Los Angeles Living

After a four offers on his family home my Seller finally sold his Palms home.  I realized $570,000 a little less than his target, but still a good price in today's market.

The buyers were first-time buyers who nervously navigated the process, but are now two happy campers expecting their first child.

My now, buyer was transferring his money into a 1030 Exchange purchase and looked to buy nearer where he lived, in Santa Clarita.

The challenges in Santa Clarita were:

• To find a property that was not a short sale, around 90% of which are.
• To find a property that was not encumbered with a Mello Roos tax, which many of them are.
• To find a property that would be easy to rent and bring in a satisfactory amount.

We found the above property.  It is a foreclosure, in good condition in a wonderful resort-type community.  Our offer was $10,000 below asking and competing with two other buyers, both with loans.  We were all cash, and as we know, cash is king.  We also offered a 15 day escrow to sweeten the pot.

The complex is only 5 years old but, the chimney has a problem which we needed addressing.  The kindly bank, gave us $4,200 credit to cover the lowest bid we got to repair the chimney and the deal was done.

Sometimes this business can just go so smoothly.

The short sale is approved!

Just when you have almost forgotten that you have made that offer on a short sale and your buyers have lost faith you get the call. 

I was minding my own business, literally, as I was about to extend the short sale addendum and had sent it off to the listing agent for signature, when I must have rattled his cage.  He called me immediately to tell me that it was approved.  In fact, he told me before he told the sellers.

So now you have the great pleasure of telling your first-time buyers that their offer has been accepted.  And you can hear the shock in their voices.  And shock it is.  It is now real.  Before it was like play-acting the role of buyer.

There is a weird feeling when you hear those words "the short sale is approved."  You are not really prepared to move ahead and now have to start scrambling to put everything together. 

Fortunately you did have an inkling that things were moving and you had recently informed your buyer that they had better get in touch with their lender to get things back on track.

You have to explain again to your buyers how the process is going to work and what they must expect: 

Just because the offer is accepted there is still a lot of negotiating to be done.  You know they have allowed some dollars for things like retrofitting, title insurance, transfer taxes, etc. but you know they are not going to pay for the termite inspection and any work involved. 

Also, who knows what problems may be found during inspection which will most probably not be paid for by the lender. 

This is the real buying process.  The rest was just practice. 

But, how sweet the sound........

If you are buying a home in Los Angeles, or anywhere in California, or have already gone under contract after May 1, 2010, you are entitled to a $10,000 tax credit. 

The credit is available from a $100 million allocation which is projected to run out fairly quickly. 

If you are buying a home in Los Angeles or the rest of California, time is running out! 

If you have tried to file via fax you may have found you could not get through because the line is constantly busy.  The fax line is open 24 hours so you may want to wait until after hours when there will be less traffic. 

If you do manage to get through, make sure all the pages went through and be sure to keep a copy of the fax confirmation.

More information on the California first time home buyers tax credit.

Buying a home in Los Angeles search here.

If you are confused about the Federal Tax Credit and how it applies to you, this is an excellent overview.

Also, there is the possibilty of a California State Tax Credit bill being passed which will offer a credit of $3,333 per year for three years to subsidize homebuyers.

I read an article in today's Los Angeles Times, by Lew Sichelman in which he talks about the need to make sure, as a homeowner, you have adequate insurance coverage.

Mortgage lenders require a basic homeowner policy to cover the property and are likely to foreclose on the borrower if they refuse to carry the insurance.

Some recommended additional insurance coverage is:

Flood.  Even if you don't live in a flood area, just a few inches of water in a heavy rain season can lead to damage.  Apparently the No. 1 natural disaster in the country is flooding.  The National Flood Insurance Program offers insurance up to $250,000, and it is not that expensive. 

Umbrella.  If you are ever sued, for whatever reason, your homeowner policy may not cover a unsuccessful outcome. To avoid losing your home there are umbrella policies that can provide you with a $1-5 million in protection over and above the limit of your other coverage.

