Traditional vs. On-line home hunting

I’ve heard several presentations over the past couple of years on the differences between “traditional” and “on-line” clients searching for homes.   The on-line world is increasingly important; the most recent study I’ve seen says that 84 percent of all Buyers start their home hunting by searching on-line, even before they contact a realtor to work with.

But I’ve noticed a trend lately and I want to direct some comments to on-line home Buyers.

With a “traditional” Buyer, at some point we meet, we review their criteria—such as price, desired location, number of bedrooms, and other factors—and then I make suggestions of properties to see.   Often I’ll e-mail property descriptions and my clients will see the ones that interest them at Open Houses.  Others will give me feedback and I’ll set up appointments at their convenience.   Eventually, we find a property that they like the best, I give them my view of the pros and cons, an offer is written and then accepted or not.

Many clients that I’ve met “cold” via my on-line presence, whether it be this blog, my website, or on-line ads, wind up going down the same path.

But some don’t.  There are some Buyers who will contact me about a specific property and then, if that property doesn’t meet their needs, vanish.  Presumably they then contact the next realtor about another specific property and repeat the process.

I think there is a value in working with a realtor, whether it’s me or someone else, who gets to know you and your preferences over time.   Once I’ve seen 6-8  potential homes with someone, I can pretty much internalize their values and “play” them when I see a property that is newly listed in the market, noting what they’ll like and dislike and, from their point of view, whether or not the property is something “hot” that they should see right away.

I’d like to suggest to the “on-line” Buyers who are reading this that they keep searching for specific properties on-line but that when you find a realtor who seems to click with you, for whatever reasons, you think about making that realtor a partner in your search.   Having a professional who understands your values and preferences will make your search much more efficient.   And who knows, as your realtor comes to understand what constitutes and ideal property for you, he or she may make suggestions that would have never occurred to you, thereby broadening the choices from which you will ultimately make a suggestion.   It happens.

August 19, 2008 at 11:41 am Leave a comment

Santa Monica rates among lowest for foreclosures

Today’s LA TIMES (June 5) had an article about foreclosures and a feature that allows you to enter a Zip Code in the five-county area  (Los Angeles, Orange, Ventura, San Bernadino, Riverside) and see where your Zip Code stands with respect to foreclosures.,0,7122944.htmlstory

Note:  this link will expire in seven days due to how the LA TIMES manages their site.

The survey used a metric of how many households per foreclosure.  The higher the number of households, the better.   One of the Zip Codes in the Palmdale/Lancaster area was absolutely appalling with one foreclosure for every 59 households.

Of the 498 Zip Codes with data, Santa Monica did very well:

90402 (north of Montana)  was ranked 485.

90403 (north of Wilshire) ranked even better…489.

90404 (central Santa Monica) was a still outstanding 475.

90405 (Sunset Park/Ocean Park) was 481.

90401 (downtown area)… one of the top 10!  No foreclosures at all first quarter.

All real estate is local.  As I’ve said before, there is no such thing as the real estate market, there are hundreds of markets defined by narrow geography, property type, and price range.   For all the gloomy newspaper headlines, Santa Monica is holding up very well, supporting my contention that Santa Monica goes up more in an up market, down less in a down market.

Places like Palmdale, Lancaster, parts of the San Fernando Valley, San Bernadino, etc. may be experiencing severe difficulties but the downturn in Santa Monica is very mild.

June 5, 2008 at 9:33 pm 1 comment

How much under asking price should I offer?

“How much under asking price should I offer?” is a question that I’m asked in any market and much more frequently in the current market.

I’ve been told by a student of economics these days that most questions about economics can be answered with one of two answers:  either  a)  China  or  b) it depends.   In this case, the answer is “it depends.”

There is no set rule because Sellers (and their agents) vary widely in how aggressively they price a property.  Some properties are worth–and are receiving offers–of full asking price, or even over in multiple offers, in this market.    Other properties are priced clearly too high…and you see them languishing on the market for months.

One thing I do when preparing to write an offer for Buyers is to print out all the recent sales of comparable properties and compare various factors such as location, square footage, amenities, etc., of the sold properties to the property they’re going to write an offer on.   In so doing, I print out a report that shows both the asking price and the selling price of these “comp” properties.

