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Coldwell Banker Previews International
Coldwell Banker
166 N. Canon Drive
Beverly Hills, CA 90210
by Cynthia S. Radom Award-winning Certified Seniors Specialist REALTOR
                                                          Since 1994
              NEWS & ISSUES for BABY BOOMERS to GOLDEN-AGERS
         July-September 2014     Cynthia@RealtorRadom.com     (310) 288-0479  CalBRE #01184864

                                     ** Writer and Publisher since October 1999 **

 BREACH of CONTRACT
Who Gets the Deposit
Every real estate purchase agreement normally requires the Buyer to open escrow with 3% of the purchase price.  This money has two functions:
1. initial deposit, to be credited toward the purchase price
2. maximum amount for liquidated damages in case the Buyer defaults
But what really happens if the Buyer defaults or breaches the contract (fails to complete the purchase)?  Is the 3% deposit automatically given to the homeowner?  No!  Even when all principals have signed the Liquidated Damages provision in the purchase contract.

The Damages clause is an agreement, in advance, to what the Seller is entitled, and which states "Seller shall retain the deposit".  The main purpose of the Damages clause is:
- to cap the amount a Buyer may owe in the event of a breach
- to provide the Seller with the maximum liability a Buyer may pay in case of default.  But, release of the deposit to the Seller is not always a given.

Once the Buyer removes, in writing, all their contingencies (inspection, loan and appraisal approval, etc.) they are locked into the purchase.  However, should the Buyer not close escrow, each transaction is reviewed separately as to the "harm" caused in the situation:
- did the property value decline in value during the escrow?
- did the Seller find another Buyer to pay more for the property?
- did the Seller incur added expenses as a result of the breach?  This is the point where the Mediation/Arbitration provision may kick in.

Non-refundable Deposit
Even with a non-refundable provision in the contract, the Seller may wind up returning all the money to the Buyer if no actual damage was suffered.
Per Diem Charge
When a Buyer requests an extension to close escrow, a daily fee can be charged. 
Or, when a Buyer is asking for an extension, releasing the 3% deposit can be a non-refundable agreement, but applied to the purchase price if escrow closes.  This is a more enforceable act when giving, and getting, something in-return. 

Another important note: Buyers often refuse to cancel escrow when their deposit is not returned.  This causes an issue when the Seller wants to open escrow with another Buyer.  What is needed is a good attorney. 
CA's Water Crisis
A typical three-bedroom, single-family home in CA uses about 174,000 gallons of water a year.  There is no disputing that last winter's lack of rain caused an extra burden on CA's ongoing water supply issues.

Effective January 2014 the City of Los Angeles required that any sold home must close escrow with (even lower) low-flow toilets than the 1999 mandate (Code #172075).  The law now requires toilets to use only 1.28
(was 1.6) gallons of water per flush, deemed high-efficiency.  Also, every sold home in L.A. must include water saving shower heads by showing proof with a Certificate of Compliance (the installation cost is negotiable, but the Seller is ultimately responsi- ble).  There may be only one exception to the law and that is if the home sold is a registered historical property.  Plus, the law states no more putting the onus on the Buyer to install after they take possession.  Water-saving devices must be installed prior to escrow closing even if the house is to be remodeled or torn down.  The City states the Seller may be fined, a "percentage increase of their last water bill" (penalty is still undetermined).  But, what is wrong with this law?

When I spoke to a manager at L.A. DWP to discuss their Dec. 2013 memo, he agreed that I found several flaws in the mandate, including:
- no City Inspector can possibly keep track of every pending escrow
- no City Inspector is going to inspect the home prior to closing
- no actual fine has been determined for non-compliance
- no escrow officer can stop the sale from recording with a certificate
Most importantly, after the Seller moves, how or why would they pay the penalty?!!  

Sellers do not fear; this too can be negotiated.  Have the Buyer pay for installation prior to the close.  If that is agreeable, escrow must create a "hold harmless" agreement, prior to the work, as the Buyer does not own the home but is taking responsibility.

