Beware of Refinance Pitfalls

Due to the fact that the interest rates have been reaching record lows,  many families have begun to look into refinancing to facilitate their financial goals. What various people don’t
realize is that there are several major mistakes that people commonly make.

Don’t pay too much in closing costs when there are other options
available. Look into a variety of different types of lenders before deciding on
which one to use. To help find the right fit for you, you should consider a big
national bank, a smaller more local or regional bank, a credit union, and/or a
mortgage broker.  Shop around and compare their rates and fees.

Make sure you understand the reasoning behind why to refinance. There are three core reasons to refinance:

!. to lower your interest rates
2. to lower your monthly payments
3. to shorten the loan term

For it to be worthwhile for you to refinance it should accomplish at least two of these, but if its doing all three fantastic!

Don’t be afraid of a shorter loan term.  Although it may increase your monthly payment a little bit, it can save you thousands throughout the course of your mortgage.  The
difference you’d be paying in interest over 30 years versus only 10-15 years is
huge!

Keep a wary eye out for prepayment penalties. Some lenders have prepayments due in case you want to pay off your loan early.  You must weigh these out carefully because some of these penalties could actually cost you more than the savings you’ll get from refinancing.

Finally, beware of repeatedly refinancing. The rates have been dropping and are at a 50-year low right now. If you attempt to refinance every time the rates drop, you could very
well end up paying more in prepayment penalties and closing costs than you’re saving on the interest rates.  Remember that the timing of a refinance is a gamble. You could refinance now and have the rates continue to drop, or you could wait but the rates may go back up.

Fact or Fiction: The Home Sales Tax

It sounds frightening to a home owner to hear that there may be a 3.8% sales tax on residential home sales.

Let’s take a look at how Obamacare will actually impact the typical seller should it be implemented.

First of all, the tax spoken of is actually a “transaction tax” on investment income that includes many things beyond standard residential sales, such things as dividends, interest payments and rental income.

The tax will only apply to those individuals making over $200,000 annually or couples making over $250,000 annually.  This eliminates all but 3% of the population.

The tax is on profits beyond the capital gains threshhold  which stands currently at $250,000 per individual or $500,000 per couple.

So for example, if an individual has earnings of $200,000 per year and they have a home they purchased for $100,000.  They sell that home for $400,000 for a net capital gain of $300,000.  They would then as an individual disallow $250,000 of that capital gain for a $50,000.  This $50,000 would then be added to their income for a net income of $250,000.  Since they are earning as an individual $200,000, they can disallow that amount from the tax, leaving them with a 3.8% tax on the $50,000.

If they were earning $175,000 and the $50,000 gain had pushed their income to $225,000, then they would only be taxed on the $25,000 beyond $200,000 because the tax applies to the lessor amount of either the gain itself or the individual’s income with the gain.

Even if one in principal is against this tax, the gist of it is that the hype over the tax has been significantly blown out of proportion in the sense that it will not apply to the vast majority of people.

Why Not FSBO?

We’ve all seen them, you are driving down the street and you see the little red and white sign posted in the front yard stating “FOR SALE BY OWNER” affectionately called in the industry, “FSBO”s.

Now we all know that a seller can save a considerable amount of money if they are able to sell their homes without the help of a professional Realtor but it’s not as easy as it looks.  According to Inman News, 80-90% of FSBOs will eventually list with a Realtor.  Even the founder of ForSaleByOwner.com, Colby Sambrotto, had to list his home with a Realtor (and for full commission!) in order to get it sold, click here.

But here are some other things to consider if you are thinking of selling FSBO:

1.  There is little or no incentive for a buyer to want to buy a FSBO.  The seller pays commission and so the buyer is not paying for representation–representation that is not only providing them with ALL the local market activity but also protects them against potentially unscrupulous sellers.  This is one of the biggest financial decisions a buyer will make and at no cost to them, they want a professional to guide and protect them.

2.  You don’t have access to the Multiple Listing Service (MLS).  Virtually all the major search engines are tied to the MLS and your FSBO won’t even show up on the radar.  Most people search by stating “homes in _____ city” and the FSBOs aren’t going to pop up.  Unless a buyer is looking for a FSBO specifically (and why should they?), your home will be getting little exposure on the web which is where the vast majority of people are looking.

3.  Agents won’t show them.  This limits your FSBO prospects to unrepresented and potentially unqualified buyers.  You, yourself, will have to determine their qualifications.  Our California Association of Realtor’s contract forms have protections in place if a buyer cannot perform or cannot prove their qualifications in a timely  manner.  You will not have access to those and you’ll have to be pretty savvy to protect yourself adequately.

4.  FSBOs are frightfully fraught with liability.  California requires extensive disclosures and if you overlook even one of them, you open yourself up to a potential lawsuit.

5.  Think about safety.  You are going to have to be present and open your home to literally anyone off the street.  When a buyer comes through your home with an agent, they are presumably there for what they say, to buy a home.  The agent would not be wasting their time with them otherwise.  Someone off the street may just be scoping the joint out for a robbery, especially if they are able to get personal information from you like your working hours.

6.  According to Bernice Ross of Inman News, FSBOs end up selling an average of 20% less than those who use a Realtor.  You think you will end up with more money in the end but there is just not the evidence to support that statistically.

