Bottom Line

Bottom Line

We all have to live somewhere—even if it’s under a bridge. Most of us don’t live under bridges, though, and herein lies the story—it’s very hard to be a buyer in today’s market. I know this because I just sold my home (of 18 years), and now I need to buy a new one. Buyers today (me too) hope that the market is changing—in their favor of course. But, as a Realtor, I do understand all sides of this issue--Buyer, Seller, Realtor. 

It's painful to try to buy a house in the Los Angeles area today, unless you have unlimited funds and are willing to spend a lot of them. A surprising number  of folks do have a lot of money, and they all seem to like the same houses I do!

People are paying crazy amounts of money to live here. We have been in an increasing price sales cycle for ten years. People say “It can’t go on,” and yet it does. Even so, the market is very discriminating and the standard of quality or style has really been raised. Homes that you wouldn’t put on your Pinterest Dream Home board just sit there—they even have price reductions! 

Back when I first began my real estate career, people in the business jeered at sellers who felt that their house was worth more because they “used heavy-duty nails,” which was code meaning they had used quality materials in their maintenance and remodeling efforts. The only way to increase value then was to increase square footage. That has never been entirely true, but “style, design, and functionality” has now come into play like never before. High-end finishes do add value these days, and the more stylish, the better.  

Homebuyers and home sellers's expectations often clash with harsh realities of the market when it comes to the nitty gritty ... selling price and offers.

Magical thinking and this crazy real estate market. What am I talking about? I have some examples.

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The Home Sellers’ Magical Thinking

PREMISE: The house next door to mine sold last year for $1.1 million. It was smaller and there was only one house on the property. We have two houses and more square footage, therefore we should list ours for $1.2 million and get at least as much as that one.

FACTS: The house next door was small, but every detail was well designed and evoked a very emotional response. The landscaping was lush and serene, like a Zen retreat, a special relaxing haven in the midst of a harsh city.

The subject property lacked curb appeal and the landscaping was non-existent. Being a 2-unit income property, it is valued very differently and income properties are supposed to be valued on a formula based on its income. Historically low rents in a rent-controlled area do adversely affect the property’s value. That’s why vacant properties usually sell more quickly and at a higher price than ones that have been occupied by long-term tenants in a rent controlled area.

PREMISE: Why are these offers so low? I saw that a house sold just down this very street for over a hundred thousand more!

FACTS: There hasn’t been a sale this high on this street in over two years, and that one was a 5-bedroom, 3-bath redone Craftsman. This is a 2-bedroom, 1-bath home with a lot of view but no yard.

What am I saying? We don’t value our own property anything like a buyer or an appraiser will.

But sellers aren’t the only ones subject to magical thinking. In fact, homebuyers can really try to bend reality to suit their own agendas.

Homebuyers' Magical Thinking

PREMISE: Today, we have a Sellers' market that has actually been going strong for a good 6 years. Buyers are convinced that now is the time for what has gone up to come down, and down hard. We all remember the Great Recession, don’t we? In Northeast Los Angeles, we lost 40 to 50% of our average sales price in just 15 months. But buyers today have an even better fantasy: prices will fall to 2009 levels just long enough that they will be able to buy their dream home for a bargain price, then right after they close escrow, prices will rally back up to 2018 levels.

FACTS: Many facts belie this fantasy. Do those of you who were actually in the market in 2009 remember what the houses for sale were like? Many were distress sales, so forget about beautifully prepared homes, forget about pre-inspections, and forget about decent loans with low interest rates and 21-day closes. The loan process was so draconian only those who could prove they didn’t really need a loan could get one. Plus, even more properties were selling for cash than are today and most sellers rightly preferred cash sales over the obstacle course that was the loan process then. Owners who didn’t have to sell (such as owners who were not in trouble, owners who had pride of ownership and didn't have to deal with penny-pinching buyers who acted like their lovely home was just a piece of trash) just waited it out. What happens then? Low inventory and higher prices. This is known as unintended consequences.

There is a whiff of desperation in the air today ... 

Sellers want to time the market for the highest possible sales price, and buyers worry that if they buy now, they will close escrow the day before the market crashes and they will be left owning an overpriced turkey. What happened to owning a home as a place to enjoy your life, raise your family, and do whatever you want without a landlord telling you that you can’t? Even if you buy your home at the height of the market, if you hold onto it long enough, it will increase in value. And if you look at the prices over time, a correction almost never takes prices down to previous lows. Even the overblown prices of 2006-2007 are not seen today:

So if you want to buy a nice house in a great neighborhood for a bargain price, you will most likely be leaving LA.

