Westcoe Realtors, Riverside, California…While no one enters any real estate contract with the intent for it to go ”sour,” the simple reality in today’s society is that many times things do go wrong, and generally someone is going to get blamed.  If tempers or damages run hot enough, then legal action will ensue, and if that is the case, just what are the ramifications of the Mediation and Arbitration clauses that come standard in any real estate purchase contract? 

Before embarking down this legal road, let us first include the required caveat that Westcoe is licensed to practice real estate, not law…and you should consult your attorney for any legal matter.  However, that having been noted, Westcoe does have an enormous wealth of real estate experience, so it is this experience we wish to share with you regarding mediation and arbitration.

SO…your real estate transaction has hit the skids, and you want to sue the other party.  It doesn’t matter whether you are the buyer or seller, if you feel you have been damaged, then your remedy is the same…and that is what we will outline below.

Let us first begin with Mediation.  In the standard California Association of Realtors Purchase Contract (upon which we would hazard a guess is used in over 95% of real estate purchases) there is a mediation clause.  This clause does not require any initials by either party, and is therefore a part of the contract unless both parties take the overt action to exclude it from their agreement…which seldom ever happens.  Hence, it is part of your agreement with the other principal (real estate brokers are excluded from this, as the contract is only between the buyer and seller).  So what are you agreeing to?

Basically, two things.  The first is that you agree to mediate your dispute before initiating any legal action against the other party. The second is that if you fail to follow the first, then if by chance you sue the other party and win, you will not get your legal fees as part of any award…and since attorney’s are expensive, you really don’t want to go this route.

Some people have likened mediation to the job a parent does when the kids have a dispute.  Mom or Dad listens to the problem, and then helps the kids come to a solution that is fair and keeps everyone happy.  However, it is not that simple, and the similarity ends there.  In a real mediation, while the mediator will make every attempt to be fair, understand that their main goal is to solve the problem, no matter what is fair or not.  Parents want to be fair; mediators simply want the problem to go away…for if the mediator solves the problem, then the incredibly crowded courts are spared yet another trial.  So if you ever find yourself in a mediation, understand that while the mediator may appear empathetic to your problem, HE/SHE DOESN’T REALLY CARE.  They just want this issue to disappear, and they proceed accordingly.  Whatever they can get the parties to agree too is OK with them…fair or not.

Also, understand that there are real estate issues that are exempt from mediation, the main exemption being any matter that can be handled in small claims court (under $10,000 in damages).  If your damages are less than $10,000, you can mediate if you want, but it is better to head directly to small claims court.  Why? 

For the simple reason that when all is said and done, the mediator doesn’t really have any power…so if either party is not happy with the mediation, then they just get up and leave, and the party is over.  The process is not binding, and no one has to obey the mediator’s suggestions.   Crazy, I know, but such is legal life.  So…if your dispute can be solved in a small claims court, go for it, since that judgement is binding subject to appeal.

The bottom line, as far as mediation goes, is that you will be forced to partake either by your contract or by the courts, so grin and bear it, and maybe you might just get your case resolved.

Now, let us discuss arbitration…which is a whole different kettle of fish.

First, some background.  The arbitration process was established as an answer to the very expensive and very lengthy process of a civil trial.  These days, in Riverside, it can take 3-5 years to get a civil case to court…and if your case is important only to you, but not so important relative to all the other people who want a courtroom, you can expect the time period to be even longer.  And of course, the longer it takes, the more it costs.  So arbitration was created as a way to resolve civil issues without the undue delay and costs of a real civil trial.

Sounds good, but beware of the old saying…”be careful what you ask for, because you just might get it .”  You see, the arbitration process has a few warts….which the legal community considers a trade-off for getting your case resolved quicker and for less money.

While there are many differences between arbitration and a full blown civil trial, the main issues are these:  1) The decision of the arbitrator is binding, even if the arbitrator is an idiot and totally messes-up the law regarding your case, and 2) you have no right to appeal.  What you get is what you’ve got, and you are stuck with it, no matter how wrong you may feel it is.  Doesn’t sound fair, but that’s the way it is.  You wanted a quicker and perhaps less expensive way to solve your issues, so if there is a flaw in your case, such is the price you pay for expediency in time and money.

THAT IS WHY THE ARBITRATION CLAUSE IN A REAL ESTATE PURCHASE CONTRACT IN VALID ONLY IF ALL PARTIES INITIAL THIS PARTICULAR PART.

Do we advise our clients to agree to arbitration?   Yes and No…meaning that it is not our job to advise on this…only to explain and then let you pick.  We are not trying to cop out here, but it is a big decision, and you really should consult your attorney on that one.  We can tell you what saying yes or no involves, but we cannot make that decision for you.  About all we can say is that if you are unsure, then do not opt for the arbitration, and you can always try to get it later, if a dispute arises.  In our experience, most buyers/sellers push for it later anyway when they find out how really long and expensive a civil trial can be.

