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Santa Cruz County median price home plunged

by Patti Lyles

February home price median retreats to $380,000
by Patti Lyles

The median price for a single-family home in Santa Cruz County plunged in February to $380,000, the lowest since January 2000, prompting one agent to declare the market has bottomed out.

92 sales, with homes in Watsonville, the area hardest hit by foreclosures, accounting for a record 33 percent.

And 66 percent sold for less than $500,000, the highest percentage in years, according to Gangnes.

In Watsonville, banks sold foreclosed homes at discounts of 30 percent to 50 percent.

A few examples:

124 Grant St. sold for $166,000, down from $490,000 in 2004.

38 Lower Cutter Drive sold for $215,000, down from $420,000 in 2003.

518 E. Lake Ave. sold for $235,000, down from $395,000 in 2002.

Those are not condo prices; those are single-family homes.

"We've hit our bottom in South County in single family," said Dee Dee Vargas, president of the Watsonville Association of Realtors. "If you're waiting to see if prices might drop a bit, you might miss the boat. We're seeing multiple offers. I've got more buyers than properties right now."

With a market full of "distressed" properties, banks selling foreclosed homes and homeowners seeking bank approval for short sales, closing a sale is "almost a miracle," she added. "We get a lot of curve balls thrown at us."

It might be a lender that insists on reviewing an appraisal before authorizing a loan or one that shuts down before providing the promised funds.

Entry-level buyers are taking advantage of FHA loans, but some are discovering there's a catch. Distressed properties need repairs to meet FHA health and safety standards, but banks want to sell the home as is and the buyers are stretched to come up with the required down payment.

Some investors competing with first-time homebuyers.

That's driven by a change in Fannie Mae and Freddie Mac guidelines. The two mortgage-buying entities had restricted investors to four properties. New guidelines allow 10.

Clients qualified for an FHA loan but the bank that owned the house accepted an all-cash offer from an investor.

"With banks, cash is king,"

Tai Boutell of Santa Cruz Home Finance predicts that interest rates for mortgages, pushed artificially low -- at or below 5 percent -- could go up by mid-year to the low 6 percent range. Buyers who wait until then hoping for prices to fall will pay more, he said.

For example, payment on a $500,000 loan at 5 percent would be $2,684 a month; if the home price drops 10 percent in six months and interest rate rises to 6.5 percent, the payment would be $2,844 a month.

While the low-end market is brisk, high-end activity has nearly dried up.

Only four homes sold in February for more than $1 million.

Longtime appraiser Glenn Fuller reported 212 listings in that price range at the end of last week.

"That's a lot," he said.

He tallied only 11 pending sales, leaving about 19 months of inventory.

In 2007. buyers were snapping up $2 million homes around the county. Now they just aren't selling.

Very few people can qualify under the new standards, Fuller said, and the typical buyer of the high-end properties had money in the stock market but doesn't seem as rich since the market tanked.

 

Is he up the Zayante Creek?

by Patti Lyles

Anna: Q: My brother just bought a house two weeks ago and today one whole basement wall fell into the basement. Is he up the Zayante creek, or is there something the inspector or Realtor missed?

Patti: A: Yikes! I hope no one was hurt.

Your brother should call back the inspector, the agent and a real estate attorney to help figure out what the problem is, if it is a new problem or an existing problem that was missed, whether the seller knew about it, and what needs to happen to resolve the situation. You may also want to call a structural engineer to get his or her opinion about what caused the basement wall to fall in.

It's unclear from your letter whether the wall of the house fell in or just the plaster or drywall. If just the plaster or drywall fell into the basement, it's possible that there is a serious leak coming in from outside or inside the house. If the entire structural wall of the house collapsed, there could be a water problem, an unstable ground problem or simply a total structural failure of the house.

