Open House: The Last Bastion of “Old School” Real Estate

The Open House

Despite the fact that the real estate industry is notoriously slow in embracing technology, the internet has ultimately changed (for the better) just about every aspect of how we buy and sell homes.    For both buyers and sellers, an amazing amount of information about any home is available at their fingertips.  And for agents,  it has created unique opportunities (and challenges) to improve how homes are marketed and sold.  This blog is just one of many examples of this phenomenon.

But despite all of these changes that technology has driven in this industry, there’s still a carry-over from the “old days” of real estate that has remained virtually unchanged: The open house.

Necessary, or Not?

There are some in this industry who have called into question the relevance of the open house, even going so far as saying that they’re useless and ineffective.  Their conclusion is that holding a house open is a waste of time, and only serves to benefit the listing agent.   The basis of their claim is that the internet gives “tech savvy” buyers everything the need to decide whether a particular home is right for them.   Now, you won’t find an agent with more of a technical bias than me, but I couldn’t disagree more with this position. … Continue Reading

Tapping out your home equity line — does it make sense?

About a week ago I wrote a post titled “Home Equity Freeze-Out” in which I discussed the recent trend where banks are either reducing or freezing home equity lines of credit.  This change is catching many homeowners off-guard, since it is happening without any advance notice — the bank makes the decision, and then notifies you that your line has been changed.

Since I’m not a “financial advisor,”  I cannot make recommendations on how you should handle your home equity line of credit.  However, I can tell you that one option that many people are considering is to draw out a large chunk (if not all) of their home equity line, and put it into a liquid, interest earning account.  Essentially, they’re borrowing the money before they may need it, and definitely beating the home equity lender to the punch.

There’s a good article that came out in today’s San Jose Mercury News that discusses the pros and cons of this maneuver.  I thought it would be useful to pass this on to you.  Click here for the article–>  Tapping Out Your Home Equity

Home Equity Freeze-Out…

Got a home equity line?  You’d better read this…

Many folks put the equity in their homes to work for them — whether money is needed for a remodel project, or just as an emergency cushion for a “rainy day,” borrowing against the equity in your home via a Home Equity Line of Credit (HELOC) has become very popular of late.   If you’re a homeowner in San Carlos, obtaining a HELOC has been a snap because home values have climbed unabated for years.

However, with the real estate market dropping out the bottom in some outlying regions, banks have been quietly freezing customer’s HELOCs if they deem the value of their home has dropped too far.   The banks, in their own compassionate manner, usually do this with no advance warning and will notify you via a letter that your HELOC has been frozen.  Period.   You don’t usually have to pay off the loan any quicker, but you cannot draw any more from the account — REGARDLESS of how much credit line you think you have left.

This really stinks if you’re in the middle of a remodel project and you were going to draw more funds out for the next stage.   But how does this apply to San Carlos?   After all, home prices keep climbing here (or are at least stable) so we should never see this happen here, right?

Wrong.

I have heard from several of my friends in San Carlos this week who were stunned to receive their own “freeze-your-credit-line” letter.   In San Carlos????   You bet, and here’s why.    The banks apply a simple loan-to-value ratio to determine how much they will loan you.  For example, one big, unnamed bank whose name rhymes with “Space” will loan up to 75% of the appraised value of your home, minus your first mortgage.  So if your home is appraised at $1M and you have a first mortgage of $600k, you (theoretically) can borrow $1M x 75% – $600,000….or $150,000.

The problem lies in the bank’s mysterious valuation figures.  In one example, the bank claimed a recently remodeled 3,2oo square foot home was only worth $1.1M. Huh?  That’s $345/square foot!!   There hasn’t been a home that has sold for that low in San Carlos for…..well, a long time.  Not even teardowns, let alone a nicely remodeled home.  Where they come up with these valuations is anyone’s guess.

So what happens if you get a letter like this?   First, don’t panic.  Call the number on the letter and pray that you can talk to a live person.  What you’ll hopefully hear is that the bank will re-instate the credit line if you can provide them with an appraisal that justifies the value that YOU believe it’s worth.  At the very least, they will want to see that it is equal the value that they set when they first loaned you the money.    The downside is that you must do this at your own expense, and appraisals run around $500.   However, this is a worthwhile investment if it thaws out thousands of dollars for you.   There may be other reasons that they have frozen your credit line, so it’s important to get an explanation before you jump to any conclusions.

So if you have a HELOC with any sort of balance and you haven’t received a letter yet, be forewarned.   If you have received a freeze letter and you need to get an appraisal done, I can put you in contact with a number of good appraisers — just contact me.  But nothing frozen, please…

Does Lot Size Matter?

The answer to this question is yes, but not as much as you might think…. First, a little background.