In the end, seldom is either of these clauses invoked in a real estate transaction if both parties are represented by good real estate professionals.  Yes, there can be issues, but the majority of problems are resolved far short of initiation of either of these remedies.  However, they are occasionally used, and we hope the above “real world” description is helpful in letting you understand what each of these important clauses mean to you.

Westcoe Realtors, Riverside Ca…Since Bank Owned properties represent such a large portion of the available homes for sale, and since all banks sell their properties with some sort of “as-is” clause, maybe this is a good time to discuss just exactly what it means to purchase a home “as-is.”

In the “normal” purchase of a property (let us define normal in this case as a purchase where the seller is a real live individual, not a bank), the standard purchase agreement has almost an entire page devoted to the rights of the buyer with regard to inspecting the property, and the negotiation of any potential repairs indicated as a result of that inspection.  Unless otherwise noted, this inspection period is 17 days…and if the buyer and seller cannot agree upon what, if any, repairs are to be made to the home, then as long as the transaction is still within the 17 day period, then either party can cancel the contract with no penalty to anyone.  It is a fair time period, and allows for all parties to either be satisfied regarding the condition of the home, or move on.

However, in the purchase of a Bank Owned property, things can be different from the “normal” transaction described above…and please understand that all banks who own property handle things differently, but what is described below is a fairly accurate description of the general procedure for a Bank Owned property.  Now…what exactly does “as-is” mean in this situation?

In a general sense, “as-is” means that while you still have your inspection rights as outlined in your purchase agreement, the inspection now becomes for your information only, and not a basis for further negotiation of any repairs.  In other words, the bank will generally make no additional repairs to the property, and your inspection report is only for you to know exactly what you may have to fix in the home once you own it.

Understand that most banks have never seen the home, and are already taking a huge financial hit on the property.  The last thing they want to do is spend more cash on what is already a large money loser for them.  They know the home is generally a mess, but instead of getting it in tip-top shape, they will usually price the home accordingly, taking into account whatever “warts” the property has. 

From their standpoint, it is about cash flow.  The amount of money it would take to fix-up most properties, multiplied by all the properties the bank owns, is astronomical.  Then, there is the issue of vandalism on vacant homes.  No bank is going to spend a lot of money on a home when a vacant home is such an easy target in today’s society.  Lastly, most of the time the banks are so aggressive in their pricing of the home (this is code for the price is generally really good!) that even if you have to fix what is wrong, you are still getting a great deal on the price of the home.

Can you get an inspection on the home before you make an offer?  Sure, if you want to spend the money, and you have the time.  Most Bank Owned properties are priced so well that they are currently generating multiple offers from multiple buyers…so if you go spend the money for a home inspection (about $350) and don’t get the property…or the property sells before you can get your inspection report back and analyze it, are you going to be OK with having spent the $350?  For most people, the answer is no.

Can you simply refuse to accept the “as-is” clause in the banks conditions to sell, and insist on your 17 day inspection period as outlined in the “normal” transaction? 

Technically, yes…but in common practice, no.  You try that on most banks, and they will simply pass on your offer and move on to the next one…because the reality here is that the bank is the 800 lb. gorilla in the room with the property at the price you want, so they make the rules, and if you don’t want to play by their rules, they will just find someone else who will. 

 In the end, every real estate market brings its own set of rules by which we are all forced to play, and this market is no different.  Right now, the banks are driving the bus and they know it.  In fairness, they are providing you an opportunity to purchase a home at a price that can be as low as 60% below the price they originally loaned on.  That’s not so bad.  Do you need to be careful?  Of course…but at the prices the banks are offering these homes for sale, a little risk is to be anticipated.

Westcoe Realtors, Riverside California…Ok…you are excited, you are pumped.  You have just bought or sold a home, you enter the escrow period, and life is good.  In a certain amount of time when your escrow closes, (generally between 30 and 60 days) you will either have some cash if you are a seller, or some new walls and the pride of home ownership if you are a buyer.  What could be better?  However, life being what it is (especially real estate life), WHAT HAPPENS IF THE ESCROW DATE IS NOT MET, AND EVERYTHING RUNS OVER?

Well, it depends.  I hate to be vague, but every situation is different, so what I will cover here is the general answer to some general situations.  Also, please accept the standard caveat that Westcoe Realtors Inc, is a real estate company and not licensed to practice law…but we have been around a long time and can certainly give you the benefit of our real estate experience as it relates to real estate issues.

So…what happens if you run over your escrow closing date?  

