Sacramento Real Estate Blog

I wish I knew. All I know is that having moved four times in the last eight years of my life and bought three homes in a relatively short period, stress is a necessary evil part of buying a home.

Here’s an interesting scale developed by some psychologists regarding stressful events in one’s life. Note that change is a residence and a mortgage above $10,000 (dates this list, doesn’t it?) are both listed as pretty strong stressors, very close to change in careers and a death of a friend!

Now throw in escrows and deadlines and inspections! Really, I’d be surprised if it’s not stressful!

There are not too many buyers these days - or ever, I guess - looking for fixers or fixer-uppers as they are called by the not verbally lazy. Typically fixers are homes that need more than just carpet and paint. These are the truly sweat-equity homes where entire walls needs replacing, have mold problems, termite problems or the foundation or floor is not level. Sometimes the homes needing just carpet and paint are labeled “cosmetic fixers” and you can get these at discounted prices as well, just not as deeply discounted as the “real” fixers.

So what are the conditions under which you may be able to buy these deeply discounted big fixers? For one, they are usually bank-owned. The property owners have probably had a history of non-payment of their mortgage due to financial problems and the property will reflect that. Keep in mind however that the bank has no legal requirements to tell you all that is wrong with the home - they might not know. So get your inspections done thoroughly.

Another deterrent most buyers have (hence the low price) is that it is almost impossible to get a mortgage to buy one of these fixers, unless it is a construction loan. So it is imperative that you have cash to complete the purchase.

Big fixers have some pretty good potential for the savvy investor, but you must research them well and make sure you are getting a good deal and also plan your escape route. If they are deeply discounted, you could buy one, fix it up and sell it or rent it out. But do your homework!

I’m guessing you’ve watched some movies - perhaps the older ones - where the Realtor® walks into a home chatting up his clients and telling them everything about the house before they arrive there. The truth is your experience is likely to be very different. Chances are good that your Realtor® has not seen the home before you enter it and may be surprised himself at what he sees there.

If you did choose the neighborhood expert, you might hear a lot about the neighborhood before you get to the property. Also, if the Realtor® has shown the house before to someone else, he might know more about it. But otherwise, you shouldn’t expect that the Realtor® has previewed every house he is showing you. (Also, we have been expressly told not to walk from room to room saying “here’s the kitchen, here’s the bedroom, etc” by most trainings.)

However, this by no means implies that you cannot get the answers you want. Make sure to ask questions regarding matters that are important to you. The Realtor® should have an MLS printout of the house with all the details. And if the information you need is not contained in the printout, he will have the necessary phone numbers to get the details.

When you find the right home and decide to make an offer, usually the Realtor® will get you a competitive market analysis of the area. The market analysis - or CMA as we like to call it - will be a list of homes that are similar in square footage and style usually in a one mile radius around the subject property with the price they have sold for, or the price they are asking. Solds are important to your appraiser, while actives will tell you if you picked the best deal on the market.

If you are satisfied by the CMA, you can go ahead and make an offer. The Realtor® will write the offer up based on your instructions regarding what you are offering (you can use the CMA to determine the best price), the down payment, the earnest money deposit paid by check, how long you want escrow to be and other instructions and contingencies you may have.

The offer is then sent over to the listing agent who conveys it to seller. That’s when negotiations begin regarding everything in the offer. Once an agreement is reached in writing, escrow officially begins and you are between 30 - 60 days of moving in to your home.

The purchase contract, especially when signed by both parties - the buyer and seller - counts as a legal contract and binds both parties to the instructions set forth in it. As a buyer however, there are various contingencies written into the contract that allow you to walk out of the purchase without losing any of your deposit.

These contingencies are:
1. Inspections - if you find anything wrong with the house during inspections, you can back out;
2. Appraisal - if the house doesn’t appraise for the price in the contract, you can back out;
3. Loan - if you can’t get a loan for the house, you can back out.

As a seller, if the buyer is expected to do something, like remove the above contingencies in writing at day 14 for example and does not, you can send them a notice to perform. If after the notice, the buyer still does not perform, you can back out of the escrow.

Disclaimer time! Please don’t take this as legal advice. I’m a Realtor®, not a lawyer. Contact your lawyer for more details.

Typically, offers are responded to within three days of receipt. That is the default on the actual residential purchase agreement in California (the RPA-CA) unless it is changed by your Realtor®, based on the circumstances. But especially in today’s market, it is a good idea not to get too caught up in the dates and deadlines, especially when dealing with banks. Most banks will respond within a week, especially if the property is an REO. But they might not and at that point it is up to you to decide if you are willing to wait longer than the date on the contract, and if so, how long.