There couldn't be a better gift for your Valentine than a house! But is this a good time to buy?

The best time to buy a house is when you think about it, almost or already have the money together, and see a house you like. But how about the market? Isn't it time for the bubble to burst?

Here are some facts for you to chew on as you consider your options:

For real estate in Northeast Los Angeles (zip codes 90041 (homes in Eagle Rock), 90042 (homes in Highland Park) and 90065 (homes in Glassell Park)):

Average sold price increased 9.6% from November - January 2015/16 to Nov-Jan 2016/17

The adage "Pretty Costs More" applies to a number of subjects, but especially to the current real estate market.

Buyers in today’s market are being bombarded on all sides with confusing stories about what a home might be worth, whether it’s a good time to buy, what to look for in a home, and especially whether the market is going up or down from here. What to do?

Many buyers go for looks. Just like a pretty girl gets more attention at the high school dance than the brainiac, a house that looks like it stepped out of Dwell or House Beautiful gets more attention and subsequently more money than the house with good bones, solid construction, but tired or out-of-date bathrooms and kitchen.

One example of the pretty theory: a 3-bedroom, 2-bath house in Highland Park recently came on the market for $379,000. It was a trust sale and the house needed a lot of work.  So the agent had inspections done, had the sellers clean, paint, and stage it, and hoped to get a few offers and a bit more than the asking price. Perhaps you saw it on the front page of the Los Angeles Times.  This property captured the attention of the media because it was cute and charming -- and at a great price. The paint and staging brought out the unique character of the home and buyers came running.  Seventy-three (yes, 73!) offers later, the property ended up selling for $542,000.  And that was even after the agent provided to all prospective buyers disclosures and inspection reports that showed the house needed lots of work, including foundation, electrical, plumbing.  Basically all the expensive, not fun items that make for a smooth-running, low-maintenance home.

Here’s another example: a cute little 2-bedroom, 1-bath cottage in Eagle Rock was listed for $419,000. At the time (the start of the spring buying season), it seemed like a reasonable price for a small house in a good but not the best part of Eagle Rock. Seventeen offers later, the house sold for $505,000 cash. This was an investor flip and all the investor did was polish it up a little -- new kitchen counters and a dishwasher, refinished the hardwood floors, painted and landscaped. The inspections showed that the chimney was completely unusable, the HVAC was at the end of its life, and the sewer line was invaded by roots to the extent that the camera couldn’t get through the whole line. No matter, the buyers were happy that they were able to buy the charming home.

The perfect example of how pretty is worth more is 2035 Ridgeview Avenue, which was perfectly updated and exquisite, but only 1353 square feet. We came on the market at $649,000, which was what the sellers had paid for it in 2006 before putting about $200,000 into in, and we ultimately sold it for $760,000, the highest price per square foot for a home sale in Eagle Rock since 2007.

The final example is where all the factors came together at the perfect time: a good 1920s house on a large lot with views, a wonderful private setting, a tastefully updated floor plan, and a seller who did everything the stager dictated. We priced it at $699,000 because that was a number the seller could live with, and at our first open house we were asked by some people why it was priced so high. There were no comparables for a house that size in that location, but the house had such emotional appeal that we ended up with 23 offers and the property ultimately sold for $865,000.

On the other hand, there are a couple of good solid homes in good locations that are currently sitting on the market. We priced them $80,000 to $100,000 less than the prettiest listings, and we have no offers. These are properties that a buyer could put their own designer touches to and have great properties for less money, but buyers obviously don’t see it that way. Why?

Buyers have no imagination. If it isn’t gorgeous already, they don’t see the potential. Sorry, buyers, this sounds harsh, but I have seen it time after time.

In today’s market, the pretty houses that are well-priced are going for more in multiple offers. If you are a buyer, tired of losing out in the intense competition, what can you do?

• Find some more money and offer more on the next one.


• Look for properties that have several good features, see if the ones you don’t like are ones that you could improve yourself, and make an offer.


• Give up and stay where you are.

Another option that I have seen many people try is to keep looking, thinking they will surely find that needle in a haystack, that great house that nobody else has seen that is in a great neighborhood, has a great price, and is really charming and pretty besides. If this is the option you are pursuing, maybe you should ask yourself if you really want to buy a home right now, or do you just think you do.  This is the subject of another article that is coming up soon, so stay tuned.

