Best Place Real Estate

You are so excited!  You have been approved for your loan.  You found your dream home.  The seller accepted your offer and escrow has been opened.  You can’t wait to move into your new home.  And of course, you must have new family room furniture.  Or, the house is in a great neighborhood but is a little dated and you plan to install all new appliances in the kitchen.  You want to buy what you need now so it can be delivered or installed as soon as escrow closes!

But stop!  Wait until after escrow closes before you make any major purchases!  Many buyers think that once they have loan approval they have passed the test, so to speak.  The lender has approved them for the loan and now they have nothing to worry about. 

But, what they may not be aware of is that the lender is assuming their financial state will remain about the same.  Before giving approval for a loan, the lender checks the potential borrower’s credit report, bank statements, employment, etc. and gives loan  approval based on that evaluation.  Something many buyers do not realize is that most lenders will check the borrower’s credit again, usually a few days before escrow closes.  So if a buyer makes several large purchases and increases his credit card debt, his debt to income ratio may be much higher than the lender is comfortable with.  Even paying cash may not be good as it may reduce cash reserves to a lower level  than the lender wants to see.

Changes in your debt to income ratio might mean that you will now have to pay higher rates, fees, and payments for your loan.  You many loose your financing all together.  Then you are in a situation where you are shopping for a loan at the last minute right before escrow closes.  If you are not able to qualify for a loan and have to back out of the transaction, you may even loose your initial deposit.

This is serious stuff.  My advice to buyers is to wait until after escrow closes before you make any large purchase of any type.  Or, at least check with your lender before doing so.   You could save yourself a lot of money and a lot of heart ache.

Looking at homes before you talk with a lender is like going to the mall with a gift card that you don’t know how much it is worth and which stores will take it.  Is it worth $1000 or $100?  Is it good at Nordstroms or at Sears?  Or at both?  Would you wander around the mall trying to decide what to buy with a gift card of unknown value?  What a waste of time!

But, this is exactly what a huge number of people do when shopping for a home.  Searching for qualification criteria and rates on the Internet is helpful, just as searching for homes on the Internet is a good way to do your homework.  However, before you physically go out and look at homes, you must actually talk with a real live lender.  Everyone’s situation is different and a good lender will find a program that will work best for you.

It is not only a matter of qualifying for a loan.  You also need to know how much the loan will cost and how much your payments will be.  You may qualify for way more than the monthly payment you are comfortable paying.  Also, there may be loan programs available that you are not aware of that will give you more flexibility in your purchase.  Once you know the loan amount you qualify for, how much the monthly payments will be, and the terms of the  loan, you will know what price range of homes to consider.  Like at the mall, you will know how much that gift card is worth.

Even if you are certain you can qualify for a loan, you still must talk with a lender first.  I have had very wealthy buyers run into problems when they attempt to get the loan.  These are people who can actually pay cash for the property and have lots of money left over.  Sure they can qualify, but it may not be for the loan or terms they thought they could get.  By the time they come to terms with the lender, the property they want is no longer available.

In addition,  it is to your advantage to have a pre-approval letter from a lender to submit with an offer to purchase.  A seller will consider your offer more seriously if they know that you already have loan approval. 

Not only do buyers consider the number of bathrooms in a home, they also consider the condition of the bathrooms.  To make yours show well: 

• Clean bathrooms from top to bottom.  They must be sparkling clean.
• Remove stains from sinks, tubs, and toilets.
• Polish faucets and repair any that are dripping or leaking.
• Unclog slow drains and make sure the sink pop-ups work properly.
• Repair and/or replace damaged or stained caulking.
• Remove water sports from shower doors and tub enclosures.
• All light bulbs should be the same wattage.
• Clear off the counter.  Only one or two items should be on the counter, such as a plant and nice soap dispenser.
• Hang up fresh towels.  If necessary, purchase new towels for showing the house.
• Pull back the shower curtain to expose the tub.  It makes the bathroom look bigger.
• And please, put the toilet lid down!!!

Buyers who are looking solely at distressed properties may not be getting the “good deal” they are looking for.  So many people are constantly viewing sites that post homes in foreclosure or that are bank owned thinking that this is where they will find good deals.  Just because a property is a short sale, in foreclosure, or is bank owned does not mean it is a good investment.  Many short sales have their short-comings.  (Sorry, I couldn’t resist!)   