The first situation is very easy.  If both buyer and seller still want to complete the transaction, then everyone continues upon their merry way, and you close the escrow as quickly as you can.  If the delay is only going to be a few days, there should be nothing to sign, no additional paperwork, and it just closes late.  If the delay is going to be longer than about a week, then it is best to have the escrow company prepare an amendment extending the escrow to some point in the future agreeable to all parties.  Remember, in this situation, all parties still want to proceed, so the solution is fairly simple.   Close in few days, or extend with an amendment to cover the additional time needed.

But what if, when the closing date rolls around, one of the parties wants to cancel the escrow…and wants to use the failure to close on the appointed date as the reason for the cancellation?  Now what?

 Well, that complicates things a little, but the answer is still simple.

First, understand that the escrow period you set when the contract was agreed upon between the buyer and seller is not set in stone.  It is merely a date upon which all parties are striving to complete the transaction.  While there are exceptions to this (and those exceptions would have to be noted up front in the contract), the mere fact that the escrow has failed to close on its appointed date is not grounds for “divorce”.  So what happens?

 In the case of one party wanting to cancel and one party wanting to continue, the party who wants out “must give the other party a reasonable time to perform”.  That is the law…and the law is vague on purpose because each transaction is different.  How much time needs to be given?  That is the magic question.  As I said, and as the law reiterates, each situation is unique, so the specific answer depends on who is causing the delay and why. 

Has someone dragged their feet, made things slow down on purpose, wasted time, refused to cooperate, etc?  That is a mitigating factor in how much time needs to be given to close.  Or, are the delays no one’s fault, but simply the normal operating issues that can affect a transaction…the appraiser was late or needed an appraisal review that took an extra week, the termite work was not completed in time, the home inspector found repairs that took longer to fix, etc.  As you can see, there are as many reasons an escrow could delay as jelly beans in a jar. 

The bottom line here is that before you can set a “reasonable time to perform” you need to know why the delays occurred, and then ascertain where to go from there…BUT YOU SIMPLY CANNOT “BLOW-UP” AN ESCROW JUST BECAUSE SOMEONE IS A LITTLE LATE ON THE CLOSING.

As a final note, as I mentioned at the top of this blog, sometimes there are exceptions to the general rule I have just outlined.  IF…when the contract is being negotiated, and the close of escrow date is REALLY IMPORTANT TO EITHER PARTY…so important that if the date is missed, someone can’t/won’t want to continue with the transaction, then that needs to be noted at the outset…and that notification now becomes “the reasonable time to perform” notice.  In other words, you are giving your notice up front, instead of when the time period is not met.  Then you would be OK to cancel if the escrow fails to close on time.

Hopefully this will help with some of your general questions about this portion of a transaction, and guide you a bit if you ever find yourself in this situation. 

(Westcoe Realtors, Riverside, California)…For the 8th consecutive month, the real estate absorption rate for the Riverside area has dropped to a new level of 6.1…a reduction from 39.0 in September, 2007.  If you have read our previous blogs on the importance of this statistic (posted March 3, April 2, and May 5), you know that this new low level reflects the increasing real estate sales activity in our Riverside market area.

 Briefly stated, the absorption rate is a measure of how long it would take to sell, in months, all the available housing inventory in Riverside at the most current rate of monthly sales.  In this case, due to the amazing increase in the number of sales over the past 8 months, our newest absorption rate indicates it would take 6.1 months to sell everything currently for sale in our local Riverside MLS.  This represents a sales rate not seen since August of 2006.  The chart below will give you a comparison of the last few months.

Month            Active properties for sale         Number of sales         Absorption rate

January                    2760                                         154                              18.0

February                  2776                                         221                               12.6

March                       2837                                         317                                8.8

April                          2778                                         368                                7.4

May                          2733                                         445                                 6.1

(all data supplied by the Riverside area MLS)

As you can see, the number of available homes for sale has remained relatively stable, but the number of monthly sales has increased dramatically.  The 445 sales registered for the month of May is a 288% jump in sales since the beginning of 2008.

Why is this happening?….Because buyers have realized that housing prices have fallen to such levels that affordability is now within reach of so many who could not afford a home at the massively high prices of a year or two ago. 

 Also, don’t discount the savy investor who understands that prices today will be the stuff of dreams within 4-5 years from now.  Anyone who looked at real estate prices in 2006 and “wished” they had purchased a home in 2002 understands what is happening now.  As we have said many times, this cycle will be no different from those of years past..and today’s buyer will be tomorrow’s hero.  While no one knows when this cycle of falling prices will end (although most feel we are at or near the bottom now), one thing is clear…no matter how long it takes the real estate market to recover, IT WILL RECOVER…and when it does, those who figured it out today will reap the equity rewards to be gained tomorrow.               

