Monica’s Articles
Should Sellers Provide Inspections? Wednesday, December 21, 2011
Dear Monica: I am selling my father’s home which is old and not in good condition. I don’t want to go to the trouble and expense of getting inspections on the property because I think the buyer will most likely tear it down. Do you agree with this? Jim D.
Dear Jim: No, I don’t agree with you , although I understand why you would think this. In the past, buyers did inspections themselves. Nowadays almost all property owners have at least a termite inspection done and most also provide home inspections as well. Buyers have come to expect this and they like to know the general condition of a property before making an offer on it. This knowledge makes it easier and more efficient for them to make an offer. It speeds the process.
Also, by providing inspections now, it is less likely that your buyer will try to renegotiate the price once they are in contract. If you don’t provide inspections, and the buyer discovers significant numbers of items in need of repair, they will want to pay a lower price or even to back out of the contract. It would be much wiser of you to have these inspections done before you market the property and to include them with all of the other disclosures.
The Condo Market is Coming Back Wednesday, December 7, 2011
Dear Monica: I bought a condominium in 2005 and its value has dropped eighteen percent, in spite of being in a good location, with a private garage and a deeded garden. It has been a rental property since I bought it. I don’t know whether I should sell it and take the loss or wait until the market improves. What would you recommend? Kelly T.
Dear Kelly: There are good indications that the condo/townhouse market, which has lagged behind the single family home market, is beginning to rise. The properties that are in the strongest locations, e.g., close to shops and transportation, and that are in good condition with decent amenities, are the ones showing signs of market improvement.
Without knowing the details of your financial situation, I would recommend a few things you should do. First, ask your real estate agent to give you an appraisal of value in the current market. Then ask your accountant what the financial ramifications of selling it at a loss would be. You may want to take a loss to offset other gains. Finally, talk to your lender about modifying your loan. Because the property is held for investment, you may have to add significantly more cash to the property in order to do this. But the lower payments may result in positive cash flow which you can enjoy until you decide to sell sometime in the future. Rents have risen substantially in this area and your condo may be worth holding on to, at least for now.
Get Ready Now for the 2012 Market Wednesday, November 23, 2011
Dear Monica: I plan to sell my home in the spring of 2012. What should I do now to prepare? Bill D.
Dear Bill: You are smart to be thinking about what to do now to prepare your home for sale. The first thing you should do is engage a good real estate agent who can advise you and guide you through the entire process. It is important to do this now so that you don’t waste your money and efforts on preparations that may not enhance the sale. You will probably be advised to have an inspection to generate a list of items to repair or replace. If your home needs painting, roofing, floor refinishing, window repair or replacement, or other significant renovations, you will create a schedule of work to be done. Your agent will advise you which items you need to do and which you don’t need to include.
The next important decision you will need to make is when to put your home on the market. Your own needs may dictate when this will be or you may wish to time it to take best advantage of the momentum of the spring market. Some things will be out of your control such as the economy and events that affect it. But being prepared will help you be flexible and ready to act when the time is right.
Repairs Done During the Escrow Period Wednesday, October 26, 2011
Q: Dear Monica: I am in contract to buy a house and the seller is responsible to have a sewer line replaced before escrow closes, which is in a few days. The work is almost completely finished but there is one more minor hurdle to pass before final approval is obtained. Should I allow the closing to happen even if the work is not finished? Jeff B.
A: Dear Jeff: There are a few different ways to handle this situation without delaying the close of escrow. A secure way for you the buyer to do this, would be to have up to 150% of the amount of the bill held in escrow, have the title company pay the bill, and then release any excess amounts back to the sellers when the work is finished. Or, if you want to be sure the work is done before you close, you can delay the closing until all it is completed. Or, if you trust the seller to pay the bill outside of escrow, you can allow this to happen. The risk to you is that if the seller doesn’t pay the bill, the contractor doing the work will likely put a lien on the property, which you now own, so it will be your responsibility to pay it. You can decide which option fits your needs best.
Finding Comparable Sales When Data Is Slim Almanac Article - Wednesday October 12, 2011
Dear Monica: I live in an area where most of the homes are either much larger or have more land than my home. What comparable properties should I use to price my home when nothing like my home has sold in the area? Jane C.
Dear Jane: First find the closest area with homes like yours and see what buyers have paid for homes there recently. Then add or subtract value based on any differences such as schools, location, and other variables. This should at least give you an idea of what price range you are in. Your real estate agent is the best source for this information.
