Along with owning a home come many, sometimes unpleasant, responsibilites. Paying property tax is one of them. It is simple in the "you own=you pay" equation, but there are many questions around property taxes that we hope to clear up. In San Francisco, the property tax rate for the 2007-2008 year is 1.141%. Thanks to Proposition 13, the maximum rate for property tax is limited to 1%. What you actually pay is that 1% in addition to all public approved voter projects such as schools, parks, highways, etc. This can make the tax rate vary slightly from year to year.
Property taxes are paid twice a year. They are due on December 10th, and again on April 10th. You will only recieve one bill each year with two pay stubs. Remember to put the second installment on your calendar as you will not receieve another reminder. You also have the option of paying both installments up front, in which case you would include both pay stubs. If you do not receive a bill, you still owe property taxes! If you do not receive your annual tax bill by November 10, you should request one by contacting the Office of the Treasurer & Tax Collector at (415) 554-4400. You can also visit to check your status and pay your bill online.
If you like the idea of putting money aside monthly towards your tax bill, you may be able to set up a reserves account with your lender which would allow you to break these payments up into monthly payments, and the bank would then pay your property taxes when they come due. Some people set up an account on their own where they can set aside the tax monthly into their own interest bearing account from which they draw to make the payment once or twice a year.
Properties are reassessed by the tax assessors's office upon a change in ownership or new construction. They are assessed based on the current market value, which is usually the purchase price.
At the time of purchase, you will be issued a preliminary title report for the property you are purchasing. Among other things, this document will show what the current tax rate is on the property based on the current owner's purchase price. It will also show whether or not the property taxes have been paid. When you are getting ready to close on the property, you will see an itemized list of closing costs. On the list will be property taxes. You will be responsible for paying them from the day of closing until the end of that term. If the seller has already payed them, you will be reimbursing them for the portion during your ownership.
Because the property will be reassessed at the time of purchase, you will be issued a supplementary tax bill. This will be a bill for the difference between the previous assessed amount and the new amount. This may come in one or two bills, and it may not arrive for months after closing. Don't worry, they won't forget about your. Until then, you will be paying taxes based on the previous owner's assessed amount.
Showing posts with label Tutorial. Show all posts
Showing posts with label Tutorial. Show all posts
Wednesday, February 6, 2008
Tuesday, December 18, 2007
Agency Relationships
Real estate is a service oriented industry. It is also an industry that is based on relationships. The types of relationships are very clearly defined by our contracts, but it is not always clear to the average consumer. Making things clear to everyone is a part of our job that we take very seriously, and one of the reasons we enjoy working with first time home buyers and sellers. Anybody who does something on a daily basis becomes an expert in their field. It becomes so natural that it is easy to forget not everyone shares your expertise. That is something we have to remind ourselves of daily as we work with new clients. What has become obvious and routine to us is not obvious to everyone.
There are, in every real estate transaction, a buyer's agent and a seller's agent. It is also possible to have the same agent represent both the buyer and the seller in the same transaction. We will get back to that later.
As a seller, you will hire an agent and agree on their commission. The listing agent will market your home in hopes of finding a buyer. They will agree to share their commission with the agent who brings the buyer and an acceptable to offer to the property. In short, all commissions are paid by the seller and then split between the buyer's and seller's agents and their respective companies.
This means that if you are a buyer, you receive all of the services provided by your agent at no cost. You will pay escrow fees and lender fees at the close of escrow, but no agent commissions. Remember that when you are trying to decide if you want the help of an agent as you search for property.
Earlier it was mentioned that the same agent can represent both parties in one transaction. This can mean two things. The first is that an "Agency" can represent both sides. For example, Coldwell Banker is a huge company and has many agents. Chances are very high that they end up on both sides of a transaction. It is also possible for one agent, or salesperson, to "double end" a deal which means that they represent both the buyer and the seller of a transaction.
There are times representing both parties makes sense, but for the most part it is something that we prefer not to do. Our goal as a listing agent is to get the highest possible price for our seller. Our goal as a buyer's agent is to get the best deal possible for our clients. Is there a conflict here? We find it hard to do both simultaneously. Therefore if we meet an eligible and interested buyer for a property we are listing, we would refer them to a trusted colleague and hope for the best!
Other than walking into a real estate office, the place you are mostly likely to run into a Realtor is an open house. The host of that open house may or may not be the listing agent. If they are not the listing agent, don't assume they are "just babysitting" the house. They are there to represent buyers, possibly you, on the sale of that or any other house.
There are, in every real estate transaction, a buyer's agent and a seller's agent. It is also possible to have the same agent represent both the buyer and the seller in the same transaction. We will get back to that later.
As a seller, you will hire an agent and agree on their commission. The listing agent will market your home in hopes of finding a buyer. They will agree to share their commission with the agent who brings the buyer and an acceptable to offer to the property. In short, all commissions are paid by the seller and then split between the buyer's and seller's agents and their respective companies.
This means that if you are a buyer, you receive all of the services provided by your agent at no cost. You will pay escrow fees and lender fees at the close of escrow, but no agent commissions. Remember that when you are trying to decide if you want the help of an agent as you search for property.
Earlier it was mentioned that the same agent can represent both parties in one transaction. This can mean two things. The first is that an "Agency" can represent both sides. For example, Coldwell Banker is a huge company and has many agents. Chances are very high that they end up on both sides of a transaction. It is also possible for one agent, or salesperson, to "double end" a deal which means that they represent both the buyer and the seller of a transaction.
There are times representing both parties makes sense, but for the most part it is something that we prefer not to do. Our goal as a listing agent is to get the highest possible price for our seller. Our goal as a buyer's agent is to get the best deal possible for our clients. Is there a conflict here? We find it hard to do both simultaneously. Therefore if we meet an eligible and interested buyer for a property we are listing, we would refer them to a trusted colleague and hope for the best!
Other than walking into a real estate office, the place you are mostly likely to run into a Realtor is an open house. The host of that open house may or may not be the listing agent. If they are not the listing agent, don't assume they are "just babysitting" the house. They are there to represent buyers, possibly you, on the sale of that or any other house.
Friday, December 14, 2007
Escrow...what is it?
The actual definition of escrow as found in the glossary of terms in the Cornerstone Title Company website is: An independent third party, such as First American Title, who acts as the agent for buyer and seller, or for borrower and lender, carrying out instructions of both and disbursing documents and funds. Escrow closes and the transfer of property or document is completed upon fulfillment of certain conditions specified in the written instructions, whereupon the necessary deeds and other instruments are recorded.
What?
To explain it step by step might clear it up a bit.
Step 1: Open Escrow
Once an offer has been accepted on a property, the buyers agent will open an account at the escrow company of the buyer's choice. It differs from county to county, but in San Francisco the buyer pays the escrow fees and is therefore entitled to choose the company. The buyer then places their initial deposit for the property into the escrow account at which time a preliminary title report is ordered.
Step 2: Contingency Period
Once the buyer's loan has been processed and they have satisfied themselves with inspections and appraisal of the property, the buyers will remove their contingencies and wait for the final loan documents to arrive at the escrow company.
Step 3: Signing
When the loan documents are ready, they are sent to the escrow company where they are prepared to be signed by the buyer. After preparing the documents, your escrow officer will send you a final closing statement which itemizes the closing costs and gives you an estimated total of funds due before closing. This total will include the remainder of your down payment along with your lender's fees, escrow fees, and title insurance.
Step 4: Recording
The seller will have a separate set of documents to sign such as authorizing their loan to be paid off and the seller's net sheet which itemizes their costs and profits from the sale. Once everyone has signed their documents and the remainder of the buyer's funds including closing costs and down payment have been deposited, the lender can fund the loan and the escrow company can record the new deed with the city marking the actual close of escrow. Escrow is closed once the deed has been recorded.
A typical escrow period in San Francisco is thirty days. This length of time needs to be agreed upon between the buyer and seller, as do all other terms involved in the transaction. It is our job as Realtors to walk you through this process; finding the right property is only the beginning. Then the real fun begins!
What?
To explain it step by step might clear it up a bit.