Let's assume the problem is water leaking into the house. It's entirely possible that the inspector missed the fact that the basement wall was waterlogged or was unstable. Did your brother walk around the property with the inspector during the inspection? If not, is it possible that the inspector didn't actually look in the basement? Did he take any moisture readings? Did he touch the wall?

Once you figure out if the inspector missed the problem or not, you can take corrective action. A good start would be to demand repayment of the fee your brother paid for the inspection. Then, you can talk to a real estate attorney about whether your brother has any legal options against the inspector or seller.

I'm going to skip over the Realtor for the moment and move on to the sellers. Basement walls don't just collapse overnight. Typically, there is a long history of moisture problems, leaking, or major cracks that are greater than 1/8 inch.

What did the sellers disclose on their seller disclosure form? Did they disclose prior leaking of the property? Had there been any major cracks in the basement that they fixed? Was the basement freshly painted? If so, that could be the sign that they were trying to cover something up.

If you suspect a seller disclosure issue, you'll have to prove that the sellers knew, or should have known, about the problem. The Realtor may also be liable, if she knew something about the house's physical condition and didn't disclose it.

It's time to hire an attorney and put on your Sherlock Holmes cap. You've got a lot of work to do to sort this mess out.

One final thing to keep in mind: Sometimes bad things happen and nobody is at fault. It could be possible that the sellers had no knowledge of problems with the basement wall and the inspector did a good job in looking at the house. There are risks in buying property and sometimes nobody is at fault when bad things happen.

Certainly you want to get to the bottom of your issue. You need to investigate the issue further and see if the seller knew of the problem, whether the inspector should have discovered the problem, and whether the Realtor knew of the problem and did not disclose it.

Don't buy a house with these problems

by Patti Lyles

10 environmental, design factors to look for

Recently I received a letter from a reader who asked if having a tall water tower about 1,000 feet from his house would hurt his home's market value. By coincidence, a few days later I saw an appraiser friend at the local post office so I confronted him with that question.

"It sure won't help a home's market value," was his reply. Then, being an experienced appraiser, he reminded me the water tower is called "functional obsolescence." That means it is a material fact that is virtually impossible to eliminate but has a significant impact on market value.

Functional obsolescence factors, whether within the property or outside, should always be considered when buying a home. Sometimes they "kill the sale." But in other situations, the buyer doesn't care or even likes the problem, which other buyers loathe.

For example, years ago I owned a rental house where the backyard adjoined a school playground. Although the house was in excellent condition, when prospective tenants spotted the playground hidden behind bushes, they suddenly lost interest. I quickly learned to advertise that house as "Close to elementary school." Then I had no trouble renting to families with children.

Looking back, I now realize that house adjoining the noisy school playground was a "bad house." It had an incurable defect that most prospective buyers and tenants disliked, thus affecting its desirability and market value.

EVEN NEW HOUSES HAVE DEFECTS. Fortunately, most on-site problems with new houses are correctable, such as paint scratches or doors that don't close right. Buyers of new houses should (a) understand the terms of the builder's warranty; (b) hire a professional inspector to thoroughly check the house before the sale closes; and (c) inspect the house with the builder (called checking a "punch list") so both parties are aware of problems needing correction under the builder's warranty. Realizing the importance of having satisfied customers, the best builders promptly take care of any defects reported by the buyers.

THE DUTY OF HOME SELLERS TO DISCLOSE DEFECTS. Most states now have either statutes or precedent court decisions that require home sellers and their real estate agents to disclose, in writing, known defects with the residence. However, some sellers and realty agents have "selective memory," meaning they forget to reveal some defects, hoping the buyers won't discover them.

When a home buyer can prove the seller and/or realty agent knew or should have known about a home defect, the buyer's legal recourse is to either (a) seek rescission of the sale or (b) sue for monetary damages. However, the buyer's difficulty is proving the defect was known before the sale closed.

