Orangecrest Riverside California Real Estate Blog
Orangecrest Riverside California Real Estate Blog

Scott Chappell and Brian Bean
Monday, January 29, 2007

Should home buyers make backup offers?

What to consider when making this type of offer

Monday, January 29, 2007

By Dian Hymer
Inman News

Missing out on a home you'd like to own can be heartbreaking. But, not all home-sale transactions close, so you might have a second chance. Or, you could consider making a backup offer.

A backup offer is an offer that is negotiated like any other offer until the buyers and sellers reach a price and terms that are mutually acceptable. A unique term of the agreement is that it is accepted as a backup offer subject to the collapse of a previously accepted offer that is in primary position.

In an active, low-inventory market, a seller might receive multiple offers and accept more than one backup offer. In this case, the backup offers would be ranked. For example, backup offer #3 would be subject to the collapse of backup offer #2, and backup offer #2 would be subject to the collapse of the primary offer.

Backup offers also come into play in softer markets. The best listings at the best prices attract the most buyer attention regardless of market conditions. Even in a slow market a prime listing can sell quickly. If you're a little late to the table and no one else beat you to it, you might look into submitting a backup offer. But, first, consider the pros and cons.

One disadvantage is that you may be tempted to postpone looking at any other listings until you find out if the first deal goes through. By doing so, you could potentially miss out on other good properties.

HOUSE-HUNTING TIP: If you decide you want a property enough to accept a backup position, continue to look at new listings that fit your parameters. Also make sure that your contract includes a provision that allows you to withdraw from the contract without penalty at any time up until you are notified that your offer is in primary position.

Another disadvantage of being in backup position is that your commitment to buy the property could strengthen the primary buyers' resolve to continue with the transaction, even when issues come up like property defects that might otherwise kill the deal.

Be aware that the sellers may have the right to renegotiate their contract with the primary buyers.

Because of these drawbacks, many buyers shy away from making backup offers. They prefer to wait on the sidelines to see what happens with the first contract. A benefit of this approach is that the sellers might be easier to work with after having had a deal fall apart.

There is, however, a risk in this approach. An attractive listing could draw serious interest from other buyers. If so, one of them might end up in backup position and preclude you from buying the property

When there's an accepted backup offer, a listing doesn't come back on the market when the primary contract fails. The backup buyer is elevated to primary position without giving other buyers a chance to buy the property.

Before deciding whether or not to make a backup offer, try to find out how much interest there is in the property. If there are other buyers serious about the property, it might be worth your while to submit an offer for a backup position.

The other risk of waiting to see if the first deal collapses is that you could find yourself in competition with other buyers who are also waiting to see what happens.

A lot of time and emotional energy goes in to making any offer. Some buyers would rather save this effort for a listing that is definitely available to buy.

THE CLOSING: The best stance to adopt if you're a backup buyer is: If it's meant to be, it will happen.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

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# posted by Scott Chappell and Brian Bean @ 11:08 AM

Fed Likely to Hold Off on Rate Cuts

Monday, January 29, 2007

By Barbara Hagenbaugh and Barbara Hansen
USA Today

WASHINGTON — The Federal Reserve will wait to cut interest rates until the end of 2007, not earlier this year as was expected just a few months ago, economists say.

Economists surveyed by USA TODAY expect the unemployment rate will tick higher this year as the economy grows at a steady, but not blazing, pace. The slower growth is expected to lead to a sharper pullback in inflation than what was predicted three months ago.

The 56 economists were surveyed Jan. 18-24.

"We're going to see two distinct pieces. The first half of the year is going to be pretty blah, tepid growth," says Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. "In the second half, things will pick up a little bit."

Fed Chairman Ben Bernanke and his colleagues meet Tuesday and Wednesday to discuss interest rate policy. All of the economists expect the Fed policymakers will leave their target for short-term interest rates, which influences borrowing costs economywide, at 5.25%, the highest in six years.

The Fed has left interest rates unchanged since June after raising them 17 times over two years. Looking at the median of the answers, the economists do not expect a change in interest rates until the fourth quarter, when they expect a quarter-percentage-point cut. The median is the point at which half of the answers are higher and half are lower.