Step 1: Open Escrow
Once an offer has been accepted on a property, the buyers agent will open an account at the escrow company of the buyer's choice. It differs from county to county, but in San Francisco the buyer pays the escrow fees and is therefore entitled to choose the company. The buyer then places their initial deposit for the property into the escrow account at which time a preliminary title report is ordered.
Step 2: Contingency Period
Once the buyer's loan has been processed and they have satisfied themselves with inspections and appraisal of the property, the buyers will remove their contingencies and wait for the final loan documents to arrive at the escrow company.
Step 3: Signing
When the loan documents are ready, they are sent to the escrow company where they are prepared to be signed by the buyer. After preparing the documents, your escrow officer will send you a final closing statement which itemizes the closing costs and gives you an estimated total of funds due before closing. This total will include the remainder of your down payment along with your lender's fees, escrow fees, and title insurance.
Step 4: Recording
The seller will have a separate set of documents to sign such as authorizing their loan to be paid off and the seller's net sheet which itemizes their costs and profits from the sale. Once everyone has signed their documents and the remainder of the buyer's funds including closing costs and down payment have been deposited, the lender can fund the loan and the escrow company can record the new deed with the city marking the actual close of escrow. Escrow is closed once the deed has been recorded.
A typical escrow period in San Francisco is thirty days. This length of time needs to be agreed upon between the buyer and seller, as do all other terms involved in the transaction. It is our job as Realtors to walk you through this process; finding the right property is only the beginning. Then the real fun begins!
Sunday, December 9, 2007
Seller Credits
As you all know, December is a slow month for real estate. It is especially slow this year due to fall of the sub prime market and a general uncertainty about the future health of the economy. There are very few homes on the market this time of year. The new listing count each week is very disappointing, and even some listings that have been on the market are temporarily withdrawn until the new year when they come back on in hopes of finding a new audience.
Those who do put their homes on the market in December do so for only one reason. They need to sell! They know it is not the ideal time to market or sell their home, but sometime life's timing does not coincide with the ups and downs of the real estate market.
The pickings are slim, but if the right house for you should surface this time of year, your chance at negotiating a good deal are much higher now than they would be in the spring when you may have a handful of other buyers eyeing the same house.
There are many ways to negotiate as a buyer. The first point of negotiation is the purchase price. As we always say, the asking price is only a starting point. Take a close look at the comparables and the interest in the property. If it seems to be priced correctly and is in line with other solds in the neighborhood, you may want to offer the asking price. If the asking prices seems to be a bit inflated, definitely come in with a low bid. If it is a wonderful property in a popular neighborhood, you just may have to come in above asking as you read in Surprising Statistics.
Once you and the seller have come to an agreement on price and your offer has been accepted or "ratified", you will now have a contingency period in which you will have all of your inspections done to satisfy yourself as to the condition of the house. In the peak of the real estate market, people were waiving these inspections for fear of losing the house to the next bidder, but now that things have slowed down, people are able to make more rational decisions.
Once the inspections are completed, the second opportunity for negotiating has arrived. If the inspectors have found something in the house that concerns you or that will cost more money than you anticipated to fix, you can ask that the seller addresses the problem or leaves a credit in escrow. Again, a credit from the seller is something that you wouldn't dare to have asked for in years past, but we are starting to see it happen more and more.
Some clients of ours recently submitted an offer with a request for the seller to cover their closing costs.
The seller agreed to pay closing costs equalling one half percent of the purchase price, which in their case would basically cover their costs. During the inspections, they also found that the old clay sewer would need to be replaced sometime in the next five years, and one of the retaining walls would also need to be replaced sometime in the near future. These were going to be unexpected costs, and the buyers were starting to be concerned with stretching beyond their financial limit. They asked for an additional credit of $16,000 to help them pay for the future repairs. The seller found their claims to be legitimate, and did not want to bring his home back on the market in the middle of December. He agreed to the additional credit, the buyers are happy, and they will be moving in to their new home first thing next year. Success!
In the end, they have a wonderful home in a very desirable neighborhood in San Francisco. There is only one other currently on the market, way above theirs in price. We believe they only got this deal because of the time of year.
Those who do put their homes on the market in December do so for only one reason. They need to sell! They know it is not the ideal time to market or sell their home, but sometime life's timing does not coincide with the ups and downs of the real estate market.
The pickings are slim, but if the right house for you should surface this time of year, your chance at negotiating a good deal are much higher now than they would be in the spring when you may have a handful of other buyers eyeing the same house.
There are many ways to negotiate as a buyer. The first point of negotiation is the purchase price. As we always say, the asking price is only a starting point. Take a close look at the comparables and the interest in the property. If it seems to be priced correctly and is in line with other solds in the neighborhood, you may want to offer the asking price. If the asking prices seems to be a bit inflated, definitely come in with a low bid. If it is a wonderful property in a popular neighborhood, you just may have to come in above asking as you read in Surprising Statistics.
Once you and the seller have come to an agreement on price and your offer has been accepted or "ratified", you will now have a contingency period in which you will have all of your inspections done to satisfy yourself as to the condition of the house. In the peak of the real estate market, people were waiving these inspections for fear of losing the house to the next bidder, but now that things have slowed down, people are able to make more rational decisions.
Once the inspections are completed, the second opportunity for negotiating has arrived. If the inspectors have found something in the house that concerns you or that will cost more money than you anticipated to fix, you can ask that the seller addresses the problem or leaves a credit in escrow. Again, a credit from the seller is something that you wouldn't dare to have asked for in years past, but we are starting to see it happen more and more.
Some clients of ours recently submitted an offer with a request for the seller to cover their closing costs.
The seller agreed to pay closing costs equalling one half percent of the purchase price, which in their case would basically cover their costs. During the inspections, they also found that the old clay sewer would need to be replaced sometime in the next five years, and one of the retaining walls would also need to be replaced sometime in the near future. These were going to be unexpected costs, and the buyers were starting to be concerned with stretching beyond their financial limit. They asked for an additional credit of $16,000 to help them pay for the future repairs. The seller found their claims to be legitimate, and did not want to bring his home back on the market in the middle of December. He agreed to the additional credit, the buyers are happy, and they will be moving in to their new home first thing next year. Success!In the end, they have a wonderful home in a very desirable neighborhood in San Francisco. There is only one other currently on the market, way above theirs in price. We believe they only got this deal because of the time of year.
Monday, December 3, 2007
Lending Options
After the fall of the sub prime market this past August, home buyers have growing concerns about their own financing. Initially people thought they wouldn't be able to get a loan at all. That is definitely not the case. We have asked all of our clients, old and new, to get a new pre-approval letter if the original had been done before August as some restrictions have changed.
Being approved by a lender is one of the first necessary steps in the home buying process. It will give you a clear idea of what you can, and want to afford. Many people don't know where to begin when looking for a lender. It is wonderful if you know somebody in the mortgage business or can get a referral from a friend, but if not here are some basics.
There are different types of lenders, each with their own set of restrictions and loan programs. The three most common types are banks, mortgage brokers, and credit unions. Credit unions are known to offer the lowest rates but have the strictest guidelines, and you must already be a member. Banks are second in line in terms of guidelines, and mortgage brokers have the most leniency as they can shop around with different lenders to find one that fits your needs.
We recommend doing some comparison shopping. Have a conversation with your bank and a mortgage broker. Make sure to compare with your own numbers. Don't compare your scenario with the loan your friend got as there are many factors that go into it.
Get as much information up front as possible. Ask to see different loan scenarios based on the same purchase price. Make sure they include property tax and insurance in the equation. Don't let them make any assumptions; tell them you want to see all of the possibilities based on your purchase price, down payment, and income to debt ratio. There are many options from a two year fixed to a thirty year fixed and everything in between.
The shorter the fixed period of the loan is, the lower your interest rate will be. A thirty year fixed loan is the most conservative and safe, but also the most expensive with the highest interest rate. If you are on the conservative side, the thirty year fixed loan is your best bet. If your goal is to keep your monthly payments as low as possible, you might want to go with a five year adjustable rate mortgage which is fixed for the first five years and then adjusts according to a predetermined schedule.
