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PROPERTY TAX PRO-RATIONS

Our standard contract calls for property taxes to be pro-rated between Buyer and Seller as of the date of close of escrow. That part everyone understands, but HOW that is accomplished can be pretty confusing. The County Tax Collector only accepts full payments for each installment, so the title company has to do some adjusting on the closing figures to make it work out. Sometimes it’s a credit to the Buyer and a charge to the Seller, or vice versa. Sometimes there is a credit AND a charge, but it washes out correctly.

 

If we are closing escrow before the tax bill is due and before it has been paid, the title company will charge the Seller for the taxes they owe through the day of close of escrow, and that becomes a credit to the Buyer. They do it that way because the Buyer is going to be paying the full installment when it comes due, and that will include some time that the Seller owned the property.

 

If the Seller had already paid the installment and that covers a period of time when they will no longer own the home, then they will get a credit from the Buyer to reimburse them.

 

It gets confusing when it’s around the time that the tax bill is due. In that case, the title company will charge the Seller for the full installment (all 6 months) but then give them a credit from the Buyer for the time after close of escrow, since that time period is the Buyer’s responsibility.

 

If the Seller has an impound account with their lender, their lender will then refund them the funds that the lender had been collecting in anticipation of paying that installment. This usually comes in about 30 days after closing.

CONTINGENT OFFER SOLUTION

Last week I wrote about the challenges associated with writing an offer contingent on selling your home when your home isn’t even on the market yet. I often hear people say that they don’t want to put their home on the market until they find the home they want to buy. Their concern is that they will find a buyer for their home and then have to move out if they can’t find and purchase the home of their choice in time. But then when the “right” home does come on the market, they often lose out to other non-contingent buyers.

 

There is a potential solution available. You put your home on the market, and then when you receive an offer, you counter them with a form called “SPRP.” This stands for “Seller’s Purchase of Replacement Property.” This gives you the option to cancel the transaction if you aren’t able to locate and close escrow on the home of your choice. This alleviates the biggest concern about being homeless.

 

From the buyer’s perspective, they may not accept this contingency if they have a hard deadline to meet for their move and need more certainty that they ARE going to get this particular home by a certain date, so they just look for another house.

 

Normally, your buyer will hold off on inspections until you find the home of your choice. But there is an option in the SPRP form where you keep a contingency that you actually close escrow on the replacement property. So another concern the buyer may have is that they may have spent money on inspections, appraisal, etc. on a home that they now can’t buy. One solution is that you agree to reimburse them up to a certain amount if you do cancel the transaction at the last second.

WHEN IS IT REALLY CLOSED?

We use words in real estate that can be confusing.  One of the biggest areas of confusion is around when the transaction is actually CLOSED. Each of the steps below can take hours or even days. There are cut-off times during the day for some of these things to happen. This means that sometimes being even just a few minutes late on any of these can delay closing by a day or even a few days if it’s before a weekend.

 

“Approved for docs” – This means buyer’s lender has cleared the conditions of their approval enough to where they will print the buyer’s loan documents in the very near future.

“Docs are in title” – The loan documents have arrived at the title company and they are ready for buyer to sign.

“Buyers have signed” – The buyers have signed their loan documents.

“Docs are at lender” – The signed documents have arrived at the lender’s office and they are reviewing them for accuracy.

“Docs are approved” – The lender has approved the signatures and will wire funds at the next available opportunity.

“Lender funds have been sent”’ – The lender has sent a wire with their funds to the title company.

“Lender funds have been received” – The title company has received the wire.

“Clear to close” – Everyone that has a say in the matter says it’s OK to close the escrow.

“Deed is at County” – The grant deed has been delivered to the County Recorder’s office. (Technically ownership passes as soon as it’s stamped as “received.”)

“Confirmation received” – Later that day the County confirms with the title company that the grant deed was received.

“Wire sent” – The title company has wired out the Seller’s proceeds.

“Wire received” – The money is now liquid in the Seller’s bank account.

REAL ESTATE AUCTIONS

We are seeing auctions again in real estate, but they are mostly online, so it’s more like eBay.

 

Usually the opening bid is quite low compared to the market value. This is what usually attracts buyers to auctions as they think they may be able to get a “deal.” What most people don’t know is that there is often an undisclosed reserve price. So let’s say a home worth $500,000 has an opening bid of $300,000, and the highest bid is $400,000 when the auction ends. But it’s possible the owner of the property had put a reserve price of $475,000, which means the auction is just cancelled in this case. Auctions with NO reserve are preferred by buyers, but feared by sellers.

