Michael Roberts' Blog -San Jose Homes, Real Estate and Houses for Sale

The Debt Relief act of 2007 has been revised and every Seller considering a short sale better brush up!  Tax  Software has yet to be updated and one needs to get the new form 982 from the IRS or Post Office.  Those extensions are due!!!!

From the official IRS website:

The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).

The debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).

Note: Legislation enacted in October 2008 extended this relief through 2012. Thus this relief now applies to debt forgiven in calendar years 2007 through 2012.

Beware if you are selling your home or if you are an interested buyer.  This article published by the San Jose Mercury news tells a true story of a sad result of government intervention.

When David and Penny Mann decided it was time to move to a retirement community, their real estate agent told them that in this rough market, it could take months to sell their downtown San Jose Victorian. So they were thrilled to receive back-to-back offers in the first week, and they accepted the first offer of $560,000, from an enthusiastic young couple buying their first home.

“Things were sailing through,” said David Mann, a retired minister.

But just days before the sale was to close, an appraisal required by a new federal code came in $100,000 below the sale price, torpedoing the deal and sending the buyers and sellers into an emotional tailspin. It’s just one example of the turmoil this new rule-intended to prevent fraud-has caused: Appraisers say it is forcing many of them out of business while pushing up fees and derailing sales, all at a time when the real estate market can ill afford such problems.

The new rule, which took effect May 1, forbids brokers from hiring their own appraisers and requires intermediaries-called appraisal management companies-to choose them instead.

The change was intended to reduce the possibility that brokers and lenders would pressure appraisers to raise house values to match sale prices, regardless of the true value. It affects all loans backed by Fannie Mae and Freddie Mac.

The rule meant the Manns’ first appraisal, which came in at the full sales price and was conducted before the rule took effect, was invalid, and they needed a new one. The second appraiser, based in Oakland and sent by an appraisal management company, told the Manns’ agent he had never worked in San Jose. When his appraisal came in $100,000 below the offer price, the lender wouldn’t approve the buyers’ loan.

“That’s when the drama began,” Mann said. “There is something so wrong in all this,” said Georgie Huff, president of Capital Properties in downtown San Jose, who represented the Manns. “And a lot of qualified buyers and sellers are being victimized.”

No one is tracking the precise results of the new rule, but Bill Hillestad, strategic director of Think Big Work Small, which provides resources for the real estate industry and is pushing to have the rule repealed, says his research offers some clues.

In his online poll of industry professionals, about two-thirds of respondents said they had had at least one appraisal come in under the purchase price since the new rules took effect, with the average difference being more than $13,000. And 90% of respondents said they had lost at least one transaction.

Hillestad said the code has the potential to kill the country’s budding real estate recovery by depressing prices even more than the foreclosure crisis. If willing sellers and buyers agree on a price, the appraisal shouldn’t scuttle the deal, he said.

“We are exactly the kind of sale which our country needs in order to begin getting housing sales moving again,” Penny Mann wrote in a letter to the lender for the couple who wanted to buy their home. As David Mann put it, the deal he struck “was a new stake in the ground to revive this neighborhood.”

The new rule, called the Home Valuation Code of Conduct, is part of the settlement of a lawsuit filed by New York State Attorney General Andrew Cuomo, who had accused Washington Mutual of pressuring appraisers to inflate home values.

Accurate appraisals are necessary to prevent fraud in home sales and to protect lenders in case a loan holder defaults and the property has to be sold. Washington Mutual, however, was accused of inflating values to make more money on higher-priced loans.

While the intent was noble, the policy has had devastating consequences for some appraisers, many of whom have signed a petition (www.hvccpetition.com) to try to repeal the rule-a cause taken up by U.S. Rep. Gary Miller, a Southern California Republican who is co-sponsoring legislation asking for an 18-month moratorium.

A Santa Cruz appraiser who used to have about 10 jobs a month says she is now lucky to get just one, as the management companies change the way work is doled out. And instead of being paid between $350 and $500, she might get just $200. The management company pockets the difference. “I’m sure there were a lot of crooked appraisals. But to put every appraiser basically out of business is not OK,” said the appraiser, who didn’t want her name used for fear that she would jeopardize future work. “After having my business for 20 years, I’m about to lose my house.”

