That sure is a tired old saw, isn’t it? Supposedly, the three most important elements of real estate investment. One of those beaten to death old phrases that causes a smile on everyone’s face because it’s been around so long and is so familiar. It’s such an old fashioned phrase that it got completely taken for granted around here for the last several years, huh? Guess what? It’s back. In the 2008 market, it’s entirely possible that being in the right location is more important than ever.

A client told me last week that her family was encouraging her to buy in Fremont because there were so many good deals on foreclosures and other homes offered by desparate sellers…she wanted to know my opinion. Since 2002 I sold 6 homes to clients in areas in the East Bay or way south in San Jose…all of whom work in San Mateo County. All but one of them have strongly expressed the desire to move back to the Peninsula…and can’t. At the time, their reason’s seemed perfectly sound. They needed more room than they could find in a house here. They didn’t want to live in a condo. They felt like they could handle the commute. Now they all hate it and what it does to their lives and schedules. I’ve received calls from every one of them inquiring about how they can sell and get back here…and here’s the really painful part, they can’t. At least not right now. In one case, he works in San Carlos and she in Palo Alto and they have 2 kids. They made an offer on a 3 bedroom, 1 bath house in San Carlos in 2005 and didn’t get it in a multiple offer environment. It sold for $655,000. They bought a much larger house in Fremont for $650,000 and we all thought all would be well. He called earlier this year and told me how sick of commuting he was, how he was never home and how hard it was to be a part of his kids school activities…he wanted to sell. His house is now worth between $560,000 and $580,000. The same smaller houses in that San Carlos neighborhood are still in the high $600s or low $700’s. He’s not going anywhere, at least for the time being. This story is strangely similar to all of the other 5 clients who also moved out of this area. They all want to move back and can’t.

Here’s an even worse story. A friend and client of mine moved to Manteca, so he could live in a big 4 bedroom house with a pool, a few years ago and commuted to his job in Hayward every morning. He got up at 3:30AM to be at work by 7:30 and typically would get home about 7:00PM every night. He had a heart attack after about 8 months of that schedule. He’s fine, but Manteca sure doesn’t seem as appealing as it once did.

If you’re thinking about moving to a remote location to get a good deal and you’ll need to commute back here I would encourage you to really think hard about that before you do it. If Foster City, for example, experiences a 5 to 10% reduction of value and Fremont, or Blossom Valley, or Hayward experiences 25 to 30% depreciation…you’ll never get back over to this side of the Bay. It’s smarter to live in a condo in Foster City than to buy a house in the East Bay.

Since I got the ball rolling musically with that Tom Petty Free Fallin post on July 31 I figured it was time for another post with musical accompaniment. I can’t think of anybody more appropriately paired for a Real Estate technology discussion than…George Thorogood! Just click the little button below to add to your reading enjoyment:

 I got a call the other day from a saleswoman working for Realtor.com who pitched me on the idea of advertising on that site. She, of course, had multiple reasons why I would be a complete idiot not to do so. Two things crossed my mind during the pitch, 1) At any of the Real Estate conventions I’ve been to Realtor.com has, by far, the largest presence. Larger than Bank of America or Wells Fargo’s presense. They might have two thousand square feet of floor space dedicated to hooking real estate agents into their program. At the last National Association of Realtors convention I went to agents were lining up to pay for a beefed up presence on Realtor.com. 2) The second thing that crossed my mind was…who uses Realtor.com? I honestly don’t think that I’ve ever had a client, even one time, mention that they search on Realtor.com. I personally never use Realtor.com…do you?

For quite a few years this area, by virtue of it’s technological sophistication, has been blessed to have MLSListings.com. Very few other regions have an actual MLS database available to the public and I know that many of my clients have used that resource over the years. Clients of mine have used my own websites to search, (and they are available via links on the bar above) Honestly, I think that most of my clients use multiple resources to search for homes.

