Finally I've found articles that actually take the opposite tack as most others... read this one from a Van Eck-Tillman Advisors who supposedly has predicted all major market moves for 32 years.
http://www.millionaireriches.com/wpblogger/?p=36#more-36
After reading the above, we may actually be in a lull, with a new housing boom coming as soon as Buyers realize the newspapers are wrong. So check out my internet links for home searches in San Francisco, and if you're interested in investment properties outside of city, I've found some pretty good investments, so drop me an email if you're interested.
8/28/06
Yes, another "Bubble" comment
Each time I read another article, I can't help but add my two cents. There are so many "Bubble Blogs" out there with 100% certainty that we're about to have a major crash just like the dot-com crash or the early 1990s when home prices took a dive. Unfortunatly for them (fortunately for us homeowners) the comparisons are way off. One big one is that job losses and unemployment caused so much of the duress in the 1990's when Seller's had to sell, and there were few buyers. Now, job reports are all positive, and Seller's are not under duress. Another is that there was an 18 month supply of homes in the early 90's, now it's about 6 months which is dividing line between a Buyer's market and a Seller's market. We've got a LONG way to go to 18 months supply.
The reason bubble pundits are so positive is that in 2007 about 12% of the nation's mortgage debt will switch to adjustable payments. But is this 12% of all homes? Not likely. About 8% of all homes change hands each year. With about 40% of loans being the risky ARMs the bubble pundits are so worried about in the last couple of years, that means about 3.2% of homes are at risk each year for the 2 or 3 year period that ARM's were so prominent. These ARM's also varied in length, generally from 3 to 10 years which spreads it out even further.
But let's say that 3.2% of homes are at risk each year. First off, 8% of homes change hands each year. That leaves nearly 5% not at risk, who don't need to sell. Plus, don't you think ARM holding homeowners know their rates are going to adjust? Don't you think they realized that they needed to Sell or refinance before their ARM's adjusted? If they got a 5 year ARM, maybe they realized that 3 to 5 years is the average length of time many homeowners stay in their homes? How many of these homeowners will really be at risk? My guess is a very few will not act proactively and end up in Foreclosure or in a rush sale. Definitely not enough to "crash" the market. Additionally, banks HATE foreclosure. And with money supply so massive, it's likely that Banks will do what they can to alleviate the situation, including offering great refinance programs. Banks are used to a very brisk mortgage business, and are doing what they can to keep that business high. So the so-called bad debt is likely to be sold, or rolled into a new mortgage. Yes, foreclosures will rise, and yes the media will jump all over thos new numbers. Personally, that just means it will be a GREAT time to invest in real estate to pick up cheap properties in an overall strong real estate market.
Finally, many of those whose ARM's are going to adjust are in the money - they're homes have appreciated quite nicely, so they can refinance and either keep their payments low, or cash out. Or they can sell comfortably without being upside down and having to do a Short Sale. The bottom line.... the bubble pundits need to look a little harder at the facts they use to justify their predictions. 3 trillion in adjustable debt coming due in 2007 sounds horrible at first glance, but upon closer inspection, it's likely to be a minor blip on the housing market radar.
sources:
http://www.nytimes.com/2005/06/16/realestate/16arm.html?ei=5088&en=d4ea9a4dd01af4d5&ex=1276574400&partner=rssnyt&emc=rss&pagewanted=print
http://www.financialservicesfacts.org/financial2/mortgage/homeown/
The reason bubble pundits are so positive is that in 2007 about 12% of the nation's mortgage debt will switch to adjustable payments. But is this 12% of all homes? Not likely. About 8% of all homes change hands each year. With about 40% of loans being the risky ARMs the bubble pundits are so worried about in the last couple of years, that means about 3.2% of homes are at risk each year for the 2 or 3 year period that ARM's were so prominent. These ARM's also varied in length, generally from 3 to 10 years which spreads it out even further.
But let's say that 3.2% of homes are at risk each year. First off, 8% of homes change hands each year. That leaves nearly 5% not at risk, who don't need to sell. Plus, don't you think ARM holding homeowners know their rates are going to adjust? Don't you think they realized that they needed to Sell or refinance before their ARM's adjusted? If they got a 5 year ARM, maybe they realized that 3 to 5 years is the average length of time many homeowners stay in their homes? How many of these homeowners will really be at risk? My guess is a very few will not act proactively and end up in Foreclosure or in a rush sale. Definitely not enough to "crash" the market. Additionally, banks HATE foreclosure. And with money supply so massive, it's likely that Banks will do what they can to alleviate the situation, including offering great refinance programs. Banks are used to a very brisk mortgage business, and are doing what they can to keep that business high. So the so-called bad debt is likely to be sold, or rolled into a new mortgage. Yes, foreclosures will rise, and yes the media will jump all over thos new numbers. Personally, that just means it will be a GREAT time to invest in real estate to pick up cheap properties in an overall strong real estate market.
Finally, many of those whose ARM's are going to adjust are in the money - they're homes have appreciated quite nicely, so they can refinance and either keep their payments low, or cash out. Or they can sell comfortably without being upside down and having to do a Short Sale. The bottom line.... the bubble pundits need to look a little harder at the facts they use to justify their predictions. 3 trillion in adjustable debt coming due in 2007 sounds horrible at first glance, but upon closer inspection, it's likely to be a minor blip on the housing market radar.
sources:
http://www.nytimes.com/2005/06/16/realestate/16arm.html?ei=5088&en=d4ea9a4dd01af4d5&ex=1276574400&partner=rssnyt&emc=rss&pagewanted=print
http://www.financialservicesfacts.org/financial2/mortgage/homeown/
Home Size - the meaning of Square Feet
A common question among home buyers is what is included in "Square Feet" measurements. I'll explain what a home appraiser explained to me, and add my own thoughts that you ought to be aware of when comparing homes.
First, no outdoor space of any kind is included in Square Feet (SqFT) measurements. That includes decks, yards, roof decks, etc. Of course each of these add greatly to value. Imagine a deck right off your kitchen allowing you to BBQ or just relax right outside. Two condos with 1,200 SqFt would justifiably feel much different in size, so when comparing Price Per SqFt be careful to take this into consideration.
