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What is a preliminary title report? Why does it matter?

What is a Preliminary Title Report?The preliminary title report is provided by the title insurance company not long after escrow is opened.  In Santa Clara County, unlike many parts of California, usually escrow is opened once a listing agreement is signed (not after a buyer is in contract to purchase the home).  That means that the preliminary title report (sometimes called the “pre” or “prelim”) is ready to be viewed by the time the home goes on the market or shortly thereafer.

What is in the preliminary title report?

  1. Information on where escrow is opened (which company) and who the escrow officer is along with their contact info
  2. The form of title insurance anticipated by the report (there may be options available)
  3. Title – who the owners are, if it’s in a trust, an LLC, etc.
  4. Legal description of the property  (assessor’s parcel number, address etc.). If it is is a property held in condo ownership, that will show as well.
  5. Info on any and all liens recorded against the property (mortgages, property taxes, supplemental taxes etc.)
  6. If there are any covenants, conditions and restrictions (CCRs)
  7. If there are any easements (usually there are at least public utility easements)
  8. A plat map of the property
  9. and a few more items….

Why does a prelim matter? (more…)

What Are CCRs?

CCRs are the Covenants, Conditions, and Restrictions  (sometimes “Covenants, Codes & Restrictions”) for a neighborhood, subdivision, condo or townhouse community.  They are drawn up by the builder or by a board comprised of the builder and a few others who want to set the neighborhood standards. Sometimes you’ll hear them called CC and Rs or CC&Rs.

The CCRs  are put in place, usually for a set number of years such as for 30 or 35 years, with automatic extensions of a prescribed number of years (such as 5 or 10) unless the homeowners in that tract or area vote t hem out.

The weirdest time line I ever saw in CCRs referenced something like “until the death of the last living great grandchild of…” and it mentioned one of the Kennedys. Odd, but apparently legit.

What are the CCRs about?

Ordinarily the CCRs tell us that homes cannot be too small, that livestock cannot be raised at the property, that home owners may not drill for oil or water, and many other kind of common sense things.  The older ones will also state that the house must have a minimum value – often so small it might make us chuckle.

 

CCRs sample one

 

Additionally, the covenants, conditions, and restrictions will state what kind of signage may appear (only for sale and for rent signs, for instance, no billboards), and normally there’s a admonishment against noxious or offensive materials such as rubbish piling up on the property.

Newer CCRs, especially in condo communities or townhouse complexes, may have restrictions on things like what color the curtains or blinds must be if facing the street (white or off white or beige only). Often they state that garage doors must be fully down except when vehicles are entering or exiting. Some communities, like Rinconada Hills in Los Gatos, do not permit you to park your vehicle in the driveway overnight – it needs to be in the garage.

CCRs only one car on the street allowed

Many disallow washing vehicles in the complex. Right now that’s moot since the drought has the water company prohibiting all of us from doing that.

Condo and townhome CCRs

In condominium and townhome complexes, the CCRs are crucially important! Some of them have rules like:

  • no more than 2 pets
  • dogs may not be of these breeds (list)
  • dogs may not weigh more than 20 pounds (or some other number)
  • laundry may not be dried on balconies
  • storage may not be left on balconies
  • laundry and dishwashers may not run after 10 pm
  • only people over the age of 55 (or some other age) may live at the complex

And MANY other clauses. Always always read the CCRs !

Illegal restrictions in the CCRs

Many years ago, some CCRs also had restrictions on who might buy or live in a neighborhood (racial, religious, and other restrictions).  This is illegal today, of course, and so the first page of any CC&R document you see now will have a large disclaimer stating that any fair housing violations are illegal and are null & void. (At least it should be there.)

Click on the following link to download the PDF of the typical CCRs cover sheet.

Since the C C & Rs “run with the property”, until recently we were told that they cannot be amended. Want to see the cover sheet itself? Now, though, thanks to recent legislation, those offensive restrictions can be stricken from the CCRs.  (more…)

Where are Santa Clara County’s Earthquake Faults and Flood Plains?

Where are Santa Clara County's Earthquake Faults and Flood Plains_Earthquake faults and flood plains are of interest to home buyers throughout the Golden State and to their lenders, too. Part of the home sale and home buying process is to provide information on these risk factors so that consumers (and their lenders) can make an informed decision.

Natural Hazard Reports are included in the disclosures when homes are bought and sold here in Silicon Valley. Those reports will indicate whether or not the property is located in areas with known natural hazards, including

  • Flood Plains (100 and 500 year floods from heavy rainfall)
  • Liquefaction Zones
  • Earthquake Fault Zones
  • Unstable Soils Areas (landslide areas)
  • Flooding from dam failure zones

But wouldn’t you like to know where those places are before ever deciding where to target your next home?

Mapping Earthquake Faults and Flood Plains

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The percentage of all cash sales in Santa Clara County

The number and percentage of all cash sales (all cash, no loans) both rose in June. It’s interesting to see as the market is softening for most buyers.

