Michael Walters' Blog | Realty World – Innovative Realty Service

It is getting harder to find homes for those buyers we have been working with for months.  The entry level prices are rising and qualifying for prospective buyer’s  is shrinking.    

After looking at several Hollister homes I heard the frustrated buyer sigh:  ”I think we’re just going to wait to buy a home“.  I tried to reason with him regarding rising prices and the likely increase in home loan rates.  He was just too disappointed to hear anything right then.  So, this post is my therapy for today’s weary home buyers. 

Home loan rates WILL go up.  It’s only a matter of when will they start.  All of the attempts to stave off a sick economy cost money and will begin to push rates higher.  As they rise, ‘purchasing power’ drops:                      

Let’s say my buyer waits 6 months and the rates then are up .5%.  His $300,000 loan will cost $92 MORE each month than he could get today.  To qualify then he will have to earn $225 MORE per month for the same loan he could get now.  If his income hasn’t changed his purchasing power will drop by $17,150!

If the rates go up by 1.0% the payment will jump up by $192 per month for the same $300,000 loan he could have gotten today.  $192 PER MONTH!  Yikes!   His income will need to be $460 more per month to qualify for the same loan he could have gotten today.  With no change in income, his  purchasing power will drop by $32,800!

Postponing the purchase of your home doesn’t make cents.  Get a good night’s sleep and go back at it tomorrow.  Afterall, somebody is buying these homes.  Why not you?

Agent to prospective buyer: “There are 5 other offers on that home“.  Buyer to agent: “Ah man! I’m getting tired of losing out on all of these homes!  What can we do?”  Agent to buyer: “Add another $15,000 to your offering sales price“. 

That was the approach some agents were taking earlier this year.  Many are still.  Finally, however, the banks have gotten wise to this ‘blue sky’ approach. 

I made an offer for a prospective buyer on a nice Ridgemark home in Hollister.  The listing agent informed me there were 4 other offers and 2 were considerably higher offers than ours.  Reluctantly the buyers did not want to try again on this home. 

What was fascinating however, was the bank countered that the offerees had to agree to pay for the amount over and above the appraised value when it came in.  I like that!  Finally, some intelligent approaches to this frenzy we’re seeing in the starter-priced homes.  If the accepted offer was, say, $350,000, but the appraisal came in at $325,000 the buyer would have to pay $25,000 over and above the appraisal.  Of course their loan amount is computed from the appraised value or sales price, whichever is lower. They would pay their down payment PLUS the amount over value.

Hopefully, more banks will begin handling the question of value up front in this manner rather than 3 weeks later when the other prospective buyers have moved on and the appraisal comes in low.

So, what do you think?  Will this smooth out the ‘offering’ process some?

A veteran buyer was looking at looking at some nice homes in Hollister.  There seemed to be a disconnect between their enthusiasm for the homes and making the comment to buy one of them.  It wasn’t that they didn’t qualify.  I had already pre-approved them for much more than they were looking at.  As we talked the light bulb came on!  The transition from their comfortable rent to a significantly higher payment was a quantum leap for them and it was hard to swallow – until…….

I sat them down and shared what many homeowners have learned over the years.  Your accountant can tell you what your new tax liability will be if you buy that tempting home.  In most cases the amount  you will be required to pay in income tax will DROP because of the larger amount paid toward interest and taxes.  Some of us have figured that it is better to reduce our income tax withholding from our paychecks each payday rather than get our refund in a lump sum (with no earned interest) at the end of the year. 

Here is their example:  Sales Price: $650,000; New VA Loan: $591,800; Total Principal, Interest, Taxes and Insurance: $4,210; Income Tax Deduction at a 26% tax bracket: $898/mth; Net “House Payment” after income tax deduction: $3,312. 

Same home, same terms but a house payment that feels like $3,312.  That made the difference.  They will simply need to take a new W4 form to their employers and have them reduce their withholdings by $898 so they will have that much more to take-home each month.  While they still make the actual payment of $4,210 the additional take-home pay makes the leap in house payment more palitable. 

They will break even at the end of the year: they won’t owe much income tax nor will they get much of a refund.  HOWEVER, they will have received their refund during the year to help offset their new, higher payment. 

Everybody was happy and moved forward with what they really wanted to do. 

I love solving problems for people!  Have you done this yet?

‘Houston…the Eagle has landed’.  I enjoyed recently the celebration of the Lunar landing.  Let’s change the wording to fit our times: “Buyers, we’ve landed, and are now lifting off”. 

Home values in San Jose, Morgan Hill, Gilroy, Hollister and San Juan Bautista “have landed” at the bottom of their value slide and are beginning to “lift off” that bottom.  We are not going to see these prices again for a very, very long time, if ever again. 

