Sacramento Real Estate Blog

I hate short sales.   I hate them as individuals, and I hate them as a group.  Were short sales a people, genocide would be a virtue.

Maybe this is the wrong opinion for a Realtor® to have under these market conditions.  Maybe some of the eighty-four subscribers to this blog are anxious short sale sellers on the verge of hiring Elite Properties, who will now think me a thoughtless slob.  Maybe my family will be out on the street because I’m such a poor businessman, saying what I think about short sales out loud on the Internets and all.

It’s not that I don’t care about all that bad stuff happening.  But I still hate short sales.

A Short Sale Tale

This is a true short sale story.

A buyer finds us through our web site, works with an agent of mine, and writes up an offer on a short sale home.  The seller accepts the offer, but we don’t have short sale approval from the bank yet.  This is back in November or so.  The house is a great buy compared to everything else on the market.

For the next several months, my agent plays a phone game with the listing agent, a game familiar to any agent who’s ever worked a short sale. 

Stripped of the pleasantries and extra details, the game goes like this:

Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

This goes on for three or four months, until one day, miracle of miracles, Agent 2 says “Yes”, the bank has accepted our offer.  Only now, guess what?  The house isn’t a great buy any more because the bank waited so long.  Yesterday’s bargain is today’s overpriced turkey, so now the buyer wants to cancel the transaction and go look at other houses!  (Which the buyer is within her rights to do, by the way, since the bank has a “short sale contingency” period that expired months ago).

Circle The Winner, a Multiple Choice Question

The winner on the above scenario was:

A) The seller.

B) The seller’s real estate agent.

C) The buyer.

D) The buyer’s real estate agent.

E) The bank.

The Answer Revealed:

Did you guess “F) None of the above?”

Right you are!

Our local multiple listing service, Metrolist, recently made several changes to their search pages and database structure.

We all know how people like change.

Some of these changes are probably to the good, but looking at the database structure, it’s uglier than it ever was.  Whether a property is a short sale, for example, used to appear in two places, either one of which might be correct.  Since the change, whether or not a property is a short sale appears in one field if the property is active, and another if the property is sold.

Well, that’s fine, I get it — sometimes you’re talking about a flavor of the status “Active” and sometimes all you need to do is record history.

Some of the changes actually make things a little bit easier, though having five new varieties of “Active” isn’t one of them.

I do wish corporations wouldn’t write like corporations.  It doesn’t help to enter the system and get a message:

“MetroList is working harder to give you the tools to work smarter!”  What is this, an Anthony Robbins seminar?  No doubt someone will tout the six sigma benefits of the new design.

Meantime the changes broke some existing code of mine.

It’s time to go move some code around…

Generally, yes. The short answer is that if something shows up on your credit report as unpaid and is counting toward your score being pulled down, you would need to pay it to raise your score. Even if your score is decent enough and the unpaid items are not bringing your score down enough to be refused a mortgage, the lender might require that certain unpaid items be cleared.

Remember the lender is giving you the money to buy the house based on your credit history. The lending institution doesn’t know you personally and your credit history is the only introduction they will ever have to your payment patterns.

But be careful: there may be some items on your credit that are considered “charge-offs” and paying these might hurt your score because they may raise old skeletons. Be sure to find a mortgage broker who is willing to work with you to understand your credit report and identify which items need to be paid before paying them.

There’s only one thing more irritating to me than telemarketers - it’s telemarketers from halfway around the world. Oh wait, there’s one more thing even more annoying - it’s when they harrass me by calling two or three more times after I have said, “Not interested, thanks,” basically the least amount of talking I can do to avoid eating up my minutes, which would essentially mean paying for telemarketers to tear into my day and irritate me.

And when did it become okay to flagrantly dismiss the Do not Call Registry? Suddenly, every lead generation company with leads to sell has found me on Active Rain and wants to call me - without any idea of how to read a script to make it seem like he’s actually talking - and sell me something!

Puh-leeze. Leave me alone. We don’t have “a business relationship.”

And I will report you to the registry. In fact, I just did. I don’t care if you live halfway around the world. If you’re calling a US number and selling to a US person, you better obey the laws.

Say you see a home you like and would like to take a look inside. You pick up the phone and call. A Realtor answers. She says she would be happy to come out and show you the home. You’re happy, looking forward to it.