If you’ve been shopping for a home in San Carlos for any period of time, you know that there are many homes on the market are in…shall we say, “original” condition, which means that much or all of the home hasn’t changed since it was built back in the 40’s or 50’s. Clearly, you as the new owner will be looking at some level of remodel, unless you have a thing for pink tile In addition, many older White Oaks homes are situated on relatively small 4,000-5,000 square foot lots.

By far the most common question I get from potential buyers in this situation is: If we want to remodel, what’s the limit on the size of house that we can build? This is especially pertinent for the many post WWII 2 BR ranchers that have become a staple of the White Oaks neighborhood.

Well, I did some digging and your answer is below. For the purpose of full disclosure, the text in quotes below is an excerpt that was lifted verbatim from the San Carlos Municipal Code; I take no responsibility for the accuracy or otherwise of this document — for the complete online document, go to the following link and read the Single Family Residence part of Section 18 – Zoning. There are other restrictions and limitations regarding style of the home and other neighborhood considerations. Here’s the link:

San Carlos Municipal Code

There are a couple of interesting points that are in the Muni Code:

1. You can build up to a 3,000 square foot home (including garage) on any lot in San Carlos, regardless of the lot size. (I can’t imagine a 3,000 square foot home on a 4,000 square foot lot, but hey if it’s ok with them…)
2. If you want to go bigger than this, you’ll then have to adhere to a fixed ratio of the lot size as outlined below, which is also tied to the slope of the lot.

This is good news for home buyers. You probably have more flexibility than you thought on the size of your remodel, especially if you’re considering the purchase of one of the smaller White Oaks lots. Here’s the excerpt from the Municipal Code:

H. Site, Bulk and Floor Area Limit. Any new residential construction, addition or remodel to any existing building shall be designed and constructed to be architecturally compatible with the existing building on the property and the neighborhood in which the site is located with respect to size and bulk. Consideration should be given to properties immediately adjacent to the site. Where neighboring properties’ views of San Francisco Bay, the Western Hills or other significant natural vistas are substantially impacted by a development, mitigation by design features and/or building placement may be considered where feasible. In addition, construction should be sensitive to solar access on adjoining properties. To accomplish these objectives, the following review thresholds on total building floor area (including garages) are established:

Average Cross-Slope of Project Site (Percent)	Floor Area Threshold Percent of Total Lot Area1,2
0 — 4.9	40
5 — 19.9	30
20 — 29.9	25
30+	20

1. In all cases, up to three thousand square feet of floor area (including garages) may be constructed on any lot regardless of size or slope.

2. In cases in which the ratio of average lot depth to lot width exceeds two to one (2:1), the floor area review threshold will be based on width ¥ (2¥ width) ¥ maximum allowable coverage.

So, the answer to the original question is yes, lot size matters — especially if you would like to build a large home and still have property left over for some privacy, or a pool. But it’s not as big of a deal as you might have thought. Happy home shopping!

Section 1 Clearance? Not just for FHA Loans Anymore…

You’re undoubtedly aware of how lending requirements have been tightened as a result of the severe housing situation. Lenders are requiring much higher credit scores, full documentation, larger down payments, NO late payments, etc… Well, these restrictions all pertain to the potential buyer, and their ability to fulfill the terms of the loan.

But the lending institutions aren’t stopping there. Many lenders are starting to take a much closer look at the homes they are being asked to fund. And why not? With foreclosures hitting record levels, they end up owning some of these homes down the road. There’s one VERY important condition that some lenders are starting to impose BEFORE they will fund the loan: Section 1 clearance.

“Section 1″ — What is it?

During the course of a home transaction, a “Wood Destroying Pests and Organisms Inspection” is normally completed by a qualified inspector. This is commonly referred to as a “Termite Report” or a “Pest Inspection.” (For the purpose of this discussion, they are the same.) In the back of the standard report, you’ll find the required fixes spelled out under either “Section 1″ or “Section 2″ columns. Here are some quick definitions:

• “Section One:” Noted areas of active termite infestation or other wood-destroying insects or organisms like dry-rot fungus (likely caused by water intrusion.)
• “Section Two:” These are usually areas that are highlighted because the inspector couldn’t visually inspect that area, and consequently there might be conditions that cause the inspector to believe there could be Section One issues.
• “Section 1 Clearance:” A certification that is issued by a licensed inspector when ALL items highlighted in Section 1 have been remedied. This may include chemical treatment to exterminate pests, as well as replacing damaged wood caused by infestation and/or dry rot.

Up until recently, repairs to Section 1 issues were negotiated between the buyer and seller and didn’t have a bearing on the funding of the loan. In competitive bids, the buyer would likely shoulder the task of fixing the issues, and they were usually fixed after the close of escrow but before the buyer occupied the house (Sometimes they’re not fixed at all.) If a house has significant Section 1 issues and has been on the market for a long time, the buyer may negotiate the cost of the fixes with the seller. But the lenders were seldom involved, with the exception of FHA Loans. They have customarily required a Section 1 Clearance before they’ll fund the loan.

