The tax code (Section 25C) states that the credit is available for 30% or up to $1500.00 for a lifetime limit. If you’re in the process of building this is not something you can apply towards your building costs as it is specifically intended for existing principle homes. One thing to beware of is that not all Energy-Star rated products qualify for the tax credit, so check their website before you buy. Also, it prohibits most installation costs so keep that in mind when shopping.

 Among the items included that don’t ordinarily come to mind are skylights, smart vents or whole house fans and wood burning stoves and fireplace inserts. I know what you’re thinking…wood burning stoves? In this valley? Yes, Martha, the manufacturers have vastly improved them to the point that some meet the federal requirements for efficiency and most importantly the tax credit. This is also an exception where the installation can be included so long as it is a requirement from the manufacturer to ensure safe functioning.

 So how does all this relate to short sales? Well, if you’re in the process of purchasing a short sale it might not be a bad idea to keep energy efficiency in mind when doing your inspections. For example, if you find that the home you are considering needs new windows and your budget doesn’t allow for that after closing there are loans structured specifically for that need. Rolling the costs into the loan keeps cash in your pocket and the tax credit will help at the end of the year. Lenders who specialize in home improvement loans can walk you through the process.

 One last thing to remember is to ask for the manufacturer’s certification that the item qualifies for the tax credit. The items installed must also meet the requirement that they remain in use for at least five years. For more information go to NAHB’s website at www.nahb.org/remodel

Each lender has its own criteria and level of tolerance for short sales. Multiple levels of approvals with varying conditions are common in short sale transactions.  Once a sale is submitted and uploaded to the system, it must fit the pre-determined criteria dictated by the banks loss mitigation dept. Loss mitigation is the first department that grants approval. The initial package typically takes about 3 weeks to be uploaded to most banks systems. Recently banks have begun to streamline the process and are utilizing online software which is supposed to speed response time. This is relatively new so we hope to see time frames shrink as new requests are processed.

Every short sale is unique and the amount of time it takes to get the home closed will depend on how many liens are attached to the property. There are so many possibilities when it comes to lien holders but here are a few that hold sway. Home equity lines of credit (HELOC), Home Owners Associations (HOA) that can have multiple assessments attached, tax liens (income, estate or corporate franchise tax) real property taxes and mechanic’s lien holders. Additionally, any unpaid utilities will need to be paid and if maintenance has been neglected and the city has to mow the lawn there will be a lien for that service attached.

There are additional pitfalls that can also prevent the short sale by way of lender required mortgage insurance on the loan. The way this works is that the bank is obligated to allow the mortgage insurer to be party to negotiations. This is part of the servicing agreement initially set up by the mortgage insurer with the bank. The reason being that the insurer will have to pay out a claim to offset the lender’s loss in the short sale. Some mortgage insurers require a side note to be executed in order to transfer title. This is another item of negotiation that can halt the transaction so knowing upfront if there is mortgage insurance certainly helps.

The failure rate of short sales is relatively high due to the complexity of the processes involved. Numerous parties to the transaction, fickle buyers unable to perform or worse walking away from the purchase complicate an already frustrating experience. Inexperienced agents who do not understand basic procedure can jeopardize the sale because time is of the essence. Auctions do happen and most of them are for homes that failed to sell short.

Short sales do adversely affect a person’s credit score although the negative impact is typically less than a foreclosure. Short sales are a type of settlement and remain on a credit report for seven years. Some lenders are designing loans for those customers who have experienced a short sale with some buyers able to re-purchase in as little as 13 months. The determining factors are keeping your other credit obligations under control and no late payments exceeding 90 days. Of course, you have to qualify your income and work history but the banks realize that there is a distinct need for these loan products and it will grow as we get out from under this current market.

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Top on the list is foundations. Talk to any concrete expert and you will learn a lot about curing times and it’s relationship to the strength of a home foundation. Living in this valley has taught me many things and one of them is that you don’t pour a foundation in the middle of July and expect it to dry property without a lot of babysitting…with a hose. Concrete needs to cure slowly so when I purchased my last house I was ecstatic that the foundation was being poured in February. Cracks in foundations are allowed to a certain degree (hairline) but when the gap gets to 1/8 inch then you start to have issues with moisture and pests. One trick is to look closely at the garage floor for separation because this is your clue into the rest of the structure.

Roofs are at the opposite end and can cause major damage to the structure if not installed correctly. A few years ago I listed a home for a client and we found that the entire parameter of the roof needed to be replaced due to incorrect installation of the original flashing. The builder had flipped the flashing upside down so instead of the rain running off the edge, it was held there and wicked back up the roof. The homeowner didn’t have a clue since she had purchased the home when it was relatively new. Roof inspectors will check for those and other issues at the time of purchase. Don’t assume because a home is new that the roofing is installed correctly or is not damaged.

