year following several years of steep increases, while the sales pace will decrease as the market stabilizes throughout 2007, according to C.A.R.'s "2007 California Housing Market Forecast," presented today during the California REALTOR® EXPO 2006, running from Oct. 17--19 at the Long Beach Convention Center. The median home price in California will decline 2 percent to $550,000 in 2007 compared with a projected median of $561,000 this year, while sales for 2007 are projected to decrease 7 percent to 447,500 units, compared with 481,200 units (projected) in 2006.

"Although the 2007 sales decline is not expected to be as steep as what we experienced this year, the psychology of the market -- matching the differing expectations of sellers and buyers -- will continue to be a factor as REALTORS® help consumers navigate their way through a changing market," said C.A.R. President Vince Malta. "While we're projecting a modest decline in the median price of a home, over the long term, residential real estate in California has been and will continue to be a solid investment. Since 1968, the long-term average price appreciation is 9.1 percent."

"While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "The anticipated slowdown that began in October 2005 was heightened by dual natural disasters in the Gulf Coast, a significant drop in consumer confidence, rising energy and raw materials costs, and a series of Federal Reserve interest rate hikes that began in June 2004. Fixed-rate mortgages also hit and passed the psychological threshold of 6 percent, while adjustable-rate mortgages passed 5 percent, ultimately causing a decline in affordability. Affordability concerns also will continue to constrain sales for many households in California throughout 2007, especially for first-time home buyers."

A Tax Law Change You Should Know About!

From the California Association of Realtors News Letter:

“Tax alternative to 3.33 percent California withholding: Effective Jan. 1, 2007, sellers required to have 3.33 percent of the sales price withheld for income tax purposes may elect an alternative withholding. The alternative withholding is an estimate of the seller's tax liability calculated by multiplying the recognized capital gain by the highest state tax rate for individual taxpayers (or the corporate tax rate for corporations), regardless of the taxpayer's actual tax bracket. Under existing California law, a buyer must withhold 3.33 percent of the sales price from the seller's proceeds unless an exemption applies, such as when the property is the seller's principal residence, the property is in a 1031 exchange, or the seller will not realize any capital gains. The new law applies to non-exempt sellers who may now elect to have less than 3.33 percent withheld. A seller opting for this tax alternative withholding must certify the amount to be withheld in writing under penalty of perjury.”

Halloween Safety

We hope you and your family will have a safe and fun Halloween. With that in mind we've put together this list of websites where you can find great safety tips.

• National Safety Council http://www.nsc.org/library/facts/halloween.htm
• Academy of Pediatrics http://www.aap.org/advocacy/releases/octhalloween.htm
• Red Cross http://www.redcross.org/services/hss/tips/october/octtips.html
• Children's Safety Zone http://www.sosnet.com/safety/halloween.tip.html

Have a happy and safe holiday!

Protecting Your Credit During Divorce

By Shanne Sleder (The loan dude)

When a marriage ends in divorce, the lives of those involved are changed forever. During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to achieve.

Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication frequently lead to the annihilation of at least one spouse’s credit. Depending upon how finances are structured, it can sometimes have a negative impact on both parties.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain one’s credit status, anyone can ensure that “starting over” doesn’t have to mean rebuilding credit.

The first step for anyone going through a divorce is to obtain copies of your credit report from the 3 major agencies: Equifax, Experian®, and TransUnion®. It’s impossible to formulate a plan without having a complete understanding of the situation. (Once a year, you may obtain a free credit report by visiting www.AnnualCreditReport.com.)

Once you’ve gathered the facts, you can begin to address what’s most important. Create a spreadsheet, and list all of the accounts that are currently open. For each entry, fill in columns with the following information: creditor name, contact number, the account number, type of account (e.g. credit card, car loan, etc.), account status (e.g. current, past due), account balance, minimum monthly payment amount, and who is vested in the account (joint/individual/authorized signer).

Now that you have this information at your fingertips, it’s time to make a plan.

There are two types of credit accounts, and each is handled differently during a divorce. The first type is a secured account, meaning it’s attached to an asset. The most common securedaccounts are car loans and home mortgages. The second type is an unsecured account. These accounts are typically credit cards and charge cards, and they have no assets attached.

