The Real View

We have only begun to write offers for lease options in the last 30 days. It is a tool that can match desperate sellers with reluctant buyers--and can also work well for the real estate investor. In prior years, few homesellers would have considered this alternative, but times are changing.

A recent example involved a motivated buyer with high income, but compromised credit (USC student loans). He offered the tranferred seller a non-refundable deposit of $3200 and somewhat-inflated rent of $3500 per month. All of the deposit and a percentage of the rent would apply to the purchase price 12 months later (good for the seller).

The buyer has the option to purchase the property at its appraised value 12 months later (likely a good thing for the buyer). This gives him a year to repair his credit and arrange financing. It also helps to diminish the fears about a declining San Diego real estate market. The seller, who had already moved out of the home, has mortgage payments covered for a year and a non-refundable deposit to pocket. The seller would have preferred a sale and the buyer would have liked to purchase in a more solid market, but this compromise buys time for both.

Marginal commissions for the lease option flow now, but full commission will if/when the transaction closes. Again this may not be the best solution; we would all have preferred a clean transaction. Markets don't always cooperate.

---Or How to Make that Ugly Listing Presentable.

We all know this nightmare listing: Front yard is full of weeds, car parts, rusted bicycle frames, has a boat parked to the side of lot near the leaning fence.  The home is listed, but to get buyers to the front door you would have to blindfold them first--and probably guide them through a minefield of dog droppings.

Sound familiar?

Bankrate.com calls these the "Yikes!" homes and advises the single most effective investment to increase the value and showability of the property would be the purchase of a roll of trash bags. The old adage, You never get a second chance to make a first impression holds up well in this example. If home improvement funds are limited, you might suggest starting with the first impression:

1. Remove ALL trash and debris from the yard(s).

2. Trim all shrubbery so there is a clean entrance to the home and views from the windows.

3. Re-attach hanging rain gutters.

4. Make sure all sources of odors are removed.

5. Repaint exterior if needed.

6. Water, trim, fertilize and weed the front lawn.

7. Plant flowers in mulched beds.

8. Kill grass and weeds growing through the concrete or asphalt driveway and/or walkways.

9. Wash windows.

10. Wash home exterior to remove spider webs, nests and accumulated dirt.

If funds are limited, always spend them on the most visible improvements.

More to follow for the interior!

Any other suggestions?

http://sandiegopreviews.com/

I subscribed to HouseValues in 2001 and actually sold the founder, Mark Powell, a townhome in Carlsbad, CA. The cost for a Carlsbad, CA zip code back then was $650 per month. We got two listings from the proposition (and the sale), but spent countless hours doing and delivering CMA's for curious-only folk. In terms of money, we probably broke even, but our time could have been spent much more productively. A year or so later, we received a call from HouseValues and were told that we had a choice between our monthly cost doubling or the territory being cut in half.

We opted out.

Since that time, HouseValues has gone public and has turned into an agent-hounding and lead-selling machine. I hear from many that the leads (both listing and JustListed.com referrals) are largely worthless. I concur with many here that agents' time and money are better spent on their own marketing programs and self-promotion--especially in today's changing market.

The best lesson learned from HouseValues was the importance of drip campaigns and staying in touch with both your current and future client database. It is also important to note that if you do subscribe to HouseValues or one of those services, be sure to make back up copies of your database. Once you leave the service, they start "nursing" the potential clients and sell them as leads to other agents.

http://www.SanDiegoPreviews.com

Free MIT Education?

A wonderful tech-oriented friend recently shared some interesting information about a free education offered by the Massachusetts Institute of Technology. These courses cover a wide spectrum of subjects and provide a great temptation for spare time and curiosity. It is a publication of MIT course materials that do not require any registration. It is not a degree-granting or certificate-granting activity--nor does it provide access to MIT faculty. The potential educational benefit, though, is tremendous. To learn more:


The OpenCourseWare (OCW) Project:
http://ocw.mit.edu/index.html

Master Course List:
http://ocw.mit.edu/OcwWeb/Global/all-courses.htm

None of this has much to do with San Diego real estate, its various markets, or the topics we discuss here-- but I thought it worth sharing.

--Roberta

http://www.SanDiegoPreviews.com

Almost by accident, I learned about the ACORN loan program earlier this year, It sounded too good to be true for our San Diego real estate market. Judy Miller with Bank of America Mortgage explained that a borrower could receive below-market rates and amazing terms if the following criteria (regionally adjusted) were met:

!. Adjusted gross income less that $90,000 per year

2. Home priced under $500,000

3. One home only. Good for not only first time homebuyers, but any homebuyer who owns only one property.

4. Also good for refinancing (out of riskier mortgages, perhaps?)

The benefits?

1. Below-market rate with no points.

2. No PMI (private mortgage insurance) 

3. Very liberal debt-to-income ratios.

4. Very low down payment required (0-5%)

5. Underwriting will credit some "cash" income and alternative sources of credit.

Immediately after hearing about this program, a qualified client (48k per year income) came in and we located a lovely La Costa townhome ($435k) that was ideal for her roommate situation. She had sold her home in Northern California and had a reasonable down payment (not necessarily required for the ACORN loan program). She took the one-day class on home ownership required by ACORN and afterwards met with her counselor to obtain a loan certificate. She brought that to Bank of America, who processed and funded the loan. It was amazingly simple and we were able to close within 45 days.