Water is the most intrusive element known to man and poor drainage can cause numerous problems from mold and mildew to undermining a foundation. Homes that have a down slope are more prone to water problems but equally important are runoff and standing water issues. I once looked at a home in the bay area and had my soils engineer out to take a look. His assessment was that the foundation was sound and that the fireplace cracks were nothing to be concerned about. It was only after the fireplace had fallen off was it found out that there was an underground spring running under the home. Needless to say I was very happy to not have purchased that home.

Pest reports reveal intrusion from pests, dry rot or any other critters known to destroy real property. In certain parts of the country it is expected to have a home treated for termites, or as is customary in our area, to deal with dry rot. When my seller’s get a pest report back that has a repair bill around $1000, they might wince but that’s considered average for this area. When purchasing a home with obvious deferred maintenance it’s not a bad idea to ask to be present when the pest inspector comes. Seeing  the damage can educate you to the causes so you can do preventative maintenance.

Finally inadequate systems, such as wiring, plumbing, or HVAC can empty you pocket fast. When purchasing a home that has been retrofitted or remodeled find out if these systems have been updated along with the new cabinets. Permits for this type of work is required but sometimes “Tim the tool-man” decides he can do the work for less. Recently a buyer client purchased a home and as part of the negotiations demanded that the repair work be done by a certified professional and not the homeowner. Unfortunately the home inspector revealed the seller’s skill level  and it was apparent he liked Lowe’s and wasn’t so much concerned with accuracy.  Keep these tips in mind when shopping and you will prevent additional cost and much frustrations.

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Buyers already need the patience of Job to close a short sale which currently represents anywhere from 45-65% of all home purchases in our area. The statistics show that they take an average of 120 days to get to the negotiation stage in our area with an average closing another 30 days. Additionally, over 38% of recent home purchases were funded by FHA, which typically adds 15-30 days to close the transaction. What this adds up to is more frustration for anyone involved in the real estate market today.

For clarity, a short sale is subject to the lender approving the sale. MLS rules require that when the seller has accepted a short sale offer the listing has to be changed to a contingent status. Most real estate agents will not show contingent listings because once the seller has sent it to the bank for consideration it is essentially off the market to other buyers. The dirty little secret is that banks don’t really want to see more than one offer because they are overwhelmed with work, so agents oblige them by taking highest and best and keeping others in back up.

Adding more frustration for buyers are the new FHA requirements. News of increased down payments and higher mortgage insurance premiums doesn’t bode well for those using this type of financing.The beauty of an FHA loan is its “relaxed” standards for qualifying. The rates are typically a bit higher than a conventional loan but the credit score required is lower, making it easier for buyers to secure a loan. Since it is backed by the Federal government should the buyer default, it’s no wonder these loans soar in hard times. Recent news of FHA’s reserves nearing bottom has increased the conditions lenders are putting on buyers making it harder to secure these loans. Now is the time to strategize and take advantage of this program before congress increases the minimum down payment and interest rates.

One glimmer of hope I have experienced is the increase in Broker Price Opinion (BPO) requests from the banks and asset management companies. These opinions are used by the banks to gauge the value of a property in a given area. Once the bank determines the value of its asset, the property is then released for sale. The increase in BPO requests tells me that there are new REO’s (Real Estate Owned)  coming online within the next couple of months. This is good news for those buyers ready to purchase and even better news for brokers working hard to survive this market.

Water is the most intrusive element known to man and gutters are a wonderful invention to control it around your house. They function to keep the water from pooling at your foundation but aren’t  effective if they’re clogged with leaves and debris. I once paid to have a client’s gutters cleaned on a home she was purchasing since I knew she would never sacrafice her manicure. Pine needles are especially toxic since they leech acids which rust and gutter guards don’t completely prevent their intrusion. There are many handyman companies that will clean them but make sure whoever you hire to check out their insurance policy…it could be a very costly mistake should they not carry one.

Most people think of getting pest inspections done just prior to listing their home for sale but did you know it is recommended to get one every 5 years?  I never thought twice about getting one until I isted my 17 yr. old house for sale. Since maintenance is something I’m very attuned to I didn’t think I’d have any issues until the inspector found Borer beetles. Fortunately for me the beetles had a terrible sense of direction and made a right turn upon entering my trim board on the corner of my home. I guess it’s their natural inclination to go up, which saved me from having to tent my house.  That saved  about $6000 which is the average cost of tenting a 2 story structure.