According to CA Senate Bill #407, by January 1, 2017 all residential properties in CA, built prior to 1994, will be required to retrofit with:
- toilets: 1.6 gallons per flush (even the City is confused, is it 1.6 or 1.28 gallons?)
- shower heads: 2.5 gallons per minute
- other interior fixtures: 2.2 gals. per minute 
Subprimes are Back
They're back!!  Those toxic, adjustable-rate mortgages, like exploding ARMs, that led many borrowers to lose their homes to foreclosure during the housing bust, have returned to the market place.  A handful of small lenders (Skyline of Calabasas CA) are once again starting to offer subprime loans to borrowers who pose a higher risk, such as a credit score below 640.  This time, the loans are much more costly.

During the housing bubble, lenders were issuing subprime loans with cheap teaser rates and little or no down payments.  Now, lenders are charging interest rates as high as 8%-10% and as much as 25%-35% down payments.

Borrowers with bad credit who are trying to rebuild their score, or young, first-time home Buyers with no credit history find paying the premium price is worthwhile.  Most of these would-be homeowners have nowhere else to turn.
Freddie and Fannie, which back 80% of all U.S. home loans, won't back subprime loans.  Only the Federal Housing Admin. (FHA) continues to support low-credit score borrowers, but with hiked fees and premiums.

Other new caveats, issued by the Consumer Financial Protection Bureau, include:
- loans can not carry interest rates that increase after default
- no prepayment penalties
- lenders must provide home ownership counseling from a rep approved by the U.S. Dept. of Housing and Urban Development

Wells Fargo recently lowered the minimum credit score it requires of borrowers to get FHA loans to between 600 and 640.  Lenders, in their benevolent fashion, will gladly refinance subprime loans into lower rate loans once a borrower demonstrates they can regularly pay on time  and their credit score improves.  Wonder what they charge for a re-fi?!!

    Where Water is Used
How a typical CA family uses water in their home:
- 4% flushing toilets
- 4% washing clothes
- 9% kitchen and bathroom faucets
- 9% over-watering landscape
- 17% showering
- 57% watering landscape
 
     Referrals are Appreciated
Okay, so you're not moving now, but you may know someone who is.  Ask them to call REALTOR Radom for a no obligation talk: (310) 288-0479.  Everyone appreciates a great  referral. 
Assignment of a Buyer  
What does it mean when a Buyer submits an offer in their name plus, "and/or Assignee"?  Prior to the close of escrow a Buyer may want to transfer ownership or take title in a different name, or entity, that was on the purchase contractFor example: a Buyer may want to add their spouse to the title or put the property into a family trust.  Another example is a Buyer who may take title to the property in a newly created LLC (limited liability company), which includes a group of partners.  Or, if one of the original Buyers can not qualify for a loan, the lender may require that he/she be removed from the transaction, but later added to the deed.  Whatever the "vesting" (the right to convey) the Buyer should state their name in the purchase agreement and add "or Assignee".
What does this mean for the Seller? 
Since the Buyer named in the purchase agreement is the only one vetted as to their ability to qualify for a mortgage or to their sole access to the proof of funds, the Seller's agent needs to:
1. add the following phrase in a counter offer: "Assignee must be a controlled entity of Buyer"
2. request, in the counter, that the Buyer identify the Assignee prior to acceptance of the offer
NOTE: the original Buyer must always be ultimately responsible for the close of escrow, especially when transferring to a new Buyer.
What is escrow's responsibility?  The escrow officer will be required to prepare a contract modification with an amendment assigning all rights, title and interest of the original Buyer to the second Buyer, the "Assignee".  This instruction will be given to and signed by the original Buyer, the new Buyer and the Seller(s).  
Residence Corner
Closing Costs
When buying or selling property there are associated costs
related to whatever side of the transaction you hold as a Buyer (B) or as a Seller (S).  The closing (aka settlement) costs are an accumulation of separate charges paid to different entities for professional services rendered or for miscellaneous charges to complete the transaction.  These costs are deducted from the Seller's proceeds or are included in the Buyer's closing costs, such as:
- loan and appraisal fees (B)
- escrow charges (B & S)
   - escrow fee, document prep, archival fee, wire/overnight fee
- property taxes (S)
- homeowner's insurance (B)
- title insurance (S)
    - owner's coverage, inspection and review fees
- real estate commission (S)
- recording fees (S)
   - city and county documentary transfer tax
- settlement fees (S)
    - home warranty
    - zone disclosure report
    - pest and retrofitting costs
    - certificate filing to DWP
- outstanding loans (S)