Once you submit a loan application, you should receive a good faith estimate from your lender which itemizes your closing costs. You don't want there to be any surprises at the end.
One more piece of advice. Monitor your credit score to make sure there aren't any mistakes or surprises. Make your payments on time, especially from the time you applied for the loan to the time you close escrow on your home. The lender will pull your credit report a second time at the end, and if there are changes they may reject the loan in the eleventh hour. Don't make any big purchases in this time.
Everybody is extremely busy, especially this time of year. If you are in the home buying process make sure you take the time to inform yourself. There are many options available to you, but if you wait until the last minute you may be stuck with whatever you get.
Being approved by a lender is one of the first necessary steps in the home buying process. It will give you a clear idea of what you can, and want to afford. Many people don't know where to begin when looking for a lender. It is wonderful if you know somebody in the mortgage business or can get a referral from a friend, but if not here are some basics.
There are different types of lenders, each with their own set of restrictions and loan programs. The three most common types are banks, mortgage brokers, and credit unions. Credit unions are known to offer the lowest rates but have the strictest guidelines, and you must already be a member. Banks are second in line in terms of guidelines, and mortgage brokers have the most leniency as they can shop around with different lenders to find one that fits your needs.
We recommend doing some comparison shopping. Have a conversation with your bank and a mortgage broker. Make sure to compare with your own numbers. Don't compare your scenario with the loan your friend got as there are many factors that go into it.
Get as much information up front as possible. Ask to see different loan scenarios based on the same purchase price. Make sure they include property tax and insurance in the equation. Don't let them make any assumptions; tell them you want to see all of the possibilities based on your purchase price, down payment, and income to debt ratio. There are many options from a two year fixed to a thirty year fixed and everything in between.
The shorter the fixed period of the loan is, the lower your interest rate will be. A thirty year fixed loan is the most conservative and safe, but also the most expensive with the highest interest rate. If you are on the conservative side, the thirty year fixed loan is your best bet. If your goal is to keep your monthly payments as low as possible, you might want to go with a five year adjustable rate mortgage which is fixed for the first five years and then adjusts according to a predetermined schedule.
Once you submit a loan application, you should receive a good faith estimate from your lender which itemizes your closing costs. You don't want there to be any surprises at the end.
One more piece of advice. Monitor your credit score to make sure there aren't any mistakes or surprises. Make your payments on time, especially from the time you applied for the loan to the time you close escrow on your home. The lender will pull your credit report a second time at the end, and if there are changes they may reject the loan in the eleventh hour. Don't make any big purchases in this time.
Everybody is extremely busy, especially this time of year. If you are in the home buying process make sure you take the time to inform yourself. There are many options available to you, but if you wait until the last minute you may be stuck with whatever you get.
Monday, October 29, 2007
No Pressure
There is one thing that stops us from doing the things in life that are important to us...FEAR! We think about things for a long time; think about doing them, how it will be, what will happen, how it will all play out. Thinking about it seems to be much safer than doing it. Thinking is the first stage. Next comes talking about it. Once you've decided, after thinking about it for awhile, that you actually want to do it, you first need to talk about it with everyone you know. That makes it more real. Now you have talked about it with your friends and family, maybe you can put the wheels in motion.
The point is, making major changes in life is scary, and sometimes our fear takes over. In terms of real estate, whether you are a buying or selling, there are certain action steps you can and should take preliminarily that will put you on the road and may help ease your fears.
Buyer Fear: Committing to a Realtor
It seems that buyers have decided that you don't need a Realtor until the eleventh hour. The fear, I believe, is that you will feel pressured. Our motto is that we would never push you to buy; we will push you to be ready should the right house come along. Being ready means obtaining your pre approval from a lender and staying informed by a Realtor. In the end it means that you have professional and informed people in your corner; that shouldn't be scary!
Seller Fear: Not getting the price I need
Again, being informed by a Realtor is your best weapon. Invite us over to look at the comparables in the neighborhood. That will give you a realistic idea of the value of your home. Also, you may be overwhelmed by improvements you want to make before putting the house on the market. We would be happy to walk through your home with you and prioratize work. Tell us what your fix-it budget is, and we will tell you what will give you the most bang for your buck. If you take these things one step at a time, it is not nearly as overwhelming. Lastly and most importantly, once you've done the work and looked at the data and put your house on the market, you have the right to accept, reject, or counter any offer. You are the boss; we are only there to advise. We are willing to walk away from an offer if it is not what you are looking for. Are you?
The point is, making major changes in life is scary, and sometimes our fear takes over. In terms of real estate, whether you are a buying or selling, there are certain action steps you can and should take preliminarily that will put you on the road and may help ease your fears.
Buyer Fear: Committing to a Realtor
It seems that buyers have decided that you don't need a Realtor until the eleventh hour. The fear, I believe, is that you will feel pressured. Our motto is that we would never push you to buy; we will push you to be ready should the right house come along. Being ready means obtaining your pre approval from a lender and staying informed by a Realtor. In the end it means that you have professional and informed people in your corner; that shouldn't be scary!
Seller Fear: Not getting the price I need
Again, being informed by a Realtor is your best weapon. Invite us over to look at the comparables in the neighborhood. That will give you a realistic idea of the value of your home. Also, you may be overwhelmed by improvements you want to make before putting the house on the market. We would be happy to walk through your home with you and prioratize work. Tell us what your fix-it budget is, and we will tell you what will give you the most bang for your buck. If you take these things one step at a time, it is not nearly as overwhelming. Lastly and most importantly, once you've done the work and looked at the data and put your house on the market, you have the right to accept, reject, or counter any offer. You are the boss; we are only there to advise. We are willing to walk away from an offer if it is not what you are looking for. Are you?
Thursday, October 18, 2007
Creative Financing
The phrase "creative financing" may scare people these days, but I encourage you to look at different scenarios when shopping around for a loan. Two general loan categories are fixed and adjustable, but within those two categories there are many different options.
A fixed loan is a safer option for the more conservative buyers as the interest rate stays the same throughout the life of the loan which is most commonly thirty years. Some lenders are offering forty year fixed loans as well. Another variation in this category is a fixed loan that offers interest only payments for the first ten years. That would make your monthly payments slightly lower for the first ten years as you would not be paying towards the principle. Fixed loans are the more expensive option meaning they come with a higher interest rate which makes your monthly payments higher.
Adjustable loans are loans that are fixed for a period of time and then adjust according to a preselected index. The most common are those that are fixed for 15 years, 10 years, or five years and then adjust yearly after that. The shorter the fixed period is, the lower the interest rate will be. People will use these loans if they are only planning to be in the home a short time, or if they want to increase their buying power; a lower interest rate will allow you to increase your purchase price.
There are other things to think about even within those two categories. One is a rate buy down, or paying points. Points are prepaid interest and are a percentage point of the loan amount. Let's say you have a loan amount of $800,000. One point would be $8,000. If you have an interest rate on a thirty year fixed loan of 7%, you can pay one point and bring that down to 6.5%. (each point does not reflect one percentage on the interest rate, only the loan amount) If you were to pay two points ($16,000), your interest rate would be 6.250%, and three points ($24,000) will bring you down to an interest rate of 6%.
The difference of paying no points and having an interest rate of 7% and paying three points and having an interest rate of 6% translates to about $500 less in monthly payments. If your savings is stronger than your income, this would be a perfect option for you. Check with your lender and see how this would work with your numbers. Also be sure and ask how long the buy down stays in place; it may be five or ten years; then the loan is re amortized over the remaining term.
With the market being at a balanced point and buyers having more room to negotiate, you can also request that the seller pays for the buy down. Also, if you are a seller and your home is sitting on the market, this could be something you offer to potential buyers.
This is why it is important to talk to a lender before you begin your search. They may have options you hadn't thought of which could affect your purchasing power. Also, you don't want to fall in love with homes you can't afford. Figuring out the financing is definitely the first step, and it is much easier to do with a professional. Let me know if you need referrals.