Qing Jiang, a San Jose appraiser, said the new rule is also having a chilling effect as appraisers, “to protect themselves, to avoid being accused of pushing values up, are putting the value at the lower end. This will push the housing values down and have a huge effect.”

For traditional home sellers like the Manns-both retired clergy with the United Church of Christ-the rule nearly cost them their retirement. The couple were waiting to take a tour of their new Southern California bungalow, near their children and grandchildren, when their agent called with the news that the deal was unraveling because of the second appraisal. “We postponed the tour for an hour,” Mann said, “and went to a neighborhood park and cried.”

The intentions of the HVCC rule have hurt more than helped and already struggling San Jose Real Estate market.

The buyers were equally devastated when their loan company balked at funding their mortgage. They had spent months looking for the perfect house, walking through at least 40 and viewing hundreds more online.

The Manns’ century-old Victorian was ideal for Michael Schlemmer, a lawyer. So the young lawyer was undeterred. “I’m an educated person. I’ve lived in the Bay Area my whole life,” he said. “I had no question it was worth $560,000-plus. Neither did my agent or the mortgage broker or the first appraiser who approved it.” Nor, as it turned out, did a third appraiser. After Huff insisted the management company send someone with a 408 area code, the value came in at the sales price. Early this month, after weeks of hand-wringing, the deal closed.

This is only one of the many pitfalls in this new market that we are having to overcome.   What challenges have you experienced?

San Jose Mercury News article

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Bringing the Dream of Homeownership Within Reach

I have waited to post this info since, the last time the program was announced it was removed and now, finally, we can rely on it’s use.   I have added a link below, from the housing dept., to clarify the details for you and everyone in our Santa Clara County community of interested buyers and investors.

Congress has passed the legislation that grants a tax credit of up to $8,000 to first-time home buyers.

Here is more information about how the 2009 First-Time Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

Who Qualifies?

First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?

The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Will the Credit Be?

The maximum allowable credit for home buyers is $8,000. Each home buyer’s tax credit is determined by two factors:

The price of the home-the credit is equal to 10% of the purchase price of the home, up to $8,000.    In our San Jose market this is a no brainer…the whole $8000 credit can be used if you meet the income restrictions.

The buyer’s income-single buyers with incomes up to $75,000 and married couples with incomes up to $150,000-may receive the maximum tax credit.

How to use the credit

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income-over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.

Interesting statistics  published through RISMEDIA, May 25, 2009

I may be tapped into our local market here in Los Gatos and San Jose… it looks like more and more people across the country are feeling the same way as we do here in Santa Clara County.

Fewer homeowners may be starting complete kitchen remodels, but they’re still replacing countertops and re-facing cabinets. They’re also investing in improvements to make their homes more energy-efficient, according to a recent home remodeling and repair report by ServiceMagic.com. Others are splurging on hot tubs and home theaters after realizing that they may be in their homes for some years to come-and want to make them as comfortable as possible.

“People are not going bigger and better, but improving what they have more cost effectively,” said Craig Smith, CEO of ServiceMagic, a website that connects homeowners to prescreened contractors. For instance, instead of buying new furniture, they’re repairing what they have. Or they’re deep cleaning the carpet in lieu of replacing it.

All for good reason: Money is tight, lending standards strict and in a sluggish housing market you might not recoup as much of your remodeling investment at resale.

Home improvement spending is expected to decline 12% in 2009, according to Harvard University’s Joint Center for Housing Studies. Lower financing costs may be starting to stabilize the downturn in existing home sales, but “they have not been enough to offset rising unemployment and falling consumer confidence and encourage homeowners to undertake major home improvement projects,” said Kermit Baker, director of the Remodeling Futures Program at the Joint Center.

It’s much different than the days when home-equity lending was plentiful. Before doing anything, homeowners are carefully considering how they should spend their money.  If you consult with your favorite Real Estate pro before you start your project there is a better chance it will be a recoverable investment.   Besides,  you get to enjoy what you improve!

What would you estimate new Granite countertops (cost about $4000) will give you in return in say 3 years if you were to sell?

