Weekly Q. and A. from The Bremner Group 9.10.09

Q.  Should I sell my Westwood home now, or wait until the spring?

The best way to make a selling decision is to do the following:

In consultation with a Realtor,
1. Assess the overall market now.
2. Pinpoint the buyer for your property and assess their timing.
3. View the current competition.
4. Assess your property in comparison with the competition.
5. Assess your needs and timing.
6. Strategize a marketing plan.
If all of the factors above are in alignment, you should market your home now. While no one can ever predict the state of the real estate market or the larger economy, certain factors right now are in play that make it easy to predict what various sectors of the market will be doing in the next 18 months, simply because of the pressures being brought to bear on the market by REO’s, short sales, and foreclosures.
Seasonal factors such as holidays must be taken into account in setting out your strategy as well.  I can help you answer this question for your unique situation, and would be happy to do so.

Q.  Should a buyer go directly to the Seller’s Agent on a short sale, rather than use their own agent?  I heard that the Seller’s agent could get me better terms.  Is that true?

In purchasing a short sale there is actually no benefit in using the listing agent; in fact, most good short sale agents are so busy with showing their listings and dealing with lenders that they don’t have time to show property or write offers. (especially right now, when so many clients are trying to meet the Nov. 30 deadline)
This is not an emotional transaction, but a distress sale. The bank, along with the seller, looks only at the numbers when selecting the buyer. In addition, the bank sets the commissions at the end, based solely on the funds available from the short sale. A good and ethical Realtor (which is who I know you would want working for you) would never give an advantage to his or her own Buyer over another agent’s Buyer, because the Listing agent’s fiduciary duty is to the seller, and in this case, the bank. Would you want to be working with an agent who starts the transaction more worried about getting both sides of the commission than the needs of the Seller or the Buyer?
In any transaction, there is an inherent conflict of interest in a Listing agent representing the buyer, which is why we have Buyer Agents in the state of California. I would recommend finding a strong Buyer agent that you trust, who will act in YOUR best interest during the review process, and negotiate on YOUR behalf, not the lender’s.
With short sales, the listing agent is required to act in the best interest of the seller. (and the bank) You can be confident that the bank will be making sure of this fact! This is regardless of the fact that it is a short sale. What I have found is that it is more important for the Buyer agent to have an open communication with the Listing agent during the short sale review process. Also, because of the nature of short sales, it is common for transaction to take much longer than promised by the Listing Agent. Given the high liklihood of a buyer finding a more appropriate home while the bank is reviewing a short sale offer, it would be beneficial to be working with an agent without a fiduciary responsibility to the short sale seller and bank.

Q. Is there any room for price negotiation on bank owned properties?

That will depend greatly on each property. In general you won’t find many bank owned properties where you can offer much less than asking price. The reason for this is that banks usually list their properties at or below market value to get them “off the books” quickly. (Banks are not in the business of holding real estate) What results from that aggressive pricing is usually multiple offers, hence not allowing for low bids.

In recent experience I have had clients make offers well above list price on several bank owned properties within a day or two of them hitting the market, and they have been outbid. A recent condominium sale in Culver City had 25 offers!
However, every property will be different. Properties in less desireable areas, or properties with major repairs needed will be less likely to draw many offers quickly. In addition, it is harder for the bank to calculate market value is for a property needing major repairs.
Remember to have your Realtor pull comparable listings and sales (along with expired listings) for the properties you are considering to determine true market value.  After you determine the average price per square foot, you will be in a much better position to be able to negotiate a more favorable price.

Q.  It seems like it might be a good time for investment in real estate.  Is that true?  What is best to purchase as an investment, a single family home, an apartment building, or raw land?

