Selling your home in today's market

I am often asked "what's it going to take to sell my home in this market?" My answer: take the advice of your local realtor and live by the rule of the three P's: preparation, price and patience. Preparation: Much like any profession, i.e. an auto body paint shop, a tax preparer, or a professional athlete, being prepared for the main event is crucial to a successful outcome. An auto body paint shop will not just paint your car the way you bring it to them off the street - they need to perform hours of preparation prior to your car entering the paint boot. The same rule should apply to your home prior to going on the market for sale. Curb appeal is often overlooked because sellers focus most of their attention on the interior of their home. A fresh or recently painted exterior is very helpful (please consult your local painter on color choices and remember that your selection should be chosen to please the masses - no cotton candy pink, lime green, baby blue or neon yellow please!). Nicely manicured landscaping with colorful vegetation is very helpful too. Be sure to keep walkways leading to the front door trimmed - it doesn't help when potential buyers have to fight their way through overgrown landscaping just to make it to the front door. Be sure that your home isn't hidden by overgrown landscaping too. Have your windows cleaned (both interior and exterior sides). Now that you have curb appeal, you want to keep the momentum going once the buyer steps foot into your home. A clean home free of clutter and personal paraphernalia is key to your success. Freshly painted interior walls (or touched-up walls if your paint is in good condition) is very helpful. If you're going to add color please consult an interior designer or professional painter (I often see interior paint jobs that "glow" or completely clash causing the buyers to run out of the house like they've seen a ghost). Flooring is also important - if your carpet is dated, stained or worn out it needs to be replaced (or at least professionally cleaned). Hardwood is very appealing but if it needs to be refinished you'll get a good return on your investment. Repairs are important too - a pest inspection should be performed and Section 1 items need to be repaired (i.e. dry rot, fungus damage, termites, etc.). A home inspection is not a bad idea either. If you can repair the defects it will make the escrow process a lot smoother (buyers prefer to move into a home that does not have a bunch of repairs that need to be made). Price: Far too many times I hear the same story from my colleagues - "I spent hours researching the market and providing comparable data to my client and they insist that their home is worth more than the price I have suggested!" Your realtor should have physically previewed your competition - not just data from the MLS (Multiple Listing Service). Often times family members, co-workers, friends and neighbors influence sellers regarding pricing strategy, which leads to an overpriced listing. An overpriced home usually ends up selling for less than a home that was priced by your realtor because you end up chasing the market down (pricing your home to sell quickly is key because the longer your home sits on the market the lower it's going to end up selling - if you don't receive an offer in the first 3-4 weeks you should consider adjusting the price). Keep in mind that after three or four weeks on the market your home will begin to lose attraction. Patience: The average sales cycle is about 100 days (from the time your home goes on the market to the time escrow closes). Please be patient and remember that your home will eventually sell. Gone are the days of buyers following the "For Sale" sign installers around and writing offers on the trunk realtor's cars. If your home has curb appeal, is well maintained and free of repairs, and is priced to sell it will eventually sell.