When it comes to a secured account, your best option is to sell the asset. This way the loan is paid off and your name is no longer attached. The next best option is to refinance the loan. In other words, one spouse buys out the other. This only works, however, if the purchasing spouse can qualify for a loan by themselves and can assume payments on their own. Your last option is to keep your name on the loan. This is the most risky option because if you’re not the one making the payment, your credit is truly vulnerable. If you decide to keep your name on the loan, make sure your name is also kept on the title. The worst case scenario is being stuck paying for something that you do not legally own.

In the case of a mortgage, enlisting the aid of a qualified mortgage professional is extremely important. This individual will review your existing home loan along with the equity you’ve built up and help you to determine the best course of action.

When it comes to unsecured accounts, you will need to act quickly. It’s important to know which spouse (if not both) is vested. If you are merely a signer on the account, have your name removed immediately. If you are the vested party and your spouse is a signer, have their name removed. Any joint accounts (both parties vested) that do not carry a balance should be closed immediately.

If there are jointly vested accounts which carry a balance, your best option is to have them frozen. This will ensure that no future charges can be made to the accounts. When an account is frozen, however, it is frozen for both parties. If you do not have any credit cards in your name, it is recommended you obtain one before freezing all of your jointly vested accounts. By having a card in your own name, you now have the option of transferring any joint balances into your account, guaranteeing they’ll get paid.

Ensuring payment on a debt which carries your name is paramount when it comes to preserving credit. Keep in mind that one 30-day late payment can drop your credit score as much as 75 points. It is also important to know that a divorce decree does not override any agreement you have with a creditor. So, regardless of which spouse is ordered to pay by the judge, not doing so will affect the credit score of both parties. The message here is to not only eliminate all joint accounts, but to do it quickly.

Divorce is difficult for everyone involved. By taking these steps, you can ensure that your credit remains intact.

Landlords look out! 60-day notice to terminate revived

Flash! A news release from the California Association of Realtor.

Beginning Jan. 1, 2007, a residential landlord must generally give a 60-day notice to terminate a month-to-month tenant. However, a 30-day notice to terminate is permissible if any tenant or resident has lived in the property for less than one year, or if the landlord has sold the property in the manner specified by law. The 60-day notice does not apply to fixed-term leases (e.g., a one-year lease). It also does not apply if it is the tenant, not the landlord, who terminates a month-to-month agreement, in which case the tenant may give a 30-day notice. To comport with this new law, the California Association of Realtors will release a new standard form "60-day notice of termination", which will also set forth the requirements for the 30-day exception when landlords sell their properties. This law will sunset on Dec. 31, 2009.

Mortgage Applications Decrease in Latest Survey

WASHINGTON, D.C. (October 11, 2006) - The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending October 6. The Market Composite Index, a measure of mortgage loan application volume, was 599.1, a decrease of 5.5 percent on a seasonally adjusted basis from 633.9 one week earlier. On an unadjusted basis, the Index decreased 5.3 percent compared with the previous week and was down 13.3 percent compared with the same week one year earlier.

To read the entire story, click on the headline above...

National Foreclosures Remain Elevated in September

IRVINE, Calif. – Oct. 11, 2006 – RealtyTrac™ (http://www.realtytrac.com/), the leading online marketplace for foreclosure properties, today released its September 2006 U.S. Foreclosure Market Report, which shows 112,210 properties nationwide entered some stage of foreclosure during the month, a decrease of less than 1 percent from August, and a 63 percent increase from September 2005. The report also shows a national foreclosure rate of one new foreclosure filing for every 1,030 U.S. households, the third highest monthly foreclosure rate reported this year.

To read more click on the headline above...

The Real Estate Time Machine

By your real estate dude

Time has always fascinated me. One of my favorite movies when I was a kid was H.G. Wells “Time Machine”. If you’re old enough to remember it, you probably liked it too. It was full of adventure and, besides, there was just something cool about the idea of controlling time. Ah, the freedom I would have if I only had the chance to move through time and control the events that so often seem to have control over me. I think it’s a safe bet that most people feel that way. If we didn’t, there wouldn’t be so many movies about controlling time.

