The San Diego Real Estate Blog

January 07 Newsletter

The January 2007 Newsletter is now available to download.  This month's articles list the top 10 markets for appreciation in the US, news of Zillow's accuracy being questioned, information about how to get the most out of the resale of your home and a summary of current interest rates. Click to Download January Newsletter.pdf . Enjoy!

Buyer Activity Spikes Week of 12/26

The North County Coastal area experienced a sudden spike in activity the week of December 26^th when buyers suddenly “got religion.” In our office of 80 agents here in Encinitas, with constant networking going on, at least 8 deals showed up on the activity board. That’s a bigger peak in activity in a week than almost anyone has seen in the last quarter. 

I’ve been letting my buyers know for several months now that the market seems to be reaching a turning point and it appears it has “toughed out.” I’ve noticed on the MLS in the last two weeks that sellers are raising their prices (yes that’s raising) in anticipation of the market having started to swing in the seller’s direction.  I’d say the bold few who have chosen to raise prices are probably taking advantage of the decrease in market inventory over the last two months and in a defensive way anticipating more lowball offers from the buyers. They want a pad in case they’re forced to come down in price.  Offers based on future market decline have been the norm for buyers here for the last 6 to 8 months. All the offers that I’ve seen have been at the bottom of the range and with no regard for comps.

The foreclosures have already begun a steady rise and the lists I get from my title company seem to be increasing in size.  This, of course, is good news for buyers who are looking for a deal. One agent in my office has 6 foreclosure deals going right now and is anticipating at least that number in the first of the year.

So what’s up? I’m holding a listing open on Saturday from 1-4 on Crest Drive that’s 1.04 acres with a 180 degree ocean view listed for $1,560,000. This will be a super popular open house as Crest drive is one of the most highly sought after streets in all of Encinitas. When I get a reading on the buyers coming in I’ll post again. My feeling is that those who follow the market are ready to make their move and the first part of the year is going to be very active. If you’re looking to buy in 07 I’d say “get your ducks in a row” because when you find something you like it might be time to move.

Important Buyer Mistakes to Avoid

Initially, when buying a home, it’s important to pay attention to your gut feeling and then step back for a moment and defer your gut to some rules of logic. For most people it’s an emotional reaction. Your nerve endings tingle with excitement, for example, when you find a floor plan that is naturally comfortable to you. When you walk through the front door, somehow, it just plain flat feels right.

Ok, hold that feeling of excitement in your mind for a moment. Now fast forward a few years into the future and imagine you’re getting ready to sell your home. What I want you to do is take a deep breath and lower the curtain between your emotional self and your logical self. Put your emotions in a box and close the lid so only the logical you is left for now. Think about resale value, competing inventory, appreciation and what a discriminating buyer might be looking for. Look ahead and think about things buyers might object to when buying your house. The value of your home is directly related to its marketability. If it is sought after by other buyers, you will be able to resell your home at the highest price possible for the market.

Here’s the logic that will help you be able to market your home to the greatest number of buyers possible, creating a competitive atmosphere that will bring you the most money for the sale.

Site Difficulties

Lack of Yard
Does the selected property meet the needs of the typical buyer for the neighborhood in terms of lot size? Buyers tend to pass on homes that have significantly less usable yard than other homes in the neighborhood.

Unusual Easements or Restrictions
Unusual easements, deed restrictions, or an unexpected lot configuration discovered during the closing process should be cause for re-consideration, with an eye toward future marketability. Does the lot contain an access easement to another property? Is there an encroachment on the property? Are there regional pipelines underground? Are the lot boundary lines what you expected? Is flood insurance required?

Commercial View
Homes in suburban areas that view office buildings or retail centers are less attractive to buyers. Buyers choose suburban neighborhoods for their concentration of single family homes, separated from commercial areas. Of course, this would not apply to urban areas.

Flag Lot
In a subdivision of properties with similar road frontage, buyers will avoid this type of lot. These lots have very little street frontage, and there may be a building in front of the home. An acreage flag lot in a country setting may be an exception.

Likely Objections

High Tension Wires
The general reaction by buyers to high tension wires crossing near the lot is to simply eliminate the choice.
Steep Driveway
Many buyers will pass on homes with excessively steep driveways. If they cannot comfortably park the car, they won't get out of it to view the home.

Busy Street
The noise related to a busy street is a turn-off to many buyers, especially if the busy street is in front of the house.

Too Exposed
If the building behind the home looks down onto the backyard or into the family room, this will be a sales objection to many buyers. Most buyers want a certain degree of privacy in the back yard. This may be able to be mitigated by trees or screening.

Neighborhood Concerns

Declining Values
Does the neighborhood show pride in ownership? If you see tear downs and new construction, an older neighborhood may be going through a renewal period, and may be a good risk. However, if your market data indicates that values are declining, this should be cautionary information for the buyer.

Safety or Security Problems
If you see or hear of security problems—drug dealing, frequent burglaries, or safety concerns, ask your buyers to check the facts and data on these issues before buying. If these kinds of problems are on the rise, your clients could have serious resale issues.

