The Secrets To Buying Off Market, or “Off MLS.”

Houses not sold on MLS have been on the rise this year. Just a month ago,  twice as many have closed off market  in 2017  vs. in 2016 .

While there are certain advantages to buying or selling “off market”, there are also potential issues. Our manager always points out that many of the legal disputes she has seen in real estate happen in off market sales. Sellers sometimes believe they didn’t get enough for their home, and buyers sometimes believe they paid too much.

We almost always recommend putting a listing on MLS. By listing a home through Coldwell Banker, the MLS listing gets fed immediately into over 900 real estate websites, from Zillow to a number of international sites. More exposure means more buyers look at the house, and more buyers looking means more money for the Seller.

Occasionally, there may be situations where it makes sense for the Seller not to put it on MLS. For example, the house may require extensive work to get it ready for market, and it’s late June, the end of the selling season. Rather than doing the work and putting the home on in August, it may make sense to offer it for sale off market in its current condition- but still at the price it would be in August. This works in that the Seller may get their price without investing significant money and time in home prep, and the Buyer gets to purchase in a non-competitive situation.

How do Buyers get connected to off market deals? Through connected agents, who have strong networks of other agents and spheres of influence in the community.  The home never appears on MLS, so the general public never even knows the house is available, let alone get the chance to write an offer on it.

It is not for everyone. The house may have flaws, sometimes big ones, the Buyer will have to take on. It also requires a Buyer who knows the market, and what they want. When writing an offer and the Buyer knows four other people are writing as well, there is a feedback loop that says “this house is worth it, all of these other people want it.” In an off market deal, they Buyer may be alone, without all of the external cues of going to a crowded open house, seeing the home in perfect condition, or hearing about all of the other interested parties.

We successfully negotiated an off market sale a few months ago for a Buyer in Chapman Park, a very desirable area in Corte Madera. The home had been severely damaged by fire, and the Seller was waiting for the insurance settlement to clear. Once they had the money, the Seller  would then have to go through an extensive renovation and permitting process to make the house habitable again. The Seller was a trustee who lived out of state, so this was not going to be easy.

Further complicating this was that since the house was not habitable, banks would lend on it based only on land value, a fraction of the price, so it would require an all cash buyer.  We knew the listing agent well, had been in contact with her about the home for several months, and as the Seller’s frustration grew, we moved. We were able to put together a deal that worked for everyone, as our client had cash and the expertise to take on the risks of a fire damaged home. In this case, everybody won. The Buyer got a good house in a great location, the Seller got a fair return, and did not have to deal with renovation, permitting, and insurance settlements from the East Coast.

It’s always best when everyone wins!

 

Inspection Overload: Why You Should Get Inspections Up Front If You Are Selling in Marin County

One of the other interesting outcomes of the hot market is inspection overload. It works like this.

The buyer gets into contract, over list price, and is ecstatic. They just beat out a bunch of other buyers. So what do they do? Inspect, inspect, inspect in an effort to find something wrong, and gain concessions back on the price.

We had a listing where the Seller, following our sage advice, had done a home inspection, pest inspection, and had replaced the sewer lateral. The house was very clean, with almost no issues. They had also used the inspectors we recommended, who are well known and respected in Marin.

I was more than a little surprised when the agent who represented the prevailing buyer (there were two offers) advised me they needed an entire day as they had scheduled 1). their own home inspection 2) their own pest inspection 3) a drainage inspection 4) a chimney and fireplace inspection 5) a roof inspection and 6) a structural engineer inspection.

I immediately asked, “Gee, why didn’t you hire a soils engineer?”

That is about, by my reckoning, well over $2000 in inspection fees, for a house that has already been thoroughly checked out. According to the contract, the buyer is allowed to do any inspection they want, if they ask. We always encourage buyers to do inspections if needed, or if the seller has an existing one by a reputable contractor, then we at least do a walk through with him, usually for about $150. But all new ones? On a house clearly in excellent condition? Inspection overload.

So if you are a seller, what do you do?

First, get your own inspections up front, from reputable inspectors. Don’t save $75 and hire the guy no one has heard of from Vallejo. Second, work to get other buyers into backup, if you have multiple offers, so you have leverage if someone starts to press for concessions.

And finally, prepare yourself mentally – you are about to hear the worst possible things about your home in ways you didn’t dream were possible, from trade specialists you didn’t even know existed.

Just remember you are now in a business deal, and you are negotiating. And with good representation, we can preserve your hard won price and get you through to close.

 

Secrets To Competing for a Home In Marin County, Part 2

How to Compete in Marin County

As we said last week, this is a tough place to buy a home, and while “spend more” might seem like the simple answer to get the home you want,  it is isn’t always that simple.

