Wine Country And Horses

Good blog buddy, Dave Blockhus, of Coldwell Banker in Los Altos, recently shot this video overview of a home sale on the courthouse steps in San Jose. It is about 4 minutes long and provides a example of auction action occurring all over the US, including Sonoma County.

There were so many home auctions in Sonoma County during the past year that Sonoma county is asking auctioneers to move their business elsewhere as they are clogging up the hallways of the county buildings. Cash investors with certified funds are the only ones welcome at these sales and they are out in force. Fully 18% of homes sold under $500,000 in Sonoma County were cash sales. I am guessing most of those went to investors.

Many of the new listings since Christmas have been bought at auction (and some off the multiple listings) and are being remodelled and flipped by investors. I am seeing homes purchased for $250,000 to $350,000 (cash and as is) for example, which are brought back on the market in 60 to 90 days.

In a typical scenario one of these homes closed in November or December. A construction crew moves in to put in new flooring, baths and kitchens, paint inside and out, lay some sod and voila-the house is back on the market in 60-90 days, staged and price from $400,000 and up. Some investors are doing a really nice job with quality work, employing crews that might otherwise be working on new home construction. Others are doing the bare minimum beyond minimal cosmetics.

There are restrictions on the sales of these homes to FHA buyers, who comprise the bulk of the first time buyer market here in the county. These restrictions were just loosened January 15, 2010, effective February 1, so that a 90 day sale moratorium has been suspended for a year. Previously, an FHA buyer was not eligible to purchase a distressed property less than 90 days after it was previously sold.

More restrictive appraisal and valuation methods will continue to apply for FHA buyers interested in these homes. If the home is priced more than 20% over the previous sales price, the FHA lender will require either a secondary appraisal or an itemized list of improvements to justify the new higher price.

One property I saw recently in Sebastopol on a half acre was purchased at auction for $350,000. The investor put in $60,000 dollars worth of work, staged the home and it went on the market 60 days later. Went into escrow day 1 on the market, listed at $535,000. Clearly there is money to be made in these short term flips, and also a market for quality remodels smartly done. You must closely evaluate and inspect the improvements yourself as a buyer to make sure the new price is justified.

Meanwhile thanks to Dave for his informative video. I don’t think he got an Oscar nod yesterday but he does provide a nice show and tell about home auctions. (FYI: I did a post a couple of years ago about a different type of auction on a grander scale. You can find it here.)

With 2009 moving into the rear view mirror, there has been much speculation among agents, clients and the press about 2010 and what portends in the housing market. Inman News recently published a sobering assessment of the events that will impact real estate markets in 2010, from increasing mortgage rates, tightening FHA credit standards, high unemployment and the expiration April 30th of the buyer tax credits.

Real estate agents and brokers typically look forward to spring as the season where homebuyers come out in force and sales pick up.

In 2010, the uncertainty created by the financial crisis makes it harder to bank on a seasonal uptick in sales — particularly in markets hit hard by unemployment.

Further complicating matters down the road are three potentially destabilizing events that are expected to occur in a tight timeframe during the spring buying season:

* At the end of March, the Federal Reserve is expected to wind up a $1.25 trillion program that’s kept mortgage rates low.
* The Federal Housing Administration’s announcement that it plans to tighten underwriting standards could take effect as soon as April.
* Congress is expected to allow the newly expanded homebuyer tax credit to expire, closing the door on buyers not under contract by April 30 and closing by June 30.

Economists must rely on a certain amount of guesswork in predicting what impact these changes will have when drawing up their forecasts for 2010. Many expect unemployment won’t peak until next year, and it’s almost certain mortgage rates can only go up from record lows.

But housing was hammered so badly, and for so long, that most forecasters expect housing prices to stabilize and sales to pick up in 2010, even if economic growth doesn’t spring back as fiercely as it usually does in a recovery.

“We are definitely in a recovery now, but this has been such a severe recession — we think the financial crisis and the credit retrenchment that’s occurred means this is going to be a fairly anemic recovery,” said Michael Fratantoni, the Mortgage Bankers Association’s vice president of research.

America has moved from a manufacturing to service-based economy, meaning “there’s not as much potential for a snapback” from a recession like the Reagan-era boom of the 1980s, Fratantoni said.

These events certainly will impact markets nationwide, but each area will respond differently. Many of us think that buyers will continue to feel urgency in Sonoma County to avoid rising rates and the expiring tax credit. Certainly, inventory is in very short supply and buyer activity has been surprisingly strong during the holiday period.

