Mello Roos Deductibility Update

Isn't this just ducky? Just in time for tax filing (not).

In an interpretive about-face, it would appear that people blessed with a Mello Roos assessment may now continue to claim those payments as deductions on their taxes, according to the California State Franchise Tax Board. And by "people," I mean me.

According to the San Francisco Chronicle:

On the eve of tax-filing deadline, the Franchise Tax Board abandoned its campaign to get California property owners not to deduct a portion of their real estate taxes.

From the Golden State's website:

At this time, we do not plan to add additional reporting requirements related to the real estate tax deduction beginning with the 2012 tax return.

That's good news, of course, but there are a whole bunch of us who would have appreciated getting the memo before the eve of the deadline — before we filed our returns on time like good little citizens.

As always, consult your tax advisor, because I am not one of those guys.

Flippers and Regular Folk

photo credit: rob st

Looking for a deal? Get in line.

We often tell our selling clients that there are two buyer pools out there. One wants a picture-perfect home with all of the goodies (granite, stainless, resort amenities, dancing bears and ponies) and at rollback pricing. The other wants a deal – one that “needs a little work,” the idea being when that they hang up their hammer, they will sweat equity and bragging rights to show for it.

If you are a buyer, the key is in knowing into which category you fall. You can’t have it both ways. One could argue that you have but one choice.

We recently had a client pass on a beautiful turnkey home, one that was fairly priced and within his budget. “I’m looking for something that needs a little work,” he said. It seems he likes to fix stuff. OK, fine. But either you are shopping for a home or you need a hobby.  Don’t confuse the two.

The reality is, he wants a deal – a steal, even. But the other harsh truth is that, in limiting himself to the falling-down-ugly inventory, inventory with the potential for magic equity to materialize with a couple of weekends of cabinet refacing and fixture replacement, he is going to be competing with droves of trained professionals. He is regular folk.

Jim Klinge, writing about the current flipper frenzy, said it well:

How does (the flipper frenzy) affect the regular folks?

1. If you’re an investor hoping to flip or rent-out, good luck.  The flippers have flooded the street searching for the next deal, and are working on thin margins.  They are soliciting property owners directly via mail and email, and working all the usual spots – trustee sales, defaulter lists, FSBOs, short-sales, MLS, etc.  Because sellers get bombarded, the price typically goes up – there won’t be many steals from now on.

2. Primarily, they are looking for fixers.  If you want a house to occupy and thought you’d save some money by purchasing a dog, you won’t save much.  You can avoid the rush by sticking with the turnkey properties, and hope to buy one with all the trimmings for a fair price.

3.  Appreciation – You might think that a wave of flippers selling renovated properties could lead to rising prices.  Maybe, maybe not – buyers usually can find out how much the flippers paid, and would have to be very frustrated to pay a lot more.  With the sophisticated flippers being careful to buy somewhat under market, and able to add cheap Chinese goods to improve them, they can live on thin margins and not count on appreciation. I think this will lead to a very active trading range of +/- 10% throughout the county, and for every lucky sale that pops through the range’s ceiling, there will be another flipper buying a lower sale to keep the pricing trend moderated.

I added the emphasis on Number 2, because most of the clients we represent fall under the category of “regular folk,” people who are looking for a home that they intend to live in and enjoy. Number 2 should be etched on your foreheads, because that is the reality of our current market – unless you have connections and cash.

And a message for sellers, one I have harped on before: In this market, mediocrity is not rewarded. You are either flipper worthy or you are turnkey awesome. The tougher sell is the home that falls somewhere in the middle.

But, then again, all objections are overcome with price.

Closure

This is one of those posts I didn’t want to write. I almost didn’t write it. It’s too difficult, and it’s not about real estate, at least not in the strictest sense. Better to talk about termite inspections or market trends, I thought.  But as important as those things are to our clients, they seem just too trivial today.

Last Thursday, a subset of the San Diego Castles Realty team got together for a little workshop, the subject of which was how we might best dominate the real estate universe by deploying our shiny iPads.

To be honest, it was more of a “How do I turn it on?” session for some in attendance. And while we evolved to topics like electronic signing and other productivity applications, it was inevitable that we eventually found ourselves watching Randy do pirouettes in the middle of Panera’s main traffic aisle as he demonstrated his SpinCam prowess.  (Note: Panera has free WiFi, and we are a low-budget bunch.)

Jeff rolled his eyes. Randy likes to get his geek on, we agreed. And we laughed. It was the last time I saw Jeff.