If you are waiting on a short sale, besides wishing you good luck, I’d also say that you get your Realtor® to write a short sale addendum along with the offer. This will limit the time you wait legally to get the short sale accepted. The short sale addendum sets a date for the bank to come up with an approval date. If you don’t receive approval by that date, you are free to look elsewhere.

There is no simple and straight answer to this question. Some Realtors have a number beyond which they will not show any more homes to their clients. While I have been known to limit the number of homes I show if I am unsure of my client’s motivation to buy, I doubt any one of us at Elite Properties has a preset number of homes we will show.

Usually, in one day it is best not to view more than a handful. The reason for this being that homes will converge in your mind and just become one big mess of backyards and bedrooms. So by that definition, calculate how many weekends you want to devote to looking at houses. (Most people shop on the weekends - you can consider about six homes as a day of shopping.)

It also takes clients about 10 - 15 minutes to look at each home. And then unless the houses are all in one community, there is also drive time between houses. So plan on about three hours of home shopping in a day - more if you’re up to it. But your Realtor might insist on a break at this point.

Happy Shopping!

A lot of the times, clients see something that might be a potential red flag. Ants, for instance, can be an indication that there is moisture around the house (an issue with flooding or mold) or just that the place has ants in the lawn. When they see this, the first thing they do is assume the worst. While this might be a good way to stay away from any trouble, it is also a way to miss out on some of the best priced real estate. Something that looks like a potential problem in an REO say might not be one.

The best way to know is to get a home inspection. If you suspect some aspect of the house to be a concern, it is also a good idea to get a specialist in that area. For example, if you suspect something wrong with the roof, get a roof insection done. Roof inspections are usually free. If you suspect something wrong with the plumbing, see if the home inspector can tell you. If not, hire a plumber.

Sometimes you might find the best deals just because other potential buyers worried and ran at the first sign of trouble that later might turn out to be nothing!

When you decide to buy a house and then write a purchase agreement, you are to show you commitment to buy with what is called a “good faith deposit.” We usually recommend that a good faith deposit be between 1 and 3% of the purchase price, the higher the better. The reason we say the higher the better (and banks will counter to increase it anyway) is because it shows your commitment to buy the property.

This good faith money (usually a check made out to a title company) will go into escrow the day an agreement is reached between you and the seller. The title company will deposit it and hold it under your escrow number and file and address of the property. It will be tracked on the net sheet and only released to the seller at close of escrow.

However, you are usually given an inspection and contingency period to complete all inspections on the property. The default on the purchase agreement is 17 days, however it may be anywhere between 5 and 17 days. You must complete all inspections and approve all related disclosures within this period. If you find anything amiss, the contingency period is when you get to back out of the transaction and get your good faith money back.

If however the contingency period passes and you sign a removal of contingency form, your good faith deposit is essentially the seller’s. After this point if you decide you do not want the property, your deposit will get sent to the seller as “liquidated damages” for the time they stayed off the market in escrow with you.

I can’t tell you how many times I have heard this question. The implication always seems to be “…… or is the Realtor lying?” I am always inclined to believe the Realtor. First off, it would highly unethical for the Realtor to say that there is multiple offers on a property when there are not and secondly, it shouldn’t deter you from doing what you intended to do in the first place: Write your highest and best offer, as if you really wanted to buy the house!

In today’s market, in spite of the bad news you hear all around you, when homes are priced right (or as the REOs are - priced so cheaply) most home buyers know about them being screaming deals. Even the Sac Bee called bank-owned homes the new Gold Rush. So it is not uncommon for there to be multiple offers, sometimes way over asking price.

Believe your Realtor. Or find one you can trust. We’re happy to help!

It’s a good idea to read the entire contract - and although it seems like a lot, it’s not that bad. I usually send over a blank copy beforehand to my clients so they can read it at leisure and don’t feel overwhelmed by the size of it when it’s time to sign.

However, it is a good idea to especially read the parts of the contract that have been typed in or written by your Realtor. These are the negotiable parts - the rest is California policy for home purchases.

Pay special attention to the numbers on page one - this will include the purchase price, down payment and good faith deposit. Sometimes it might also include cash back to buyer for closing costs. Also pay very close attention to page two and the check boxes. This will specify who pays for what inspections and clearances and title and escrow. Currently, most Realtors in and around Sacramento split escrow costs 50-50 between buyer and seller, but make sure you know approximately what those costs are.

Other important things to consider are how long escrow will be, when you will receive keys, is there any debris on the property that needs to be removed by the sellers and how long you have to wait to hear back from the sellers.

When you decide to buy a home after seeing others and comparing it to them, your Realtor will probably pull out a stack of papers and lean against her car to write up “a contract” or will invite you to her office where it will be all written and ready to sign. (The tech-friendly Realtors of today - like us - might just discuss your down payment and other aspects of the contract with you over the phone and email you a pdf version of the Residential Purchase Agreement.)