PROFESSIONAL HOME INSPECTORS AREN'T PERFECT. In addition to obtaining a written home-defect disclosure report, even when a home is being purchased "as is" (meaning the seller won't pay for any repairs), smart buyers insist their purchase offer include a contingency clause for their approval of a professional home inspector's report.

When hiring a professional home inspector, be sure to inquire as to the inspector's experience. Personally, I prefer members of the American Society of Home Inspectors (ASHI) because of their high membership standards. Local ASHI members can be found at www.ashi.com or 1-800-743-2744.

Home buyers should always accompany their professional inspectors. In addition, the realty agents and the seller are welcome to attend, just in case an unexpected serious defect is discovered and needs to be discussed.

When a serious undisclosed defect is found by the inspector and the buyer still wants to buy the house, a smart buyer will use the inspector's report to (a) get the seller to pay for repairs; (b) reopen negotiations with the home seller to get a repair credit, or (c) go ahead with the purchase anyway, knowing of the defect, even if the seller won't offer any compensation.

DON'T BE FOOLED BY HOME-WARRANTY POLICIES. Home sellers and their realty agents often buy, as a sales inducement, a one-year home-warranty policy. These policies pay for repairs to built-in appliances, plumbing, wiring, furnace, and the hot water heater. Often excluded, unless an extra premium is paid, from warranty coverage are the air conditioning, plumbing outside the home's perimeter, roof, foundation and structure.

Home buyers should be aware warranty companies charge about $50 per service call, even if the defective component isn't covered by the policy. A favorite ploy of many home-warranty companies, especially when the problem is very expensive to repair or replace, is to say the defect was a "pre-existing condition," which is not covered by the policy. The best place to resolve such conflicts is in the local Small Claims Court where the home buyer usually is favored by the judge.

THE "TOP 10" STEPS TO AVOID BUYING A "BAD HOUSE." Although most professional home inspectors have these key factors on their checklists, savvy home buyers also should be on the lookout for these potential serious problems:

1. MOLD AND MOISTURE. Even the best homes, at one time or another, have mold or mildew. The cause is trapped moisture, usually due to poor ventilation. In excessive amounts, such as after a flood or water pipe break, it can ruin a home because mold can be extremely difficult or impossible to remove.

2. RADON. According to the Environmental Protection Agency, this naturally occurring, radioactive gas is created in soil and rock beneath 1 in 15 U.S. homes. Radon allegedly causes cancer in residents whose homes contain radon underneath.

3. ASBESTOS. Asbestos was routinely installed in millions of U.S. homes for fireproofing, insulation, roof shingles, and floor tile. In good condition, there is nothing harmful about asbestos. However, when it deteriorates and the particles become airborne, asbestos can cause fatal lung disease.

4. LEAD-BASED PAINT. Before 1978, lead-based paint was used in most homes. It can cause brain damage to young children who ingest it, usually from flaking paint chips. But it is not dangerous if the paint is in good condition.

Federal law requires sellers of homes built before 1978 to provide home buyers and tenants with (a) a federal booklet about lead-based paint dangers, and (b) a disclosure form if the seller or landlord had lead-based paint tests performed. If desired, home buyers have 10 days to have a lead-based paint inspection at the buyer's expense.

5. FORMALDEHYDE. Many manufactured homes contain this material which causes eye, nose, and throat irritation, as well as coughing, rashes, headaches and dizziness in some people.

6. CARBON MONOXIDE. Malfunctioning furnaces, wood stoves, kerosene heaters and lamps, fireplaces, water heaters, and gas stoves can produce invisible but deadly carbon monoxide in homes. The easy solution is to install a carbon monoxide detector, usually costing $25 to $40.

7. DEFECTIVE WELL WATER. If the home being purchased depends on well water, be sure to include a purchase-offer contingency clause for a test of the well-water quality. Also, have the well's pump tested to be certain it is in good working condition.

