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  • 12265 Scripps Poway Parkway, Suite 115
  • Poway, CA 92064
  • P: 858.530.2374
  • F: 858.876.1701
  • E: info (at) sandiegocastles.com
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The Theory of Relativity

KrisBerg05 a.jpgThanks, Steve, for this recent e-mail (which I found funny, since you were sitting three feet away from me when you wrote it):

“I’m being asked constantly where interest rates are and are heading. Although we receive weekly updates from several of our favorite mortgage companies, I think it is important for us to see the ‘official’ info from Freddie Mac. Here it is: http://www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputYr.jsp

Now, from the buyer’s perspective, the approximate 1/2 point rise in rates since January means this: That $800,000 home in January will have to be a $760,000 home today to ensure the same monthly payment.  Put another way, with no increase in home prices a buyer would still realize an effective 5% increase in cost (monthly payment) over January of this year due to the higher interest rates. In a market where high prices are making it continually more difficult for buyers to afford the American Dream, even slight increases in lending rates can have a significant impact on the real estate market. Yes, rates are still at historically low levels, but all things are relative.

FUN WITH NUMBERS

KrisBerg05 a.jpgIt’s not quite month-end yet, but thought it was time to check in on the statistics for April.  These stats are for single-family (detached) homes in Scripps Ranch, but I suspect similar trends would be found if other communities were analyzed. A picture is worth a thousand words, so here goes:

  NUMBER OF HOMES
AVG. $/SF
AVG. DAYS ON MARKET
ACTIVE LISTINGS:
135
$361
52
SOLD IN APRIL AS OF 4/28/06:
21
$353
56

An interesting point here is that 50 of the 135 homes currently offered for sale in Scripps are priced over $1,000,000 (approximately 39%), while only 2 (approximately 1%) of the sold homes was valued at more than $1,000,000.  Guess what the buyers are buying?

Now, if you break down the “sold” numbers by home size, here is what happens:

HOMES SOLD IN APRIL (AS OF 4/28/06)

  NUMBER OF HOMES
AVG. $/SF
AVG. DAYS ON MARKET
<2100 Sq. Ft.
12
$372
41
>2100 Sq. Ft.
9
$327
76

I went through this exercise to underscore the well-known rule that smaller homes tend to command a larger price-per-square foot, as they should.  The reason, of course, is that inherent in the value is the “dirt”, with the lot being the most important component in our area of the value equation.

Finally, a look back at the “average home” sold in April, 2005 reveals that 41 homes sold (versus 21 this month), and the average size was 2515 square feet (versus 2203 average square feet this month).  True, April isn’t over yet, but today is our last recording day as we head into the weekend.  Something to think about while you are at the beach.

Termites Bug Me

KrisBerg05 a.jpgThis will undoubtedly go down in history as one of my more glamorous contributions. (Actually, I was just tired of seeing Steve’s photo every time I checked in, as the front page of the Blog always shows the last post first).

Based on a recent experience I had, I wanted to share some cautionary thoughts about the infamous “Termite” inspection, or more appropriately the Wood Destroying Pests and Organisms inspection, which is typically conducted during escrow. As most of us know, it is almost always a contractual obligation of the Seller these days to pay for a termite inspection and is also almost always the Seller’s duty to remediate any active infestation found during that inspection prior to close (what we in the industry affectionately refer to as “Section 1″ work).  Having come off of what most consider an extended “Seller’s market” period, it has become commonplace for Buyers and their agents to defer to the Seller on the selection of the company to perform the actual inspection.  In the contract, this is most often accomplished by requiring that the termite report be prepared by “Seller’s Choice”, “Any Licensed”, or “Any Reliable”.  Not all of these terms mean the same thing, however.

Many years ago, I heard a presentation from a real estate attorney who warned that the use of “Seller’s Choice” in the contract means just that; the Seller ultimately makes the decision as to the termite company. The inherent danger is, of course, what happens in the event of a dispute.

I am currently representing Buyers in a transaction where the Sellers provided a termite inspection report which appeared highly suspect to me and the Buyers.  Specifically, they showed findings of termite evidence at many, many locations throughout the home. The termite company recommended that each area be “locally treated” (which involves injection of magic termite-killing stuff), as opposed to a full fumigation (tenting).  The Sellers where satisfied, as this would result in a much lower cost to them; the Buyers were skeptical that this approach would ultimately result in a termite-free home.  Buyers, of course, have inspection rights, and mine opted to have a second, independent inspection done at their own expense. The second report (surprise!) recommended tenting. Now what?