As you grow older, the reasons for wanting to control time change. When I was a kid, I wanted to slow time down so I could have more of it in which to get my homework done or speed it up so the school day would go by quicker. As an adult, I have dreamed of more time with my wife and kids and that sort of thing. But mostly, my desire to take a crack at the old time machine has applied to my business life where investments are concerned, which brings me to the subject of time where it applies to real estate.

In real estate, as in most other kinds of investing, time takes on new meaning and can be broken down into two basic parts: time and timing. Timing is easy to imagine. It’s simply a matter of being in the right place at the right time and taking the correct action in order to bring about the desired result. Like I said, it’s easy to imagine. Unfortunately, it’s a lot easier to imagine than it is to do, which explains why I’ve always wanted a time machine! Time, on the other hand, can be defined as how long you hold a property or other investment between the date on which you purchase it and the date on which you sell it, at least for the purpose of this discussion. So then, as my wife would say, timing is the “when” and time is the “how long”.

I had a client recently who bought a house when homes were selling faster than you could put the “For Sale” signs up. She, like many others, figured that prices would just keep climbing. A year or so later she wanted to sell, but by then, the market had softened and she couldn’t sell it for what she owed on it. You might say that she had been hoodwinked by “time & timing” simply because she didn’t quite understand how they worked.

Another client also purchased a home at a time when prices were high. He and his wife had just come to town and needed a place to live, so they bought a home even though prices were high and the timing was not the greatest. I just sold their home a couple of months ago. The current market had softened, but they still walked away with a serious profit on the sale of that house. Both these folks bought a house when prices were high. In both cases, the “timing” of the purchase was poor. The only difference was “time”. While one owner had lived in the home for a little over a year, the other had lived there well over a decade. “Well obviously,” you say. But there is a lesson in this. The hard fact is that “timing” leaves little room for error, but “time” is much more forgiving. Let’s explore why this is the case with real estate.

Taking a look at the pricing trends of real estate in San Diego County over the past 100 years, we find that prices have consistently increased over time. Certainly, the market has taken some dips along the way, even some serious ones. However, on balance, it can be said that if you had purchased property anywhere along that one hundred year track and held it long enough, its value would have increased significantly. Depending upon when you purchased the property, you might have had to hold it only a year or two to get the appreciation you desired. On the other hand, you might have purchased it at a time in that hundred year span which required you to hold the property for a period of five, seven or even ten years to see the appreciation. But, either way, if you held it long enough the value when up!

The moral of the story is this: when you’re investing your hard earned money in a home or rental property, it’s important to understand that in general, real estate investments perform best over the long term. So, take this tip from a fellow time traveler and remember the old adage: “He who has the time wins”. Set yourself up for the long haul just in case something unforeseen comes your way. That way, even if you plan to sell the property in the short term to make a quick buck, you’ll be prepared to hold it for the long term if the market changes and you won’t get stuck.

Mission Federal Sponsors FREE "dude" seminar for home buyers!

The next FREE “dude” seminar “7 Steps to successfully buying a home” will help home buyers achieve their goals in this changing market.

You’ll learn what’s involved in:

• Deciding to buy
• Choosing a realtor
• Finding an area
• Identifying prospective homes
• Analyzing the purchase
• Making an offer & putting the deal together
• And managing the close

The seminar is sponsored by Mission Federal Credit Union.

Date: October 21, 2006
Time: 9:00am - 11:30am

Location:
Mission Federal Credit Union
5785 Oberlin Drive
San Diego, Ca 92121
(800) 500-6328

We'll have Coffee and stuff to munch on.

Remember, it’s FREE.

RSVP by clicking on “Ask the dude experts”.

See you there!

East County Newspaper Signs Your Real Estate Dude To Write Weekly Column!

FLASH! STOP THE PRESSES! EXTRA, EXTRA, READ ALL ABOUT IT!

This week, the East County Californian, a leading newspaper in San Diego’s beautiful East County has agreed to publish a weekly real estate column by your real estate dude.

If you live in East County, please take a look at the column and tell us what you think!

Should I stay or should I go?

By your real estate dude

This may sound like an old song from The Clash, but it truly is a dilemma for many when it comes time to decide whether to sell or buy a home. It’s quite common for this simple question to lock people in the limbo world of analysis paralysis. This occurs when too much information, conflicting opinions and fear leave the person completely absorbed in the information but unable to make any sense of it all.

