Investors are back in the market, and they’re paying all-cash, mostly for property under $500,000. The effect of this is to freeze out first-time home-buyers who have to get a loan. Banks are still chary about providing loans. About the only loans left for first-time buyers are FHA loans.  So, while the first-time buyer is working through the loan process, the investors are swooping in and buying the best property, which, after slapping a coat or paint on and, maybe, replacing the carpeting, they are putting back on the market. Sometimes, they rent out the property hoping for more appreciation down the road.

Appraisals are also affecting buyers who need a loan. Appraisals lag the market because they use past data, typically six months worth, to calculate current market value. When a market has bottomed out and begins rising, appraisals often come in under the value agreed upon by the buyer and seller. Banks are requiring buyers to come up with extra cash to make up the difference. First time buyers are having a hard time doing this, so we’re seeing many more sales fall out of escrow than normal.  Another thing hanging over the market is the so-called “shadow inventory” of bank-owned property that has not been put on sale. If the banks release these homes in a measured manner, the market should be able to absorb them.

Home sales were down significantly in January, falling 40.1% from December, and off 7.8% year-over-year.  This is the first year-over-year decline since June 2008.  The decline in sales is not a result of reduced demand, rather it was produced by a lack of inventory, or should I say, a lack of desirable inventory.  We expect sales to regain their momentum through the Spring because of the extended tax credit and because this is historically the prime time for home sales.

From talking with other Santa Clara County real estate agents, we are seeing the same thing.  Properly priced homes in the most desired neighborhoods and school districts are being sold with multiple offers: many multiple offers.  The sales price to list price ratio, which is a solid indicator  of demand, was over 100% in January for the seventh month in a row. At 101.3%, the ratio is at its highest level since September 2005.

Remember, the real estate market is a matter of neighborhoods and houses. No two are the same. For complete information on a particular neighborhood or property, contact me.

Ever walk into somebody’s house and immediately wish that one of those oxygen masks would fall from the ceiling like they have in airplanes so you wouldn’t have to inhale the wall of odors that smacked you in the proboscis?  (For those unfamiliar with W.C. Fields, that means “nose”)

Now image that you’re looking to buy a house and the same things happens when you step foot in that really cool looking house with the awesome curb appeal.  Now let’s take it one step further…. your home is for sale and the oxygen mask scenario is being played out in a prospective buyer’s brain.   Can you say “turned off”? I knew that you could….

Every house has a smell of some kind, some less than others .. unless you live in a hermetically sealed home which means I’m busy the night of your dinner party.  Just because you can’t smell it isn’t a guarantee that your home doesn’t smell like your grandmother’s attic.  Barb Schwarz, the originator of the concept of home staging says “ If you can smell it, you won’t sell it”.  Total corniness aside,  she’s absolutely correct.

As a stager, I’ve literally walked in a home (as opposed to hovering on a cloud of rarified air which is my usual mode of travel) and expected to see a wet dog smoking a cigar while standing at the stove and stirring what can only be described as a pot of stale cabbage being boiled in fetid water.  I’m pretty sure I faked my own death on that job.

Animal odors, litter box odors, somebody keeps missing the toilet odors, last night’s dinner or even worse, last week’s dinner odor, cigarette or cigar odors , etc. will turn off even the most hardy of buyers so…pay attention here because this is important…when your Realtor or home stager gives you this news, believe it and remedy it NOW.

And here’s what you do:  launder or dry clean drapery, bedding, etc., shampoo your carpets, sacrifice a lemon to the garbage disposal gods, give your shower/tub and any other area prone to mildew a thorough cleaning with a citrus scented cleaner.  If an overall funky smell has moved in and is fighting to stay, pour vinegar in a jars or bowls and leave them in the corners of each room overnight.

When all else fails, there is a magnificent product called “Pure Ayre” that’s a food grade (that means totally harmless) product that’s guaranteed to eliminate all household odors. It’s something having to do with enzymes. This stuff can be sprayed, poured, injected (into carpets), fogged, used as carpet shampoo, and the list goes on.  I have personally used it when one of my own carpets got wet from a leaky pipe and started to smell like cat urine. I cast a very suspicious eye at my two cats but when they went so far as to hire an attorney, I decided it’d be cheaper to blame the water. And the stuff worked.  You can buy it online at www.pureayre.com or in some local stores.  The website also has all sorts of tips for cleaning and all that really fun stuff.  So what are you waiting for? Go get some. Scoot.