In summary, I think many people don’t physically understand the work that a Realtor does and so they feel they are overpaying for the job.  There is a lot of work, negotiating, and expertise that goes on throughout the entire transaction.  A complete Real Estate file contains about 60 documents and each of those documents represents an entity, be it a report, inspection, instruction, repair, or disclosure.  Each document may have 3 other people attached to it, meaning it has to be ordered, negotiated, approved and paid for.  This is the expertise you are paying for and if done well, will save you money and headache in the end.

Getting Ready for Market: Declutter!

One of the biggest challenges for many sellers when getting ready to list their homes is trying to get the clutter out.  Sometimes people have lived in the home for decades and let’s just face it, we tend to collect things quicker than we purge them.

Decluttering is essential for a home to show well.  Most people want to move to a home that is better than where they currently are.  This makes the visual appearance of the home is of utmost importance and a home that is cluttered appears to need work even if it is in good condition.  Some other side effects of having clutter is that the home will appear to not have enough storage space and the clutter itself brings the house in, making it appear as smaller than it actually is.  You want wide, bright open rooms to give the appearance of lots of space.

Ideally, one would use the process of decluttering to pare down on what you are not using and no longer need.  This will save money later because you won’t be paying to move that “stuff” or worse yet, paying to store it.

Here are a few strategies for getting the job done:

1.  Take your time and declutter in small, “bite size” pieces.  Set aside several weeks and break it up into 15-30 minute sessions each day–maybe a closet or cabinet or drawer each day.

2.  Get rid of what you haven’t worn or used in a year.  When in doubt, throw it out.  Most things are replaceable and chances are you will never need to anyway.

3.  Have a friend (who isn’t emotionally attached) to your belongings help you out.  They will talk reason into you when you are clinging needlessly to some possession.

4.  Make sure the clutter makes it out of the house.  Many sellers will store boxes and excess furniture in the garage and as long as it’s done neatly, buyers will not think much of it.

 

Yorba Linda’s Own Adventure Playground

One of the most popular programs through Yorba Linda’s Parks and Recreation Department is Adventure Playground.  Each year, about 450 kids participate in the 3 sessions total.

For those who don’t know what it is…it a 2.2 acre plot of land behind the Lasorda Fieldhouse on Casa Loma.  Kids spend two theme oriented weeks (this year Wild West, Indiana Jones and Medieval Times).  They come with hammers, saws, nails, paint and they they build forts, decipher clues, go on treasure hunts and play games.  Add to that a zip line that heads straight into a mud pit where kids can also swim, a rope bridge, tire swing, and obstacle course and you have the perfect summer adventure.

Our Adventure Playground was modeled after Adventure Playgrounds that were built all across Europe.  The idea was the brainchild of a Danish landscape artist named Theodore Sorensen.  He noticed that kids preferred to create their own playgrounds than play on the ones that he created.  He started what has actually been coined “a movement” of Adventure Playgrounds.  Currently there are over 1000 of these playgrounds across Europe.

Adventure playground opened in 1983 after 3 years of planning.  It was born out of the passion of a woman named Jackie Harrison.  She was a member of the Parks and Rec Commission for some time.  She liked the idea after visiting similar playgrounds in neighboring cities.  She orchestrated the collection of materials and the staffing needed to open that summer and open they did with 80 campers for that first session.

Because it is so popular, it is important to get your registration in as soon as possible.  Online registration for residents only began on Monday, April 16th at 7:30 a.m. at www.ylreconline.com . Walk in registration for residents and non-residents will begin on April 30th at 7:30 a.m.  Children can only be registered for one session.  All registrations are contingent on proof of residency and age verification.

92886 March Market Update

There is some encouraging news if we are to compare Yorba Linda’s real estate statistics with those of last year.

The March statistics have recently been posted by the Pacific West Association of Realtors and here is what we can be encouraged by:

Last March there were 262 homes in inventory in our zip code and this year there were only 137.  That means that inventory is down 48% from what it was last year.  The market is clearly tightening up. Coinciding with that is that last March there was 6.6 months of inventory and this March there was only 3.1 months worth…less than half of last year’s.

Pending sales compared to last March are up 58%.  That’s good news!  Interest rates are about at their lowest and home prices are low too.  It’s the perfect climate for buyers.

There was some less encouraging news in regards to home values.  The median price has dropped 10% from what it was last year.  The new median sales price is $509,000 down from $567,500 for last March.

To see the full report, click here:  92886-March Report

April is Financial Literacy Month!

For the 12th year in a row, the Department of Real Estate (DRE), Department of Financial Institutions (DFI) and the Department of Corporations (DOC) are working collectively together to educate the public on Financial Literacy.  They are offering free resources to help people understand the implications of their financial decisions.

This year’s theme is “Helping Californian’s Make Informed Financial Decisions” and is promising to be bigger and better than ever.  If you are considering a real estate financial decision, make sure you visit the DRE website’s resource page where you will find lots of good online seminars on the subject.  There are even programs out there that will reward consumers with help towards their downpayment after completion of a financial literacy course.

Some of the topics that people can get educated on include avoiding fraud, help with managing money, investments, credit, debt and understanding contracts.  They encourage people to seek information about products and services and compare fees and costs of such.  These lessons are good to learn no matter what your age or experience.

According to Bill Moran, DRE Acting Deputy Commissioner, “Financial literacy and consumer education are going to be key factors in applying the lessons learned from the real estate market meltdown.”  He goes on to say, “Financial literacy is very important and informed consumers can more easily avoid the pitfalls of the past.”