photo credit: TheTruthAbout…

The one issue with silly, seasonal posts is that they need to get buried quickly. So it is that we reluctantly bid adieu to our whimsical Halloween production number and move on to more contemporary issues.

Yesterday was November 3^rd, which can only mean one thing. Happy Birthday, Kate Capshaw!

More importantly (well, maybe not to Kate, but to the rest of us), November 3^rd was National Sandwich Day. And before we all retreat to our left-over po-boys and tuna melts, it seemed like a good time to reflect on the sandwich.

In California real estate, we call the sandwich “escrow.”

Escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. For those of you still awake, think of the deposit as the money and title which changes hands as the grand finale of the transaction.

Even on Sandwich Day, I would challenge you to find one out of one-hundred buyers or sellers who would get really excited about this meat in the middle – the escrow process.

Buyers tend to see the home buying process this way:

1. Find someone with a real estate license, a lockbox, and a car.
2. See lots of homes, pick one, and write an offer.
3. Pack the Tupperware, and move in.

Sellers see things a little differently:

1. Find several people, each with a real estate license, a lockbox and a car, and ask them to visit your home for an “interview.” (Ideally, the interview should conflict with another important appointment to which the agent had long ago committed, like a liver transplant or Kate Capshaw’s birthday party. They will show up anyway, because they need the work. ) The agent will give an opinion of value, at which point you will quit listening while they continue on with a detailed two-hour presentation on their marketing prowess, their experience and their unsurpassed success rate in delighting clients. Pick the guy who says your home is worth the most.
2. Let lots of people see your home, and accept an offer.
3. Pack the Tupperware, and move out.

These checklists are just duckie; they are duckie, that is, until the meat in the middle starts to sour. That’s when it matters most who you have working on your behalf. When things start to go bad, the agent with the cutest shoes, the biggest bus bench ad, or the glossiest brochures (keeping in mind that mine are pretty darned glossy) may in fact be up to the task. On the other hand, they may not. Are you sure which one you hired?

Then there is the escrow company. They are that third-party entity charged with ensuring that conditions of the purchase contract are met and that the transaction closes. Now, I am aware that the whole subject of escrow is about as thrilling as a trip to the car wash, but the escrow company you select to orchestrate your closure does matter.

And herein is the problem, a problem we are unfortunately seeing all too often. Buyers and sellers tend to ignore the stuff in the middle. It’s not as sexy, and it’s far less exciting than other some of the other stages of the process, like the part where you get to beat the other guy bloody during negotiations and come out on the winning end of the front loading washing machine. The satisfaction of knowing that your Natural Hazard Disclosure report was delivered on time pales in comparison on the ol’ fun scale.

The real work starts when the marketing is a memory and the contract is inked. Everything preceding the momentous opening of escrow, while important, is really just window dressing.

You may sail through escrow with nary a care. If so, you are the blessed anomaly. Stuff happens, and here are just a few of the things that can go wrong.

• Buyer changes mind
• Seller changes mind
• Buyer loses job
• Seller loses job
• One agent doesn’t do job
• Someone gets sick or dead during escrow
• Someone gets separated or divorced during escrow
• Interest rates go up or the stock market goes down
• Appraiser’s opinion of value is less than contract price by a factor of a four
• Property inspection reveals surprises, like the fact that the home was constructed entirely of Legos and duct tape
• Appraiser’s opinion of value is less than contract price by a factor of the Gross National Product
• Lender rejects buyer’s loan
• Title report reveals that owner of record is actually some guy named Bob who died in 1953
• Homeowners Association documents reveal that Bob hasn’t paid his association dues since 1956
• Appraiser’s opinion of value is less than the contract price by a factor of  Rueben Studdard

These are just SparkNotes from the Stuff That Can Go Wrong Almanac, and all of these things have one thing in common — the potential to derail an otherwise respectable transaction. And, when things go south, when cancellation is imminent, you will likely be staring down the barrel of only one issue: Who gets the money?