The job of this eight-paged tome is to identify all the details of the escrow: the most important being how much you intend paying for the property, how much of a good faith deposit you will have and when it will be delievered to the title company, which title company you prefer to use, and in general who will pay what - title, escrow, closing costs, cash back and so on.

This contract is then sent to the seller for approval. Usually they will send a counter back and then once you and the seller reach an agreement in writing, these contracts become legally binding and escrow proceeds according to what has been written. The title company will process the transaction and the funds according to the Residential Purchase Agreement.

Further changes to the contract can be made but must be written and approved by both parties on an addendum.

Recently, Open Houses have been getting a bad rap. There’s been a lot of talk about whether sellers should just refuse to let their listing agents hold houses open due to a few robberies. A little bad news can go a long way.

Traditionally, Open Houses are held so that prospective home buyers can see the home without having to make an appointment with their Realtor (or any Realtor.) During the housing boom, Open Houses were the number one way to get homes sold - the Monday after the Open House we typically received anywhere from 3 - 5 offers if the home was priced attractively and showed well.

Today, the number of homes held open on the weekends has dwindled. Not only are there less buyers looking for homes - which makes it not worth the agent’s while to sit there for three hours or so waiting for a prospect who might not qualify - but homes are typically bank-owned and do not show well without furniture.

With the recent bank foreclosures crowding the marketplace, you will probably be told by your Realtor when you start talking about making an offer that the house you are looking at is an “as-is sale.” This means that the seller will make no repairs, termite or otherwise and will simply pass title on to you. They might not be averse to crediting you back money for closing costs - usually 3% of the purchase price - but you would have to cover the repairs.

In such a case, it is a very good idea to get not just a complete home inspection, but also a termite, and roof inspection of the property. Most contractors will also give you an estimate of what the project will cost. That way you know if you are willing to make the commitment to fix what’s broken, or just move on to another property where the seller will make repairs.

It helps, but no. This actually reminds me of a client I had last year. She was looking for an inexpensive home to buy - and this was back when you could still buy homes with zero down - and she kept shying away from bank-owned houses. I didn’t understand why. Finally, when I asked her, she said it was because she thought you had to buy them cash! Thank God that’s not true or we’d be in real trouble!

You can buy bank-owned homes today with approximately 3% down which can be a gift from a relative if you are a first-time homebuyer. Keep in mind however that bank-owned houses more often than not are in need of repair and need work. The ones that do not require as much work and look good typically have a lot of competition from investors who - you guessed it - usually pay all cash.

Textbook question. I’m pretty sure every test we have ever taken asks this question: A Realtor® is simply a real estate agent (whether broker or salesperson) who is affiliated with the National Association of Realtors®. Realtors® follow a code of ethics and typically receive many helpful tools from the Association including a legal hotline and official contracts to write offers.

When you hire a real estate agent you are essentially hiring the brokerage. The broker is your agent and his salespersons are his agents. So when you go out looking at homes with a salesperson, you are essentially dealing with your agent’s agent. However, usually everyone down the line is a Realtor® because every agent in that company is a member of the Association of Realtors®.

This is a question that really boils my blood, so I’m going to have to try and tone down the venom that might otherwise spew here. The simple answer is no. Instead of hiring more than one Realtor®, how about you interview a few Realtors® to see if they’re the right match for you? That might satisfy your curiosity of what’s out there.

The truth is, all Realtors® - when you call them - will look up the MLS to find you a property that matches the criteria you selected. Unless they have a listing or their company has a listing that matches your criteria, they’re consulting the MLS. Even if they do have a listing that they think you might be interested in, the other Realtors® also have access to that same listing, thanks to the MLS.

The only thing you’re assuring by hiring more than one Realtor® is making sure that one of them (or more) is not getting paid for the work they’re doing for you. Since Realtors® work purely on commission fees, they don’t get paid unless you buy a house with them. And why would you want to be as heartless as put someone to work and then not pay them?

Wishing Upon William Shatner’s Ninja Star

Probably the number one question that buyers and other people with keyboards ask me is this:  Is the price negotiable?

This week I had about one person-with-keyboard per day ask me this, one way or another.

A lot of these people with keyboards have phone numbers like 916-999-9999, so I know they don’t want me to call them.  But boy, they sure want to know if the price is negotiable.

It’s as if they’re sending me an email that says:  “If I like how you lie to me, I might do business with you.”

So far my lying skills are pretty pathetic.

The Short and Legalistic Answer

The short answer to the question of whether price is negotiable is this:  of course it is.