Riverside, California (Westcoe Realtors)…In just about every purchase of a home, the buyer is asked to make a deposit as a sign of good faith to the seller that the buyer is actually serious about purchasing the seller’s home.  Once the buyer and seller reach an agreement on price and terms, this monetary deposit (no goats or chickens please) is deposited into a trust account (generally the escrow’s trust account…occasionally the brokers) and sits there until the escrow closes, at which point it is used as part of the buyers down payment or closing costs.  But, while no one ever plans for problems, what happens to the buyers deposit money if the escrow never closes?  Well, it depends…and that is why we are discussing this issue today.

FIRST, WHY HAVE A DEPOSIT AT ALL?  Why doesn’ t the buyer simply put all the money required to close the escrow in at the end, when the escrow is ready to close?  Well, technically, it could be done this way, but in the majority of sales (ok…99 out of 99) the deposit shows the seller that the buyer is truly serious about buying the sellers home.  Think about it.  The buyer is asking the seller to take his home off the market for anywhere from 30-60 days on the promise that the buyer can, and will, perform on the purchase.  When the seller’s home is off the market, the seller may be missing other potential buyers who now can no longer purchase this home…so the seller wants some assurance that the buyer is ready, willing, and able to complete this purchase.  Hence, a monetary deposit is the best way the buyer can demonstrate his good faith that he/she will perform on the purchase contract.

NEXT, WHERE DOES THE DEPOSIT GO?  Once the buyer and seller have reached an agreement, the majority of times, the deposit money is immediately deposited into the escrow trust account.  Its intended use is as part of the money the buyer will need to complete the purchase.  However, if the escrow fails to close, then as a neutral third party, the escrow holder will simply hold onto the money until someone tells them what to do with it (more on this below).

SO WHAT HAPPENS NOW IF THE ESCROW DOESN’T CLOSE?  Let us set aside for a moment a discussion of the myriad of reasons why an escrow can “fall out” and fail to close…and let us also set aside for now any determinations as to whose fault it is this property will not close.  In this discussion, let us simply look at the legal answer to the question of the deposit… for real estate law is very clear that once an escrow fails to close, there are only 3 ways the deposit can be released from escrow.

MUTUAL AGREEMENT OF BUYER AND SELLER…Pretty simple here.  The buyer and seller agree on where the money should go, and they sign in writing to this effect.  Once both parties agree on the dispensation of the money, escrow will cut a check(s) to wherever the principals have told it to.  Remember, escrow is a neutral third party by law, and therefore cannot make any determination on their own as to who should get the money.  The buyer can scream it belongs to them, and the sellers can do the same…and escrow may empathize with both, but escrow can do nothing without an agreement from both parties…and as long as both parties are claiming (sometimes quite loudly) that the money is “theirs”, then there is no mutual agreement, is there?  SO NOW WHAT?

JUDICIAL DECISION.  If the buyer and seller cannot agree on what should happen to the deposit money (no mutual agreement as discussed above), then most housing deposits fall in the jurisdiction of a small claims court action ($10,000 or less)…and as such, someone needs to take the other to small claims court.  It doesn’t matter who takes who, but in the end, someone needs to initiate the process of small claims.  Understand that if your deposit is $10,000 or less, then you must use small claims court…you cannot simply “sue” the other party in municipal court.  There is also a provision in the standard purchase contract that allows for an additional $1,000 penalty to the losing party in a small claims action if the court determines that “no good faith dispute exists” for refusing to release the deposit money….ie: simply being stubborn and refusing to mutually cancel the escrow when you really have no case may cost you an additional $1,000 in penalty fees, not to mention the court costs.  No matter what the reason, once the court has awarded a “judgement” to the prevailing party, then when that judgement is presented to escrow, escrow will follow the instructions on the judgement and cut the deposit check accordingly.

ESCROW GIVES THE MONEY TO THE STATE OF CALIFORNIA.  That’s right…this is not a misprint.  If the buyer and seller have not reached an agreement, and no one has taken the other to small claims court, then after 3 years, escrow is required by law to send the money to the State of Californian in a process known as “escheat”.  In theory, the State continues to try to mitigate an agreement between the buyer and seller, but good luck with that.  After 3 years, many times both parties are hard/impossible to find, and my own personal feeling is that the State “lip services” the effort to solve the problem, and then keeps the money for themselves.  Whatever.  In any case, it is now out of escrow’s hands, and off to the State.

As a final note to this process, I mentioned that we were avoiding a discussion about who should or should not get the money, and here is why.  In any fallout of escrow, it is generally fairly obvious who caused the problem and who did not…but sometimes, everyone is so irritated at the moment, or decides to take the fallout personally, that no one wants to cooperate.  Sometimes the issues were caused by one of the principals who is acting poorly or unprofessionally, sometimes the issues were unavoidable and were really no one’s fault.  Your standard purchase agreement has many clauses that help decide who is actually entitled to the deposit money in the event of a fallout, but since neither escrow nor the agents can legally make that determination on their own, someone needs to go to small claims court…and it is there the paperwork will assist the judge with whatever ruling is made.  The bottom line is that it is generally better for the buyer and seller to take a deep breath and try and solve the problem themselves…because small claims court is a crapshoot, or 3 years later, the State becomes a black hole in which money goes in, but perhaps never comes out!