Here’s the affect of waiting to buy a home: A home listed today for $350,000 and goes up 5.0% in value will then be worth $367,500.  A buyer who waited and then buys this home will need $985 MORE CASH and $268/mth MORE INCOME to qualify for this same home. 

If the  interest rate is at 6.0% (vs. the 5.0% used above) when the buyer decides to purchase this increased-value-home, their income will need to be $843/mth. HIGHER to qualify!

Some prospective home buyers may be calling out: “Houston, we’ve got a problem“.  The erosion of their purchasing power may make them permanent renters. 

My crystal ball recommends that those who want to buy a home climb on board NOW while they can.  What does yours forcast?

In a Hollister listing interview the inevitable question came up and I gave the answer I have heard myself offer more and more lately. 

     The question: “How much of a commission do you charge”? 

     The answer: “If your competing homes for sale are offering 2.5 or 3.0% to the selling office you should offer at least 3.0%.  The first sale you need to make is the Selling Agent’s interest in showing your home.  You want to do everything possible to encourage those agents to enthusiastically promote your home.  If you instruct me to collect a lower commission, half of which goes to the Selling Agent, they will see that lower commission when searching for homes to show their buyers.  We want to ENCOURAGE them to show your home.  A lower commission being offered by you while competing homes are offering more will be discouraging to them.

     “The home will sell itself – once the agent and their prospective buyers actually tour your home.  We just need to do all we can to make your home appealing to the prospective buyers AND their agent”.

This answer seems to resonate as a new thought with most sellers and typically the issue is settled.  Now!  If we could just find a buyer for this nice, upper-end home!  Anyone want a producing vineyard and nice home in the Spring Grove Area of Hollister?

When Ronald Reagan became president, Disco was hot, and home loan rates reached 19%!  Out of necessity agents became creative with financing for the few real estate sales being done.  One such tool was a “Wrap Around” or “Wrap”.  More home  sales closed because of  the development of “creative financing”; which typically turned out to be a Wrap.

Today, we again find ourselves in need of creative financing.  Up-scale homes, requiring ’jumbo loans’ are not experiencing the same resurgence as the lower cost, “conforming” group of homes.  In fact, homes with prices over $700,000 are selling at a much slower pace, if they sell at all.  Their prices are still falling while lower priced, ‘tract’ homes are rebounding.   It’s all about the financing or, lack of it.

Lenders are requiring at least 20% down from the buyer on prices above $463,300.  With the ‘Jumbo’ limit of $729,750 and minimum of 20% down many buyers simply don’t have enough cash.  Previously helpful, second loans offered by sellers must be over and above the minimum 20% cash from the buyer. ”Willing sellers and qualified buyers” (without 20%+ cash) for jumbo sales are being held at bay do to a significantly tightened lending atmosphere.

Even if an upper-end home finds a buyer with a large down payment good luck in the home appraising.  Lender’s are now being required to accept only those appraisals with 2 comparable sales within the last 90 days.  So, with fewer comparable sales, and dropping prices many higher priced home sales don’t close due to very low appraised values.

However, the “Wrap” is making a come back (more properly called an “All Inclusive Deed of Trust” or A.I.D.T.).  A willing and capable buyer can pay the seller’s price and avoid the lender limits and appraisal constrictions.  Additionally, since there are no lender fees the money normally spent on closing costs can be added to the down payment.

In the last 30 days I proposed 4 AIDTs for stagnant Hollister and San Juan Bautista up-scale homes.  Morgan Hill and Gilroy ‘Jumbo’ homes could also benefit form an AIDT sale.

When one of these AIDT sales records there will be a new comparable property appraisers can use to justify the higher prices nice homes should bring.  THEN, we’ll begin to see the ‘Jumbo’ home sales moving toward their earlier values.  I love problem solving!

If you have been waiting to buy a home in Hollister review the following sales activity and then go buy your Hollister home.

The Average Sales Price (ASP) increased 15.2% from May to June! Hollister’s ASP in June was $287,900 whereas a month earlier the average was $249,900.  Compared to June 2008 however, Hollister’s ASP was down 14.7% .

A valuable indicator: the “Closed Sales to New Listings ratio” (CS:NL) is actually in conflict with the jump in ASP.   June’s CS:NL ratio dropped to 56.9% from May’s 89.6%.  We saw the same drop in Gilroy for June however, their ASP also dropped.   The harbinger of things to come, may lie in the nice increase of Hollister’s CS:NL over 6/08’s ratio of 40.2%.  Just wait and see.  As our CS:NL ratio increases so will our ASP.

Nearby Morgan Hill’s homes experienced an increase in both the CS:NL ratio and ASP.