Second, I was told appraisers measure from the outside of the walls in, and include ALL interior space. This means closets are included, and it of course means an extra wide hallway that can only be used as a hallway, and foyer's or other types of "wasted" space are included. This is VERY important too. The same 1,200 SqFt Condos would have dramatically different living spaces. In many older Victorian or Edwardian Condos you'll find very wide hallways. Whereas in new Condos, or even in other Victorians, you'll find minimal hallway space. I've seen 1,600 SqFt Condos that felt smaller than well laid out 1,200 SqFt Condos.
Lastly, it is not unusual to see significant differences in SqFt measurements. One appraiser might measure from the outside of the wall inward. This adds about 1 foot of space if the walls are 6 inches thick. And then there are just plain old mistakes made in measurements. So as a Real Estate Agent who does VERY thorough "CMA's" (Comparative Market Analysis) to help my Buyers and Sellers understand the value of homes, I DO use price per SqFt to make comparisons. But it is only one of the many things I compare and analyze. I'll try to visit the comparable homes, but when I can't I thoroughly review the photos from the Listing, I read the marketing and "agent-only" remarks, I check the tax records for SqFt size, and I'll call both the Seller's agent and the Buyer's agent in the transaction for the comparable home that sold. After gathering and analyzing all of this information, only then will I be able to include or eliminate some of the ones that seemed comparable based on SqFt size.
The bottom line for you.... as long as the space is livable, and what you want, that should be much more important than a home that claims to be larger, yet doesn't feel it.
First, no outdoor space of any kind is included in Square Feet (SqFT) measurements. That includes decks, yards, roof decks, etc. Of course each of these add greatly to value. Imagine a deck right off your kitchen allowing you to BBQ or just relax right outside. Two condos with 1,200 SqFt would justifiably feel much different in size, so when comparing Price Per SqFt be careful to take this into consideration.
Second, I was told appraisers measure from the outside of the walls in, and include ALL interior space. This means closets are included, and it of course means an extra wide hallway that can only be used as a hallway, and foyer's or other types of "wasted" space are included. This is VERY important too. The same 1,200 SqFt Condos would have dramatically different living spaces. In many older Victorian or Edwardian Condos you'll find very wide hallways. Whereas in new Condos, or even in other Victorians, you'll find minimal hallway space. I've seen 1,600 SqFt Condos that felt smaller than well laid out 1,200 SqFt Condos.
Lastly, it is not unusual to see significant differences in SqFt measurements. One appraiser might measure from the outside of the wall inward. This adds about 1 foot of space if the walls are 6 inches thick. And then there are just plain old mistakes made in measurements. So as a Real Estate Agent who does VERY thorough "CMA's" (Comparative Market Analysis) to help my Buyers and Sellers understand the value of homes, I DO use price per SqFt to make comparisons. But it is only one of the many things I compare and analyze. I'll try to visit the comparable homes, but when I can't I thoroughly review the photos from the Listing, I read the marketing and "agent-only" remarks, I check the tax records for SqFt size, and I'll call both the Seller's agent and the Buyer's agent in the transaction for the comparable home that sold. After gathering and analyzing all of this information, only then will I be able to include or eliminate some of the ones that seemed comparable based on SqFt size.
The bottom line for you.... as long as the space is livable, and what you want, that should be much more important than a home that claims to be larger, yet doesn't feel it.
Supply-Demand & the "Bubble"
U.S. Population growth is roughly 3 million people per year, yet in one of the most expansive housing booms in history the U.S. added "only" 1.8 million new housing units. With all the bubble fears, builders may slow in new construction, but population growth seems to be rising.
The current average household size is about 2.37 people per household, yet new home growth vs. population growth is equivalent to building one new home for every 1.53 people. While this might seem that we're overbuilding, in fact household size seems to be shrinking rapidly with more single people buying homes, delaying marriage, and limiting their households when they finally do marry and have children. Plus, the retiring Baby Boomers are buying second and even third homes, which is 1 person per household if you consider a retired couple with 2 homes.
Whats more, certain states are growing even faster than the U.S. in population vs. housing unit growth. Arizona's new construction must squeeze in 2.29 persons per household, yet this is a retirement and second home mecca (and you thought Arizona was a bad investment now - NOT!!!). Texas is at 2.17 persons, and Utah at 2 persons per household. California is "only" 1.59 person per new household being built, but that is higher than the national average, and here in San Francisco, the persons per household is likely much lower than the rest of the country, AND we're not building many new units.
As of today, Monday August 28th 2006, interest rates have slipped for 5 consecutive weeks. Rising rates is the #1 culprit cited by Bubble maniacs as the cause of the so called Bubble. But with rates staying steady, and population on a never ending upward spiral with land not increasing, demand should continue to outweigh supply and continue to increase property values for eternity. Personally, I think the bubble has already burst earlier this year. Now home prices are steady, and are likely to start an average increase each year around 3% or so. However, when you read news reports in the coming months that show a turn down in prices, longer time on the market, and fewer homes being sold, keep in mind that what you're reading is older news. The news about the decline I saw from September 2005 through March of 2006 has yet to come out. When it does come out it will scare the heck out of everyone. To me that means that between right now and when that news comes out will be the ideal time to pick up homes for bargain prices just before everyone realizes prices are already on the rise once again.
Sources for this article included:
http://www.census.gov/Press-Release/www/2006/cb06-127table3_rev.xls
http://www.census.gov/Press-Release/www/releases/archives/statepop05table.xls
http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty.htm
wikipedia.org/
The current average household size is about 2.37 people per household, yet new home growth vs. population growth is equivalent to building one new home for every 1.53 people. While this might seem that we're overbuilding, in fact household size seems to be shrinking rapidly with more single people buying homes, delaying marriage, and limiting their households when they finally do marry and have children. Plus, the retiring Baby Boomers are buying second and even third homes, which is 1 person per household if you consider a retired couple with 2 homes.
Whats more, certain states are growing even faster than the U.S. in population vs. housing unit growth. Arizona's new construction must squeeze in 2.29 persons per household, yet this is a retirement and second home mecca (and you thought Arizona was a bad investment now - NOT!!!). Texas is at 2.17 persons, and Utah at 2 persons per household. California is "only" 1.59 person per new household being built, but that is higher than the national average, and here in San Francisco, the persons per household is likely much lower than the rest of the country, AND we're not building many new units.