Another critter that loves to live with you is the dreaded termite. My neighbor was sprucing up the house for the holidays and as she was wiping off the window sills noticed some holes bored through. The pest inspection found a colony of termites had infested her walls due to the Oak trees on her property. Apparently termites like to switch it up and find Doug Fir a nice diet change from Oak. Since her home was on a slab foundation she had to have holes bored into her concrete and poison injected under her foundation. The fun didn’t end with that becasue she had to wait 3 months to see if it took…which it didn’t.  After a second application had to be done she finally received a clear report . Her new carpet was not exactly the Christmas present she was hoping for.

These are just some of the horror stories I hear from clients regarding deferred maintenance. So take some extra time to tune up the exterior while taking down the decorations and save yourself some serious money this new year.

Black Friday signals the beginning of decorating to impress friends and family and this is a natural segue way for selling a home. Colorful lights and pleasant smells all create the “ideal home” which translates into open escrows and closed sales. New holiday towels spruce up the house and keep the decorating budget in check. Take advantage of the emotional connection your home offers and don’t forget the cinnamon spiced pinecones on the entrance table.

Initially, getting the house ready can create a sense of orderliness but having to leave every time someone wants to see the house grows old quickly. Holiday shoppers are serious, pre-qualified and ready to buy. Having showings at this time of year reduces the number of “tire-kicker” showings. You can also get away with restricting the showing times, as most people are more respectful for family gatherings.

Did you know that January is the biggest transfer month of the year? Transferring employees use the holidays to shop for their new home and feel pressured to find a home by the end of the year.  Additionally, as Dec. 31 draws closer buyers want to have some time for family so make the extra effort to finish inspections quickly. Not only do you have a pool of committed buyers but they start to panic knowing they have to close by yearend so tend to be more agreeable.

Investors are another group of buyers that focus on quick closes at the end of the year. I had one client who didn’t want to face his CPA until he closed escrow and with the limited time frame was willing to soften on some of his demands. These serious buyers do not have enough time to start their search over so are more willing to negotiate.

Many sellers hold off listing their property until the spring due to family obligations and entertaining. This means less competition during the winter months, therefore less for a buyer to choose from. So take advantage of the slow down and showcase your home with your favorite holiday décor, you might be pleasantly surprised by how convenient it is to sell during the holidays.

Some economists think we’re bumping along looking for a place to land and others fear we’re in for another down hill ride. One thing is certain; it’s a good time to buy a home. The trick is knowing what a deal looks like and writing an aggressive offer. Real estate has certain break points that are obvious to those of us who look at houses all day…not so much for the novice. Each tier offers a certain level of ”deals” to be had and I’ll attempt to define the differences so you can recognize the trends.

For obvious reasons price determines the location but within each area there are grades of desirability. The homes that are typically the lowest priced are bank-owned (REO). They can be damaged and stripped of appliances or have half-completed projects and are usually priced at the bottom of the neighborhood price scale. The banks usually respond quickly but don’t do much in the way of repairs. They can be good deals in the lower priced neighborhoods but when it comes to the better zip codes you’ll find the competition stiff.

Coming in at a close second are the fixers, which by definition need work to some degree. The nice part about buying a fixer is that there are loans (FHA 203) specifically designed to include the repairs and offers the potential owner their choice regarding those repairs. So if the house needs new carpet, the buyer gets to choose the color and style. Again location, location, location since these homes are much sought after by contractors who have lots of time to work on them.

Next is the much-dreaded short sale. Depending on the skill of the listing agent, these homes can be a great deal but you have to have the patience of a saint. Buyers need to be clear about the waiting period for short sales. Each bank has a different process and some manufacture delays by the methods they demand for submission of offers. Currently I have a short sale that requires submitting the entire package via snail mail, not very efficient given today’s technology. These properties are deliberately priced low to attract offers quickly to get the process going. Of course, the bank will send out their appraisers to determine value but if priced right you will find they will accept a solid offer to avoid foreclosing.

The last tier is the forced sale due to some misfortune and the fair market sale, which represent about 25% of the current market. Varying value structures but all are based on the assumption that within a given radius each home would be of equal value given the same degree of interior upgrades, lot size and age of bldg. The bottom line is that every sale that takes place in that neighborhood affects the next sale good or bad, so the deal you buy today might not be the last one found in your neighborhood.

If you receive an email with the subject line “check your Bank Deposit Insurance Coverage” do NOT fall for it!  According to the official FDIC website the file asks that you open a “personal FDIC insurance file” to check your deposit insurance coverage. The “insurance file” may actually be a form of spyware with executable files that attempt to collect personal or confidential information.