No matter what the market, you will find that the majority of sales occur within 3-5 percent of the asking price.   I’ve concluded there are two reasons for this happening.

First, if the “true” market value of a property is 10 percent or more below its asking price, the Seller usually isn’t ready to hear the truth and will reject the offer.   Otherwise, he would have lowered his price to a more defensible level to attract a quicker sale.

Secondly, and as a Santa Monica real estate agent this sometimes drives me nuts, many Buyers won’t write an offer much more than 5 percent below the asking price.   “It’s too embarrassing” and other variations on that theme I’ve heard over and over again.

So, while the answer to how much under asking price you should offer is “It depends” and may vary from property to property, the overall pattern is such that most sales will occur within 3-5 percent of listing price, even in the current market.

May 7, 2008 at 10:06 pm Leave a comment

When is a Loan Approval not a Loan Approval?

In most real estate transactions, the purchase of the property is contingent upon the Buyer getting a loan at terms specified within the contract and within a specified time, often 17 days per the boilerplate language of the standard contract, though many realtors in the current market with its lending challenges are extending that period to 25 or 28 days. Exceptions are when the Buyer is making an all-cash offer or in a hot market where a Buyer may remove contingencies in their offer up front in order to make their offer more attractive.

In the course of the transaction, the Buyer is expected to remove the loan contingency upon getting loan approval. If the Buyer doesn’t remove the loan contingency, the Seller may require the Buyer to cancel the transaction or Buyer and Seller may negotiate an extension of the loan contingency, sometimes accompanied by the release of a portion of the Buyer’s deposit from escrow as a gesture of good faith.

But what constitutes “Approval”? Loan representatives who take an application enter the data from the application into an automated system and receive an automated Approval (or not). So when that approval comes back, the Buyer can remove their loan contingency, right?

Not so fast. After that automated loan approval, the lender’s rep submits the loan package—application, credit report, pay stubs, copies of bank account statements, and all the myriad other bits of paper comprising an application—to the lender’s underwriting department for review. The underwriter orders the appraisal and reviews all the documents. And here’s where some of the fun can begin. The Buyers’ income may be fine but the underwriter may be concerned about the solidity of an applicant’s job history. Or there may be an item on any of all those pieces of paperwork that cause the underwriter concern. The appraisal, especially in the current market, may come in at a value below the purchase price or the lender may even arbitrarily slash an appraisal by 5-10 percent as a hedge against a declining market. An loan application isn’t approved until the underwriter—and, often, the underwriter’s supervisor—signs off on the application. But at that point, we have approval and the Buyer can remove the loan contingency, right?

Not so fast. When an underwriting department approves a loan, it does so with a number of conditions. Many of them are trivial and many are completely transparent to the Buyer or their agent, information to be furnished by the lender’s rep. Other items are things like the lender being provided with copies of the Buyer’s driver’s license. But then there may be more problematic conditions, such as an appraiser being asked to come up with two or three additional properties, either sold or currently on the market, to validate the appraisal. In some cases, an entirely independent second appraisal is called for. Only when all these conditions, called “pre-document conditions,” are met can the Buyer more or less safely remove the loan contingency.

And, actually, the pre-document conditions are not the end of the line. After loan documents have been issued and signed by the Buyer(s), there are additional pre-funding conditions that have to be met prior to the loan funding. These usually are really trivial, and include such things as the lender calling the Buyer’s place of employment to re-confirm employment status before the loan is funded. For what it’s worth, a Buyer client of mine once changed jobs during escrow just before the loan was due to fund; that provided way too much excitement in the process.

The consequences of removing a loan contingency without prudent diligence can put the Buyer’s entire deposit at risk should the loan fail to be funded. The problems, especially with possibilities such as second appraisals, are even more acute into today’s lending environment. The bottom line is, Buyers and their agents need to be very careful about removing loan contingencies.

April 9, 2008 at 7:20 pm Leave a comment

Finding Value—the tip of the iceberg

The current soft market is illustrating one of my long held principles as a realtor:   value, as indicated by a property that goes up the most in an “up” market and down the least in a “down” market, is not purely a matter of location.