A fixed loan is a safer option for the more conservative buyers as the interest rate stays the same throughout the life of the loan which is most commonly thirty years. Some lenders are offering forty year fixed loans as well. Another variation in this category is a fixed loan that offers interest only payments for the first ten years. That would make your monthly payments slightly lower for the first ten years as you would not be paying towards the principle. Fixed loans are the more expensive option meaning they come with a higher interest rate which makes your monthly payments higher.
Adjustable loans are loans that are fixed for a period of time and then adjust according to a preselected index. The most common are those that are fixed for 15 years, 10 years, or five years and then adjust yearly after that. The shorter the fixed period is, the lower the interest rate will be. People will use these loans if they are only planning to be in the home a short time, or if they want to increase their buying power; a lower interest rate will allow you to increase your purchase price.
There are other things to think about even within those two categories. One is a rate buy down, or paying points. Points are prepaid interest and are a percentage point of the loan amount. Let's say you have a loan amount of $800,000. One point would be $8,000. If you have an interest rate on a thirty year fixed loan of 7%, you can pay one point and bring that down to 6.5%. (each point does not reflect one percentage on the interest rate, only the loan amount) If you were to pay two points ($16,000), your interest rate would be 6.250%, and three points ($24,000) will bring you down to an interest rate of 6%.
The difference of paying no points and having an interest rate of 7% and paying three points and having an interest rate of 6% translates to about $500 less in monthly payments. If your savings is stronger than your income, this would be a perfect option for you. Check with your lender and see how this would work with your numbers. Also be sure and ask how long the buy down stays in place; it may be five or ten years; then the loan is re amortized over the remaining term.
With the market being at a balanced point and buyers having more room to negotiate, you can also request that the seller pays for the buy down. Also, if you are a seller and your home is sitting on the market, this could be something you offer to potential buyers.
This is why it is important to talk to a lender before you begin your search. They may have options you hadn't thought of which could affect your purchasing power. Also, you don't want to fall in love with homes you can't afford. Figuring out the financing is definitely the first step, and it is much easier to do with a professional. Let me know if you need referrals.
Thursday, October 11, 2007
Staging
When you are out house hunting, you might notice that some of the homes, although furnished, don't look lived in. That's probably because they are vacant, but have been staged. This is interior design specifically for the purpose of getting a house sold. Come on, you've all seen the shows on HGTV (Home and Garden Television).
The idea of staging is so that people can imagine themselves living in the space. It is a way of raising the value of a property by reducing the home's flaws, depersonalizing, decluttering, cleaning, decorating to create a pleasant flow, and landscaping.
You don't want the buyers to walk into your home and see you and family represented in all of your things. You want them to walk in and see themselves there. Step one is always to remove your clutter and personal items. We all have clutter, don't be offended.
Why is staging so expensive? You are paying an insured design company to come in, create a plan, bring in a house full of furniture, artwork, and knick knacks, and rent it to you for what is usually two months. They will even sometimes do some painting, replace hardware, or do small repairs. The lowest end is a partial staging for $2,000; you won't get anyone to come out for any less, and you can easily go up to $5,000 or $10,000 for a full staging.
Is it worth it? I believe it depends on the property. If you are selling a fixer, staging may look a bit ridiculous. But in general, it can be proven that a property that is staged and well presented will sell faster and for a higher price. In that case, your money comes right back to you. Think of it as saving another month's mortgage. I believe that you do have to spend money to make money, even though it may hurt.
Let me give you an example. At the beginning of the year, Anja and I had a listing for a two bedroom condo on the north side of town. The sellers moved out, and Anja got busy heading up a team to clean the place up, paint, replace hardware and lights, and finally to stage the place. It looked amazing; I was afraid the sellers would want to move back in! They received two very good offers in the first two weeks; both were over asking. Because of that fast initial response, the sellers thought they could get more so they did not accept either offer. Just a side note, the first offer is often the best!
The condo then proceeded to sit on the market for quite some time. The sellers decided to remove the staging because they didn't want to pay for it anymore, and the condo continued to sit on the market. The listing expired. We went to put it back on the market and finally convinced the sellers to have the place staged again. Within the first two weeks, we again received two strong offers. The sellers accepted one of them.
There are two lessons here. Don't pass up a good offer because you think you can get more. Secondly, don't underestimate the power of staging. Both times around the only offers received were in the initial two week period after hitting the market, and it was only after bringing back the staging that we finally got it sold.
The idea of staging is so that people can imagine themselves living in the space. It is a way of raising the value of a property by reducing the home's flaws, depersonalizing, decluttering, cleaning, decorating to create a pleasant flow, and landscaping.
You don't want the buyers to walk into your home and see you and family represented in all of your things. You want them to walk in and see themselves there. Step one is always to remove your clutter and personal items. We all have clutter, don't be offended.
Why is staging so expensive? You are paying an insured design company to come in, create a plan, bring in a house full of furniture, artwork, and knick knacks, and rent it to you for what is usually two months. They will even sometimes do some painting, replace hardware, or do small repairs. The lowest end is a partial staging for $2,000; you won't get anyone to come out for any less, and you can easily go up to $5,000 or $10,000 for a full staging.
Is it worth it? I believe it depends on the property. If you are selling a fixer, staging may look a bit ridiculous. But in general, it can be proven that a property that is staged and well presented will sell faster and for a higher price. In that case, your money comes right back to you. Think of it as saving another month's mortgage. I believe that you do have to spend money to make money, even though it may hurt.
Let me give you an example. At the beginning of the year, Anja and I had a listing for a two bedroom condo on the north side of town. The sellers moved out, and Anja got busy heading up a team to clean the place up, paint, replace hardware and lights, and finally to stage the place. It looked amazing; I was afraid the sellers would want to move back in! They received two very good offers in the first two weeks; both were over asking. Because of that fast initial response, the sellers thought they could get more so they did not accept either offer. Just a side note, the first offer is often the best!
The condo then proceeded to sit on the market for quite some time. The sellers decided to remove the staging because they didn't want to pay for it anymore, and the condo continued to sit on the market. The listing expired. We went to put it back on the market and finally convinced the sellers to have the place staged again. Within the first two weeks, we again received two strong offers. The sellers accepted one of them.
There are two lessons here. Don't pass up a good offer because you think you can get more. Secondly, don't underestimate the power of staging. Both times around the only offers received were in the initial two week period after hitting the market, and it was only after bringing back the staging that we finally got it sold.
Saturday, September 29, 2007
Mixed Use
I wrote a couple of days ago about buying multi unit properties, but I didn't mention mixed use properties. Mixed use buildings are those that have both commercial and residential space. It is generally a storefront on street level with apartments above. This is the ideal scenario for someone who runs a business, wants to own their space and live close by. You really can't get any closer than upstairs! A mixed use building could also be a great investment, as commercial spaces sometimes have higher rent and longer leases. Also, there would be no rent control for the commercial space.
Because there is commercial space involved, your financing will be different. There will only be one loan for the entire building and it will be considered a commercial loan. With this type of loan there is a minimum down payment of 30% required.
A major benefit that comes with a mixed use building is with condo conversion. With a two unit residential building, if both units are owner occupied you must fulfill a one year occupancy period before you can bypass the condo lottery and apply for your condo conversion. With a two unit mixed use building (one commercial and one residential) you do not have to fulfill that one year occupancy requirement. You can apply for a condo conversion right away. Once the building goes through the process there will be a commercial condo and a residential condo.
The same benefit applies to a three unit building. The two residential units, provided they are both owner occupied, can fulfill their one year occupancy requirement (a residential building with three units would otherwise have a three year occupancy requirement) and then bypass the lottery to start the condo conversion process.
There are currently 16 mixed used buildings available all throughout San Francisco, ranging in price from $779,000 to $2,800,000. If you are considering a live/work scenario, looking for investments, or want to take advantage of the early condo conversion for a jump in value, this way be your way to go.
Because there is commercial space involved, your financing will be different. There will only be one loan for the entire building and it will be considered a commercial loan. With this type of loan there is a minimum down payment of 30% required.