Great, right? Wrong. Just who did you make an appointment with? Was it the person who has listed the home for sale? Or her assistant? Or a third Realtor who will represent you in the purchase?

The question, “Are you working with another agent?” should not be limited to the Realtor making the appointment alone. You should know if you are working with the seller’s agent, an assistant, or someone who will represent your interest in the home - a buyer’s agent.

What’s the difference? Without a buyer’s agent, you are in a dual agency. A dual agency means you are almost always without representation. The agent has been hired by the seller first. While dual agency is not illegal in California, it can create a difficult situation when the buyer wants certain things done and the seller is unwilling. The purpose of the buyer’s agent is to insist that important repairs get done or escrow is canceled. A dual agent is required only to communicate needs and messages across the buyer and seller.

I would love to pick up the phone to make an appointment with a client and have the client ask me if I have listed the home or I would be there essentially to represent him in the purchase!

Usually, when you are ready to make an offer on a house, your Realtor will show you comps of the area. (If he doesn’t, make sure you ask him for them! “Comps” are comparable properties in the neighborhood - usually within a one mile radius of the subject property - which are similar in size, square footage and usually floor plans and number of bedrooms and baths to the property in question.

The comparative market analysis should include active, pending and sold properties. Pay careful attention to the sold properties - that will tell you what the appraiser is most likely to look at and will tell you how the house compares historically in prices (comps usually go back six months) with the others. The active sales will tell you what houses in the neighborhood are asking in terms of price. These numbers will reveal if you bought the most expensive home in the area or got the biggest discount! Pending sales do not reveal what buyers paid for the home until they show up as sold, so there’s not much to compare with in that regard.

A market analysis is your best bet, next to the appraised value, to know if a home is worth the asking price. But keep in mind that there is no guarantee that the house will hold its value or be worth the same a year or two from then. Historically, real estate appreciates in the long run, but that doesn’t mean that values won’t have drops for a year or two every few years.

Infuriating pat answer: it depends.

I have had clients in the past who have paid cash for homes, especially investors. But I think you need to look at all aspects of the question to get the right answer to this one. For one, how does it help you to pay cash? Are you one of those people that doesn’t want a mortgage at all? There is a serious drawback to this if you intend to live in the home yourself: you won’t get to deduct your mortgage interest on your taxes. In fact, even if you are an investor, mortgage interest on your rentals may be tax deductible. Check with your tax accountant the next time you drop in before you make this decision.

On the other hand, paying cash for a home has its advantages of course. As a homeowner, you don’t have the pesky (large) bill every month, you will save a ton of money in mortgage interest and there’s the security that whatever happens no one gets to throw you out of your house. It’s yours, free and clear. As an investor, it can mean a higher cash flow every month from the rent as opposed to if you were still paying a mortgage on the property.

Consider all options before you decide. And realize it doesn’t have to be either-or. You can make a larger down payment on the house and keep the rest for security. Personally, I don’t like socking too much money away in one place, but that’s just me.

This post was originally titled “Off Topic — Politics — Is America Ready for Another Clinton White House?”

But the truth is, that title was just an excuse to answer  “I say yes.  Especially if it’s George Clinton!”

But Wait, This Is On Topic After All

It turns out that everything ends up being about Sacramento.  Dawn Silva, who (if Wikipedia is to be trusted) sang for Sly and The Family Stone before joining George Clinton’s PFunk in 1977, hails originally from Sacramento — and that’s what listed as her location on her MySpace page.  “She was the only original Brides of Funkenstein member to continue through Brides’ career.”

Her MySpace page makes me wonder how I ever could have doubted MySpace.  That place is fantastic, as of today.

Hyperlink that funky music, white boy!  No greater HTML hath any man.

A lot of people have heard of Nehemiah, and think that it’s a down payment assistance program.  I’ve come to view it more as a down payment prevention program.  The beauty of Nehemiah is that you can save $200,000 on your home, because after one of my hard working agents has invested a couple of hundred dollars in gas money on you, you won’t open escrow, so then you won’t close escrow or have a mortgage to pay.  Total cost to you:  zero.

Nehemiah’s one of those ideas that looks great on paper, like web site banner ads or the Republican Party or showing your boobs off at Mardis Gras.