 

You can usually view the properties before bidding and it’s common to have normal loan and inspection contingencies. This means you normally don’t HAVE to pay 100% cash. You generally can be represented by an agent if you choose. Either you or your agent can register and bid for you. You will usually need to register and give your credit card information. This is so if you are the winning bidder, they can collect the deposit. This is also an attempt to make sure you are a real bidder. Although, we have heard several reports where the home’s owner logged in and created a fake account to try to bid the price up.

 

There will be a deadline for offers, but if an offer comes in within the last few minutes, they will usually automatically extend the deadline another 5-10 minutes.

 

Another oddity of auctions is something called a “Buyer’s Premium.” This is a fee that is paid by the buyer at close of escrow. I’ve seen them as low as 1% and as high as 10%. So it’s important to read EVERYTHING prior to bidding!

PRIVATE TRANSFER FEES

If you are buying a home, you need to be on the watch for something called a “Private Transfer Fee.” This is a fee that can come due whenever a property is sold, and it could be a cost to the buyer or the seller. (I am NOT talking about the County Transfer Tax.) It  can be a percentage or a flat amount but there is no minimum or maximum. The last few we have seen have been $300 to 1,000.

 

The most common purpose is that the original builder needed to offset some kind of environmental impact or affordable housing requirement required by the City or County, but they can actually be for almost anything. These have been around for a long time but were not very common. That’s changed as more builders are using this as a way to offload some costs to the new home buyer. We’ve come across several of these recently and mostly on homes built within the last 4-5 years. It’s coming to our attention now that some of those homes are being sold for the first time.

 

What’s concerning is that the sellers weren’t aware of this. I’m sure it was disclosed to them when they bought the home, but they just didn’t notice it because it was just a few lines buried in all the paperwork. We had a buyer in contract on a new home in a neighborhood where we just had this situation come up on a recent listing. We asked and the new home representative wasn’t even aware of it until we all really dug into it.

 

Bottom line is that you need to read EVERY line of the preliminary title report, and if you see anything that mentions a “transfer fee” of any kind, find out how much it is and who pays it.

WATCH WHAT YOU SIGN

I realize there is a LOT of paperwork in buying or selling a home and that we are often under a time crunch to get an offer submitted BUT you should still read what you are signing!

 

Here is a horrible recent example that will give you some extra incentive to read what you are signing. Some past clients of mine moved out of the area and started working with a local agent there and wrote several offers unsuccessfully. Very quickly they realized this agent wasn’t very experienced and very likely had a full-time job other than real estate. They politely told this agent they would be working with another agent and they got into contract on another home. However, their prior agent advised the new agent that the client had signed an exclusive buyer’s representation agreement with her, and they would owe her the full commission on the sale! The client says the agent never discussed this arrangement with her, but when they went back and reviewed all the paperwork they had signed with her, on the last transaction the buyer’s representation forms were quietly slipped in behind the offer documents and they did sign them. They may have to hire an attorney to fight this. These are highly intelligent people that this happened to. It’s just that after writing several offers, it’s easy to think these are the same documents as before, just on a different property and sign away. (Unfortunately, this is not the first time I’ve heard of this happening to someone.)

 

Another moral of the story is to only work with an ethical agent, but better still is to read everything before you sign it. If it’s a form you’ve seen before, maybe you can glance over it just to look for any changes. But watch for any new forms and ask questions of your agent!

BUYER LETTER WARNING

Let’s say you are non-contingent, pre-approved, putting a large amount of money down, and you are willing to pay over the list price. Even then, it may not be a slam-dunk to have your offer accepted on the hottest properties that are attracting multiple offers. What else can be done? Many buyers are writing personal letters (even videos) to the sellers as a way to make their offers stand out.

 

I think this can be a good idea to personalize your offer. Normally it won’t make the seller take your offer if another offer is thousands of dollars more in sales price, or they are willing to waive the appraisal contingency and you aren’t. But at least it may nudge the seller into giving your offer a second look and maybe give you a chance to match that other offer’s terms. I had two situations recently where it turned out that the seller (or seller’s adult children) knew the buyer very well and they did take a few thousand less than another offer just because of that connection.