If you read the Buyer Representation Agreement — which most of us don’t use because we don’t want to scare you into sending your fake phone number to another agent — it says that the buyer agrees that the Broker “does not decide what price a Buyer should pay or Seller should accept”.

Asking price is exactly what it sounds like, it’s the price the seller is asking.  It may not be the same as selling price.

The selling price may be less.  Buyers love hearing that.

The selling price may be more.  Buyers don’t like hearing that.

Life’s Pricing Mysteries Revealed

• At any given time around here, in any given neighborhood, homes are selling for 94% to 102% of list price, on average.  Why isn’t there more of a discount in this “tough market”?  It’s because the homes are already discounted relative to what has been selling, and (in general) only the homes that are already listed at a discount are selling.
• Bank owned properties tend to be in the higher end of that range, selling closer to list price, than non bank-owned properties.  This is because they’re already offered at a better price, so there’s more competition on them.
• Are prices on short sales negotiable?  Sure, why not.  They’re fake listings anyway, which are neither short nor sales.  Once you believe the myth that you can really own one, you might as well play William Shatner on it.  My recommendation for those who are serious about owning, however, is to go look at bank foreclosures, which are real listings.  (I’ll have more about short sales in a few days). 
• At any given time around here, in any given neighborhood, homes are selling this month for 0% to 3% less than what they sold for last month.  Let’s call it 1.25%, since that’s probably a decent average.
• A home that’s discounted today for 1.25% of last month’s sold price has a good chance of selling for about that, on average.
• The home that’s listed at 20% less than last month’s sold price probably already has twenty-five offers on it.  Some buyers will say “I don’t want to get in a bidding war”, but to me that objection doesn’t always make sense.  I’d rather end up owning at 10% below market after offering 10% above asking price than negotiate 20% above market down to 10% above market just so I could feel like William Shatner.  What will feeling like William Shatner do for me, anyway?  Nichelle Nichols won’t kiss me.
• A bargain is not how much you negotiate off of list price.  A bargain is how much you paid relative to how much others paid in the same market.  The proof is that an appraiser would evaluate your home relative to other sold comparables.  List prices are irrelevant for appraisal purposes.

A blog reader emailed me the following excellent question about foreclosures.

Hello there. I came across your blog in doing some research on foreclosed homes and you seem to have an in depth knowledge about what’s going on.  My question is that I have looked up several foreclosed homes and some have prices under 10,000!!!  That seems incredibly “too good to be true” but my next thought was that it was the default amount and that once it was paid the buyer would resume the standard payments which put the original owner behind. How do these work???  If I walk into a real estate office with 10K is the house mine, free and clear?

The Answer:

Thanks for your email and your generous comment about in depth knowledge!  I appreciate you saying so.  You raise an excellent question.

Yes, I suspect you’re looking at some number other than the price.  On average, foreclosures are pretty great bargains, but not that great.  To give one example, I just checked in Rosemont 95826 and the average non-foreclosed home (single family home or condo) is listed at $213,087 for 1130 square feet.  The average bank owned foreclosure is 1297 square feet and listed at $195,976, so the discount is between about 9.9% and 19.9% depending on whether you look at raw averages or price per square foot, respectively. 

Even if the default amount is $10,000, that’s not what it will likely sell for on the courthouse steps (at the trustee’s sale).  Buying at the time of the foreclosure sale requires cash and there’s no inspection period, so it is appropriate for experienced investors only.  (See http://law.onecle.com/california/civil/2924h.html).

Very often a property won’t sell at a trustee’s sale or a bank holding one of the loans will buy the property back, generally these homes end up listed in the multiple listing service, meaning we can work with you to help you buy these.  Properties like this are called by many names including “REOs”, “bank owned”, or “foreclosures”, “bank repos”.  We have literally hundreds of these available, and you can browse or search for them at our foreclosure search page.

Financing is available on these and you have an inspection period to make sure the home is reasonably sound.  These are excellent choices for a private buyer, which is probably why about 60% of what’s selling in Sacramento County at present are bank foreclosures.

Do You Have A Question?  Why Not Ask The Realtor®

We love hearing from people who have a question about buying or selling real estate, and we’ll do our best to answer you via email as quickly as possible.  Often we’ll post the answer here, too, but naturally we will not post anything in the email identifies that identifies who you are.  If you ask about a specific property you own, for example, we’ll remove the address but may answer the question in a general way. 

Simply send in your question via our contact page, and we’ll take it from there!

A reader recently emailed and asked: “Hi, I was wondering if your web page ‘New Houses In Sacramento’ is up to date since I saw them pretty much the same for more than a month.”