(Riverside, California…Westcoe Realtors)…We live in a business climate these days in which protection from unknown surprises is a must…especially in the real estate industry.  Purchasing a home is a pretty big ticket item for any family, and the more one can do to minimize any future home repair surprises, the better.  Today, I wish to explain two of the avenues a prospective home buyer has to help them avoid the proverbial “money trap” when it comes to real estate.

HOME INSPECTIONS

A home inspection is simply what it says:  the inspection of the prospective new home by an individual capable of determining the current shape it is in.  Sounds simple, and it essentially is…but there are a few things a buyer should know before having one done.

First of all, Westcoe highly encourages every buyer of a home to have a home inspection.  Why?  Because when it comes to an existing home, while most sellers feel they live in a “perfectly kept” home, in reality, these homes fall into one of three categories;  it really is perfect, it is a mess and the seller is lying about it, or the seller really thinks everything works, but has forgotten about what is broken since they have lived with it for so long.  No matter what the motive behind the seller’s opinion of their home, the buyer will sleep better if a qualified, neutral third party inspects the home.

The cost of a home inspection will vary by the size of the home to be inspected, but will generally run from $300-$500, and is customarily paid for by the buyer.  As a general rule, the buyer is encouraged to attend the inspection, and most inspectors welcome the buyer to be there.  The inspection itself is very thorough, and includes everything from top to bottom, inside and out, and front to back.  The inspector looks at the roof, foundation, plumbing, sprinklers, electrical, attic, appliances, heat and air conditioning, all rooms and baths, walls, ceilings, windows, doors, and much more.

Once the inspector is finished, they will prepare a detailed report with photos, and a copy of this report will be given to the buyer, the seller, and any real estate agents involved in the sale.  At that point in time, in most transactions, if there are repairs recommended, all parties will sit down and try to decide who will fix what.  Some repairs are very important and must be addressed, and some repairs are very minor, and can be ignored.  Every house is different, and every report reflects this difference.  The important thing is that all parties have an independent report that accurately reflects the current condition of the home.  What the buyer, seller, and agents do from there is up to them…but at least everyone is now playing with the same information.

Hopefully, everything gets worked out between the buyer and seller, because the report is truely designed to protect both.  Understand, in the sale of most houses, the seller is required to provide the buyer with what is called a Transfer Disclosure Statement (TDS).  On this form, the seller is to disclose any defects or items not working in the home, so the buyer can make an informed decision on whether to continue with the purchase of the home. 

The days of a seller knowing of a problem and then not telling the buyer are over.  Sellers need to tell the buyers everything that may affect the home.  However, as mentioned above, some sellers are more honest, or more aware, than others.  No matter what the case, the home inspection and its subsequent report will make sure that the buyer totally understands what is happening with the home, and then everyone can adjust from there.

HOME PROTECTION PLANS

A home protection plan is basically a one year insurance plan that offers the buyer some protection in case something should go wrong with the home after the buyer has closed escrow…but beware, there are exceptions to almost everything, so the buyer must be educated on what exactly is covered and what is not. 

First, this policy is generally paid for by the seller, and goes into effect upon the close of escrow.  Most major systems in the home are covered by the home warranty company, and there is a small deductible that needs to be paid by the buyer should they file a claim during the policy year.  The cost of this basic policy is approximately $275, and then there are add-ons for central air or pool and spas.  In total, the price will be about $350 including central air conditioning, rising to upwards of $500 if pool equipment and spas are covered as well.  These policies are for one year only, but can be renewed annually by the buyer if so desired.

Now…how do they work?  IN THEORY, if the buyer has a problem, they will call their warranty company, who will send out a repair person for that specific problem.  The buyer will pay the deductible (generally about $50-75 per trade call) and then once the problem is discovered, then that is all the buyer will have to pay. The warranty company is now on the hook, and will either repair the problem, or replace the item at fault.  This includes electrical, plumbing, and almost all built-in appliances.  Sounds good, and most of the time it is…but not always.  As we tell our clients, a home protection policy is better than nothing, but it will not cover a home in every instance.

You see, there is a little thing called “pre-existing condition” that can rear it’s ugly head more often than it should.  On the one hand, the home warranty company has every right to say that if the condition that lead to the repair was pre-existing when you bought the home, then they cannot be expected to fix what was already broken.  This makes sense.  In the early years, some unscrupulous sellers/buyers/agents would simply sell the home with a non working dishwasher for example, and then call the home warranty company to come replace the broken machine at the close of escrow.  That is not right.  The dishwasher was supposed to work at the close, and the home warranty company should only be involved once a working dishwasher breaks at a later date.