Now, some traditional lenders are starting to follow suit…and it’s popping up at the most inconvenient of times. I heard of an instance recently where a bank came in within a couple days of the close of escrow and required a Section 1 Clearance before they would fund the loan. Needless to say, this took the stress level of everyone involved right into the stratosphere.

What can you do to protect yourself? For both buyers and sellers, make sure your respective agents are communicating frequently with the lender or mortgage broker and asking if this is going to be a requirement. Experienced mortgage brokers know their lenders well, and will normally steer clear of situations like the one above. The good ones will already have a fall-back plan already in place for situations like this.

• Important Tip — If the buyer asks for a Section 1 Clearance as part of their purchase offer, you’d better expect that the lender will require it before close of escrow, so plan accordingly.

With the ecomomy bumping along as it is, you’ll likely see this requirement more often — so in a home purchase negotiation, the sooner you know if it will affect you, the better off you’ll be.

Radon Gas — A Hidden Hazard in Your Home?

Our good friend and San Carlos resident Andy Blasband was kind enough to send along the following alert and useful information regarding Radon gas, and the dangers that it poses to homeowners. There is a link at the bottom of this post where you can get more information and order an inexpensive test kit. I was not aware of this potential health risk, but I am glad that I’m educated now. Thanks for the heads-up, Andy!

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What is radon?
Radon is a naturally occurring radioactive gas. It is released during the natural decay of uranium, which is found in most rock and soil. Its occurrence in the state is influenced primarily by geology.

Where is radon found?

Although certain areas of the state are more likely to encounter radon problems than other areas, radon is a house-to-house issue. You may live in an area of low radon potential yet your house can have elevated radon while your neighbor’s house has no radon.

Radon is odorless, invisible, and without taste, and cannot be detected with the human senses. The only way to detect it is to test for it.

Why should you care about radon?

Radon is the second leading cause of, following smoking. US EPA estimates that nationally 21,000 lung cancer deaths are caused by radon each year.

How does it get into my house and what can I do?

Air pressure inside your home is usually lower than pressure in the soil around and under your home. Because the pressure is lower inside, radon is sucked into your house through cracks or holes in the slab or foundation. If you have elevated radon levels you can fix your home. CDPH along with U.S. Environmental Protection Agency (US EPA) recommends that you if it has 4 picocuries per liter (4 pCi/L) or higher. If you are building a house in an area of moderate or high radon potential, we recommend using radon-resistant building techniques.

I am sending you this information because I conducted a short-term 48 hour radon test in our house last month and the level of Radon came back at 5.7 pCi/L. Currently, I have been instructed to conduct a Long-term test [1 year] to get average yearly radon level within many levels of our house. If the level of Radon remains greater than 4.0 pCi/L after a one year test we will need to take action to reduce the level of radon within the house.

IF YOU ARE INTERESTED IN GETTING A FREE RADON TEST KIT – PLEASE VISIT THE FOLLOWING WEBSITE: www.dhs.ca.gov/radon

A.R.M. Wrestling: Is Your ARM Due to Reset in 2008?

Do you have a 3/1 or 5/1 adjustable rate mortgage (ARM) that is due to reset in 2008? If you do, you’re not alone — experts predict that millions of homeowners will face the dreaded reset date on their ARM this year. This is the date when your ARM resets from its introductory rate to its fully indexed rate, and you’ll be shelling out quite a bit more money every month.

Sitting around and waiting for the adjustment letter from your lender to arrive is not a good strategy. Now is the time to start planning what your options are, and what your next step will be. Click on this link for a great article from BankRate.com on some very simple mortgage strategies for 2008 —-> Best Moves to Make in 2008

Today’s Tip — Stop the Calls!

If purchased a credit report, applied for a loan, or refinanced your home recently did you notice a sudden increase in phone calls, junk mail and/or emails from companies soliciting your business? If so, you probably thought the timing of this was more than just a coincidence? You’re correct…

When your credit report is run, the National Credit Reporting Agencies sell your credit account information to telemarketing companies — it’s how they make their money. However, you have the ability to block this process. To STOP the solicitations, you can OPT-OUT very easily. Either,

• call 1-888-567-8688, or
• go online to www.optoutprescreen.com.

This process is completely confidential and the website is a safe encrypted site provided by the National Consumer Reporting Agencies, as required by Federal law. Note that the OPT-OUT process has to be completed by the credit reporting agencies within 5 business days.

It’s definitely worth looking into if you’re tired of the telemarketing calls. (Thanks to Pam McGee of Mortgage Services www.emortgageservices.net for the tip on this one)