Cash buyers are exerting downward pressure on prices, according to a report in DSNews.com, quoting a study from HousingPulse Survey. This article points out that with distressed properties, the investors with cash dominate the market and that sellers often take lower cash offers because the deal can be closed faster with fewer problems. As a result, the first-time and FHA buyers are shut out of the entry-level distressed property market. This is a funny kind of capitalism in action. Free market means that the seller does not have to take the highest offer, they are free to choose a lower offer with cleaner terms.

But if you are a cash buyer and you want a really nice home, you don’t necessarily have the same influence on price. You may still get the deal, but only if you do offer the highest price. I could quote several stories over the last several years in which the winning bid in multiple offers was cash for homes that were not at the low end of the price range. I represented a buyer last year who purchased a couple of homes in La Canada and Pasadena by either paying cash or agreeing to no loan or appraisal contingencies. One of the highest sales in Eagle Rock last year was all cash, and this year I have seen cash buyers competing with each other on good properties, driving up the price as a result.

Where is all this cash coming from? Lots of places: investments that have been earning a fraction of a percent interest in CDs, sales of businesses, inheritances, divorces, lawsuits, and retirement accounts, even savings. Another source is the Bank of Mom and Dad, which sometimes is a gift and sometimes is a gift that is expected to be returned at some future time.

What does all this mean?

1. Don’t make the assumption that if you have cash you will always win at a bargain price.


2. Don’t believe everything you read about how bad the market is. There are a lot of people who are serious buyers today because they have faith in the value of real estate over the long term.  And a lot of them have cash.

When hard times arise, so does crime.

The latest real estate scam strikes at people who are struggling to find a home they can afford in a nice neighborhood.  The fraudulent “owners” find a house for sale that appears to be vacant, look up the owner's name, then advertise it on Craigslist or Hotpads or other free websites as being for rent for a really great price. The ad has an email/phone that goes to them, not the real owner. The “victim,” a.k.a. prospective tenant, is told to go look through the windows and see if they want to rent the property. Then they are advised that they can secure the property by sending a money order to a particular address.

If you think about it, this is almost as lame as the prince of some distant African kingdom needing your help to obtain his inheritance.  The prospective tenant goes to the property, sees the Realtor’s for sale sign, calls the Realtor and finds out that the deal is a scam, and does not send the money to the fraudulent owner.

One woman told us that she lead the scammer on for a little why and he told her to just peek in the windows of the house "since he is in Washington and his wife the "minister" is in Texas so they wouldn't be able to meet her.  He told her he would send her the keys and rental documents via overnight mail if she wired him $2400 through Western Union.

Here's the basic response that people get when they inquire on what looks like an amazing rental deal (click to view larger):

What can I do? I have reported the ad as a scam and the website has not removed the ad. I am not a detective or a law enforcement officer.  All I’ve thought of so far is to courteously tell every person who  calls me that it is for sale not for lease and to congratulate them that they are smart enough to check on a story that sounded too good to be true. And to write this blog to let you know what goes on out there.

The only thing that really can be done is to spread the word about these scams so people can recognize them when they happen.  Please forward this on!

The real estate market has hit the Pause button in the last few days. Why? Who knows? Waiting for another shoe to drop (such as even worse economic news?) It doesn’t make a lot of sense, really. Mortgage interest rates have dropped to the lowest in over 50 years. Lots of people have rushed to refinance their homes, but many have discovered that the rules are too tough for them to qualify now. Appraisals are extremely conservative, which means that if you refinanced back in the boom times a few years ago, you might owe too much to qualify for the required 20 to 30% equity that lenders want you to have now.

People who ask me about the real estate market assume that no one is buying because no one can qualify for a loan these days. Surprisingly, this is not true. Lots of people can qualify and are walking around today with pre-approval letters hanging out of their pockets. They even have 20% down payments sitting in their bank accounts ready to go to purchase that new home. Why don’t they make a move?

We’ve talked before about fear and how that has been holding the market back for quite awhile now. Fears such as: what if the prices drop more? What if I lose my job? What if a better buy pops up next week? What if my friends/relatives think I’m stupid for buying now?

Another obstacle is information overload. Every day we hear more economic news about things we really don’t understand, like, say, the Case-Shiller index or Standard and Poor’s credit rating of companies or countries. We hear about Europe’s economic woes, we see the stock market rocket up and down. What does it all really mean? How can we make a good decision in the face of all this information (so much of it bad news)?

How about trying this: turn off your radio, throw the newspaper in the recycling bin, and think about what you really want. Do you want a home to live in for several years? One that you can make your own with your unique designer touches? One that your kids can grow up in with a sense that they are loved and provided for? Want to try your hand at urban gardening? Raising a litter of puppies? What does any of that have to do with the Euro?