Valuable. These can be covered with a rider on your homeowner policy.  But there are limits to that.  So if the value of your possessions exceeds the coverage ceiling you might consider adding a valuable-items or personal-articles floater.

Home Office. If you work out of your home, your homeowner policy may not cover your business property.  What if someone injures themselves in your home.  Tell your agent the details of your business to see what needs additional insurance.

Vacant Property.  If you are leaving your home empty, make sure that your insurance company knows and that your coverage does not lapse. 

Rental Property.  If you are renting your property a homeowner's policy will not cover the it.  You need landlord's coverage.

If you plan to live in your home, now is the perfect time to buy.

Real estate economist, Ken Rosen, tells you why!

If you are a first time buyer here are some tips to avoid the disappointment you feel when you don't get the house you want..

As I discussed in a previous post, you must get pre-approved so you know absolutely what you can afford.

Fresh inventory of homes is low, and if a new listing comes on the market, if priced right, it is going to go into multiples and over asking. If you like it, then you can be sure there will be other buyers who feel the same. This is where you need to strategize.  If you are putting down 20% then you have as much chance as the next buyer (except the all-cash buyer) to submit the successful offer.  You also have to offer just the right amount below your top price in order to receive a counter-offer and to give yourself flexibility to increase your offer.  Putting down a minimum amount (FHA loan with 3.5%) will put you at a disadvantage in this situation, so be prepared to not get the house.

Short sales are tough for the first-time buyer unless it is a pre-approved short sale.  A short sale means that the house is being sold for less than the seller owes and the bank has to approve the sale.  This process can take several months and you may never receive an answer.  It is a nerve-wracking experience and it will delay your home ownership experience or result in you having to start the search process from the beginning again.  Short sales are not for the weak of heart.

Foreclosures are also difficult to handle for the first-time buyer.  It the foreclosure is really "a deal" you will be getting into the multiple offer situation and the price will go way over the asking price.  Case in point.  I had first-time buyers watching a foreclosure that had been put on hold a day after being put on the market. They wanted me to watch out for it coming back on the market.  I somehow missed its relisting and when I checked it was already in escrow after 13 days on the market.  I checked with the lender who had pre-approved all the buyers and found out that it had gone for $1,010,000, $110,000 over asking.  I am so glad that I did not put them through the offer process as their affordability is $900,000 maximum, which was actually the original price.

The trick is to concentrate on houses that have been on the market for a while and probably need some work.  Look for homes that you can move into and work on over time.  It is rare that you are going to find your ideal house within your price range.  Not impossible, but rare.  It is always better to be the only buyer making an offer as your negotiation position will be much stronger.  It is not fun to we waiting on tenterhooks to find out if you are going to get the house.

If you take a realistic view of your buying power, and are willing to use your imagination, you will be much closer to getting into a great first home.

First time home buyers, this is what you need to know about the home purchase process:

The very first thing you need to do is find out how much home you can afford.  Find a lender, or ask your realtor to recommend one and get pre-approved.  The reason for this is twofold:  Firstly, in Los Angeles you are not going to be able to make an offer without a letter from a lender verifying that you are able to afford the house and make the payments.  Secondly, you will find out how much house you can buy.  There is no point looking at homes above your price range, but you also may be surprised at how much house you can afford.

When talking to your lender, make sure you understand what it will cost you to buy the house.  There are closing costs involved over and above the lender's fee. 

When you are motivated and ready to look at homes you need to make yourself available to view them.  Your realtor will send you lists of homes within your criteria, but you should also look yourself as sometimes the realtor may not consider a home that you would for certain reasons.  If you like a home chances are several other people will also. Missing the first open houses or showings will put you at a disadvantage when it comes to making an offer before someone else.  A good house (in a great area and well-priced) is not going to sit around and wait for you.