- Doug Hecker

Take advantage of state and federal home buyer tax credits before it's too late

If you're lucky enough to live in the State of California, enjoying the great climate and geography, diversity and culture, history and charm, arts and entertainment, and landmarks and outdoor activities, you may also be able to add tax credits to the list of fringe benefits of living in California if you purchase a home soon.
With home prices and interest rates at historical lows, fortunate home buyers in California may qualify for a federal tax credit up to $8,000 in addition to the recent state tax credit up to $10,000 (if you time your purchase right over the next few months). However, taking advantage of Uncle Sam's generosity will have to be timed right and not all may qualify.
Many home buyers who plan to be in escrow by April 30, 2010 and close escrow by June 30, 2010 realize they qualify for up to an $8,000 federal home-buyer tax credit.
An eligible taxpayer must purchase, or enter into a binding contract to purchase, a principal residence and close escrow on or before April 30, 2010. However, the tax credit will qualify if a binding purchase contract is signed by April 30, 2010 and escrow closes by June 30, 2010.
Many home buyers may attempt to delay their close of escrow until after April 30, so they can also qualify for the new California home-buyer tax credit, which was signed into law recently. The state credit is worth up to $10,000, spread over three years. Although the chances of taking advantage of both tax credits is relief to many prospective home buyers, timing is key and the amount of buyers who will benefit from both credits may be slim.
To qualify for both the state and federal tax credits you must buy the home as your principle residence, you must be in contract on or before April 30, 2010 and you must close escrow between May 1, 2010 and June 30, 2010, and meet all other requirements. Timing will be tricky, especially if you're in escrow on a foreclosure or short sale, which may not close escrow in the short window of time to take advantage of both tax credits.
Prospective buyers who have already locked in a mortgage rate may lose their rate, or will have to pay an additional fee to extend their rate lock (if they choose to postpone their closing to possibly reap the benefits of both tax credits).
The federal tax credit for first-time home buyers (the IRS defines a first-time home buyer as someone who has not owned a principal residence the past three years prior to the purchase) is equal to 10 percent of the purchase price (up to a maximum of $8,000, as the tax credit applies only to homes priced at $800,000 or less). The tax credit doesn't have to be repaid unless the home is sold or no longer used as the buyer's principle residence within three years after the purchase.
Buyers can claim the federal tax credit when they file their tax return (or amend the prior year's return). This credit is refundable and the entire amount will be paid, even if you have zero federal tax liability or the credit is more than your federal tax.
The credit is also valid for current homeowners buying a replacement principal residence. Eligibility to claim the tax credit states that the buyers must have owned and lived in their previous home for five consecutive years out of the previous eight years. The tax credit is equal to 10 percent of the purchase price (up to a maximum of $6,500 and the tax credit applies only to homes priced at $800,000 or less). The credit is available if the home was purchased between November 7, 2009 - April 30, 2010. However, the tax credit will qualify if a binding purchase contract is signed by April 30, 2010 and escrow closes by June 30, 2010. The income limits are $125,000 for single taxpayers and $225,000 for married couples filing joint tax returns. The tax credit doesn't have to be repaid unless the home is sold or no longer used as the buyer's principle residence within three years after the purchase.
The State of California tax credit is the lesser of 5 percent of the purchase price or $10,000. First-time buyers can purchase a new or existing home but repeat buyers can only purchase a new home that has never been occupied.
The California credit is spread over three years, up to $3,333 per year and it is not refundable. If you owe less than $3,333 in one (or more) of those years, you lose the difference that year. Even if you owed $3,333 before you owned a house, you might owe less due to of all the new tax deductions.
The state credit does not have an income limit or purchase price limit, however, some buyers who fall below the income limits for the federal credit might not owe enough California tax to get the full benefit of the state credit.
To get the California credit, you must close escrow between May 1, 2010 - December 31, 2010, or whenever the money for the program runs out, whichever comes first (the money will probably run out before December 31, 2010).
The state credit for new construction can be reserved if you enter into a contract between May 1, 2010 - December 31, 2010 and close escrow prior to August 1, 2011. If you choose this route, you will not qualify for the federal credit because you entered into a contract after April 30, 2010.
Buyers should consult a well-informed tax advisor and understand both credits.

- Doug Hecker

Extended and Expanded Home Buyer Tax Credit

Are you still teetering on the fence whether or not to purchase a home in 2010? Are home prices going to dip while interest rates rise? Is inventory going to increase, especially the REO/Foreclosure segment of the market that we have been hearing about for more than a year now? We do not know what's in store for the housing market in 2010, however, The Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, extends the first-time homebuyer tax credit and expands the credit to move-up/repeat home buyers and here's what you need to know.
The new law states that an eligible taxpayer must purchase, or enter into a binding contract to purchase, a principal residence and close escrow on or before April 30, 2010. However, the tax credit will qualify if a binding purchase contract is signed by April 30, 2010 and escrow closes by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax return. If the home was purchased between January 1, 2009 - November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing joint tax returns. If the home was purchased between November 7, 2009 - April 30, 2010, the income limits are $125,000 for single taxpayers and $225,000 for married couples filing joint tax returns (an increase of $50,000 for single taxpayers and $75,000 for married couples).
The tax credit for first-time home buyers (the IRS defines a first-time home buyer as someone who has not owned a principal residence the past three years prior to the purchase) is equal to 10 percent of the purchase price (up to a maximum of $8,000 as the tax credit applies only to homes priced at $800,000 or less). The tax credit doesn't have to be repaid unless the home is sold or no longer used as the buyer's principle residence within three years after the purchase.
The credit is also valid for current homeowners buying a replacement principal residence. Eligibility to claim the tax credit states that the buyers must have owned and lived in their previous home for five consecutive years out of the previous eight years. The tax credit is equal to 10 percent of the purchase price (up to a maximum of $6,500 and the tax credit applies only to homes priced at $800,000 or less). The credit is available if the home was purchased between November 7, 2009 - April 30, 2010. However, the tax credit will qualify if a binding purchase contract is signed by April 30, 2010 and escrow closes by June 30, 2010. The income limits are $125,000 for single taxpayers and $225,000 for married couples filing joint tax returns. The tax credit doesn't have to be repaid unless the home is sold or no longer used as the buyer's principle residence within three years after the purchase.
With the tax credit deadline looming on April 30, 2010, historically low interest rates, low home prices, and low inventory, you may want to consult with a realtor, financial planner and tax consultant to determine whether or not the time for homeownership is right for you. Opportunity is knocking on your future front door, take advantage of it before it's too late!