A major benefit that comes with a mixed use building is with condo conversion. With a two unit residential building, if both units are owner occupied you must fulfill a one year occupancy period before you can bypass the condo lottery and apply for your condo conversion. With a two unit mixed use building (one commercial and one residential) you do not have to fulfill that one year occupancy requirement. You can apply for a condo conversion right away. Once the building goes through the process there will be a commercial condo and a residential condo.
The same benefit applies to a three unit building. The two residential units, provided they are both owner occupied, can fulfill their one year occupancy requirement (a residential building with three units would otherwise have a three year occupancy requirement) and then bypass the lottery to start the condo conversion process.
There are currently 16 mixed used buildings available all throughout San Francisco, ranging in price from $779,000 to $2,800,000. If you are considering a live/work scenario, looking for investments, or want to take advantage of the early condo conversion for a jump in value, this way be your way to go.
Friday, September 28, 2007
Condo Vs. Single Family Home
Whether to purchase a house or a condo seems to be a pretty hot topic of conversation these days. I am getting a lot of questions about the advantages/disadvantages of each scenario. The most common question is which is a better investment. Of course it all comes down to money. In general I would say that the single family home is a stronger investment. As I have reported in past postings, the median home price in San Francisco has appreciated over the past few months while condo prices have gone down over that same period of time. That is a general note for all of San Francisco. When you are looking at the strength of your investment, I think it is important to look specifically at the property you are considering. Location is probably most important, because the one thing you cannot change about a property is its location. Condition of the property is next, and with a condo that includes taking a look at the association. Is it run efficiently, and are there healthy reserves for building maintenance?
When making the decision about what type of property you would like to buy, you need to answer a couple of questions that may help guide you in the right direction. The first question is, "how much do you want to spend?" Figure out what a comfortable monthly payment is. That amount along with the size of your down payment will determine your purchase price. Let's say you've done that and you've come up with a purchase price of $800,000.
The next question is, "where do I want to live?" If you want to live in Noe Valley or anywhere north of there, you are pretty much condo bound with $800,000. You can buy a house in Bernal Heights, Sunset, Mission Terrace, Exelsior, Ingleside, and other neighborhoods on the southern side of the city for that same amount. In San Francisco, the neighborhood you choose will determine the type of property you can afford.
You also need to ask yourself, "what is most important to me?" Take a look at your lifestyle and think about what you want in a home. If your vision is children and pets playing in a backyard, then a single family home is probably the way to go. On the flip side, if you travel a lot for work or can't be bothered with gardening or maintenance of a building, a condo is definitely for you.
My advice is that instead of looking at the property for answers, take a look at your lifestyle and what you need. Think about why you need what you need as well; there may be a few different solutions. Make a wish list and don't be afraid to ask for everything you want...you just might get it!
When making the decision about what type of property you would like to buy, you need to answer a couple of questions that may help guide you in the right direction. The first question is, "how much do you want to spend?" Figure out what a comfortable monthly payment is. That amount along with the size of your down payment will determine your purchase price. Let's say you've done that and you've come up with a purchase price of $800,000.
The next question is, "where do I want to live?" If you want to live in Noe Valley or anywhere north of there, you are pretty much condo bound with $800,000. You can buy a house in Bernal Heights, Sunset, Mission Terrace, Exelsior, Ingleside, and other neighborhoods on the southern side of the city for that same amount. In San Francisco, the neighborhood you choose will determine the type of property you can afford.
You also need to ask yourself, "what is most important to me?" Take a look at your lifestyle and think about what you want in a home. If your vision is children and pets playing in a backyard, then a single family home is probably the way to go. On the flip side, if you travel a lot for work or can't be bothered with gardening or maintenance of a building, a condo is definitely for you.
My advice is that instead of looking at the property for answers, take a look at your lifestyle and what you need. Think about why you need what you need as well; there may be a few different solutions. Make a wish list and don't be afraid to ask for everything you want...you just might get it!
Monday, September 24, 2007
Multi Unit Buildings
Whether you are looking for extra income to help you with your mortgage or you are thinking of buying property with friends or family, a multi unit building may be the way to go. The most popular (and sometimes most profitable) way to do this is for two parties to purchase a two unit building together. Generally it is two friends who come together to become business partners; owning property together is a business relationship. The goal in this scenario is to convert the units into condominiums. The order of events is:
1. Purchase a two unit building as Tenancy In Commons where both units will be owner occupied
2. Fulfill the one year owner occupancy requirement to start the condo conversion process
3. File papers with the city to convert
4. Have building, plumbing, and electrical inspections and complete all suggested work
5. Have a survey done of the property
6. Prove occupancy
Once all of the work is done and has been signed off on by the city, you become the proud owner of a condominium. This process can take anywhere from 12 to 24 months. Converting tenancy in commons (TICs) into condominiums is desirable as it will raise the property value 10-15%. Also instead of owning a percent interest in the entire building with the other party, you become the sole owner of your unit.
If the building is three to six units, the occupancy requirement you must fulfill in order to convert is three years and then you must enter the condo conversion lottery. Winning the lottery can take another five or six years, so you may not be able to convert for eight or nine years after purchase. In this scenario, you cannot buy with the intent to convert. If it happens, it is a bonus for you.
There are some restrictions on converting based on the eviction history of the building, and these laws change periodically so be sure to check the eviction history of the building and the current laws.
1. Purchase a two unit building as Tenancy In Commons where both units will be owner occupied
2. Fulfill the one year owner occupancy requirement to start the condo conversion process
3. File papers with the city to convert
4. Have building, plumbing, and electrical inspections and complete all suggested work
5. Have a survey done of the property
6. Prove occupancy
Once all of the work is done and has been signed off on by the city, you become the proud owner of a condominium. This process can take anywhere from 12 to 24 months. Converting tenancy in commons (TICs) into condominiums is desirable as it will raise the property value 10-15%. Also instead of owning a percent interest in the entire building with the other party, you become the sole owner of your unit.
If the building is three to six units, the occupancy requirement you must fulfill in order to convert is three years and then you must enter the condo conversion lottery. Winning the lottery can take another five or six years, so you may not be able to convert for eight or nine years after purchase. In this scenario, you cannot buy with the intent to convert. If it happens, it is a bonus for you.
There are some restrictions on converting based on the eviction history of the building, and these laws change periodically so be sure to check the eviction history of the building and the current laws.
Monday, September 17, 2007
Purchasing Tenant Occupied Property
What do you look for in a home...three bedrooms, two baths, big kitchen, nice outdoor space, lots of light, and parking. Did I forget anything? Oh yes, of course, that the property is VACANT! Assuming you are looking for a home for yourself as opposed to investment property, you most likely want to move in right away. You are probably not looking to get into the landlord business which is what you have to do when purchasing a tenant occupied property. The whole process of transferring tenant occupied property is unpleasant for everyone involved. It is important for all parties to inform themselves of their rights and understand their role in the transaction.
Sellers
Your property is tenant occupied and you have decided to put it on the market. The first thing you must know is that this will affect the purchase price and the length of time on the market. Vacant properties sell quicker for a higher price. Having said that, you cannot evict tenants in order to sell; that is not one of the fourteen just causes for eviction in San Francisco. If you have a friendly relationship with your tenant, have a talk with them before you list your home. They may decide that they don't want to be around while the house is on the market as it is a huge inconvenience for them. They may decide on their own to start looking for a new home immediately. That, of course, would be your best case scenario. Always keep the communication lines open with your tenants; if they do decide to stay, you must let them know in advance of any and all showings. Keep them in the loop of how the sale is going and what the time line looks like. It will be unpleasant for them. Try to understand their situation and be as courteous as possible.
Buyers
Purchasing a home with tenants means you have become a landlord. Any and all leases and security deposits will be handed over to you in the sale. As I mentioned before, you may have gotten a break on the price of the home because it was tenant occupied, but remember that you may need that cash for tenant relocation fees and attorney's fees. Assuming you purchased this property to be your primary residence, you will have to evict the tenants. In this case you would use the Owner Move In (OMI) eviction which is one of the just causes to evict in San Francisco. You must give 60 days notice and pay relocation fees. Click the link to see a full list of restrictions and qualifications. Before you purchase, be sure to look into the tenant situation. Are they cooperative? Are they paying market rent? If so, it will be easier for them to find a replacement property. Lastly, if you do have to evict the tenants, be sure to use a landlord/tenant attorney and follow the procedure exactly.