For most of us, not much.

The percentage of people in the United States who own their homes has varied between 65% and 70% over the last several years. “Experts” are saying that we probably won’t see 70% home ownership again. So what? So what if it is 65% forever more? Isn’t that still a large majority of the people in this country? Can we agree on this: most of the people in this country live in homes that they own?

Let’s go back to the basics for ourselves. A home is a big investment and the decision to purchase should be taken seriously, but life goes on day by day by day. Things do change, such as interest rates and loan guidelines. If you qualify for a good mortgage today, do you want to risk that you don’t qualify under some new guideline tomorrow? Do you want to wake up one day and see that your opportunity has passed you by?

I'm posting this because it strikes me as good advice that shows some thinking outside of the box for financial planning, which is what I like to think I do regarding real estate. I have subscribed to Justin's email newsletter ever since I saw him speak at a California Association of Realtors conference a few years ago. I have never worked with him, I don't know how good a job he does, but you might want to contact him if you are looking for a Financial Planner. I certainly will.

Justin Krane, a Certified Financial Planner^TM professional, is the founder ofKranefinancialsolutions.com. Known for his simple, savvy, holistic approach to financial planning, he has the unique ability to advise his clients on how to merge their money with their lives, so that they can make sound decisions with their finances, and get more of what they want in their lives.

8 Things I Want You to Know Right Now

1. Try not to panic. It's tough to make money that way.

2.  Keep your eye on the price of gold. For stocks to make a comeback, gold needs to go lower.

3.  The stock market needs leadership from Washington. Obama needs to appeal to business owners and tell Congress to come back from vacation and get a better budget deal done.

4.  If you had a target allocation of 50% bonds and 50% stocks, you probably are now 45% stocks and 55% bonds. Consider rebalancing back to what your initial allocation was.  This is general advice.  I have no idea what your risk tolerance is and when the PERFECT time is for rebalancing.

5.  Company insiders (CEOs) have been buying their own company stocks aggressively. That is a good thing.  Many retail investors have been selling out of mutual funds - great contrarian indicator - meaning the general public makes poor timing decisions.

6.   Based on your situation, consider converting your IRA to a Roth IRA. Talk to your financial advisor and CPA for all of the details.

7.  Call your mortgage person and consider refinancing your mortgage.

8.  Not sure what you should do based on your own circumstances?  Give us a ring.  310-989-0934 or 800-506-6071 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it.. We're here for you.  No judging, just really solid advice to help you figure this financial stuff out.

This newsletter is for informational purposes only and should not be construed as individualized investment advice.

P.S.  Click Here to forward this information to anyone who might be interested.

I’ve been reflecting on appraisals lately, and I’m not alone— almost everyone who sells real estate is having appraisal issues. Why? Because appraisals are based on closed sales, appraisers are evaluating the present value based on the past value. If we’re in a declining market, appraisals will be close to the price that the buyer and seller agree on. It’s when we are in a fairly normal or increasing market that we have the issues that many of us face today. You might see this as good news since it could be an indication that the market is normalizing or increasing. From the appraiser’s view it just looks like available comparables can’t justify increasing sales prices.

There is general acceptance of the notion (believed by many appraisers) that appraisal is a science, not an art (even though you’ll get as many different valuations as you have appraisers on the same property.) Many buyers believe this as well. But consider this scenario:

There is a 2-bedroom, 1.5-bath house in good condition in a nice neighborhood in a small community within Los Angeles. It has a guest house for which no permit can be found, nor can a permit be found for the half bath. So for appraisal purposes, this is a 2-bedroom, 1-bath house. Because very few properties like this sell in any 3-month period, the only sales comparables that fit this size house are distress sales in poor condition that sold in the range of $350,000 to $450,000. Six months ago, there were a few comparables that sold for $480,000 to $520,000. An appraiser brought in a value of $440,000. Why? Because the “good” comps were too old and the more recent comps were all low, so to his mind that meant that the current value was lower.

Here are some questions for you:
Had this appraiser seen all the properties that he used for his research? No, because in the current appraisal business these appraisers are working all over Southern California. The likelihood that they have ever been inside the comparables they use is slim.

Did he talk to the Realtors who actually did see the properties? Very few appraisers bother to do that.
Did he listen to the listing agent who met him at the property with comparables? No, because he thinks that appraisers know more than Realtors who are just trying to make a sale. He pretty much said that.