The typical purchase agreement comes tethered to what is called an “earnest money deposit.” This is the money that the buyer deposits into escrow to indicate their good faith intent to consummate the purchase. And the contract is pretty darn clear on the issue of the deposit. If the buyer cancels contract prior to removing all contingencies in writing, they are entitled to take their money and go home. If they cancel after full contingency removal, the seller is entitled to the money.

But notice the word “entitled.” Purchase agreements are bilateral contracts – it takes two sets of signatures to create the contract and two to change or undo it. One party or the other may be “entitled” to cancel escrow, and one party or the other may be “entitled” to the deposit, but both must sign in order to kill the deal and release the deposit.

Of course, there are mediation and arbitration clauses, liquidated damages clauses, civil penalty advisories, and all sorts of other fun facts in the purchase agreement intended to guide resolution in matters of dispute. The thing to remember here is that the contract is between principals – buyer and seller. In the event of a dispute, your agent can advise you of your options and they can recommend that you consult an attorney, but they cannot file your small claims action or your mediation request. They cannot represent you in court.

Similarly, escrow cannot force a resolution. They cannot cancel the contract or mail the check without mutual signed instructions. That is how neutral third parties roll.

So what good is the agent? Well, first, your agent should possess knowledge and experience as to the possible pitfalls. They should be discussing these things with you at length and early, not just the cool stuff like where the lockbox might look best. Your agent needs to know the contract and explain the contract. And they need to be actively engaged throughout the entire process, not just when it’s time to have the warm and fuzzy final walk-through.

Without the stuff in the middle, your sandwich is just bread. Without a good supporting cast in the middle, your transaction could be just toast.

Sorry, Leslie. I ran out of heads. Our little brokerage is getting so big, it’s scary. You will get the lead role next time.

Happy Halloween from San Diego Castles Realty!

photo credit: bobosh_t

Power to the people! Yeah, right.

Effective October 11, 2009 and in the latest in our government’s efforts to better serve us, we have been gifted the new Buyer’s Choice Act in California.

In short, the Buyer’s Choice Act “prohibits an REO lender selling residential property up to four units from directly or indirectly requiring the buyer to purchase escrow services or title insurance from any particular company. A buyer, however, who has received written notice of the right to make an independent selection, may agree to the REO lender’s escrow or title recommendations.  An REO lender that violates this law can be held liable for three times the charges the buyer incurred, whereas a violation by the seller’s agent may be subject to license disciplinary action.”

Sounds good so far. Here’s the problem.  Our legislators, most of whom I suspect have never had the pleasure of submitting an offer on a bank-owned home, one where their client is competing with 437 other buyers, many of whom are tossing impressive wads of cash in the general direction of the bank, failed to recognize that their time would have been better spent napping or watching Jerry Springer.

They failed to recognize the first rule of multiple offers: The seller holds all the cards.

Let’s first look at a traditional sale. The seller may receive an offer from a buyer asking for the refrigerator, the washer and dryer, and the complete set of Fiesta Ware (little “R”). There is currently no law preventing the buyer from asking the seller to leave all of his stuff behind, so the seller might exclude these items in a counter offer.

Now let’s assume that the state passes a new law saying that the buyer can have whatever he wants. So now the offer specifies that the garden gnomes, the lawnmower, and the toaster oven shall all convey. While the seller is no longer able to specifically exclude these items from the sale, he is under no obligation to accept this offer. If it is the only offer he has on the table, and price and all other terms are attractive, he might – but he doesn’t have to.

But what if the seller has many, many offers to choose from? He can’t demand that the buyer not ask for his life’s possessions, but he can certainly cherry pick from the best, cleanest offers. So goes the selection of service providers.

Our contract already says “Buyer and Seller may select ANY service providers of their own choosing.” In other words, it is negotiable, and the guy negotiating from the position of strength always wins.

And that is how things will continue to work for bank-owned properties. The buyer can certainly choose who he would like to use for title and escrow services, but only if he chooses to have his offer tossed faster than my last casserole.