Tenants
Let me apologize to you if you are a tenant whose building is being sold. This will not be a fun process for you. I met a woman in my open house this past weekend whose building had just been sold. Luckily for her, she was not evicted. The new owner bought the property as an investment, but she said that the year leading up to the sale was a nightmare. There were constant threats of eviction. When the property finally hit the market she had to deal with open houses. Make sure you know your rights. In San Francisco you have many.
The key for all parties involved is communication. It also helps to be sensitive to the other person's situation, on both sides. Renters are being uprooted and most likely will not be able to find a comparable home as the rental market has gone up lately. On the flip side, buyers have scraped and saved to purchase property in this expensive city and just want to live in their new home. This scenario is not ideal for anyone but is a reality for many. Some tenants, like the woman I met this weekend, may be fortunate enough to use this situation as a jump start to buy their own home. It's time to start paying your own mortgage! Give me a call!
Sellers
Your property is tenant occupied and you have decided to put it on the market. The first thing you must know is that this will affect the purchase price and the length of time on the market. Vacant properties sell quicker for a higher price. Having said that, you cannot evict tenants in order to sell; that is not one of the fourteen just causes for eviction in San Francisco. If you have a friendly relationship with your tenant, have a talk with them before you list your home. They may decide that they don't want to be around while the house is on the market as it is a huge inconvenience for them. They may decide on their own to start looking for a new home immediately. That, of course, would be your best case scenario. Always keep the communication lines open with your tenants; if they do decide to stay, you must let them know in advance of any and all showings. Keep them in the loop of how the sale is going and what the time line looks like. It will be unpleasant for them. Try to understand their situation and be as courteous as possible.
Buyers
Purchasing a home with tenants means you have become a landlord. Any and all leases and security deposits will be handed over to you in the sale. As I mentioned before, you may have gotten a break on the price of the home because it was tenant occupied, but remember that you may need that cash for tenant relocation fees and attorney's fees. Assuming you purchased this property to be your primary residence, you will have to evict the tenants. In this case you would use the Owner Move In (OMI) eviction which is one of the just causes to evict in San Francisco. You must give 60 days notice and pay relocation fees. Click the link to see a full list of restrictions and qualifications. Before you purchase, be sure to look into the tenant situation. Are they cooperative? Are they paying market rent? If so, it will be easier for them to find a replacement property. Lastly, if you do have to evict the tenants, be sure to use a landlord/tenant attorney and follow the procedure exactly.
Tenants
Let me apologize to you if you are a tenant whose building is being sold. This will not be a fun process for you. I met a woman in my open house this past weekend whose building had just been sold. Luckily for her, she was not evicted. The new owner bought the property as an investment, but she said that the year leading up to the sale was a nightmare. There were constant threats of eviction. When the property finally hit the market she had to deal with open houses. Make sure you know your rights. In San Francisco you have many.
The key for all parties involved is communication. It also helps to be sensitive to the other person's situation, on both sides. Renters are being uprooted and most likely will not be able to find a comparable home as the rental market has gone up lately. On the flip side, buyers have scraped and saved to purchase property in this expensive city and just want to live in their new home. This scenario is not ideal for anyone but is a reality for many. Some tenants, like the woman I met this weekend, may be fortunate enough to use this situation as a jump start to buy their own home. It's time to start paying your own mortgage! Give me a call!
Friday, September 14, 2007
Writing An Offer
For those of you who are out there looking to buy your first home, it is important you realize that there is a lot more to it than just shopping. Once you have been pre-approved and have discussed the details of what you are looking for with your Realtor, it is only a matter of time before you find the right place. When you see a house you are seriously considering, you will first request to see a disclosure package for that house. That package contains anything and everything (and more) about the property including the seller's disclosures, any and all inspections that have been done, a preliminary title report, a building report which includes permit history, etc. I will probably cover each disclosure separately in the future. Once you have reviewed the package and decided you want to move forward, it is time to write the offer. In San Francisco, the offer is a seven page contract where you will outline the amount of the purchase as well as all of the terms. There are many things you can do to make an offer more attractive to the seller besides simply raising the purchase price:
Initial Deposit: Ideally this will be 3% of the purchase price. This is also known as Good Faith Money, letting the seller know you are invested in the sale.
Down Payment: The larger the better for your loan and for the seller's confindence in the sale.
Contingency Periods: I will outline the specific contingencies, but I wanted to give you an overview first. If your offer is accepted, you will have a contingency period that has been agreed to in the contract to fully approve of the property before you move on with the sale. In this time, you will do your inspections, appraisal, and secure your loan. You will also be looking over any disclosures that you did not receive before the offer was made. In the offer, you will specify the length of time, in calendar days, that you will need for each contingency. Once the contingency period is up, assuming you are satisfied with your findings, you will remove those contingencies in writing thus fully committing yourself to the sale. The seller will always prefer shorter contingency periods because the chances of the buyer backing out of the sale once contingencies are removed is much smaller.
Financing Contingency: Although you want to make this as short as possible, you also want to make sure you have enough time to complete the task at hand. This is a very important reason to do your homework before offer time. If you have already been working with your lender and they have already fully approved of you as a borrower, all that is left for them is to approve of is the property you are purchasing. Check with your lender and see how much time they need, and that is how long you will make your contingency period.
Appraisal Contingency: Again, your lender can tell you how quickly they can get this done as they will be ordering it. You will pay, but it will be added on to your closing costs at the end of the escrow period.
Inpection Contingency: Give yourself enough time to schedule the inspections and then receive the written reports a couple of days later. Anja and I will often schedule the inspections before we know whether or not the offer will be accepted. That way we can get into the home in the next day or two and the buyer is confindently able to remove them a couple of days later. Remember, after the first inspection you may find something else that needs to be looked into, so you want time for a second inspection if that should happen. Like I said, you want enough time to satisfy yourself, but time is of the essence.
Escrow Period: An average escrow period in San Francisco is 30 days. Again, shorter makes it more attractive to the seller. If your lender says that your loan can be fully approved in 14 days, you can try a 21 day close. Remember at closing you will need to come in with all of your cash for down payment and closing costs. You may also need to consider a rental lease, and when it would be best to give notice to your landlord. It is a good idea to give yourself a week or so of overlap. That way you can take your time with the move and possibly have a thing or two done to the new house before you move in, like flooring or painting.
Those are a few things you will need to consider when making an offer. If you are in a competitive situation and you have the same purchase price as another buyer, your terms may very well be what sets you apart. Be cautious but competitive. Decide how much you want the house, and that will help you set your limits on what you are willing to give.
Initial Deposit: Ideally this will be 3% of the purchase price. This is also known as Good Faith Money, letting the seller know you are invested in the sale.
Down Payment: The larger the better for your loan and for the seller's confindence in the sale.
Contingency Periods: I will outline the specific contingencies, but I wanted to give you an overview first. If your offer is accepted, you will have a contingency period that has been agreed to in the contract to fully approve of the property before you move on with the sale. In this time, you will do your inspections, appraisal, and secure your loan. You will also be looking over any disclosures that you did not receive before the offer was made. In the offer, you will specify the length of time, in calendar days, that you will need for each contingency. Once the contingency period is up, assuming you are satisfied with your findings, you will remove those contingencies in writing thus fully committing yourself to the sale. The seller will always prefer shorter contingency periods because the chances of the buyer backing out of the sale once contingencies are removed is much smaller.
Financing Contingency: Although you want to make this as short as possible, you also want to make sure you have enough time to complete the task at hand. This is a very important reason to do your homework before offer time. If you have already been working with your lender and they have already fully approved of you as a borrower, all that is left for them is to approve of is the property you are purchasing. Check with your lender and see how much time they need, and that is how long you will make your contingency period.
Appraisal Contingency: Again, your lender can tell you how quickly they can get this done as they will be ordering it. You will pay, but it will be added on to your closing costs at the end of the escrow period.
