Marin County Market Update – May 2013

Marin County Market Update May 2013

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Buy or Rent: Which Makes More Sense Financially?

Every potential home buyer has to stop for at least a moment and consider this question. Today, I want to look at one of the many financial reasons to buy instead of rent: the housing expense moving forward.

According to the latest Existing Home Sales Report from the National Association of Realtors, the median sales price of a home in the U.S. is $184,300 however in Marin it’s much higher but lets just focus on the U.S. as a whole. The mortgage payment (principal & interest) on that purchase would be $661.89 assuming a 20% down payment and a 3.5% mortgage interest rate. Currently, the median asking rent in the U.S. according to the Census Bureau is $717 a month.

I realize that the two payments do not necessarily reflect the housing cost on a similar residence. However, that is not the point of the post. All I’m saying is that the monthly housing expense on a median price home is $661.89 and the median rent is $717. I now want to discuss what will happen to these costs over time.

The principal and interest portion of the mortgage payment is locked in for the next 30 years. I know real estate taxes may be included in the payment and will increase to some degree over that time. I also acknowledge that the homeowner will have occasion to spend money on repairs. They also receive many tax advantages as a homeowner.

However, the actual monthly housing expense remains the same for the next 30 years.

Now, let’s look at what happens to a rent payment. The best thing to do to predict the future is to study the past. Here is a graph of the median asking rent since 1988 based on Census Bureau data:

I believe rents will follow their historically pattern and increase dramatically over the next 30 years. Buyers have a choice: either lock in your housing expense or deal with the uncertainty of rental increases. Oh by the way, I have a Lease Rental on the market available check it out 16 Junipero Serra Ave, San Rafael, CA 94901

-Dave

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Cost of a Home: Impact of Interest Rates

The buyer should always look at the COST of a home, not just the PRICE. The cost is determined by the price and the mortgage interest rate which is available at the time. Below is a list of the interest rates over the last ten years and the impact they have on a $100,000 mortgage payment.

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A List of what to Inspect Before Fall Arrives

Hard to believe it’s going to be fall in just 10 days. That means it’s time to do an inspection of your house for any hidden defects that might morph into major problems.

An ounce of prevention early on can stave off major repair bills later. Here’s our list of must-do inspection items before the temperature drops and the rain falls.

– Check the roof: Clean out the gutters and take note of any missing shingles. Pay special attention to split wood shingles or bare patches on asphalt shingles. Such damage indicates the roof is on its last legs and is due for replacement. Make sure everything is sealed and tight around the chimney and vents. If you have a problem with algae and fungus on wood shakes and asphalt shingles control it by installing zinc control strips.

– Poke your head in the attic: Be on the lookout for water stains or mold. Water stains may indicate a leaky roof or inadequate ventilation. Mold is caused by condensation resulting from inadequate airflow. Make sure soffit vents are unobstructed by insulation to ensure proper ventilation in the attic.

– Keep things tight: Inspect caulking and weather stripping around doors and windows. Redo the caulk and weather stripping as needed.

– Fireplace fitness: The National Fire Protection Association recommends that you have your fireplace and chimney inspected every year although we believe light users can get by with every two years. At the very least, make sure your chimney is capped, and check for bird’s nests or other obstructions.

– Check the grade at the foundation: Avoid water damage by making sure there is at least 6 inches from the ground to the bottom of the siding and the ground slopes away from the foundation. Cut back any shrubs away from the side of the house to prevent moisture retention, the cause of mold or dry rot. Make sure all downspouts direct water at least 10 feet from foundation.

– Be safe: Test all smoke detectors and carbon monoxide detectors.

– Laundry room: A dysfunctional washer and dryer can lead to water damage, energy waste and a possible fire. Exchange rubber supply hoses for stainless steel to prevent bursting. Empty the lint trap in the dryer regularly (a good practice any time of year). Disconnect the dryer vent line and look at the vent pipe outlet to make sure there are no obstructions.

– Electrical system: Electric systems in your home can cause a major fire disaster and possible electrocution. In order to prevent electrical fires make sure lightbulbs are completely screwed in and flip the circuit breaker at least once a year to prevent corrosion. Also test all GFCI receptacles (plugs that have a built-in circuit breaker) to make sure they are operating properly.

– HVAC (heating, ventilating and air conditioning): Have the system inspected by a professional annually to maintain the warranty on the system. If you don’t keep up regular maintenance with your heating and cooling system, mold can grow in your house, it can cause a fire, and the performance will be inefficient, leading to higher energy costs. Replace filters once at least every six months. Drain the water heater annually.