Every agent out there knows that when you are representing a buyer in a multiple offer situation, you have to write the squeakiest-clean offer you are able. Take out all of the “noise,” concede all of the things that cost you nothing (or very little), and do things like write “Seller’s Choice” in the lines identifying who title and escrow will be. Buyer’s Choice Act or not, the choice is not the buyer’s in practice and never will be as long as the process is highly competitive.

It was a good try, but it won’t work. Maybe Senate Bill 237 will do the trick. According to the California Association of Realtors (another little “R”):

The Office of Real Estate Appraisers (OREA) will have regulatory oversight of appraisal management companies, which gained prominence after Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC).  Starting January 1, 2010, the OREA must implement a registration system for appraisal management companies, including fingerprinting and background checks for persons with operational authority as defined.  On a separate note, this law clarifies what conduct constitutes improperly influencing the appraisal process by anyone with an interest in a real estate transaction.  Such prohibited conduct includes withholding or threatening to withhold an appraisal fee, withholding or threatening to withhold future appraisal business, and promising future business, promotions, or compensation.

An OREA to oversee the AMCs – Now who is going to oversee OREA? I guess we will have to wait until 2011 to find out.

I long ago established that I am just a girl who can’t say no. More correctly, I have this inherent need to try everything at least once. Sometimes the results are glorious, as in, “Look at me being the innovative early adopter!” Other times, and more often, I end up abandoning the new, greatest thing since the wine cork and chalking in up to experience.

This morning my latest shiny toy temptation is N-Play.

Over the course of the past year or so I have had several conversations with Mark Bloomfield, Founder and CEO of this new spin on the home buying and selling process. Initially, I found the concept curious but quickly discounted it as too “different.” But like that stupid Miley Cyrus song, I keep having the urge to sing along despite my best left-brain intentions.

I’m thinking there might be something here. The key is in finding a client brave enough to take it for a test drive.

In short, here is the idea behind N-Play. Agents use their on-line offer management system to “list” their clients’ homes. Buyers then have the ability to make non-binding offers, including general terms, using the site. The key, and this is also the scary part, is that it makes the offer process entirely transparent. Buyers can see the amount of terms of other “offers” and how they rank.

Sellers have the ability to accept, counter, or ignore – kind of like IRL, except that it is all out there for the world to see. And any acceptance is non-binding, subject to subsequently entering into contract.

Here is where my hesitation comes in. Wouldn’t the total transparency of the offer process result in a lower selling price? Mr. Bloomfield says no:

The idea of not showing the price is something we’ve thought of, could easily do, but is a complex issue.  Consumer forced price determination models (this is what we do!) have proven to drive the price of anything to market price in every case. Of course market price is always the highest price anyone will pay at any given time. Since the price is the key component for establishing the overall net value of the offer (under N-Play, other conditions also effect the valuation including, closing date, payment type, contingencies, etc.), hiding the price eliminates the transparency needed to drive market as well as lengthens the process.  Buyers would essentially continue to ratchet the price up or down until they’ve barely passed the lower offer, (if all other conditions are the same), and therefore the buyer could easily deduce the competitive price (think eBay where buyers initial offers start just over the “hidden’ reserve price). Ratcheting to “hidden” numbers is not very user friendly and most likely over time, buyers would tire of the process and just not do it.

A true market for anything will always be achieved given a wide audience.  A low price will be beaten by anyone else in the market who feels it’s worth more. It’s only when no one else feels it’s worth more that the market price is established! A simple concept, but very accurate.

So, here is my question for our three readers. If you are a buyer, does this platform have an appeal? If you are a seller, would you be bold enough to give it a go?

I’m definitely game.

I had something more light planned for today — an insanely fun post brimming with whimsical imagery and clever metaphors.

OK. No I didn’t. But, if I didn’t have a full dance card of appointments and escrows begging to be opened, I could have done better than this.

From California Association of Realtors (little “R”) Vice President and Chief Economist Leslie Appleton-Young, here is a dose of runner-up fun showing California housing price trends dating back to 1970.

According to James Liptak, President of CAR (and as recovered from my spam folder this morning):

The upshot is that, statewide, we can expect the median home price to rise 3.3 percent to $280,000 in 2010, while sales will moderate to a more sustainable pace, posting a 2.3 percent decrease next year. 2010 should mark the beginning of a “new normal” for California’s housing market, and likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation.