The other day I had a client look at me over the top of his newspaper as I walked up to meet him for coffee. He had the most exasperated look on his face as he announced, “Every time I read the paper, I’m more confused than I was when I started.” In his case the conundrum is whether to sell his home now or hold.

I was at a church event recently when a fellow I’ve known for many years asked the age old question “so, how’s the market?” This gentleman has been asking me if he should buy a house for years. I keep saying yes and he keeps putting it off and asking me the same thing at the next available opportunity. So, I took a couple of minutes to explain the current “buyer’s” market, the low interest rates, the reduction in prices and the deals that many sellers are willing to make in order to sell their homes. He looked at me as if I had ten heads and said, yet again what he always says, “I’m going to wait to see if prices come down.”

Almost without exception the struggle over “should I stay or should I go” revolves around home prices. Let’s face it, if you have a job transfer and have to move, the question is moot. Likewise, if your finances are in disarray and you must sell or are forced to wait until things improve in order to buy, the “should I” question never comes up.

After years of witnessing this struggle to understand what to do when prices change, I have come to the conclusion that it all stems from a misunderstanding of an old, but tried and true rule “buy low and sell high”. I first heard of this rule when I was a kid. My grandfather was quite the real estate investor and rattled this rule off to me on a number of occasions when I was a small boy. One day he asked me to repeat it. When I did he said, “Now remember, the rule is buy low and sell high. It’s not, buy lowest and sell highest”. This meant nothing to me at the time, but much later it was quite a revelation. I came to understand that if I bought when prices were low and sold when prices were high, I made money. It didn’t matter that I never seemed to catch the absolute bottom or top of the market. This may seem so simple as to be hardly worth mentioning, but I have witnessed many an enterprising individual lose money trying to hit the absolute high or low. Does this remind you of the fellow I mentioned earlier who is always waiting for the bottom of the market? If he had purchased a home the first time he asked me, “so, how’s the market”, the home he would have purchased would now be worth a fortune and he would be much better off.

Given the current “buyer’s market, if you are thinking about buying, the “buy low” rule is in full effect and now is the time. Prices are lower, interest rates are still low, lots of properties are for sale and sellers are willing to make deals. On the other hand, if selling is on your mind, it may not be the best time unless you purchased the property some years ago and have significant equity. In that case, you bought low and even though the market has softened you can still sell high because of time. If the equity isn’t there, my advice is hold off for a while. Time will tell, but the chance to sell high may come your way sooner than you think.

Chicken Little Is Crying Again

By your real estate dude

Today's San Diego Union article by Dean Calbreath is another example of doom and gloom. Check out the lead to this story:

"The California real estate market will remain sluggish through at least 2008 and spark widespread layoffs among construction and financial firms, according to the latest UCLA Anderson Forecast."

This article says nothing more than what everyone knows already. What amazes me is that it took all the brainiacs at UCLA to state the obvious. The simple facts are:

• Markets go up and markets go down.
• When markets go up lots of people make money and when markets go down lots of people have to find other ways to make money.

The fact that a slow down in real estate sales may cause a slow down in building of new properties is obvious to the most casual of observers and doesn't require a university study. The question is not if things are slowing down or if jobs will be lost, but what do we do about it?

In general in a buyer's market if you own property and do not have to sell for financial or other reasons, hold. This is particularly true if you are living in the property or if its income property that is generating positive cash flow. If you have to sell the property, price it aggressively so it will sell. There’s nothing more painful that sitting in your house waiting for buyers who never come.

If you are thinking of buying a home remember that it's called a buyer's market for a reason. The buyer's hold all the cards. Remember the keys to investing are time and timing. If you're a buyer, the timing may be right. The question is how long you will be holding the property (time). Historically, southern California property appreciates over time in almost any market. If you are planning on holding the property for enough time buying may be a no-brainer.

If you got into the real estate, mortgage or building profession during the boom you may have to make some changes in the way you do business in order to survive. You may need to explore new approaches to your business marketing and structure. For some it will simply amount to stepping out of the business during the slow down and moving back in when it’s booming again. This has been going on for at least 50 years that I know of.