It’s really incredible how many are out there right now! Patrick mentioned in his comment the other day how technology democratizes the process for all parties…isn’t that the truth! Except it’s sort of like the Presidential primaries in Iowa…who the heck is Mike Gravel or Tom Tancredo? Right now we have Homes.com, Homegain, Redfin, Zip, Zillow, Trulia, Movoto, Yahoo, BlueRoof, RealtyTrac, Cyberhomes, a new one called Roost…not to mention all of the individual realtors and their offices that also have search capability. Do you remember how many portals there were in 2000? Alta Vista, Excite, HotBot…the list went on and on. I can’t imagine all of these real estate search sites making it either.

Several of these sites exist, or so it seems, to collect fees from realtors who then will be referred out to consumers…and if that e-harmony like scenario works out another fee will be paid to the website. I went into Homegain last night and signed up as a consumer looking for a 4 bedroom house in 94404, 94070 and 94402. So far I’ve received e-mails from 9 agents wanting to be my best friend. Seven of them are from out of the area and as far away as Alameda, San Jose and Castro Valley. One’s actually from my own office! (I’m sure we’ll be chatting) I did the same thing on Movoto…I’m supposed to get phone calls instead of e-mails from them. YIKES!  The sharks are out!

I won’t be buying advertising on Realtor.com, but I am still curious, do you ever use it? Old George Thorogood is asking the question: Who do you love? I know that whenever I search out of state listings I use Trulia…I like it. Who do you use?

I received a call from a really sweet, very well intentioned young lady the other day who was all excited about the possibilities of buying a foreclosure very cheaply. She had been trolling through one of the 8 million Foreclosures R Us websites and had found several deals that had fired her up. According to her, there was a 4 bedroom, 3 bath house on Halsey in Foster City that she could get for $26,819. If that didn’t come through she was also interested in a 3 bedroom, 2 bath house on Laguna in Burlingame for $12,227 or another house on Ribbon in Foster City for $14,707. Honestly, I’m really not sure what these amounts represent…mostly because I didn’t want to pay the $39.95 required to get more information, but I’m reasonably sure that neither this young lady, or me…or you for that matter, is going to buy one of these houses for those prices.

My suspicion is that we’re seeing a default number on something other than a first loan. Maybe it’s a small second that a homeowner is behind on…heck, for all I know it’s a car loan in default! I just know that in this area people are not buying houses at 1965 era prices. We chatted some more about this topic and inevitably I asked her if she had spoke to a lender about getting a loan…she had not. Turns out both she and her husband have jobs that are basically off the books. He’s a handy man and she walks dogs. They filed bankruptcy 5 years ago and she said they’re about to make their last payment to the IRS clearing them of a debt there too. If necessary they could probably come up with $10,000 for a down payment…as a gift. I hope it doesn’t sound like, in any way, like I’m making fun of these folks. She was sincere and really wanted to get on track. I offered to meet with them and help them create a gameplan that might pay off for them some time in the future, but it’s not going to be now.

It occured to me that just a few years ago there were lenders that probably would have given them a home loan. Stated income, zero down, sub-prime. It would have buried them then like it would bury them now. I don’t believe in get rich quick schemes. If you’re thinking about buying, spend plenty of time and energy creating a financial plan that will allow you to actually afford the home you’ll be buying and forget about the phantom $25,000 4 bedroom home in Foster City.

 Say that 5 times real fast! Believe it or not, there once was a time when writing an offer “As Is” was relatively rare. Even in 2008 most offers I’ve seen and written are of the “As Is” variety. Most of the reason for this is because, in this area at least, sellers, for the most part, have taken on the responsibility of initiating pest and property inspections before putting their homes up for sale. Buyers can educate themselves about the subject property before writing an offer and can thereby make a decision as to whether or not the flaws and problems with the place are tolerable or workable to them. As you might have guessed…seller’s like to see an “As Is” offer.

Here’s the thing: “As Is” doesn’t always mean “As Is”…even though most sellers think it does. A buyer entering into an escrow with an “As Is” sale can still do further inspections on the subject property. If the further inspections turn up an issue not on the original disclosures, or in the sellers inspections, the buyers have the right to either change their minds about the purchase, or ask for the problem to be resolved by the seller. A few years ago, representing a buyer, I sold a house “As Is” where the seller had, mistakenly, not done a property inspection. We did one, and discovered a foot of standing water under the house. I recommended the buyers get an engineer to look at the house and he discovered some early stages of foundation problems that were developing as a result of the bad drainage. He gave us a bid of $25,000 to correct the problem. We gave the $25,000 bid to the seller…she paid it. Her alternative going forward (if my buyers backed out) would have been to now sell the house with both our property inspection and our engineer’s report and bid. Certainly that would have effected the home’s marketability and who knows how much longer it would have taken for her to get a new buyer.