However, sometimes this “pre-existing condition” pendulum swings a bit too far, resulting in home warranty companies denying claims by blaming that the root cause was in place before the buyer closed escrow.  All real estate agents try to use reputable home warranty companies, but every agent has a horror story about a home warranty company denying a claim…and it is hard to fight.  Ultimately, the buyer and buyer’s agent can throw a huge fuss, and threaten future business, but that does not always work.  This is not a slam or rant on the entire industry and the reputable companies in this business, but merely a statement of fact.   That is why we tell our clients that having a home protection policy is better than nothing, but is not the universal answer to any home repair.

However, one thing we have found useful in combating the dreaded “pre-existing condition” issue is your home inspection report that you had done prior to purchasing the home.  Here, if your inspection report can show that the system or appliance was working at the time of the inspection, then it is harder for the home warranty company to deny your claim.  This is another reason to have a home inspection, because it has come in handy many times when a claim is trying to be denied by the home warranty company.

In the end, there is only so much protection that can be offered upon the purchase of a home.  It would be foolish not to take advantage of the options available to you, but everyone must understand that home ownership is not fool-proof.  Sometimes things just break, and the owner at the time is the one who gets stuck with the repair.  It may not be fair, but homes are no different that cars, televisions, appliances, etc.  The above mentioned precautions will help, and that is all you can do…and hopefully, the home inspection will let you know all about your home, and you will never have the need for your home protection policy.

(Westcoe Realtors, Riverside, California)…For the 7th month in a row, the absorption rate for the Riverside area has fallen to a new low of 7.4, which indicates that our current real estate market is showing increasing strength well into 2008.  As many of you who read this blog on a regular basis already know, the absorption rate is a real-time measurement of the sales activity currently happening in our Riverside area (see posted blogs for 3/03 Riverside Absorption Rate Drops 5th Month in a Row, and 4/02 Absorption Rate Drops Again). Simplified, the rate is an indication of how long, in months, it would take to sell all the available homes for sale at the latest monthly sales rate, and this new rate has fallen to a low not seen in the Riverside area since July of 2006.

The absorption rate is a critical indicator of the direction of our current real estate market, and is calculated from MLS data through April 30, 2008.  The lower the rate, the faster properties are selling.  The chart below shows the data since January of this year.

Month          Active Properties          Pending Sales (previous month)          Absorption Rate

January            2706                                             154                                          18.0

February          2776                                              221                                          12.6

March               2837                                             317                                            8.8

April                  2733                                             368                                           7.4

The important item to note here is that this lowering of the absorption rate is due not to a decrease in the number of properties for sale, but instead to the increasing number of properties sold.  Since January, the number of pending sales in the Riverside area has grown from 154 to April’s total of 368…an increase of approximately 140%.  This increase in sales shows the rising strength of the Riverside real estate market, and validates what we have been saying on this blog for months…that our market is getting healthy at a far greater pace than the media would have you think. 

While the mainstream media would have everyone focus on the number of foreclosures as an indicator of market strength, foreclosures are a measurement of market forces that happened 3-9 months ago.  We have said for months that we are in the perfect storm for real estate growth, and the above numbers indicate we are correct.  The low interest rates coupled with lowering home prices have now made this a very affordable time to purchase for both the first time buyer and investor alike.  Many properties in the price range below approximately $325,000 are receiving multiple offers as buyers are seeing for themselves that these opportunities will not last forever. 

The good news is that for now, there is plenty of affordable inventory available as more and more buyers discover that waiting on the sidelines is not where they need to be.  No one rings a bell at the bottom of the real estate market, but as we have said before, anyone who purchases a home now will be incredibly thankful they did so 4-5 years from now.  Those who wait (assuming you can afford a home at this point) will pay the increasing prices that will result from “everyone” who will jump in and purchase at that later date.  By that time, the foreclosure properties available will have dwindled to a much smaller number, and prices will begin to rise because of the lack of inventory.

In the end, there is nothing happening here that has not happened before.  Home prices drop to incredibly low levels, smart buyers buy when most others are not, and then those smart buyers sit and reap the rewards of getting in early.  This real estate cycle has repeated itself over and over, and our current cycle appears to be no different.  Eventually, the market heals itself, the masses are told not be scared anymore, and then they all start to buy..thereby driving the prices up. 

The question you need to ask yourself is simply this…do I want to buy at the lower prices while others wait, or do I want to run with the herd and wait until prices rise and it becomes “safe”? 

Your call…but one look at the numbers from our MLS above, and you can see the results for yourself.  Call or email us if you have any questions or need any help in deciphering the current real estate maze. 