There are several tactics buyers can use at the offer stage that can push the scales in their favor when offers are close in terms of price and terms, but the focus on this entry is on the basics.

1. Get pre-approved for a loan from a recognized Marin lender. This is not a pre-qualification, it is full approval on the loan. While this still involves a loan contingency when writing an offer it removes almost all uncertainty from the approval, as it requires review of all pertinent tax documents, income verification, and credit history. Some lenders are even now promising this will constitute full approval on the loan, allowing buyers to go in without a loan contingency.

2. Get educated. Look at homes, a lot of them. Figure out what is really important to you, and what isn’t. Everyone starts out with a long wish list, but everyone needs to prioritize that list, and that only happens by getting out there and kicking tires. This is critical because when the time comes to pull the trigger and write an offer, you’ll need to jump in with both feet. You may need to spend a little more than you wanted to, or have to shorten contingency time lines, or even accept the seller’s inspections instead of doing your own. Confidence in your choice makes that decision process easier.

3. Get agressive representation. Find a good local agent to help, and one who isn’t just trying to sell you a house. A local agent can help immeasurably by providing information about the pecularities of Marin – school districts, commute times and modes (car? bus? ferry? bike?), climates, and communities, just for starters. They can also size up a house quickly, and help you understand the pluses and minuses of the home- is it in the flats? On a hillside? What’s a flood zone? Honest information and opinion from a seasoned professional will help immensely.

Here’s a good test: do they tell you what’s wrong with a house? Ever? Or is it just a chorus of “yes!”. Good agents are interested in building relationships and know their credibility depends on guiding clients to a decision they will be happy with.

4. Tighten the offer to give it every edge it can. Work with your lender to shorten all time frames as much as you can, from close date to contingency removal. Line up inspectors and find out how fast they can do the work, and tighten the inspection contingency accordingly. If they are reputable, do walk throughs with the Seller’s inspectors, they’ll often do it very quickly for you. Write a letter to the seller, explaining why your offer is so important to you. Visit the open house, introduce yourself to the listing agent, and let them know how much you like the house- they will be influential in helping the Seller decide who to work with.

That, as I said, are the basics. There are additional tactics we use with our clients as we get close to making an offer and as we go through the process to increase our success rate, but we can discuss those if we ever work together!

First Time Home Buyers: Secrets to Competing for a Home in Marin County

I love working with first time home buyers. Lots of experienced agents run in the other direction as fast as they can when working with someone who doesn’t know what a title company is or why they need one, but I have always enjoyed it. Many of the rewards of helping a young family achieve their goal and buy their first home are intangible, although of course we do get paid (by the Seller, not the Buyer!)

In fact, I was recently honored to have an article published about some of my clients in the Marin Independent Journal, and talked them about why it is so difficult. Where to start?

  1. Prices are high. Average sale price in the County YTD is $1,312,279. And the sale price is 6% higher than the list price – so that means on average, homes sell for 6% over list price. Gulp. That includes condos, by the way.
  2. Inventory is low. As I said in the article, it seems like it is always low. There are 627 homes for sale in the entire County, and only 348 of those are under $1,500,000. And 188 of those homes are already in contract. That is not a lot to choose from, for sure.
  3. Multiple variables make selection difficult. School districts, commute times, neighborhoods, weather, communities, all need to be evaluated in selecting the right area, and they are all different. It’s not easy. For example, in the middle of summer its not uncommon for it to be 55 degrees, cold and foggy at Muir Beach, or even Tam Valley. Meanwhile, in Chapman Park in Corte Madera it might be 80 degrees and sunny, the Dominican in San Rafael could be 90, and in Novato it could be pushing 100.  Commutes are all over the map: Car? Bus? Ferry? Bicycle?
  4. Homes are old. We don’t have a lot of new construction so homes tend to be older, and that means understanding the condition of the home and how it has been maintained takes on added importance.

So why buy here at all? Just because everyone else wants to? Hardly. The towns are small, the weather is spectacular, schools are excellent, commutes relatively short, and most importantly 82% of the County is preserved as open space, park land, or agricultural land. If you like the outdoors, and solitude, you can find it in Marin, just minutes from  San Francisco.

So how to compete in this difficult environment and get a home? That will be the subject of our next entry!

In The Buyers Corner: Should I Rent Or Buy?

One of the thorniest issues for a potential home buyer to answer is “When should I stop renting and buy a house?” Much of that answer is driven by lifestyle, and life stage. Marriage, children, and the search for school districts are some of the big motivators for home purchasing.