As of today, Monday August 28th 2006, interest rates have slipped for 5 consecutive weeks. Rising rates is the #1 culprit cited by Bubble maniacs as the cause of the so called Bubble. But with rates staying steady, and population on a never ending upward spiral with land not increasing, demand should continue to outweigh supply and continue to increase property values for eternity. Personally, I think the bubble has already burst earlier this year. Now home prices are steady, and are likely to start an average increase each year around 3% or so. However, when you read news reports in the coming months that show a turn down in prices, longer time on the market, and fewer homes being sold, keep in mind that what you're reading is older news. The news about the decline I saw from September 2005 through March of 2006 has yet to come out. When it does come out it will scare the heck out of everyone. To me that means that between right now and when that news comes out will be the ideal time to pick up homes for bargain prices just before everyone realizes prices are already on the rise once again.
Sources for this article included:
http://www.census.gov/Press-Release/www/2006/cb06-127table3_rev.xls
http://www.census.gov/Press-Release/www/releases/archives/statepop05table.xls
http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty.htm
wikipedia.org/
8/21/06
8/18/06
Hiring a Listing Agent
First - why hire a listing agent to sell your home? Mainly because you are more than likely to get more money, and have to do much less work. "More for less" vs. trying to sell on your own, and having to work very hard without knowing the tricks of the trade that only experience can bring. What those tricks of the trade are is an entire article, or book, unto itself, but rest assured, any mistake can cost you lots of money in selling too low, or taking too long to sell, or setting yourself up for potential law suits by missing important disclosures.
I'll touch on a few of the key tricks of the trade that you ought to ask about when you are comparing and interviewing Listing Agents. Just about every expert says "interview at least three listing agents". I couldn't agree more, even though that means I'll have at least two competitors each time I meet with a potential Seller client.
So what questions should you ask each Listing Agent? Here are some key ones:
1. How will you attract the most amout of buyers to my home?
2. How will you generate and/or negotiate the highest possible price for my home?
3. What do you do differently than other Listing Agents?
4. Do you offer any guarantees?
5. What is my home worth - show me how you got to that number?
6. What commission do you charge - how does that effect my bottom line?
From the above answers you will discover how confident the Agent is, how knowledgable, and you will have much to compare between the three or more agents you interview. One of the "new" tricks of the trade is use of the internet to attract buyers. The internet has taken over for print (magazines and newspapers) in a big way, and effective use of the internet is only practiced by a small percentage of Listing Agents even though research shows this is what Buyers use to find homes. If Buyers use the internet, why isn't your Listing Agent? If you're selling on your own, are you an internet expert? Do you know how buyers find homes and what they're looking for?
What about commission. The biggest mistake Sellers make is in trying to save commission rather than thinking about how a low commission is more than likely to lead to a much lower sales price. So ask what you're likely to Net in a sale, and how the Listing Agent thinks he/she can get more for your home. But commission is negotiable, and you ought to have a thorough discussion about it. Those that say "take it or leave it" ought to be left in the dust. Keep interviewing until you find a great agent who can illustrate how the commission can actually help you sell your home.
Finally, a true testament to whether or not an agent is experienced is in their "CMA" or Comparable Market Analysis which estimates your home's value in the current market. This requires market expertise, and is one of the most critical elements in any sale since the CMA is what you'll base your "Asking Price" on. Price it too high and you may lose money in the end. In San Francisco, pricing it too low is rarely a mistake, but pricing it just right, is a must to guarantee the most buyers coming through, and the most and best offers.
If you'd like to interview me to get all of the above answers, then just drop me an email to robr@kw.com
I'll touch on a few of the key tricks of the trade that you ought to ask about when you are comparing and interviewing Listing Agents. Just about every expert says "interview at least three listing agents". I couldn't agree more, even though that means I'll have at least two competitors each time I meet with a potential Seller client.
So what questions should you ask each Listing Agent? Here are some key ones:
1. How will you attract the most amout of buyers to my home?
2. How will you generate and/or negotiate the highest possible price for my home?
3. What do you do differently than other Listing Agents?
4. Do you offer any guarantees?
5. What is my home worth - show me how you got to that number?
6. What commission do you charge - how does that effect my bottom line?
From the above answers you will discover how confident the Agent is, how knowledgable, and you will have much to compare between the three or more agents you interview. One of the "new" tricks of the trade is use of the internet to attract buyers. The internet has taken over for print (magazines and newspapers) in a big way, and effective use of the internet is only practiced by a small percentage of Listing Agents even though research shows this is what Buyers use to find homes. If Buyers use the internet, why isn't your Listing Agent? If you're selling on your own, are you an internet expert? Do you know how buyers find homes and what they're looking for?
What about commission. The biggest mistake Sellers make is in trying to save commission rather than thinking about how a low commission is more than likely to lead to a much lower sales price. So ask what you're likely to Net in a sale, and how the Listing Agent thinks he/she can get more for your home. But commission is negotiable, and you ought to have a thorough discussion about it. Those that say "take it or leave it" ought to be left in the dust. Keep interviewing until you find a great agent who can illustrate how the commission can actually help you sell your home.
Finally, a true testament to whether or not an agent is experienced is in their "CMA" or Comparable Market Analysis which estimates your home's value in the current market. This requires market expertise, and is one of the most critical elements in any sale since the CMA is what you'll base your "Asking Price" on. Price it too high and you may lose money in the end. In San Francisco, pricing it too low is rarely a mistake, but pricing it just right, is a must to guarantee the most buyers coming through, and the most and best offers.
If you'd like to interview me to get all of the above answers, then just drop me an email to robr@kw.com
8/15/06
State of the market - August 2006 update
Someone living out of state just asked, so I'll recap my basic findings given my recent Listings, and my recent Buyers who have bought properties.
1. Desireable properties, in desirable neighborhoods are flat at worst, with some areas up from last year, and some properties still getting multiple offers. Although it's usually 3 to 5 offers, not 10 to 30 offers.
