Common Real Estate Myths for Home Buyers

By Geneva Ives

We thought we’d take the time to correct some common home buying myths that have been fooling real estate consumers for years.Image Here’s a look at four real estate myths that frequently come up with first time buyers or buyers who haven’t been in the market for a while.

1. Working with multiple agents will improve my chances of finding the perfect home.

All agents have access to the same MLS listings in your area, so you are not going to gain access to more houses by working with more people. It is in your best interest to find an agent with a communication style and commitment level that matches yours, and let them do the hard work for you.

Not only is there no sense in working with multiple agents, there is no such thing as the perfect home. Homes come in all shapes and sizes and conditions and prices, but it is extremely likely that none will have the exact combination of features you’re looking for on the street you want at the price you like.

The thing to do is to prioritize your home wish list, so your dedicated real estate agent can find the homes that are the best fit for your needs… and that will most likely transform into your dream home after you move in.

2. If I see a house I like, I should call the number on the bottom of the yard sign.

The agent listed on the yard sign is the one who represents the seller, so they are being paid to act in the seller’s best interest. That is great and exactly as it should be, but it doesn’t mean that they will act in your best interest.

It is best to call the agent you are already working with and ask them to set up a time to view the house. This is yet another reason why it is good to establish a relationship with a dedicated buyer’s agent.

3. My first offer should be a lowball offer.

Of course it makes sense to offer a lower price than you ultimately planned to pay and negotiate your way up, but there are times when this strategy can backfire. In a hot market, a home may have multiple offers and the seller might move yours to the bottom of the pile without ever responding. Even if a property has been on the market for a while, an offer that is too low could offend an already-frustrated seller and prevent them from doing business with you. Or if they do decide to work with you, ill feelings caused by your initial offer could make negotiations even trickier.

The best thing to do is ask your real estate agent for advice and then make an offer that you are comfortable with. If you really want the house, this might not be the time to press your luck. If, on the other hand, this is just one of several you’re considering and you’re not entirely set on it, it might be worth the risk.

4. If a house appraises well, I don’t need a home inspection.

Home inspections and home appraisals are two entirely different things. A home appraisal is an estimate of the property’s value that is performed to safeguard the lender. A home inspection is an assessment of the condition of the home done to educate the buyer.

An appraiser notes the value, whereas an inspector notes the condition. Even if the home you make an offer on appraises for the sale price, there could still be broken or unsafe elements. In some instances, you can negotiate with the sellers to have these items fixed. This is just one way a home inspection comes in handy. Click here to discover what buyers need to know about home inspections.

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How To Keep At Least $250K Tax Free Dollars When You Sell Your Home

Are you planning to sell your home this year? Depending on how long you’ve owned your property and the reason for selling, there could be massive tax savings in your future! In this article learn how to keep more tax dollars in your pocket when you’re ready to sell:

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Orange County Housing Report, March 16, 2014

Here is the latest analysis of the OC Home market from the best in the business, Steven Thomas, founder of Reports on Housing. Steve is often quoted in the OC Register and our local industry looks to him to provide guidance and clarity in shifting markets like we’re currently experiencing.

Buy or Sell, What I Would Tell My Mom



March 16, 2014

When it comes right down to it, everybody wants the absolute best
outcome for their mother.

What to Tell Mom: Buy or sell, it is advantageous to have all the facts before deciding what to do.
The best approach for a REALTOR® in representing a buyer or seller is to treat their clients as if they are representing their mother. Buy now, wait until next year, place your home on the market now, wait until the Spring Market; when it comes down to mom, who would steer her wrong. So, in keeping mom in mind, should she buy or sell now?

Now is a great time to buy if a buyer plans on staying in their home for several years. It is not because of future home price appreciation. Values have already increased dramatically in the past couple of years and appreciation has basically hit a plateau since last August. Buyers have transitioned away from doing whatever it takes to purchase to wanting to pay the fair market value of a home. So, buyers should not acquire a home expecting rapid appreciation to continue. If values continued to soar, there would be an affordability issue and buyers just don’t want to go there.

Instead, it is a great time to buy because interest rates remain at a historical low. It is a true that interest rates have risen nearly 1% since the Federal Reserve announced last June that they were going to start tapering their involvement in funding the secondary market. But, today’s rates are still an incredible historical deal. Basically, the Federal Government has been printing money to keep financing alive for years now. We know this as “quantitative easing.” Economics 101 teaches us that a government cannot continuously print money or the value of the dollar will drop significantly. This eventually causes inflation. The only way to fight the threat of inflation is to increase rates.

Currently, there is tremendous pressure on rates to rise. The Federal Reserve has basically done everything in their power to jump start the economy. As a result, rates have dropped to unprecedented levels. 3.5%, 4.5% and even 5% are extraordinary, historically low interest rates. Prior to the downturn, they were at 6.5%. In 2000, they were at 8% and in 1990, they were at 10%. During the economic crisis of the early 1980’s rates were topping out at 18%. Buyers need to do their homework and see what their payment is going to look like as rates rise. They are undeniably, unequivocally going to rise. It is not a matter of if they go up, it is when.

