State Homebuyer Tax Credit Extended

On March 25 Governor Schwartznegger signed Assembly Bill 183 into law. This new legislation provides $200 million for home buyer tax credits; $100 million for qualified first-time buyers of existing homes (meaning they've been lived in) and $100 million for buyers of new homes (never been occupied).

You have to buy between May 1st and Dec. 31st this year to get the credit which is the lesser of 5% of the purchase price or $10,000 payable in equal installments over three years. (The reason it's May 1 is because the $8,000 federal tax credit program ends on April 30 and they don't want people double-dipping).

You must live in the home as your primary residence for at least two years to keep the credit. Also "first-time" means that you haven't owned a home in the last three years, it does not mean that you've never owned one.

According to our state Realtor association, nearly 40% of first-time home buyers said they bought a home only because of last year's federal tax credit so this new law is important.

Last year's state tax credit program was $8,000 and so successful that it ran out of money in June, a full eight months before it was due to expire. The 2009 bill was aimed at sales of new homes because there was such a large inventory of them. Unlike that tax credit last year however, this new one adds not only $2,000 to the tax credit amount but also dedicates half of the $200 million to EXISTING homes.

If you are looking at the classic buyers' market that we are in right now (especially here in Lake Shastina) check with your lender or mortgage broker for details and if you qualify. If you do it's like taking $10,000 off the price of a home. But don't wait too long. This program is likely to be far more popular than last year's because it includes older homes and is $2,000 more in tax credits. Remember how they ran out of money last year so get your application in early this time.

Market Signals...Bidding Wars Again?

Recently we are noticing an interesting shadow of the 2005 bubble that we saw here in Lake Shastina. Those four years ago had bidding wars over asking-priced properties and buyers were lined up with offers, some all cash and with no or few contingencies.

Well, the same is happening again but the price scale is reversed. Homes in the $100,000 to $150,000 price range are in the bulls-eye now. The asking prices are tens of thousands less than five years ago and buyers are bidding against each other to grab the deals (or steals if you want to be pickey).

Actually, it's more like a silent auction because the buyer and his or her agent do not know what the other bids (offers) are, the sellers agent is not supposed to reveal that. Instead you hear things like "have your buyer make the highest and best offer he or she can". That's a clue that there may be other offers on the table and that they might be strong ones.

So if you represent a buyer as we did in a recent deal you try to explain that this is not the typical slash and burn purchase procedure of making a low ball offer because many of these homes are now owned by banks and not only do banks not like to bargain, they have other buyers pounding on the table. In short, they don't NEED to bargain.

Quite the opposite, the seller is now the boss and not the panicky private seller who is facing a possible forclosure. This is where it's so reminiscent of 2005 when private sellers could command full asking price and even more. But REO's as bank-owned homes are called are in no danger of being foreclosed upon as some private sellers are today, in a sense they already have been. So the pressure on the seller is gone. The bank lists the home for what is owed on the loan or even less and lets buyers compete for the sweet deal that results.

But back to our buyer: all cash, 30 day escrow, no loan or any other contingencies. And what do we get back as a counter offer? Actually, better than we expected ..... the bank tried to shorten the inspection period to five days from the standard 17. That's it. And that's another signal. We had the best hand on the table. Once we agreed to those terms (actually, we countered 10 days just because LSPOA might not be able to get the homeowner packet out in 5, but the bank accepted that) the deal was struck. Once the bank signs our offer and their own counter we open escrow and the ten and 30 day clocks start.

It took some doing for our buyer to find a lender who could put together an FHA loan in 30 days though. Wait a minute you're saying, this was an all-cash deal, what loan? Well, it is a cash deal, the buyers family will step in and cash out the escrow and be repaid by the loan soon after. The buyer will then enter a private loan deal with the family on very favorable terms.

So there you have it. A nearly new 3b 2ba 1400 square foot home for under $130,000. A scary thing for pre-owned and even new specs but until this REO inventory comes down to the 6 month level here (it's 22+ months right now), this is how the market is working here.

What is Real Estate "Inventory"?

Some of us are hearing a few signs of economic recovery in the real estate market: pending and closed home sales are up, inventory of unsold homes on the decline, leading a few folks in our industry to predict higher home sales volume and home prices stabilizing over coming months.

But there also are some doubts: are some buyers (and some banks) waiting to put their properties on the market until things get better? Also, that alarming UNDER-employment report showing almost 20% of us are either out of work, had hours cut, or are working at parttime jobs because we can't find fulltime ones.

Inventory for a balanced market seems to be six months ___ all homes should expect to sell in six months. Our broker Charnna Gilmore explains how this is computed: take the closed sales for the past 12 months and divide it by 12 to see how many sold per month on average then divide that answer into the number that are for sale right now.

For example, there were 41 homes sold in Lake Shastina in the last 12 months which is an average of 3.42 per month. There are 75 homes for sale right now so when you divide you will see our inventory would last almost 22 months at this rate.

