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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.


FUNNY: Real estate company web sites and the obituaries

by Patti Lyles

Real estate company web sites and the obituaries

TombstonelawnornamentWhen I read the Sunday paper I always take a peak at the obituaries.  Mostly to see if I am listed.  This past Sunday I got to thinking about how similar the obituary section of the paper is to real estate company web sites. 

Real estate company web sites usually include a page with  pictures of agents a brief bio, and maybe some details about the services they provide. There is a banner across the top, with the name of the real estate company on it. The obituary pages of the paper are similar, there is a banner across the top and then and pictures of people with a brief bio, and details about services.

There are other similarities.  I look at the dates in an obituary and see that the person who passed away was born in the 1920's, which means they would be in their 80's today, yet the person in the picture looks to be in their 20's or 30's.   This seems to be true on real estate company web sites too.  I have met agents who are 10 to 20 years older than the person pictured on the company web site. Yet the pictures in the obituaries some how look more natural than those on the real estate site.

Not all obituaries have pictures with them.  The same is true with agent bios on real estate web sites.  For the obituaries the picture  section is simply left blank, on the real estate web site the place where the picture should go will have a shadow of a face, the company logo or a for sale sign. 

I often wonder who made the rules about real estate company web sites.  Did they get their ideas one Sunday morning as they were reading the obituaries?

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.

What's the best way to avoid ruining my credit?

DEAR PATTI: I'm behind on my mortgage payments on a house I own in Felton and probably will be foreclosed. People have told me to (1) do a "short sale" of the property, (2) give it back to the lender with a deed in lieu of foreclosure, or (3) proceed to foreclosure and then file bankruptcy. Please explain the pros and cons of each. Do I have to have a short sale before I can do a deed in lieu of foreclosure? What if I sell the property at market value, but that's not enough to pay all the debts? --Napin E.

DEAR NAPIN: A "short sale" means you sell the property for less than the mortgage balance at its market value and the mortgage lender agrees, in advance, to accept the net amount as payment in full to satisfy the mortgage.

Lenders can be very difficult about agreeing to a short sale. You need a listing agent experienced with short sales who can deal with your lender and who will insist you receive absolutely nothing from the sale.

Most mortgage lenders will not accept a deed in lieu of foreclosure. The reason is the lender then takes title "subject to" any liens or encumbrances you might have incurred during ownership. However, if you can prove to the lender there are no junior mortgages or other liens affecting title, such as unpaid property taxes, your lender might accept this alternative, which is cheaper for the lender than foreclosure.

If you let the property go to foreclosure sale, why file bankruptcy? That makes no sense unless you have other extensive debts such as credit cards you just can't afford to pay. Should you file bankruptcy while the foreclosure is pending, that delays foreclosure but doesn't prevent it.

Filing bankruptcy can be a major mistake, which will haunt you for years. Before you can file bankruptcy, federal law now requires you to get credit counseling.

If you sell the property at market value but that's not enough to pay off the mortgage and other costs of the sale, you can pay the deficit out of your pocket and walk away happy that you don't have a foreclosure, short sale or deed in lieu of foreclosure on your credit reports. Talk to your lender now to work out the best solution for both parties.

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

DRE #01385517