Here’s how it works.  You don’t have a down payment, so somebody (you or the seller) pays a $499 fee to Nehemiah corporation.  Then the seller pays your down payment.  In return for the fee, Nehemiah in effect launders the seller’s money by turning it into private funds for the Nehemiah Corporation.  Some other private funds then come out of the Nehemiah Corporation to become your down payment.

Well, John, What’s Wrong With That?

Good question.  I’m glad I wrote it for you.  I’ll tell you what’s wrong with that.

Most importantly, what’s wrong with Nehemiah is that although the funds the seller’s putting in to Nehemiah may equal the funds that are applied to your down payment (not counting that $499 someone’s paying to make this work), they’re not the same funds.  Depending on gosh-knows-what, Nehemiah funds may or may not be available when it comes time to close.

So a Nehemiah transaction is one of those “maybe it’ll work” transactions.  In that respect it’s like an offer that’s contingent on the sale of someone’s house. 

Now there’s nothing wrong with a “maybe it’ll work” transaction in principle.  We have a seller or two who probably wouldn’t mind a “maybe it’ll work” transaction, because they’re competing with bank foreclosures.

But now let’s look at a bank that owns a foreclosure.  They want to get the home off the books, and they know that if they list it at 20% or more below comparable sales, they’ll have more offers than they can use.  These will be real offers, with less than 100% financing, where the buyer’s preapproved and there’s an excellent chance of closing.  These aren’t “maybe it’ll work” offers. 

Keep in mind that the bank owns this house to begin with because they loaned money to a “maybe-it’ll work” borrower.

Now along comes Norbert Nehemiah-Buyer, who has his heart set on the cheapest house on the far left of the bell curve, and asks the seller to accept a maybe-it’ll-work Nehemiah offer.

Thank you, Nehemiah Corporation.  Another down payment has successfully been prevented!

The Moral Of the Story?

This probably isn’t a moral some people will like, but here’s the moral. Bring a down payment.  It doesn’t have to be huge.  FHA offers excellent programs with 3% down payments, and the 3% can be gifted.

Related Articles:

I Love FHA

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!

February was a fairly strong month for duplex sales in Sacramento County, with twenty-five units selling, as opposed to eighteen units last February and an average of 19 units selling each month over the previous years.  As will residential properties, duplex prices have fallen sharply over the past year.  The average sale price of a duplex in Sacramento County fell 27.3% from February to February:  from $348,420 last February to $231,000 this February.  During the same period, the median sale price fell by 33.7%, from $348,420 last February to $231,000 this February.

It’s a tough time to be a duplex seller, with the duplex inventory still high at 14.6 months.  Though the median sale price of a sold duplex in February was $231,000, the median list price of the 279 duplexes in inventory is $329,000.

What’s encouraging is that we’re seeing more and more properties that pencil out fairly well.  One duplex that’s listed now, for example, yields a positive cash flow of $48.00 per month assuming a 20% down, a 10% vacancy factor and a property manager — if you managed it yourself that number would be more like $198.00 per month.  Three years ago I’d be hard pressed to find a duplex in Sacramento County that provided any kind of cash flow.  Today I found this one after about five minutes of looking — and I’m sure there are others out there.

Admittedly, the cash flow numbers for the “middle of the market” may not be too impressive.  Nevertheless, there are bargains to be had, and I believe that as prices on some duplexes and other multi-unit properties continue to fall, sales in this category will pick up throughout 2008 and beyond.

I’m assuming when you say that you mean your purpose as in whether it will be owner-occupied i.e. you would actually physically live in the house yourself, or you would be renting it out to someone else. And not the purpose almost everyone else has in buying a home: building long-term wealth. Okay, sorry - haven’t had my first cup of coffee just yet and it’s not funny when I try to be funny before it. My apologies.

The lender wants to know your purpose (and usually Realtors do as well) because they want to decide how much of an interest rate to charge on your mortgage. Your interest rate is inversely proportional to the amount of risk you are as a borrower. If you have a great credit score, have a down payment and are buying the home to live in, you are considered a lower risk than someone who has no down, a bad score and wants to rent the place out. The thinking is that if times get tough on you financially, you will pay for the roof on your head first and let your investments go the way of foreclosure.