Jeff Weinberger, our newest team member, best friend of and soon-to-be buyer’s agent for our own Randy Bragdon, passed away unexpectedly and suddenly this past weekend. He was 37 years old.

The last time we spoke, he talked about how excited he was that he finally received his date to take the real estate licensing exam.  After months of preparation, he knew that rotational crops do not convey, and he was able to use “chattle” in a complete sentence (we tested him). He was ready. And we were so excited for him.

Mostly, we were excited for us. Jeff was just the kind of agent we pride ourselves on associating with: Wicked smart, honest, ethical, nicer than nice, and possessing the perfect blend of snarkiness and sarcasm that I so admire. He had a fabulous career ahead of him. If only.

I have rewritten this post a half dozen times, grasping for the right words. And having left a thousand words on the cutting room floor, I have finally settled on this simple thesis. I miss Jeff, and I know that the world — certainly my world — is less complete with his passing.

I ask that all three of our readers send any unused prayers along to his family and his friends. While Jeff is at peace now, they need strength.

Multiple Families

I hate multiple offers.

First, I should define the term, for the laypeople out there. Multiple offers are situations where the offers to purchase number more than one, and thus the term “multiple.” I know it’s complex, but that’s the kind of stuff they teach us in real estate licensing school.

Now that you know what multiple offers are, you should also know that I hate them. Sure, I don’t hate them like, say, I hate Snooki. (To be fair, I don’t really hate Snooki – I don’t even know her. I just hate the idea that she is somehow out there being all rich and famous for, well, nothing while I am blogging in anonymity about something really important like multiple offers.) No, multiple offers are more like eggplant. I can deal with it, but I would rather not.

First know that this is a contemporary topic. Suddenly, in our market, it seems that every home that is standing sort-of upright and is priced within a furlong of market value is attracting multiple offers. I am seeing this throughout the I-15 corridor, but I am also hearing the same stories from some of our richer coastal cousins.  What gives?

Inventory. We have none. Take Scripps Ranch. Zillow shows 161 detached homes on the market this morning. If only! In the 92131 Zip code, our MLS includes (drum roll) 47 homes available for sale. That represents approximately 0.6% of the standing inventory. Need a home under $700,000 so your 20% down payment can bring you within high-end conforming loan limits? You’ve got 17 homes to choose from.

And, trust me. Buyers are out there. Steve’s Realtor-mobile is starting to look like one of those circus cars (and, no, I am not suggesting Steve is a clown). The buyers keep piling into the back seat but no one comes out. They are all waiting on new listings.

Where have all the listings gone? The recession ate them. Too many would-be sellers don’t have the equity to sell, so the discretionary move market has been severely hog-tied. Many others, who do have equity, are simply making the decision to stay put, banking on future price increases and a better payday.

The irony is that amidst all of this, while prices are creeping in some segments, they are doing so ever-so-slowly. It may turn out to be a seasonal thing – or not. Only time will tell. In the meantime, multiple offers are a reality.

Did I mention that I hate multiple offers?

Sure, when I am representing a seller, it is a glorious thing for my client when a whole bunch of people decide to throw their checkbooks at his head in unison. Over the weekend, I had a little listing priced slightly above recent comps that generated eight offers. Within 72 hours, we had to suspend showings so that we could catch our breath and sort things out. That’s not the part I hate.

The difficulty with multiples is that they tug at the old heartstrings. With a typical one-offer negotiation, the conversation typically goes something like this.

Buyer’s Agent: I am pleased to present this offer on behalf of my clients to purchase your listing. For $5.

Seller’s Agent: But the asking price is $800,000!

Buyer’s Agent: Yes, but we have reviewed recent sales, and this home sucks. The appliances are not Viking, the fixtures do not have the requisite gold plating, and your hair looks like it was styled by angry hedgehogs. We don’t like you. Or your client. Or this home. Accept the offer or we walk.

This confrontational approach is understandable. Despite the low inventory, this market continues to defy the laws of supply and demand. It is still a buyer’s market. Ask Case and Shiller.

But now we are seeing multiple offers, which, by the way, I hate. In multiple offer situations, the interpersonal dynamics change — like magic. The same adversaries who could only speak in complete dollar signs yesterday, the ones who would gladly have thrown the seller and his Schnauzer under a school bus for a $3,000 carpet allowance, suddenly become humanitarians of the highest order. They are deeply caring, compassionate individuals who each have a unique personal story to tell.

