Over the years I’ve seen lots and lots of confusion, from both buyers and sellers regarding the subject of the buyers deposit. In our area there are two commonly used contracts used for purchasing homes and on both the deposit looms large right on top of page 1. Buyers in this area enter into a contract by depositing earnest money into an account with a Title Company who holds these funds until close of escrow where, typically, they’ll apply to the buyers down payment. Both contracts are written to allow for both an initial deposit as well as a increased deposit that is usually made after 10 days in an escrow or after the removal of all of the buyers contingencies. These dates are negotiable.

It’s been a practice in our area for awhile, and I’ve been a fan of this practice as well,  for the buyer to make a full 3% deposit up front. In my experience, one of the seller’s biggest worries is often whether or not the buyer can afford their home and if not, will their deal fall through later on. A 3% deposit up front tends to demonstrate the sincerity of the buyer and helps to allay seller anxiety more than $1000.00 initial deposit does. If a buyer has suffient funds making the full 3% deposit up front gives them a stronger offer over all and these funds can be placed into an interest bearing account should the buyer request that. It’s very important to note that buyer’s deposits are protected by the contingencies they have written into their contract and will be returned should the buyers change their minds during that period. I’m going to have to do an entirely separate blog post about contingencies one of these days otherwise this post will go on forever, but let’s just say that it’s in this area that confusion often arises. If a buyer changes his or her mind after 48 hours, and they have a contingency, they get their deposit back. If a buyer has a contingency and does inspections that frighten them and want to back out…they get their deposit back. I’ve seen sellers be surprised by that fact. The buyer’s deposit is most likely at risk if they back out after removing all contingencies.

Another area of confusion has also been at what point the check gets cashed. When you write a check to a Title company for your deposit and your Realtor negotiates with the seller and their agent your check doesn’t get deposited until there has been mutual agreement between both parties…and that could take a number of days in some cases. It’s also important to remember that once that agreement has been reached and you’ve been happily informed that you’ve bought that wonderful new place your check will be sent to the Title Company…and they will cash it. “What?” you say. On several occasions earlier in my career I’ve had buyers call me after we had been in escrow a week and said “Hey, the Title Company tried to cash my deposit check! I don’t have any money in that account! I thought they just held it?”…No, they cash it. Having said this, it’s perfectly understandable to be flustered and stressed when buying a house and I’m not making fun of anybody, but I have this conversation now with every client. When you ratify, your deposit gets cashed…it’s a good idea to have funds in that account.

Has this contest been bugging you? (Bad joke again…but I couldn’t resist, sorry!) In this weeks funky foto I’m looking for not only what and where this is, but also what it’s called…it has a name. Here’s a little hint, if you go to the Art & Wine Festival you’ll be able to tell easily. All the rules of the game are on the left margin as well as the bar above. This week’s winner receives a $30.00 gift certificate to Round Table Pizza at the Marlin Cove Shopping Center. Just place your answer in the comments below, the winner will be named on Monday morning. I will publish any and all snide remarks, semi obnoxious and/or silly comments and, of course, all wrong answers. By the way if you want to purchase discounted carnival tickets  you have until 4:55 tonight. Tickets can be purchased at the Foster City Chamber of Commerce or at the Recreation Center. Click on the Chamber link above for more details. Have a great weekend!

This weekend is one of Foster City’s big annual events, the 37th Arts & Wine Festival located at Leo Ryan Park and on Shell Blvd next to it, as well as a big carnival in the large vacant lot across the street from the park (the future Parkview Plaza). It’s always been a really fun event and usually draws quite a crowd. There will be food, lots of artists displaying their work, lots of events for kids and families including rides, live music…and of course plenty of wine. The carnival part starts tomorrow at 5:00PM and the rest of the festival begins on Saturday morning. The whole event wraps up on Sunday at 5:00PM. I’m going to be at the Re/Max Today booth on Saturday from 10-1 and again on Sunday from 3-5. If you happen to be around the festival please stop by and say hello! I’d love to meet you! I have no idea yet where that booth will be, but I bought a big “fostercityblog”  banner that, hopefully, you’ll see. I’m sure it’ll be a fun weekend…hope to see you there!