So, don't let Chicken Little freak you out. The sky is not falling. The real estate market is not bad. It's just different and it requires that we approach it from a different point of view.

Do you need a power of attorney? Let’s see.

By Your Real Estate Dude

There are times when a power of attorney can keep an escrow going that would otherwise come to a halt. But perhaps we should start by explaining what the heck a power of attorney is in the first place. Not being an attorney myself, I will give you the “average joe” description of a power of attorney and maybe we can sweet talk the Lawyer Dude into explaining it more clearly later. For the moment let’s just say that a power of attorney is used to give permission for one person to sign for another. For example: I might sign a power of attorney giving my wife the power to sign my name to documents if it were difficult for me to sign for various reasons. She would then be able to sign documents and make agreements for me. So how is this useful in real estate?

There are many circumstances in which a power of attorney can be very useful. Here are a couple of examples:

Recently, I represented sellers who used a power of attorney to complete the escrow in the sale of their home. During the escrow the wife became quite ill and had to be hospitalized. I made trips to the hospital to go over various documents with them, but it became very clear that this was a tremendous strain on her. During one of my visits I suggested that she sign a power of attorney so that her husband could take care of the paperwork and she could get some rest and concentrate on getting well. Frankly, she was feeling miserable and was overjoyed at the prospect of not having to sign or fill out any more paperwork. She signed a power of attorney that day. Her husband took care of the escrow, the doctors took care of her and I was able to take care of some running around for him so he was able to spend time with her doing something other than signing paperwork.

I have represented military families on many occasions. Quite often one of them is on deployment, out to sea or otherwise unavailable for signatures. In one particular case I showed homes to the husband who took pictures which he emailed to his wife who was out to sea. When we found a home that both of them liked, I drafted an offer which he signed using a power of attorney. The offer was accepted and escrow closed without his wife ever seeing the house in person. When she returned from deployment, I visited the couple. To be honest, I was kind of worried that she might be disappointed having only seen the house in pictures to that point. She was not! She loved the place. Yet another instance in which a power of attorney made things possible that otherwise may not have been.

If you’re in a situation in which one of you is unable to deal with the paperwork, a power of attorney may be the way to go. But, let’s not forget that when you sign a power of attorney you are giving someone else the right to make legal commitments for you. So, before you sign make sure you have talked to a good lawyer and gotten the advice you need.

So Your House Isn’t Selling

By your real estate dude

If you have your house on the market at the moment and it isn’t selling, it’s probably no consolation to know that you have plenty of company. There are a zillion homes for sale around San Diego County and not enough buyers to purchase them. Sellers are getting frustrated, agents are running and hiding from their angry clients and guys like me are writing about the whole thing. I know what you’re thinking “So, smart guy… tell me something I don’t know!”

The other day I received a piece of marketing stuff from a lender friend of mine who asked me what I thought of it. It was a list of the top 20 things a seller should do in order to sell the house quicker. It was kind of like reading David Letterman’s top ten and just about as useful. Everything was listed from cleaning up the house to buttering up the buyers. Even the old “bake some cookies” trick was on the list. Now, don’t get me wrong, making the house presentable is always positive. But making a $500,000 house presentable will not get it to sell for $575,000 no matter how many cookies you bake.

Realtors have known what to do to get your house to sell for as long as people have been selling houses and they’ve been afraid to tell you for just as long. So, as your real estate dude, I’m going to step out on a limb and tell you the hard truth. The best and most effective thing a seller can do to sell the house is price it right. If you price it too high, it will sit. If you price it right at market value in this kind of market, it will sit. Without a competitive edge, your house will look like every other house in the price range. If you want to sell it, you have to get everyone’s attention focused on your house. You have to price it aggressively to get it ahead of the downward price curve. Do this and all of a sudden your house becomes “The Deal” in the minds of buyers and their attention focuses in your direction.

I know this is a hard pill to swallow and you may think its bologna. You may even be thinking I’ve gone bonkers, wacko, round the bend, cuckoo, bats in my belfry, nuts even to suggest that you drop your asking price. But, I sold three homes in August by using this strategy while other homes continue to sit. All three clients are thrilled. I should add that all three homes received multiple offers, we were able to start a bidding war and all three sold for more than the asking price. I can’t guarantee this will happen in your case, but you have a much better chance making it happen pricing your home aggressively than you do by having another open house and preheating the oven for yet another batch of cookies!