The loan terms? At a slightly-below-market rate (no prepayment penalty or points): Ten years interest only which will automatically convert to a fully amortized 30 year loan at the same rate.

For additional information, go to: http://acornhousing.org

For a nationwide lender who is familiar with and can process and fund these loans, call Judy Miller at Bank of America Mortgage: 888-427-2936 or contact the above link.

I am very impressed with the program, and have other clients enrolling in the classes. It's a terrific prequalification tool for Realtors!

--Roberta Murphy

http://www.SanDiegoPreviews.com

There was commentary yesterday morning on CNBC about strengthening in the residential rental market and resultant price increases. This is only anecdotal evidence, but four of our languished listings in the past few months have converted to leasing opportunities that were immediately taken. Prices in the leasing market seem to be strengthening, which should eventually bode well for real estate sales--at least in the San Diego Real Estate Market.

For quite some time, it has been cheaper to rent rather than buy in our hot market. Investors and many homeowners were counting on property appreciation and tax deductions to make up for this discrepancy. With a softening market, flippable appreciation is no longer a guarantee, at least in the San Diego marketplace. But we're not operating in a regional vacuum.

Harry Domash (http://tinyurl.com/jof54 ) reports that while"new home sales appear to be falling off a cliff, the apartment-rental market is booming." The rental market is a robust one, with a nationwide increase of 4 percent over the past year and with occupancy rates running at 94 percent. Action is hottest in San Jose, CA where apartment rents rose an average of 9 percent.  Domash says that this is a new phenomenon:

When the economy faltered in 2001, apartment rents dropped and continued falling until last year, when they bottomed out and began to turn around. What's behind the upsurge in apartment rentals? It's simple: In 2005, prices of single-family homes skyricketed, dramatically shifting the rent vs. own equation.

He explains that a rent-to-own equation of 50 percent "means that if it costs $1000 per month to own a median-priced home, you could have rented an average apartment for $500 per month." The guage for measuring the monthly outgo developed by Deutsche Bank--called the ATMP (after-tax monthly payment)--tallies up the monthly interest, property taxes and insurance, and then deducts prinicpal amortization and income tax deductions. Applying this formula to different markets at different points in time yields some interesting results.

In the 1999 Los Angeles real estate market, it cost $1158 per month (using the ATMP formula) to own a median-priced home. Not surprisingly, it would have cost just $885 per month--or 76 percent of the monthly ownership costs, for the apartment rental. By early 2006, that ratio had jumped to 40 percent of the cost of owning. By this year, the median monthly cost for ownership had skyrocketed to $3015, when you could have leased an average apartment for just $1215. The situation in Miami, FLA isn't much better. There in 1999, the costs of renting and owning were about the same.  "By 2006," Domash says, "You could rent an apartment for less than half the cost of owning."

I believe there will be a settlement in our San Diego real estate market and that as prices soften in sales, the rental market will strengthen considerably. Leasing and lease options are tools that our sellers are considering more frequently.

--Roberta

http://www.SanDiegoPreviews.com

Most real estate markets are undergoing a major shift and appraisals from months ago may no longer be valid; yet, they may be the only comps available. Where once our San Diego sellers were entertaining multiple bids for their properties, we are now seeing buyers who make multiple offers and accept the property that comes closest to what they are seeking. This has happened with three of our listings the past six months.

Read more>> 

For almost two years now, there have been serious rumblings and grumblings about Option ARM and interest-only loans that could put a number of buyers in default. I initially gave the issue detached interest, because our clients tend to be a conservative lot when it comes to borrowing. We deal with few real estate speculators and most of our clients are solid buyers of primary and secondary homes.

My interest in these "instant gratification" loans is no longer a detached one, because the fallout from these ARMs is contributing to market weakness. Our conservative clients are seeing their San Diego home values stagnate or decline, in part due to these lending practices.   It has been reported that 7 out of 10 option arm borrowers are sticking to the minimum payment schedules--and in so doing, are stacking up substantial additional debt. Many now owe more than their homes are worth. In San Diego County, short sale advisories on listings are already appearing within our MLS, and will ultimately affect appraisals and valuations. In short sale transactions, the lender agrees to accept less than what is owed on the property (and obviously less than the prior appraised value).

read more>> 

We offer all of our listing clients a complimentary home warranty that remains in effect until the property closes. Offered through First American Home Warranty, the policy provides seller coverage for basic plumbing and electrical issues. The cost is reasonable at .61 per day and is due at close of escrow. If the property fails to close during our watch, no premium is due. It has prevented those aggravating headaches that occur when a hot water heater quits the day before closing. It is a service deeply appreciated by most of our clients. For additional information about this coverage, go to: http://homewarranty.firstam.com/orderaplan.asp

Coverage is available in most major metropolitan areas in California, Nevada, Arizona, New Mexico, Washington, Utah, Georgia, North Carolina and Texas.

--Roberta Murphy

http://www.SanDiegoPreviews.com