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CORRECTION AND PACE LOANS

This is two articles in one. First is a correction for a recent article I wrote about Homeowner’s Associations. In my article I incorrectly stated that when you see the HOA board go into “executive session” where no minutes are kept they may be contemplating litigation. I was politely corrected by a local board member that they go into executive session in order to discuss discipline against homeowners for violating rules, and they don’t want the names in the public minutes but they DON’T discuss potential litigation there.

 

Secondly, I wanted to let you know about some issues with PACE/HERO loans. These are relatively new loans where you can get some energy-efficient home improvements done like improved HVAC, solar, etc. You may be getting solicitations in the mail or by phone about them and the salesperson may tell you how this is an easy way to get home improvements done with almost no qualifying needed (you do have to have equity) and stretch the payments out over many years. What’s different about these loans is they are repaid through your tax bill. This means that when you sell the home, it stays on the home for the next buyer to deal with. This creates a couple of issues. The buyer may not WANT to pay for this and therefore may not want to buy your home or ask you to pay the loan off. In addition, their lender may not even agree to loan on the property because the PACE/HERO loan is part of your tax bill, which makes it the primary lien on your property. Some people are having issues even refinancing their regular mortgages because of these liens. So be sure to check into it fully before you sign up for one of these loans.

HOA WARNING

If you are in the market to buy a home, and are considering a home that’s subject to a Homeowner’s Association, you are probably aware that you will have to pay monthly HOA dues plus comply with the HOA’s rules.

 

There is another KEY factor and sometimes it’s hard to find. What I’m talking about is whether the HOA is involved in litigation of some sort or is about to be involved in litigation. This may be against the original builder, a vendor they used for maintenance or repairs of the common areas, or the City, or etc. In a lawsuit, the HOA may run up extensive legal and/or research fees and that could lead to an increase in the monthly HOA dues. There may also be construction defects that you need to be aware of.

 

You need to contact the HOA and ask if there is any current litigation or are they even considering litigation. You also need to very carefully review the HOA disclosure package that the seller is required to give you. We had one recently where out of hundreds of pages, there was one sentence at the bottom of one page that disclosed a lawsuit, with instructions to contact their office to get the full package of hundreds of pages more. It was only because I was aware of the lawsuit from a prior escrow that I was able to be on guard for this and ask for the full package. It would have been very easy to miss. Also review all the HOA board meeting minutes as they may discuss it there. Be on your guard if the minutes show them going into, “Executive Session” where minutes are not kept. They may be discussing a potential lawsuit at that time. It’s also a good idea to talk to some neighbors for further due diligence.

 

HANDYMAN LICENSE?

Very often in a real estate transaction the owner of the property will have work done on the property either to get it ready for sale, or based on the buyer’s request for repairs. A question arises if the person they hire to do the work needs a contractor’s license.

 

The California Business and Professions Code says it’s a misdemeanor for anyone to act as a contractor without having a license, unless, “…the aggregate contract price which for labor, materials, and all other items is less than five hundred dollars ($500)…” So if the price is less than $500, the work can be done by an unlicensed person, what we often call a “handyman.”

 

Some people try to get around this by splitting the job up in pieces to get each piece under $500 by description, or by billing. However, the Code is wise to this ruse and prohibits it. Even if the particular job is less than $500, it is not exempt if it’s part of a larger job, whether done by the same or a different person.

 

The homeowner takes on a lot of risks by hiring an unlicensed contractor, no matter the cost of the job. If the handyman gets hurt, damages a neighbor’s property, or hires other workers, those could all blow up in a negative way for the homeowner. They could be liable for Workman’s Compensation, be found to be the “employer” of the hired workers, etc.

 

There is also a danger to the unlicensed handyman in that the homeowner may be able to refuse to pay them for the work done, even if the work was done perfectly.

 

Bottom line – it’s probably wise to use a licensed contractor for all repairs, even if it’s just a small job.

INVENTORY UPDATE

It seems like there is always some “expert” warning us about some upcoming economic disaster, and they have plenty of logical arguments and graphs to back up their arguments. For a while there we were worried about all the “shadow inventory” where they thought the banks were holding foreclosed off the market but were about to dump them on us all at once and our inventory was going to rise drastically. Then it was all the adjustable rate mortgages that were going to reset and cause another flood of foreclosures. Then they said interest rates were going to rise, which was going to put a huge chill on the buyer activity. All of these were supposed to lead to MUCH higher inventory of homes for sale.

