Recently I closed a transaction in which the lender was a total flake.  (The buyer did not find this lender by referral of his Realtor, but instead was induced by the lure of a rebate.) The sale closed almost 2 weeks late because the flaky lender dropped the ball, repeatedly. Needless to say, this caused aggravation but also extra costs.

But there was a saving grace: she and her office were both local.  The buyer’s agent was able to drive over to that flaky lender’s office, and when the lender herself wasn’t in, the buyer’s agent was able to speak with the manager – face to face. And that helped a lot.

Never underestimate the importance of getting a lender who is both local and highly referred – preferably by your agent.  Why? Because you might only have one transaction but that agent or Realtor might be the source of many. The lender will literally try harder since a bad experience will cause referrals to stop but a good one will cause them to flow.

I have found this true even at the handyman level. If I call a handyman once a year, he may not be super interested in doing an outstanding job for me.  But if he thinks I’ll have a lot of jobs for him, that’s another story.

About half the time, my buyers come to the table with their own lenders, people I don’t know at all. Sometimes it’s OK and sometimes it’s a disaster.  But when they work with the lenders I suggest, there’s seldom a big problem, if even a small one. If you are working with a good Realtor, there’s a lot to be said for asking him or her for a list of lenders who are trusted and choosing one of them.  In my experience, the odds are better for a favorable outcome if you do.

Particularly with so many home owners “underwater” and struggling to pay their bills – mortgage, property tax, HOA dues etc. – a big concern for those in common interest developments such as townhouse and condominium communities is whether or not the reserve account is well enough funded. Too often, they aren’t.

Jacquie Berry, owner of Community Association Data Source, is our local expert in HOA documents and disclosure. Recently she spoke at the Los Gatos-Saratoga Association of Realtors Wednesday breakfast meeting and shared these statistics, which are a bit scary:

There are over 48,000 homeowner associations in California; CIDs make up a quarter of all housing in the state of California; 49 percent of CIDs are self-managed and less than 25 percent are 100 percent funded in their reserves.

To read more about her comments to the realty board, please view the post on the Silicon Valley Association of Realtors blog: REALTORS® told HOA compliance is all about disclosure.

Thinking of buying a condo, townhouse, or property with an HOA? Make sure that you check out the reserve account and the rest of the disclosures to better protect yourself against raises in dues or “special assessments” later. If you are currently a member of an HOA, keep a close eye on the financial health of the group vis-a-vis the reserve account.

October first brings new limits on the conforming loans for Silicon Valley.  It used to be that conforming loans would be at the rate of 125% of the median home price of the county, but that was to be temporary and eventually drop back to 115% of the area rate.  That’s what has happened now.  The conforming loan rate has dropped throughout Silicon Valley (Santa Clara County, San Mateo County, Alameda County, Santa Cruz County) from  $729,750 to $625,500.  This is true for most of the San Francisco Bay Area.

Some counties have been harder hit than others during the economic downturn and housing crisis.  While the San Jose, South Bay and Peninsula areas saw a loss in the conforming rates of $104,250, in Monterey County it is much worse.  They have gone from $729,750 down to $483,000 – a whopping $246,750 drop.  The same is true in Napa.  Alternatively, some of the really rural California counties saw no drop in this rate at all: Plumas, Humbolt, Siskiyou, Tehama, Tulare, Fresno and several other more agricultural counties saw no change at all.

How does this financing change impact you?

For properties under the conforming rate, there should be little impact that I can predict. So too for very expensive or luxury properties – this should not change anything. But for more houses or condos in between, particularly where the 80% loan to value limits are caught in the crossfire of this change, between about $780,000 and $912,000,  it could be significant because higher interest rates impact buying power. Let’s look at an example. (more…)

Buying a Silicon Valley home? Understand that unless you are buying “all cash“, you will need to show your real estate purchase agreement to your lender, and your lender may want to see inspections, reports or disclosures based on what you’ve written in that paperwork.  And then the bank, credit union or lending institution may ask for repairs prior to close of escrow, even in an “As Is” sale.

This happened to my buyers a few months back.  They were buying  their first home using an FHA backed loan.  In the offer, we indicated that we would be having a few inspections (home, pest, roof, pool). Because financing with FHA backed loans is a tougher road, the lender did, indeed, require certain work to be done prior to close of escrow.  It was supposed to be an As Is sale so the buyers ended up paying for work to be done in order to close (and the seller allowed us to reduce the price somewhat).  Luckily they were all improvements that my clients intended to make anyway – but it was inconvenient and stressful to have to rush to have the work done, and of course this did cause delays.  (We did discuss not having the inspections listed in the offer, but my clients very much wanted them in it.)

For this issue, does it matter which contract you use, PRDS or CAR?