“I want to remodel now however, the market is so soft will I waste my money?”   That depends on the property value and what your LTV (loan to value) actually is.    I have been seeing lots of remodel projects lately around Los Gatos and Cambrian especially.

Consider this news from NAHB.  The residential remodeling market declined further during the final quarter of 2008, according to the latest National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI). The current market conditions indicator slid to 27.7, from 33.5 in the previous quarter. Future expectations of remodeling work plummeted to 19.6, from 27.7 in the third quarter. Both these indices descended to historic lows since the start of the RMI in 2001.

Wow!  If you have a low LTV and plan to be in your home for a few more years maybe a small re-do would be of value now.  I bet some San Jose contractors are ready to take just about any job to keep that cash flow coming in .

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view market conditions as improving. The RMI has been running below 50 since the final quarter of 2005, following decreasing remodeling expenditures since that time.

“During the last quarter many remodelers were asking if their phones were still working because they received virtually no calls for work,” said NAHB Remodelers Chairman Greg Miedema, CGR, CGB, CAPS, a remodeler from Tucson, Ariz. “The jobs we are getting are for smaller projects and necessary home maintenance.”

Yep, it is time to make the call and inquire about an estimate so, you can figure out if this is a good time to finance improvements.

Nationally, market conditions for major additions and alterations shrank to 20.2 (from 29.4 in the third quarter), while minor additions and alterations conditions slowed to 33.5 (from 38.51). Maintenance and repair dropped to 27.6 from 30.9 in the previous quarter. Overall, major additions and other large remodeling jobs have experienced a greater decline than smaller remodels and maintenance.

“Remodelers suggest that the huge decline in consumer confidence, volatility of the stock market, and uncertainty about the future of the economy have made homeowners delay remodeling decisions,” said NAHB Chief Economist David Crowe. “These anxieties are causing consumers to wait and see if conditions improve before they are willing to commit to home improvement spending.”

All measures for future expectations in the remodeling market (calls for bids, amount of work committed for next three months, backlog of remodeling jobs, and appointments for proposals) dropped. Current market expectations slipped in all regions during the fourth quarter, with the Northeast declining to 24.9 (from 32.9 in the third quarter), the South 30.7 (from 31.5), the Midwest to 28.0 (from 36.2), and the West to 25.0 (from 36.1).

Ok!  So, If you bought a REO (foreclosure) you know you bought at a super price probably very near the bottom, and you can see yourself living in your home for a few years, then it is definitely time to take advantage of the soft remodel market and get your bids.  Good Luck! ….and remember I am always willing to provide good referrals for experienced and qualified service providers.

Are you a homeowner planning on moving up to a bigger or more expensive home? Here’s a guide for planning the transition in today’s foreclosure heavy market.

Figure out how much your current home is likely to sell for.
Have your real estate professional conduct a comparative market analysis. “Be realistic about pricing the home so it moves quickly,” adds Sandy Guralnik, a broker with Coldwell Banker United in Charlotte, N.C. This will help you avoid a long gap between when you buy your new home and sell your old one.

Consider the market.
If you have only been in the home two or three years and made little or no down payment, you probably do not have have enough equity to sell at a profit in today’s soft market. You might even owe more on the mortgage than the home is worth.  This is far to common in the current foreclosure heavy market.  On the other hand, if your home has appreciated well, it might be easier to move up to a bigger and better home than ever before!  Especially in Cambrian Park, Los Gatos, and Saratoga.  Cupertino has consistantly bucked the market recently.

Consider your finances.
Your overall debt picture is important if you plan to move into a larger, more expensive home. In addition to a higher mortgage, you’ll likely have higher utility, insurance and property taxes as well. If you owe money on a home equity loan, you’ll have to pay that back when you sell the home, which will eat into your profit.

Get preapproved by a reputable lender.
The lender will tell you how much money they’re willing to lend you, which will tell you how much house you can afford. Then, figure out how much you’re comfortable spending. The two numbers are not necessarily the same.  Your comfort zone should be your guide here.