There is so much in the media everyday about foreclosures and short sales.  Banking on this and the human desire to get rich quick, “specialists” are offering subscriptions to websites and classes on “buying short sales and foreclosures”, “how to buy bank owned properties”, “how to find distressed properties”, and so on and so on.  I often wonder if anyone other than those putting on the classes is making much money.  It is kind of like appealing to the American desire to be thin instantly.  I’m sure you’ve seen the ads.  “You don’t have to diet or exercise.  Eat whatever you want.  Just drink this drink or take this pill and you will lose 30 pounds.”  And, I love the before and after pictures.  “Before” shows a guy with a huge beer belly and “after” shows a guy with abs of steel.  And, of course, all this occurred within 2 weeks!

But the truth of the matter is that if you want to be thin, you need to eat a healthy diet and exercise.  And, the truth of the matter in real estate is that you need to look at all factors, not just price.   I am not saying don’t buy a bank owned property or foreclosure.  I’m saying look at the whole picture. 

One very important thing to consider when buying a distressed property is how many in the neighborhood are also distressed sales.  When there are many distressed sales in a neighborhood, those distressed sales now become the comps.  So, if you are looking at a bank owned property that previously sold for $500,000 and you buy it for $400,000, you are now the comp.  It is unlikely you will be able to turn around and sell it tomorrow for $500,000.  What may appear to be a hot deal on the surface may not really be so great when you do the homework.

Again, I’m not saying stay away from distressed sales; just know what you are doing.  In many neighborhoods, especially lower priced entry level homes, just about all the listings are either short sales or bank owned.  If you want to live in a specific neighborhood and plan to stay there for a while, you are buying at a great time.  If your goal is to build wealth and your real estate portfolio, what a great time to do it.  There is no question the market will turn around and when it does you will be happy you bought now.

The approach I suggest to my buyer clients is to first determine how much you can and want to invest in your purchase.  Then look at properties that meet your criteria in that price range.  Keep in mind how long you intend to keep that property and what you plan to do with it (primary residence, rental property, vacation home, retirement home).   Look at location, condition, neighborhood, commute to work, etc. as well as price.  The house you decide on may or may not be a distressed sale, but you can feel confident that it is the right property for your needs. 

With the current buyer’s market and the amount of available inventory, sellers need to do what they can to set themselves apart from their competition.  One way to do that is to have a pre-listing home inspection. 

It is always recommended that a buyer get a home inspection during the contingency period of the contract.  The purpose of this is to make the buyer aware of any problems or defects in the house.  It is like asking your mechanic to check out a car you are thinking of buying. 

However, it can be very beneficial to the seller to get an inspection before putting the house on the market.  For one, sellers are usually aware of the condition of their house, but a pre-listing inspection documents it.  After the inspection, the seller may decide to do some of the repairs so it is in better condition when it goes on the market.  Or, rather than doing the repairs, the seller can disclose the defects to potential buyers.  Disclosing this before an offer is made reduces the possibility of the buyer trying to renegotiate the price after the buyer’s home inspection.

Secondly, if there is a problem the seller is not aware of, the seller will find out up front rather than after an offer has been accepted and escrow opened.  At this point the seller can decide whether to make the repair or reflect the condition in the asking price.  If the problem is not discovered before the house is listed, it will be discovered when the buyers do their inspection during the contingency period.  So it is better to find out sooner than later.  It is really hard on sellers to think they have their house sold only to have the deal fall through after the buyer’s inspection. 

When you have a pre-listing inspection, your agent can advertise that it has been done and also provide interested buyers with a copy before they make an offer.  Buyers should still get their own inspection of the home, but it is less likely that a condition will be found that is a deal breaker.  Yes, the seller has to pay for the pre-listing inspection, usually around $250 to $500 depending on the size of the house.  But, this is money well spent.  It could very well help to sell your home more quickly and maybe even for more money.

So, do something your competition doesn’t want to bother with and set yourself and your home apart from all the rest!

I was showing property the other day to a young man who is moving from North Orange County.  He wanted to see condos for sale in Lake Forest and Laguna Hills.  While we were out looking, he told me that a few years ago he would not have even considered Lake Forest.  But now with The Arbor on El Toro and all the great dining and shopping available in the City, he would love to live in Lake Forest.  I myself have noticed that people are now coming to Lake Forest specifically for the new restaurants and shopping.  My personal favorites in The Arbor are Boneheads and Home Goods.  We are now a “destination” city!

They City is having an Opening Celebration this Saturday, April 19, from 11:00 to 4:oo at The Arbor on El Toro.  Come join the fun and see for yourself how far Lake Forest has come.

A friend recently asked me this question.  My advise was to remember the Internet.  Over 80% of buyers start their search for a home on the Internet and most will only look at the listings with photos.  You know, “a picture is worth a thousand words”.  

