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Steve Ploetz Premier San Diego Real Estate
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Property Type: Townhouse
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Property Type: Residential
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You’ve heard the age old saying that a product is worth what someone is willing to pay for it. As a child I collected baseball cards and was intensely interested in the value of each one. I’d tear through the pack accompanied by my Beckett’s guide eager to determine the value of each card. As I grew older I remember asking my father about how Beckett’s could determine the value of so many different players from so many different eras. He explained that the Beckett’s guide was a tool but that the value was based on scarcity and how many of each cards there were. Supply and demand.
Real estate is similar in many ways… but also very different. As I write this in the Spring of 2013 San Diego County’s real estate inventory has dried up. Looking for a single family detached house in Oceanside, Vista, or San Marcos with at least 3 bedrooms, 2 baths, and built post-1990? Right now, there are 6 for sale (per Sandicor 04/18/2013). With such a shortage what inevitably is happening is that prices rise. Supply shrivels up, demand stays the same (or increases), prices go up. Basic economics.
The issue is the appraisal. An appraisal is hired by the lender of the buyer to ensure that the collateral for the loan is worth what they’re lending. In other words, if I’m going to loan you $200,000 of my money I want to make sure that whatever you’re buying with it is actually worth $200,000 so that if you need to sell it I know you’ll be able to pay me back. That’s essentially what an appraisal is.
These days, the challenge is the balancing act the buyer must play to come in strong enough to get the property but realistic enough to have the property appraise. If a property appraises lower than the agreed upon price, buyer and seller must come to an agreement as to if the seller will drop the price, the buyer will pay over the appraised value, or a combination of the two. These days, with so many offers in on properties, the buyer doesn’t have a leg to stand on trying to negotiate the seller down to the appraised value. Usually, if the property appraises more than $10,000 low the deal will fall apart.
Simple example, I recently listed and sold at property at 149 Christen Way in San Marcos. When I met with the sellers we looked over comparable sales and determined that the value of the house was around $225,000. In other words, we felt confident that the property would appraise at $225,000. Still, with the lack of inventory we expected to receive offers above that price. After 3 days on the market we were looking at 22 offers including 3 cash offers. The property sold for $245,000. That’s market value. Obviously cash is king in this market because there is no appraisal. The buyer is happy with the purchase at that price and the seller can be assured that there will not be any issues with regards to value.
If you don’t have a bunch of cash sitting around, you’re going to need an agent that can get your financed offer accepted. It’s not always just an agent that promises that the deal will go through or sends a sob-story of why you deserve it more than the other 21 offers. You need an agent that’s connected and understands what a seller is looking for.
Call, email, or text me with questions and I look forward to getting your offer accepted.
There’s no question that we are in funny economic times. The stability of the housing market is potentially uncertain. With the downgrade, the stock market is extremely volatile. Even “safe” investments (like commodities and bonds) bring their own risks. Here’s why to invest in real estate versus other places:
I recently read an article written by Time Magazine’s Alison Rogers discussing the recent trends within the national real estate market. Her argument is that data has shown that while interest rates are at an all-time low (since Freddie Mac began keeping track of them in 1971) buyers still haven’t jumped in. Her short article cites the restrictions of lenders as the main cause (albeit, not the only one).
Lending has definitely become more restrictive. Gone are the days of people making $10/hour qualifying for $500,000 houses on “stated” income (you tell the lender how much you make, rather than any kind of documentation required). I will also agree that the pendulum has swung to the uber-conservative where people with good income, good credit, and little debt still find getting a loan exhausting. (Tangent story: recently had a client buy a house for his son and, as a lesson of responsibility for his son, got a loan and put his son on the title. The father could’ve bought the house cash and nearly did when the lending got so tedious and involved.) However, I cite many other reasons for the lack of activity in the market. I see them as follows:
Overall, real estate is always a good investment if you’re in it for the long haul. If you want to buy something and flip it in the next 6 months, I’d say you better have experience doing it and trust that you can get something well below market. Buying today and holding for 5 years or more? I can honestly say that within that time frame the market will be in a better place. If you have questions or are interested in discusses the market, please always feel free to call or email me.
I was asked this today by a first time buyer and thought it would be a good question to blog about. In California real estate, the buyer is protected by the contract. First off, with most transactions the buyer will write what’s called an Earnest Money Deposit (also called an Initial Deposit or EMD). This is generally 1-3% of the sales price and is put into escrow. The money is taken out of the account and held. Think of it like a security deposit when you rent a place. The buyer puts some skin in the game and then has the option of getting it back. How you ask? Everything is negotiable but in a standard contract the buyer has 17 days after acceptance to get all inspections done, review disclosures from the seller, get the loan in order, and order and approval an appraisal.
Side notes (it’s easy to go off on many tangents but I will try and keep it simple):
1. Notice that I say “the buyer has 17 days after acceptance…”. Let’s say the buyer writes an offer on Monday and the seller counters the offer (Counter Offer #1) on Tuesday. Then, after thinking about it for a day the buyer accepts the sellers Counter Offer #1 on Thursday. All the time periods for the transaction will be based off the buyer’s acceptance date of Counter Offer #1 (Thursday).
2. The seller can never cancel the deal… unless the buyer says they’re going to do something and then doesn’t do it. For example, a standard contract says that the buyer has 17 days after acceptance to remove contingencies (meaning, the buyer has done all inspections, read all the disclosures from the seller, had the property appraised by the lender, etc and is willing to move forward and make their Earnest Money Deposit non-refundable). If day 18 after acceptance comes around and the buyer hasn’t removed contingencies (as they said that they would do in the original contract), then the seller has the opportunity to take action. The seller can give the buyer a “Notice to Perform” which gives the buyer 48-72 hours (depending on the contract and what’s been agreed to) to “perform” (in this case, remove contingencies). If the buyer doesn’t perform in the time specified by the seller, then the seller has the ability to cancel the agreement. Under section 14C of the Residential Purchase Agreement discussing the Seller’s Right to Cancel it states:
“If, within the time specified in this Agreement, Buyer does not, in writing, deliver to Seller a removal applicable contingency or cancellation of this agreement (in other words, if after the 17 day period or whatever was agreed upon in the original contract, the buyer hasn’t given the seller a removal of contingencies or a cancellation) then Seller, after first delivering to Buyer a Notice to Perform, may cancel this agreement. In such an event, Seller shall authorize the return of Buyer’s deposit.”
3. Long story, short: if the buyer backs out of the transaction within 17 days (or whatever is agreed upon) and never removes contingencies, in writing, then the contract says that the buyer is entitled to their full deposit. In California you don’t a reason to back out of a transaction as a buyer. Cold feet, changed your mind, spite, etc. These are all acceptable answers. (Not so in the famous Seinfeld episode of the “spite” coat. Take a study break and watch the 1 minute video by clicking the link below)
As is traditional with my blog posts, I’m getting long-winded. The answer to the question, “Are there any penalties for backing out escrow as a buyer?” is that it depends on when you back out. The only money you don’t get back is the money you pay for the physical inspection (since it’s a third party company coming to do it) and the appraisal. Both are about $400-$500 each. If you back out within the contingency time period (usually 17 days, as discussed) then you are entitled to your full EMD back. If you remove contingencies in writing, you are making that money non-refundable and it goes to the seller for costs they’ve already incurred (moving vans, repairs, etc) as well as their time off the market.
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Email: steveploetz@century21award.com