The new buyer profile today is understandably looking for a ‘good deal’.   With the major changes we’ve seen in Orange County in the last 2 years, the buyers that feel ready to jump into the market are consistently saying, ‘If I find a good deal…’

So what is a ‘good deal’?  Let’s examine the potential opportunities.  There are 3 types of listings that are predominately found in the active market today:

1. Short Sales
2. Bank Owned (or REO’s)
3. Traditional Sellers

Short Sales: A short sale is a listing in which the seller currently owes more than the home is worth in today’s market.  I have discussed the process of a short sale in other locations on this blog.  Do your homework here if you are interested in this type of purchase.  It is a process that will take time and not every short sale will actual sell.  Some seller’s don’t have a legitimate hardship (required for a bank to approve their short sale).  Some will go into foreclosure after weeks of tying up a buyer(s) hoping to buy that home.

Is this a good deal?  Maybe.  Remember, they are usually priced very low to attract offers.  A bank won’t even consider a seller’s hardship until they have an offer.  This may mean that the home is priced far below what the bank may ultimately take.  And if the home is in disrepair, you’ll need to add the cost of repairs into your calculation.  A short sale will take time, patience, and a little luck.  I have seen some ‘good deals’ here but you’ll need to go into the process with ‘eyes wide open’.

Watch for rising interest rates in the meantime.  This can impact your affordability.  Also, watch the market.  What may seem like a ‘good deal’ now, may not seem so great in 4 months when the short sale has been approved if the neighborhood values continue to decline.

Bank Owned or REO’s: This is generally some of the most aggressively priced inventory on the market in Orange and Riverside Counties.  The banks don’t want to carry the inventory and they are priced to move.   The decline in prices have reached a level that has become affordable again for the first time buyer and appealing to the investors.

Steven Thomas, President of Re/Max Real Estate Services recently said in his Market Time Report, “For those looking to find a great “deal” by offering to purchase a property far below the asking price of a distressed home, good luck.  Your chances are much greater in winning the California lottery….The sales to list price ratio, how close a home is sold compared to the asking price, is between 99% and 100% depending upon the price range.“  He continues to make the point that the way that they are priced is already a deal.

After recently working with a buyer on the purchase of a single family home, we consistently found ourselves in multiple offers on bank owned homes - and not just 2 or 3 offers.  Often times there were 10 + offers in place within 48 hours of listing.  Who was awarded the purchase of those homes?  Cash is king here my friends.  Those with cash down, few contingencies, solid credit, and a strong offering price came away with the home.

Traditional Sellers: Some parts of the market are moving more slowly than others.  The bulk of the distress sales, 93% according to Steven Thomas, are under the $750,00 price point and subsequently there is a great deal of pressure on prices in those lower price points.

Are there good deals with traditional sellers?  The short answer - Yes!  Most people that are listing their homes today understand that it is clearly a buyers’ market in Orange County.  They generally know that it won’t be easy and those that are motivated to sell, are pricing their homes to compete with the inventory.  And often times that inventory consists of short sales and banked owned homes, especially in the price points under $750,000.

The bonus on many of these, there still is pride of ownership.  Is a bank owned home still a good buy if there is $50,000 in cosmetic or structural repairs?  Maybe, but maybe not.

The Bottom Line: Seriously consider the potential for a great value from a realistic, traditional seller.  You’ll have the benefit of full disclosure from the seller (which you don’t have in bank owned homes), you’ll have the opportunity to request repairs, you won’t be competing with the buyers that are focused on - “I want to buy a foreclosure’, and you won’t be dealing with the unknowns and long waits of the short sale process.

If you find the great deal you’ve dreamt about in a short sale or bank owned, by all means, go for it.   But be an educated buyer and understand the process and expenses when determining if you really have a good deal!

Recently I wrote a post discussing the new ‘Housing Relief Bill’. While there are many facets of this new bill, one that had me concerned was the changes to the Capital Gains Law. There is some confusion about the interpretation of the law that is being discussed in various blog forums.

The bill actually may not have the broad impact originally thought. Keep in mind that the old law allowed for an investor to buy a property and rent it out and as long as they moved into that investment rental or second home and claimed it as their primary for 2 years - they would qualify for the $250,000/$500,000 capital gains exclusion. That ability may have gone away.

If you originally lived in the property and it then became a rental, the old $250/$500 rule still may apply. Kathleen Pender of the San Francisco Chronicle, outlines this nicely under the Vacation Homes section of her write up.

From my perspective - this is better than I thought. But I still don’t like it. Why are we discouraging from profitable investment? If an investor is willing to move into the property for two years, it’s clearly not a flip and get-rich-quick scheme. Investing helps to fuel the real estate market and the economy. I still don’t see the housing relief in this.

And - oh yeah - can we make this more complicated?