Your realtor will give you the comps (prices of similar homes that are on the market or sold in the area) and then you can decide what your offer should be.  Putting in an unreasonably low offer on a house fresh on the market will probably not get you a counter offer, and remember you will be competing on the house.  The idea is to encourage a dialog with the seller until you can both agree on the right price.  Ultimately the house is worth what a buyer is prepared to pay for it, so you need to decide how much is too much for you.

Once the offer is written you will be waiting to hear from the Seller.  If it is a reasonable offer and there are no other buyers, the Seller may accept, but in most cases you will receive a counter offer.  You will know if there are other buyers since the counter offer will show that you are not the only one being countered. 

Now the ball is in your court.  You can accept the counter or present your own counter.  In a multiple offer situation most probably the counter's main goal will be to get the highest price.  Sometimes they will state the price they want, or they will ask for "best and final".  That is tough because you are in competition.  This is where you decide what the house is worth to you.

Here also where you financial strength will play a part based on the type of loan you are presenting.  If another buyer is putting down 20% and you are only putting down 3.5% (FHA) they will probably be looked at as a stronger buyer.  They may not be, but that is the perception.  Also, if an all cash buyer comes along, then all bets are off.

But, let's say your offer is accepted, you are now on your way to purchasing the home and the work starts!

There are contingencies that must be met within a certain time-period, namely the inspection, loan and appraisal.  Your realtor will probably have lowered the inspection period to 7 days from 17 as a good faith gesture.  A general home inspector can be out within a day or two, as can specialized inspectors whom may be recommended by the general inspector. It is usual that the buyer be present during these inspections and he or she is responsible for paying the inspector on site, around $300 or so.   After you have reviewed the inspections you can remove the contingency or submit a Request for Repairs.  The clock stops at this time.  The Seller can agree to do the repairs, offer money through escrow for you to take care of the repairs, or refuse to do any.  If the Seller refuses to negotiate you can choose to go ahead and waive the repairs or back out of the deal.

Hopefully your lender is speedy in getting an appraiser out to the property as this can be a slow process.  And, hopefully, the house appraises at the price offered.  If it doesn't you can back out of the deal, negotiate with the seller to lower the price, or agree to pay the difference out of pocket.  Depending on how long you are going to live in the house, the latter is not an advisable tactic, since you will have overpaid for the house.

In Los Angeles the loan and appraisal contingency period is 17 days.  In today's market this is a little tight, but there are lenders that are able to meet the deadline.  If for some reason they can't your realtor can usually get an extension on the time.  Once your have removed these last contingencies then you have effectively "bought" the house. 

The Seller also has his or her own contingencies, some of it paperwork to be provided to the buyer within a certain timeframe.  But the main one is the termite inspection and clearance if needed.  The buyer requests a termite inspection and clearance of any infestation found.  This is paid for by the seller.  Anything found by the termite company that could be a future problem is paid for by the buyer if they wish.  It is not a requirement for the escrow to close. The Seller also has to comply with the City requirements.  In Los Angeles there needs to be retrofitting of toilets to low-flow, working fire alarms and water heater bracing.

Your realtor will also have asked for a home warranty paid for by the seller to cover the first year for appliances, air conditioning, etc. depending on what has been agreed.

The only thing to be paid for by the buyer as part of the contract is their portion of escrow costs, usually less than the seller's portion.

Generally the escrow period is 30 days, but the contract can request a reasonable time longer and sometimes, through no fault of anyone it can be extended beyond the agree period. 

The last contractual duty of the buyer is the walk-through which is usually done up to 5 days before close of escrow.  This is to ensure that all the work that the seller agreed to do has been done, or that nothing has significantly changed since you put in the offer.

The next step is the signing of the loan document, after which the funding of the loan takes place.  The next day the title rep goes down to the County Recorder's office and title is recorded. 

You will have made arrangements for the gas, electric, phone, etc. to be turned on the day of close of escrow and provided your change of address to the post office.

Congratulations!  You are now a home-owner.  See it wasn't so bad.