Plus, Sonoma County will continue to be perceived as a more affordable alternative to housing in Marin County and the rest of the Bay Area to the south. No one knows for sure how the shadow inventory of foreclosed homes will affect our markets. How many of them will reach the market, and at what rate?

What do you think 2010 will bring?

And most of all, Happy New Year! Thank you for your business, referrals and friendship in 2009. I look forward to working with you in 2010. No matter what condition the market, there are opportunities in real estate if you have patience, think long term and have good planning on your side! If you have any questions about buying or selling a home, please contact me and I will be glad to help you!

Many many home buyers in Sonoma County live out of the area–they buy second homes here, they are relocating for work, or want to experience life in the wine country first hand.

Many home buyers, even if they are local, conduct much or their search on line. Why not have as much of the purchase transaction paperwork be conducted on line too?

This struck home this afternoon as I prepared an offer for out of town clients to sign. Their scanner was older and it was not easy to assemble the pages to fax back to me–believe me I had the same problem before I got a new scanner. What a tedious process for them!

Or I have had illegible faxes come through as a result of too many generations of faxing and scanning of counter offers and counters to counters, ad infinitum. Every one involved tears their hair out and runs around wasting time on mechanics of the paperwork, when it is the content of the documents that is most important! Pretty silly.

Enter the paperless transaction, beginning with the electronic signing of contract documents. It is easier than it might sound! What is an electronic signature?

An electronic signature is any legally recognised electronic means that indicates that a person adopts the contents of an electronic message.

There is a better way. Our new paperless transaction system at Prudential California Realty will be rolled out company wide in the first quarter. Hallelujah!!!!!! So many trees will be saved and countless hours chasing paperwork with also be saved by realtors and their clients.

My client asked me about electronic signing–what does it mean? What does it look like? What are the basic facts? You can click on the link above for a Wikipedia article about the concept of electronic signatures.

For more specifics, here is a link to the system we will be using, Docusign by Ziplogix.

Here is a brief (2 minute) and not too fancy overview of how you, as a buyer or seller, would use Docusign to sign documents electronically. I’ll have more posts about the whole process of greening the real estate transactions and preventing grey hairs for all the parties involved!

If you are searching real estate on line (and who isn’t?) it is easy to be confused about the availability, or sales status, of properties, when you are focused on important details like price, location and pictures. It helps to be familiar with the terms.

After all you don’t want to get excited about a property if it’s status is “Pending.” “Contingent/Release” doesn’t mean that the property has been released back into the market.

If you are a seller evaluating the competition for your property when it goes on the market, it can be useful to see how properties are moving, so keeping an eye on alternative status’s (beyond active) can provide insight in to the velocity of the market for your type of home.

So let’s do a little primer.

( A word of caution: Be aware of the source of listing data on the site you are searching. If it is not a direct feed (IDX feed) from a Multiple Listings Service, the data (especially status) may not be accurate. Many sites such as the websites of print publications and other aggregators are not necessarily up to date.)

ACTIVE

CONTINGENT, CONTINUE TO SHOW

This status means that the buyer and seller have come to terms and ratified a purchase agreement, but that the buyer has made their offer subject to the removal of certain contingencies, which can include, but not be limited to:
Loan Contingency- Both the property and the buyer need to be fully approved qualify for a loan.

Appraisal Contingency- This optional contingency is added protection for a buyer in cases where the appraisal is not sufficient for the bank to approve the property at the agreed upon purchase price. (Note:technically all contingencies are optional, but I don’t advise buying a property with no contingencies. We do see that when the market is red-hot in certain markets in the Bay area but it is NOT a good idea.)

Buyer’s Investigation- This is also known as the Inspection Contingency and can cover any item the buyer deems relevant to satisfy themselves in depth about the property: it’s structural integrity, the neighborhood, etc. Generally inspections include termite, contractors, well & septic (if applicable), natural hazards, public records and databases, title report, etc. It also means if you want your great aunt Minnie to see the property and give her approval prior to your purchase, that is your right. You could have a feng shui expert look at the property, it is up to you as the buyer to satisfy yourself that the property is right for you. This is a big subject which we won’t cover in full here.

There are other contingencies such as the buyers right to review seller disclosures, preliminary title reports and property tax bills, etc.

All of the timeframes for these various contingencies are specified in the purchase agreement. Standard terms are 17 days in the California Association of Realtors (CAR) contract, but their existence and their length are completely negotiable. What you as a buyer submit in your offer depends on the deal strategy you and your realtor are employing. Timeframes can be extended indefinitely, as long as both parties are in agreement and the extensions are specified in writing.