Not only did the number rise month over month, but it also rose year over year. We have to go back to 2018 (which was an extremely deep seller’s market) to find more all cash deals in June.

Number of cash sales in Santa Clara County for Single Family Homes

Percentage of All cash sales, month by month, in Santa Clara County (single family homes)

Next, the actual percentage of sales among closed houses:

Percentage of all cash sales for single family homes in Santa Clara County

 

Note that this is the highest percentage for June of any year since 2017.

What does it mean that cash buyers are an increasing percentage of the closed sales?

  • Rising interest rates not only don’t harm the all cash, no loans buyers, it actually helps them as it weakens their competition
  • These buyers may be feeling more confident with the softened market and easier buying conditions generally
  • My thinking when we saw interest rates rising is that it would help the mortgage free buyer more than anyone else – that seems to be the case.

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How will the rising interest rates impact housing affordability?

Interest rates and affordabilityThe rising interest rates are impacting most home buyers’ ability to afford the type of house or condo they expected to be able to purchase just a few months ago. The Fed wants to curb all spending, including home buying, and it seems to be working – rising interest rates are having a dampening effect on real estate sales.

Rising interest rates – hypothetical condo buyer

Let’s say a home buyer needs a mortgage of $800,000 to purchase the desired condominium or townhouse, and that said buyer has good credit and 20% down and is seeking a 30 year fixed rate loan.  Interest rates may vary from one lender to another, but as of right now, a 5% to about 5.5% is fairly typical, but some online lenders are advertising 4% and 6% or 6.5% rates may be just around the corner.

$800,000   for 30 year fixed rate with 20% down at 4% interest – monthly principal & interest payment is $3819.32

$800,000   for 30 year fixed rate with 20% down at 5% interest – payment is $4294.57 (12% more than at 4 %)

$800,000   for 30 year fixed rate with 20% down at 6% interest – payment is $4796.40 (26% more than the cost at 4%)

Today I created a data table showing the payments for principle & interest with ascending rates. I took it as high as 16.50%, which was under the highest average rate in 1981, when some consumers paid more than 18% interest rate on their mortgages. (I remember my mom, a Realtor – Pat Pope – talking about those 18% rates at that time. As I recall, it spurred some sellers into carrying back notes just to get their homes sold.)  When Jim and I bought our first house in 1989, our rate was 10.25% after we bought down the rate by paying 2 points. Hence my strong preference for fixed rate mortgages in recent years, when the concern was the risk of rising rates.

 

Rising interest rates - payments on 800k mortgage P and I only

 

What impact will a rising interest rate have on qualifying for the mortgage?

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Silicon Valley homeowner associations: they’re not all alike

Read the HOA Documents for your Silicon Valley homeowner asssociationSilicon Valley homeowner associations vary widely, depending on a number of factors.

What do you think about living in a neighborhood with an HOA, a homeowner’s association?  For many, living within an HOA means a nice, tidy community.  For others, it’s like signing up for Big Brother telling you way too much about what you can and cannot do.

Silicon Valley homeowner associations – the scope

  • Some Silicon Valley  homeowner associations are small, have limited authority, and are self-managed
    • this could be a tiny group of townhouses with Planned Unit Development ownership, not condo ownership, on a public street
    • some HOAs only cover a shared pool and recreation facility and have no jurisdiction over landscaping, home paint choices, etc.
  • Some HOAs here are large, have a tremendous amount of authority, and have professional management
    • this could be for a condominium complex, for houses or townhouses in a gated community such as The Villages, or anything in between
    • the more the HOA controls, the larger the dues and larger the chance of the HOA financially impacting your property when you sell (not so much if the HOA only covers a shared pool)

Silicon Valley homeowner associations area vary tremendously in what they can and cannot do, and also in the types of rules which are enforced.

In Silver Creek, in the Evergreen area of San Jose, you can look around and see a vast collection of stuccoed houses with tiled roofing.  So it would not surprise you if your roof needed to be tile there. (more…)

Location research

Real estate location research onlineInterested in a home or area? Location research is something you can do upfront, before seeing a home or neighborhood. Researching the commute time, crime, hazards, convenience, and more before visiting a property before seeing it can prevent wasting a lot of time.

Realtors can provide valuable insight into homes, areas, disclosure package red flags, and more. There are many things that consumers can check on their own, though. I thought it would be helpful to provide some online resources to help. This is not an exhaustive list – think of it as a starting point.

Some location research information will be included in the seller’s pre-sale disclosure package via the Natural & Environmental Disclosure Reports. Normally in Silicon Valley those disclosures are available upfront, before buyers submit offers on a house or condo. If you have that NHD report, you may not need to use the links I’m sharing below. Not everything is disclosed, though. In some cases, buyers are given links to do their own research. That’s the case with the Megan’s Law Database, for instance.