Enter the sappy cover letter.

There is nothing wrong with the sappy cover letter; I’ve written hundreds of them. And they all read something like this.

Dear Mr. and Mrs. Seller,

Thank you for allowing my clients to tour your home. We are sorry for the inconvenience, and we will be forever in your debt. We left you a bundt cake on the counter.

Mr. and Mrs. Buyer have been looking for a home just like yours for 39 months, and now they have found it!

My clients are well qualified. Mr. Buyer runs a local non-profit food bank, and Mrs. Buyer has devoted her life’s work to searching for a cure for kidney disease, ever since she donated her own kidney to a young inner-city homeless boy. When she is not causing stem cells to differentiate, she enjoys raising her five young disabled children who spend their summers doing missionary work in orphanages in various third-world countries – like Texas.

My clients have outgrown their current studio apartment. Their lease is month-to-month. Therefore, their timing can be flexible to meet your needs. By the way, they really enjoyed meeting your puppy! Their own Schnauzer was run over by a school bus last month while trying to save a toddler who had wondered into the street, and they look forward to putting your dog run to good use as they foster rescue animals in Scooter’s memory.

Please accept our offer for $5.

And here’s the problem for the listing agent. You will have five or eight or ten of these letters, each more emotional and compelling than the next. Your client will select the “best” offer (“best” usually defined as “most money”), and you will be left to make the phone calls in which you proceed to squash the hopes and dreams of multiple families. It’s not fun.

That’s what “multiple offers” really means – “multiple families.” That’s the hard part.

Caveat emptor: One word of caution about deploying the sappy cover letter. Even the most compassionate seller and listing agent will consider other things: Namely, the reputation of the buyer’s agent. Because, you see, it is the buyer’s agent who they are going to have to work with and rely on (to meet time frames, to perform under the contract) throughout the process. It won’t matter how much of a tear-jerker your story is if your offer is filled out with a crayon or the listing agent has to rewrite the contract for you. That’s a big-old red flag, an indicator of how the next thirty days might go. And if your agent is not well-liked, lacks respect among his peers, or is not perceived as entirely competent, this will become a big factor at decision time. Just sayin’.

The Property Inspection – You had to be there (revisited)

It was three years ago this month that I wrote about the importance of being present at your property inspection.

The idea is that things tend to get lost in translation. More specifically, when an inspector’s findings are translated to paper, even the must mundane observations tend to take on a DEFCON 1 level of urgency. This is because paper by its very nature is quite portable, so that it can be delivered to the judge with speed by even the frailest bailiff.

First, if you are a little rusty on property inspection protocol, here is how it typically goes. The buyer’s inspector, accompanied by the buyer’s agent, will arrive at the home at 10:00 a.m. to perform an investigation of the property that will take “oh, an hour and a half or so.”  He will finish at about noon – in November. This is because it is the inspector’s job to be thorough and to make sure the buyer get’s his money’s worth.

Usually, the buyer and the seller’s agent will arrive “oh, an hour and a half or so” after the inspection began so that they can hear the summary of findings. They will all stand around the kitchen and swap stories about their children and domestic pets until November, at which point the inspector will announce that he should be wrapping things up in “oh, an hour and a half or so.” Five hours later, he will be ready to deliver the tablets unto the anxious audience.

This is where the fun starts. First I should clarify that not all property inspectors are created equal. And I am not talking about all inspectors here, but just the ones I have encountered most recently. And it’s not their fault; we live in California, where our motto is “E Pluribus Lawsuit.” Better to err on the side of caution.

But, back to the “lost in translation” part. Sure, everything may sound just ducky when you hear the inspector say it, but twenty-four hours later when the report arrives, memories may have faded. And what you are left with is a written summary of findings that suggests moving your family into this particular home would be negligent on par with running with scissors barefoot over hot coals through the zoo’s Bengal tiger exhibit at feeding time.

To quote myself from my previous post (and to save me the trouble of having to write brand new words this morning), here is how it might go.

Inspector at the home: “You can see here that there is some ponding of water on the back patio. They probably ran their sprinklers just before we arrived.

Inspector in the report: “Evidence of improper drainage. Potential for water accumulating near the foundation and, over time, causing home to hydroplane into adjacent structures or fall down entirely. Recommend contacting Army Corps of Engineers for complete analysis of surrounding water shed (minimum 42 mile circumference) assuming 100-year-flood and an Elvis sighting.