 

In his book, Markets,Mobs and Mayhem, Robert Menschel writes about how our world suffers from herd mentality. He notes that bubbles and busts have shaped history and that today with the scope of the media and technology allowing so much access to information we’re more at risk than ever. Whenever we find ourselves caught up in the herd and the panic of the moment we can make poor decisions that often have long term consequences.

A couple of weeks ago I was chatting with a friend who was relating the number of people she knows who are on the fence about buying a home and she said that it was “obviously a bad time to buy”. It made me really think, if now is “obviously” a bad time to buy when was a good time to buy? Was it in 2004 when every property got 10 offers and went $100,000 over asking? Was it when you competed for a house with serious structural damage that didn’t really fit your needs and you didn’t like that much anyway? Was it when you wrote offers that were completely “As Is” and had no contingencies of any kind and you just hoped and prayed that no glitches appeared during escrow and you lost your deposit? I wrote an offer in 2005 that was $210,000 over asking, “As Is”, no contingencies of any kind, all cash with a 2 week closing and offering the seller a free rent back for 30 days…and we finished 3rd! Now that was herd mentality!

Now we have a different, yet very real, kind of herd mentality. Now we have buyers who found it perfectly acceptable to write fat offers, well over asking, who won’t write an offer under the asking price. I say this to people alot so I figure I might as well put it on the blog. I don’t believe losing money in a declining market is really a central issue to buyers. I believe it’s far more important for buyers to have the emotional support that comes with competition to motivate them to take the plunge. It makes no sense to be OK with writing an offer $100,000 over the asking price, but not be OK writing an offer under the asking price. It also makes no sense to smoke cigarettes…but people do it.

This all played out in Foster City in the last week.  Just as I was about to write a post about us entering a real buyers market because no single family house had sold for almost 2 weeks, the SF Chronicle runs a front page story about positive April sales numbers and actually tiptoes around the concept of the market nearing bottom. Within 48 hours of that story being published offers started to come in and since then 6 houses have sold and I know of at least 2 others who are reviewing offers right now too. I have to say that my batting average is .750 as 3 of the 4 houses I touted in my post on May 3 have sold. The Chronicle’s done negative pieces since then so maybe the herd will ebb again. Here’s a interesting fact about this current market…it’s not like everywhere else. Every open house I’ve been to recently has been crowded. There’s lots of people looking around out there! One of these days some emotional green light will come on for people and multiple offers will ensue. Why not write an offer now, when you can get a good buy?

Amazing! I actually almost stumped you this week! Just one correct answer came in from Bill & Marcia Hastings of Foster City. Congratulations you guys! Of course, it was a picture of the electronic sign in front of Bowditch Middle School. Bill & Marcia win the $30.00 gift certificate to Kobe Japanse Cuisine at Edgewater Place. Seriously, really good job you guys! Thanks for playing folks, come back again this Friday when we do it all over again!

Maybe I’ve gotten carried away with photos of cash lately? Oh, well. The other day I got an offer on a client’s home where the buyer’s were asking the seller to pay their closing costs, and it got me thinking. Sellers, you might think about this. Hypothetically, let’s say you have your home on the market for $800,000 and the buyer makes an offer of $810,000 and asks for $10,000 to be credited back to them for closing costs. ( This type of scenario is not uncommon in this market right now).

30 days later (or more), when you go to closing, is the commission based upon $810,000 or $800,000? In most cases I’ll bet you’ll pay on $810,000. Why, you ask? Because plenty of time has passed in the escrow and the Title company bases the sellers closing papers on what they believe to be the purchase price per the contract…and they will calculate the total commission upon that. This is the type of thing that routinely falls through the cracks in the long paper chase that is an escrow.

Always ask your agent what price the commission is based on. You don’t need to pay a commission, to two different agents no less, on money you’re crediting the buyer. The commission should be paid on $800,000, not $810,000.