Determine your long-term housing needs.
Will you be starting or expanding your family in a few years? Will the larger home be as teen-friendly as it is toddler-friendly? Is there a place for a home office if one of you eventually works from home?  With the many economy issues this should play a large part in your decision process.   Not to speak of the inventory that is available today.

Be realistic.
Most people will not be able to move up from a starter home into their dream home. It’s a long-term process that occurs over several moves, says Debbie Wong, a certified residential specialist with Prudential California Realty in San Mateo, Calif. Plus, it’s harder to qualify for a loan if the jump in monthly payments is too big, she says. Not to speak of all the hoops many lenders are expecting you to jump through now.

Preview properties in your target price range and location.
Most importantly does that “Super Foreclosure Deal” really translate into a home. Look to see whether the homes match your trade-up goals.

Get your home on the market.
Moving up will go more smoothly if you are able to sell your home before trying to buy another. For one thing, many Sellers are leery of contracts in which the sale is contingent on the Buyer selling their current home. Foreclosures are held by Banks that are not willing to diminish there pool of potential buyers.  If they accept your offer they will be required to place the home on a pending status and other buyers will be considering it. Finances also are an issue.   Bridge loans to carry you from your current home to the next are almost impossible to get today.

Determine the best time for your move.
If you want to move in the summertime, start your other preparations early enough to meet that goal.

Wow,  it’s 98 degrees out!  The number of sales for the month of April for Santa Clara County are also hot and very encouraging.    It is obvious our market is stabilizing,  finally!  Or is it?  Could this just be a spike that will pop this little bubble?

If  I were a gambling man, I would bet that the heat today might keep (some) buyers away.  Nah!  Didn’t apply yesterday.

Yesterday,   Saturday,  there were so many agents and clients showing/viewing property that parking in front of many listings was hard to find.     Several new home listings, a few my clients found worth pursuing, were already looking at multiple offers.

The average days on market for the County was down by almost 30 days.     We were looking at 125+days and now we are seeing 108 days.   The average sales/listing price percentage is up to 96% and has held consistently here for a couple of months now.

I wonder if I should buy that 30,000sq ft home now.  It;s only $64mil.  Maybe after Ice Cream!

Update: June 11, 2009-First-time home buyers who would otherwise qualify for the $8,000 tax credit, but don’t have the money for a down payment or closing fees, may now be able to get a loan to help cover those upfront costs.

The U.S. Department of Housing and Urban Development (HUD) announced on May 29 that the Federal Housing Administration (FHA) will allow state housing finance agencies to provide second mortgages “monetizing” the tax credit so that borrowers can use the funds toward their down payments and closing costs for the purchase of homes with FHA-insured mortgage loans.  End Update

New measures for the $8K First Time Buyer Tax Credit have been announced and I am one who believes it may be something that first time buyers, here in high priced Santa Clara County, will find useful.

The measures announced by HUD would allow FHA-approved lenders; federal, state and local government agencies; and FHA-approved non-profit organizations to supply home buyers short-term or “bridge loans” up to the amount of the $8,000 first-time home buyer tax credit

I am not sure how lenders will implement repayment requirements though.   Stay tuned for that.

Previously, the home buyer would have been unable to access the tax credit until they filed their next annual tax return or an amended 2008 tax return and received the refund from the IRS.

“Secretary Donovan shares our view on the need for a housing and economic recovery,” said Robson(NHBA Chairman). “We appreciate his leadership in moving swiftly to help first-time home buyers to access the tax credit up-front at the time of closing. The timing could not have been better as we are in the midst of the crucial spring home buying season.”

To qualify for the tax credit, first-time home buyers must actually close on their home purchase by Dec. 1, 2009. Buyers can take the credit on their 2008 or 2009 income tax return.

In San Jose and surrounding cities like Cupertino, Los Gatos and Cambrian we have seen several creative financing programs serve buyers.   I hope this is one finance “tweek” that proves out to be successful.   The other programs were “funded” mortgage packages and the demand usually sucked the air out of them pretty quick.

Ok!  I am suffering from too many numbers, quotes and opinions.  Cap Rates, Cap and Trade, Carpet Tiles, Carbon and Tire Piles.   From Obama’s economic plan and Bush’s mistakes to Barney Franks…too much clutter!  Maybe it’s from the Starbucks at 9pm.