Although the teal blue carpet may look great with your decor, many people prefer a neutral color that goes with everything.  Many buyers will consider teal to be an outdated color. 

When a buyer looks at photos of a home with teal carpeting, different thoughts come to mind.  For example, “If the carpeting is outdated, the whole house must be dated”.  Or, “A house with teal carpeting must have old appliances”.  Or,”This looks like a cosmetic fixer.  Maybe I can get it for a lower price”.  Many buyers do not want to be bothered with a dated home unless there is something really special about it, like an outstanding view or a cul-de-sac location.  Or, if they are interested, they want it for a really low price.

Another thing to consider is that the buyers who see it on the Internet and decide to look at it, already have an opinion of the condition of the home.  So, you may have a strike against you before they even walk in the front door.

Many times sellers will offer a carpet allowance.  You can do that, but when you put that in the listing, what you are really doing is suggesting that the house is not up to par. 

My suggestion is that if you can afford to replace the carpeting, do it before you put the house on the market.  Install a medium grade carpet with very neutral color.  New carpeting makes a huge difference in a home.  It will help to sell your home more quickly and probably for a better price.  And the photos on the Internet will look a lot more inviting!

So many of us are interested in protecting the environment and ourselves with the use of “green” buildings.  The City of Lake Forest supports this effort and has provided an excellent resource for information on going green on its website.  The site includes a list of “5 Things Everyone Can Do To Go Green”.  Even if everyone did only one or two on the list, Lake Forest would be “greener”.

The “walk-thru”, also known as the “Verification of Property Condition”, is typically done about 5 to 7 days before escrow closes.  The RPA-CA, California Residential Purchase Agreement and Joint Escrow Instructions, is the contract generally used in purchasing residential property.  According to the RPA-CA, the property is sold “in its present physical condition as of the date of Acceptance”.  In other words, the seller needs to continue to properly care for and maintain the property during the escrow period.  For example, the seller shouldn’t reason that now that he has a buyer, he doesn’t need to water the lawn anymore and let it die while the property is in escrow.

The purpose of the “walk-thru” is two fold.  One is for the buyer to verify that the property is essentially in the same condition as of the date of the acceptance of the offer.  The other is to confirm that the seller has completed any repairs that were agreed upon by the buyer and seller.

The “walk-thru” should not be considered as an opportunity to get out of the contract.  It is not the time for you to go through the house looking for things you don’t like or for things that are wrong.  The buyer has a “contingency period” which is usually 17 calendar days after acceptance.  This is the time for the buyer to do inspections and investigations of the property and to satisfy himself that he indeed wants to purchase this house.  So, for example, if during the “walk-thru” you notice that the cook-top is electric and you really want gas, it is too late to change your mind.  Depending on how the contract is written, if you decide to back out of the deal at this point, you could loose your deposit among other consequences.

Very few transactions are terminated because of a condition noted during the “walk-thru”.  It is usually a very pleasant experience.  The buyers are excited because it is only a few days until escrow will close on their new home.  Sellers will often use the time to show buyers little things on the house such as how to turn on the sprinklers, where to get the mail, what day to put the garbage out, where they have stored extra paint,etc.

The “walk-thru” is actually something to look forward to for both buyers and sellers.

Price is important.  But, please, look at the whole picture!  Look at all the factors involved in a real estate purchase. 

Yes, the price is really important, but so are the mortgage rates.  It is possible for prices to go down further and for rates to go up.  In this case, the house payment on a piece of property could be the same or even higher than when the price was higher.  In his article, The Fed and Mortgge Rates, Bill McCord gives a clear and well written explanation of rates.  Real estate mortgage rates are a big part of the real estate buying picture.

Another thing that is so important to remember is that, for most part, real estate is a long term investment.  Consider the location of the property, floor-plan, amenities, etc.  If you are buying income property, will you be able find tenants easily and how much can you expect to receive in rents?

Even though there are many distressed sales currently on the market, there are some properties that have a lower price for a reason.  Is it simply that the seller needs to unload the property now, or is there something less desirable about this property that is making it harder to sell?  When you attempt to sell it in the future, will it also be harder for you to sell for the same reason?  For example, a home on the view side of the street will usually sell for more than the same home across the street without the view.  Even if the non-view house is asking a really low price, you could very well be better off paying more to be on the view side of the street.  When prices start appreciating again (and they will), your view property will be even more valuable.

Like any other investment, when purchasing real estate you need to look the whole picture.