2. Undesirable properties, in undesirable neighborhoods have taken a beating.
3. Areas like South Beach and SOMA where new construction continues to go up, thereby continually increasing supply is a unique area all to itself. It still looks like a stand off to me. Enough buyers are buying to keep prices from falling, but the inventory is growing every month with Seller's choosing to just wait for the right offer without dropping the price. I estimate a 3 to 4 month supply of homes for sale right now, which is very high for San Francisco. Then again, 6 months is what the experts say is the dividing line between a Seller's market and a Buyer's market. But my feeling is we may jump up to a 6 month supply in September since many Seller's wait out the Summer before listing their homes. If that happens, Seller's may blink first, and prices would start coming down.
4. Even if South Beach and SOMA come down in prices, I still don't see that effecting the very pricy north eastern part of the city, or neighborhoods like Noe Valley where there is next to no new supply. Demand is still higher than supply, and well priced homes are selling quickly. Plus there are still a ton of buyers on the sidelines just waiting for these areas to drop so they can get in. So if it were to drop, these buyers would prop it right back up.
Finally, interest rates have remained steady right around the 7% market, and as long as they don't go up further, there is no new pressure on prices.
So is it a good time to buy? Well, that depends. Not if think you'll get the same kind of crazy price appreciation of prior years. But it is if you want to buy and hold for at least a few years. Buy in a less desireable area, and you've got your bargain at 10% to 20% below last year - you can wait for the next crazy market to prop up prices. Buy in a more sought after higher priced area you will still pay a premium, but at least you don't have to fight to buy it against 10 to 30 other offers. Don't expect these areas to drop, so if you want to own a home, now is a good time to buy.
Stay on top of the market at www.SF-MLS-Search.com and email or call me if you're looking for more help.
1. Desireable properties, in desirable neighborhoods are flat at worst, with some areas up from last year, and some properties still getting multiple offers. Although it's usually 3 to 5 offers, not 10 to 30 offers.
2. Undesirable properties, in undesirable neighborhoods have taken a beating.
3. Areas like South Beach and SOMA where new construction continues to go up, thereby continually increasing supply is a unique area all to itself. It still looks like a stand off to me. Enough buyers are buying to keep prices from falling, but the inventory is growing every month with Seller's choosing to just wait for the right offer without dropping the price. I estimate a 3 to 4 month supply of homes for sale right now, which is very high for San Francisco. Then again, 6 months is what the experts say is the dividing line between a Seller's market and a Buyer's market. But my feeling is we may jump up to a 6 month supply in September since many Seller's wait out the Summer before listing their homes. If that happens, Seller's may blink first, and prices would start coming down.
4. Even if South Beach and SOMA come down in prices, I still don't see that effecting the very pricy north eastern part of the city, or neighborhoods like Noe Valley where there is next to no new supply. Demand is still higher than supply, and well priced homes are selling quickly. Plus there are still a ton of buyers on the sidelines just waiting for these areas to drop so they can get in. So if it were to drop, these buyers would prop it right back up.
Finally, interest rates have remained steady right around the 7% market, and as long as they don't go up further, there is no new pressure on prices.
So is it a good time to buy? Well, that depends. Not if think you'll get the same kind of crazy price appreciation of prior years. But it is if you want to buy and hold for at least a few years. Buy in a less desireable area, and you've got your bargain at 10% to 20% below last year - you can wait for the next crazy market to prop up prices. Buy in a more sought after higher priced area you will still pay a premium, but at least you don't have to fight to buy it against 10 to 30 other offers. Don't expect these areas to drop, so if you want to own a home, now is a good time to buy.
Stay on top of the market at www.SF-MLS-Search.com and email or call me if you're looking for more help.
7/31/06
TIC's (Tenancy in Common) basics
TIC stands of Tenancy in Common which most of the country just sees as one of the many ways a married couple can hold Title to their home. But in San Francisco it's become a way for individuals (or couples) to buy apartments in building's that are not Condos. In most of the rest of the country, converting an apartment building into Condos is a "relatively" easy process. In San Francisco, it is anything but easy. Condo conversion is severely restricted here, so buying via Tenancy in Common has become the only way for individuals to purchase exclusive use of an apartment in a building that looks, acts and feels like a Condo, but isn't a Condo (and may never become one).
To get a fully detailed legal primer on what TIC's are, you should visit either http://www.g3mh.com/articles.htm or http://www.andysirkin.com/HTMLArticle.cfm?Article=1
This post is not intended to be legal advice, and given how often things change, this post could be severly outdated by the time you read it. So this post is simply to alert buyers to what the heck a TIC is when they see it come up time and again in their general searches for apartments to buy.
The #1 reason I hear from Buyers about their interest in TIC's is that they are cheaper than Condos. Unfortunately, they are cheaper for several reasons that many buyers don't want to deal with, or can't. One is that often times the downpayment requirements are for 20% or more, whereas with Condos many buyers can get loans that require 10% or less cash. The other big issue for buyers is that TIC's require you to go on the same loan as the other buyers (or current owners) of apartments in the building. In a condo you get your own loan. In a TIC you get a loan with every other owner/buyer. In a 6 unit building that means you've got 5 other parties who share loan payments with you. There are several banks that have come up with individual loans for TIC buyers recently, but these generally require higher down payments, and have higher interest rates. Over time, these loans may get better and better, but for many these loans aren't all that attractive just yet.
So in general, if you don't have a good downpayment, and you don't care to deal with others for your loan, then TIC's are most likely not for you. On the other hand, TIC's have become so common in San Francisco that they're starting to look and feel like Condos more and more. You will or should have a TIC agreement and usually all the house rules that you get with Condo associations. The TIC agreement spells out what happens if someone defaults on their loan. And in all buildings with 6 or fewer apartments, you have a chance to Condo convert some time in the future.... at least for now. The city's board of supervisors always seems to be coming up with ways to limit or eliminate Condo conversions, so again, visit the above two sites for much more indepth information on TIC's, and for more questions or concerns, consult one of the attorney's that you'll find at both of the above sites. And you should also keep in mind, that while a Condo allows you to get your own loan, you still share common areas and neighbors and have an HOA board making decisions for the building.