Put another way, to reach the ideal "balanced market" at the 3.42 rate there should be only 18 homes out there for sale. Or, from the other end of it, with 75 homes for sale, to reach a "balanced" state we'd have to be selling homes at the rate of 13 per month (75 divided by 6 months), roughly four times faster than they are selling now.

In 2005 when it was practically the reverse, a seller's market, there were 74 closed sales with around 50 homes for sale at any given time. 74 divided by 12 = 6.16 which when divided into the 50 homes for sale equals 8.3 months, a whopping difference.

Judy Darner from BofA mortgage services in Yreka who has been in the business a long, long time told Sally the other day that Shastina was the hardest hit community in the county, with more foreclosures and REO's (bank-owned, where the owner just gave the home back to the lender) than any other. Most everyone in the business agrees that this is because of over-speculation . . . many builders during the boom years put spec homes up and got caught when the economy collapsed last summer. Some had multiple loans due on vacant, unsold homes and many had to walk away from them.

A sad by-product of too many vacant homes is they sometimes get stripped or gutted by angry owners or even burglars. I showed one this week like that; carpet gone, kitchen cabinets, lighting fixtures, all appliances, and even the toilets ripped out. This one was also missing one entire side of the backyard cyclone fence, you could see where they had pulled out the posts, cement and all.

All of this of course has a depressing effect on the rental market as well. More homes are going into rental from owners worried about making the mortgage payments which in turn depresses the going rental rates because of the competition.

Lose, lose. Let's hope the small signs of improvement we see here and there continue and that next spring will bring steady recovery.

Dual Agency

In real estate an agent can work for a buyer, a seller, or both, and the issue of what "agency" means sometimes confuses people. For example some home buyers believe they have to call the listing agent to make an offer but the fact is that any agent whose office belongs to the local Multiple Listing Service ("MLS") can make that offer for them.

The reason buyers seek listing agents seems to be that they believe that only the listing office can make purchase offers. But that is not factual. In truth, most offers are made by agents who do NOT represent the seller. In plain terms any agent can help a buyer make an offer on any home listed for sale on the local MLS. If the buyer thinks the listing agent may know more about the property than other agents and chooses that person for that reason then dual agency comes into play.

An agent who represents the seller (the listing agent) gets a call to make an offer from a buyer and dual agency clicks in. The agent must represent both buyer and seller to their mutual advantage. While this may seem contradictory it is both legal and ethical. A dual agent cannot disclose confidential information to either buyer or seller, despite being the agent for each. That agent in fact has a fiduciary duty (you have to be honest to the N'th degree) to both parties. It's actually much harder than being a single agent.

All this said, if you as a buyer feel the selling agent may know more about the home that's an opinion thing. Agents for buyers go a loooong way to make sure their buyers know all there is to know about their purchase. Think about it. A buyer's agent does not get paid until the escrow closes. It is in their clear interest to get everything out on the table for the escrow to close successfully. The client has to benefit for this to work.

Mediation vs Binding Arbitration in Real Estate

Most real estate contracts contain clauses for these two procedures and while mediation is agreed to by all parties when they sign the contract, binding arbitration requires initialing. The why of that may be because they seem to be the same thing to some people, but they are very different. And while I have personally been through both activities as part of my own real estate transaction some years ago, once again I urge you to seek legal advice if you are considering either action.

Mediation is simply trying to talk your way through a disagreement with the aid of a a professional mediator. This is not between a buyer and a seller because each has an agent who negotiates for you in that arena. Rather, this is when you have a disagreement with your own broker over something and just can't work it out. So rather than hiring a lawyer and filing a lawsuit you sit face-to-face with an neutral third party to try and work through your disagreement(s). The mediator might be a retired judge or other professional and you pay for his or her services.

If this doesn't work and you have agreed in the contract to arbitration you are agreeing to obey the decision of the arbitrator and in the process, agreeing to give up two civil rights: trial by jury and the right to appeal. It is crucial that some one going into arbitration realize this ___ you can't hope a jury of your peers will decide the rights and wrongs, the arbitrator's decision is final and unappealable. This is why it must be separately intitialed on the contract, it's that important. In fact, if this clause is not initialed by both parties in the same way (both accept or both decline) the law says there is no contract.

Of course the idea is to avoid misunderstanding from the get-go and not have to go to either mediation or arbitration. This is partly why contracts are SO long and involved and, despite the work it takes, you should read every single line and ask all the questions that come to mind. That's what your Realtor is for. But once again if you are facing either of these actions and need legal advice, ask your lawyer.

Rentals in Lake Shastina

Homes are not selling well here as everyone is painfully aware and many owners are moving their vacant homes into rental to generate cash flow and provide some maintenance by means of occupation. As with the 87 unsold homes on the market (43 of which are new), many homes that are for rent are new or nearly so___0 to 5 years as we say in real estate.