I’ve seen this happen several times. If you’re a seller, always do inspections up front and know what’s going on with your home. If you’re a buyer with an “As Is” offer and you have some questions or concerns about some aspect of the home, don’t be afraid to do further inspections.

You know those terms…old news, extensive briefing, military inteligence. Nothing say’s Oxymoron to me quite like “understanding comparables”. For the uninitiated, a comparable from a real estate standpoint is a recently sold, local, similar property to the subject property. When someone wants to either buy of sell a property they will study the comparables to determine the correct value for it. Sellers study the comparables to determine a correct price with which to market their home, and buyers study the comps to determine the price that they will make an offer. Determing a correct price when listing a home is perhaps the hardest part of my job, paricularly in this market.  After almost 20 years I’m just getting kind of comfortable with it. It’s the biggest single reason to work with an experienced agent.

Last week I studied the values of a 2 bedroom condo in a Foster City project and discovered that there are no less than 4 two bedroom floor plans in the development. These are some of the factors that determine value there: whether it’s a first or second floor unit (second floor units have high ceilings), whether it’s on the east or west side of the project, what view it has, whether it has new carpet, paint, hardwood floors, laminate floors, new kitchens, new bathrooms, crown moldings, new appliances, granite counters, recessed lighting, a garage, proximity to the pool and total square footage…and any combination of any of these elements. Now this is only the factors within this particular project. In order to do this right it should be compared to other similar projects nearby, and now we’re looking at factors like HOA dues, total amount of greenbelt space, history of litigation, proximity to airplane noise, whether there’s any upcoming or current assessments and what geographical part of town it’s in.

Of course, we’ve only been talking about condos/townhouses, the same basic rules apply to single family houses as well…and Foster City is the easiest community in the Mid Peninsula to comp because there are so many recurring floorplans. Up until the last year it was relatively easy to price a home because the demand was so great almost all mistakes were irrelevant…the home sold anyway. In 2008 pricing mistakes are happening all the time. Agents and sellers price property based upon what their current active competition is priced at…and often they’re wrong too. In many cases a given floorplan hasn’t sold in 2 years or more, making it hard to price it today. Since the demand isn’t there to compensate for the errors we’re seeing price reductions on these homes. If a house is priced $50,000 to $100,000 over the comparable value and takes 1 or 2 price reductions before it sells it’s easy to assume that values have fallen. In fact they’ve fallen to a level they should have been at all along.

I think that by the end of 2008 we’ll see price erosion in Foster City home values. I predict it’ll be 5 to 6% of the comparable values from January 2008. That erosion primarily is coming in the second half of this year…and it’s not a blood bath. It’s adjusting as it should.

It occured to me while I was showing property over the weekend that maybe the best thing about this current market is the fact that buyers don’t have to compromise nearly as much as they used to. Fortunately, the old and wise rules about real estate investment have returned…and that’s a good thing! In the past 10 years or so, if you wrote down a list of the top 10 or 15 attributes you wanted in the purchase of a home you might have been lucky to have gotten 2 or 3 of them. People, quite literally, were buying homes they didn’t even like because they were so afraid that an escalating market would price them out. Now there’s something we haven’t seen in a while…choice!

Of course the pendulum has swung pretty far in the other direction right now and many buyers have talked themselves out of making an offer on places they liked because of relatively small, or eminently fixable problems discovered about the home they’re interested in. I heard a story recently about some buyers that backed out of a transaction because they discovered that the seller’s small child had scibbled on a wall with a crayon as they were doing their final walkthrough. It is funny to me, and certainly ironic, that many things that didn’t seem all that important a few years ago take on so much more meaning today. Buyers certainly inspect a home more thoroughly than they used to and there’s more soul searching discussion about moving forward too.