Once the buyer is satisfied that all their investigations are complete, the loan and appraisal are fully approved by the lender, all systems become “Go” and the deal goes…..

PENDING

SOLD That should be pretty self-explanatory. The agent remarks in the MLS should note the type of financing, any seller concessions and sometimes an atta boy to the buyer’s agent for doing a good job!

I’ll look at some of the other status types in the next few days. Please let me know if you have any questions,and thanks for stopping by!

The median price of a Sonoma County home was $340,000 at the end of November, down slightly from $345,000 the previous month but up for the low hit last February of $290,000. This reflects several trends: shrinking inventory due to increased sales, initially led by the surge of entry-level home sales begun last spring, and followed by a late full increase in the sale of upper-end and mid-range homes. Most agents I talk to are upbeat about the coming market this winter and spring. We also wonder what the impact of the so called shadow market of foreclosures will bring to the Sonoma County housing market. If you were considering selling your home but reluctant due to the tough market conditions of the last couple of years, you might think about putting your home on the market this winter. Even with the holidays, there are a lot of buyers still active in the market. Please contact me if you would like to explore your options!

But what about Sonoma County and Northern California? If you read this article in the business section of today’s New York Times, An Upturn in the Housing Market May Be Reversing – NYTimes.com you’d find very justifiable skepticism about the increase in real estate sales volume nationally that we’ve experienced this summer and fall. As some friends and I discussed at dinner in Healdsburg Monday night, no one is convinced that the economy is on firmly recovering footing, Wall Street enthusiasm aside. So are we up for a “W” recovery–meaning another downturn in housing prices? From the article, which discussed the latest Case Shiller Housing Index Report:

The two housing price reports lag, by a month, the figures on the volume of home resales, which were issued Monday for October. Home resales jumped 10.1 percent to the highest level in two years, better than analysts had expected.

Much of the increase was attributed to the $8,000 first-time buyer’s tax credit, which had been set to expire Nov. 30 but has been renewed through spring. Buyers who have already owned a home are now eligible for a $6,500 credit.

While brisk sales volume should, in theory, push up prices, Maureen Maitland, the vice president for index services at S.& P., said the oversupply of inventory was acting as a brake. “You can look down the street and have 10 houses to choose from,” she said.

About 3.57 million used homes are for sale, a number that has been declining but is still higher than the historic average. It represents seven months of inventory at the current sales rate.

Ms. Maitland speculated that the housing market might follow a “W” pattern, as the price lows plumbed last spring are tested again this winter.

It’s all well and good to look at national statistics, but (and this is a cliche so forgive me)–looking at the national housing market to try to determine what is happening with home values in your neighborhood is like trying to know what the weather will be like by knowing what the average temperature in the US is at any given time. Just look at the paragraph above–7 months available inventory nationwide.

In Sonoma County we have less than three months of inventory available county wide, and less than two months at the lower price ranges. Even at the upper price ranges we have about 10 months of inventory and I suspect that is changing as we speak. Next week I will take a look at the market for properties priced over a million dollars. (In Sonoma County that would be considered high end.) In southern Marin, Palo Alto, Piedmont or San Francisco $1 to $2M for a house will get you a tract house or nice condo.)

I have been struck by how active our market currently is, and how many properties at the mid to upper price ranges have been selling in the last month or so, after laying dormant for so long. I think buyers in those price ranges are perceiving good value and striking quickly when they see what they want. A property closed in Healdsburg yesterday: the quintessential wine country farmhouse on 12 acres in Dry Creek Valley, pool, nice house, vineyards, wrap-around porch. It was listed at $2,650,000 and received four offers, selling for $2,825,000. I am told there was a backup offer over the eventual sales price.

Another stylish property on acreage with lavendar and olive fields in Sebastopol, sold recently after receiving four all cash offers, for about $1.7 M. Stylish properties, well-priced with classic locations and settings, are finding that there are buyers out there who have decided that it is again time to put there money in wine country real estate. I am also hearing the same kinds of stories from agents in San Francisco, the East Bay and the Peninsula.

