Sally Glausser

Steve helped us through a two year process of selling my parent’s home. He went above and beyond anything I would have expected. I would highly recommend him to anyone!

Buying or Selling Out of State? I Can Help!

Many people are aware that I can help them buy and sell residential real estate within San Diego County, Riverside County, and Orange County (actually I am California licensed so I could help sell someone’s house personally anywhere in the state).  What people sometime don’t know is that because I’m part of a network of Realtors within my company and because of relationships that I have with some very large lending institutions, I can put people in contact with a local Realtor who has a proven track record of success anywhere in the world.

For instance, let’s say your grandmother wants to move from Chicago to the beaches of Florida.  I can help.  I can put her in contact with a quality agent in both areas (selling and buying agent) that is a veteran, quality agent.  Maybe she already has a relationship with someone she trusts (and I always recommend using those first) but if she doesn’t, it’s a way she can at least start with someone who is qualified.  Plus, as an added benefit, then I can keep tabs on that agent and keep him/her accountable and make sure that he/she is working hard in order to get that home sold or help her buy a beautiful place to live.  When I recommend someone I realize that the quality of work (or lack thereof) is a reflection of me, and so I take all of that business very seriously.

If you or someone you know needs to buy or sell outside of Southern California, please feel free to contact me and I can help.  It’s just another way that I look to provide service that truly is “a foot above the rest…”

Writing an Offer: How Much of a Discount Should I Write the Initial Offer at?

Watterson had it correct in this Calvin and Hobbes cartoon, and dealing with the compromise and negotiations of an offer can be difficult.  The question in the title is a common one I get from buyers.  The house is listed at “such-and-such” price.  What should we write the initial offer at?  10% off the asking price?  More?

The thought is that there is some kind of formula which will allow you to get the best deal.  However, the most important thing to note is that the offer you should write is based off the market value of the home, not the price it’s listed at.  In other words, if a house is worth $400,000 and it’s listed at $500,000 a 10% discount off the asking price would still be over paying for the house.  On the same token, if the same house is listed at $375,000 there is no need to go in at a discount because it’s listed at a discount.  Learning market value is key and discerning the features that may add or subtract value is extremely important.  Now, just because a house is worth $400,000 (market value) doesn’t mean it’s worth that to you.  Maybe you aren’t totally in love with it but at the right price it would make sense and the best price for you is $375,000 no matter what.

In writing the initial offer I generally work under two strategies, each with their own advantages and disadvantages I’ll discuss:

1) Write an offer that’s strong enough that it doesn’t piss the seller off where they don’t respond, but low enough that you create some room to negotiate.  Let’s say the house is worth $400,000 and it’s obvious (i.e. it’s a tract home with a model match of similar upgrades that sold two weeks ago at $400,000 with no difference in view, lots size, location, etc etc).  The first strategy is have your Realtor do some background work.  Why is the seller selling?  What’s their motivation?  Did they get a job transfer and he’s leaving in two weeks or are they just testing the market?  What kind of activity have they had on the house?  Any previous offers?  Any offer now?  Anything we should know about the property before writing the offer (i.e. seller wants to take all the appliances or that the seller will credit for a carpet allowance)?  Identifying these things will help with the initial offer.  With that information I make my recommendations as to what the initial offer should be.  If the seller has a job relocation and needs to sell it, maybe we start at $370,000 and hope we split the difference around the mid $380,000’s and can feel like we’re walking into equity.   Sometimes this happens where the buyer writes the offer at $370,000 and we end up splitting it right down the middle and go into escrow at $385,000.  The common complaint is, “Had I known we were going to split it 50/50 I would’ve started lower.”  Makes sense but remember it’s based off market value not the initial offer written.  If that was the case then we should’ve written the initial offer at $1 and the seller would’ve split the difference and we’d be in escrow at $200,000 right?  Wrong.  Thus, the biggest challenge of this style of offer writing: writing the initial offer too low.  Same scenario but the buyer writes the offer at $350,000 and the seller rejects the offer outright as an insult or ridiculous.  Now, as a buyer you’ve put yourself in a tough spot because you need to go back to the seller and increase your offer.  Now it looks like you really want the house and you’re begging for it.  Not exactly the way you want to start out with negotiations.

2.  The second style of offer writing is the “highest-and-best” tactic.  For the scenario above, this would be like writing the offer at $385,000 and holding firm on it.  You go in relatively strong and back it up with data and explain that this is the best you will do.  The biggest part of this is that you have to stand firm.  The seller will probably test you and may even become frustrated with you because it’s such a power play.  Usually when I write these kinds of offers with clients the seller doesn’t agree to it because of the lack of negotiations and 4-6 weeks later I check in with the listing agent and say that the offer still stands (if we haven’t found something else) and we’ll go into escrow.  Psychologically it’s tough on a seller to deal with this kind of offer because everybody wants the game.  I’ll give up this if you give up that.  The biggest challenge I find is two-fold for these kinds of offers: 1) is the challenge that a seller may pass on a legitimate, good offer because of the lack of negotiations and 2) is the susceptibility of the buyer to not stand firm on their offer.  If you go in and say that $385,000 is your highest-and-best, “take it or leave it”, and the seller counters at $387,500 what do you do?  It’s a difference of $2,500.  Are you willing to let the deal fall apart over $2,500?  But are you willing to enter a more challenging escrow from the beginning because what you originally said was highest and best really isn’t?