Here’s wishing you a cozy, safe fall and winter.

-Dave

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Include Tax Benefits when Comparing Renting to Buying with a Loan

For too many people, this simple reality is missed, and they look at the cost of renting as being cheaper than buying. When comparing renting to owning, the monthly cash cost is not the same, because rents are not tax deductible.

Almost all of a home loan payment and all of the property taxes are deductible for income tax purposes. This means that an employee can change their “W-4″ form with their employer to increase their allowed deductions used to determine Income Tax Withholding. The result is that the paychecks go up to account for a smaller Income tax bill at year’s end. This means, for instance, that a $2,000 monthly ownership cost of mortgage, taxes, and insurance can be the same monthly cost to you as a $1,500 rent. Why? Because the difference is dollars you get to keep instead of paying for Income Tax. This is perhaps the number one way to divert Income taxes to pay for something you want to pay for. You never have to pay those income tax dollars back! It is absolutely legal, and the law is intended to encourage home ownership.

For too many people, this simple reality is missed, and they look at the cost of renting as being cheaper than buying. In many markets today, there is little or no difference in net monthly cost between renting and buying, even using a loan with only 3% down payment! Tax dollars you will not owe make up the difference.

NOW IS THE TIME TO BUY A HOME WHILE LOW PRICES AND LOW INTEREST RATES MAKE THIS POSSIBLE! THIS COMBINATION WILL NOT LAST. DO YOU REMEMBER WHEN 77% OF RENTERS COULD NOT AFFORD TO BUY? NOT NOW!

When paying rent, you are paying off a loan… your landlord’s loan, and you get no income tax benefits. Buy a home now with a conventional loan, and you start paying off YOUR loan, using tax dollars, so someday you may own your home with NO LOANS AT ALL !

-Dave

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It’s a sign of the times!

Most of us grew up thinking that if we planned well and played by the rules, we’d never have to stand by as our financial lives unraveled.

But upheaval on Wall Street, unacceptable rates of unemployment and plummeting real estate values have taken their toll. Since 2007, 7.9 million homeowners have lost their homes to foreclosure. Current estimates are that one in four homeowners owe more on their mortgages than they could get from the sale of their home. Millions more homes will be lost to foreclosure before this real estate crisis runs its course.

The sad fact is that foreclosure is not an isolated event. For months leading up to the loss of a home, financially strapped homeowners live under a cloud of uncertainty. And then for many years afterwards, the blow to credit gets in the way of buying another home or buying anything on credit. Foreclosure even complicates employment prospects.

The impact of foreclosure is huge and the sad fact is that it’s often avoidable.

As a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, my mission is to provide financially strapped homeowners with options to foreclosure, ensure that they steer clear of scams, and help navigate them through the solution that best meets their needs.

Among the most important facts to keep in mind: the sooner help is sought, the better the options.

These are tough times, but more help is available than ever before. If you or someone you care about is ready to navigate away from the dark cloud of an unmanageable mortgage and realize that hope and blue skies are within reach, contact me today and let’s get started.

-Dave

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Short Sales Skyrocketing

Short sales are finally being seen as a viable alternative to foreclosure by both the banks and the consumer. Brandon Moore, CEO of RealtyTrac, just explained that short sales are skyrocketing:

“Short sales hit a three-year high in the first quarter (up 25%). Lenders are approving more aggressively priced short sales, which in turn is resulting in more successful short sales.”

Yes, for me short sales are more work but for my buying clients it’s a great way to get a reasonable deal.

-Dave

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Short Sale vs Foreclosure – 10 Common Myths Busted

It’s likely you’ve heard the term “short sale” thrown around quite a bit. But what, exactly, is a short sale?

A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property. This is not a new practice; banks have been doing short sales for years. Only recently, due to the current state of the housing market and economy, has this process become a part of the public consciousness.

To be eligible for a short sale you first have to qualify!

To qualify for a short sale:

  • Your house must be worth less than you owe on it.
  • You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc… also qualify.

Now that you have a basic understanding of what a short sale is, there are some huge misconceptions when it comes to a short sale vs. a foreclosure. We take the most common myths surrounding both short sales and foreclosures and give a brief explanation. LET’S BUST SOME MYTHS!!