Will this last? How will values be affected? It is too soon to tell, but interesting to signs of life in parts of the market that were dead most of this year. One factor which encourages me is that the tech companies in the Bay Area are experiencing sales growth, venture capitalists are investing in startups again, and the IPO market has some life, witness the succesful IPO earlier this year for Open Table. Facebook is starting to take some steps along their path to a public offering–all those factors are positive ones in our Bay Area economy. After so long a time of negative news and still a lot of hard times for many people, there do seem to be some glimmers of hope. And as I noted in one of my earliest blog posts a couple of years ago, the rising Bay Area real estate tide definitely floats Sonoma County’s real estate boat.

Google has added property search of current real estate listings to Google Maps. You can go to Google Maps and search a community, even add in your criteria in terms of beds/baths/etc. and the map will highlight current listings and display detailed listing information on the left hand column–Google provides a video overview below.

I thought I would check it out for accuracy. I ran a search for Healdsburg and found a property listed for $639,000. which was news to me as I have clients looking for something like that–I follow all the key markets in Sonoma County regularly on the search for new inventory and sold results.

So I clicked through to the property info and it turns out the listing was on Piper Lane in Sonoma! Somehow Google pulled the listing info, stripped the town of its Sonoma address (about an hour away) and added Healdsburg to the property address! That’s one way to get new inventory! (not) Very misleading.

It also picked up a listing in town on North Street which had four lots of about 25 acres each. Not possible–that would swallow the whole town of Healdsburg. When I clicked through the property links I found an empty page on a local broker’s site. And these are only the first two errors that I saw. It appears that data is pulled from a variety of sources, including print magazines and other listing aggregators such as ListHub. All I can say is don’t go to the bank on what you find because it can be very erroneous. Obviously the search itself is not ready for prime time but also the data being searched is unreliable. Garbage in Garbage out. Until there are agreements with regional MLS’s (don’t hold your breath) take the real estate information offered on Google Maps with a grain of salt.

Which of these is the killer real estate bargain? (See the answers below–these are true stories based upon real estate sales in Sonoma County over the last year–details have been eliminated for obvious reasons.)

1) an REO (bank-owned) home in Rohnert Park/Cotati that sells for $304,000 with 19 offers. Original asking price $256,000. Nearly 20% over asking price.

2) a country property in Healdsburg with two cute cottages that nearly sells for $137,500 under asking price.

3) a country property in Sebastopol that sells for full asking price ($1,750,000) with four cash offers.

4) an REO in Santa Rosa that sells for asking price with two offers.

5) a cute country property in Sebastopol that sells in a week for 95% asking.

6) a fixer (read:teardown) with a bad floor plan on a busy street that sells after a year on the market for 50% of the original asking price.

7) a cosmetic fixer on a great lot with good bones and multiple offers, sells 5% over asking.

property someone buys from a friend of a friend before it hits the market at 10% less than the supposed listing price because the seller doesn’t want the hassle of selling or to pay commissions.

ANSWER:

1) A BARGAIN–Are you crazy? The buyers paid $48,000 over asking.

Yes but the bank significantly underpriced the property by not attributing enough value to the oversized, landscaped 1/3 acre lot with its own redwood tree and raised beds for gardening. A most unusual feature that attracted a horde of buyers. Fortunately my wonderful clients prevailed and bought a home for the price that was their target price all along. Now they have a house payment lower than the rent they were paying previously, before taxes. For their first home, a bit of country in a great commute location, with no repairs beyond their budget or skill set. It even appraised at full price.

2) A BUST: It seems like a bargain on paper, but what if the original sales price was about $175,000 too high and the property sits and sits and sits. Even with a $137,500/16% price reduction, the buyer might be paying too much. This property is still sitting on the market racking up interest and taxes.

3) A BARGAIN: A great retreat property that sold in about five minutes with a few offers in the dead of last winter. Clearly priced right to attract interest and a turnkey property with lots of staying power and redeeming value.

4) A BARGAIN: A perfect home for the buyer’s daughter and her family. The floor plan was perfect for them and the home had been largely remodeled before it went to foreclosure. Prices have moved up a few percentage points since then.

5) A BARGAIN; Gee, only 5% off list? But this property has such fabulous fundamentals: great setting, updated, close-in to town country location, privacy, it fits the buyers’ budget. Let’s face it, it is always going to be a desirable property. And the buyers will enjoy it for a long time.

6) Eventually, a BARGAIN: This property will always have the negative of being on a very busy street–but the eventual sales price justified the case for the investor who bought this property to rehab. Just don’t expect it to appreciate as much as something with better fundamentals. But it finally penciled out.

7) A BARGAIN again. This property was well marketed, the listing agent astutely priced it slightly under where she thought it might eventually sell–it inconvenienced the current owner a shorter amount of time due to the quick sale, and everyone was happy.