OK, busted.  Actually those of you who’ve been reading the blog probably know the answer to this question because periodically I talk about it, but there are actually two sources of listings on this web site.  If you go to the search page, you’re going to have access to listings that are updated once each day, so it’s almost as current as what we Realtors have access to in the MLS.

If you look at some of the other pages where we just have page after page of listings, such as the new homes pages, the condo pages, or the foreclosure pages, you’re looking at listings that are also from the Metrolist MLS, but that are updated manually, so they sometimes get a bit stale.

One thing I would take issue with this reader on length of time involved in this particular case, which has “only” been two weeks.  Yes, I realize, in Internet dog-year time that’s “more than a month” — it’s practically an eternity. 

Time for me to do another round of updating, it looks like.

Short answer for the median priced home in Sacramento County:  $8,150 up front, plus $1,835 per month.

Read on for the longer answer.

If you’re buying a home (in Sacramento or anywhere — even, God help you, Boise), naturally you want to know what it’s going to cost.

In this article, I’ve taken the median priced Sacramento home and worked out how much it would cost you to buy it, and when you’d be paying what.  We’re going to be buying a $255,000 home, which as of a few weeks ago was our median selling price.

What I’ve tried to do in this article is put together a scenario that is:

• Accurate given current rates and information.
• Doable.  By doable I mean you won’t have to pitch lowballs all day in the hope that someone will bat your home out of the park, or write an offer using a program that wouldn’t work on a bank foreclosure.  (Most of our buyers are interested in foreclosures because of the savings).  In other words, I’m presenting you with what I believe is a reasonable scenario for an offer that stands a fair chance of getting accepted and that will actually close.

I’ve also tried to estimate high on some of these costs such as inspections, which may be $25.00 or so cheaper in some instances than I’m quoting here.  In any case all numbers are estimates, so actual numbers may differ.

For our scenario, I’ve assumed you’re going to get the seller to pay  your closing costs, but you’re going to be bringing in a 3% deposit for an 30-year, fixed rate, FHA loan at 5.875%.  Actual rates and APRs vary, but that’s approximately what we’ve been seeing lately.*  The 3% can be gifted, so if you don’t have savings, you can purchase a home using that perennial favorite — the same program my wife and I used — PDPMAP.  (Parental Down Payment Mooching Assistance Program).

OK, so what will you need in the way of cash, and when?

When you write your offer:   First, you’ll usually need $1,000 for a good faith deposit.  This amount is not set by law, but rather by local tradition.  Some bank owned properties require a 1% deposit (i.e. $2,550), but unless that’s the case, I usually recommend a $1,000 deposit.  Whatever the amount, you’re going to write a check to the title company when you write your offer and give it to your Realtor® — we send a photocopy of the check to the listing agent when we submit your offer.  The check itself is held in the file uncashed until your offer is accepted, then it is cashed by the escrow company.  When you close escrow, it’s credited toward either your down payment or closing costs.  If you cancel the escrow during your inspection period, you get your deposit back. 

While you’re in escrow:  Once your offer is accepted, there are a few more costs, including an appraisal ($400), a pest inspection ($100), and a whole house inspection ($400).  For all of these, you’ll typically need a check up front, but the cost of the appraisal will be credited back to you in escrow.

Closing Escrow:  Remember our scenario. There are a number of closing costs, but we’ve asked the seller to pay those.  We need a 3% down payment, but we’re getting a credit for the good faith deposit and the appraisal that we’ve already paid.  Three per cent of $255,000 is $7,650, but with the $1,400 credit, our remaining cash to close is $6,250. 

In other words, between the point when you wrote your offer and when you got the keys to your house, your total cost was your $7,650 down payment plus your pest inspection and whole house, for a total of $8,150.

Monthly Payment:   

Because you’re financing a fairly high percentage of the cost of the home, your lender is going to want you to use an impound account to pay your tax and insurance.  You’ll also be paying principle and interest, plus MIP.  MIP, or Mortgage Insurance Premium, is the FHA equivalent of PMI — it’s insurance you pay because you’re borrowing a large percentage of the cost of your home.  (Once you’ve paid down your mortgage to 78%, the MIP is canceled).  Your total estimated monthly payment for all of these (Principle, Interest, Tax, Insurance, and MIP) will be $1,835.

So there’s how we got to our answer.  The median priced home in Sacramento costs $8,150 up front and $1,835 per month.

For those of you who would like a bit more detail on what we mean by closing costs, the following is a somewhat more detailed version of what we just went over:

* This is an estimate from a Realtor — not an offer to lend.  We use independent lenders.  Please consult a lender for accurate APR information.

What? You’re still asking this question after all the market updates we write for you every month??!?!