The expectation for a rate cut at year's end represents a significant change. Just three months ago, economists said they expected the Fed would cut rates in the second quarter.

But since then, data have suggested the economy is faring better than was expected given the sharp slowdown in housing. Economists are now predicting the softening in this year's job market won't be as substantial as they predicted last quarter. That suggests the Fed doesn't need to cut rates.

But opinions vary. Several economists, such as those at Merrill Lynch and U.S. Trust, expect the Fed will cut rates by at least a percentage point by the end of 2007. Others, such as those at The Conference Board and Bear Stearns, predict rates will be higher at the end of the year than they are now.

The difference of opinion stems from varied views of what the Fed needs to combat in 2007. While 52% said slower economic growth was the bigger risk facing the U.S. economy, 48% said inflation was a larger concern.

Fed officials make such an assessment when deciding interest rate policy: If inflation is the bigger risk, they are more likely to raise rates than cut them. If slower growth is the bigger risk, they are more likely to cut rates.

The sharp difference of opinion doesn't surprise Timothy Rogers. The chief economist for Briefing.com in South Natick, Mass., says there are just too many unknowns, such as the state of the labor market, business investment and housing. Although he expects the Fed to cut rates once this year in the fourth quarter, he says he can come up with very plausible reasons why a rate increase may instead be needed.

"It could go either way right now," he says. "Anyone who comes out and says he knows which way things are going is full of malarkey."

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# posted by Scott Chappell and Brian Bean @ 11:03 AM

Tuesday, January 23, 2007

Home renovations that pay off

New book discusses best upgrades for kitchens, bathrooms

Tuesday, January 23, 2007

By Robert J. Bruss
Inman News

Don't be misled, as I was, by the title "Property Ladder Buying for Profit" by Kirsten Kemp. This new book is really about making profitable improvements to your home, whether you already own it or are purchasing a "fixer-upper" house to upgrade for fast profits or long-term holding.

Although I have never seen or heard about the TV show "Property Ladder" on The Learning Channel, the first chapter contains four case studies from episodes of that TV show.

These real-life examples explain how profitable improvements added market value to homes. The before-and-after color photos are amazing and inspiring. Profits on the four houses range from $74,000 to $104,000, as shown by home values before and after fix-up. Fix-up costs ranged from $30,000 to $62,000; the number of construction weeks averaged about nine.

Author Kirsten Kemp explains in considerable detail just about every possible improvement a home might need and how to accomplish it. Unfortunately, after the book's first few pages there are no more color photos, just drawings, to illustrate the topics under discussion. But the superb graphics and two-color printing make for easy reading and understanding.

"Make renovations that pay off" is the book's theme. Judging from the color photos, the goal is to transform an ugly house into a near-model home even though all the houses pictured were at least 30 years old.

Emphasis is on kitchens and bathrooms, but bedrooms are not overlooked, although the upgrades are less extensive, such as installing crown molding and upgrading the flooring.

Especially valuable are the details on improvement alternatives, where to get the best prices, and how to save. For example, when discussing granite kitchen countertops, Kemp explains, "Bypass kitchen shops and big-box retailers and go straight to the granite yard to select slabs." She also says, "Don't be shy about bargaining with the granite-yard salesperson. Find the granite you like best, inspect the slabs for cracks or fissures, and ask, 'What's the best deal you can give me?' "

Throughout the book there are more details than you might want to know, but it pays to read those details to compare upgrade choices. To illustrate, in the section about flooring, the author compares hardwood, tile, laminate floors, and carpets, including nylon, olefin, polyester, acrylic, wool and blends. She also explains the importance of installing new carpet padding and the type to install.

The practical information and advice is amazing. This is the kind of book to first read lightly without getting bogged down on the details. Then, after knowing what valuable information the book contains, it pays to go back to re-read the details about the topics which especially interest you.

The section on paint is especially valuable. Having improved many houses and dealt with paints and stains of all types, I thought I knew about paint. Wrong! Since paint is the most profitable home improvement by far, I was pleasantly surprised by all the new paint facts I learned. Especially valuable is the information when you can and shouldn't paint over oil paint with latex, and vice versa.