Sally and I started our Batchelder Property Management company for this reason. We each had to earn a broker's license to do it because management involves another set of skills not included in selling real estate. But the expense and effort have proven well-spent. We are managing 14 homes as I write this, with three or four more in the pipeline, that is, owners we are working with who are considering our lease program.

Like many other property managers we do not handle month-to-month rentals. There is not enough security for the landlord in that type of arrangement, so we mainly do 6 and 12 month leases. This also seems to provide more stable tenants and so far we have not had one break one of our leases.

Managing a home starts with a maintenance inspection. We use a local man to help us identify minor things and cleaning items that the owner may not have fixed before putting it up for lease. When the home is move-in ready we advertise it on our blog and website and recommend classified ads paid for by the owner in the local papers. Then we put up a sign with a flyer box and take photos (and sometimes a video) for use in our online advertising.

When people call we show the home just as we do homes for sale except there is no lockbox, we are the only ones who have access. The application we give is written by the attorneys in our state association (with all the built-in legal protection that implies) and we request supporting documents as well, such as pay stubs, credit report with FICO score, and a resume-like page of who the applicant is and why he or she would make a good long-term tenant.

If the income seems strong (we look for a front end ratio of 30% or less ___ rent to income) we start calling the employment and landlord references. Then, if all that turns out as well we present our findings to the landlord and they make the final decision.

It's an interesting process because many times while credit may be weak for instance, there might be other mitigating factors that balance it out such as unusually high income or strong references. That's why we encourage applicants to really put together a complete picture when they apply.

The process also weeds out prospects an owner might not want. One of the "triggers" that does that is requiring pay stubs. More than once we have received a very nice-looking app that did not include proof of wages. When we request it the applicant just vanished____completely dropped off the radar, which is a sure sign that it might never have worked out. Not requiring proof of income was one of the dangerous practices lenders were doing with the so-called "no doc" loans by the way, which was part of the reason for our current real estate mess.

The maintenance agreement stipulates that we visit (by appointment) in six months to make sure everything is working alright and it has the side benefit of allowing us to view how well the tenant is maintaining the home. The law is very strict about what is called "quiet enjoyment". A tenant has the right to occupy the premisis and not be bothered by the landlord or his agent without due cause. Unannounced inspection visits for example expose the owner to litigation for this reason.

But if a tenant does fall behind in their rent, cause damage or complaints by neighbors then we step in and do the dirty work to get them in line or out of the premisis. That's part of our contract with the landlord. That contract by the way typically lasts three years, enough to outlive three 12 month leases although it can be cancelled by either party with written 30 day notice.

So we try very hard to find good people and people who will not cause problems for the owner or the neighbors. I know there is concern about renters and for that reason we comply with every single requirement in the CC&R's (we even provide copies of relevant sections to the tenant and a list of our rentals to the LSPOA). If done right we believe a good tenant can be every bit as good as a new neighbor who just bought the home.

Some Real Estate Stats for Lake Shastina

As I reported in an earlier post business seems to be picking up for all of us in the real estate business. We are getting calls from other offices to show our listings, we are showing listings from other offices, and yes, we're even writing offers. I am not going to say anything about trends here because I am simply not qualified to speak on that, but the phone is ringing a lot more than it has over the past year.

Here are some numbers to illustrate: our office (Coldwell Banker, Scott Valley Real Estate) sold $2,260,000 worth of homes since January. There are 30 real estate offices in Siskiyou County and that makes us # 2 in dollar volume which totaled $18,944,775 just so far this year.

2004 was the peak, when 558 homes sold county-wide. It has slid downward steadily since then to about half___267 in 2008. Average sold prices though topped out in 2005at $278,171 and are down to an average of $231,764 in 2008.

So, volume is down nearly half but prices not nearly as much. However, this is for the whole county and does not line up 100% with what we are seeing here in Lake Shastina. Here we are watching the inventory of unsold homes slowly sink back to a manageable level. This morning it stands at 81, down from a high last fall of 105. Of course in the 2004-2005 peak years it was around 50 on any given day and that's when buyers were making full-price offers.

So there are still too many homes on the market. This is evident to us through our property managment practice, too. Many sellers get frustrated and move their homes into rental to generate some cash so the 80 figure is not entirely trustworthy. Add to that mistrust the fact that some homes are in default or outright foreclosure.

The point is we get buyers asking for these and unless the bank or the owner also put them on our local multiple listing service, we don't see them. We have noticed an uptick in bargain hunters though, compared with prior years. People who might not otherwise be able to afford a home are making aggressive offers that sometimes fly but it is interesting to note that the effort takes much longer than when the market was more balanced.

The secret seems to be homework___if you are planning to invest, do as much upfront as you can. Get your funding in hand. Research the area you hope to buy in. Explore what is for sale with a licensed Realtor. Ask for sale comps, not just what is for sale because what actually sells is the reality check. All too many sellers fail to realize that little step.