Seriously though, we Realtors don’t like answering this question for a number of reasons. First off, we can’t suggest areas for you to buy in, just in case it’s considered “steering” and big fair housing no-no. And secondly, it’s probably only the first or second time we’ve met you - how are we supposed to know that you like to golf but don’t want to stay too close to a golf course because you also like a two hour commute both ways?

What I’m saying is you are the best person to know what area is best for you. Ask yourself if you want to live close to work or you don’t mind driving to live in an area with more room and trees. Consider if you want to live close to family and friends, and - how close is too close? Does the idea of yard work sound appealing or disgusting? Do you need to be close to the freeway? Do you like walking to the grocery store? Do you like riding your bicycle? It’s questions to answers like these which will hint at the area you might consider “the best.” It would also not hurt you to do some research at Sacramento Bee’s Community Page to find out other details like schools, crime, and so on, if that is something of concern to you.

Lastly, be sure to read our market updates, usually out on the first of every month - or somewhere around there if we get terrible busy - to get an idea of how the individual areas are doing. If you are in investor, buying simply to make a profit, these market updates are indispensable.

Anyone that knows me knows I’m very enthusiastic about real estate. I know this sounds absurd to a few and obvious to a few others. Most people really make up their minds when they decide to buy a home, however.

Here are the three most important questions I think everyone should ask themselves before they decide to become a home buyer. The answers should guide you to whether you are ready to join the rest of us.

1. Can you afford to buy a home? Seems obvious, doesn’t it? Yet, when we are in the midst of a real estate frenzy like we had just three years ago not too many people stop to ask themselves that question. There are always unscrupulous people out there wanting to sell you things you can’t afford. Use your own judgment and calculator to figure out if you can afford to listen to them. And just as you will run into people you would not want to do business with, you will also meet good people you can trust. You should be able to tell the difference. And pick the right one.

2. How long do you intend to live in that home? If you only intend to live in a house for 2 years and move somewhere else, perhaps for a job, ask yourself why you’re even considering buying and if it wouldn’t be better for you to rent. You might save on closing costs as well. However, if you’re settled in and intend living in the home for ever, a home is one of the safest investments you can make towards your retirement.

3. WHY are you buying? My mortgage broker asks almost everyone this questions, getting them really puzzled. But it’s imperative you answer this question to yourself to get a good idea of your motivation and then check it against the facts in combination with the above two questions. For example, if you are buying to flip a home, now is probably not a good time.

Answer these three questions and whether you should purchase a home or not should come into perspective!

This is the first feature in our long line of questions every Sacramento home buyer is probably going to ask at some point in their home buying experience. So let’s just dive right into it - hey, maybe we need a new category for this.

But for now, let’s consider how bad the Sacramento real estate market really is. Really.

Now I know we’re all reading how bad it is, and how many people have those Options ARMs and other bad loans that will adjust upward, how many people got into homes they cannot afford and so on. As a home buyer, you need to realize that this while other people’s misery shouldn’t make you gleeful, what that unfortunate cause had effected in terms of prices should.

Prices have not been this low in a long time and historically interest rates are at their lower ends. So what’s stopping you? Maybe fear. Buying a home is a little bit like accepting you’re an adult. Maybe it’s a little bit like having a baby. But if you’re ready for it, now is the perfect time. There’s a lot to choose from, interest rates are great and prices are fantastic with sellers willing to negotiate. Bank-owned homes are already priced at rock bottom prices.

Go ahead. Pick one up. If you’ve done the math, jump in. The water’s just fine.

The other day I was over at the doctor’s for a routine check-up and they handed me a document that needed to be notarized. Curious, I opened it at the office. It was an advanced health care directive - with all kinds of unpleasant questions about what would happen if I was unconscious with no chance of recovering, whether I wanted to donate my organs at death, and so on. While I haven’t filled it in and handed it over yet, every time I look at it, I am reminded that sometimes things can go wrong and we must be prepared for them.

I wish we had the same when it came to real estate.

Most of the time, clients don’t even know how to hold title and the title company doesn’t even ask. They just assume that if you’re a couple, you want it joint. In fact, I’m convinced that they throw in “joint tenancy” without even asking.

But there are reasons in California for a married couple to insist on “community property with right of survivorship.” Read the California Association of Realtor’s advice about it here. And also, consider getting a power of attorney that kicks in if you’re unable to make decisions or sign your name, especially if you have a mortgage on the home.

And if you find this post just too grim after yesterday’s Cyber Monday, blame my doctor.

Okay, so hopefully you’ve called the mortgage company now and they’ve either said something like, “Yes, we’ll rewrite the loan with more favorable terms,” or they’e just flat out refused. The latter will most likely happen if the mortgage company is no longer in business.

If that happens, it’s time to move to the next step of the process, which is to call a Realtor. Well, call us.