- Doug Hecker

Short sale vs. Foreclosure

One delivers a T.K.O. while the other delivers a Knock Out punch

“Let’s get ready to rumble!” In today's schizophrenic real estate market, buyers and sellers may feel like hitting below the waist-line, head-butting, or biting off a portion of the bank's ear in hopes that the bank will stop punching when the bell rings at the end of the round.
Consumers often ask, “what’s the difference between a short sale and a foreclosure?” The answer is simple. However, the process is about as similar as Mike Tyson and Liberace. A short sale is the process by which a homeowner is selling a piece of property and the debt is greater than the current market value. Example: Homeowner “X” purchases a property in August, 2006 for $500k with 10% down and finances $450k with a three-year adjustable rate mortgage (A.R.M.). Fast forward to March, 2009 and the property is now worth $250k and the A.R.M. is due to reset in August, 2009.
What's the problem one might ask? For starters, the home will not appraise for the $450k that is due because the home is currently worth $250k, so a re-finance of the property is nearly impossible. In this case, the homeowner will typically contact a real estate professional to confirm the value of the property. Once the bad news has been confirmed the next step is to contact the bank in hopes that the bank will modify the loan or allow the A.R.M. to remain at the original rate, thus allowing the homeowner continued affordability.
However, many banks will allow the homeowner the option of listing the property as a “short sale” with a real estate professional at fair market value. Don't be fooled by the term "short sale” because they typically take a long time to close escrow (3 - 6 months).
The short sale process begins by listing the property with a real estate professional at fair market value. Once an offer has been accepted by the homeowner, the real estate professional will send the offer to the bank with an estimated closing statement from a local escrow company, a short sale package from the homeowner (hardship letter, W2s, bank statements, financial statements, tax returns, and in some cases a DNA sample).
Once the bank receives the short sale package a negotiator is usually assigned to the file, which can take a few months. The negotiator is responsible for reviewing the file, ordering a B.P.O. (Broker's Price Opinion - much like an appraisal), and then typically sends the package to the investor, who makes the decision to accept, counter-offer, or reject the offer. Once the bank has issued a written acceptance (be sure to obtain a copy of the written acceptance), it's off to the races.
Although escrow has been opened since the homeowner accepted the offer (months ago), the clock doesn't start ticking on the buyer's contingency period until the bank issues written short sale approval (confirm that your real estate professional added a short sale addendum with the original offer). The buyer's contingency period is typically 10-14 days after short sale acceptance. Once contingencies (typically loan and inspection contingencies) have been removed it's up to your lender (unless it's a cash deal) to fund your loan, and then the escrow company coordinates with the county recorder's office to record a deed of trust in the homebuyer's name, and finally escrow closes and the buyer takes possession of the property. The pitfalls of a short sale are the length of time it can take and the possibility that the seller's credit may be affected depending on how the bank reports the short sale to the credit agencies.
In the other corner of the ring, standing stout and glaring at its opponent with no mercy, is the dreaded "F" word (Foreclosure). This typically takes place when all other avenues have been exhausted and the homeowner has not made a payment for 90 days or more, which is the catalyst for a bank to issue an N.O.D. (Notice of Default). Unless the homeowner can come up with the money owed, the bank will evict the homeowner, take possession of the property, and then attempt to sell the property on the court house steps or at an auction. However, if the bank cannot sell the property on the court house steps or at an auction it will typically hire an R.E.O. (Real Estate Owned) real estate professional to list the property on the M.L.S. (Multiple Listing Service). The pitfalls of a foreclosure are that it will affect your credit for 7-10 years.