(Riverside, California…Westcoe Realtors)…In my posting of April 10, 2008 on this blog (Supplemental Taxes…The County May Owe You Money), it was explained about the sometimes confusing issue of Supplemental Taxes, and how quite possibly, the County Assessor of Riverside may owe you some money.  Since that posting, we have additional information that you may find helpful.

 In our original blog, it was noted that there was no mechanism for getting you a refund if indeed you were eligible for one (you need to read our original post to see if you may be eligible).  Our suggestion was that you simply continue to call, fill out any necessary forms, and then call again if you received no action.  However, after further investigation, we have more…and better…news.

 It appears that there IS an automatic mechanism in place with the assessors office to make sure that everyone who deserves a refund will get one…BUT THERE IS ONE CAVEAT…and that is that all deserved refunds will take a very back seat to the massive amount of business that is currently on the assessor’s plate.  What we mean that with the downturn in the current real estate market with regards to pricing, the assessor is so swamped (SWAMPED as in capital letters) with reassessment requests, that refunds will have to wait until reassessments are completed…and that makes sense. 

It is far more time sensitive to get the new assessments completed than to get a refund out.  We applaud the assessor for having this automatic process now in place, and encourage all eligible refund participants to remain patient.  You will get any money coming to you, it just may take some time, as we believe that the people in the Assessor’s office are pedaling as fast as they can.

(Riverside, California…Westcoe Realtors)…The rules and regulations regarding available financing in today’s real estate market change more often than Brittany Spears’ hair styles…and often with the same logic applied.  Today I wish to inform you of some new changes regarding financing condo sales, but it comes with a caveat…BEWARE, TODAY’S REGULATIONS ARE LIKELY TO BE FOUND IN TOMORROWS TRASH BIN, SO PROCEED ACCORDINGLY.  All we can say is that the following is applicable as of today, but that does not mean it will be valid or apply tomorrow.

We have mentioned before on this blog about Fannie Mae and Freddie Mac…the two largest providers of loan funds to our banking system.  To briefly refresh, these two giants buy the majority of the notes and deeds of trust generated by banks when the bank makes real estate loans in your area.  Your local bank or mortgage lender makes a loan (trading their cash for your note, or promise to pay) and then they sell the note to one of the above two entities, in which case the local lender gets more cash to loan again to someone else.  So…when Fannie or Freddie sets new guidelines, all local lenders pay attention, or  they will have no place to sell these newly generated real estate notes.

 So why is any of this relevant to you, a possible condo buyer or seller?  Because there are now new guidelines being set for anyone who is involved with a condo purchase.  Guidelines that affect both the buyer and the seller.

For the buyer, the main change is regarding the down payment percentage.  You will now need a minimum of a 10% down payment, and even that may not be good enough if the zip code you are purchasing in has been designated a “declining” market.  If that is the case, you may have trouble purchasing at all (the reason for this is very detailed and very boring, so simply ask your lender).  If you can muster a 20% down payment, then you will be OK…provided you have really good credit and FICO scores (a credit rating score that someone thinks is an indication you will actually make your payments).

For the seller, it can be even worse.  Fannie and Freddie are very concerned about condo projects, because so much of the desirability of the entire project is connected to the appearance and financial health of the association that controls the project expenditures.  For example, if the association is broke, and just skimping by, then perhaps there is not enough money to pay for proper landscaping…or new trees…or a new roof…all of which can greatly affect the pricing of an individual unit.

So much of what an association can do is dependent upon all the condo owners paying their monthly association fees, and Fannie and Freddie want to make sure that they are not lending on a unit that is in a project that is headed downhill…and you can see their point.  It is different than a single-family home, where only one person (the homeowner) is responsible for maintenance.  In a condo, one unit owner could be paying his monthly dues, but will still suffer from poor maintenance if many other unit owners are not paying theirs. 

SO…Fannie and Freddie have now instituted new guidelines for making a loan in a condo project.  Now, before they will make a loan, they want to see all legal documents pertaining to the condo project, the association budget and current financial statements, and what percentage of condos are owned by investors, and what percentage of units that are delinquent on paying their monthly association dues….and the problem is that not all this information is readily available.

This brings up a host of potential problems.  Who is really to know if a unit is occupied by an owner or a tenant…and how do you verify this…go door-to-door?  Also, what is an acceptable percentage of owners to investors?  And how about the delinquency rate?  Is that monthly…quarterly?  And what is the acceptable ratio here as well?  As with most federal guidelines, there is simply many more questions than answers at this point.