Inspector at the home: “This outlet has reversed polarity.”

Buyer at the home: “What is reversed polarity?”

Inspector at the home: “It is (speaking loudly and slowly) when the polarity is reversed. I’ll note it in the report.”

Inspector in the report: “Electrical outlets at various locations show evidence of improper and/or faulty wiring and/or gross negligence on the part of the contractor who had no personal stake in the safety of future owners or their families. Recommend a complete toxic mold investigation and remediation by a licensed HVAC/OPEC/FDIC/Structural Engineering specialist as well as immediate relocation of any remaining, living occupants to high ground in a neighboring county.

Lately, I have seen even the most minor cosmetic issues written up in a way that might cause concern.

Inspector at the home: There is a small red stain in the hall carpet. Someone probably spilled something – like cranberry juice. Or, if it was my house, a Bloody Mary. Ha, ha, ha!

Inspector in the report: Soiled flooring present in the hallway, one meter southwest of the linen closet. Source unknown. Recommend further investigation. Suggested reference materials: In Cold Blood, 1967, Truman Capote; Hoffa, 1992, directed by Danny DeVito. (The latter is available for instant download on Netflix.) Identifying locations of ancient burial grounds is beyond the scope of this inspection.

Every time I attend an inspection these days I am reminded that we have lost touch with the reason for the property inspection – to confirm that there are no serious structural or health and safety concerns that any reasonable person would expect to be addressed prior to commencing habitation. Instead, so many now see it as an opportunity to remodel and upgrade as a condition of sale. They are looking for new construction when what they initially offered to purchase was a used product.

I am not planning on selling my home any time soon, but I may some day. With that in mind, I think it is only fair to disclose the following so that my future would-be buyers can make an informed decision.

• All of my appliances currently function, but I’m pretty sure they will all cease functioning at some point in the future. That’s what appliances do.
• The faucet in my laundry room leaks a little at the base, but this only happens when I turn it on. My advice is that you not turn it on.
• The master bedroom window screen frame is bent from that time I accidentally locked Steve out on the balcony and went to a termite inspection. It is still functional. And Steve got over it.
• In the kitchen, there is a small chip in granite counter top that bugs the heck out of me. I am not sure how it got there, but my money is on the time I bonked it with an empty wine bottle on my way to the recycling bin. (Note: At my house, using “empty” and “wine bottle” in the same sentence is beyond redundant.)
• When it rains, our patio gets wet.
• My refrigerator is 12 years old, and my washer and dryer are one year new. If you buy my house, I may give you all three so I don’t have to move them. But if you have any issues with the way they operate or look, I will not fix or replace them. Because it’s my stuff, and I think it’s kind of nice that I’m willing to give you my stuff. (Speaking of stuff, the Betta fish that my daughter brought home from college two years ago, the one intent on making a mockery of published fresh water fish actuarial tables, will convey. This is not negotiable.)
• My garage has more cobwebs than the set of The Amityville Horror. We keep meaning to clean it out, but we may not get around to it.
• I have never been in my crawl space, and I have no intention of going there. Unless you find something clearly not indigenous – like a pack of rabid wolverines or Jimmy Hoffa – know that everything you see is as was delivered by the builder. Blame them.
• While we are on the subject, “delivered by the builder” applies to pretty much everything in my house. Let me go on record as saying I did not marry Steve for his do-it-yourself skill set. Power tools were long ago banned at our home. We own a hammer and a couple of screwdrivers that we sometimes commission to change a light bulb or open a wine bottle, but that’s about it. So, if you see any code violations, you can sleep nights knowing it didn’t happen on my watch.
• The master bedroom door makes this annoying jiggling sound. For the jiggling sound to present itself, several things must occur: The door must be closed, the window must be opened, there must be wind, and you must be trying to take a nap. I suspect this is due to natural settlement, but I am no expert. What I do know is that this condition is easily remedied by wedging several sheets of Kleenex between the door and the jamb when closing. (Other brands, like Puffs, may work as well, but I haven’t tested the theory. In any event, I would avoid generics to be safe.)
• Periodically, our fire alarm goes off. This only happens at two in the morning, with the median duration of deafening blaring documented as approximately 93 minutes. Spreadsheets are available on request. I should clarify that we have never had a fire — at least, not to our knowledge. (As I mentioned, I have never actually been in my crawl space.) The important point here is that the men and women of Fire Station 37 are always responsive and courteous. You will really enjoy their company.

You’ve been warned.