In our contract, we had not used the “Seller’s Choice” language, but instead had specified “Any Reliable”. The result is that the entire issue becomes negotiable. Certainly, the Sellers could have refused to respect and respond to the more onerous findings of the second report in favor of the first, but this could have been subject to challenge by the Buyers. Obviously, the Buyers could have decided to cancel the transaction if not satisfied (and they likely would have). Finally, the Sellers were aware (we made sure they were reminded) that all reports would now have to be disclosed to future buyers should an agreement not be reached with the current ones, therefore this issue would not be going away.

This story had a happy ending in that the Sellers agreed to a full fumigation, and the transaction is proceeding on schedule. The moral is that Buyers have many rights under the contract, and that they and their agents should be certain that those rights are best protected.  Agents should avoid sloppy contract language that may leave dangerous loopholes and should help their clients scrutinize all disclosures received during escrow. Buyers and Sellers alike should read and clearly understand the purchase contract they sign.  The contract is a legally binding document that can work for or against you.

Sunday Open House (4/23/06) Summary

SteveBerg05.jpgOkay, for all those naysayers that say the real estate market sucks (can I say that?) I am here to say that the good news is that THERE ARE BUYERS OUT THERE!! About 20 groups came through my open house today in Aspire (detached condos in Scripps Ranch). I’m sure that one of the reasons was the price point (VR $450k-$479k). For most, this particular property was too small at 1,058 sq.ft. and, yes, they all seemed a little timid regarding pricing in general today. But the bottom line is that they all seemed to be serious buyers looking to acquire a property. Very good news, indeed.

Agent Steve 

Sunday Scripps Ranch Market Update (and RANT)

SteveBerg05.jpgI noticed that the number of homes listed for sale in Scripps Ranch this morning (single family detached) has risen to 133. This is the highest number of homes for sale in more than five years, including post 9/11. What’s going on? For one, we (those of us who are not in denial) know we are in a “transition” market after approximately 8 years of consistent home price appreciation. Don’t get me wrong. THERE ARE BUYERS OUT THERE! I see them almost every day (and EVERY Sunday at my open houses). They are just having problems justifying “value” in many homes. Why?

Answer: The challenge here is that although everyone reads about or hears about the shifting market, when it comes to selling their own home some sellers are still in a bit of denial (not our clients, thankfully). They, understandably, have the old “My home is special” syndrome. It’s a very common, but emotional response. In fact, their home is special! But now there may be anywhere from 5-10 other “special” homes that they are directly competing against in virtually all product/size/price segments. This is the raison d’tere for real estate agents. We are supposed to bring objectivity to the process.

According to this morning’s San Diego Union Tribune (4/23/06, Homes Section), the median price for all detached homes sold in Scripps Ranch in March, 2006, was down 8% from from March of last year.

Okay, now here comes my RANT for the morning, so if you don’t want to read it, stop right HERE :-(

Listings are up; Sales are down; interest rates are climbing. More inventory of homes for sale and fewer qualified buyers. So what does this tell us?? Economics 101, right? Basic Supply and Demand…

So, why do I see so many examples of homes currently on the market that are listed at prices that are 10%-25% HIGHER than the last comparable sale? What are these agents/sellers thinking?? Denial, that’s what. The eventual result?? These homes will have to price reduce (probably several times) before selling and, according to our own statistics (previously published in our Simply Scripps newsletter), will likely sell (months from now) for a price that is substantially less than what they could have achieved had they been priced properly from the beginning. Either that or they will ultimately be withdrawn from the market. We are already seeing many examples of this scenario. Either way, they lose. We have had several opportunities to list homes recently and either were not selected as the listing agent (because we told them a truth they did not want to hear) or we decided to not waste our time and marketing dollars with unrealistic sellers. In two of these cases the sellers expected a sales price that was 25% higher than what the hard data supported, even after considering the differences between homes. Now, we have never had to PASS on a listing before this current market. Very weird. What’s most disturbing is that there are agents out there that actually may have agreed with and/or supported the pricing, just to get the listing, without truthfully representing the market reality. This is likely an ethics violation (not to mention a breach of fiduciary responsibility), but one that is virtually impossible to prove.

Okay, RANT IS OVER! I hope everyone has a great Sunday. I’m working an Open House this afternoon. :-)

 Agent Steve

 

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Office Location

  • San Diego Castles Realty
  • 12265 Scripps Poway Parkway, Suite 115
  • Poway, CA 92064
  • P: 858.530.2374
  • F: 858.876.1701
  • E: info (at) sandiegocastles.com
  • CA BRE# 01853496

Broker Information

  • Kris Berg, Broker
  • CA BRE #01241572