WHO KNOWS? What we do know is that the seller may have left money on the table by selling his property for less than it is worth, or the buyer may have overpaid. Maybe they hit it just right, but the market did not test the value of the property, so it is a bit of a gamble for both.

Maybe you get the point? A bargain is in the eye of the beholder, and not necessarily related to list price versus sold price. That says more about the skills of the listing agent then the negotiating prowess of the buyer. Sale prices of property seek the proper level when well exposed in the marketplace. Sometimes overpaying makes sense. Sometimes underpaying is still overpaying. If a property meets the buyer’s needs, fits their budget and they love the idea of owning it, then that’s a bargain.

I figure when my clients or blog visitors are asking me questions that there may be a few of you out there with the same sort of questions. Recently I was asked by a homeowner if this might be a time to consider selling their current home in a very nice Santa Rosa neighborhood. They were hesitant because in the fall of 2008 they put their home on the market briefly hoping to buy a country home with some more land for their hobbies and a little closer for their commutes.

We all remember last fall at this time. Many people put any plans to buy and sell on hold as Lehman Brothers collapsed and we seemed (as another client put it) to be headed for financial Armageddon. (!!!)

Since that time many markets, including Sonoma County’s, have been dominated by the sales of distressed properties. In our case that means properties priced under $350,000 to $400,000 dollars.

Foreclosures and short sales dominated the inventory and this year buyers have flocked to them in high numbers. As a result, prices have come up 3 to 7% in the lower price ranges since an apparent bottom in January or February of 2009.

Last winter, savvy buyers (you know who you are!), perceived a chance to drive some bargains in the winter months. They were willing to get ahead of the home buying curve before the mainstream media caught on to what was happening. Instead of competing with 10 or 20 other buyers for the same properties that ultimately sold over asking, they were able to buy homes with less competition and at lower prices.

I think something similar may be happening now for properties priced under $550,000 or so on the seller side. If you have been thinking of selling your home and “moving up” to a country property for example, there may be a nice window of opportunity for you to make the move, particularly since the revised and expanded buyer tax credit now may apply to you or the buyers of your home and put another $6,500 in your pocket. Check the links for details on these credits as they don’t apply to everyone and all situations. I suspect the media will be talking about this topic- a window of opportunity for mid-priced home sellers–over the coming months. Often the best opportunities lie in acting in advance of the mainstream acceptance of a trend. Usually the trend is months ahead of the media talk.

Certainly there is expected to be a new wave in the spring of foreclosure properties but right now there is very little inventory of homes for sale in Sonoma County between $450,000 and $550,000. And there are great bargains to be had in country property or slightly more expensive homes. In every market, there are opportunities, you just need to be aware of the current trends and be opportunistic! Granted you are not going to sell your home for what it would have fetched 2 or 3 years ago, but neither will you pay what you would have on the other end.

Here is a picture of supply and demand for single family homes between $450,000 and $550,000 in Sonoma County over the last two years. You can see that while unit sales are down 10% from 2007 at this time, the supply of inventory is down a whopping 70%!

Many of my clients this year have gotten $8,000 checks from the federal government shortly after purchasing their first homes. They have been able to pay closing costs (by borrowing money from a relative and repaying when the credit was paid to them) or do necessary repairs. In some cases it was enough of a difference to make it easier for them to accomplish the goal of buying their first homes. According to statistics only about 30% of people who took advantage of the credit were not going to buy otherwise but my clients specifically cited the credit as an incentive for them to buy this year, particularly in the more fearful market of the first half of 2009.

Now there is good news for others who might want to buy and even for people who want to sell their home and move up to a different one.

Just this afternoon both houses of Congress have approved an extension of the $8,000 first time homebuyer credit, and expanded it to include a $6,500 credit for move-up buyers who have been in their homes for at least five years. The bill will go to President Obama for his signature. Income limits have been raised to allow for more upper income buyers to participate fully and the credit will be available through April 30, 2010, and up to two months longer for homes in escrow as of April 30 of next year.

The expansion of the credit to existing homeowners is meant to spur sales activity in the critical move up market and may be enough of a push to get some sellers and buyers off the fence. In many markets the entry level homes are selling rapidly and prices have come up somewhat from the bottom. The mid-ranges have been slower. It will be interesting to see how this new aspect of the credit works for move-up buyers.

For more details and resources on who qualifiies and how you can take advantage of the credit, please contact me or visit the National Association of Realtor’s website for details and how-to’s.