Links to start your location research

Below are the promised links. I’d welcome your feedback!  (more…)

What happens at an appraisal?

What happens at an appraisal - image with camera, grid paper, measuring tape, housesWhen Silicon Valley home buyers purchase real estate using a mortgage or loan, the lender will require that an appraisal be done. (This is true even if you do not have an appraisal contingency.)  The main reason for the appraisal is to protect the bank from the risk of its making a bad investment.  The question being posed is a simple one: is the house, condo, land etc. worth the purchase price?

An appraisal isn’t just a visit to the property, but more of a process. But first, who is the person doing the appraisal?

Is an appraiser another real estate sales person?

A real estate appraiser is a professional with a license specifically targeted for performing this work. It’s not the same as a real estate salesperson’s license. In California, they are regulated by the Bureau of Real Estate Appraisers.

The appraiser must evaluate the target property and arrive at worth based on comparable sales.  (There are other ways of arriving at value.  In the case of income property, for example, it might be important to look at the rent, expenses, cash flow and ratios of several factors to calculate value. Another angle may be replacement cost or cost for rebuilding.)  In most cases, though, comparable sales will be analyzed and this approach will be given the most weight.  We often refer to these as “comps”.

In many cases, the appraiser will do some research before visiting the property (and we real estate agents may email comps or other information ahead of the visit).

Once at the site, he or she will

  • measure to calculate the square footage of the house and garage (living space plus other space)
  • will take photos of the inside and outside of the house or condo plus the street view
  • plot out the basic floor plan of the home
  • verify that there are smoke detectors, carbon monoxide detectors, and water heater strapping as required for health & safety

Please note that no people can be in the images!

Sometimes the appraiser may ask the real estate agent who is present some questions about either the property or the sale.

Often the buyer’s agent will be the access person for the appraiser, but just as frequently it’s the listing agent.  Why should the listing agent take the time when it’s something for the buyer?

As I see it, a low appraisal will hurt my seller clients because it could cause the buyers to bail out or try to renegotiate the price.  For that reason, when I represent the sellers, I like to meet the appraiser and bring comps (or email them ahead of time) to help defend the price.  As the buyer’s agent, I also see risk that my clients may have to come up with more cash if the appraisal falls short, or have some other unhappy remedy such as cancel the same – that’s expensive, as in most cases not only does the appraisal cost a few hundred dollars, but inspections aren’t free either!  For me, I like to go no matter which side of the transaction I’m working.

How long does the appraisal appointment take? When is the report done?

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Open House tips for home buyers

Dos and Don'ts - open house tips for home buyersInventory is low, and home buyers are swarming open houses. Today I want to provide some open house tips for home buyers so that you don’t damage your odds of success should you want to write an offer on it later.

When visiting the open house, the listing agent may be assessing you while you are assessing the house. Visitors who are rude, combative, or inconsiderate – or perceived as such – may be at a disadvantage when offers are reviewed.  So are those who seem very unsure about the property. Be sure to present yourself as polite and considerate and interested in the home. It can make a difference!

Open house tips: what to do:

  1. Do tell the open house host if you are working with a Realtor, and share the name (or card, if you have it).
  2. If the listing agent or open house host has a sign in sheet, you can fill it in with your first names and then the rest can be your Realtor’s name and contact info.
  3. Do be polite with the agent and regarding the house or condo.
  4. If there are shoe covers provided, either use them, remove your shoes, or ask if you need to wear them at the very least.
  5. Do keep your children with you at all times.
  6. Please speak in normal or quiet tone of voice.
  7. Do keep a good amount of space between yourself or your group and other visitors or the open house host.

Open house tips: what not to do:

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Should You Buy or Sell Your Silicon Valley Home “As Is”?

For Sale As-IsWhat is an As Is Sale?

Many Silicon Valley home sellers want to sell their homes “as is” (or “as-is”). And most homes in today’s market are. But what does that mean, exactly?

Does it mean that the seller has made no repairs or renovations before listing the home? Or that they do not have to disclose if something is broken to a potential buyer? No.

As is means that the home will be conveyed to the buyer at the end of the transaction in the same general condition it was in on the day that the buyers wrote the offer. If the roof has leaks, the crawl space is full of termites, and the appliances do not work, that is how it will be on the day escrow closes.

What it means is that the seller cannot let the property condition deteriorate during the course of the escrow.

The seller must continue to maintain the home and land in the same general condition. So if the lawn was green and well trimmed, the seller cannot suddenly let the grass die and neglect to mow it. If a baseball breaks a window after the buyer and seller have entered into contract, the seller must repair it. The condition will not have to be better, but it should not be worse than it was on the day the buyer and seller agreed on the price and terms of the sale.

While the contracts most agents use in Santa Clara County and nearby today have “as is” as the default sales agreement, that doesn’t mean all sales are as is.

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