So.... TIC's are cheap because they are hard to understand, they often require more cash, you often pay higher interest rates, the city seems to hate them and makes owning them more difficult when they can, and sharing ownership with people you don't know just doesn't work for some people. So if you like TIC's, keep the above in mind when you try to re-sell it down the road. The pool of buyers is likely to be far less than a comparable Condo's pool of buyers. On the other hand, if you want to own an apartment for 5%, 10% and even 20% and 30% below comparable Condos, then TIC's are the way to go. In the sub $400,000 price range TIC's are probably your only option. And in all higher price ranges you'll get a bigger, nicer TIC apartment than a similarly priced Condo apartment.
To get a fully detailed legal primer on what TIC's are, you should visit either http://www.g3mh.com/articles.htm or http://www.andysirkin.com/HTMLArticle.cfm?Article=1
This post is not intended to be legal advice, and given how often things change, this post could be severly outdated by the time you read it. So this post is simply to alert buyers to what the heck a TIC is when they see it come up time and again in their general searches for apartments to buy.
The #1 reason I hear from Buyers about their interest in TIC's is that they are cheaper than Condos. Unfortunately, they are cheaper for several reasons that many buyers don't want to deal with, or can't. One is that often times the downpayment requirements are for 20% or more, whereas with Condos many buyers can get loans that require 10% or less cash. The other big issue for buyers is that TIC's require you to go on the same loan as the other buyers (or current owners) of apartments in the building. In a condo you get your own loan. In a TIC you get a loan with every other owner/buyer. In a 6 unit building that means you've got 5 other parties who share loan payments with you. There are several banks that have come up with individual loans for TIC buyers recently, but these generally require higher down payments, and have higher interest rates. Over time, these loans may get better and better, but for many these loans aren't all that attractive just yet.
So in general, if you don't have a good downpayment, and you don't care to deal with others for your loan, then TIC's are most likely not for you. On the other hand, TIC's have become so common in San Francisco that they're starting to look and feel like Condos more and more. You will or should have a TIC agreement and usually all the house rules that you get with Condo associations. The TIC agreement spells out what happens if someone defaults on their loan. And in all buildings with 6 or fewer apartments, you have a chance to Condo convert some time in the future.... at least for now. The city's board of supervisors always seems to be coming up with ways to limit or eliminate Condo conversions, so again, visit the above two sites for much more indepth information on TIC's, and for more questions or concerns, consult one of the attorney's that you'll find at both of the above sites. And you should also keep in mind, that while a Condo allows you to get your own loan, you still share common areas and neighbors and have an HOA board making decisions for the building.
So.... TIC's are cheap because they are hard to understand, they often require more cash, you often pay higher interest rates, the city seems to hate them and makes owning them more difficult when they can, and sharing ownership with people you don't know just doesn't work for some people. So if you like TIC's, keep the above in mind when you try to re-sell it down the road. The pool of buyers is likely to be far less than a comparable Condo's pool of buyers. On the other hand, if you want to own an apartment for 5%, 10% and even 20% and 30% below comparable Condos, then TIC's are the way to go. In the sub $400,000 price range TIC's are probably your only option. And in all higher price ranges you'll get a bigger, nicer TIC apartment than a similarly priced Condo apartment.
Remodeling - buy for less, sell for more
Buying a home for less can be compared to buying a car for less. Buy last year's model, and be willing to walk away during negotiations. Last year's model can be just that. In the SOMA/South Beach/Mission Bay where all the new construction is going up, you can buy a condo in a building that was "hot" last year, or 5 years ago. There is so much new construction, that there is a glut of inventory, and older condos aren't as interesting to most buyers. But this year's new construction is next year's old news, so why pay a premium when it will just be old next year?
Most of the rest of the city where there is hardly any new construction, you can look for non-remodeled, older condition homes. The trick is to find something that looks terrible, but is structurely sound. A home that smells is a perfect example. Most buyers just walk out. But most smells can usually be eliminated by getting rid of an old carpet and repainting and cleaning up.
When it comes to remodeling, you must think about whether you are remodeling for yourself, or remodeling to sell at a profit. A recent Seller of mine did a $100,000 remodel that was entirely to her taste, and not necessarily what the majority of Buyers would want. I estimated she got about $20,000 in value out of her remodel, and then she needed to sell 1.5 years later so she barely enjoyed her remodeled home. She probably could have spent $20,000 on her remodel, and gotten $30,000 or $40,000 out of it has she done it in a more generic way.
So go ahead and get hardwood floors, but you can buy good looking ones that cost less, not the highest end, and still get full value out of them. Get your home painted just before you sell, but find the cheapest painter, not the one who says he's worth more, because he really isn't when it comes to selling the home. Don't get the highest end appliances for your kitchen, get ones that look good, but cost less. Don't get custom granite counters, get the ones on sale. Don't change the structure of your home unless it will dramatically improve the value of your home.
Your goal is for it to "show" well, and cost you the least possible. When you buy, look for homes that just need these cosmetic upgrades, and find the cheapest ways of getting the work done. Then spend a couple of thousand dollars on staging, and that will make the home look even better, and sell for more. Again, take the opposite advice when buying... buy unstaged homes, that need paint. They will sell for less even though their value is virtually the same as a staged home that has been newly painted.
Most of the rest of the city where there is hardly any new construction, you can look for non-remodeled, older condition homes. The trick is to find something that looks terrible, but is structurely sound. A home that smells is a perfect example. Most buyers just walk out. But most smells can usually be eliminated by getting rid of an old carpet and repainting and cleaning up.
When it comes to remodeling, you must think about whether you are remodeling for yourself, or remodeling to sell at a profit. A recent Seller of mine did a $100,000 remodel that was entirely to her taste, and not necessarily what the majority of Buyers would want. I estimated she got about $20,000 in value out of her remodel, and then she needed to sell 1.5 years later so she barely enjoyed her remodeled home. She probably could have spent $20,000 on her remodel, and gotten $30,000 or $40,000 out of it has she done it in a more generic way.
So go ahead and get hardwood floors, but you can buy good looking ones that cost less, not the highest end, and still get full value out of them. Get your home painted just before you sell, but find the cheapest painter, not the one who says he's worth more, because he really isn't when it comes to selling the home. Don't get the highest end appliances for your kitchen, get ones that look good, but cost less. Don't get custom granite counters, get the ones on sale. Don't change the structure of your home unless it will dramatically improve the value of your home.