Inpection Contingency: Give yourself enough time to schedule the inspections and then receive the written reports a couple of days later. Anja and I will often schedule the inspections before we know whether or not the offer will be accepted. That way we can get into the home in the next day or two and the buyer is confindently able to remove them a couple of days later. Remember, after the first inspection you may find something else that needs to be looked into, so you want time for a second inspection if that should happen. Like I said, you want enough time to satisfy yourself, but time is of the essence.
Escrow Period: An average escrow period in San Francisco is 30 days. Again, shorter makes it more attractive to the seller. If your lender says that your loan can be fully approved in 14 days, you can try a 21 day close. Remember at closing you will need to come in with all of your cash for down payment and closing costs. You may also need to consider a rental lease, and when it would be best to give notice to your landlord. It is a good idea to give yourself a week or so of overlap. That way you can take your time with the move and possibly have a thing or two done to the new house before you move in, like flooring or painting.
Those are a few things you will need to consider when making an offer. If you are in a competitive situation and you have the same purchase price as another buyer, your terms may very well be what sets you apart. Be cautious but competitive. Decide how much you want the house, and that will help you set your limits on what you are willing to give.
Tuesday, September 11, 2007
Oh, We're Just Looking
Much of my time is spent talking to home buyers I meet at open houses on the weekend. We talk about many things; families, schools, the city, neighborhoods, but out of everything, the most common thing I hear people say is, "Oh, we're just looking". While there is nothing wrong with "just looking", and "looking" is a necessary part of "finding", our jobs as Realtors is to make sure you are ready to buy when that time comes. That time is, of course, when you walk through the doors of a house and it suddenly feels like you are home. It can happen suddenly, unexpectedly, and it can catch you off guard. Yes, folks, I am talking about falling in love! Cheesy, perhaps, but true. Much of buying a home is about financial planning, crunching numbers, making sure you are making a sound investment, but another huge part of it is emotional. If you are in "just looking" mode, and you are not properly prepared to buy, you might not be ready when you do find the right house. There are a couple of important preparation steps you can take so that when you have finally found what you've been looking for, you can make an offer without hesitation.
Getting Pre-Approved
The first thing you need to do is figure out how much you can afford. You do this in two ways: you decide how much you want to spend each month, and the bank decides how much money they want you to borrow. These two amounts don't always match up but the important thing is that you do not stretch yourself beyond your comfort zone. You may actually qualify to borrow more than you want to spend. When figuring out comfortable monthly payments, be sure to include property taxes (1.14% of purchase price in San Francisco) and hazard insurance. Part of the process of being approved by a lender is filing out a loan application. They will ask you about your income, debt, and assets, and they will run your credit. Credit is important; your credit score will dictate what interest rate you qualify for. The bank will run the numbers and come up with an amount they feel comfortable lending. They will also provide you with something called a "Good Faith Estimate" which is an itemized estimation of your closing costs at the amount you have been pre-approved for. They will also give you a pre-approval letter stating that they have reviewed your finances and will lend you a certain amount of money provided the property you are purchasing is worth the amount you have offered. In San Francisco, you cannot make an offer without this letter. Your offer would not be taken seriously.
Building Your Team
Another very important part of your preparation is finding a Realtor. Just like your loan consultant, you want to work with a Realtor you feel comfortable with and trust. Your Realtor can help you understand what goes into making an offer before it's time to sit down and do it. There is a mountain of paperwork involved in this transaction; Anja and I like to sit down with our buyers early on and take them through things little by little so that you are not overwhelmed when it comes time to submit the offer. If you are actually thinking of buying, make sure you are ready to find the right house. Get your team in place. Your Realtor and your loan consultant are your best friends in this process.
Getting Pre-Approved
The first thing you need to do is figure out how much you can afford. You do this in two ways: you decide how much you want to spend each month, and the bank decides how much money they want you to borrow. These two amounts don't always match up but the important thing is that you do not stretch yourself beyond your comfort zone. You may actually qualify to borrow more than you want to spend. When figuring out comfortable monthly payments, be sure to include property taxes (1.14% of purchase price in San Francisco) and hazard insurance. Part of the process of being approved by a lender is filing out a loan application. They will ask you about your income, debt, and assets, and they will run your credit. Credit is important; your credit score will dictate what interest rate you qualify for. The bank will run the numbers and come up with an amount they feel comfortable lending. They will also provide you with something called a "Good Faith Estimate" which is an itemized estimation of your closing costs at the amount you have been pre-approved for. They will also give you a pre-approval letter stating that they have reviewed your finances and will lend you a certain amount of money provided the property you are purchasing is worth the amount you have offered. In San Francisco, you cannot make an offer without this letter. Your offer would not be taken seriously.
Building Your Team
Another very important part of your preparation is finding a Realtor. Just like your loan consultant, you want to work with a Realtor you feel comfortable with and trust. Your Realtor can help you understand what goes into making an offer before it's time to sit down and do it. There is a mountain of paperwork involved in this transaction; Anja and I like to sit down with our buyers early on and take them through things little by little so that you are not overwhelmed when it comes time to submit the offer. If you are actually thinking of buying, make sure you are ready to find the right house. Get your team in place. Your Realtor and your loan consultant are your best friends in this process.
Monday, September 10, 2007
Selling For The Highest Possible Price!
The decision to sell your home is obviously a huge one and not one to be taken lightly. For whatever the reason: a transfer from work, expanding the family, downsizing, or simply wanting a change, preparing your home for the market is always the same. The easiest way to sell a home is when it is vacant. Of course circumstances won't always allow this to happen, but whenever possible you should move out first. Statistics show that a house that is presented well, meaning vacant and staged, sells higher and faster than one that is not. I always think of the old phrase "It takes money to make money" when I am coaching a seller. This is not the time to cut corners as the return can be huge. If you have moved out, there may be sprucing up left to do and it would be a great idea to have a consultation with a stager to help you see what you can do inexpensively to brighten the place up for the sale. Some examples would be new carpet/refinished floors, a new coat of paint, new fixtures, new hardware on cabinets; these are all minor changes that can make a space look that much more polished and attractive to buyers. Once you have emptied out and cleaned up, it is time to bring the staging in, and that is better left to a professional! They may even do a thing or two to your garden. Anja and I sold a house in Bernal Heights last year that had a very small almost unusable garden. The sellers installed a small deck themselves and Anja had her team come in and prune the trees, plant some flowers and install sod. It was done in a weekend and we were delighted to find out that it was one of people's favorite features of the house!
If you can't move out for the sale, the process is still very similar. The first step is a deep spring cleaning. You're going to be moving out anyway once the property is sold, so it is time to purge. Get rid of everything you don't want; box up the things you don't need right then and put them in storage. Clean off all surfaces; you don't really want the house to look lived in. Think more of a hotel. Minimal furnishings and decor; NO CLUTTER! I know, that's the hardest part. You can still consult with a stager; they can work with your things and they can still give you tips on small upgrades you can make.
If you are thinking of selling in the future and are looking for ways to improve on your property, the biggest bang for your buck is adding a bathroom. If you have a two story home but only have a bathroom on one floor, installing one on the other floor could give you up to 20% more on a sales price. Making the master room into a master suite is another way of adding that second bathroom. To keep the cost down, try to stay close to the plumbing lines and see if there is a large closet that can be converted into a bathroom.
Whether it is just replacing hardware and painting or adding a whole new bathroom, you will get your money back in a higher sales price and a shorter marketing period. Long gone are the days of anything and everything selling in less than a week for 20% over asking! We have heard it over and over again in the past year or so; a house that is presented well and priced correctly will sell at the highest possible price.
If you can't move out for the sale, the process is still very similar. The first step is a deep spring cleaning. You're going to be moving out anyway once the property is sold, so it is time to purge. Get rid of everything you don't want; box up the things you don't need right then and put them in storage. Clean off all surfaces; you don't really want the house to look lived in. Think more of a hotel. Minimal furnishings and decor; NO CLUTTER! I know, that's the hardest part. You can still consult with a stager; they can work with your things and they can still give you tips on small upgrades you can make.If you are thinking of selling in the future and are looking for ways to improve on your property, the biggest bang for your buck is adding a bathroom. If you have a two story home but only have a bathroom on one floor, installing one on the other floor could give you up to 20% more on a sales price. Making the master room into a master suite is another way of adding that second bathroom. To keep the cost down, try to stay close to the plumbing lines and see if there is a large closet that can be converted into a bathroom.