What we would then proceed to do is check to see the market value of the property you are in. If you bought two years ago, the market value is probably lower than it was then. With your permission, we then contact the mortgage company and let them know that we are going to put this home up for short sale. This is especially important if your payments have been late or non-existent for more than a month.

Then, the house goes up for sale. Typically, the mortgage company will say nothing about whether they will accept the short sale or not until we get a written offer and send it to them.

Remember that a short sale is a very long, drawn out process that can be very frustrating, but sometimes it is the only alternative to foreclosure, which we will discuss in part three.

Every time I get asked how business is this year, I have to add that I have actually turned away quite a bit of it. This surprises people. The fact is, there are so many houses in foreclosure, sometimes you really have to talk to clients and tell them that if you don’t have to sell your home right now, do not put in on the market. Hang on to it for a little while longer, if you can.

The sad part is some of them cannot. So what should you do if your home is in foreclosure or headed there?

For the first part, call the mortgage company. Don’t ignore the late notices - that is worst thing you can do. If there is no communication between them and you, the mortgage company has no choice but to foreclose. At the first sign that you sense financial distress, call the mortgage company and ask them if they would be willing to rewrite your loan, or restructure your loan.

They just might. Banks don’t really want your home unless you leave them no choice.

If that doesn’t work, call a Realtor for a potential short sale. More on that tomorrow. Today, call the mortgage company.

… and we’re here to answer them. 312 of them, to be exact.

I’m working on getting 312 questions every home buyer must have when they make the momentous decision to buy a home. Burning questions such as “How does the overall process of buying a home work?” and “Why do I need title insurance?” and also “How many homes should I look at before deciding?”

Really I’m learning these questions from my own clients. Sometimes we get so used to the process of selling real estate that we throw out acronyms and then realize three sentences later that what we said made no sense to our clients. So I’m working on this “project” and will tackle one questions every time I write.

Check back often to see the answers. By the way, if there’s anything I have not answered, feel free to email me at purvabrown@msn.com or just comment. I’ll be sure to add it to my list, which as of today is sitting at 97.

True story.

I’m working with some friends of mine on the purchase of their first home and I’m very excited about their decision. Buying in this market affords them opportunties unheard of in the last few years. While we were getting them preapproved however, they came across a FSBO (for sale by owner, for those of you that haven’t learned Realtor-Speak yet) through their family. So they told me that they would go check it out and would want to be represented anyway in the event that they liked it.

Now I’m not a big fan of FSBOs. And it goes beyond just the fact that there’s the possibility of not getting paid or the absolute insult that we Realtors are not needed in such a momentous thing as selling a house! No. The problem I have with FSBOs is that there is no one counseling the seller about how much the home is really worth.

Therein lies the rub.

Back to the story - my friends sent me the address to the property they were considering, and I pulled up comps (comparable properties that have sold in the last six months within a mile radius) in the area that related to the home. As it turns out, what the seller was asking was completely off the charts. He was following the classic FSBO example stated very eloquently by Tom Hopkins:

3 GIGOs + 1 SWG = 1 OPT

In other words, 3 garbage in garbage outs plus 1 scientific wild guess equals 1 overpriced turkey.

The seller here had obviously called a few neighbors that had lied about how much their homes had sold for (or that they had sold at all), added his own scientific wild guess and come up with the overpriced turkey of a house! But wait, it doesn’t end here. As if the house wasn’t overpriced enough at 15% over market, he added another 10% to the price before the clients (my friends) left the home that evening.

A broker from my past and a very smart man once said, “Realtors are not there to make flyers for you. Anyone can make flyers! Realtors are there to educate you on the market and counsel you through the sale (purchase) of your home.”

You better believe it.

They say only two things in life are certain, death and taxes.  I’m happy to report that as Realtors®, we don’t get asked about death a lot, but people do often have questions about property taxes.  We often hear questions like:  “Aren’t California property taxes expensive?” and even more often, “What is the tax rate in [Name Your Favorite] County”.

Folks within the state are trained to ask, “Does this property have Mello Roos?”, whereas folks from out of state think a Mello Roos is a laid-back male chicken — a myth I will dispel conclusively as we go along.

Yes, I know, that was pretty bad.  I’d better get right to the article, at the risk of further taxing your patience.

1) I Live Out Of State and Have Heard that California Property Taxes Are High.  Is That True?

Actually, yes and no.  It’s more correct to say that California property values are high.  Many property taxes are taxes that are levied “according to value”, but we often say ad valorem because saying things in Latin is so much more fun.  Because of this, according to the Tax Foundation, California ranks #10 from the top in the median property taxes paid on homes among the fifty states, but ranks 46th (i.e., 4th from the bottom) in terms of the property tax rate. 