It’s best to do a cost vs return on investment (ROI) to determine what will be best for you.  Buying land will not bring you any income, so unless you have a specific plan in mind, it does not compare with a single family or multi family in terms of income-providing investment. When looking at an apartment building, you could live in one unit and rent out the rest. For security, if one tenant moves out, you still have others providing income. Don’t forget to factor in all costs, such as taxes, insurance, utilities, homeowners dues, etc. when you are calculating the monthly outlay.  As regards loans, if you stay within FMAE guidelines for up to 4 units you should not have any problems if you can otherwise qualify for a single family home with the same purchase price. If you go beyond four units, then it’s a different scenario. Management experience of investment properties will play a role, besides other factors including Debt Service Coverage Ratio, in determining whether you qualify for a loan.  As for whether it’s a good idea to buy now, there are two main factors to consider:

1. Interest rates are at their historic 50 year low.
2. Prices are low in most places, and starting to rebound in others. I have written extensively about “timing the bounce”, which is impossible to do. (http://tinyurl.com/cheskf ) The upshot of my advice?
We never know when the bottom, nor the top, is. So the best advice for buyers is, aim low. Consult with your Realtor, who will help you weigh all the facts, including interest rates, inventory, personal need, and what you can afford. Then get off the fence and buy. Don’t listen to pundits or peers at the water cooler. Have confidence that the decisions you make will be wealth- building in the long run.
If my 33 years in the business have taught me one thing, it is this: there will be a lot of people in a few years who will say, “I wish I had bought that house in 2009, when it was only $$. ” I’ve seen it before, and I’ll see it again.

Q.  I’m looking at lots in the Hollywood Hills, and there is a huge price range, from $30,000 up to $200,000 for basically the same sized lot.  Why is that?

Not all lots are created equal! The answer lie in evaluating some important issues. When an appraiser or Realtor looks at the comparable properties, he does so with an eye to the values of the existing properties surrounding the lot. Good improved property surrounding the lot = higher value. The price per square foot (PPS) of the land will be most directly affected by its topography (flat lot = higher value), the shape of the lot (regular/ rectangular is easier to build), the amount of frontage on the street (most people want wider frontage), and other “cosmetic” lot issues. Views (i.e. city, ocean, treetop) will command a higher price than no view, while a negative view (i.e. alley, buildings, freeway) will detract from the price. Are there utilities present or in close proximity? (Those are definite value added.) From there, it’s a personal choice. Walk the lot with your contractor and a geologist. Is your plan feasible on this site?  Do all factors appeal to you? Then it’s good value for you.

The discrepancy in the cost of the land, in the case of the Hollywood Hills, lies in the cost of in the improvements necessary to make development feasible, such as engineering, retaining walls, utilities, etc. A very interesting alternative for otherwise “unbuildable” sites can be found with a very specific, earthquake, hillside friendly building method know as pole constuction. There is a site: http://www.haikuhouses.com that offers pole construction buildings. These are very Japanese inspired in nature, and can be constructed on otherwise unbuildable sites.

Q.  How do I qualify for a first time homebuyer tax credit?  When do I have to complete the sale?

To qualify for this tax refund, you must be a first time home buyer. IRS defines a first time home buyer as a taxpayer who has not owned a primary residence for at least three years prior to the purchase. If you are a married couple, you would not qualify if you or your spouse owned a primary residence in the past three years. Married taxpayers would qualify for this credit if neither spouse has owned a principal residence for past three years. However, unmarried joint purchasers may allocate the credit to the buyer that qualifies as first time home buyer. There is also income limitation for this tax credit. The income limit for single taxpayer is $75,000; married taxpayers filing joint returns have income limit of $150,000. However, you may be eligible for partial credit if your income is higher than the IRS limits and I suggest you consult with a tax professional.To sweeten this economic incentive, US Department of Housing and Urban Development recently announced that first time home buyers have the option to use their $8000 credit toward down payment orclosing costs by financing their home purchase through FHA-approved lender. You still must come up with the FHA mandatory 3.5% down payment but now, lenders can buy the tax credits from the buyers and collect the money from IRS, hence use the tax credit to lower the borrower’s principal balance and reduce the monthly payments.This $8000 credit is only available for purchases that are finalized from January 2009 to November 30th of 2009. This means that first time home buyers must find a home by beginning of October since it would take at least 45 days for conventional financing to closeescrow. And don’t forget the holidays, and the likely chance that the County Recorder will be bombarded with closings right around the deadline, not to mention lenders backed up with fundings as well.

Have a question you want answered?  Contact us at TheBremnerGroup.com, and let us know.  Or just reply here.  We are always happy to help.

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