8. SEPTIC OR SEWER SYSTEM. A home that is not connected to a public sewer system probably has a septic system, which drains waste water into the soil. Be sure the septic system is located a substantial distance from any well. If the seller reports the home is connected to the public sewer, be sure to verify this and that the sewer pipe is not broken.

9. HIGH-VOLTAGE POWER LINES. Government tests have been inconclusive if adjacent high-voltage power lines cause cancer and other diseases. But they certainly don't benefit health. The presence of nearby high-voltage power lines won't enhance a home's market value and can be considered a serious negative factor at resale time.

10. OTHER NEGATIVE INFLUENCES. There are many possible negative influences, sometimes beyond the home's lot boundary, that can affect desirability. Examples include a high crime rate, heavy street traffic, poor location, poor-quality public schools, lack of public transportation, nearby noisy railroad tracks, poor floor plan, inadequate or dangerous wiring, galvanized pipes, an old furnace, leaky gutters, flood zone, high fire-hazard area, earthquake fault zone, seismic hazard zone, easements and encroachments and high property taxes.

SUMMARY: No house is perfect. To avoid buying a "bad house," smart home buyers ask lots of questions and insist on a professional home-inspection contingency clause.

Pros and cons of 'flipping' real estate in Santa Cruz

by Patti Lyles
Process not as easy as many think

 Every property is a "flipper" or a "keeper." If you are not familiar with those real estate terms, a "flipper" is a property that is bought for a quick resale profit, usually in less than six months. But a "keeper" is a property held for at least a year, often for many years.

Most houses and condos are keepers. Their owners plan to own them for many years.

But some properties are ideal for fast resale profits. For example, if you buy a foreclosure property at a bargain price, it can often be "flipped" (meaning sold) to another buyer for a handsome profit within a few days or weeks.

Flippers are especially attractive to beginner real estate investors who want to quickly build up their "cash stash" from profits of buying low and reselling higher. There's nothing wrong, illegal or unethical by earning fast resale profits.

However, sometimes a property that looks like a quick easy resale at a large profit turns out otherwise.

To illustrate, I have an investor friend in Ben Lomond who bought a house from an elderly seller who wanted an easy cash sale without paying a real estate sales commission. Her asking price was about $40,000 below market value. My friend had access to cash and he closed the purchase within a few weeks. Only then did he discover the good looking house was riddled with extensive termite damage which would cost about $25,000 to repair.  I advised him to hire Jack Marcarella 831-588-384 to inspect the home but my friend was too caught up in the great price.

That house also needed a new roof. Rather than being a quick "flipper" the house turned out to be a long term "keeper" until its market value appreciated to make the resale profitable after about three years. Meanwhile, he rented the house to tenants who eventually bought it.

But my friend enjoyed several advantages of holding that house for several years: (1) instead of earning a quick $40,000 resale profit he netted well over $100,000, and (2) by holding title over 12 months his resale profit would be taxed as a long term capital gain at a 15 percent tax rate rather than as ordinary income

THE KING OF FLIPPERS. In a book I love to share that is called  "How to Be a Quick Turn Real Estate Millionaire," Ron LeGrand explains how his student Marco Kozlowski paid $100 for an option to buy an Orlando, Fla., house for $4,000,000 from a wealthy seller. The house had previously been listed for sale with a Realtor at $8.6 million, but it didn't sell.

Kozlowski, a 30-year-old, new realty investor, hired a professional auction company, which, 43 days later, auctioned that house for $5.6 million cash. The result was a "flipper" gross profit of $1.6 million. LeGrand reports Kozlowski acquired 119 deeds on flipper houses in the Orlando area within his first year of investing. Today, he teaches others how to profitably flip properties.

SECRETS OF PROFITABLE PROPERTY FLIPPING. Lest you think flipping properties is easy and simple, it isn't. But there are several secrets for finding these properties:

(1) Find a motivated seller who wants to sell but doesn't insist on receiving top dollar and will sell at least 25 percent below market value. Strong seller motivations include out-of-town job transfers, unemployment, divorce, financial problems, illness, death in the family, and health problems.