If you are planning to purchase a Los Gatos, Saratoga or San Jose area home, most likely you and your real estate agent will use either the newest PRDS contract (Peninsula Regional Data Service, employed from Los Gatos to San Francisco) or the CAR contract (California Association of Realtors form which is used throughout the state of CA). (more…)

Many of us cheered to hear that some of the large banks (who have not been wonderful to deal with regarding loan modifications, short sales and foreclosures or bank owned property sales) were getting sued by federal regulators for various types of malfeasance.

Most recently, the Federal Housing Finance Agency, which is in charge of Fannie Mae and Freddie Mac, filed a lawsuit against 17 major banks, including Bank of America, Citibank, Morgan Stanley, and several others (see a complete list here).

So how does this impact you, the Silicon Valley real estate home buyer or seller?

Imagine you’re on the board of any of these institutions.  What do you do to protect your shareholders when something like this happens?  Perhaps first of all, you make sure that whatever you’re accused of doing cannot happen in the future.  You hand down new policies and get them implemented immediately.  No exceptions.

Some of my buyers got caught in this situation, without warning, when their lender informed us that there will be a week-long delay in closing due to new procedures which are mandatory for every file, bar none.  Our loan contingency was removed awhile ago (with the lender’s assurance that all was fine).  We will still close escrow, but late.  This never makes anyone happy.

Right now, if you are trying to buy a house and will be relying on lender financing, I suggest you find out if your bank or lender is involved in a big lawsuit and if so, how this may be impacting real estate purchase contract deadlines.  Most lenders do need 17 days to get you fully approved if you go into the escrow pre-approved (with a real pre-approval, not a pre-qualification only) and 30 days to close the sale.  But if your lending institution is in a messy legal battle, it could take longer, and it could be a surprise.  In escrow, no one likes surprises, especially if they cause any sort of default.

This situation will probably benefit the credit unions and banks which did not misstep with the subprime loans.  Got a great bank that performs fast and is free of legal battles? Please share it here!

News flash – in case you didn’t know, the current “jumbo conforming” loan rate in Santa Clara County of $729,750 is about to be repositioned (to speak euphemistically) to $625,500. This is all over October 1st, but many banks will stop lending at these rates long before that, perhaps prior to September 1st.

What does that mean to YOU, a San Jose or Silicon Valley home buyer, seller, investor or owner?

For many properties, there will be no change.  But if your property’s value is such that a 20% down purchase (a normal situation) has the loan between $625,500 and $729,750,there’s about to be a painful change.  How painful? About one half of one percent.

Right now a $700,000 loan is a jumbo conforming (good rate: 4.5%).  Under the new limits, it’s a jumbo (good rate: 5%).  The hike means, concretely, $210 per month for that $700,000 loan amount, or about $75,000 over the life of the loan.  That’s some serious dough.

This change probably WON’T impact homes priced lower than $625,000 or greater than $912,187.  But we may be seeing some pressure and price compression in the zone between.  It’s also likely that there will be some pressure to sell but also to buy before this change happens.

When money becomes more expensive, prices usually fall.  But this is an odd situation since not all price points are impacted.  For buyers with large down payments or who purchase their house “all cash”, it’s no difference to them – but it might be a huge difference to sellers.

My best guess: investors will make good use of this opportunity at a vulnerable point in the market.

Yesterday I got a phone call from a woman looking to find a lease option to buy property in the San Jose area.  “I’m tired of wasting money on the rent”, she explained.  Hoping to locate one, she was phoning the agents of San Jose houses for sale – maybe one of them would do a lease option?  Not likely.

Why are lease options hard to find in Silicon Valley?

It is a challenge to find a lease option in the greater San Jose area for a number of reasons, most of them related to the extra risks involved as opposed to simply renting or selling the real estate outright.

1 – Cash needed at close of escrow: An overwhelming majority of the home sellers here want their cash at close of escrow, so the buyers can be all cash or part cash and part loan (20% down, for instance).  Most real estate sellers want to take the cash from the property being sold and do something with it immediately – and the majority of the time that means putting it into another home in which to live.

2 – Don’t want to be a landlord: Doing a lease option means that not only will the owners of the property not get their cash right away, but they also have to become landlords in the meantime.  If they pay a professional property manager, that may cost 8% per month in overhead, too, so it cuts into any profit.

3 – Lease options are risky: With lease options, there is far more risk for the seller, of course, but also for the buyer!  (And by extension, real estate licensees who get involved with lease options.)

• The seller risks a default by the buyer/tenant and then having to go through the trouble of evicting him/her/them.
• Pricing risks for both seller and buyer:  the purchase price is decided upfront, but the sale isn’t finalized for a year or more.  During that time, the real estate market could appreciate like crazy (leaving the seller to feel that the house is sold for too little, less than market value) or the prices could fall (with the buyer unable to complete the sale since the property wouldn’t appraise – thus losing all of the downpayment in the process).  Either way, buyer or seller could feel unhappy and cheated. (more…)