Statewide, our ad valorem property taxes were limited (by proposition 13) to 1% of the market value, and there rate of increase was limited to a maximum of 2% per year for inflation.  (In other words, in the first year they’d be 1%, the second year 1.02%, etc.)  Later, Proposition 8 required assessors also have to take possible devaluation into account, hence Purva Brown’s recent post about Sacramento County taxpayers getting a lower bill.

2) What’s the Tax Rate in Sacramento County and Surrounding Areas?

Though our statewide rates are limited to 1.0%, voter approved bonds and fees can and do increase that figure.  Both Sacramento and El Dorado County claim average tax rates of 1.1%.  When I first got into the real estate business, I was taught to use a more conservative figure of 1.25% to give to my clients as a ballpark number, and most lenders I know use that estimate when calculating the Tax component of PITI (Principle, Interest, Tax, and Insurance).  In all these cases, we’re talking about an initial rate based on the market value at the time your home was sold.

3) What’s A Mello-Roos, and Do I Want One?

Proposition 13 was originally passed in 1978 because older Californians were being priced out of their homes by the ever-growing tax burden, given the wonderful appreciation we enjoy in California.  (Ahem:  well, most years we enjoy it, anyway).  Of course, once you limit the amount of taxes counties can collect, now you’ve got a new problem, especially as new communities develop — how do you pay for things you might want, like streets, water, drainage, sewage facilities, policemen, parks and recreation.  Along came state Senator Henry Mello and Assemblyman Mike Roos, who co-sponsored 1982’s Community Facilities District Act, which allowed communities to pay for these services through bonds when 2/3 of the voters in the district approve them.  Bonds issued under that legislation still (accusingly?) bear the names of the authors of the bill.

Of course, being bonds, the good news is that unlike taxes, they’re eventually paid off.  The bad news (can you say “proposition 13 loophole”) is that now your effective tax rate could be 2.5% or more depending on how much the Mello-Roos bonds bring to the table.

4) Are there Any Mello-Roos Bonds On [Name Your Property Address]?

Well, you’d think we could just go ahead and give you a straight answer to that one by looking in the MLS or calling up the county assessor’s office, wouldn’t you?

Well, yes and no.

The good news is, that in most cases we can get you more information from the county, or in certain cases you can even go online yourself and check.  (We’ll do a tutorial on this soon).  The reason we have to say that “in most cases” is that Community Facilities Districts who issue Mello-Roos bonds may ask the County Tax Collector to include this lien as part of your biennial tax bill.  They may, and in most cases they do, but here’s the problem:  they don’t have to.  For example, the El Dorado County Tax Collector shared with me that the city of Placerville has several properties with 1911 bonds (another form of special assessment) that aren’t on the tax role.  So folks in those areas of Placerville get a separate bill.  Although most Mello-Roos bonds and other special assessments are levied through the county tax collector, if you call any assessor or tax collector in any county, you’ll no doubt come up with several similar exceptions to that rule.  The bottom line is can get you an answer that has maybe a 95% chance of being right within a business day of hearing from you.

5) How Can I Find Out More about Mello-Roos and Other Special Assessments for the Home I’m Buying?

Fortunately, the State legislature has your back on this one, and enacted legislation in 1992 requiring the seller and the listing agent to disclose whether there are Mello-Roos bonds on the property.  In 1992, legislators noticed that some builders were cleverly using other forms of special assessments to avoid having to disclose that they had Mello-Roos bonds.  (”Hey we don’t have any Mello-Roos” [wink, wink]).   Senate Bill 1122 therefore extended this disclosure requirement to other forms of special assessments.

Now if there’s one thing broker’s don’t like (other than water chestnuts — I hate water chestnuts), it’s having liability to disclose something that the seller may not even know, especially where the information is not obvious and our usual way of finding out the answer is right only 95% of the time.  So naturally, companies have sprung up to do the disclosing for us.  One such company that we particularly like is Property ID.  Property ID provides natural hazard disclosures, but as part of their report they also include a special assessment disclosure that is ensured up to $20 million.  We always write Property ID into our agreements asking the seller to provide this when writing up a purchase agreement.

Most agents don’t order Property ID or another disclosure report up front, but if it’s available, we’re happy to provide it to you prior to opening escrow.  Usually you get the report while you’re in escrow and under your inspection period.  If you really want to try to nail it down with more certainty, you might try ordering a report from Mello-Roos.com, but most of our buyers have found that checking with the assessor up front and then getting Property ID (or a report from another reputable disclosure provider) in escrow is a cost-effective alternative.

Related Stories

Sacramento Property Taxes Fall

I’m Moving to the Sacramento Area, and am Over 55. Can I Keep My Tax Base?