Longtime homeowners often have large home equities and are willing to sell below market value for a quick easy sale.

(2) Look for properties in need of inexpensive cosmetic fix-up rather than properties needing major structural repairs. "El dumpo" properties often just need fresh paint (the most profitable improvement of all), new light fixtures, cleaning and repairs, new carpets and flooring, and fresh landscaping.

Unprofitable repairs to avoid include structural changes, new roof and foundation repairs, which are very expensive but add little or no market value.

(3) Sources of "fast flip" properties include me the local real estate agent from Felton who knows the Santa Cruz real estate market very well, newspaper classified ads, foreclosure sales, probate sales, bankruptcies, recently expired MLS (multiple listing service) listings, vacant rental houses, absentee out-of-town owner lists, and properties with unpaid property taxes.

(4) Another great way to find potential flippers is to drive around neighborhoods looking for houses that appear to be vacant, run-down, or abandoned. By jotting down the address, taking a photo to remember the house, and then checking the owner's mailing address at the tax collector's office will often uncover an owner who would be willing to sell.

Even the best neighborhoods have houses meeting these criteria. If you discover the house has been owned for many years, often with a small or no mortgage and a large equity, the seller might be extremely eager to sell at a bargain price.

POSSIBLE DISADVANTAGES OF FLIPPERS. As with any profitable enterprise, there are potential disadvantages of flipping properties:

(1) Profits from the sale of investment property held less than 12 months are taxed at ordinary income tax rates. However, if you hold title over one year, then the capital gains are currently taxed at a low 15 percent rate, plus any applicable state tax. Call Randy Reynolds 831-438-9582 about the tax rate.

However, if you own and occupy the property as your principal residence for at least 24 of the 60 months before its sale, then your profit up to $250,000 (up to $500,000 for a married couple filing a joint tax return) is completely tax-free under Internal Revenue Code 121.

(2) Fix-up work is a disadvantage for some investors who don't like to upgrade properties. By hiring fix-up workers, the cosmetic improvements can usually be accomplished within 30 days to increase the property's market value. A goal of most experienced "flippers" is to add at least $2 of market value for each $1 spent on fix-up.

(3) A quick profitable resale forfeits the potential for future profits from the property's long-term appreciation in market value. With median U.S. home prices currently appreciating around 10 percent annually, many investors adopt a strategy of keeping some properties and flipping others.

SUMMARY: Flipping properties for quick resale profits can be a great way to get started investing in real estate. But the potential disadvantages include paying ordinary income tax rates, rather than the lower long term capital gain tax rates.

Felton Road easement could be lost if not protected

by Patti Lyles
What to do if neighbor builds fence, impedes access
DEAR PATTI: I share a private road easement with two neighbors in Felton.   A new neighbor bought a foreclosed house and took down the original fence to build a new one about 4 feet into the roadway easement, thus narrowing the road. I have heard it is very hard and expensive to fight easement disputes. What should I do? --John G..

DEAR JOHN: Presuming the road easement is recorded against all three property titles, one owner cannot alter those rights such as by extending his fence into the easement area. If you and the other neighbor allow it to continue, he might gain a permanent prescriptive easement to continue using that area as his own.

I trust you tried being nice to the offending new owner, but without results. To protect your easement rights, you and the other neighbor should get together to hire a local real estate attorney like Ernest H. Fox 831-427-2114

Even if a lawsuit must be filed against the offending neighbor, this case sounds like an easy one to reach a court-supervised settlement. But if you do nothing, your easement rights could be greatly diminished.

Presale inspections can give sellers advantage

by Patti Lyles
Defects disclosed, renegotiations minimized in one fell swoop By Dian Hymer

It's becoming more common for sellers to hire inspectors to inspect their property before it's put on the market. The reports are then made available to buyers to review before they make an offer.