1.) If you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate. The reality is that this couldn’t be any farther from the truth in most situations. You could end up with an IRS tax liability and still owing the bank money. Let me explain. Please keep in mind that if your property does go into foreclosure you may be liable for the difference of what is owed on the property versus what is sells for at auction, in the form of a deficiency balance! Please note this is state specific and in most states you will be liable for the shortfall, but in some states the bank may not always be able to pursue the debt. Check your state law as it varies widely from state to state.

Here is an example of how a deficiency balance works

If you owe $200,000 on the property and it sells at auction for $150,000, you could be liable for the $50,000 difference if your state law allows it.

Not only could you be liable for the difference to the bank, but in some situations you could also be liable to the IRS! Although there are exemptions (mostly for principle residences) under the Mortgage Debt Forgiveness Act, there are times when you could be taxed on both a short sale and a foreclosure, even in a principle residence situation. Since the tax code on this is a little complicated and I am not a CPA, I advise always talking to a CPA when in this situation as you are weighing your options. Hard to believe? Well, believe it or not, the IRS counts the difference between the sale and the charged off debt as a “gain” on your taxes. That’s right-you lost money and it’s counted as a gain! (I didn’t make that rule, that’s a wonderful brainchild of the IRS). Banks and the IRS can go as far as attaching your wages. Not to mention if you let your home go to foreclosure you will have that on your credit, as well.

Guess What? A short sale can alleviate your liability to the bank, in most situations. There are also exceptions to this, but in most cases banks are releasing homeowners from the deficiency balance on a short sale.

2.) There are no options to avoid foreclosure. Now more than ever, there are options to avoid foreclosure. Besides a short sale, loan modifications along with deed in lieu are also examples of the many options. In most cases (but not all) a short sale is the best option. Either way, there are more options today than there have ever been to avoid foreclosure.

3.) Banks do not want to participate in a short sale, or, it is too hard to qualify for a short sale. Banks would rather perform a short sale than a foreclosure any day. A foreclosure takes a long time and creates a huge expense for the banks; a short sale saves both time and money. Banks have more foreclosure inventory than ever before, and certainly do not want any more. Banks more than ever welcome short sales. Qualifying for a short sale is easier than you think, you need to have a true financial hardship, or a change in your finances and your house has to be worth less than what you owe on it. Not only do consumers, but banks also now have government incentive to participate in short sales.

4.) Short sales are not that common. At this present time, short sales range from 10-50 % of sales in various markets and it is predicted that in 2012 we will have more short sales than any other year, to date. Due to economic changes in the last few years, this is something that is affecting millions of Americans. Short sales are in every market, and are not just limited to any particular income class. This has affected everyone from all facets of life. A short sale should be looked at as a helpful tool, not a negative stigma. That is why the government is offering programs that actually pay consumers to participate in short sales. It is not just affecting one community; it is affecting communities and consumers across the nation.

5.) The short sale process is too difficult and they often get denied. Though the short sale process is time consuming; it is not as difficult as the media would have you believe. The problem is that most short sales are denied because of a misunderstanding of the process. It is true that if the short sale process is not followed correctly there is a good chance of getting denied. An experienced agent knows how to avoid this. Short sales require a lot of experience, and a special skill set. If you are looking to go the option of a short sale make sure your agent is skilled and experienced in this area.

6.) Short sales will cost me money out of pocket. A short sale should not cost you any out of pocket money. In fact, you could get between $3000-up to $30,000 to participate in a short sale. In many ways, a short sale may put you in a better financial position than prior to the short sale. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principle residence, and we are even seeing relocation money being paid on some investment/second homes. As a seller of a property you should never have to pay for any short sale cost upfront to any professional service. Realtors charge a commission that is paid for by the bank. In most communities there are also non-profits and HUD counselors who can help you with foreclosure prevention options for free. The only potential cost you could incur is if the bank would not release you from a deficiency balance in the short sale, which is happening less and less now.

7.) If I am behind on my payments, I can perform a short sale any time. The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. As they get closer to a foreclosure sale more money is spent, thus deterring them from doing a short sale. If you think you need to perform a short sale, time is of the essence; the sooner you start the process, the better. Waiting too long can trigger the ramifications of a foreclosure, losing the ability to do a short sale as a viable option.