Like Obama said yesterday ” The stars have aligned…”  He was referring to the congress and white house being on the same side, I know.  Who cares!   I only care about the residential housing segment!  In my 28 years of working in the residential housing market has made it clear to me..The Stars Have Aligned..NOW!!!!

The market has bounced around, the housing segment has free fallen, like a trolley car going down Lombard street without a break man.  The job losses are about to level off.  The truth is the housing market is preparing to make a surge big time.  The mortgage finance rates are so low they are nearly free considering the 5-7 year equity upside coming.  Especially the fixed rates.  It is bringing tears to my eyes!..or is it the coffee?

I have been writing offer after offer for buyers, lately(today),  and homes are seeing multiple offers like 2003.  It is amazing how many best buys we are finding for everyone… are you one?   The inventory is down from 16 months worth to 4 months worth.   Some communities are at 3 months worth of inventory.  The big question….Where is the bottom?  Ummm…I think it is about to go on sabbatical.

If anyone is waiting…they are going to be like those in 2005 and “wanting”.    Market conditions have never been better.   Find a savvy Realtor, mortgage professional and your calculator and get moving on the Foreclosures and Short Sales available.    Where?  Wherever YOU want to buy a home in Santa Clara County or an investment out of the area.  Your Realtor is licensed to sell in California!  Everywhere in California!

Don’t believe me!   Call your friends…Call your Uncle, the Realtor…Go to open houses this weekend!  Then come back here and tell me what you learned!

This question is asked of me everyday.   A short description of the differences should be addressed first.

Since Short Sales are more prevelant than REOs I will start there.    A Short Sale is , simply, the process of selling a home for less money than is owed to the mortgage company.   Commonly found in San Jose today,  the pitfalls of buying this type of home are many, it is important to realize it can be done however, the final price is determined by the bank.

Once the seller has accepted an offer, the listing agent, subsequent to submitting the third party authorization to communicate on your behalf, will submit it to the banks representative for approval.   The party to which the agent is communicating may only be representing the bank…a servicer.  This means we have now added a new layer.  How many times have you heard “I want it from the horses mouth”?  Well, it is not likey the horses mouth will be speaking.  It takes several days and sometimes weeks for your offer of Short Sale to be assigned to a negotiator (loss mitigation specialist) who will then begin the process of reconciling the numbers.

A BPO (broker price opinion..basically,  a market analysis) will be ordered to learn the market value of the property and a financial statement will be required from the seller.  Actually, what the seller has to produce is a very long list.   None of this can happen until the seller’s agent has packaged the offer correctly.    Mistakes here will set the procees back even further.  An experienced agent is paramount in these sale situations.  This is no place for a newbie.

If all is done well the  sale can proceed per the purchase contract.   The date that the bank approved the short sale is the ”actual date” the contract timelines begin.   This applies to REO sales too.

An REO, on the other hand, removes the seller’s emotions and other complications from the real estate equation.    Getting it “from the horses mouth” is bit more likely.   Still, there are servicing companies negotiating for the bank in most cases.    

Many buyers want to make offers below the asking price of an REO.   This can be fraught with problems.    The bank already priced the property according to a number of BPOs they have ordered and reviewed.    The highest and best price is the only offer they are interested in.  You want to be that offer.  No?  Yes, you do.  

The terms of the contract is where you are going to make your money.     With the bank focused on the price they leave open the terms of the contract for you to get your advantage.  A short escrow period or longer escrow,  escrow fees paid,  loan finance points paid and city or county transfer taxes are a few of the areas to negotiate your way to a great buy.  The question of repairs is asked often….Yes, banks make repairs on REOs!  I know you have heard different.   Clearly stated and evidenced, necessary, cost of repairs can be negotiated after your offer is accepted.   I have experienced this with buyer clients before.  Investors know this very well!  The bank does not MAKE the repairs…They reduce the price in accordance to the evidence and qualified estimates your agent must provide.   San Jose has many single family homes and condos, for sale, that you and your agent should be considering using these tools. 

What frustrations have you had trying to buy one of these homes?