Typically, investors are charged between 1/8 to a 1/4 percentage higher on their mortgage rates than owner-occupied homes. They are also required to have a higher down payment - typically 25% today.

Over the weekend The Sacramento Real Estate Blog had a bit of a facelift.

Our old blog theme was ok, but it was looking a little long in the tooth and out of style.  Like everyone else, bloggers are slaves to fashion, and I was really starting to get tired of the three column layout — it was like wearing a wide tie when fat ties are back in vogue.

By the way, what kind of tie should I be wearing these days, if I wore one?

If you’re looking for Armani suit Realtors®, I’m afraid we don’t have any.

Things Should Be a Bit Easier To Find, I Hope

One of the things I like about the new layout is that it removes the huge number of links we had to everything under the sun.  Those links are still available from the web site.

Overall I think it’s a lot cleaner.  I hope you like it.

Does this dress make me look fat?

AdSense Ads, What’s Up With That?

One of the other things you may have noticed is that we’ve started putting up a few ads from AdSense.  In a few days we’ll probably also start serving some Project Wonderful ads as well. 

We expect the revenue from these ads to be extremely low compared to the revenue from our main business of helping our clients buy and sell homes in greater Sacramento.   Nevertheless, it’s a way to help offset the expense of maintaining our MLS feeds and other costs.  So with that let me welcome our current and future sponsors, whom I hope you’ll support.  If it gets to be too much of a distraction, I’ll take it down.

The green-eyed facelift lady stays up, however.

Some distractions are better than others.

Frogs and lizards love bugs bugs. I hate them.

The real bugs that crawl around on the ground and get eaten by frogs and lizards are OK, except when they bite. But I hate the software kind of bugs.

A visitor pointed out a nasty bug in the foreclosure search that I didn’t know about (and just caused a few days ago in my fight against a screen scraper). In the course of investigating that bug, I found a nest of other ones which made me wonder why more people weren’t screaming at me about how badly the site was working.

As far as I can tell the search pages and the browsing pages are all working a lot better now.

I should run a bug hunt for the web site now and then, with prizes. I’ll bet that would help things quite a bit.

Given that I’m seriously considering a redesign of the site’s theme, however, I should probably run that after the redesign, not before.

Technically, stated income loans, where someone cannot document their income and the mortgage broker and lender has to go with a number that the borrower “states” as an annual amount are harder to get today. Or so we are told repeatedly. However, you should realize that just because they are harder to get does not mean they are impossible. Lenders have become more vigilant regarding “liar loans” as they are called and are checking and double-checking numbers on mortgage applications to make sure exaggerations and aberrations get weeded out.

That being said, there are still a huge percentage of people who don’t get W-2s at the end of the year and just cannot document their income. These would include people involved in businesses, self employed individuals, and other professionals. The only way these people can buy homes is by stating their income. There might be some supplemental information they need to provide, like a good credit score, but stated income loans just cannot be thrown out for the simple reason that too many people need them… too many normal, honest people need them.

These individuals may pay a higher mortgage interest on the home they buy, but that is a small trade off for the privilege of being able to buy a home they can live in.

Internet Mogul.  Sacramento Real Estate Gal.   Sacramento-Home.com co-author.  And now mother to be!

Given how nice this child looks already, we expect a full photo shoot when the happy day comes.

I usually like to check in with my favorite seller’s market, East Sacramento, whenever I need cheering up. Lucky for me I wasn’t starting from a really depressive base line this time, because the usual jolt of happiness I get from East Sacramento is mostly missing from this month’s numbers.

For most of the past several months, our reports about East Sacramento have shown prices holding very steady. This month turned out to be the exception that “proved” (i.e., in the original sense, “tested”) the rule, because February’s numbers saw a dramatic un-East-Sacramento-like dip.

This year the average home sold in East Sacramento for $459,127, down 22.3% from last year’s average of $591,145. The median price fell a less dramatic 5.8%, from $433,450 last February to $408,200. Meantime sold price per square foot dropped 16.8% from February to February, from $388.15 on average last year to $322.87 on average this year.

Unit volume was also down this February, from twenty units last year to thirteen this year. This number of thirteen was also well below the average monthly sales volume for the past year, which was twenty units per month.