This has been another message from Karen Negrete IRIS™, your friendly stager.
Interior Redesign Industry Specialist™

In the past two weeks San Jose, California has been experiencing almost continuous rain.  I have been out almost everyday previewing or showing homes.  It would be nice to stay in the office and hang out on Twitter but the reality is, these are some of the best days to learn about houses and neighborhoods.  Why?  Drainage issues are the number one reason for foundation issues on a home.  Foundation issues are one of the most expensive repairs a seller or buyer can face when selling or buying a home.

Most of us do not go under our houses and crawl around the crawl space to keep track of our foundation.  I certainly am not interested in that job.  However, keeping an eye on your crawlspace, especially on a rainy day, can prevent repairs down the road.  Making sure that the crawlspace is “dry as a bone” is one of the most comforting feelings one can have after a little El Niño month.

The first step to protecting your foundation is making sure gutters are clean, water is flowing, and more specifically water is flowing away from your home and foundation.  Water standing around the foundation of your home will certainly penetrate and eventually deteriorate the soil enough to cause settling and/or concrete deterioration.  Proper drainage can be as simple as installing downspout directional tubes and as complicated as installing a french drain.  If you are going to install a french drain, be very sure you know what you are doing.  It is not as simple as digging a trench.   The proper slope is absolutely critical to a proper french drain.  I have seen several homes where a owner was taken by surprise to realize the french drain that they had built actually placed more water at the foundation.

If you, or your inspector are not under the house on a rainy day, there are ways to look for previous water issues.  Look for efflorescence on the concrete walls of your basement or foundation.   The white, powdery looking lines, marks are evidence that water has been in contact with the concrete and has left some minerals behind as evidence.   This does not necessarily mean that there is water pouring down every rainy day but it is the first flag to further investigate.

At this point, the home inspector will also make note of any cracks seen in the concrete under your home.  There are different types of cracks, varying descriptions, and related repairs to said cracks.  Realize that the property inspector is not a foundation expert and will state in the report that an “appropriate professional” should take a look.  Foundation inspections can be the death of deals because structural experts never make light of anything.

Which leads me to my next observation.  I have seen both sellers and buyers decide not to complete a foundation inspection because it “costs too much”.  Depending on where the home is located (on the valley floor or on the side of a mountain) foundation inspections can range from $500 to $3000.  However, the average home price in the Santa Clara County is $632,000 and all homes  face the risk of some shaking during their lifetime due to seismic activity.  If you really like the house, make sure it is as structurally sound as it can be.  If you really want to sell your home, understand the cost of fixing foundation issues.

Rain is a good thing.  Our earth needs it but our foundations don’t.  If your agent encourages you to see houses in the rain, recognize that they are not crazy.  All we need is an umbrella and maybe some rain boots and we are set to find the right house for you.

It is not uncommon over the last two years to find a statement on the multiple listing service that reads “no FHA loans 90 day rule applies”. Which basically meant that an investor had purchased a home, most likely and REO (foreclosed home), completed repairs, new carpet, paint and then placed in back on the market for sale in less than 90 days.  But buyer’s that were utilizing an FHA loan could not purchase this home.

The FHA has an anti-flipping rule that attempts to prevent FHA loans to be used in speculative home purchases where buyers are lured into over paying for flipped homes. However, this same policy is defeating the purpose of clearing out vacant distressed properties and preventing first time buyers (most likely to use FHA loans) from opportunities in the market place.

This waiver is temporary (one year) and will go into effect on February 1st, 2010. There are some limitations. According to the article at DSNews the following rules apply:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.

• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

In my daily travels, the most common problem I see in homes for sale is water damage.  One of the first things I do as an agent previewing a home is look underneath every sink for drippy pipes and water connections.  Even the smallest drip can cause incredible damage over time.  The water slowly penetrates the cabinets, the walls, and the flooring.  Wet wood attracts insects, in particular termites, and suddenly that small drip can potentially cost lots of money to repair.  The one place that can be hard to check continuously for a water leak is behind the refrigerator.  If you have an ice maker you have a water supply line.  This water supply line can develop a leak and slowly drip water behind your refrigerator for a very long time before you recognize that your floor is bubbling up and the damage has been done.

However, there is a simple, inexpensive device that can take all the worry away.  This simple device is called an auto shut off connector.  They can be found at any hardware store and cost less than $40.  This device is placed at the connection and senses any change in pressure from a drip to a burst and then shuts off the water.  This is such a simple way to protect your home that I have considered giving them as house warming gifts.  However, you must install them for them to work.   Take a look at the video and you can see clearly how the Watts Floodsafe Auto-shutoff Connector works.