The median sales price in February was $567,000. Interest rates are forecasted to increase by another percent. A bump of one-percent would be an extra $278 per month if a buyer purchased a home priced at the median sales price with a 20% down-payment. So, a buyer would pay an additional $3,336 in a year and nearly $17,000 in five years. If rates increased to where they were prior to the downturn, 6.5%, the difference in payment would be $569 per month, nearly $7,000 in a year, and over $34,000 in five years. That’s potential disposable income that will go towards the mortgage payment by electing to wait.

In regards to selling a home, now is a great time to sell. Even though appreciation has plateaued, the housing market will eventually continue to appreciate, just at a much lower rate. The rapid increases in values are now in the rearview mirror. Instead, expect single digit appreciation. For those homeowners that were waiting for local prices to increase substantially before cashing out and downsizing, the wait is over. It is a great time to downsize. For those sellers desirous of moving up, even with appreciation currently stalled, now is a very good time to buy that bigger home. In both of these scenarios, if they are looking to finance, it is a smart move to take advantage of today’s incredible rates.

For sellers waiting for the market to increase to levels last seen in 2005 and 2006, that simply is not going to happen for a long time. Those levels were only reached prior because financing was too easy to obtain. The joke goes that back then, if a buyer was able to fog a mirror, they could purchase. With financing ridiculously easy to secure, along with little to no down payment requirements, values artificially rose to levels that they should have never achieved. After the housing market crashed, the federal government intervened. Financing has completely changed and the pendulum has swung in the opposite direction. The requirements to obtain a loan are much more stringent. Buyers actually have to qualify for a loan, have money to put down, have a job, and have good credit. Without the artificial stimulus of “easy money,” values will follow a much more methodical rate and will not increase to ridiculous levels from where they are nearly tapped out today.

Active Inventory: The inventory increased by 6% in the past two weeks.
The inventory added an additional 305 homes in the past two weeks and now totals 5,708, levels not seen since last November. After dropping for 18-months straight, starting in July 2011, the active listing inventory increased last year and reached a height of 6,350 in October. From there, the inventory dropped during the Holiday Market to 4,733 as we rung in the New Year. Since then, the inventory has risen by nearly 1,000 homes. Homes are currently coming on the market faster than they are coming off; thus, the inventory continues to rise. The main culpret, homeowners who are intially pricing their homes at ridiculously high levels. As a result of overpricing, sellers are sitting on the market. Buyers today want to pay the Fair Market Value for a home and are not willing to overpay.

Last year at this time there were 3,183 homes, 2,525 fewer than today.

Demand: Demand decreased by 5% in the past two weeks.
Demand, the number of new pending sales over the past month, decreased by 128 and now totals 2,330. From here we can expect demand to rise methodically through all of April, where it will most likely reach a height for the year. Last year demand was at 2,880 pending sales, 550 more than today. This week officially marks the first day of spring, cyclically the hottest time of the year for housing.

The expected market time for all homes in Orange County is currently at 74 days, increasing from 66 days just two weeks ago.

Distressed Breakdown: The distressed inventory increased dramatically by 18% in the past two weeks.
The distressed inventory, foreclosures and short sales combined, increased by 45 homes, the largest two week gain since March 2011, three years ago. The last time the distressed inventory reached 300 was in February of last year. That sounds like a major shift in the market, but it’s close to the 298 mark reached last December. These numbers are still extremely low compared to the heyday of the downturn. 5% of the active listing inventory and 7% of demand is distressed. Compare that to last year when it represented 7% of the inventory and 20% of demand, and two years ago when it represented 29% of the inventory and 52% of demand.

For the month of February, only 5% of all sales were short sales and 2% were foreclosures. That means that 93% of all sales were good ol’ fashioned sellers with equity in their homes.

In the past two weeks, the foreclosure inventory increased by 19 and now totals 86. 2% of the inventory is a foreclosure. The expected market time for foreclosures is 81 days. The short sale inventory increased by 26 homes in the past two weeks and now totals 214. The expected market time is 46 days and it remains the hottest segment of the Orange County housing market. Short sales represent just 4% of the total active inventory.

Enjoy your week.

Steven Thomas
Quantitative Economics and Decision Sciences

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UPDATE! No Tax Liability for Short Sale Sellers

The California Association of Realtors (CAR) received a letter from the California Franchise Tax Board (FTB), obtained by the State Board of Equalization, clarifying that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.

Last month, in a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales. Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year.

If you have questions about a possible sale of your home, please contact me at 949-795-3989 or email me at . Find more information about homes for sale here.

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“Another sign t…

“Another sign that the market has change is the considerable number of price reductions. 10% of the market changes the asking price every week now”

Steven Thomas, The Orange County Housing Report, Nov 11, 2013

For the last year or so investors with pockets of cash were outbidding typical homebuyers, forcing prices up and instilling a false confidence in many sellers and their agents that the market would bear almost anything they asked for.  Once interest rates took a slight turn up (then came back down) and investors retreated a bit, the market turned.  Today, overpriced listings sit on the market and sellers are either reducing their asking prices or pulling their properties off the market.  The upside for buyers is that interest rates are still some 4 points below their historical average (still as close as we’re likely to see to “free money”) and they now actually have the opportunity to negotiate with a seller for a good buy on a home, rather than engage in a contest to see who can bid the most over asking price to win seller’s approval.

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