Your goal is for it to "show" well, and cost you the least possible. When you buy, look for homes that just need these cosmetic upgrades, and find the cheapest ways of getting the work done. Then spend a couple of thousand dollars on staging, and that will make the home look even better, and sell for more. Again, take the opposite advice when buying... buy unstaged homes, that need paint. They will sell for less even though their value is virtually the same as a staged home that has been newly painted.
Condo vs. Single Family Home?
There is much to consider when deciding whether to buy a Single Family Residence (SFR) or a Condo. Size and space is one, which leads to a cost difference too. In general, Condos are much cheaper than homes, partly because you can't find 1 bedroom SFR's, and few 2 bedroom SFR's whereas these are the most common Condo sizes. But SFR's are more expensive mostly because you get much more space in an SFR even when they're listed as the same size as a Condo. For example, a 2 bedroom, 2 bath, 1500 SqFt Condo is going to be smaller than the same SFR where the SFR usually has a garage or basement area, maybe an attic and a yard, none of which are included in the Square Feet. Plus you get to store extra items in your garage or anywhere you choose.
The same can not be said of every condo where you may not have common area space, you may not have your own storage area. The rules may even say that you can't store anything in your parking space except a car. Not bikes, not anything.
So why buy a Condo? Again, they are usually cheaper. A 2 bedroom condo in District 7 of San Francisco (Marina, Pac Heights, etc) averages about $800,000. A 2 bedroom SFR is rare in this area, and probably starts at $1.2 million. The downsides of condos are that you share walls, may have a neighbor below you, and/or one above you.
If you can find a top floor Condo with as many as 3 un-shared walls you have a lot less noise or nuisance issues to worry about. Condos with "deeded" storage ("deeded" means you own it, you take title to it with your condo) will add to convenience and value and size. A shared yard, or common roof deck is a nice to have, but it not quite as valuable as your own yard or deck in your own house. However, if you can find all of those things in a Condo, while it will sell for more than other condos, it will still be cheaper than an SFR.
With condos you also don't have to take care of any of the common areas, most condos hire vendors to do landscaping, cleaning and repairs. Of course you also have forced payments, called HOA dues (Home Owners Association) to pay for common area expenses, including building insurance, but you'll end up paying similar amounts in your own home.
So size and space, vs. cost are things to consider when deciding whether or not to buy a Condo or an SFR. When using internet search tools to find homes, be sure to pre-select one or the other in your search like you can at www.SF-MLS-Search.com/welcome.php
The same can not be said of every condo where you may not have common area space, you may not have your own storage area. The rules may even say that you can't store anything in your parking space except a car. Not bikes, not anything.
So why buy a Condo? Again, they are usually cheaper. A 2 bedroom condo in District 7 of San Francisco (Marina, Pac Heights, etc) averages about $800,000. A 2 bedroom SFR is rare in this area, and probably starts at $1.2 million. The downsides of condos are that you share walls, may have a neighbor below you, and/or one above you.
If you can find a top floor Condo with as many as 3 un-shared walls you have a lot less noise or nuisance issues to worry about. Condos with "deeded" storage ("deeded" means you own it, you take title to it with your condo) will add to convenience and value and size. A shared yard, or common roof deck is a nice to have, but it not quite as valuable as your own yard or deck in your own house. However, if you can find all of those things in a Condo, while it will sell for more than other condos, it will still be cheaper than an SFR.
With condos you also don't have to take care of any of the common areas, most condos hire vendors to do landscaping, cleaning and repairs. Of course you also have forced payments, called HOA dues (Home Owners Association) to pay for common area expenses, including building insurance, but you'll end up paying similar amounts in your own home.
So size and space, vs. cost are things to consider when deciding whether or not to buy a Condo or an SFR. When using internet search tools to find homes, be sure to pre-select one or the other in your search like you can at www.SF-MLS-Search.com/welcome.php
7/13/06
An Educated Buyer = a Confident Buyer
When I represent Buyers, my first and continuous goal is to educate them on "their" market (the areas and homes they want), on the Buying process, what to look for in homes, the Offering process and more. Many Buyers today want control over the process, so I also offer the most advanced internet tools on the market so they can educate themselves as much as they want. Why is knowledge so important? It might seem like an obvious answer, afterall, everyone knows the "knowledge is power" axiom. But in an expensive real estate market like San Francisco, knowledge is also confidence. The "average" property in San Francisco is $750,000. But if you're looking in some of the most sought after neighborhoods like Pacific Heights, Russian Hill, Noe Valley, etc, $750,000 is practically entry level, so you're looking at $1 million and much higher. "Buyer's remorse" at these price points can be severe. So what knowledge is the most powerful when buying? I'll attempt to list the key things here:
1. Market trends and conditions for "your market" - if you want a Noe Valley 2bed 2bath Condo, then you ought to find out how many sell per month, the average price per Condo, the average size in SqFt, the average price per SqFt, the average Days on Market (DOM) it takes before they sell, and how much they sell for vs. the "asking price".
2. You can take the above a step further and see how these above numbers have changed from year to year, or quarter to quarter. Has the market picked up, or slowed down?
3. How many For-Sale homes matching your criteria are on the market right now, vs. those that are in contract now, and those that have sold in the last couple of months. If there are many more listings than sales, you've got a slow market, but if you only have a couple of For-Sale homes to look at with a bunch in contract, you know you need to act quickly when you find something you like.
4. How much you can afford - hint, speak to a lender before doing any serious house hunting or you'll be wasting your time, or worse might miss out when an opportunity arises.
The above are just some basics that if you have, you'll have an edge over less educated Buyers, AND will give you the confidence to know when something really is or isn't an opportunity. It would be a shame to find out a month after moving in that you over-paid by $50,000 or even $10,000. It's also a shame when you under-bid on a $1 million property by a "mere" $10,000 when you would have gladly spent that to get that particular home.
A good Buyer's Agent will not only do the above research for you, they'll analyze and interpret the data, they'll prepare a new report everytime you find a home you want to make an offer on, and they'll KNOW that only through a very thorough education process will you feel confident in your decision, and great about your new home many months or years after you move in. Good data, and a great Buyer's Agent, are worth their weight in gold.