Why all of a sudden did we have such low comparables? Did the values drop? Again, very few properties of a given size sell in this zip code. By chance, the only three of that size and configuration that sold in the previous 90 days were short sales and foreclosures. The consequence is that regular sellers who own 2-bedroom 1-bath houses are reluctant to sell because the only comparables that appraisers are willing to use are so low. It’s a vicious cycle. One almost feels that that is what some of these appraisers and lenders want to see happen, because it is less risky for prices to be low.

When prices drop, regular sellers either don’t need or want to sell or can’t because they now owe more than the property is worth. They can’t refinance into a lower interest rate for the same reason. In 2005-2007, if you lost your job you might be able to use your equity line of credit to get by for a month or two. Or you could sell for a profit, move to a less expensive home and rent for awhile until you got on your feet. Today more people are stuck with too much debt and nowhere to turn. For many of these people, it is the same debt they were totally fine with in 2006, but their circumstances have changed. Now their only option is either foreclosure or short sale. And there you have more lower prices.

But let’s go back to the pure appraisal question. How do you evaluate a property? Wikipedia says: Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its Market Value The need for appraisals arises from the heterogeneous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location - which is one of the most important determinants of their value.

In residential real estate, market value is usually defined as the price that a willing buyer and a willing seller agree upon subject to appraisal if a loan is necessary. If everyone paid cash for property, the situation in real estate today would be much different. We wouldn’t have had the bubble and the resulting crash, for one thing, since they were both caused by unsafe and unsound lending practices.

Market value is a concept distinct from market price, which is “the price at which one can transact”, while market value is “the true underlying value” according to theoretical standards. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value.
This is the crux of the matter: the prevailing market prices are not reflective of true underlying market value.
In San Marino, prices have not dropped. Why? Because most homes there are owned outright. The same is true in parts of Arcadia. Distress sales drive prices down. If no one is in distress, the price doesn’t go down. Why not, when the entire country has been in a housing depression? Because if you aren’t in distress and you can’t get the price you want, you just don’t sell.

What I am seeing with all the HVCC (Home Valuation Code of Conduct) and other strange rules pretending to establish reasonable rules for evaluating properties is that appraisers are all looking at market prices and defining them as value. If a buyer believes that a house is worth, say, $500,000, because it has all the amenities he feels he should find in a house at that price, why should an appraiser be able to declare that the actual value is only $350,000 because that is what a house of similar size sold for down the street?

So what does a good appraiser do?
What does a good Realtor do?
What is the relationship like between a good appraiser and a good Realtor?

As part of the Realtor's Home Affordability Fund, the Energy Audit Program provides up to a $250 rebate on a Home Energy Rating System (HERS) home energy audit conducted by a certified HERS rater. You can find out how your new home rates in energy efficiency and find out how to upgrade your home with money-saving energy improvements.

Click here to find out how to qualify:

http://www.car.org/members/hafmainpage/reap/Also, visit the Energy Upgrade California website to plan upgrade projects, locate participating contractors, and find rebates and incentives.

WHAT’S SO GREAT ABOUT HIGHLAND PARK, 90042? Lots of things!

• It was the City of Los Angeles’ first suburb. http://en.wikipedia.org/wiki/Highland_Park,_Los_Angeles

 

• It contains the city’s largest HPOZ. http://www.preservation.lacity.org/hpoz/la/highland-park which recently incorporated the Garvanza area to make it even bigger.

 

• It’s an easy commute to Downtown LA or downtown Pasadena by car, bus or the Gold Line. http://www.metro.net/

 

• The art scene is amazing. http://www.arroyoartscollective.org/. Best event is the annual Arroyo Arts Discovery Tour held the 3rd Sunday of November.

 

• There is an Artwalk the second Saturday of every month. http://www.nelaart.org/

 

• Chicken Boy lives here. 5558 N. Figueroa St. http://www.chickenboy.com/

 

• Great food! Lots of Latin foods from tacos to menudo, but there is more. Check out my Restaurant Guide. www.LADigs.com for names and addresses, but here are some highlights:

Cafe de Leche
The York
My Taco
Chico’s
Johnny’s
Schodorf’s Luncheonette
Folliero’s
La Abeja

 

• Super A Foods has handmade tortillas and much, much more. 5250 York Blvd. 90042. http://www.superafoods.com/

 

• Figueroa Produce has a real meat market, organic produce, a wide variety of ethnic foods--all at great prices! http://figueroaproduce.com/

 

• Galco’s Old World Market and Soda Pop Stop. 5702 York Blvd. Long for some orange Nehi or curious about Grapette? Over 400 kinds of soda here. Plus good deli sandwiches. http://www.sodapopstop.com/

What are your favorite parts of Highland Park?

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