There are a number of things which are related to the purchase and sale of real estate which require the professional guidance of those other than your Realtor, namely a legal or tax professional.  This sometimes surprises consumers.  Once I was discussing one of these areas with a prospective client and she felt quite frustrated and exclaimed, “you know the answer, you just won’t tell me!”  That was many years ago, but I’ve never forgotten it.  Many Silicon Valley home buyers and home sellers assume that they’ll never need to talk to a tax or legal professional, and if advised to do so, may balk.

So let’s talk about it.

In other states, such as New York, attorneys are very involved in real estate transactions. Here in California, though, that’s not the case most of the time.  We call on CPAs and lawyers when there’s a problem or a question which is beyond the real estate licensee’s scope.  I’ll provide a few examples.

Holding Title: Probably the most frequent question I get that I’m not allowed (or qualified) to answer is about how people should hold title when buying a home.  The purchase agreements we use (both CAR and PRDS) lay it out best and puts it in bold so that consumers don’t miss it:

“THE MANNER OF TAKING TITLE MAY HAVE SIGNIFICANT LEGAL AND TAX CONSEQUENCES. CONSULT AN APPROPRIATE PROFESSIONAL.” (newest revision of the CAR contract, April 2010)

Most title companies have a nifty little chart that summarizes the pros and cons of the various ways in which people can hold title.  But neither the escrow officer nor the real estate agent can tell you what’s best for you.  We know what’s most common, but that doesn’t mean it is best for you and your particular set of circumstances.  So talk to a CPA or talk to a lawyer (or both) if you do your research and are at all unsure of what to choose! (Old Republic Title has a summary of the most common ways to hold title in a downloadable pdf file, which you can access via this link.)
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In case you haven’t heard, there is a wonderful opportunity right now for qualified home buyers in Santa Clara County to enjoy both the state AND federal tax credits.  But this is truly a “limited time offer” and only applies to sales happening in April.  There are about 10 days left, so get into escrow now and enjoy a rare & wonderful chance to get Uncle Sam’s help with your home purchase!

In some parts of Santa Clara County, a very significant percentage of homes for sale and homes under contract (pending sale) are “short sale” listings.  This is particularly true in entry level areas like San Jose’s Alum Rock area, the Blossom Valley district, the Santa Teresa area, etc.  These homes can be hard to sell and even harder to close – but why? They are usually well priced so should just fly off the market, but often that isn’t the case.

The trouble with short sales is that there are a lot of people involved, so there are a lot more places for things to go wrong. Unfortunately, they often do go wrong. I believe the national average is that about 20% of short sales that sell (go pending) actually close.   Think of it like hurdles:

• The first hurdle is getting a buyer to write an offer (despite the significant risk that the sale will never close)
• The second hurdle is getting the seller to accept the offer (and the seller’s agent to agree that it is viable)
• The third hurdle is in having the lender or lenders approve the purchase agreement – it is MUCH easier if there’s only one lender, very difficult if there are two lenders and extraordinarily hard if there are three lenders. Sometimes lenders would rather foreclose than work with a short sale, especially if there’s more than one loan.
• The fourth hurdle is the seller approving the lender’s terms, which may or may not be easy to swallow (some lenders require that a seller promise to pay back some of the money over time or upfront).  Sellers reserve the right to refuse the terms.
• The fifth hurdle is the agents (and possibly buyers) approving any concessions the bank requests. Sometimes the bank will require a commission cut. Agents may or may not be willing to accept what the bank requests. (Imagine having your income suddently cut by 1/3 or 1/2. You might say no too.) Buyers may be informed that the bank requires them to pay more costs too.
• The last hurdle is keeping the buyers in escrow during the prolonged period between when the seller accepts the offer and when the seller accepts the bank’s terms.  Sometimes unscrupulous buyers will write offers on several short sales and then wait to see which one is accepted first – and bail on the others. This causes a great deal of harm to the seller, who may have been nudged closer to foreclosure.  On the other hand, though, with only a 20% chance of success, buyers wonder why they shouldn’t take this approach just to hedge their bets.

I’ve seen all of the above happen in my Silicon Valley real estate practice: buyers writing offers on multiple homes, sellers refusing bank approvals, lenders foreclosing when a great offer was on the table, agents refusing commission cuts. 
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Yesterday some clients of mine asked me about seniors selling their home and purchasing another residence while keeping the older, lower property tax rate. I did a little digging and thought I’d share what I found.

There are actually two propositions involved.  Prop 60 applies to moves within Santa Clara County, and Prop 90 relates to moves between counties which are participating in this benefit to seniors (only these few, as of the date of this posting: Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, Ventura).

Some of the basics:

• Homeowners 55 and older at the time of sale of the original property.
• Homeowner must be on record both for the home that’s sold and the replacement property.
• The replacement residence must be equal to or lesser in value than the original residence.
• There are special rules for multi-family (duplex, triplex, fourplex) properties and for mobile homes.

In the most typical scenario, a senior homeowner would sell a house (or townhome or condo) and “downsize” to another, less expensive, smaller house or condo.  If the homeowner had been in the first property for a very long time, then the low tax rate would be hard to give up, but Props 60 and 90 enable that homeowner to go to another, less expensive home and carry the old tax rate along – one time, and either in the home county or in one of the participating counties. 

I have known seniors to sell a house in Los Gatos, Saratoga or San Jose and move to The Villages or to gated senior communities out of the area but closer to their grown kids and make use of these two propositions.

For more information and to get all the details, please click on the links above.