Market Matters

Seasonal or Limited Market
Some homes have a limited market—a vacation area, a primarily student market, or an age restricted subdivision. This may suit your needs, but keep in mind that the re-sale will be limited to more limited set of buyers making it harder to sell.

Remote Location
In most cities, areas that are closer to a business district tend to have a larger buyer pool than homes located in remote areas. Regardless, you may choose the privacy and setting of a country home over resale potential.

No Comparable Sales
It is important to understand the underlying reason for few or no comparable sales. The home may be very unusual compared to homes around it, or the market may be slow. This could indicate a possible future re-sale problem.

Extended Marketing Time
Has the selected home been on the market a long time? Was the price simply set too high? Has the market been slow? Or, is there a problem with the house that an incoming buyer will need to correct like a room addition that wasn’t constructed right or without permits.

Oversupply of Homes
The possibility of an increasing supply of homes in the selected neighborhood may be a concern for some buyers, in particular those who will be in the home for less that two years. A common source of excess supply is overbuilding by homebuilders in the area, or it may be caused by a decline in the economy of the area.

Non-conforming Styles

Lacks a Typical Amenity
In an area where nearly all homes are on the golf course, or have a pool, or include a garage, buyers will tend to pass on homes that lack these features. In an area of mostly senior buyers, a home with the master upstairs may have trouble selling. Look carefully at what is generally offered in a given area to the majority of buyers.

A-typical Style
Homes that do not seem to belong in the neighborhood may have trouble selling. For example, an urban loft style home may be popular in older, eclectic areas, but would be hard to sell in a uniform suburban neighborhood. That goes for architectural deviations from the neighborhood norm as well. A home that looks much larger or different from others may give you difficulty in recouping your construction or remodeling costs.

Inspection Issues

Water Drainage Problems
Poor water drainage is a serious and costly remediation problem. Talk with experts about improving the drainage, and evaluate any damage caused by flooding or standing water. If the incoming buyer doesn’t have an improvement plan ready before proceeding that may be an indication he will as you (the seller) to pay for it.

Structural Defects
Structural defects have an underlying cause. They may be due to loose fill on the lot, clay soil, drainage issues, or poor construction. It is crucial that you understand the source of the problem, and the cost to repair, before taking on a house with structural problems.

Inspection Flaws
Excessive repairs noted on inspection reports indicate that the house was not maintained or was poorly constructed. You may need to be prepared for some serious work on the house. An incorrect application of stucco or other siding may have water damage or mold behind it. A mold infestation is expensive to remove. If you buy that home, document your repairs with pictures, receipts and notes in order to show a future buyer that these problems have been solved.

Insurance Claims
If a previous insurance claim was the result of fire or flooding, you should have full disclosure from the seller. Large insurance claims are a red flag, and may result in difficulty in obtaining insurance on the home. Insist the seller give the facts about previous insurance claims. In California the SPQ (Seller’s Property Questionnaire) is a document that helps address these issues. Many homes that have had repairs, such as hail damage; covered by insurance, likely will not be a re-sale problem.

Improvement Obstacles

Costly Improvements
If the sales price includes a number of costly upgrades, you (as the seller) may not be able to recoup their cost. For example, imported fixtures, unusual craftsmanship, exotic woods, high maintenance gardens, or artistically decorated walls may not have a market value equal to their cost. After home ages, these finishes may drop substantially in value. In Southern California, swimming pools and tennis courts do not contribute the full amount of their cost in the value of the home typically.

Over Improved
Homes that are overbuilt, or have excess acreage for the area often have a difficult time recouping the additional cost. Most people feel safer buying at the mid level of value in the neighborhood.
Non Functional Floor Plan
Floor plans that make living in the home difficult will turn away future buyers. Homes with excessive level changes, poorly proportioned rooms, awkward access to the outdoors, low ceilings, or few windows may sell, but at reduced prices. This may be an opportunity to take down walls and make creative changes to improve the marketability of the home. You as a buyer will need design skill, reliable contractors and an appropriate budget to solve those problems.

Out Dated Finishes
Many resale problems are simply due to outdated finishes. Buyers with decorating skill and a sense of style can transform these homes. Remodeling adds a level of risk and difficulty to the home purchase, but possibly, a higher level of satisfaction and monetary reward for you the buyer. Your real estate agent may have seen the model of home you’re looking at and be able to make suggestions based on other remodels he’s seen. With help, you may be able to create a gem for you to resell sometime in the future.

Avoid Re-Sale Problems on Your Home

In order to receive the maximum appreciation for your home that’s typical in any market, it’s important when remodeling or upgrading to appeal to the largest cross section of buyers possible. The value of your home as an investment is directly related to its marketability. If it is sought after by other buyers, you will be able to resell your home at the highest price possible for the market.

Since I work with many buyers each week and sometimes show the same home to people, I often hear objections to specific remodeling items several times. The obvious is not to paint your home some unusual color that no one in the neighborhood has like purple. The not so obvious is your choice of carpet types or colors or counter top surface materials and colors. Blue countertops, for example, aren’t something that the average buyer would find attractive. Neutral colored floor tile is. I invite you to call or email me any time and use my experiences as your sounding board. I’m always available to talk about what’s going to be a potential re-sale problem. Here’s some improvement ideas to consider whether you’re buying or selling a home.