8.) I have already been sent a foreclosure notice so I can’t perform a short sale. For the most part just because you received a foreclosure notice or notice of default it does not mean that you do not have time to perform a short sale. The timeline and specifics do vary from state to state, but having done short sales all over the country, I have seen banks postpone a foreclosure to work a short sale option as close as 30 days prior to the scheduled foreclosure auction, but the longer you wait the less chance you have. If you have received a legal foreclosure notice, please reach out to a professional right away. The longer you wait, and the closer you get to foreclosure, the fewer options you have. If you have received a notice to foreclose this means the bank is filing paperwork and starting the process to take legal action to repossess the house. You still have time at this point to prevent foreclosure, but do not hesitate! The closer you get to the foreclosure date the harder it becomes to negotiate with the bank for whichever option you choose.

9.) I was denied for a loan modification, so I know I will get denied for a short sale. Short sales and loan modifications are handled by two separate departments at the bank. These processes are totally different in approval and denial. If you got denied for a modification you can still apply for a short sale; in some cases you can get a short sale approved faster than a loan modification, as some loan modifications are denied because they cannot reduce the loan low enough based on the consumers income.

10.) If I go through a short sale I cannot buy another house for a long time. The time to buy another house depends on your entire credit picture and can vary from 12-24 months. There are even a few FHA programs that allow for a purchase sooner than that. I have worked with clients who went through a short sale and bought another house in less than 12 months.

These are just a few of the common myths surrounding short sales and foreclosure. With the options available today, no homeowner should ever have to go through foreclosure, and hopefully this information can help a few more homeowners think twice before walking away from their home not realizing the possible long term ramifications a foreclosure can have.

-Dave

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Proper Planning for Your Mortgage Application

With good preparation, most things are easier. That works in mortgages too! Today, I want to give you some ideas that can make your mortgage experience less painful.

Income Items:

  1. Gather your documents. Today, many people will have to produce 2 years’ complete tax returns, including W2′s, 1099′s, K1′s, and all the schedules, as well as a month’s worth of pay stubs.
  2. Be prepared to explain them. Deductions in your returns and your pay stubs may impact the income your lender will use to qualify you which, in turn, has a big impact on the loan you will get.
  3. Have a breakdown of base pay versus overtime for both your pay stubs and 2 years’ W2′s. Lenders treat overtime (and bonus income) differently than your base pay. Be prepared to explain any changes over the last few years because your loan officer will ask you about it.

Asset Items:

  1. Start accumulating your bank statements. Lenders look back 3 months from when you sign your contract of sale.
  2. You will have to explain any and all large deposits (which are defined as deposits greater than your regular pay check) because lenders want to make sure you haven’t taken out any new loans that aren’t on your credit report.
  3. Avoid any significant cash deposits. However, if you did have a cash deposit, understand that the lender will have you source it (a bill of sale and DMV receipt for that motorcycle, for example).
  4. If you will be receiving a gift, consult your loan officer on how to document it (from the donor’s ability to how you deposit it).

Credit Items:

  1. Ask your loan officer to run your credit and go over it with them. Believe it or not, most credit reports contain errors. Best to identify them and get working on correcting them as early as possible.
  2. Do what you can to pay down your balances to under 30% of available credit to help you get the best score possible.
  3. Do NOT close accounts or pay off collection accounts without discussing it with your loan officer. Either one of these logical moves can actually have a negative impact on your score.

When buying a home, remember the Boy Scout motto, “Be prepared”. Following these suggestions will make your loan approval easier and less stressful.

-Dave

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What It Means To Be an ‘EXPERT’ in Real Estate

If you are either buying or selling a home in today’s market, you need a real estate expert. However, we must realize what the term ‘expert’ actually means. An expert in any area cannot give perfect advice as no one can predict the future. But they can give excellent advice based on their insight into their field.

If you go to an attorney with a legal challenge, he/she will look over your case and give you your options. They realize they cannot guarantee the outcome of any of the options. Still, they give the best advice possible and allow you to decide the option with which you feel most comfortable. They then will put together a strategy which hopefully will bring about the most favorable conclusion.

If you go to a doctor with a serious ailment, he/she will give you your options and work with you to develop the best treatment program. They cannot guarantee any program’s success. They will, however, monitor your progress and adjust your treatments or medications. They will stand next to you until the best result is achieved.

Real estate is no different. A true real estate professional will understand your options and simply and effectively explain them to you and your family. Once you chose an option, they will strategize a plan to help you accomplish your goals. They will standby you as the process evolves and will help you make the necessary adjustments if necessary.

They cannot see the future any better than doctors or attorneys and thus their advice will never be perfect. However, just like those other professionals, an expert agent will give you excellent advice that will bring about the best possible outcome.

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