1. Market trends and conditions for "your market" - if you want a Noe Valley 2bed 2bath Condo, then you ought to find out how many sell per month, the average price per Condo, the average size in SqFt, the average price per SqFt, the average Days on Market (DOM) it takes before they sell, and how much they sell for vs. the "asking price".
2. You can take the above a step further and see how these above numbers have changed from year to year, or quarter to quarter. Has the market picked up, or slowed down?
3. How many For-Sale homes matching your criteria are on the market right now, vs. those that are in contract now, and those that have sold in the last couple of months. If there are many more listings than sales, you've got a slow market, but if you only have a couple of For-Sale homes to look at with a bunch in contract, you know you need to act quickly when you find something you like.
4. How much you can afford - hint, speak to a lender before doing any serious house hunting or you'll be wasting your time, or worse might miss out when an opportunity arises.
The above are just some basics that if you have, you'll have an edge over less educated Buyers, AND will give you the confidence to know when something really is or isn't an opportunity. It would be a shame to find out a month after moving in that you over-paid by $50,000 or even $10,000. It's also a shame when you under-bid on a $1 million property by a "mere" $10,000 when you would have gladly spent that to get that particular home.
A good Buyer's Agent will not only do the above research for you, they'll analyze and interpret the data, they'll prepare a new report everytime you find a home you want to make an offer on, and they'll KNOW that only through a very thorough education process will you feel confident in your decision, and great about your new home many months or years after you move in. Good data, and a great Buyer's Agent, are worth their weight in gold.
6/17/06
Internet Property Tools
The dramatic change that the internet has brought is in giving control back to consumers. This is especially true in real estate. Not too long ago you had to contact a Listing Agent to request a "CMA" or home value report. Now you can get them at sites like mine www.Evaluate-My-Home.com or sites like www.Zillow.com (see my May 25th blog for the good and bad of that service.
Worse in the old days was that you could never find complete home information unless you called the Listing Agent. You'd see wonderful photos of homes in magazines or newspapers, but there would be no price, or no property address and other critical pieces of information. Now Realtor Association "MLS" (multiple listing service) sites usually give buyers 95% of the information they want. Some are still pretty bad like the San Francisco site at www.SFARMLS.com which is slow and clunky with a weird seeming "District" search tool. How is a Buyer to know that District 7D is "Cow Hollow"? So while it gives you the information, there are better ways to get to the same data. Many third party companies are creating over-lays to get more user-friendly access to the San Francisco MLS. I pride myself on providing Buyers with "best of class" internet search tools and am one of the few Realtors in San Francisco to offer two of the best sites:
1. www.SF-MLS-Search.com is a way to search the MLS via a Map. You can choose to search by District, or by zip code, or address, but the Map search is by far the most popular
2. www.CleanOffer.com is a "private" site that claims to have "complete" data. But Buyers like it because you can exclude "in escrow" or "active contingent" properties which are those where the Seller accepted an offer but the offer still has some "contingencies". In San Francisco about 90% of these properties end up selling, so it's annoying to find a property that you can't actually buy. CleanOffer allows you to only see "Active" properties. Plus it allows you to save your favorite properties, and save your searches, among other things. On CleanOffer you must register and select an Agent who has pre-subscribed for you. I've done that, so if you don't have an agent, feel free to enter "Rob Regan" as your agent.
All of the above services are free. Bookmark them and come back time and again. And if you see other great internet real estate tools that I don't offer, please tell me about them so I can decide whether they're worthy of me giving you free access.
Worse in the old days was that you could never find complete home information unless you called the Listing Agent. You'd see wonderful photos of homes in magazines or newspapers, but there would be no price, or no property address and other critical pieces of information. Now Realtor Association "MLS" (multiple listing service) sites usually give buyers 95% of the information they want. Some are still pretty bad like the San Francisco site at www.SFARMLS.com which is slow and clunky with a weird seeming "District" search tool. How is a Buyer to know that District 7D is "Cow Hollow"? So while it gives you the information, there are better ways to get to the same data. Many third party companies are creating over-lays to get more user-friendly access to the San Francisco MLS. I pride myself on providing Buyers with "best of class" internet search tools and am one of the few Realtors in San Francisco to offer two of the best sites:
1. www.SF-MLS-Search.com is a way to search the MLS via a Map. You can choose to search by District, or by zip code, or address, but the Map search is by far the most popular
2. www.CleanOffer.com is a "private" site that claims to have "complete" data. But Buyers like it because you can exclude "in escrow" or "active contingent" properties which are those where the Seller accepted an offer but the offer still has some "contingencies". In San Francisco about 90% of these properties end up selling, so it's annoying to find a property that you can't actually buy. CleanOffer allows you to only see "Active" properties. Plus it allows you to save your favorite properties, and save your searches, among other things. On CleanOffer you must register and select an Agent who has pre-subscribed for you. I've done that, so if you don't have an agent, feel free to enter "Rob Regan" as your agent.
All of the above services are free. Bookmark them and come back time and again. And if you see other great internet real estate tools that I don't offer, please tell me about them so I can decide whether they're worthy of me giving you free access.
40 year mortgage & other exotic loans
I just saw a quote from a lender I work with showing the difference between a 30 year and a 40 year fixed rate mortgage. I was a bit surprised that on a $500,000 loan at 7% you only save $219 per month. What that means is you can afford $33,000 more loan by going with the 40 year fixed. If you've got $100,000 in cash for a downpayment, and can purchase either a $600,000 or a $633,000 Condo, that really isn't that much help.
On the other hand, why not get a 40 year fixed? Chances are you won't be in your Condo for all 30 or 40 years. Many people want to pay down their mortgages as quickly as possible so that they can own their home free and clear. This would be a nice thing to have, but then again, even our current 7% mortgage interest rate is extremely low historically. You also get the benefits of "leverage". If your $600,000 condo increases in value by 5% you've generated $30,000 in new wealth. If you only have $100,000 invested in the condo that is a 30% return on your investment. If you knew you could pay 7% interest to generate a 30% return, you'd do it in a second. If you've paid off your condo and own it free and clear, you generate the same $30,000 but it's only a 5% return and you've got a full $600,000 tied up in your home that can't be used in other investments elsewhere.