Shameless disclaimer - Please know that I’m not an expert in taxes. You should discuss these questions with your professional Accountant or CPA.

Yesterday, the Orange County Register had an article entitled ‘O.C. Homebuying Slump Ends After 33 Months’. I love that title and I hope that it’s true.  I have some concerns:

1. The coming election will likely slow buying activity. Based on past real estate years it’s likely to be a bit slow with buyers taking a ‘wait and see’ approach.  We also are moving into the seasonally slow period of the market.
2. Consumer confidence is still a big issue.
3. With prices having gone down for so many months in a row, there is little urgency to buy right now.   In past years, buyers felt a rush to buy before prices climbed higher.  Now, the opposite is true.
4. With foreclosures still coming onto the market, there is still inventory that must be absorbed before a recovery can begin.
5. Economic uncertainties that can directly or indirectly impact buyers’ ability to buy or secure financing.
6. Limited financing options and stringent qualifying requirements limit the buyer pool.

That being said, there are things that seem promising:

1. I don’t see prices making a dramatic drop from here.  In the last year the median sales price for an Orange County home has fallen 28% in a year.  There may not be much more room to fall.
2. Investors and buyers that have been waiting for the right time to enter the market are beginning to jump off the fence.  The recent buying spurt of activity shows that the demand is there when the price is right.
3. Interest rates have stayed relatively low and those interested in taking advantage of those rates are making the leap.

Time will tell.  Stay tuned.

I’m in the process of selecting a new header for my blog.  I would love the feedback of my friends and readers

  (1)

(2)

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I’d love your preference of the 3 and any feedback!  Thanks guys!

The President signed the Housing Bill last week.  I’ve been reluctant to talk too much about it until I had a chance to understand some of the particulars.  I’ve learned a lot in the last week about it and consumer beware be aware.  There is a lot of hype and I’m not sure much help here.

The Associated Press release states that the housing bill is ‘intended to provide mortgage relief for 400,000 struggling homeowners’.   Supposedly, homeowners can get in touch with lenders to have their loans modified to a lower 30 year interest rate - government backed.   Which homeowners exactly?  Couple of caveats:

• Homeowners’ debt-to-income ratio must be greater than 31%
• Borrowers must be able to prove they can repay the loan
• The value of the loan cannot exceed 90% of the value of the property (duh?! This is part of the problem!)
• Another biggy - Lender participation - totally voluntary!
• FHA has a 3.0% refinance fee on this with a 1.5% annual surcharge.  Not sounding like much of a deal to me…
• Oh, and at the time of sale, (my favorite part - hear the sarcasm please) the seller is only entitled to 1/2 the appreciation.

Then there is the much touted $7500 tax credit for first time buyers.  This is a tax credit - but to be clear, it’s really a interest free loan to be paid back over the course of 15 years.  And if you sell prior to that time, it’s still to be paid in full that tax year.  Most first time buyers aren’t buying the home as a long term residence, hence the term ’starter home’.  I guarantee they won’t be loving that loan when it comes due no matter how much they may love it now.

And then there is the Capital Gains revision which is not getting a ton of press from what I can see.   Conventiently for lawmakers, it’s in the very last pages of the nearly 700 page document where most people are nearly asleep when they get there. 

The Capital Gains exclusion the homeowners and investors have enjoyed will be in place for the remainder of 2008.  It stated that a homeowner could take the gain from the sale of the a property tax free (up to $250,000 if single, $500,000 if married) as long as you had lived in the property 2 out of the last 5 years.  Many people have kept their homes as rentals for as much as three years to benefit from this law.

This has changed as of January ‘09.

The new calculation is as follows:

Given this, let’s look at example.  If you have a $100,000 profit from the sale of your home and you’ve lived in the home for 2 of the last 5 years, your Capital Gains Exclusion is $40,000.   Your taxable gain is $60,000.

Currently, the federal tax on capital gains is 15% (but watch the coming election; that may very well change).  So for the example, it would be $9,000.  California currently will tax the gain as ordinary income adding another $3600 to $4200 on top of this.  What would have been a $0 tax liability, is now a $12,600 to $13,200 tax liability under the new provision.  I’m not loving this relief plan just yet. 

(Heads up:  Please consult a tax advisor for calculations of Capital Gains and Income Tax.  I am not an Accountant.)

For those homeowners in California, owners of Orange County real estate specifically, this is a conservative calculation.  There are many of us that have lived in our homes for enough time that there is sizable gain, even with the price declines we’ve seen.  $100,000 may be a conservative gain for many.

For additional explanation on the Capital Gains side of the bill you can go to see Brad Nix’s site, or even better, take a look at the bill.  I’m always interested in your feedback.  Maybe someone will come up with something I haven’t appreciated yet.