Even though February was not a good month for the thesis of an East Sacramento seller’s market, there were a couple of areas where East Sacramento’s numbers still showed strong. First, compared to almost anywhere else in the region, inventory is still extremely low in East Sac at only 2.94 months. Secondly, the average days on market decreased from year to year, from 35 last year to 25 this year.

As we saw last time, overall East Sac put in a performance of about $350.00 per square foot for the last two years. So what we’re seeing in these numbers are unusually high numbers for last February, and unusually low numbers for this February. Of course with small sample sizes like East Sac such fluctuations are commonplace. What remains to be seen is the extent to which East Sac can recover from this month of poor comps.

In spite of my indignation at the word “repo” they won’t stop using it. So maybe I’m the odd one out. I just contend that cars get repossessed. Homes get foreclosed. So yes, a “repo” (ugh!) is the same as an REO, which stands for Real Estate Owned. By a bank.

Banks don’t like owning homes, by the way, in case you were wondering. Banks are not in the business of real estate, banks are in the business of money. Unfortunately, when someone stops making payments on a house, they are forced to foreclose, a process by which the home is sold at a trustee’s sale. If the home continues to remain unsold, it gets added to the other homes the bank may have called REOs. These eventually find their way to the open market, where they are sold at usually deep discounts.

There are a number of REOs on the market today, which in turn have led to the drop in home prices. The major drawback of a REO is that it is always an as-is sale and the buyer has to be exceptionally vigilant about getting all inspections done. But the price you pay for one almost always makes it worth it.

Perhaps one of the best income tax laws we have in the United States that our neighbors in Canada envy. I would know - my best friend lives in Canada and I’ve heard her family curse the fact that they don’t get any benefits for owning a home when it comes to income taxes.

Basically, if you itemize your deductions, mortgage interest counts - especially in California - as a major deduction on Schedule A. You also can deduct real estate taxes, and sometimes, points you have paid on the purchase of a primary residence. Consult your tax professional for the details or read the IRS booklet here.

With most people, the home mortgage deduction is enough to beat the standard deduction just by itself, which results in a higher refund. If you can keep more of your money and use it to fund your own home, why wouldn’t you?

I have a confession to make.  No, I’m not a politician involved with prostitutes, stop thinking that!  Actually I already made the confession about  how often real estate listings get updated, didn’t I, so like a New York politician I have officially shamed myself. 

So I’ve updated the listings!  So check out the foreclosures, new homes, etc. and enjoy!

Except for that screen scraper software I caught this morning.  You don’t get to enjoy any more.  I have released my inner programmer, and you’re shut down.

But all you humans-who-can-prove-you’re-human can use the foreclosure search with the new captcha. So let me know if it works ok for you!

Cheers.

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.

When you get a loan for a property, chances are you are going to borrow that money from a bank or other institutional or private lender. This lender will then want to have you make monthly mortgage payments to “amortize” the loan - literally meaning, “kill off.”

If you fail to make those mortgage payments, however, the lender can then foreclose on the home, which would include taking it back from you and sell it on the open market. To be able to sell it on the open market, whether through an auction or through a listing agent, the lender needs to ensure that the property can cover the loan amount when sold.

Your Realtor probably will show you “comps” when you look at the home. Typically, “comps” are comparable properties that sold in a one mile radius in the last six months. This will give you an idea of where your contemplated purchase stands - in the middle is good, towards the bottom is the best.

The appraiser goes through a similar database of sold properties, although probably uses the MLS as well as the tax records to price homes that sold outside the MLS. Then the appraiser adjusts for differences to come up with an appraisal value for your property. Hopefully, the appraisal value falls within the price the lender has agreed to fund for your mortgage amount. If it does not, further negotiations might be necessary with the seller or you would move on to another property.

As a home buyer, yes, you would pay the mortgage broker for his or her services in finding you the right and hopefully most inexpensive mortgage. You would also pay him for explaining which mortgage best suits your needs at the current time. Usually, the way it works is this: the real estate brokers get paid by the seller at closing and the mortgage broker gets paid by the buyer. (There is obviously some confusion in the above regard related to real estate brokers, because even though the buyer’s broker is paid by the seller through a broker co-operation, the buyer’s broker is not an agent of the seller. Just wanted to clarify that.)