 

But I think buyers need to be careful to not overdo it. I’ve seen some letters come in on my listings where the buyer gushes about how long they’ve been looking, how desperate they are, and how they love this home so much and that this is the ONLY home in the world for them, etc. This definitely swings the negotiating pendulum over to the seller’s side, either when negotiating the price, or negotiating repairs or appraisal challenges later. So tell them who you are and that you will be able to perform per the contract if your offer is selected. But keep it from sounding desperate unless you absolutely, positively have to have that home and are willing to give up some negotiating power.

 

1031 BASICS

If you are thinking of selling an investment property and you’ve heard that you can delay paying income tax on the gains by buying another investment property, this article is for you. This is called a 1031 exchange. In years past, you could only sell and then buy “similar” properties. For example, if you were selling a single-family home that you were renting out, you had to buy another single-family home, not a condo, or commercial building. But now the rules have been expanded so that as long as you are selling some kind of investment property and buying another type of investment property, it’s probably OK.

 

There are rules to this that must be followed. Most importantly, you have to set up the exchange BEFORE you close escrow on the first property. This means selecting a Qualified Intermediary who will step in take title of the property you are buying, so they receive the proceeds of the sale, and then they will purchase the next property for you, and then that property is put back into your name.  This way you never have what’s called “constructive receipt”’ of any of the proceeds.

 

From the time the escrow closes on the first property, you will have 45 calendar days to identify the replacement property (you can even identify more than one property in case there is a problem). Then you will have up to 180 days to close escrow on the replacement property(ies). It can be less than 180 days if you sell the first property late in the year.

 

There are other rules about the amount of debt you have on each and there is even a situation where you can buy first, and then sell, called a reverse exchange.

 

I AM NOT A TAX EXPERT OR 1031 EXPERT SO CONSULT ONE FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 for Brentwood listings sold multiple years. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

USE THE RIGHT TYPE OF AGENT

When you are experiencing an important medical situation, you will normally wind up with a specialist of some kind. The same goes for real estate.

 

A California real estate license allows us to transact business across a wide range of activities. What usually comes to mind is that we can represent sellers or buyers in a residential resale transaction of a single-family home. But our license also allows us to do leases, property management, bare land, commercial transactions, business opportunities, mobile homes, mortgages (with some extra requirements), and more. Each of these transactions can be very different and have their own pitfalls and steep learning curves. When someone takes the required courses and then passes the real estate test, they may be licensed to perform all these transactions, but they likely don’t know everything about all these different type of transactions. Personally, I’ve focused almost exclusively on representing sellers of residential homes, and after almost 20 years I feel like I’m still learning something new all the time!

 

It’s one thing to ask an agent, “Can you help me buy/sell/lease this home/mobile home/commercial building?” They can honestly answer, “Yes,” since our license is so broad. But the better question to ask is, “Have you done this type of transaction before? How many times?” Ask them for a list of their transactions for the last few years. Even if they HAVE done many transactions of that type, do they usually represent buyers or sellers? If you are selling a custom home on 10 acres with a well and septic and your agent usually only sells tract homes in town, that could pose challenges. If your situation is a divorce, have they dealt with divorces before? Probate? Short sale? If they haven’t, make sure they have a mentor to rely on.

LOCAL AGENT?

Over the last few years, many of the Multiple Listing Services across California have started sharing data so agents can have access to areas far beyond where they live. I am NOT a big fan of this! When you are selecting an agent to work with, either to buy or to sell, my advice is to stick with someone who lives in and knows that area.  That may seem like common-sense advice, but I’m surprised how many people use an agent from out of the area. Maybe it’s a relative, or a close friend, or they used them last time they bought or sold and they just trust that agent. This can present challenges, for all parties involved.

 

A perfect example of this is the situation with the golf courses in Brentwood right now. One or more of the courses may close, or combine, or part of them may become vineyards or assisted living, etc. This is information that buyers need to have so they can make an educated decision. This is something that sellers should be disclosing to protect themselves from liability later if the buyer is disgruntled after paying top dollar for a “golf course view” that may go away.

 

I could think of many other examples where a local agent may have knowledge of some local issue where an out of town agent may not: the railroad tracks through town that appear to be abandoned but may be used in the future, rising and falling water rates, E-Bart, areas of high tax assessments, funky school boundaries (there are a few isolated cases where a home with an address in one town is actually zoned for the school district of the neighboring town), etc.

 

I don’t care if the person changing my oil just moved to town that day. Same goes for a haircut. But real estate is LOCAL!

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