In the end, all we are trying to do is acquaint you with some of the changes that are currently taking place in our real estate arena.  My guess is that some of the regulations outlined above will be changed since they place an undue burden on the seller or local lender to verify facts that are simply not available…but changes, if any, will take time to implement.  For now, we go with what they ask…for if we don’t play by Fannie and Freddie’s rules, they will simply take their ball (money) and go home and we won’t have a game at all.  Sorry…don’t shoot the messenger.

(Westcoe Realtors, Riverside, California)…Whether it be the high-pitched, seriously toned voice of the verbal media (radio, television, etc.), or the massively large headlines of the printed media (newspapers, magazines, etc.), I always find it interesting when another decline in housing stats is paraded past our senses.  Most of the information is touted as the “latest housing statistics” according to some credible source, when in reality, almost all of these sources use data that is at least 4 months old…and that makes the resulting article or commentary not a particularly accurate depiction of the current real estate market as we see it in the “real world trenches” in which we operate every day.  Let me give you an example.

 In today’s local paper, on the top front page of the Business Section, is an article in very big bold print that says “NEW HOME SALES FALL 8.5 PERCENT”.  It is an Associated Press article out of Washington, and it sites a number of sources to let us know that for the month of March, 2008, new housing sales “plunged” to their lowest levels since 1991.  There is additional doom and gloom, and a few analysts who also offer their opinion on why we should all panic, etc.  You get the idea.  However, let’s analyze this a bit…and please understand that I am not picking on our local paper.  One can see the same type of headlines in any paper or magazine in the country.

 First, and very importantly, any story that originates out of Washington, or is reputed to be about any national trend, generally has about as much relevance to you in your local community as a as a space walk does on what you eat for lunch…there is simply no connection.  Granted, quoting national statistics might make for entertaining cocktail banter, but as far as giving you much of a picture of what is happening with real estate in your own backyard, no way. 

 All of real estate is local, not national.  Heck, we have incredible fluctuations just within our local Riverside city market.  You draw a 2 mile radius circle on a Riverside map, and I guarantee you will cross at least 3-4 sub markets with varying real estate pricing and activity.  What is happening in Orangecrest may be completely different from what is affecting sales in the Wood Streets…or Lake Hills…and generalizing doesn’t cut it. The same is true where ever you live.

SO…when you see any article, or hear any news clip…if it references anything outside your immediate area, take the message with a large grain of salt.  This is especially true when we live in California, since we are not necessarily like the rest of the nation on so many things.  Even within our own state, we have enormous divides.  Northern and Southern California bask in their differences.  Just in our own area, what is happening in Orange County and the beach cities in real estate is a far cry from the current markets of Los Angeles or Riverside.   So be aware of where the “story” you are hearing or reading is originating from, and gauge your level of concern accordingly.

 Next is a discussion of the data all these sources quote, AND THIS IS HUGE IF YOU WANT TO OPERATE IN A REAL TIME DATA ENVIRONMENT…which is critial in the real estate world. 

Almost all stories will quote statistics based upon CLOSED sales, not on CURRENT SALES IN ESCROW…and this makes the data, and resulting story, at least 90 days old, maybe more.  The key here is understanding that a closed sale in March will have generally entered escrow in January or February…and then when all those March closings occur,  it takes a few weeks to aggregate the data…especially if it is a national source.  So what you are left with is an article appearing today, April 25, that is really an indication of what was happening almost 4 months ago! 

Don’t blame the media…they do not have access to the real time data we real estate professionals work with every day…but don’t take their word as current gospel either. 

As another example, Westcoe Realtors posted on this blog space, on April 2, 2008, a blog entitled “Absorption Rate Drops Again”.  This article is a discussion of some very important real estate information, AND IT IS BASED UPON DATA THAT IS ONLY 2 DAYS OLD…data that will effect what the press will report approximately 2-3 months from now…and in this market, that 2-3 month time lag could spell disaster for someone who is buying or selling.

My point here is not to bash the media (although they do make it easy sometimes), but to enlighten the public as to the meaning of the articles that are being written.  We all know that negative news sells (just like people slow to see a car wreck on the freeway), but what sells is not necessarily accurate on a real time basis.  The bottom line here is that if you want accurate, up-to-the-minute information about real estate, or pricing, or market activity, get with a real estate professional (I can make a very biased suggestion for more than a few here at Westcoe).  They are the ones who work in this arena on a daily basis, and they are the ones you should consult. 

Think of it this way.  If you were buying or selling some stock, would you like the pricing information now…or are you willing to wait and make your decision tomorrow on what you read in the paper? Fortunes are made or lost in minutes in the stock market world, and waiting until the end of the day for your information would be unheard of.  In real estate, the same principal applies.  Perhaps not as immediate as what you need for a stock market decision,  but surely you want your information based on today, and not 3 months ago.

SO…enjoy your newspaper, television, radio, and Internet..but don’t rely on them for your own real estate buying or selling…call us…we are a lot more current.