 

Well, Chicken Little was wrong, again. As of the end of January, inventory of homes for sale is still very low across all of East Contra Costa County. Brentwood is hovering around 100 resale homes for sale. Oakley is just under 50 resale homes for sale, Antioch has 158 and Discovery Bay has 50.

 

It did look like inventory WAS rising last year. On a percentage basis, most of our local towns saw inventory increase 50-100% last year, which sounds like a huge increase. But keep in mind that, for example, in Brentwood last year we started the year with about 75 resale homes on the market. So when it went to about 150, that was a big percentage increase, but still low by historical numbers.

 

Normally such low inventory numbers would mean that it’s a “Seller’s Market” which means prices will continue to rise. However, since we are bumping up hard against what is “affordable” for buyers, we’ll have to wait and see how this year plays out.

TAX BILL APPEAL

Many homeowners in our area were pleasantly surprised a few years ago when they received a notice from the County Tax Assessor’s office that their tax bill would be going DOWN. This was due to Proposition 8, which allows the County to drop your tax bill when the value of your property goes down.

 

But now I’m getting calls from people saying that their bill is now going back UP. They didn’t realize that Proposition 8 is a TEMPORARY reduction, and that once the values go back up, your tax bill can, too. It can go up a little bit, or it can go all the way back up to the prior value, plus the Proposition 13 increases along the way. (Proposition 13 limits property tax increases to only 2% per year.)

 

So if you benefited from a Proposition 8 reduction in the past, just know that the County is likely going to review that situation annually and they can raise it back up to accurately reflect the market value.

 

If you have received a notice that your tax bill is going up, and you think the assessed value is too high, you have until November 30th of this year to appeal it. You can call 925.335.1901 and ask for an appeal form. Or contact me, I have them in my office. They’ll ask you to provide information on recent sold properties to support your appeal. Again, I can help you with this if you like. Just email me at Brian@SharpHomesOnline.com and give me your address and what the new assessed value is. I’ll email you back if I think it’s worth appealing and I’ll provide the comparable sold information you’ll need at no charge.

IS ZILLOW ACCURATE?

If you aren’t familiar with Zillow, it’s a very popular real estate website. You can get information on homes for sale and sold information, along with school scores and other neighborhood information. But what Zillow is famous for (or “infamous” to many real estate agents) is their “Zestimates” which is an estimate of what a home is worth. I will say that I’ve found Zillow to be very accurate as far as sold information goes. They almost always get that right. They are mildly accurate as far as active listings, although there are still a lot of homes listed as “active” on Zillow that are really pending, and then sometimes it takes Zillow several days to load the new actives, which can be frustrating in a hot market.

 

However, I have found the Zestimates of value can be WAY off, either high or low. Sometimes by tens of thousands of dollars, sometimes by hundreds of thousands! It is a computer algorithm that is trying to automate and standardize the appraisal process, which can lead to wild results. Zillow doesn’t know the difference from one neighborhood to another or the level of upgrades/cleanliness from one home to the next. It doesn’t know what your view looks like. It only knows house size, lot size, age, etc. So if a trashed home with dead lawn and no appliances backed up to a power pole in the inferior neighborhood next to yours sells at a big discount, but it happens to be larger than yours, your Zestimate will drop drastically. But then the next month, if a smaller, but cleaner and highly upgraded home with a golf course view sells, your Zestimate will skyrocket! (If you want a laugh, go to Google.com and type in “Zillow is” [make sure you put a space after the “is”] and look at the suggestions to complete your search which are based on the most common requests people type in.) If you are curious what your home is worth, email me at Brian@SharpHomesOnline.com. I’ll give you a free estimate that will likely be closer than any computer “Zestimate.”

HELOCS ARE BACK?

“Using your house like an ATM…” That was the phrase we heard a LOT back in the early 2000’s. At first, some lenders even used this phrase in their advertising as a way to entice borrowers to apply for a HELOC (Home Equity Line of Credit). But then it became a term of derision as values dropped and people found they had borrowed more than their home was worth. Lenders started shutting down these lines of credit and we didn’t see banks making any new HELOC loans. Until now…

That’s right, now that values are back up, some banks are rushing right back into the HELOC business. Some people view this as a healthy sign that the market has recovered and that, “It’s different this time…” Others slap their foreheads and say, “Oh, no. Not again!” I will say that one thing that IS different this time is that lending rules have changed, and lenders are supposed to make sure you can afford the payments, and I don’t know of any lenders making loans at 125% of your home’s value like they did last time.