One thing for sure, this does not indicate my age! Actually today’s foto is the product of the ever intrepid, and the City of Foster City’s own, Steve Toler. Steve ambitiously cruised around town on his own and took a bunch of pics and e-mailed them to me, thank you Steve! Needless to say, he’s ineligible. A little clue: I didn’t check last night but I’m reasonably certain that you won’t see the number 21 in this place today…but I think you can still get the idea. Today’s winner will receive a $30.00 gift certificate to Kobe Japanese Cuisine in Edgewater Place. All rules of the road can be viewed on the left hand margin and above. Just enter your answer in the comment below. The winner will be announced on Monday morning. I will publish any and all silly puns, smart alecky comments and all wrong answers. Have fun!

Whenever I hear Realtors in the Mid Peninsula talk about property values and the current market sooner or later the subject of schools will enter the conversation and one of the most often repeated mantras is the excellence of the schools in San Carlos, Burlingame and Baywood School in San Mateo. Honestly, it’s rare for me to hear people touting Foster City schools…but they ought to because they’re uniformly excellent. Once again the State of California has released their Academic Performance Index (API) which is based on how well schools perform on a variety of tests. A score of 800 is considered excellent. Here’s how Foster City schools shake out versus the other areas:

Brewer Island (FC)       933

Baywood (SM)              928

Franklin (Bur)              924

Lincoln (Bur)               920

Foster City (FC)          919

Roosevelt (Bur)           910

Washington (Bur)        905

White Oaks (SC)          901

Arundel (SC)               897

Tierra Linda Mid (SC)   895

Bowditch Mid (FC)       880

Brittan Acres (SC)       879

Highlands (SM)           873

Audobon (FC)             861

Hmmm…Somehow I think Foster City not only is holding it’s own, but is in fact thriving when it comes to it’s schools. This is yet another factor in the preservation of value in real estate in this town.  

I’ve been asked to comment on a couple of scenarios that have recently been brought to Jim for discussion. The first is about those fortunate souls who find themselves in the enviable position of not having a home loan.  The question posed was whether or not they will have to purchase flood insurance when the Foster City change goes into effect.  The short answer, no.  Just as you are not required to carry a homeowner’s insurance policy, you will not be required to carry a flood insurance policy.  It is worth noting however, if your home is your largest asset and you may need to access your equity via an equity loan/line or a reverse mortgage, you would be required to carry insurance at that time.  If this were to be after the 2010 deadline (assuming nothing changes in terms of the flood zones), you would not be able to lock in the “preferred rate.”  Just like some who choose not to carry homeowner’s insurance once their loan is satisfied, you would be self-insuring for better or for worse.
The second question posed to Jim was regarding condo unit owners (the following comments also apply to town homes).Typically, in a condo situation there is an HOA (Homeowner’s Association). General rule of thumb is the association has what is called a “master” policy. In most cases, the master policy covers from the studs of the walls out, plus any common areas.  They do not cover the interior of the units or any liability issues that may arise within your unit.  In the event of a flood, if you do not carry a flood policy for the interior of your individual unit, you would not have coverage.  It is very important however, that you check with the company who handles the policy for your HOA to see what the policy covers.  Lenders usually do not require evidence (proof) of insurance for condo owners who are part of an HOA, as the exterior is covered under the master policy for most covered perils such as fire.  It would typically be the responsibility of the HOA to have its own flood policy for the exterior of the building plus any common areas.  If your HOA does not have a flood policy and later becomes required to carry one, you could find yourself in an assessment situation.  Do yourself a favor, check this out, or go to a board meeting and discuss this issue with your board members.

It’s none other than that stogie smoking entrepreneur who dreamed up this town, T Jack Foster. The statue is located right in front of City Hall at Foster City Blvd and Hillsdale. First in on Friday was the ineligible Craig, who’ll be back in the game as of this coming Friday, so this weeks winner of a gift certificate to My Big Fat Greek Restaurant is non other than Michael Sit. Good job, Michael!! Thanks also to everyone else who took a shot, including Ed, Dana, Steve, Bill, Julie, and most notably Jerry who chimed in at 2:55AM with the answer…now that’s commitment to the blog! Check back in this Friday when we’ll do it all over again! Thanks!!