Although there are only four major chapters -- "Case Studies"; "All Around the House"; "Makeover Magic"; and "Project Price Guide" -- don't be misled. Within each chapter are key topics, explained room by room, as well as by projects, such as landscaping, lighting, cabinet doors, sinks and faucets, crown molding, and strategies.

The price guide is especially valuable because it compares several quality grades. To illustrate, it shows the difference in quality between a $500 and a $3,300 refrigerator. This valuable guidebook is easy to understand as it emphasizes the most profitable home upgrades to consider. On my scale of one to 10, it rates a solid 10.

"Property Ladder Buying for Profit," by Kirsten Kemp (Meredith Corporation, Des Moines, IA), 2006, $19.95, 249 pages; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.

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# posted by Scott Chappell and Brian Bean @ 10:21 AM

Friday, January 19, 2007

Avoiding tax on second-home sale clarified

Misinformation clouds principal-residency rules

Tuesday, January 16, 2007

By Robert J. Bruss
Inman News

DEAR BOB: I want to sell my second or vacation home and avoid the profit tax. I was told if I sell and reinvest the profits in another home I could avoid the tax. But I have considered moving into my second or vacation home to establish it as my primary home so I can avoid the tax. Another friend told me I have to live there three years to qualify. Is that true? --Donald P.

DEAR DONALD: You've been hanging out with a "bad crowd." They are giving you incorrect information.

To qualify as your principal residence, you must own and occupy the home as your primary residence at least 24 of the last 60 months before its sale. Then you can qualify for up to $250,000 tax-free principal-residence-sale profits, thanks to Internal Revenue Code 121. A qualified married couple filing a joint tax return in the year of the sale can claim up to $500,000 tax-free capital gains.

Buying a replacement residence has no effect on your IRC 121 benefits. Full details are available from your tax adviser.

DON'T COUNT ON YOUR INHERITANCE UNTIL THE TESTATOR DIES

DEAR BOB: My father, age 85, owns and lives in a house in Las Vegas. I am the executor of his will. It says when he dies, all his property is to be divided between my sister, brother and myself. But now he is considering selling his house and buying a plot of land in New Mexico, adjoining my sister's property. He will bring in a mobile home to live in. If that occurs, what are my obligations concerning that property? Does my father need to rewrite his will? --Marsh R.

DEAR MARSH: Until your father dies, his will has no effect. As executor of that will, you have no duties until he dies.

He can do whatever he wishes with his assets. If his will leaves you and your siblings an asset he no longer owns at his death, namely the Las Vegas house, it's your tough luck. You inherit nothing.

If he moves and buys the New Mexico land and mobile home, you might then suggest he write a new will to distribute that property upon his death.

STATE LAW PREVAILS OVER MORTGAGE TERM

DEAR BOB: I own a house in a state where the law says there can be a mortgage prepayment penalty only during the first three years of the mortgage term. However, my mortgage from a major nationwide lender says I have a prepayment penalty for the first five years. Which is correct? --Emil T.

DEAR EMIL: Presuming you are correct about the three-year limit on residential mortgages in the state where your home is located, that state law prevails over any conflicting term in the mortgage agreement.

Because nationwide lenders do business in most states, their mortgage documentation doesn't always comply with state laws. If in doubt, have the situation reviewed by a local real estate attorney where the property is located.

The new Robert Bruss special report, "When It's Smart to Prepay or Refinance Your Mortgage," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

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# posted by Scott Chappell and Brian Bean @ 10:34 AM

Friday, January 12, 2007

Soft sales curtail flipping; Inland area outpaces state

Friday, January 12, 2007

By LESLIE BERKMAN
The Press-Enterprise

Speculation by investors who buy houses hoping to profit by quickly reselling them declined last year statewide and in Inland Southern California. The practice commonly called "flipping" was more active in Riverside and San Bernardino counties than most of the state.

An online consumer-information service released data Thursday showing that flipping fell as double-digit home appreciation disappeared, home sales slowed and chances dimmed for an instant turnaround profit.