The mortgage broker will typically charge points if you want to buy down the interest rate of your mortgage. Usually 1 point corresponds to 1/8 of a percentage drop in your mortgage rate. Other fees involved are processing fees (sometimes points are included here, so read your HUD-1 carefully), transaction fees, credit reporting fees, appraisal fee, underwriting fee and so on.

The total of these fees usually adds up to between 1% - 3% of the purchase price of the house. This is why when we ask for closing costs back from the seller, they are usually capped at 3% of the purchase price. The negative aspect of getting closing costs back from the seller though is that they get added on to your loan, so you’re paying for them essentially for 30 years. It is much better to pay closing costs out of pocket if you can. It even makes for a stronger offer.

This is a tale of two real estate markets. 

It was the best of times.  It was the worst of times.

In one of these markets, the average home sold for $374,928 in February.  In the other, the average home sold for 36.5% less, or $238,132, in February.  The sold price per square foot was 31.2% in the second market than the first).

The first “market” we’re talking about here is the Sacramento County real estate market — the one that consists of all the homes that sold that we’re not short sales or bank foreclosures.  I like to call this one the Sacramento non-distressed market. 

The second “market” is also the Sacramento County real estate market, but consists only of the foreclosures.  I call this one the Sacramento foreclosure market.

Obviously the non-distressed market is quite a bit more expensive than the foreclosure market.  Part of this is a real discounting over non-REO sales, and part of it is due to the fact that, as a general rule, the cheaper neighborhoods have more foreclosures.  (There are at least two or three chicken-egg problems inherent in that, which we won’t go into now).

Fun Facts About the Two Markets

Fun Fact #1:
Most buyers think that banks who have foreclosure are “more willing to negotiate” on price than non-distressed sellers.  In fact, just the opposite is true.  The average foreclosure sold in February at a 4.1% discount off of the list price, while the average non-distressed property sold for a 4.8% discount off of list.  (Those poor foreclosure buyers had to be consent with a measly 31.2% discount in sold price per square foot).

Fun Fact #2:
The difference in price between the two markets seems to be “growing”, if the current batch of active listings is any indication.  In February, the difference in sold price between the non-distressed homes and the foreclosures was 31.2%.  In active inventory, on the other hand, the difference in list price per square foot for the two markets is 38.1%.

Fun Fact #3
Foreclosures and non-distressed properties that sold spent about the same amount of time on the market — 65 days for foreclosures versus 69 days for non-distressed sales.  Average days on market for active listings show a bigger discrepancy, at 72 days on market for the foreclosures versus 96 for the non-foreclosures.  (This is related to fun fact #2 if you think about it — banks are more willing to cut list prices if the homes just sit there).

As we always do, my agents and I have been working with a lot of home buyers. A lot of these buyers have been really great, and we appreciate their business. Maggie closed escrow last week with me, for example, and Christine is closing in a day or two with Vicki. Another buyer of Mike’s will be closing later in the month.

To all those buyers who’ve given us the opportunity to work with you recently, Thank You! We appreciate your business!

At the same time that I’m grateful to our customers, one of the things I’ve noticed more and more in this market is that there seem to be lot more buyers writing offers that go nowhere. You can probably guess how depressed this makes me if I tell you the original working title of this article, which was this: “Home Buyers Beware: Shooting Yourself in the Foot Is Not As Fun As It Looks”.

Getting to see buyers shooting themselves in the foot is of course an occupational hazard. As Realtors® working as agents for buyers, naturally we have a fiduciary obligation to write pretty much whatever offer you want us to. This isn’t just a fiduciary obligation, it’s a practical one as well, since there’s always another agent who’ll write an offer for you if we won’t. So unfortunately, if you want to shoot yourself in the foot, one could make a case that part of our professional duty is to load the gun and hand it to you.

The other constraint that we work under is that when we write your offer, we really don’t know for sure if it will work until it’s presented. In my experience I’ve seen offers I thought were quite reasonable get flat out rejected, and on the other end of the scale I’ve seen offers that I thought were overly aggressive get accepted as written with no counter-offer. Usually, however, as people who write a lot more offers than the overwhelming majority of the buyers and sellers we work with, we have a pretty good idea if an offer is a contender or a non-starter.

