Weekly Real Estate Q&A From The Bremner Group, 9.24.09

Q.  What does it means when the MLS listing does not match (Los Angeles) County Assessor’s tax records? I’m interested in a house that is a 3 bedroom, 2 bath per MLS but the Los Angeles County tax record shows the home as a 3 bedroom, 1 bath home. Will this affect my loan process and the resale value later?

A.  The tax assessor’s records can be slightly behind recent additions, even permitted ones. The fact that there is an additional bath is not an immediate red flag. It is simply a matter of

1. Questioning the Seller or Seller’s Agent (“Was this bath a recent addition? Was it there when you purchased the property? Was it done with permit? Did you complete the final inspection and get a certificate of occupancy”) If they cannot answer you to your satisfaction, it’s time to delve deeper.

2. Get ahold of your Title Representative to assist you in records they may have on the property. Your Realtor can help you with that.

3. If you still need more information, go to Building and Safety, with the knowledge that it can be a time consuming process.

This will affect both the appraisal and the resale value, so it pays to do your homework now.

Q.  What is the wisdom of house flipping in this market? We’re considering bidding on a property that is going up for probate auction. My contractor says there are $250,000 in remodeling/reconstruction costs.  Is this a risky investment?


A.  Flipping a home is always a risky investment, especially for first time flippers; hence the high reward! You can mitigate some of the risk by taking the following steps:

The first commandment: Know thy market! Do a thorough market evaluation of the micro- neighborhood in which the property is located. This is the single most important step in the process. Doing this investigation now will likely determine the success or failure of your project. Don’t use West LA comps for a Palms property. Try to stay within 1-2 square miles of the subject property. Look at the last 12 months of listings, solds, expireds and withdrawns. Then take a look at the two-year trend statistics. Is the neighborhood going up or down, or has it stabilized. How much inventory is currently on the market, and what is the absorption rate? What do the lenders currently have “in the pipeline” (future foreclosures that are 90-120 days from the market) that will be hitting the market as your competition? Remember, your listing will be competing against the future (foreclosure, REO, and retail) market, as well as the historical (sold) market. If you need help obtaining the statistical data or interpreting it, contact your Realtor for help. We are experts at this. Remember, all of this data is for you; appraisers will only look at 90 days of Sold properties. From this data, you will determine the final selling price of the completed home, and the estimated time it will take to sell.
Next, take your contractors bid, and add 10 to 25 percent for delays, overages, hidden problems, etc. Deduct that from your final sales price.Contact your Realtor or escrow officer to prepare three estimated closing sheets, or net sheets, at your final sales price, at 5% under, and and at 10% under, allowing for any necessary price reductions and/or lower bids from buyers (your negotiating room). Deduct those costs from your final sales price.

Next, calculate the monthly cost of principal, interest, taxes, and insurance, along with utilities, etc, for the months you estimate you will have to hold (carry) the property. Include both construction time (based on your contractor’s estimate) and market time (based on your Realtor’s estimate). To be safe, add 2-3 months for overages on each estimate for unknown variables. Deduct your carrying cost from your final sales price. Add in any incidental costs, such as landscaping, staging, etc. that you may have, and deduct those from your final sales price. Now you have your bottom line.

Once you have determined these numbers, you will have the absolute maximum you should spend on the property at auction. Resist the temptation to go one dollar over! This is a business transaction for you, not an emotional one.  And don’t forget to make a back up plan. Can you hold on to the house, if you do not sell it right away? Can you consider leasing this property in the event that you cannot get the price you want for the property? These are all important things to consider before jumping in.

If this property doesn’t “pencil out”, move on to the next one. There are plenty of opportunities out there for the savvy investor. More foreclosures and auctions are coming on the market daily. Be smart, and you could become the next Jeff Lewis.

Q.  In what area would I buy a house if I want to have celebrity neighbors?

A.  Celebrities live throughout Southern California. They make their home choices just like the rest of us: location, cost, size, amenities, proximity to work, etc. You would buy a home that suits your needs, and the chances are that like minded celebrities, as well as non-celebrities, would live there as well. That being said, some celebrities live outside of Los Angeles, to stay away from prying eyes, and to have their privacy respected. That’s what makes enclaves like Montecito, or ranches in other states, so appealing.

Q.  Is it unethical for an agent with dual agency to disclose to a potential buyer the highest offer submitted?  My husband and I are using the Listing agent on a bank owned property as our Buyer agent. We submitted an offer and have been informed by the agent that the bank has chosen the 4 highest offers and have asked us to submit our “best and final” offer. As the agent has dual agency and could potentially earn dual commissions if our offer was accepted, he disclosed to us the amount of the highest offer and encouraged us to submit a counter-offer above that amount. Is this unethical behavior?

A.  You raise interesting legal and ethical questions. The California law specifically states the agent cannot “disclose to the seller that the buyer is willing to pay more than the buyer’s written offer to purchase” or “disclose to the buyer that the seller will take less than that which is set forth in the listing agreement”, without prior written consent. But the law appears to be silent on the question of offering a higher price (which benefits both the seller and buyer, if his offer is accepted).

Since I am not a lawyer and cannot give legal advice, I discussed your situation with a real estate attorney. His opinion is that your agent has done nothing wrong by disclosing the other offers, since offers (including price and terms) are not considered to be confidential in California. (The exception is if a client includes a confidentiality agreement along with his offer)  However, the seller’s agent should tell all buyers, not just you, that the bank is requesting they submit their “best and final offer” , and disclose the amount and terms to the other agents as well.  This creates a “level playing field”.

And now to the ethical question.  My suspicion is that your agent is using his advantage to encourage you to write a higher offer, to benefit himself.  My question to you is, whose interests are being served?  Are you getting advice based on your best interest, or is the agent manipulating you to make the sale?  Your interest is to purchase the property at the lowest price possible, and the seller wants to sell at the highest price possible.  How can both interests be served by one agent?

I suggest you read my post regarding dual agency in short sales, where I answer a question related to yours.

Dual Agency occurs when one broker/real estate firm represent both the buyer and seller, with either two agents under that broker/firm or one agent representing both buyer/seller. My personal feeling is that it is difficult for one person to fairly represent both sides of the transaction in cases where they have competing goals: a buyer trying to pay the lowest price possible; a seller wanting to net as much money as possible. This can especially become a problem where buyers are dealing directly with a bank’s listing agent.

Read my post about the Top 10 Reasons to Hire a Buyer’s Agent.  I think you will find it enlightening.

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

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