You can also look at historical information for smaller properties in your own area and adjust the prices to current levels for those earlier sales. You need data on year over year price changes in order to do this.
Try to think like a buyer and understand how they would respond to your home. Your agent would be a good guide for what buyers are looking for. Using these methods you should be able to find the market value of your home.
A Tree Falls Almanac Article - Wednesday September 28, 2011
Dear Monica: A few days ago a large branch of my neighbor’s tree snapped off and fell on the fence that separates our properties, causing damage. So far the neighbor has not done any clean-up or repairs to the fence. I am concerned that the tree is in poor condition and that other branches that hang over my property may fall. May I trim the tree myself? James R.
Dear James: Your neighbor is responsible for the tree and any damage it causes. He should pay for any clean-up and repairs and maintenance that are needed. If he does not do this promptly and you know he is not likely to do so, you can contact the town arborist to look at the tree and evaluate its condition. The arborist will direct the neighbor to do what is needed for the tree and for the safety of others.
In general, you are allowed to trim any branches that hang over your property as long as you do not endanger the overall health of the tree. You should also maintain trees on your own property, especially those that affect and adjacent properties. If you have large trees they should be pruned every two to five years by an expert arborist. The best time to prune many tree species is during the winter when they are dormant. You should plan now to have this done in December or January.
Pricing Real Estate in Turbulent Economic Times Reprinted from the Menlo Park Almanac, August 16, 2011
Dear Monica: I am planning to put my home on the market after Labor Day and want to price it appropriately given the current economic uncertainty. I could wait until next spring but I really don’t want to do this. What would be your recommendation re pricing? Joseph T.
Dear Joseph: If you are about to put your home on the market I assume you have listed it with a very experienced and effective real estate agent. With your agent, look carefully at everything that has sold in your area in the past few months. Your agent can tell you which properties are the closest in comparison to your property. The most recent sales are the best ones to use, although if the best comparable sold last spring, you can update its relevance by adding or subtracting value according to what the market has done since then.
Think like a buyer. Buyers are going to be more cautious in the next months and some will decide to wait to buy until the economic indicators are more stable and certain. But many will still buy especially if they plan to stay in the property for several years. Interest rates are so attractive that these buyers are smart to buy now. They will be looking for good value and will not pay a higher price than they feel is prudent. You should price your property accordingly and you will have the best chance of succeeding. Preparation, marketing and pricing are key to selling your home well.
To Bid or Not to Bid
Dear Monica: I have seen the perfect house but at the price it is listed, it will be a short sale. The seller is not in arrears on his loan but if the property sells at the list price, the lender will have to accept a lesser price in order for the sale to close. Do you think I should pursue this? Les G.
Dear Les: It is not always easy to know whether it is prudent to pursue a property in a “short sale”. The fact that the seller is not in arrears is a good thing because if you try to buy the property, you will not be racing against a pending foreclosure. However, a buyer in a short sale never really knows whether the lender will be reasonable and swift in the decision process, or whether the seller’s contract will be accepted if it means that the lender will have to take a lowered payoff amount. However if all parties seem competent and you have the time to wait, you may be rewarded. The bank may approve the loan in a reasonable time and the house will be yours.
New Law On Carbon Monoxide Monitors Reprinted from the Menlo Park Almanac, July 6, 2011
Dear Monica: I know there is a new law requiring carbon monoxide monitors to be installed in residences but I don’t know the details. What is the new law and when will it take effect? Paul B.
Dear Paul: On July 1, 2011, the first phase of the law that was passed last year takes effect. This law pertains to residences that have (i) a fossil fuel-burning heater, appliance or fireplace (for example, a gas stove or water heater) or (ii) an attached garage, and requires the owner to install a carbon monoxide monitoring device outside all sleeping rooms and on every level of the home. On July 1, 2011, all single family residences must comply. Owners of multi-family units must comply by January 1, 2013. The device can be battery operated, or a plug-in or hard-wired device with battery back-up.
Carbon monoxide is a colorless, odorless and tasteless gas and is the leading cause of poison-related deaths in the U.S., according to the American Medical Association. For more information on the requirements of the new law and the device specifications, visit www.fire.ca.gov.
Real Estate Is Stronger Here Than In Other Markets Reprinted from the Menlo Park Almanac, June 22, 2011
Dear Monica: Is the Bay Area real estate market showing signs of weakness as real estate markets in other parts of the country are? Jim L.