What I’d like to do in the rest of this article is point out the mistakes that I see buyers making. My hope is that it will save you time, and help you get the house you really want.

Mistakes Buyers Make

1. Not Looking At Comparable Sales
   The number one mistake that buyers make when they write an offer is not looking at the market value for comparable homes. If there’s an Internet connection handy, your agent can usually get you this information in about five to ten minutes, especially if the home is not on acreage and is in an area where there’s a lot of activity.Even before “running the comps”, however, we know that there’s a good chance the home you’re writing an offer on is already a bargain. How do we know? Because you already compared it to what’s on the market when you selected which homes to go look at, right? Chances are good that you never said this to your agent: “Oh, let’s go see this one — it’s the same as these other ones but more expensive!” Then of the ones you saw, which one do you want to work on? The bargain, right? Of course. However, the reason you need to know the comps is that you need to know whether the home you’re interested in writing an offer on is a tiny bargain, a medium bargain or a huge incredible bargain.
2. Writing an Offer on the Market, Not On A House
   We all know that the market is slow, inventory is high, prices are going down, and things aren’t moving, right? Absolutely — all of that is true. Does that mean you can write a low offer on a house that’s priced really low already? Not necessarily. Remember that the house that’s low already is not average for the market, it’s at the low-priced end of the market “bell curve”. The definition of a buyer’s market is that the middle of the curve isn’t selling. The bargains always sell. There are bidding wars in this market just as there were bidding wars in a seller’s market — there just aren’t as many of them. We saw one home a few weeks ago that had twenty-nine offers on it!
3. Negotiating a Bargain Instead of Looking for One
   There are bargains available now, almost everywhere someone asks us to find them. Naturally there are exceptions — a few areas in where prices have stayed high or dropped more slowly than in other areas. But for the most part, in neighborhood after neighborhood, zip code after zip code, we have found homes that are listed below the comparable value of sold homes. In a market such as this, where prices are falling, the leading edge of the market is made up of today’s bargains that make up tomorrow’s comps. One of the successful buyers we mentioned above closed on a home that was priced better than twenty-five out of twenty-six pending and sold comps. Not bad!
4. Working on the Huge Incredible Bargain
   If a list price on a home in a given area is too good to be true, chances are that it’s either a major fixer upper, or there will be a huge amount of competition on the house, or both. Remember the house with the twenty-nine offers on it? This one was a house like that. Even offering full price on such a home will not secure it for you. If a house is priced extremely well, you should be offering more than full price. Remember, your job is to find the bargain and write the offer that will buy it. List price is irrelevant — what’s important is market value. Would I pay $50,000 above list on a home that’s $200,000 below market? Gladly. All day long if I could.As a general strategy, we find it best to work in that area of the market that you might say is “significantly discounted, but not a huge killer deal”. Forty per cent below market is a bidding war waiting to happen. Ten percent below market is a home with built in equity that you have a good chance of closing on.
5. Traveling Through Time
   One of the reasons I love real estate is that I grew up reading science fiction, and as a Realtor® I get to watch people travel to the future for their prices. The logic goes like this. The average sale price of a home in a given area, is, let’s say, $300,000. A home the buyer’s interested in is listed today at $260,000. Buyer thinks to themselves: Well, prices are going down, I can probably get this house twelve months from now for $220,000. I’ll offer $220,000.
6. Not Wanting to Leave any Money on the Table
   Alright, first of all let me say that anyone who knows me will tell you I say dumb things to get a laugh. For example, when I meet people for the first time or when someone I know well calls me on the phone, I’ll say “Welcome Back”.Given my propensity for saying dumb things recreationally, it’s probably the pot calling the kettle black for me to have a pet peeve about something that doesn’t make any sense. Be that as it may, I hate this phrase: “I don’t want to leave any money on the table”.

   Buyers will often utter this phrase when they’ve decided that 15% off of current market value isn’t enough of a discount for them. They usually say it as they’re getting out of their DeLorean having just come Back From the Future to make up a price. (I think there must be a tape player inside every DeLorean where this phrase is taught to buyers through some kind of subliminal hypno-training.)