If your home isn’t selling, take heart. This market isn’t bad, it’s just different. The good thing is that while every market comes with its own problems, there is a strategy to deal with all of them.

Your Real Estate Dude Interviewed By HouseValues.com

By your real estate dude

This past week I was interviewed by HouseValues.com for their Mastermind Forum. Sounds fancy, but I promise not to get a fat head. There were about 1,000 real estate agents on a conference call that included the United States and Canada. It was very cool. A few days later I was asked to speak at a conference held by the same company at the Sheraton Hotel on Harbor Island.

The focus of the interview and the speaking engagement was to help these agents dial-in their marketing efforts and generate more business. What was interesting to me was how many realtors were having trouble in the first place. This is yet another indicator that the market has changed in more than just the San Diego area. I had agents on the conference call asking me questions as far east as New York and as far north as Ontario. Why do you suppose that is?

Like any other business, folks come out of the woodwork to make some money in real estate when it’s hot and fizzle out when it cools down. After a while they just fade away, leaving the long term professionals to continue the remaining business. That may not seem to be important from the point of view of the average person looking to buy or sell a home, but truthfully it has a lot to teach us. For example: if you had the choice of hiring a short timer who only got in the business to make a quick buck or the long timer with years of experience and a dedication to the profession whom would you choose? I bet I know what the answer would be if you were choosing a brain surgeon! Why, then, should your answer be any different when you’re hiring a realtor to sell your home or help you buy one?

The bottom line is the market has changed, so the part timers are bailing. Take the advice of a long timer and hire someone who has been around a while and will be around later when you need him.

Median price of a home in California at $538,770 in October, up 17.2 percent from year ago; sales decrease 2.8 percent

The following is from the California Association of Realtors. To read the news release in full, click on the link above.

C.A.R. REPORTS MEDIAN HOME PRICE INCREASED 17.2 PERCENT IN OCTOBER

The median price of an existing, single-family detached home in California during October 2005 was $538,770, a 17.2 percent increase over the revised $459,530 median for October 2004, C.A.R. reported. The October 2005 median price decreased 1 percent compared with September's $543,980 median price.

"While California is still experiencing year-over-year double-digit price appreciation, prices are starting to level off compared with the statewide peak reached in August 2005," said C.A.R. President Vince Malta. "Regionally, the median price continues to post strong gains, with the High Desert, Riverside/San Bernardino, and San Luis Obispo regions hitting record highs last month."

Closed escrow sales of existing, single-family detached homes in California totaled 621,530 in October at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity decreased 2.8 percent from the 639,570 sales pace recorded in October 2004.

Mortgage shopping: what you should know before you begin

When they enter the mortgage market, in contrast, where their financial commitment may be 10 times larger, many consumers don't have a clue as to what they want. They look to the loan provider to guide them through the maze. This dependency is one major reason they often end up with a mortgage that is over-priced and, even worse, does not meet their needs.

This article poses eight questions that prospective borrowers should ask themselves before entering the market.

What type of mortgage should I select?
The major decision is between fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs). ARMs have lower payments in the early years than FRMs but expose borrowers to the risk of higher payments in later years. ARMs with the lowest early-year payments have the greatest risk of future rate and payment increases.

Which mortgage options should I select?
The major options are to waive the obligation to maintain an escrow account for taxes and insurance payments, which will cost you a little; an interest-only payment option, which also costs little; and a prepayment penalty, in exchange for which the lender will usually pay you.

How long of a term should I take?
The term of a mortgage is the period used to calculate the mortgage payment. The longer the term, the lower the mortgage payment but the slower you pay down the balance. Term selection is an issue primarily on FRMs, which are available at terms ranging from 10 years to 40 years. While 15-year and 40-year ARMs exist, most lenders offer only 30-year ARMs.

How many points should I pay?
Points are fees you pay the lender at the time the loan is closed, expressed as a percent of the loan. On a $100,000 loan, two points means a payment of $2,000. The more points you pay, the lower the interest rate. Hence, points should be viewed as an investment on which the return is higher the longer you have the mortgage.