So I like the 40 year fixed loan. What has changed is that I'm not as much of a fan of the interest only ARM's. Many "experts" think these were always bad loans. But if you got a 10 year fixed ARM and sell in 5 years, you never face the dreaded adjustable years of your mortgage. Last year you could save 2% or more in interest between a ARM and a fixed rate loan. Now the difference is a 0.3% or 0.4%. That is only $126 monthly difference. Of course you also get the added benefit of not having to pay the principle in the interest-only ARMs. That's just over $400 on a $500,000 loan.
So instead of being able to afford a $600,000 property with $100k in downpayment you can now afford a $700,000 condo. This DOES make a difference. After 5 years of paying interest only vs. a fixed rate, its $35,000 in principal, or $98,000 over 10 years. So is it worth being able to afford a bigger, nicer place and trust that your property will appreciate enough to make it worth it? That's a decision only you can make.
On the other hand, why not get a 40 year fixed? Chances are you won't be in your Condo for all 30 or 40 years. Many people want to pay down their mortgages as quickly as possible so that they can own their home free and clear. This would be a nice thing to have, but then again, even our current 7% mortgage interest rate is extremely low historically. You also get the benefits of "leverage". If your $600,000 condo increases in value by 5% you've generated $30,000 in new wealth. If you only have $100,000 invested in the condo that is a 30% return on your investment. If you knew you could pay 7% interest to generate a 30% return, you'd do it in a second. If you've paid off your condo and own it free and clear, you generate the same $30,000 but it's only a 5% return and you've got a full $600,000 tied up in your home that can't be used in other investments elsewhere.
So I like the 40 year fixed loan. What has changed is that I'm not as much of a fan of the interest only ARM's. Many "experts" think these were always bad loans. But if you got a 10 year fixed ARM and sell in 5 years, you never face the dreaded adjustable years of your mortgage. Last year you could save 2% or more in interest between a ARM and a fixed rate loan. Now the difference is a 0.3% or 0.4%. That is only $126 monthly difference. Of course you also get the added benefit of not having to pay the principle in the interest-only ARMs. That's just over $400 on a $500,000 loan.
So instead of being able to afford a $600,000 property with $100k in downpayment you can now afford a $700,000 condo. This DOES make a difference. After 5 years of paying interest only vs. a fixed rate, its $35,000 in principal, or $98,000 over 10 years. So is it worth being able to afford a bigger, nicer place and trust that your property will appreciate enough to make it worth it? That's a decision only you can make.
6/6/06
Making "low ball" or under asking offers
With a slower market more and more buyers are making low offers. The last few years nearly every property sold well above the Listing price. These days, Buyers are hearing that the market has slowed and often making below-asking offers within a few days of a property being put on the market. Even though virtually none of these offers are being accepted, you see buyers persist for months making offer, after offer wasting everyone's time. Instead, that Buyer (and his or her Buyer's Agent) ought to ask what they can do differently to get a "low-ball", or at least a lower than Asking offer accepted.
I have several suggestions:
1. expect most of these offers never to be accepted. If you find your dream home and really want the property, make a "serious" offer that the Seller will actually consider
2. do your homework on the property's value, and be prepared to defend your offer with the Seller and/or Listing Agent. Most Sellers find low offers insulting, so do what you can to soften the blow. Come prepared with market stats and comparable properties that sold close to your offer. If you don't have a ryhme or reason, they'll likely toss your offer in the circular file and not return your phone calls.
3. you should probably hold off making a low offer until the property has been on the market for at least 3 weeks. At about the 3rd week (at least in the fast moving San Francisco market) Sellers start to get anxious. If they have not received any offers, and your offer comes in $100,000 below their asking price, which might be $150,000 below what they had hoped to get, this is probably the first time during the listing period where they'd take your offer seriously.
4. be professional and be nice - don't fax over a sloppy offer with no prior contact, no evidence that you've ever visited the property, and without some of the essentials that go with offers like a pre-approval letter for any loan you may be getting and a copy of your "earnest money" check. And you or your Agent ought to drop the offer off in-person in a professional looking package. Low offers are usually not taken seriously, so make it a serious looking offer at the very least.
Before writing a "low ball" offer put yourself in the shoes of the Seller and try to figure out when, how and why they might consider your offer. One last piece of advice is to call the Listing Agent and ask about the activity of the listing. Just making this connection with the Listing Agent will help any offer you might make down the road, and the information can't hurt. I'm continuously amazed when Buyers fax over sloppy offers, like throwing a piece of bread on a hook into the ocean, and wondering why they can't catch a fish or a house.
I have several suggestions:
1. expect most of these offers never to be accepted. If you find your dream home and really want the property, make a "serious" offer that the Seller will actually consider
2. do your homework on the property's value, and be prepared to defend your offer with the Seller and/or Listing Agent. Most Sellers find low offers insulting, so do what you can to soften the blow. Come prepared with market stats and comparable properties that sold close to your offer. If you don't have a ryhme or reason, they'll likely toss your offer in the circular file and not return your phone calls.
3. you should probably hold off making a low offer until the property has been on the market for at least 3 weeks. At about the 3rd week (at least in the fast moving San Francisco market) Sellers start to get anxious. If they have not received any offers, and your offer comes in $100,000 below their asking price, which might be $150,000 below what they had hoped to get, this is probably the first time during the listing period where they'd take your offer seriously.
4. be professional and be nice - don't fax over a sloppy offer with no prior contact, no evidence that you've ever visited the property, and without some of the essentials that go with offers like a pre-approval letter for any loan you may be getting and a copy of your "earnest money" check. And you or your Agent ought to drop the offer off in-person in a professional looking package. Low offers are usually not taken seriously, so make it a serious looking offer at the very least.
Before writing a "low ball" offer put yourself in the shoes of the Seller and try to figure out when, how and why they might consider your offer. One last piece of advice is to call the Listing Agent and ask about the activity of the listing. Just making this connection with the Listing Agent will help any offer you might make down the road, and the information can't hurt. I'm continuously amazed when Buyers fax over sloppy offers, like throwing a piece of bread on a hook into the ocean, and wondering why they can't catch a fish or a house.
Subscribe to:
Posts (Atom)
Posts