Whether it is just replacing hardware and painting or adding a whole new bathroom, you will get your money back in a higher sales price and a shorter marketing period. Long gone are the days of anything and everything selling in less than a week for 20% over asking! We have heard it over and over again in the past year or so; a house that is presented well and priced correctly will sell at the highest possible price.
Friday, September 7, 2007
Ellis Act
The Ellis Act is a state law passed in 1985 that was intended to allow building owners to retire from the landlord business. It is now most often used as a way to "change the use" of a building. It is a lawful way of evicting all of the tenants, and in most cases here in San Francisco those units are then converted into Tenancy In Commons and sold separately as percentage ownership in the entire building. There are many requirements that must be met such as:
1. All tenants must be evicted; not only those who pay the lowest rent.
2. Tenants will receive relocation fees of $4500 per person at a maximum of $13,500 per unit. Elderly and disabled tenants receive an extra $3000 each.
3. Landlords are to give 120 days notice; one year notice for elderly and disabled.
4. The Ellis Act is recorded onto the deed and stays with the building even when ownership is transferred.
In order to prevent landlords from using the Ellis Act as a tool to get higher rents by evicting tenants with low rents and replacing them with tenants paying higher rents, there are rental restrictions placed on a building that has been Ellis Acted. Those restrictions are:
1. No unit in the building can be rented out for the first two years.
2. For the first five years, any unit that is rented out must be rented at the same rate as when the Ellis Act was put in place plus any allowed increases that would have otherwise been allowed under rent control.
3. For ten years after the Ellis Act, the tenant who was evicted has the first right of return should any of the units go back on the rental market. They will pay the same rent that they paid at the time of eviction, plus any allowable increases, provided they have registered for the unit.
Most of the Ellis Acts in San Francisco are for the sale of a building, either as a whole or as separate units. In the case of a sale, the seller would be affected as it lowers the value of the building; some say up to 20%. The buyer is affected because of the rental restrictions. As I said, the Ellis Act stays with the building and so do the restrictions. Aside from the rental restrictions I have mentioned, there is another big one. If you are purchasing a Tenancy in Common and are hoping to one day convert the unit into a condominium, if there was an elderly or disabled person displaced during the Ellis Act you cannot condo convert if the eviction happened after November 16, 2004. My advice when dealing with an Ellis Act is this: If you are considering Ellis Acting a building, call a landlord/tenant attorney. If you are considering purchasing an Ellis Acted building, think about whether or not you might want to rent that unit out in the next ten years. Also, you can look into the eviction and find out if there were any protected tenants (elderly and disabled) displaced. If not, and you just want to owner occupy the property, proceed and enjoy your new home.
1. All tenants must be evicted; not only those who pay the lowest rent.
2. Tenants will receive relocation fees of $4500 per person at a maximum of $13,500 per unit. Elderly and disabled tenants receive an extra $3000 each.
3. Landlords are to give 120 days notice; one year notice for elderly and disabled.
4. The Ellis Act is recorded onto the deed and stays with the building even when ownership is transferred.
In order to prevent landlords from using the Ellis Act as a tool to get higher rents by evicting tenants with low rents and replacing them with tenants paying higher rents, there are rental restrictions placed on a building that has been Ellis Acted. Those restrictions are:
1. No unit in the building can be rented out for the first two years.
2. For the first five years, any unit that is rented out must be rented at the same rate as when the Ellis Act was put in place plus any allowed increases that would have otherwise been allowed under rent control.
3. For ten years after the Ellis Act, the tenant who was evicted has the first right of return should any of the units go back on the rental market. They will pay the same rent that they paid at the time of eviction, plus any allowable increases, provided they have registered for the unit.
Most of the Ellis Acts in San Francisco are for the sale of a building, either as a whole or as separate units. In the case of a sale, the seller would be affected as it lowers the value of the building; some say up to 20%. The buyer is affected because of the rental restrictions. As I said, the Ellis Act stays with the building and so do the restrictions. Aside from the rental restrictions I have mentioned, there is another big one. If you are purchasing a Tenancy in Common and are hoping to one day convert the unit into a condominium, if there was an elderly or disabled person displaced during the Ellis Act you cannot condo convert if the eviction happened after November 16, 2004. My advice when dealing with an Ellis Act is this: If you are considering Ellis Acting a building, call a landlord/tenant attorney. If you are considering purchasing an Ellis Acted building, think about whether or not you might want to rent that unit out in the next ten years. Also, you can look into the eviction and find out if there were any protected tenants (elderly and disabled) displaced. If not, and you just want to owner occupy the property, proceed and enjoy your new home.
Wednesday, September 5, 2007
What Can I Afford?
Everyone would agree that the most important factor in purchasing a home is money. Whether you are buying purely for investment or because you become emotionally attached to a home and are thinking more of quality of life, it all comes down to money. We are currently in a state of crisis because over the past few years lenders have been passing out loans like candy, and unfortunately not everyone could actually afford the loan they were given. The first broker I worked with used to say, "All you have to do to get a home loan these days is fog a mirror!" It looks like that is changing now, but only because an estimated 2 million adjustable rate mortgages are scheduled to reset this year. Of course not all of these will default, but many borrowers with poor credit who had already pushed their income to debt ratio to the limit will certainly be over their heads. Who's to blame for this problem? Some say the consumer and other say the lender. Of course, both hold some responsibility. The buyer needs to be sure they understand the terms of the loan. READ THE FINE PRINT! You need a loan consultant you trust! I received a phone call a few months ago from a man who needed help trying to figure out if he should sell his home or buy his ex wife out. I did some research into the title and found that he owed more than he did at the time of purchase. This was news to him, and although they weren't in a default position as they could afford to make the payments, he could not afford to sell the home as he owed more than the home would have been worth on the open market. He had a negative amortized loan and had been making the minimum payment each month without realizing that this caused the loan balance to increase over time. He didn't know; wasn't told. Should he have read the documents more carefully? Sure, but I believe that is called predatory lending. English also happened to be his second language.
So how much can you afford? As I mentioned before, banks have tightened requirements. You need to have good credit and a minimum of 10% down, but most importantly you need to decide how much you can comfortably afford to pay each month. Many times people qualify for more than they actually want to pay. Once you have a comfortable monthly payment amount in mind remember that amount needs to include not only the loan payment but also property tax (1.14% in San Francisco) and home owner's insurance (home association dues if you are purchasing a condominium). One other cost to consider when you are going to purchase a home is closing costs. On average, closing costs are 1.5% to 3% of the purchase price. They can be higher if you are paying points (prepaid interest) to lower the interest rate on your loan. Closing costs for the buyer include lender's fees, escrow fees, title insurance, and inspection costs. Closing costs are not taken out of the down payment; they are a separate cost. This is probably the largest purchase you will ever make (aside from your second or third home of course). Take your time. Surround yourself with a good team , don't over extend yourself, relax, and enjoy your new home.
So how much can you afford? As I mentioned before, banks have tightened requirements. You need to have good credit and a minimum of 10% down, but most importantly you need to decide how much you can comfortably afford to pay each month. Many times people qualify for more than they actually want to pay. Once you have a comfortable monthly payment amount in mind remember that amount needs to include not only the loan payment but also property tax (1.14% in San Francisco) and home owner's insurance (home association dues if you are purchasing a condominium). One other cost to consider when you are going to purchase a home is closing costs. On average, closing costs are 1.5% to 3% of the purchase price. They can be higher if you are paying points (prepaid interest) to lower the interest rate on your loan. Closing costs for the buyer include lender's fees, escrow fees, title insurance, and inspection costs. Closing costs are not taken out of the down payment; they are a separate cost. This is probably the largest purchase you will ever make (aside from your second or third home of course). Take your time. Surround yourself with a good team , don't over extend yourself, relax, and enjoy your new home.
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