Sales of single-family, re-sale homes rose 27.9% in December compared to December 2008.  With the extension, and expansion, of the tax credit for buyers, we expect sales to be strong through Spring because of the first-time home buyers tax credit of $8,000 for buying a principal residence. First-time buyer is a buyer who has not owned a principal residence in the three-year period prior to the purchase. There are some income limits. For full information, see: http://federalhousingtaxcredit.com.

The Annual Report

In addition, the tax credit was expanded to include move-up buyers. The tax credit for move-up buyers is $6,500.A move-up buyer is a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. Again, for full info, see the web site cited above.
(P.S. The tax credit expires April 30th. You need to have a signed contract by then and close the sale within 60 days to qualify for the credit.)

The best that can be said about last year is it*s over!  Home sales were up 28.7% from 2008, which was an abysmal year for sales. The 11,722 re-sale homes sold last year almost matched the 2006 number of 11,848, but is still a far cry from the 15,000 plus homes sold in 2004 and 2005. The median price dropped 20.2% from 2008. The good news in all this is that prices bottomed out in the first quarter and started strengthening the last nine months of the year.

The year ended with inventory at its lowest level since January 2006. Other positive indicators as we start the new year include: Days of Inventory, which is how long it would take to sell all the homes on the market at the current rate of sales, ended the year at 50 days. We have to go back to the boom years of 2004 and 2005 to see numbers that low.

The sales price to list price ratio, or how much a buyer paid for the home compared to how much the seller was asking, was over 100% for the last six months of the year. When you see that happening, it means there were multiple offers. Buyers are out there, but they*re looking for bargains. Which begs the question, what is a bargain? A deal has nothing to do with the sales price to list price ratio. Remember, you are going to have to live in that home and that neighborhood.

The most important thing is to find a home, in a neighborhood, you want to live in. If the house is fairly priced, make an offer. But understand, if the house is fairly priced, or even a little under priced, and it is a good house in a good neighborhood, there will be multiple offers. If you find such a home, you can’t hesitate. It is endemic among buyers that the deals are in bank-owned (REO) or short-sale property. But, banks have the property appraised before they put it on the market, and they price it at, or just a little below, market value. Which is why we’re seeing multiple offers and prices going over asking. The real estate market is very hard to generalize. It is a market made up of many micro markets. For complete information on a particular neighborhood or for an evaluation of your home’s worth, call or email me.  (Direct – 408-406-6035)

Scores of home sellers and other home-buying stakeholders are operating under a new set of rules when it comes to the appraisal process.  Since May 1, Freddie Mac has stopped purchasing mortgages from sellers that fail to adopt the Home Valuation Code of Conduct. A joint agreement between Fannie Mae and Freddie Mac and the New York state attorney general, the HVCC aims to boost independence and curb value inflation among appraisers.

Some mortgage groups have fought the measure, which was introduced in 2008 but didn’t take effect until this spring. Government officials claim the HVCC will provide greater protection for home buyers, investors and the market at large.  The code remains a hot issue in the housing industry. It also impacts a lot of business. Freddie Mac and Fannie Mae purchase about 85 percent of all mortgages.

The HVCC has a host of lender requirements. The new code:

• Prohibits lenders and third parties from influencing or attempting to influence the development, result, or review of an appraisal report.
• Requires lenders to ensure that borrowers are provided a copy of the appraisal report no less than three business days prior to closing, unless the borrower waives the requirement. The lender may require the borrower to reimburse it for the cost of the appraisal, but the lender must provide a copy of the appraisal report to the borrower at no additional cost.
• Requires any third party specifically authorized to perform certain actions on behalf of the Seller to be in compliance with the Code.
• Requires lenders or third parties authorized by lenders to be responsible for selecting, retaining, and providing for payment of all compensation to appraisers. The Code does not allow any other third parties to perform these activities.
• Allows lenders to also use in-house staff appraisers to: 1) order appraisals; 2) conduct appraisal reviews and other quality control functions; 3) develop, deploy, or use internal automated valuation models; and 4) prepare appraisals in connection with transactions other than mortgage origination transactions, such as workouts, if the lender complies with the terms of the Code.
• Requires lenders to quality control test a randomly selected 10 percent (or other bona fide statistically significant percentage) sample of appraisal reports or valuations used by the lender, and report any adverse findings, including non-compliance of the Code, to Freddie Mac with respect to loans sold to us.
• Allows Sellers with an asset size of less than $250 million to be considered a small bank as defined in 12 U.S.C. Section 2908 and exempting them from the requirements in Section IV of the Code. Sellers that qualify for this exemption must represent and warrant that they have in place appropriate policies and procedures, as well as adequate controls to prevent undue appraiser influence.