From a seller's perspective, presale inspections accomplish two goals. One objective -- particularly in states such as California that have seller disclosure requirements -- is to make sure that property defects are disclosed to prospective buyers in a timely fashion. Sellers who order inspections often do so to ensure that defects they might not be aware of are disclosed before, not after, the sale closes.

However, presale inspection reports should not be viewed as a substitute for a seller's disclosure obligations. For example, if you are aware of a roof leak, you must disclose it, even if the inspector misses this defect.

Another benefit to sellers from presale inspections is that they tend to cut down on renegotiations that can occur after buyers complete their inspections. If the buyer is aware of a defect before an offer is made, it can be factored into the offer price. This way, the seller has a better idea of how much he is likely to net from the sale at the time the offer is accepted.

The more a buyer knows about the condition of a property before an offer is made, the better. If minimal information is available when the purchase contract is negotiated, and big surprises revealed are in the buyer's inspection reports, the transaction could collapse. In this case, the seller has to start over. And, the reports that were generated by the first buyers will probably need to be disclosed to future buyers.

Sellers who understand the wisdom of ordering presale inspection reports should use inspectors that are well known and respected in the local area. Your real estate agent should be able to recommend the best local inspectors to you.

Some sellers and listing agents mistakenly order reports from inspectors who are known for being less critical than others. This can defeat the seller's purpose and raise a suspicion in the buyer's mind if the inspector overlooks an important defect that the buyers uncover when their inspector examines the property.

The seller of a Prospect Heights in Santa Cruz, Calif., recently hired a pest inspector who issued a benign report on the property. The inspector recommended no further inspections.

When the buyer's home inspector looked at the house, he saw evidence of dry rot under a bathroom. So, the buyers asked a second pest inspector to inspect the property.

The inspector recommended that test openings be done to determine if there was damage behind the finished walls. These further inspections revealed damage to the wood framing and a cost of more than $5,000 to repair it. So this particular presale inspection did little to mitigate further price negotiations.

HOUSE HUNTING TIP: Before you rely on an inspection report that was ordered by the sellers, make sure that the inspector who prepared the report is well respected for thoroughness and impartiality in the local marketplace. IWhich was not the case in the Prospect Heights Inspector who's repretation is lukewarm with most Santa Cruz County agents. I

f this is not the case, plan on having another inspector look at the property. If the report is out of date, ask the inspector to update the report before you sign off on it.

Read the report carefully. Call the inspector yourself for answers to any questions you might have about the report or the property. Schedule a meeting with the inspector at the property to do a walkthrough of the property with you so that he can explain the report and answer any questions you might have.

THE CLOSING: It's never a good idea to forego inspections just to save money.

May Felton Real Estate Report

by Patti Lyles
MAY 2007 Felton Real Estate Report
Current Market Rating: 2




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Seller's

Current Price Trend: 2




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Felton Market Conditions for MAY 2007: (31) active listings. $645,845 avg. list price. (61) avg. days on the market. (list price range from $150k - $999k)

(4) pending contracts. $563,500 avg. list price. (9) avg. days on the market.

(6) closed transaction. $597,333 avg. sale price.(99.1 % of list price) (26) avg. days on the market.

ZIP Code: 95018

Location Characteristics: Felton is an unincorporated Santa Cruz County community located just a few miles from the Pacific Ocean and the City of Santa Cruz. Hiking, bicycling, fishing, jogging, walking, camping, train rides, shopping & just plain fun awaits happy travelers seeking an old-fashioned escape. Surrounded by beautiful redwood groves and forests, the region features hiking trails, an amusement park where kids can pan for gold and ride an old-fashioned train and a landmark covered bridge as seen in paintings, is photographed often.

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Contact Information

Photo of Patti Lyles Real Estate
Patti Lyles
Century 21 Showcase, REALTORS
P.O. Box 67275
Scotts Valley CA 95067
831-335-2100

DRE #01385517