When it really comes down to it I think one of the biggest advantages of having a Realtor is having a qualified person who has been through the process many times to bounce your ideas off.  If you just want an order-taker anyone can be your agent.  If you want someone that can help you get a good deal through the negotiations, give me a call.

Renting vs Buying: The Whole Story

The age old question: is it worth it to buy or should I continue renting?  Well, let’s look at a hypothetical:

Let’s say John currently rents a 2 bedroom place in San Diego for $1,500 per month.  He’s tired of paying someone else’s mortgage and wants to begin putting money into his own equity and is trying to figure out if it’s worth it.  First off, let’s look at the financial side of things.  In order to do that we need to begin with a couple of rules of thumb:

1.  First off, calculating a payment can be complex and I always recommend speaking with a lender, but an easy way to start is to think that for every percentage point of interest rate you have, your monthly payment is equal to $100 times that for every $100,000 you finance.  In other words, let’s say you’re financing $300,000 at 5%.  A basic payment (before HOA dues and property taxes) would be $1,500 per month (5% at $100,000 would be $500.  $500 times 3 is $1,500).  Note that this doesn’t include property taxes, which in San Diego County are about 1.25% of the purchase price or any HOA.  Also, without getting too technical, the monthly payment depends on the type of loan.  If you do a VA loan or an FHA loan your property taxes are built into your monthly payment in an impounds account (i.e. assuming a $300,000 purchase price with a VA loan, property taxes would be $3,750 annually at 1.25%, or an additional $312.50 per month built into the payment within an impounds account).

2.  John’s payment is heavily reliant on his down payment and financing because the qualifications are different.  If he puts 20% down and does a conventional loan a lender only needs to see his last year’s tax statement.  An FHA loan (with 3.5% down) would be the last two years and these days banks want to see an increase in income from oldest to most recent.  Again, everything we’re doing here is “rule-of-thumb” without a calculator and just to give you a basic understanding.  In order to know what you qualify for and what a payment would be, speak with a lender.

Ok, back to John.  John’s trying to figure out if it’s worth it to buy today or one year from today since the market is so wacky.  John’s biggest concern is that if he buys something today and then prices soften more, maybe he should’ve waited.  Maybe.  Think of this: if John is paying $1,500 per month, in order to save money for next year the market needs to drop by $18,000 ($1,500 rent per month times 12 months).  That may not mean much at the $400,000 and $500,000 level but if John likes his payment around $1,500 per month, he’s probably looking in the $250,000 – $300,000 house area.  An $18,000 drop would be a drop of 7.2% drop (at $250,000).

Another major benefit to home ownership is the tax break.  Owning a house and paying a mortgage gives you the opportunity to  write off all your mortgage interest and property taxes.  Consult a CPA to know exactly what you can write off.  With the money saved in taxes, a $1,700 payment really becomes at least a $1,500 payment.

Making the jump to buy a home is a big step.  It means you are making a commitment to pay on a house for (usually) the next 30 years.  It means that you are established enough to feel like this will be home for at least the next couple of years, or that you can rent it out.  It means you are willing to take on the challenges of home ownership (i.e. plumbing breaks, roof leaks, etc) without the help of a management company or a landlord to call.  But here’s the kicker, after all the tax benefits and assuming he can find something he likes in his price range, John can actually save money by buying right now as compared with waiting until next year.

There’s no question our market is in uncertain times.  But if John knows that he will be staying in the house for at least the next 5 years, market signs are very strong that purchasing right now is a smart decision.  Based on the numbers above, if John is looking in the $250,000 house range, the market would need to drop 10% in the next year for him to break even.  Any drop less than that means he’s actually making (or saving) money.

If you have questions about it, please feel free to contact me.

Are There Any Penalties for Backing Out of Escrow As a Buyer?

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)

\”You Said Spite\”

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.

Selling Your House For Top Dollar

Gone are the days of getting a Realtor who just puts a sign out front, a lockbox on your door, and your house in the MLS and 4 days later you’re negotiating multiple offers.  These days you need an agent that’s working hard for you and is actively seeking buyers out.  I don’t feel comfortable giving away my trade secrets on a blog, but I will say that I spend serious money before the sale of the house on marketing and advertising in attempt to find buyers.  The key?  Every house is different and therefore the potential buyers will be too.  Trying to sale a 2 bedroom condo in Oceanside?  The key is to figure out WHO will be buying the house.  Maybe it’s on the first floor and would a great downgrade for empty-nesters.  Maybe it’s near Camp Pendelton and would get great cash flow for a military tenant and therefore would be a great fit for an investor.  Maybe it can also be a starter place for a first time home buyer or a small family.  Knowing the demographic of the buyer is step 1.  Getting your home in front of that demographic is where I come in.  I carry a badge.

WELCOME!

Hello, and welcome to StevePloetzHomes.com.  This is a site dedicated to the education and improvement of your understanding of the local San Diego real estate market.  Every day I will blog about some different segment of the real estate world as we know it from finding the best deal in new construction to learning the difference between short sale properties and bank owned REOs, to selling your home for top dollar.  I want you to view this website as a source of information and I want you to always feel free to ask questions or provide me with specific topics you’d like to see my professional opinion on.  Please enjoy it and always feel free to contact me directly.