Finishes & Improvements - Imported fixtures, unusual craftsmanship, exotic woods, high maintenance gardens, or artistically decorated walls may not have a market value equal to their cost. After a home ages, these finishes may drop substantially in value. Many buyer credits are given to compensate for outdated finishes. Removing exterior feaux rock, smoothing popcorn ceilings or adding granite countertops can add substantial value to your home. Careful on this. I saw a homeowner combine granite with painted outdated cabinetry. That’s an oposite end of the remodeling spectrum that may raise a buyer objection.

Adding On - Floor plans that make living in the home difficult will turn away future buyers. Be sure to consult a knowledgeable contractor or an architect when adding on. Homes with excessive level changes, poorly proportioned rooms, awkward access to the outdoors, low ceilings, or few windows may sell, but at reduced prices. Flooring thresholds transitioning from carpet to laminate floor that are uneven aren’t desirable.

Landscaping Issues - Buyers tend to “pass” on homes that have significantly less usable yard than other homes in the neighborhood. If your yard is smaller than others, consider making adjustments to landscaping or modifying your back slope to make it look bigger. Power lines can be blocked by planting tall trees that grow over time. Plan ahead by planting now. Before you sell your home, have the gas and electric company take measurements for electro magnetic fields. I’ve had experience with this and you may find EMF is higher next to your microwave than it is in the back yard near the lines.  A buyer will want to know about this to feel more comfortable.

Busy Street - The noise related to a busy street may be a turn-off to many buyers. Acoustic sound absorbing clear plexi glass walls can keep the view and cut down noise. Consider some type of earthen barrier as well.

To Much Amenity or Not Enough  - In a neighborhood where many homes have swimming pools, adding a pool is a safe bet. If there are few pools, adding one may give you enjoyment but not reap resale value. Consider a pool carefully since many buyers don’t want a pool because of the maintaince and cost associated with it.

A-typical Style  - Homes that do not seem to belong in the neighborhood may have trouble selling. If you’re redoing the outside front of your home, try to stay close to the architectural style of the neighborhood. If the neighborhood is primarily wood siding, adding stucco may be a value risk. Changing the shape or geometry of your home or adding xerascape when everyone else has grass can be a value risk as well.

Deferred Maintainance - Next time it rains heavily, check your drainage and see if you have pooling of water in the yard. It may be time to clear the drains, add new ones or rebuild the system all together. Standing water near the house can cause mold on the inside walls. Repeated water damage issues need to be dealt with. Structural issues that haven’t been dealt with can pop up later as well. I saw one home owner that added an upstairs room himself but didn’t consult an engineer. A critical beam was removed that caused problems in the inspection phase of escrow.

Over Improved - Homes that are overbuilt, or have pushed the lot size to square footage ratios for the area, often have a difficult time recouping the construction costs. Most people feel safer buying at the mid level of value in the neighborhood.

How to Choose a Kitchen/Bath Contractor

Kitchen remodeling has the highest average return on investment when selling your home, followed by bathroom remodeling. So it is essential to choose a qualified contractor with extensive experience and a good track record. It stands to reason that the contractor himself has everything to do with how the project will turn out. If you fail to check references or look at the contractor's previous work, your expectations may not be met, so be careful. Here are a few tips on how to choose.

When interviewing a contractor be sure to establish credibility. Is he licensed, bonded and have worker's compensation insurance? The length of time the contractor has had his license may be an indicator of credibility. To be sure, check out the information with the California State Contractors License Board.

• Get a detailed written estimate for your project with details of all work to be completed.
• Ask for a list of references and call three of them.
• Ask the clients if the contractor was on-site to supervise the work.
• Was the work completed in a timely manner?
• Was the quality of the work up to their expectations and would they work with him again?
• If at all possible ask to see pictures of the referenced project or better yet, see it in person.

Some times you may find a contractor who not only installs and builds, but designs as well. It's not often you'll find that combination, but when the two exist in harmony you'll likely streamline the process. A specialist who has design abilities and can execute the design himself tends to be more efficient. Walter Busuttil of Walter Busuttil Design and Construction is just such a person. "I'm really passionate about designing projects that exceed my client's expectations," Mr. Busuttil says. "Having had the experience of physically working with many material types allows me insight into how the design translates into reality," he adds. Designing on a computer is important as well so different ideas can be tried out before beginning construction.

Lastly, make sure you choose someone with knowledge of quality products so youUll get the most for your money. With the abundance of brands and styles, it is hard to know what to choose, so rely on a kitchen/bath specialist to provide ideas. They can guide you through every phase of your project including decorating, design, construction, plumbing and electrical systems. They can answer questions about design, products and colors, as well as anticipate and prevent problems that you may not have considered. Creating a design that reflects your individual personality through color, style and product selection is the key to making your project turn out right.