How large a down payment should I make?
The down payment is the difference between the loan amount and the lower of the sale price or appraised value. If you have discretion over how much to put down, the down payment, like points, is best viewed as an investment. Investment in a larger down payment can yield a high return if it flips the loan into a lower mortgage insurance or interest rate category.

If I put less than 20 percent down, what type of mortgage insurance should I select?
Borrowers who put down less than 20 percent are charged for the risk they impose on lenders. However, borrowers often can choose how to pay. One option is to pay a premium to a private mortgage insurance company (PMI) selected by the lender. A second option is to pay the lender a higher interest rate, which is called lender-provided mortgage insurance (LPMI). In this case, the lender purchases insurance from a PMI, though not always. The third option is a "piggyback" arrangement, where the borrower takes out a first mortgage for 80 percent of property value, and a higher-rate second mortgage for the balance of the funds needed.

How long a lock period do I need and when should I lock?
The lock period is the period during which the lender guarantees the rate and points: the longer the lock period, the higher the price. Borrowers must choose when to lock and for how long.

What documentation requirements should I seek?
A lender's "documentation requirements" stipulate the information about the borrower's finances that must be provided and how this information will be verified, and then used by the lender. Lenders offer choices ranging from "full documentation" to "no-docs." Because the risk to the lender rises as documentation requirements become less stringent, the price of the mortgage rises correspondingly. Borrowers may or may not have any leeway, depending on what documentation they can provide.

Copyrighted 2005 Inman News

What type of real estate makes the best investment?

By Dian Hymer

During the economic downturn of the early 1990s, a home in the Crocker Highlands area of Oakland, Calif., sold twice in two years. The house did not change substantially during this time, nor did its price. But, average prices in the neighborhood dropped about 15 percent during the same time.

Some homes hold their value better than others. It makes sense to pay particular attention to what you buy and where if you're worried that the housing market is overdue for a correction.
What did the Crocker Highlands home have that caused it to be more desirable than other listings? It had a good floor plan. There were four bedrooms on one level. The master bedroom had its own bathroom, and there were two additional bathrooms.

The house was an older home, built in the 1920s, but it had been extensively renovated with quality, high-end finishes. There was no deferred maintenance. It had a spacious eat-in kitchen/family room that opened directly out to a level, private and sunny backyard. It was a house that was easy to live in and it required no work.

The house was also located on one of the best streets in neighborhood. What made it such a desirable street? It was not a thoroughfare, so the traffic was minimal. It was quiet. Yet, it was within walking distance of the local school. The street was virtually level so children could ride bikes and it was easy for homeowners to get in and out of their driveways. There was plenty of street parking for guests.

This is not to say that you shouldn't buy a home unless it includes all the desirable qualities of this particular Crocker Highlands home. However, it does make sense to keep resale value in mind when you're considering a home purchase, particularly if you don't intend to stay there forever.

Other attributes that tend to add to resale value are good storage space, a garage, a bathroom on each level and a convenient location. Good views tend to add value, and so does easy access in and out of the house.

One-level homes are usually in high demand, especially with older home buyers. Two-story homes are often preferred by younger buyers. Homes that are on three or more levels tend to sell for less than a similar sized home with only one or two levels.

It can be difficult to find a home with a good floor plan, good indoor-outdoor living and the right number of bedrooms and baths that is also in top condition. If you're up for the challenge, consider buying a home that you can improve over time. But, first make sure that the basic structure is sound and the floor plan is good.

Also, get a handle on how much you'll need to invest in the property before you start negotiating with the seller. Don't pay an inflated price for a house that needs work.Location is one of the most important indicators of value in residential real estate.

Neighborhoods with good public schools tend to have higher property values than areas where schools are a problem. Close proximity to a major metropolitan area has a positive effect on home values, particularly if there's good transportation.

Neighborhoods where the residents are predominantly owner-occupants tend to be more desirable than neighborhoods where most of the homes are owned by absentee landlords.
THE CLOSING: The local economy directly affects home values, and so does supply and demand. Areas with a lot of building can end up with a glut of homes for sale when there is a correction in the housing market. This can depress local property values.

Copyright 2005 Inman News