While prices on the Westside in general and Santa Monica in particular are holding up better than other parts of Los Angeles County and the rest of California, it’s instructive to pay attention to details.   The very best properties, the tip of the real estate iceberg, assuming they have credible listing prices, are still selling quickly, some even with multiple offers.

But if that three-bedroom house is on a busy street it will take longer to sell, and at a disproportionately lower price, than its uncompromised neighbor two blocks over.   That two-bedroom condo with less than 900 square feet of living space will be a much more difficult sell than the one in the same neighborhood with more than 1,200 square feet, even though the latter has a higher asking price.

There’s a line of conventional wisdom about real estate that says one should buy the worst property in the best location one can afford.   I disagree.    If you put all the properties in an area on a 1-100 scale, I recommend not buying any home at 25 or below.   Don’t buy on the busy street, don’t buy the excessively small, don’t buy the house across the street from a fire station.   Instead, if building and sustaining value is among your top priorities, find a home that doesn’t have any of these incurable defects.

Contrariwise, if you really need “bang for the buck,” getting some combination of larger/newer/nicer, then these homes with the incurable defects are exactly the properties you should look at.  But remember, the “deal” you get on the front end when you buy is the same deal you will have to give on the back end when you eventually sell.   You’ll be able to meet your daily needs at the cost of reduced appreciation.

As your realtor, I can help you understand and weigh these trade-offs.

March 30, 2008 at 3:44 pm Leave a comment

UCLA Anderson School Forecast & Santa Monica Real Estate

The most recent (March 11) UCLA Anderson School economic forecast suggests that the California economy will remain weak but not slide into recession. Full report here: UCLA Anderson School Report

There is a chicken-and-egg relationship between the state of the economy and the real estate market: a weak real estate market is a drag on the economy and concerns about the economy lead to a weak real estate market. I have long been of the belief that consumer confidence is no less than second to interest rates as a gauge of activity in the real estate market and right now that confidence seems shaky.

As a Santa Monica realtor, I’m seeing the number of transactions in the first three months of the year drop roughly 50 percent compared to each of the past four years.

For buyers, at any rate, the situation is not bleak: I just represented Buyers getting an accepted offer on a 2-bedroom condo within walking distance of Main Street for less than $500K…a year ago, that couldn’t have happened.

For more on the Santa Monica real estate market, click on the Santa Monica Homes link on the Blogroll at the right of this screen.

March 19, 2008 at 8:31 pm Leave a comment

Sellers: looking at contingent offers

Virtually every real estate contract has contingencies that the Buyer must meet or otherwise have an option to withdraw from escrow. The three traditional major contingencies are the ability to get a loan for specified amounts at specified terms, the acceptance of the result of a physical inspection and other due diligence, and a review of documents pertaining to the property, such as a preliminary title report.

But the current market is seeing a new contingency that we haven’t seen much of at all in the past 12 or so years: Buyer’s offer is contingent upon the sale of the Buyer’s property. In the past few years, Sellers would have laughed at such a contingency…why wait for the Buyers to sell their property when you can get another three or four or eight offers without that contingency?

But times have changed. Now, with many properties being on the market for 60, 90, 120 days or more, Sellers may be more willing to consider an offer contingent upon the sale of the Buyer’s property.

There are many factors that a Seller should consider, including length of time the Buyer has to remove this contingency, how attractive the property is and how well priced it is (to gauge the likelihood of reasonably prompt sale), the apparent willingness of the Buyer to do what it takes to get their property sold and assessment of the Buyer’s real estate agent’s ability to successfully market the Buyer’s property.

There isn’t a simple, clean set of answers to these questions. If Sellers have their property listed with me, I will walk them through the questions and answers as I evaluate them, giving them the benefit of my 17 years of experience, including experience gained in the last down market of 1990-1996.

When the market changes as it has over the past few months, Sellers have to change and adapt with it. Carefully considering a contingency of the Buyer’s selling their home may be a prudent thing to do if the offer is otherwise solid and if the prospects of the Buyer doing so look good within a specified period of time.

February 18, 2008 at 10:28 am 1 comment

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