Honestly, that sounds about right.

photo credit: christopher.woo

I couldn’t have said it better. Jim Klinge prognosticates on our 4^th quarter housing market, and it sounds a lot like the conversation Steve and I have been replaying over the past couple of months.

My personal favorite concerns the first-time home buyer tax credit. Whatever happens, whether it is extended or it goes quietly into the December night, things in the lower price ranges will necessarily settle down. Finality does that; gone is the sense of urgency.

But, all price ranges are not created equal. What I am seeing is the big squeeze. Put another way, homes at the lower price points being more affordable and therefore enjoying the greatest demand are the stuff we are hearing about, with their attendant multiple offers and feeding frenzies. The problem with so many of these properties is that they are dead-end streets. Buyers are moving in but no one is moving out (think short sale or bank-owned), which leaves us one moving van short of a normal market.

This has become a problem for the mid- and high-priced homes. Demand is less, and a smaller buyer pool can wreak havoc on prices and market time. Fortunately for these sellers, inventory is low, but it is low for all of the wrong reasons; too many would-be sellers don’t have the equity position to make the move they might otherwise have, so they stay put.

Here is how the numbers look for two price segments (selected at whim by me because I said so). These visuals are for all property types in the I-15 corridor zip codes of 92127, 92128, 92129, and 92131. Don’t try to read the numbers – you can’t. What we are looking at are the trend lines.

UNDER $700,000

Keep in mind the market time trend line is a little funky. Those short sales hang around in “pretend active” status for months waiting for bank approval even though they have offers “accepted” first week or first day.

OVER $700,000

A better man would have superimposed the graphs so you could more readily spot the differences, but a better man has to shove off this morning to meet the termite guy.

Hat tip to Daughter #1 for this great video link. (Apparently, in my bringing-up-the-rear-on-all-that-is-cool fashion, I am only the 1,061,830th person to see it.)

Like everything else in life, I am wondering how this can translate to real estate.

We are excited to finally, formally welcome two awesome agents to San Diego Castles Realty, and not just because it gives me an excuse to bury the “Birthday” post (although that is a big part of it). If we had an office, we would need a bigger one.

I’m kidding, of course. We have an office, but it’s not the traditional office with a bunch of wasted space and smoke and mirrors, “look how important we are” trappings. We call it our docking station, and the docking station just got a little more vibrant.

Millie Fitzpatrick brings over 30 years of real estate experience. She has been representing both buyers and sellers for over 12 of those. Her prior experience is diverse. Prior to entering the exciting world of real estate, Millie worked in the legal profession, was co-owner and manager of Alexander Financial, and a funded both VA and FHA loans.

She is proud wife and mother and, unlike myself, she is apparently coordinated, as she enjoys participating in all kinds of crazy sports. They even let her coach youth soccer for 2o years. Millie, to put it mildly, has spunk, not to mention a wicked sense of humor (something we covet around here). She is also genuinely really, really nice.

Leslie Flemming has been knocking around the real estate industry for over a decade. She, too, is an experienced buyer and seller representative, and she is as smart as a whip. Prior to working in real estate, she squeezed in a degree from my San Diego State alma mater and even graduated from the Federal Law Enforcement Training Center, so no back talk!

Both are (gasp) Scripps Ranch residents. More importantly, each shares our passion for the business, our commitment to always putting the client first, and our philosophy of representing, not selling. Duh. If they didn’t, they wouldn’t be here, and we are so glad they are.

We are proud as punch to have two fabulous new partner agents. Please give them a welcome-to-the-neighborhood shout out.

Now, having dispensed with “the birthday” (which Steve says makes me 3.5 years old in giant Sequoia years), his own birthday yesterday (a prime number which we will keep under our hats), and the little matter of an expanding agent roster, we will get back to our regular programming.

Happy Birthday, Kris Berg. Like a fine wine, you just keep getting better with time.

Look! I made a movie!