To learn more about the HVCC and look at some of the other new lender requirements, visit this page on Freddie Mac’s website and be sure to tune into this webinar if you subscribe to Mortgage Daily.

This guest post was written by Brandon Laughridge of Mortgage Loan Place. MLP specializes in teach consumers about conventional home loans, fha loans, and va home loans. Visit MLP for tons of free guides and consumer oriented information.

FHA loans have been a large part of Silicon Valley housing recovery in the last two years.  Previous to 2007, the loan limit for an FHA loan was $417,000 and there simply were not that many homes in the Bay Area that were priced low enough to utilize FHA.  In 2007 the government increased the maximum loan limit to $729,000 in the San Francisco Bay Area and suddenly, first time buyers had an option for a low down payment loan.  Requiring only 3.5% down payment, FHA loans provided many first time buyers the opportunity not seen in the San Jose area for over 25 years.  FHA loans were  used for purchases of foreclosures in early 2008.  Buyer’s who simply realized the opportunity to buy and buy now, swallowed up foreclosures and short sales with as little as $6,000-12,000 down.

But things change.  Investors who own foreclosures recognized that many times they were applying credits for buyers with FHA loans due to appraisals, completing FHA required repairs, and waiting 45-60 days to close the deal.  REO agents all over started looking for strategies to prevent FHA offers from being the first presented to the investor/asset manager/seller.  They accomplished this through listing homes 20% under market to attract real estate investors with all cash.  They also started requiring that contracts be written with no appraisal contingency.  Simply crazy.

FHA loans are not as “cheap” as they might seem as first glance.  Costs include Mortgage Insurance (MI) which adds 1.5-2% to each monthly payment.  They require impound accounts for both insurance and property taxes be paid six months in advance at closing.   Impounds typically add $3000-$5000 at closing.  FHA also charges  an upfront mortgage insurance premium of 1.5%-2% fee which can  be folded into the loan amount.  Even though the buyer is only coming with 3.5% down, they will have about 3% in closing cost almost guaranteed.  That is above and beyond title insurance, processing fees, and lender fees. (more…)

Before we can discuss the impact  non-permitted work has on a home, it is important to talk about what a permit is and why it is required for work completed on a home.  Permits are typically issued in accordance with a city or county ordinance.  Therefore, not obtaining permits for required items is unlawful.  Permits are the simplest way for a governing body to manage the construction practices of a community for the general welfare of the residents.  From the ground up, local inspectors confirm that construction is being completed in a manner that meets building code standards.   These standards were created to insure the building is  structurally sound and safe.

If you are using a contractor, they will be able to identify what work requires a permit.  In Santa Clara County, any work totaling over $500 requires a licensed contractor.  A non-licensed contractor may not know the building codes and may not be aware of permits required.  A great site for finding information about a contractor is the Better Business Bureau.  You can also try The Prime Buyer’s Report for reviews and ratings of local contractors.

Directly from the Santa Clara County web site:

When Is A Building Permit Required?
A building permit must be obtained before you erect, construct, enlarge, alter, move, repair, improve, convert, or demolish any building or structure.  This includes decks over 30 inches high, patio covers, sheds over 120 square feet, fences over 6 ft. high, and retaining walls more than 4 ft. in height, measured from the bottom of the footing to the top of the wall.  Fees are calculated based on the size, type and valuation of construction. Typical codes that apply: Uniform Building Code, Uniform Mechanical Code, Uniform Plumbing Code, National Electrical Code, and State building codes.  For single-family dwelling, a good reference is “Dwelling Construction Under The Uniform Building Code”; also check your public library.

Many cities and counties have on-line permit search capabilities.  For San Jose, simply go to San Jose Online Permits and enter the parcel number of the property to find what permits are associated with the property.  Certain permits may not be available on line and you can go directly to the planning board in the city hall complex and request a printed copy.  The planning department can also answer questions you might have about a specific permit.  Recognize that the permit records are not perfect and there have been incidences where the only record of the permit is the copy that the owner or contractor very wisely kept. Also note that certain changes to a home may have been completed prior to a building code requirement and may have been grandfathered into the system.  This is typically recognized when the tax records state additional square footage, rooms, or bathrooms as a part of the tax records but no permits are recorded. (more…)