All this circumspection makes me think of a listing I had in Belmont in 2000. The seller, who had grown up in the home, was liquidating it following the death of her parents. Across the street was the back end of a shopping center and there was a ton of garbage, including an old mattress sitting near the loading docks. The house was in original condition and had a rotting front porch, rear deck and an attached storage shed that was literally falling apart. The worst part though was that the painstakingly honest seller had written in the disclosure that “sewage backs up into the house”. “Ummm…could you explain that?” I asked. Turns out the main sewer line for the City of Belmont ran right behind the back fence and when it rained heavily it got clogged up with debris and wouldn’t drain properly…and when that happened all that liquid backed up into the house, sometimes filling up the sinks and bathtub! This was a first for me as a listing agent. “What do you do?” I asked. “We call the city and they unclog it…usually takes 3 or 4 hours, no big deal” She said. 3 or 4 hours of sewage in your bathtub and sinks! It actually had a pretty easy fix but her family had gotten used to it…for 38 years! The moral of the story? We got 3 offers and it went over asking, As Is.

Do you know how grateful I am not to be getting that listing in July 2008! Folks, there’s no such thing as a perfect house so you’ll end up having to compromise on something…but I’m betting you won’t have to accept sewage in your new home in this market.

I saw this image online and just had to use it! I’m asked very frequently “What is a short sale?” so I thought I’d comment. Let’s say a seller has loans on their homes of $700,000, and that seller get’s behind on their payments and is forced to sell to get out from under the burden. Now let’s say that the home’s value has fallen to $600,000. The seller, and their agent, list the house for somewhere near it’s current market value or less and when they get an offer they attempt to negotiate with the seller’s lender, or lenders, to get them to accept less than the full amount of their loan payoff. I don’t think it’s quite as dire as this picture suggests…but it’s no picnic either. There’s a very common perception, that’s been true in my experience, that it can take months for a lender to decide what to do with an offer that comes in asking for them to take a loss. Often a listing agent makes several calls per day to the lender just trying to find the right person to talk to…and thereby leaving lots of messages that never get returned. It’s an extremely tedious battle and often the buyers give up and move on when frustration sets in. Sometimes it all works out too. It’s tough to make plans, spend money on inspections and appraisals…etc, when you don’t really know if you’ll get the property in question.

In Foster City there really have not been many of these sales so far this year and mostly have been confined to the lower price ranges in condos. I’m certainly not trying to discourage anybody from taking a run at a short sale, because there’s plenty of them outside of our immediate area but you should know going in that it could be a long process.

A foreclosure is a bank owned property. It is a sale that takes place after the bank takes the given property back from the seller and after the short sale fails. Typically, it’s less bureaucratic (believe it or not) to buy a foreclosure because now the bank is ready to get it off of their books. I showed a foreclosure today in Redwood City that I thought was a really good buy listed in the low $800’s. It sold a couple of years ago for $1,200,000. Foreclosures like this can be really sad. There were holes in the walls, dirt and grime all over everything, the kitchen was a mess and there was spoiled food in the sink. I really thought you could feel the sadness of the sellers who had lost their home and were, most likely, evicted. Lot’s of times sellers facing foreclosure are not as proactive as they once were about maintaining these houses…and it shows. It’s sad…and it also is an opportunity for a buyer.

Here’s a true confession…when I got into the business in 1990 I really didn’t know diddly. I took a correspondence course, because we lived in Denver at the time, and then took the state test to get my license. The state test was full of useless information…defining “avulsion” and “accretion”, subdividing acreage, lots of math questions that I needed a calculator for. At the test that day I met several people who were taking it for the 4th or 5th time. Fortunately, I passed the first time and soon thereafter moved here and joined my first office. On my first day I was warmly greeted and introduced around the office, shown my desk and told where the coffee, bathrooms and copier was. It was very friendly. On the second day they wanted to know when I was going to sell a house…and I was encouraged to do so. Outside of some video tapes they had, there was no training. They gave me a phone directory and encouraged me to start cold calling. I learned the secret really quick…being a Realtor is sink or swim.