Oh, oops, one thing I do like (it’s not perfect but I’m satisfied), the conforming loan limit although reduced from $725,000, has been permanently placed at $625,500.  We needed that 2 years ago, but thank you.

As for the relief, I don’t think this will bring it.  Unfortunately, this is a market cycle - albeit a tough one.  Let it runs its course.  I’m not sure this is the kind of help we needed.

‘Foreclosure frequency in O.C. looks pretty good vs. the rest of the state, where 40% of second-quarter sales had previously been through a foreclosure (And it was 73.3% in Merced!)’, according to Jonathon Lansneron his Orange County Real Estate Blog.  He also stated that Orange County didn’t look too bad by comparison.  25.1% of OC sales ‘were residences that had been involved in a foreclosure in the previous 12 months’.

Unfortunately, the numbers are likely to get worse before they get better.  The nice pick up in the market that we saw in May and June(characteristic of some summer buying activity) had some wondering if the bottom was in sight.  But July’s Indymac crisis brought showing activity to a near stand still.  New escrows have dropped dramatically and we may have seen the summer buying activity come to an early end.

The road is likely going to continue to be rocky for sellers in the coming months.  With the election fast approaching, past election years have shown us that buyers like to take a wait-and-see approach to the real estate market. 

Aren’t I just full of good news on this Monday morning!

Another bank falls apart, 1st Heritage Bank.  This is the first local one to fail in Orange County since 1994, according to Jonathon Lansner.  Check out Jonathon’s article for full details.

We’re not through this thing yet, not by a long shot.

Okay, you are not alone.  I’ve tried to tune in, I’ve even tweeted, I just have struggled with why.  Then I read a great article posted on The Real Estate Tomato Blog that helped.  Slowly but surely, it’s starting to make sense. 

I’ve also made a big discovery that I think will make it much more meaningful.  Do you want to Tweet a new blog post but the long URL makes it impossible to effectively Tweet?  Go to www.tinyurl.com for the solution.  Very easy and I’m suddenly seeing the possibilities!

So if you haven’t tried it, check out twitter.  Follow me - and I’ll follow you! 

The ground shook today while I was working from home and I couldn’t help but think, ‘Is this the Big One?’

In April ‘08, the U.S. Geological Survey came out with a report stating that, “California has more than a 99% chance of having a magnitude 6.7 or larger earthquake within the next 30 years….”   So when the quake was felt today, I’m sure many Californians wondered the same thing.

Why do we stay in California with the certainty of such a threat?   But really, what are the options?  Where do you go?  Everywhere has it’s own set of threats - tornadoes, hurricanes, and floods. 

And there are the minor annoyances of living in some of the other parts of the country that we have the luxury of doing without in California.  I just came home from vacation to see family in the Northeast so a couple of those minor annoyances in the front of my mind include humidity, mosquitoes, and bugs in general.  We also aren’t faced with extreme weather of any kind.

I also noticed some of the pictures in NY Times article.   Notice the smiles on the faces of the crowds.  Far from panic. It’s a brief moment, an adrenaline rush, and most of the time it passes and we feel the bravado of having missed another close call. 

So, I guess we will brave the possibilities and enjoy another mildly warm day in sunny Southern California.

I’ve had a few conversations with people about property taxes recently.  With the declining property values, some homeowners have recently applied to have their property values reassessed.

And then… the Property Value Notice came from the Office of the Assessor for Orange County increasing our Assessed Property Value 2% from last year.  Many are asking, what’s up?

Note the text in your letter - ‘The Factored Base Year Value is based on the market value of your property when it was aquired, PLUS any new construction, PLUS an inflation factor of no more than 2%.  The Factored Base Year Value is the maximum taxable value allowed under Proposition 13.’

Market conditions may not be increasing in values, but inflation is a factor. 

Also, for many homeowners, their Total Assessed Value is still less than Market Value.  Keep in mind, as much as it may be a bummer to have a 2% increase annually, it has been very beneficial to homeowners to have only a 2% annual increase in markets that were seeing 20%+ increase in values year over year.  In many areas of the country - that increase would be significantly higher based on the market conditions.

If you feel the Total Assessed Value is higher than Market Value, apply to the County for a Reassessment.  There are stipulations and restrictions (comps for Bank Owned sales and Short Sales are considered Distress Sales and will not be included), but you can have a reduction in your Total Assessed Value if the comparable sales are there.

Property owners that disagree with the taxable values on their June Taxable Value Notice can file an application for assessment appeal with the Clerk of the Board of Supervisors.  They use the perceived value as of January 1st, 2008 for the upcoming tax bill.  You may file your appeal between July 2 and September 15th of this year.  You may go to www.ocgov.com/cob for the necessary forms.

Try not to feel too badly about the 2%, especially if you’re Assessed Value is under Market Value.  Believe me, when you look at some of the other areas in the country, it’s not really not a bad deal.