Personally, I’m not opposed to HELOC loans in principle. They are a financial tool that can be used wisely, or abused. If you have high credit card debt with high interest rates that you can’t pay off another way, a low-interest rate, tax-deductible HELOC MAY be right for you, but only if you don’t run your cards up again later! So please, please be careful with any equity you’ve managed to grow in your home. I know that pool would look great back there. I know MasterCraft is having their end-of-the-season sales on waterski boats. But please, map out your financial goals, set a spending plan, and make sure you are on track before you start adding any new debt. Very few people have gone broke because they didn’t add ENOUGH debt to their lives!

INVENTORY IS INCREASING

For the last few years we’ve had very few homes for sale in East County. Low inventory, coupled with high affordability (house prices compared to income), has lead to big increases in prices the last 18 months or so. I keep an eye on inventory levels on almost a daily basis, and lately they’ve been increasing.

In Brentwood we started the year with less than 80 resale homes on the market, and as I write this article we are at almost 150. That is over a 90% increase in homes for sale. Oakley and Discovery Bay are less dramatic at around a 40% increase in homes for sale.

Before you get too concerned that the “bubble” is popping, let me put this into a bit of perspective. Historically these are still VERY low numbers for inventory for our area. At one point after the mortgage meltdown happened we had over 600 homes for sale in Brentwood alone. Also keep in mind that East County’s population is growing again, so we SHOULD have more homes on the market because there are more homes here then there were 10 years ago.

I think the main reason for this increase in inventory is the recent rise in prices. I believe there were a LOT of people that would have liked to have moved the last few years, but couldn’t because they were either upside-down in their homes, or just couldn’t get enough equity out of their home to make the next move work for their situation. There are also a lot of people that bought homes from 2010-2012 at “the bottom” of the market who are looking to cash in on those gains.

HOW TO EASILY CHECK TAX BILL

Last week I discussed the basics of how tax bills are calculated. As part of your due diligence before buying a home, it is a good idea to have a look at the tax bill for that new home so you don’t get any surprises later. I described last week how most lenders and escrow officers use 1.25% to estimate your tax bill, but some homes in East County are taxed at much higher rates.

Thankfully Contra Costa County has their tax bills online so you can check them very easily. Here is the link – https://taxcolp.co.contra-costa.ca.us/taxpaymentrev2/summary/

Once you are there, the best way to search is by the Assessor’s Parcel Number (APN). If you don’t have that, you can search by street address. However, it is a little picky as far as how you enter the street address as it tries to match it EXACTLY to what is on the tax bill. Let’s say the address you want to check is 123 Main Street but it is listed on the tax bill as “123 Main St.” If you enter “123 Main” it won’t pull it up, and “123 Main Street” won’t work, either. In this case, the only way for it to pull up is if you enter “123 Main St.”

Once it does locate the property, the first screen you come to will be a list of the current tax year installments and their status. At the bottom will be the assessed value of the property listed as “gross.” To see the assessments, under “Payment Status,” look for the words in blue, “View Bill.” Click on that and it will pull up the actual tax bill, complete with a breakdown of the Ad Valorem Taxes and Assessments and Special Taxes and Assessments. Next week I’ll tell you how to look at the current tax bill and then estimate very closely what your tax bill would be in the event you buy this property.

PROPERTY TAX BASICS

When I first started in real estate, some of my clients were surprised when their first payment was much higher than what they were quoted by their lender. I would find that their principal and interest were exactly what the lender had quoted them, but their monthly tax impound was much higher. Usually when most people first sit down with a lender, they haven’t picked a home out yet, so the lender HAS to use an estimate since the property taxes aren’t known yet. Many lenders and title companies use 1.25% as a rule of thumb to approximate your tax bill when they quote you a payment on your new home and/or to calculate your impound accounts. However, property taxes can vary greatly from town to town, neighborhood to neighborhood, and even within neighborhoods. I quickly learned how tax bills were calculated to try to provide more accurate estimates to my clients and avoid these nasty surprises.

Your property tax bill is broken into several different sections. First is the Countywide 1% Tax, which is 1% of your Assessed Value (which is usually initially set at the sales price when a property changes hands). Then you add in school bonds, city bonds and others. That is the total of your Ad Valorem Taxes. Then you add in Special Taxes and Assessments, which can be park assessments, Mello-Roos, etc. When you add all these amounts up, that is your total tax bill due for the year. If you divide that by your Assessed Value, you will get your effective tax rate, which is often 1.3%-1.5% around here, but can climb MUCH higher in areas with large special assessments. So if you bought a home with a 1.5% Tax Rate, and your lender had estimated your payment based on 1.25%, it could mean an extra $100-200+ every month. Next week I’ll tell you how to estimate the tax bill on a house your considering buying.

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