   Buyers, let me be clear. Nobody’s going to leave any money on the table. You and the seller are paying a title company good money to do your escrow for you, and your escrow officer will prepare a settlement statement approved by the Department of Housing and Urban Development. These settlement statements account for every dime involved in the transaction. Also, part of my job is reviewing your closing statement before we close. In the absurd event that there’s an entry on there for “money left on the table”, I promise that I will make the title company give it to you.

   Your welcome.

   True story time: A buyer for a house I once had listed at $350,000 told us through her agent that she “didn’t want to leave any money on the table”, so she offered my seller $300,000. At the time of the offer, the buyer told us there was another house (a close comparable for my seller’s house that was right down the road) that she liked less, but she was writing up an offer on my seller’s house first because it was her first choice. The offer being too low, my seller was insulted, and the buyer and seller never did come together. Two months later, we saw that the buyer had closed on her second choice house, the one she didn’t like as much. Final sale price? $350,000.

   Load lowball. Point at foot. Pull trigger.

7. The Market Referendum / Kitchen Sink Offer
   “Look this is a buyer’s market, right? Well, I’m a buyer. Here’s what I want. I want to use Nehemiah down payment assistance program where the funds may or may not be available for me to close, and I want the seller to pay for that plus my closing costs, and I want to pick out a nice bank owned property that’s listed for 20% below market. Then I’d like to also offer less than the asking price.”Do you like jokes? Here’s a real estate riddle for you:

   Q. What do you call a buyer who knows it’s a buyer’s market, who wants 100% financing, their closing costs paid, and won’t pay list price on a home that’s already discounted? A. A tenant.

Greetings, market statistics fans!  Straighten up those pocket protectors and hang on to your slide rules, because it’s time once again for us to catch up on our REM sleep with yet another thrilling installment of our never-ending saga:  Sacramento (County) Real Estate Market Updates!

And the crowds went wild.

The good news:  905 units sold in February, up some ten per cent from January.  Unit volume was even up marginally from last February — and, yes, this still holds true when you adjust for the leap year.  February’s unit volume was the highest since last July, when 977 units sold.

The average home sold for $273,603 in February, up slightly over January’s average of $269,301, but down 29.9% from last February’s average sale price of $390,043.  The median sale price of $249,000 was down 29.2% from last February’s median of $353,000.  Sold price per square foot is down 28.8% from February to February, at $162.76 this year versus $228.63 last year.

The 905 units that sold in February is not bad for a late winter month where the average over the preceding twelve months was 968 units per month.  Currently there are 9,866 homes on the market, which works out to be 10.2 months of inventory.  33.9% of the homes in active inventory are short sales, but as we’ve reported earlier and a variety of our colleagues in other markets have reported since, the closing rate for short sales is much lower, at 6.6% in February.  Bank foreclosures (REOs), in contrast, make up 28% of the current active inventory (2,763 of the 9,866 available units), but in February they accounted for 59.2% of the homes that sold in Sacramento County (542 out of 905 total sales).

Elite Properties agent Mike Keleshian just listed this beautiful 3 bedroom, 2 bath home in Folsom’s Broadstone subdivision. For additional information, call Elite Properties at (877) 735-5657, or call Mike directly at (916) 997-4086!

Beautiful Folsom Home

Location: Broadstone

This beautiful home in Folsom’s desirable Broadstone subdivision features a low maintenance yard. Fresh paint, granite slab counters in kitchen. Home is close to shopping and Freeway.

Features

Bedrooms: 3

Bathrooms: 2

Year Built: 1998

Subdivision: Broadstone

Lot Size: 5500sf

Garage Size: 2 car

School District: Folsom-Cordova

Square Footage: 1454

Agent Name: Mike Keleshian

Broker: Elite Properties

MLS #: 80017104

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(916) 997-4086

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Asking Price: $374,500

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1308 Tippens Way
Folsom, CA 95630
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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.

When you start looking for a home or thinking about looking for a home, one of the questions you are definitely going to run into is: should I be prequalified or preapproved for a loan? It’s an important distinction.

Usually, getting prequalfied for a mortgage, in my opinion:
1. is usually extremely easy unless you have obvious blemishes on your credit; and
2. means almost nothing.

Twixt the prequal and the purchase, there lies many a slip.

Ideally, once you get serious about buying a home, you should get a preapproval letter. A preapproval is also referred to as a credit-approval and involves amongst other things getting a loan application filled