In a market very much like this one, I devised a system to market myself toward expired listings, that is homes that somebody else couldn’t sell. There were, of course, reasons why these places didn’t sell…I just didn’t care about them. I wanted a listing after all, and having a listing was better than not having a listing. I ended up with five of them…and I was proud of myself! The problem was I had no clue what to do with them! I couldn’t sell them either and they ultimately expired again…after I had spent a bundle on advertising them. It became very clear to me very quickly how important experience was and I realized that I didn’t even know how much I didn’t know! Here’s what I now know…if I had those listings today I could sell them in my sleep.

Most consumers don’t realize that it’s not the company an agent works for that matters, it’s the individual agent who does all the work. His of her abilities and experience make all the difference. I also don’t think most consumers know how much turnover there is in our industry. I share an office at Re/Max Today with another agent and since I’ve been there (1999) I’ve had 7 office mates. With the current exception, all the rest have gotten out of the business. It’s a tough business, highly competitive and very expensive.

I don’t think it takes 20 years to be a great agent, but I do think that an experienced agent has more value than an agent selling their first or second home. When interviewing agents, ask them how many homes they’ve sold.

The concept of an appraisal works like this…when a buyer purchases a home and gets a loan, their lender sends out an appraiser to verify the home’s value and make it safe for them to lend you money. In the very hot market we’ve just departed from, it seemed like homes appraised for whatever amount the buyer wanted to pay. For a long time, homes appraised well over comparable sales value. In 2004 I had a listing in San Mateo that we priced at $650,000, and at the time that represented the most money ever paid for a 2 bedroom, 1 bath house in that neighborhood. After receiving multiple offers we ratified with an offer of $778,000. I was secretly worried that these buyers would not be able to get an appraiser to bring that value in…but one did!

Well, that’s no longer the case. A seller can set a price and even if the buyer agrees to it the buyer’s lender will only finance the appraised price…and that may be lower than what was agreed too. What that means is the buyer will need to bring more money to the table or the seller needs to accept a lower offer. If the buyer has a contingency for that appraisal they can cancel the deal and get their money back if the seller won’t agree to negotiate downward.

Truly, it was crazy before and and I’m sure there was quite a bit of pressure placed upon appraisers in the past to bring values in on some of these crazy overbids. I remember in 2000 there were several sales in Palo Alto that came in $1,000,000 over asking…let’s hope they all paid cash! Can you imagine trying to appraise those? I think the return to sanity in the market we’re in is a good thing.

How about these before and after shots! Frequently, I’ll hear clients tell me that they would like a house that needs some work. They’ve heard, acurately, that buying a fixer upper is a great path toward building equity and thus maximizing their investment. The clients of mine that have bought and fixed up homes have made the most money of any of the people that I’ve ever worked with. Take the case of the house in these photos. This young man bought his first house in San Mateo Village in 2002 for $485,000…it was a fixer. He, along with his family, fixed it in stunning fashion and sold it in 2004 (with 26 offers!) for $778,000. He then bought this house in Hayward Park for $551,000…and did a whole bunch of work. We’re talking lot’s of work, roof, plumbing, electrical…you name it. I wish I could show all of the interior photos too! He sold it in 2006 for $1,288,000…and bought a fixer in Hillsborough where he lives now. From a 2 bedroom, 1 bath starter home fixer upper in San Mateo Village to Hillsborough in 4 years!

I have several other stories similar to this…and they all have one thing in common. Each individual had some degree of skill or other with being able to fix these homes up themselves. Lots of the folks that ask me about buying fixer uppers have no skill at all with repair. They would need to contract out everything. Keep in mind that there are fixers…and there are FIXERS! I’m not talking about a house with original kitchens and bathrooms that need updating, I’m talking about houses that need everything! One of these houses came up in San Carlos last week on the west side priced at $675,000 and some clients of mine got pretty excited about it’s possibilities. The problem is that what they would pay $100,000 for, a buyer who’s a contractor or other skilled person could do themselves for $30,000…plus they would be trying to live there in the midst of the work. A fixer is also not an ideal situation if you’ve got little kids either.

It’s something you really have to balance. I do think you can get some really good buys on homes that are cosmetically challenged as well…and you can live through a kitchen remodel. It might not be easy, but it’s do-able. In Foster City, recently, there was a 4 bedroom fixer on Chrysopolis that closed escrow at $838,750. I really thought that was a good buy, it’ll be interesting to see if they turn it in a few years.