Solving problems with problem properties

The reason a home doesn’t sell is because it’s priced too high for its physical condition or location. The buyer’s reasons for not buying the home outweigh the positive reasons why they should. The challenge for a seller and their agent is to eliminate anything that could be considered a reason against buying while highlighting the positive features. Although a property’s location can’t be changed, its environment can be improved or modified. An objective evaluation of a property’s physical characteristics should be completed early, preferably before the property goes up for sale, in order to correct, improve or mitigate the issues by pricing the property accordingly.

There is an old saying among agents “Price cures all ills.” At some price, regardless of the extent of the property’s problem, someone will buy it, if it’s priced low enough.
Not every home for sale is in immaculate condition, sitting on a gorgeous large landscaped lot, located in a desirable neighborhood, beautifully decorated and priced ten of thousands of dollars less than similar listings. Specially challenged properties may require some additional creative thought and work to make them saleable in our current market.

Reducing the price of a home to compensate for whatever may be the problem is the easiest action for an agent and seller to take but may not always be the best. Some sellers are unwilling or unable to spend money or time on preparing their home for sale and some agents are not aware of the necessity. A significant price reduction can compensate for worn carpets or a dated design but I have found a buyer’s definition of “significant” is much different than sellers.

There are circumstances when a price reduction for a specially challenged property isn’t in the seller’s best interest. Most buyers will not consider specially challenged homes regardless of the price. If the reality of a home’s physical characteristics doesn’t match a homebuyer’s inner vision, they usually will not buy. Contractors, investors and flippers look at challenged properties differently but they are not players in our current market. I have watched physically challenged properties continue to languish on the market even after many price reductions because the listing agent or the seller refused to solve the existing problem.

Not every challenged property requires money to fix a problem. My clients liked the modular home on 10 acres in the Garden Valley area. The property had been vacant for nearly a year and currently priced $50,000 less than when it was first listed. My clients’ offer would be an easy sale. They had high FICO scores, a 20 percent down payment and had recently sold their home in Sacramento. There was only one problem…the modular was built prior to 1976 and no lender would finance it.

Financing a modular or manufactured home, even when attached to a permanent foundation, has never been easy. Modular homes are not a preferred property by most lenders. FHA and VA will finance them, IF (big if) they meet certain age and building requirements, which this one did not. After many turndowns, I called the listing agent to discuss the dilemma.

She was not surprised or sympathetic to know that there was no financing available for her listing. No, she had not checked for any alternative sources of financing. She told me, as the listing agent, it wasn’t her responsibility to find financing for “my” buyers. No, she had not discussed with the seller the possibility of “seller financing” and did not think he would be interested. She offered no suggestions on how she was going to sell a home that could not be financed but said she would probably reduce the price again next month.

The process of selling real estate is more than installing a “for sale” sign and showing properties. It is solving problems for buyers and sellers. This lady had been charged with the responsibility solving the problem of selling a property that could not be financed and had waited a year to address the situation.

Creative initiative is often required when marketing a specially challenged property. There are reasonable financial limits to mitigating the problem but a price reduction should not be the first and only response to marketing a difficult or non-conforming property.

The inspection period, after escrow has been opened, is not the time for suspected or non-disclosed issues to surface. Sellers and agents need to be proactive to eliminate any reason a buyer might have second thoughts about proceeding with the sale. Resolving issues early will not only help to sell the property but it will sell for a higher price.

Objectively is important when evaluating a property’s blemishes. Most homeowners cannot be objective about their family home and some agents will not for fear of offending a seller and loosing a listing. If “beauty is in the eye of the beholder” then it only makes sense to make a home as attractive as possible, which may include a little makeup.

"Democrates propose higher taxes on large homes"

The Democrat chairman of a key congressional committee has provided new details on his controversial plans to deny mortgage interest deductions to people who own large homes.
Rep. John D. Dingell (D-Mich.), who as chairman of the Energy and Commerce committee is one of the most powerful leaders in the House, last Thursday unveiled a draft of his forthcoming "carbon tax" legislative reform package. As expected, the bill would "phase out the mortgage interest deduction on large homes."

Dingell defines large as 3,000 square feet or more of interior space. The draft language does not explain who will be responsible for measuring houses' square footage or how the federal government will audit compliance.

In a statement, Dingell said he is targeting big houses because they "have contributed to increased sprawl and longer commutes. Despite new houses in and of themselves being more energy efficient," he said, "the sheer size, sprawl and commutes lead to drastically more energy use-or to put it more simply, a larger carbon footprint."