The email starts out by saying that your bank has failed and the assets have been taken over by the FDIC. It further provides a hyperlink to the “official FDIC website” which is fraudulent. Clicking on the provided link opens malicious code that could access your personal information and compromise your security.

The FDIC is trying to acertain where this email is coming from and sever the connection. They are working with the United States Computer Emergency Readiness Team (US-CERT) to understand how the files function and will no doubt update their site once they have it figured out.

If you would like to keep informed on banking matters and receive fraud alerts go to: www.fdic.gov/news/news/SpecialAlert/2009/index.html and subscribe to their newsletter.  You can also send suspect emails to them at: alert@fdic.gov  This is not a Halloween hoax so take extra caution and pass along this information…the credit information you save could be your own!

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Folsom is a great place to live and an even better place to own an investment property evidenced by the numbers of first time investors who came through my open house this past Sunday. Many are just starting their investigation and some don’t really know what to expect so I’ve complied the answers to the seven most common questions about real estate investing.

1. How important is location? Investing in the best location you can afford will dictate the kind of tenants you will attract, and in turn, how much rent you can charge. More desirable neighborhoods appreciate more over time and are less susceptible to the ups and downs of the real estate market.

2. What about repairs? Expect to spend some money on repairs and resist the urge to upgrade. Your thinking should be based on an investment NOT what you would want if you were living there. The rule of thumb is light, bright and clean and remember you will need to factor in new paint and carpet every few years.

3. How do I avoid capital gains? There is a tax rule (1031) that allows for investors to exchange like properties and avoid capital gains so long as you don’t take any profit from the sale. This will allow you to build a nice real estate portfolio if that is your retirement strategy. For most small investors real estate is a buy-and-hold investment and a time frame of at least seven to ten years will allow you to ride out any swings in the market and provide a nice cushion for your retirement. Leave the flipping to the seasoned vets and think long term.

4. What are the costs involved? Calculating the  property taxes, insurance, utilities, maintenance, and repairs are considered the cost of doing business…more than just the mortgage payment. Vacancy rates vary but if you buy smart you should be able to figure in a conservative 5% which is standard in the industry.

5. Are fixers a good deal? Buying the worst house in the best neighborhood can work to your advantage. Renters look for better schools and neighborhoods and are  less picky about floor plans. Deferred maintenance is the usual cause of property repair so if you have the cash on hand and are not afraid of a little work, you can increase your value by some sweat equity. Don’t skimp on the major repairs though, always hire a licensed contractor.

6. Can I do the credit checks myself? Pay the extra money to run a full background check when screening future tenants. I can’t stress this enough! Running a credit check will give you the basic information that is available electronically but doesn’t address issues that can only be found by a phone call or letter. Some states don’t make information available electronically so you won’t know  if they’ve got child support or other obligations that could impact their ability to pay rent.

7.Where do I learn about landlord rights?  The Dept. of Consumer Affairs and HUD websites have everything spelled out. Learn about the eviction process and other potential issues so you can do things right, saving time and money. Remember the goal is to find tenants that pay the rent on time, leave the property in good condition, and don’t cause problems with the neighbors. If you would like help finding investment property in Folsom please email me for more information.

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Condominiums are a great way to get into the housing market and take advantage of the $8000 tax credit and it appears that a lot of people are thinking along the same line. As of today, Sept. 5, 2009 there are 47 condominiums for sale in Folsom with 39 in some sort of available status. The other 8 are currently pending sale which means that barring some catastrophe the property should close escrow within a reasonable period of time. In the previous market “reasonable” meant approximately 30-60 days. This market shows the longest days on market (DOM) for condos in Folsom at 846 days…certainly gives new meaning to a long escrow doesn’t it?

Another interesting statistic is that of the 47 condos currently listed there are 9 REO’s (bank owned) and 20 in a Short Sale status. The average DOM is coming in at 177 so you can see how short sales are impacting the market and extending the average time on the market. Last month in Aug. 2009 there were 6 closed sales for condos in Folsom and 50% of those took longer than 120 days to close. Kudos to those patient people because they paid on average $149.14 per sq.f t. for a condo just 3 years old in Folsom. They averaged a 1470 sq.ft. home  and paid an average of $220,000…not bad for starters!

There is a rule of thumb in real estate and that is: Never sell your first home. The reasoning is that your income will increase so  affording another property later on is highly likely. By keeping the first home you diversify your retirement income, can utilize the property for additional funds should the need arise, and have someone else paying that mortgage. With that in mind, a condo is the perfect vehicle to invest in. It provides shelter, tax write-offs, future liquidity and the best part is that you don’t have to maintain the property once you move out. If you find that you like Folsom and want to know more about condos please give me a call and I’ll be happy to assist you.

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