Sometimes though it is also a question of allocation of financial resources. And in some cases, in some markets, in some times, it may make more sense to rent than buy because it is cheaper. That is rarely the case in Marin County, as the restricted supply of homes here means long term, appreciation in home values will almost always trump a temporarily lower cost to rent.

A great resource to show this is the New York Times Rent vs. Buy calculator. It allows you to input 21 different variables, from the price of the home to the cost of home insurance, on a very easy to use interface, and constantly updates the “magic number”, or the price at which it makes sense to rent. We ran a couple of different scenarios, and the answer was always “buy”. For example, we input the numbers of a home we recently valued for a client at $1,650,000; the number it was better to rent at was $5,432 per month. The home was rented two weeks ago at $7000 per month.

It has been that way for the last several years, although there are signs that the rental market is softening in Marin County.  But constant appreciation in value, which has been the norm for the last 60 years in almost every single year, means that buying usually makes more sense.

So as difficult as it may be, if you want to live in Marin, it still makes sense to buy instead of rent, if you can afford it.

In The Buyers Corner: Offers with no contingencies

Should I make an offer with no inspection contingency?

In entry level homes in Marin County, where the competition is red hot, we are getting this question a lot right now. And as much as we don’t like to do it, sometimes our buyers waive that contingency in order to be competitive.

However, it is only with certain conditions. Often the Seller has done critical inspections up front. If that is the case, and the inspectors are reputable, we can often get those inspectors to walk through the home for a nominal fee  and take the Buyer through the inspection points. Then the Buyer can ask questions, see the issues in person, and determine if they are comfortable moving forward and waiving the inspection contingency.  We are working through that scenario right now with buyers in Corte Madera.

If everyone feels comfortable at that point, then it is ok – the Buyer knows exactly what they are getting, and can make an informed decision. Often times the verbage in a report sounds worse than the actual condition, so seeing it and discussing it in person is remarkably helpful.

An offer with no inspection contingency is  much more compelling as the Seller now has to only worry about financing contingencies. Here, a solid pre-approval letter from a reputable lender will provide very high odds of the deal going through.

Some buyers are even waiving the financing contingencies. In any market, we consider that extremely risky. While the odds of something not going through after a good pre-approval letter is written are very low, it does happen. We still aren’t comfortable with that one, but have done it at the Buyers direction to stay competitive when they believe it is absolutely necessary.

City Inspections In Marin County:They Are All Different!

All Marin towns require a resale inspection when a house is sold. However, that inspection varies dramatically in terms of what is inspected and what it costs, depending on what town you are in. In some cases, it has become extremely controversial as well as costly for homeowners, especially in San Rafael.

This controversy has been brewing for several years, but really took off when our local Assemblyman, Marc Levine sold his house in San Rafael two years ago. The inspector noted a lot of work that had been done with out permits, and ordered it all removed or repaired prior to sale. All of which may seem fair, except that Levine purchased the home a few years earlier, and the City had done the same inspection, and cleared all of the work, which had been done by the prior owner. Levine spent a lot of money to clear the work prior to the sale, and in the process learned this was an issue for a number of other homeowners. A few months later at his request, San Rafael’s inspection process was audited by the State of California.

The audit was critical of San Rafael’s process and as a result, San Rafael held public hearings on the topic. The Marin Association of Realtors (MAR)strongly advocated  that the program be changed to the same process used by Corte Madera and Sausalito, which charge $130 and issue a one page summary of the permit history for the home. MAR’s rationale was that homes sold in Marin County are almost always thoroughly inspected, far more thoroughly than the city does, and issues such as unpermitted work and code compliance surface then. Additionally, Sellers are required on the CAR Real Estate Transfer Discclosure Statement to disclose unpermitted work, and in our experience, usually do. In our experience the resale inspection process  is often enforced in an arbitrary and inconsistent manner, and is an unecessary and redundant expense in an already expensive process.

In the process used by Corte Madera and Sausalito, it becomes the buyer’s responsibility to check what has been done on the property, and discuss discrepancies with the Seller. The most complex inspections right now are Novato and San Rafael, where an inspector walks the property, and checks for any work done without permits and highlights other issues, such as railings that are no longer to code. It is done, to some degree, at the discretion and thoroughness of the inspector, which has caused a lot of issues.

The most expensive town is Fairfax, where the cost is $350. The County does not have a resale program, nor do 90 % of the municipalities in California.

San Rafael did change the law, but made the process more open and thorough. They added a checklist that homeowners can review up front to be ready for the inspection, and they also changed the time frame for correcting unpermitted work to 180 days. This enables many Sellers to push the responsibility on to the Buyer. They also raised the price – to $295.