In the draft released Thursday, Dingell offered a detailed phase-out schedule for the mortgage interest writeoff, beginning with houses of 3,000 square fee-which would lose 15 percent of their deductions-and ending with houses of 4,200 square feet and larger, which would receive no deductions at all.

Dingell defends his tax proposals as needed remedies to overconsumption and wasteful use of energy, which he argues are contributing to excessive greenhouse gas emissions and global warming. "In order to address the issues of climate change," he said, "we must address the issue of consumption-we do that by making consumption more expensive." Dingell's plans have drawn criticism from the National Association of Realtors and the National Association of Home Builders, both of whom questioned its practicality and its focus on square footage rather than energy efficiency and measured usage. The NAR estimated that roughly 10.4 million single family homes in the U.S. have more than 3,000 square feet, and represent 27 percent of the total valuation of single family units.

Tough loans for the self-employed

Many of my clients are in business for themselves. Working at home reduces drive times and that cuts climate-changing greenhouse gas emissions, but the lifestyle, newly recognized as "green," is becoming the latest victim of mortgage market malaise. The other kind of "green" needed to keep a roof over a small home-based business is getting harder to find.

Home-based business owners, as self-employed workers, typically qualify for stated-income home loans (SILs) but SILs, so called "no-doc" (for no documentation) home loans, and other mortgages requiring little or less common documentation are in short supply.
Largely due to riskier "no-docs" that failed, lenders with portfolios heavy in the loans are struggling or have shuttered.That's putting the kibosh on SILs. What SILs are available come with stiffer underwriting rules and higher prices. To get the best home loans, home-based business homeowners need to heed these tips:

Put all your docs in a row. In addition to two or more years of tax returns, proof-of-licensing, business tax statements and other proof of self-employment, you should also get a professional accountant to sign off on a profit and loss or income statement. The document reveals home much money your business is making or losing over a specific period of time.

The documents can take time to gather. Begin well before you actually apply for a home loan, refinanced mortgage, equity loan or other financing that stakes your home as collateral
Watch those right offs. Home-based businesses are offered a plethora of tax write offs, from office supplies to special child care deductions and health insurance, but the deductions reduce the amount of income against which taxes are calculated. A smaller income makes it tougher to quality for a mortgage. Balance the reduced taxes advantage with the need for sufficient income to land a loan.

Use a savings strategy. The larger your down payment the better your eligibility requirements for the best, least expensive loan terms. If a lender offers a SIL it likely wants to reduce its risk.

Crank up your credit rating. Good credit has never been more crucial. Lenders have upped the credit score and credit report ante. Visit MyFico.com and learn what hurts and helps your credit score and credit standing. Keep tabs on your credit report, but only from AnnualCreditReport.com. Obtain one free report from each of the three major credit reporting agencies, spacing the reports so you get one report each trimester from a different agency. With the complex finances of a home based business -- startup costs, expenses, depreciation, investments -- it can take a lender time to sort through your application. Start early, be patient.

Placer County Tax Bills

If your business is in the private sector and connected to real estate, sales are down and revenue is off from previous years. Federal, state and local governments, however are doing especially well with record tax receipts. Increased income and property taxes continue to grow our public sector. As an example:

Placer County residents will soon be receiving their annual property tax bill. The County Tax Collector, Jenine Windeshausen, mailed out 155,821 tax bills this week to owners of properties in Placer County. It was the largest mailing ever and an increase of 2.18 percent from the 152,821 bills mailed this time last year.

The county’s total tax bills including special assessments is $705.7 million dollars for the year which was an increase of 9.26 percent over last year.

The first installment of taxes is due for payment on November 1st. and considered delinquent if not paid by December 10. The second installment is due by February 1st. and considered delinquent if not paid by April.

Good report from Commerce Department

Despite the current condition of housing market, the financial credit turmoil and a low consumer confidence survey last month, the Commerce Department had a good economic report released Friday. Consumer spending which drives two-thirds of the economy was up in August. It was the best showing in four months increasing 0.6 percent.

Not only was spending up, so was personal income increasing 0.3 percent. Then to top that, core inflation (after food and energy subtracted) was reported as only 1.8 percent for the year. That was the slowest year-over-year inflation increase since February of 2004. That should help to ease the long-term interest rates which have been increasing. The Fed’s comfort zone on inflation is between 1 to 2 percent. A big surprise was construction spending also increase 0.2 percent. What’s up with that?