Dear Jim: No; the real estate market on the Peninsula is very strong in some locations and moderately good in others. Several Silicon Valley companies are hiring and some are being bought or planning an initial stock offering. Many of the employees, service providers, and investors in these companies need homes to buy. The communities with good schools and amenities are their first choice, which means that all of the communities that surround Stanford University are being affected to a greater or lesser degree by these buyers. Interest rates are amazingly low and trending downward.
If you are looking for a home to live in for at least the next five years, you would do well to buy now. The growth that is projected for this region is good and this means that the number of houses available to buy may be even less in the future.
What Most Buyers Want
Reprinted from the Menlo Park Almanac, June 8, 2011
Dear Monica: I am about to list my older character home and I know that it needs some work; e.g., fumigation for termites, some foundation work, and other incidental work. Would you recommend I do this work before putting the house on the market? Julie H.
Dear Julie: The majority of buyers now want properties that are in good condition and updated. This is especially true if the property is older because buyers will be concerned that not only would the obvious work need to be done but that there would likely be additional work that hasn’t come to light yet. Most of them will be too concerned that the scope of work will be too great and too expensive. You can eliminate much of their concern by taking care of the major items that need attention. If you have owned the property a long time, this work should have been done along the way. If you don’t do any work on the house, any buyers who make offers will want to offer a much lower price in order to cover the cost of the work they know must be done.
The exception to this would be if the property is very well located and on a good-sized lot and thus its value is primarily in the lot. Then you don’t have to do much work at all to the property because the buyer will probably tear it down and build new. Once you determine whether the value is in the house or just in the lot, you will be able to decide what to do.
What If You Can’t Get A Loan?
Reprinted from the Menlo Park Almanac, May 25, 2011
Dear Monica: I am retired and have very appropriate assets for a comfortable retirement. I own several investment properties and am trying to do a tax-deferred exchange selling one property and buying another. However, to my great surprise I have been turned down for a loan by two large mainstream lenders because I don’t have income from employment. I was even going to put down 75% and borrow only 25%. What should I do? Ron D.
Dear Ron: This is a story I have heard from several retired clients all of whom have significant assets but no income from employment. They have all been turned down for loans by major lenders. There are still a few lenders who will be able to help you so you will likely be able to find the loan you need. But it is important for retirees to know that the lending climate has changed dramatically in the past few years. Asset based loans that were easy to get a few years ago are hard to find and only available to strong borrowers. If you are planning to buy a retirement property it would be best to buy it while you are still earning an income from a job. If you wait until you are retired to buy something, you may find that you don’t qualify for the loan.
Renting vs. Buying
Reprinted from the Menlo Park Almanac, May 11, 2011
Dear Monica: I am deciding whether to rent or to buy a property. My price range is in the range of $1 million. Do you have any advice on this? Carol B.
Dear Carol: There are several key factors that go into making this determination of whether it is better to rent or to buy. There are even calculators that you can use to analyze the pluses and minuses. These programs, many of which can be found online, will give you a good idea of when you will reach a point when buying is a better financial decision than renting. Being conservative in your assumptions is wise when doing this.
This analysis works best if you live in an area where there is a good supply of attractive rental units and especially units that will always be available as rentals. The part of the analysis that becomes more complicated is if there is a small supply of rental units and no guarantees that you will be able to stay in a particular property indefinitely. If you have to move one or more times because the property is sold or stops being a rental, this is costly. It is also disruptive whereas if you are in a property you own, you don’t have to move.
At the moment rents are rising strongly in this area while home prices and interest rates have yet to rise. If you plan to live in the area for at least five years, you should lean towards buying.
Good Rentals Are Not Easy To Find
Reprinted from the Menlo Park Almanac, April 27, 2011
Dear Monica: I have been looking for a house to rent long term in a good school district and am not finding much to choose from. I would pay up to $6000 a month but there is so little available. Any suggestions? David G.
Dear David: The supply of single family homes to rent in good school districts in the Mid-Peninsula has always been limited and seldom more so than now. More people are moving to this area for jobs than at any time since 2007 and for various reasons many would prefer to rent at first rather than buy. Many younger people are looking for rentals too, and are filling up the limited supply of apartments and townhouses for rent.
If you have school aged children, you understandably want to find a longer term rental so that you do not have to change schools in the near future. I recommend you cast as wide a net as you can and not narrow your search to a limited area. Be as flexible as you can be with respect to the size and condition of the property if it meets the important criteria of location. You may want to advertise on websites and social media, talk to your friends (word of mouth can work very well), and keep looking. You should be able to find a rental within a reasonable period of time.