HomeSmartReports.com said homes owned for six months or less accounted for 3.2 percent of all resales in California last year. That was a drop from a peak of 4.5 percent during the home-speculation frenzy of 2005.

In California, flipping activity last year was highest in Kern, Yuba and Riverside counties.

Quick-turnover transactions represented 4.3 percent of the resale market in Riverside County in 2006 and 5.6 percent in 2005; San Bernardino County was 3.7 percent in 2006, down from 4.4 percent in 2005.

The California community with the greatest amount of flipping as a percentage of sales was Corona at 12.9 percent. San Jacinto came in third at 12.2 percent, trailing Playa Vista at 12.3 percent.

Statewide, HomeSmart said almost a quarter of last year's flip sales resulted in a loss for the seller, the highest percentage since 2002. Overall, flippers sold the homes for a median $45,000 more than they paid, compared with $52,000 in 2005.

The figures do not include fix-up costs and allow for a 5 percent sales cost, said HomeSmart president Mike Ela.
"There are still opportunities out there, but the margins are getting slimmer," Ela said. "It is more of a buyer's market now."

Bruce Norris, president of The Norris Group, a Riverside-based real estate investment company, said flipping homes for profit is much riskier now than a year ago and requires more knowledge and research.

"You have to buy at a greater discount to make sure you realize a profit," Norris said.

He predicted that over the next five years, more of the prime properties for flipping will be lender-owned properties in foreclosure, as households who bought homes with adjustable-rate mortgages can no longer afford their mortgage payments.

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# posted by Scott Chappell and Brian Bean @ 12:42 PM

Wednesday, January 10, 2007

Forecast: Steady sales to boost home prices in '07

Builders will cut construction to offset inventory surplus

Wednesday, January 10, 2007

Inman News

After bottoming out in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turnaround by summer, bringing modest price increases, according to the latest forecast by the National Association of Realtors.

David Lereah, NAR's chief economist, said annual totals for existing-home sales will be fairly comparable between 2006 and 2007.

"We have to keep in mind that we were still in boom conditions during the first quarter of 2006 with a high sales volume and double-digit price appreciation," he said. "We are starting 2007 from a relatively low point, so even with a gradual improvement in sales it'll be pretty much of a wash in terms of annual totals. The good news is that the steady improvement in sales will support price appreciation moving forward."

Existing-home sales for 2006 are expected to come in at 6.5 million, the third-highest on record, with a total of 6.42 million seen in 2007. New-home sales in 2006 should tally 1.06 million, the fourth highest on record, with 957,000 projected this year.

The national median existing-home price for all of 2006 is expected to rise 1.1 percent to $222,100, and then gain 1.5 percent this year to $225,300. The median new-home price, after rising only 0.3 percent to $241,600 in 2006, is projected to grow 3 percent in 2007 to $248,900.

Total housing starts for 2006 are likely to be 1.81 million units, with 1.51 million forecast in 2007, which would be the lowest level in a decade. Builders are pulling back on new construction to support prices of remaining inventory.

The 30-year fixed-rate mortgage will probably rise to 6.7 percent by the fourth quarter of 2007. Last week, Freddie Mac reported the 30-year fixed rate at 6.18 percent -- far below earlier consensus forecasts.

"The current interest-rate environment and housing inventory levels present a window of opportunity for potential buyers," Lereah said.

"With all the wild projections by academics, Wall Street analysts and others in the media, it appears that much of the housing sector is experiencing a soft landing," Lereah said. "Despite the doomsayers, household wealth will not evaporate and the economy will not go into a recession. If you're in it for the long haul, housing is a sound investment."

The unemployment rate is likely to average 4.8 percent this year, following a rate of 4.6 percent in 2006, according to NAR. Inflation, as measured by the Consumer Price Index, is expected to be 2.2 percent 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent in 2007, compared with 3.3 percent last year. Inflation-adjusted disposable personal income should grow 3.4 percent this year, following a rise of 2.7 percent in 2006, the survey found.

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# posted by Scott Chappell and Brian Bean @ 12:53 PM


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