Don’t look for the major news media to report on how well the economy is doing. It’s only when some poor soul has their home foreclosed upon, do you we see front page coverage.

Could we all just get along?

Rules have been governing how we live within our neighborhoods since Adam and Eve frolicked at their Garden of Eden home. Their world abruptly changed when they didn’t comply with God’s rules on horticulture. God told them not to eat the forbidden fruit, which they did, for which he/she tossed them out of the garden for misbehaving.

About a half-million years later, Thomas Radcilff of Copper Cove Lake in Copperopolis, California, fell behind on his monthly homeowners associations dues. The Tulloch Home Owners Association filed a property lien in the amount of $207 and subsequently foreclosed upon his home tossing him out of the community. Radcliff’s home, valued at $289,000 was sold for $70,000. What’s wrong with this picture?

About 60 percent of all new homes and developments in California come under the influence of a Homeowners Association (HOA). The fastest growing segment of the housing market has been common-interest developments that include planned unit developments (PUD) of single-family homes and condominiums. California has 40,000 different HOA and according to the California Association of Homeowners, 23 million homes and 57 million people in our country live within a HOA.

An HOA is the legal entity with broad management and enforcement powers granted to them through property deed restrictions. Most HOA’s are initially set into place by the developer as non-profit corporations, subject to state statutes that govern corporations. Like a city, the HOA’s have the authority to provide services, levy assessments, regulate construction, set rules and enforce regulations. Unlike a municipal government, they are not subject to the Constitutional constraints of public governments.

Most of my clients moving into a new HOA development like the idea. The purpose of a HOA is to maintain, enhance and protect property values. This has allowed HOA’s to provide and maintain many common facilities such as pools, tennis courts and clubhouses which individual homeowners would never be able to build and maintain on their own. The HOA has the authority to make any assessment against individual property owners they feel necessary to pay for the maintenance of amenities or operational costs of the association and community. The powers of an HOA, however, extend beyond weekly landscaping of common grounds or cleaning the community pool. Some HOA have become fiefdoms of power hungry board members and a cash cow for management companies and litigation attorneys.

Although Zogby International reported general satisfaction by residents of a homeowners association, the over zealous enforcement of association rules or vindictive behavior of board members are noteworthy. “When you have a neighbor put in charge of you, it breeds resentment,” says David Feingold, a San Rafael attorney, who represents HOA’s. As an example, in Sea Ranch, a managed costal community, a widower had his home foreclosed upon when he didn’t pay the $600 in association fees. The house was appraised at $300,000 and sold for $2,000. Pamela McMahan, age 77 who walks with a cane, didn’t expect her cocker spaniel to be a problem but the HOA where she lived in Long Beach, fined her $25 for each time she walked her dog through the lobby. The HOA required all dogs to be carried through the lobby. McMahan’ s fines soon totaled thousands of dollars and she was forced to sell her condo or face foreclosure. In Marin County, the head of the HOA and a neighbor, got into a fistfight over a shared patio wall. During the scuffle the board president suffered a heart attack. He later sued the neighbor and the HOA. Jeffery DeMarco planted too many roses for his Rancho Santa Fe HOA. The board leveled a hefty fine and later placed a lien on his property. DeMarco took the board to court but lost on the grounds that he had violated the associations architectural design rules. To add to his disappointment was his $70,000 in legal bills.

The California Association of Homeowners Associations estimates that 75 percent of all associations are embroiled in some type of legal entanglement. Attorney Mark Pearistein, who represents associations, estimates that 60 percent of all condo boards and HOA are involved in a lawsuit. Evan McKenzie, a lawyer and author of Privatopia: Homeowners Associations and the Rise of Residential Private Government, found that associations were quick to litigate for even minor offenses. “It’s part of our litigious society, he said. “Association lawyers tell the board to enforce every rule. They say if you make one exception, the whole neighborhood falls into chaos.” So who bears all the cost for all this litigation?

When buying a home within an HOA, buyers need to have a full understanding of their obligations and consequences of ignoring the rules. George Staropoli, who lives in a HOA and founded a homeowners rights group says, “It’s a government outside the U.S. government.” His rational is that HOA’s can and do regulate practically everything as long as it is not in a violation of federal and state laws. “Basically you have people who own their own home, but are being treated like tenants,” says Janet Portman, a managing editor at Nolo Press in Berkeley.
Despite the problems, HOA’s are popular and will become more common in our county. As with other long-term commitments, they should not be entered into without careful consideration.