Negotiating Repairs While In Contract
Reprinted from the Menlo Park Almanac, April 13, 2011
Dear Monica: I have accepted an offer to buy my house and the buyers have done their inspections. Now they have presented me with quite a list of repairs, some of which seem questionable, and are asking for a price reduction to offset them. I thought I was finished with negotiating when I accepted their last counteroffer. Do I have to say acquiesce to their demands? Frank K
Dear Frank: Many more buyers are asking for repairs and offsets than have for a long time. This is because they can ask for these things since the market is still in their favor, although low inventory is giving sellers some bit of leverage. Buyers also don’t want to use their own money, if they have any extra, to make repairs they feel the sellers should have made.
You can completely reject their requests or compromise and accept some of them. If the requests are reasonable you should accept them if you can because it means you will be able to move on. This is the most painful part of the process and it is best not to drag it out. You will likely reach an acceptable agreement and if not, you can put your house back on the market.
Is Leverage Always Good?
Reprinted from the Menlo Park Almanac, March 30, 2011
Dear Monica: I am interested in buying residential income/investment property using a minimum down payment and borrowing as much as allowed. My plan is to take advantage of current lowered prices in anticipation of good appreciation in the coming years. What do you think of this plan? James W.
Dear James: When buying residential rental property the analysis of what is prudent or not is dependent on many factors. You will want to look at price, projected rents and vacancies, location, regulatory issues that may affect the property, and a range of other issues. How to structure the financing is another decision you will make and this is a very important one. The recent and still current downturn in real estate values in nearly all markets should teach investors the impact of relying on too much leverage when buying property. You cannot always expect property values to rise. The market could be flat for a long period.
Even in periods of no appreciation, income property can still produce a good return if it produces good income and the owner has positive cash flow. Rental income can be much like dividend income. And by putting down sufficient cash to purchase the property, your investment is better protected should the market decline. Lenders are requiring borrowers to put more cash down for income property than they were during the pre-downturn years. This is a very good thing and makes the overall market much more stable.
Lenders Are Offering Borrowers Some New Options
Reprinted from the Menlo Park Almanac, March 16, 2011
Dear Monica: I am in the market for a new home and have been shopping for a loan. Given the economic shakeup of the past few years I would like to get the safest and best loan I can find. Do you have any suggestions? Jane R.
Dear Jane: If we have learned anything from the economic crisis of the past few years it is that homeowners who were not over-leveraged or who did not experience high loan interest rate changes in their adjustable rate loans, these were the ones who were able to ride out the downturn and keep their homes. The market the Mid-Peninsula is gaining strength and as new buyers enter this market, many of them are looking for the most stable yet attractive interest rate they can find. The traditional 30-year fixed rate loan is a very good choice if you want to know what your payments will be for the life of the loan. You can accelerate the principle payments and shorten the term of this loan, or use the entire 360 month period to pay it off.
Some lenders are offering a new twist to the more volatile adjustable rate loan. Borrowers can take advantage of the lower rate five, seven or ten year adjustable interest-only loans, and receive an even lower rate if they make principle payments too. For the right borrower, this would offer a very attractive rate as well as a chance to build up more equity by paying down some of the loan at the same time. You should look for the lender that offers you the best payment options for your needs and peace of mind.
Trending Towards Simple and Comfortable Living Spaces
Reprinted from the Menlo Park Almanac, March 2, 2011
Dear Monica: I live in a ranch-style house in a great neighborhood. I want to remodel my house completely but I don’t intend to enlarge it by very much because I like its present size. Do you think it is wise to spend a goodly amount and not add to the square footage? William D.
Dear William: Before you begin a large remodeling project t is good to evaluate the value of your home now and to project what its future value will be after remodeling. The fact that you live in a great location should ensure that your home will maintain a strong value if the overall market is stable. There is an emerging but sizable number of homeowners who want to build homes rich in their simplicity, and not overlarge or overdone. Even if the finished house is modest in size, if it is tastefully done it can be highly desirable. It is true that smaller homes will not suit everyone but it is also true that tastes and needs among growing numbers of buyers are changing. If you do a good job on your home remodel, you should not worry too much about its modest size. If you do things well, you should end up with a jewel of a home.
Reprinted from the Menlo Park Almanac, July 13, 2011