I discussed the contract my first-time buyer is faced with while considering the purchase of a condo in a brand-new 5-unit development in Echo Park.

The contract looked daunting on the surface, but I thought, reading through and using my knowledge of the real estate transaction would go much of the way towards ensuring that my buyer would be protected.  Wrong!

There is no way any of us who are not attorneys should be attempting to decipher a developer's own contract.  There is way too much to look out for, at least in California.

I mentioned a few points points in my previous post:  the request for the homeowner to pay two extra months towards the homeowners reserves; the seller being able to cancel the contract at any time if a better offer comes in; the tract map not having been approved, and there needing to be a certain amount of units sold before the seller's lender removes the blanket monetary encumbrance, and the buyer can obtain a loan.

In discussion with the buyer's mortgage broker, I learned that some developers don't understand that they have to get the project Fannie Mae approved (and FHA, but this is a conforming loan), and that I should check whether it has been approved.  The listing agent didn't know but found out that it is in process.  Another hurdle.

I decided to contact a real estate attorney, Scott, who is very generous with his time on the phone before he agrees to take your business.  We should all have someone like him to consult.  This is what he had to say after I asked if he would be prepared to review the contract for my client.  He basically said he would not touch it with a ten foot pole.  These contracts are a nightmare and you cannot change them.  It would take hours to read.  Then he taught me some things about new projects.

Scott asked who the developer was and whether there had been any actions against him, explaining that if there had been then even though the contract states that the developer is responsible for major repairs, getting him to perform is another matter.  He suggested I do due diligence by knocking on doors and asking previous buyers about their experience. He also told me to google the developer to see if there were any complaints agains him.  As it happens, this is the first larger scale project the developer has completed with one still in construction. I am pleased to say nothing showed up in Google.

Another question is, who is going to pay the homeowner assessments if the building does not fully sell?  Are the existing owners going to be liable?

Who is going to manage the building?  Is that in place?

Scott pointed out that this could sit in limbo after the contract is signed and earnest money deposited, for six months.

And he said that the arbitration in these contracts is going to benefit the Seller not the Buyer.

In closing, Scott said that if we could satisfy ourselves that we are comfortable with all the issues, he would be prepared to go over the contract.

The moral of this tale is that if there is the slightest doubt, err on the side of caution and advise the client to seek legal counsel.

Since I poured water on my poor laptop and it is in intensive care in hospital, I am typing on my Dell Mini Inspiron netbook, so I have to type small.

Oops, that's better, I stretched it a bit.

And now for something completely different.

I thought I would encourage first-time buyers to always make a back-up offer on the house they love.

Don't be afraid to make that first offer.  It is an excellent opportunity to get your feet wet.  And is something like learning to ride a bicyle.  As you go along you feel more and more comfortable, and you never forget! And don't be disheartened if you are not accepted.  Make that backup offer!

Case in point:

My first-time buyers just made an offer on the first house that I, their new agent, showed them.  It is extremely inexpensive by Los Angeles standards, $319,000.  I  told the story in a previous post.

They love the house, but an excellent example of always putting in a backup offer raised its, in this case, ugly head.  

The house had previously been on the market with another Listing Agent who mismanaged the process.  It had fallen through because the house did not appraise. The agent was fired.  However, unbeknownst to the new Listing Agent, there had been a backup offer submitted and accepted. Of course, when the backup buyer/agent saw the new listing they pointed out in no uncertain terms that they were now entitled to buy the house.  This is corrrect.

The buyer still needs to go through inspection, appraisal, etc. and there is no guarantee that this escrow will close either.  But because they had their offer in they have an excellent chance of buying the home they want.

In this new round there were also multiple offers, my buyers' being the lowest with the worst loan. However, the Seller has a soft spot for my buyers for certain lifestyle reasons and would love to sell it to them.

So, guess who is pushing for first backup position.  And imagine if "three's a charm" works here. My buyers are going to be happy campers!

And, they are free to continue looking for another home while they wait. There is nothing to lose!