My strong advice: if you plan to buy a home this year do it now.  We see nothing that suggest prices will drop or even level off in the foreseeable future.  Likewise I think interest rates for home loans are about as low as they are going to get.

For your own study of the actual Multiple Listing Service figures go onto “Client Portfolio” on the navigation bar.  There you can see a great deal of real-time data.  Enjoy.

Here’s the good news Gilroyans: Our Closed Sales-to-New Listings-Ratio (CS:NL) nearly doubled that of the same time last year.  June’s CS:NL ratio was 87.3% vs. 47.6% in June last year.  The “bad” news is that June’s CS:NL ratio was down from May’s 93.5%.

As you would expect, Gilroy’s Average Sales Price (ASP) of $395,900 dropped 3.8% in June from the month prior ($411,500).  Likewise, the ASP was down 32.5% from 6/08’s $586,800.

While  interest rates and prices are still down buyers who want the American Dream, Gilroy-style, should jump on the shrinking inventory of homes.  Gilroy’s home prices will go up.

Down the road in Hollister the CS:NL ratio also dropped from May to June but the ASP went UP 15.2% in that same month!   Compared to ‘08 Hollister is following Morgan Hill and Gilroy’s trend of an increasing CS:NL ratio.

For your own study of the actual Multiple Listing Service figures go onto “Client Portfolio” on the navigation bar.  There you can see a great deal of real-time data.  Enjoy.

In these Dog Days of Summer it seems like every other home I show in Gilroy lately has a pet door in the garage door entry to the home.  There is nothing more exciting than to have “Spike” come blasting through the door to check out who is in his home.

Gilroy, as well as virtually every other city, has a building code requiring that homes be built with a firewall between the attached garage and the home.  Many house fires begin in the garage so the firewall is engineered to impede a fire which starts in the garage from spreading to the home.  Most jurisdictions require the firewall to provide such a delay for up to two hours.

While making “Spike’s” life a little more convenient the homeowner who puts a pet door in the the door leading into the home from the garage may have problems collecting from their homeowners insurance where a fire began in the garage.

I find it interesting that many insurance agents say homeowners with such pet doors will still be covered yet home inspectors seem compelled to address this issue in their written reports.

Occasionally, a homeowner will cut the firewall for attic access or to install a drop down ladder.  They may face the same dilemma with their insurance company.

Building Code also requires that your garage-to-home door have a functioning, self-closing, hinge.  For obvious reasons that door needs to close so that the firewall retards the spread of a garage fire.  For reasons beyond me some homeowners disengage such a hinge.  Again, such a move may prove costly later.

So, why not check with your homeowner insurance agent and see what their position is on the doggie door dilemma.  We can check with the City’s code enforcement folks.  Sorry “Spike”.  Of course the standing rule remains: “caveat emptor”.

As I hear the familiar sounds of the pickers in my apricot orchard I’m reminded that it is that time of the year for the Gilroy Garlic Festival.

31 years ago Dr. Rudy Melone decided that Gilroyans shouldn’t be embarrassed or apologetic about our prolific crop of garlic but be proud of it.  Dr. Melone also thought that the “Stinky Rose” could be a fund raising source and activity for his beloved community.  So he cornered the local garlic farmers and convinced them to hold such an  event and earn some funds for the local Rotary club.  A media luncheon was held and they were also convinced.  Reluctant city leaders were pulled into the fray and 7 months later, in 1979, the first G arlic Festival arrived.

That 1st festival netted $19,000.  In the 30 years since then, more than $8 million has been given back to the community!

But what I really like is the cheerful community involvement where hundreds of charity and non-profit groups work side by side as volunteers and vendors earning funds for their group.  The Gilroy Gators Swim Teams earns over $6,000 during the 3 day event.  Hope Rehabilitation earns more than $3,000.  Even the $400 earned by Sunset 4-H club is much more than they could earn selling cookies in front of the market.  My son-in-law is a Scout Master of a local Boy Scout troop.  They will earn all of their entire year’s operating funds from selling lemon aid at the Festival.

When we say it is “tons of fun” for the visitors we mean that, literally: approximately 11 tons of beef, 5 tons of pasta, 5 tons of calamari, 3 tons of scampi and 3 tons of fresh Christopher Ranch garlic is expected to be consumed by the 100,000 patrons.  Additionally, there are live bands, events for the kids, and all of the normal fun activities you would expect as such a world class event.

Why not plan on coming out for good food, lots of fun and helping so many good organizations.  This year’s Festival will be held on Friday – Sunday, 7/24 -25-26.  Gates open at 10:00 AM.  For more information go to:  gilroygarlicfestival.com