- Doug Hecker

Current market trends and what you need to know

The real estate industry is full if clichés and metaphors, for example: "location, location, location" - "a wave of foreclosures is about to hit the market" - "are we at the bottom of the market?" - "interest rates are the lowest they've been since the Macedonian Period!" These clichés and metaphors are spewed out more frequently than the phrase "Bailout" flashes across the ticker on Fox News, MSNBC and other media conglomerates who attempt to shape our economic thought process and buying habits. The million dollar question: "Is this the right time to buy real estate?" Although we can't look into the future and give an accurate answer to that question, we can look at history and trends. According to Kiplinger's Personal Finance, "It's a good time to snag a bargain if you're confident in your job prospects and you don't plan to sell for at least five years." Over the past decade, real estate lost its way - real estate was typically purchased to have a place to call "home" and raise a family or create lifelong memories. However, when real estate rose faster than a kindergartener's hand when asked by their teacher "who wants a cookie?" real estate became a commodity and the American Dream of owning a home changed overnight to an appreciation feeding frenzy. Consumers thought it was their right to gain 20 percent appreciation year after year until they were ready to sell and retire from the proceeds or refinance with a less risky loan and take cash out for exotic vacations, vehicle and boat purchases, or trips to the local home improvement store where homes were transformed from an outdated and sometimes unlivable dwellings to the neighborhood Taj Mahal. With all of that aside, it does seem like now is a good time to buy real estate. In fact, according to Forbes.com, the number one item on their list of things to buy before the economy improves is housing. "This may be the best time in a generation to buy a home." The Pew research center reported that 75 percent of Americans said it was a "good" or "very good" time to buy (people-press.org). The Wall Street Journal reported that median home prices in the San Francisco Bay Area are up 9.2 percent year-to-date and MSN Money.com/Case Shiller posted the following statistics regarding return on investment from January 1, 2001 through December 31, 2008: The Dow Jones down 19.8 percent, the S&P down 35.2 percent, the Nasdaq down 59.9 percent, and Real Estate up 69.8 percent. I am often told by consumers that they're waiting for the market to go down even more before they decide to buy. However, keep in mind that if homes decrease another 10 percent you'll save $50,000 on a $500,000 purchase, but if interest rates increase by more than 1 percent it will offset the $50,000 you saved on your purchase price and your monthly cost will increase. USA Today is currently estimating that California's excess supply of homes will be substantially depleted and new construction will be needed to meet demand, thus leading to a housing recovery. Over the past six years, 30-year mortgage interest rates have hit historical lows on five different occasions, followed by quick and dramatic increase in rates as reported by the Federal Reserve. Again, one cannot predict the future, but with data and statistics one can be informed and make an educated decision and our market place (especially homes priced under $400,000) is very competitive. Buyers in this price range are often bidding against multiple offers, homes are selling for above asking price, and inventory is very low - all creating a demand for a supply that has decreased dramatically. It is a good time to buy, so contact a real estate professional, get pre-qualified with a loan officer and let the shopping begin!

- Doug Hecker

Real Estate 101 in the first quarter of 2009

This article is an attempt to inject a bit of real estate knowledge into your portfolio and update you on the recent activities that have been taking place in the real estate market. I am often asked, "what's the market doing?" If I answered, "nothing, the sky is falling and we're all doomed - pack your personal belongings, abandon your worthless homes, and start chanting Kum Ba Ya," I'd be misinforming you. It's actually quite the opposite. The real estate market has changed dramatically compared to a year ago. Many properties in Petaluma, especially homes priced below $400,000, are receiving multiple offers and selling above asking price. Does this mean the real estate market is back to the chaos of that "oh so inflated" market in 2005 - leading the way to another economic meltdown in four years from now? The answer is an emphatic "NO!" By now we've all heard what the peak of the market was like back in 2005 - when sellers had lottery fever, buyers were signing their names with the alias "Ponzi" (no relation to "The Fonz" from 'Happy Days') and many homeowners were re-financing and pulling out equity faster than the ATM machine in their coat closets could spit out Benjamin Franklin's - the current market is quite different. For example, obtaining a mortgage loan in the current market is much more sensible (simply breathing no longer gives one the right to obtain a mortgage loan). Buyers actually have to prove they have a realistic and non-inflated income and verification of employment, credit scores need to be closer to a 700 FICO score (in some cases above 700), assets need to be verified, and down payments need to be at least 3.5 percent or more. Most loans that are originated with less than a 20 percent down payment are subject to PMI (private mortgage insurance) and impound accounts that require money in reserves to pay for property taxes, hazard insurance, and PMI - increasing buyer closing costs and helping to insure that buyers have a monetary stake in their housing investment, which, in theory, will make it more difficult to walk away from. Another significant difference is the fact that inventory is low, interest rates are historically low and the demand for housing has increased - all signs that point to some sort of recovery in the housing sector. The demand for low-cost housing is definitely greater than the current supply of inventory. Many properties are receiving multiple offers - anywhere from two or three offers on a particular property to more than 20 offers on a single property. Where are the buyers coming from?: Many buyers who felt they were priced-out of the market in 2005 are taking advantage of low prices, tax credits, and interest rates. Investors are looking for a place to park their cash (prices make sense, as investors are buying properties and able to realize a positive cash-flow), and move-up buyers who didn't want to take on hefty property tax bills due to inflated prices in 2005 are taking advantage of lower home prices coupled with lower property taxes. How does one compete in this market? The answer is not simple - you may have to write a dozen offers or more before your offer gets accepted. Buyers need to be patient, prepared, and pre-qualified (pre-approved with an underwriter if possible). I am also often asked, "are we at the bottom of the market?" While we do not have a crystal ball or control what the real estate market is doing, it seems as if the market is at, or close to the bottom and much more stable. It's a good time to buy real estate: prices are low, interest rates are low, you'll gain a tax write-off and pride of ownership, and hopefully in the future a return on your investment

- Doug Hecker