Many of the closing costs are computed on a cost per thousand dollars of the selling price.  A rough estimate for Seller closing costs is the commission rate + 1.5% to 2% of the selling price, and Buyer's pay about .05% of the selling price + any costs for getting a mortgage.

The escrow officer, at any time, can compute an "Estimated Settlement Statement" based on a guesstimated selling price.

         Tidbits of News 
Fleur De Lys pics
350 N. Carolwood
Sold!  ALL CASH!
$102 Mill
exactly five years to the day from  listing.
- Corrections: 460 N. Palm, opening this summer, will have 35 condos.  Call me for pricing.
- Highest property tax paid in the
U.S. as % of home value is in
Allegany County NY at 3.76% (L.A. County property tax is 1.25% of the purchase price).
- Airole Way, above the  Bel-Air Hotel, is the site for L.A.s largest home now underway, including a two-story 70,187 sq. ft. main house and five swimming pools.  The biggest mega-mansion in O.C. will be 55,000 sq. ft. along the coast.
- Plaza Santa Monica mixed-use  site proposal includes: a 12-story, 148-ft. high tower with 96 housing units, 225 hotel rooms, a cultural venue and 1,200 parking spaces.
- One in three CA residences sold in the first quarter of 2014 was paid in all-cash.
- In Arcadia, the popular Asian community, nearly 60% of sales in 2013 were all-cash deals.
- New 22-unit BW condo building is now open at
11657 Chenault St.
Another Bubble?
A spike in home prices alone does not a bubble make.  CEO of Redfin, an online real estate company, compares today's market with the 2008 bubble:
- twelve of the 19 markets tracked saw double-digit price gains in 2013
- about half of new listings are pending within a week and multiple offers are becoming the norm
- home prices are rising much faster than income, which can signal a coming bubble
- during the last peak inventory was low, not for lack of new listings but because of Buyers creating a purchase frenzy.  Today, new listings are scarce and standing inventory is at record lows, which leads to a Seller's market
- abundant financing was available to anyone during the frenzy, and over a quarter of homes were purchased with zero-down loans.  Many new purchases rapidly became foreclosures or short sales causing post-bubble pain in the housing market
 - all-cash deals were relatively rare, about 17% of sales.  Today, the tables are completely turned.  Only 6% of sales are zero-down while nearly half (46%) are all-cash
- recent mortgage rate increases have not dampened Buyer enthusiasm, as rates are still low by historic standards
- inventory levels in 2014 remain to be seen as more Sellers and new construction may be ready for sale.  A market correction may be triggered if inventory is plentiful
- the dearth of listings and double-digit price gains are not sustainable
- evidence points to more of a
"bottom bounce" than a bubble

Yet, what we see so far in 2014 in the L.A. area market is increasing prices, where values have reached pre-bubble levels.  In some areas, prices have already exceeded the 2007 highs.

    Selling at Wholesale
When a developer or speculator offers to buy your home, especially without a REALTOR they are paying you a wholesale price; bottom dollar.  First, they automatically deduct the commission amount from their offer, then reduce the price further so they can make more money when re-selling the property.

As a Seller you are looking for an owner-user, someone who will live in the house and who will pay you a higher price for your home.  Also, surveys prove that listing your property with an agent and using the MLS and other internet sites puts more money in your pocket.
Luxury Home Market

Coldwell Banker issued the 2014 Luxury Market Report which reviews the top U.S. cities for estate listings and sales in three price categories.  Here are the top markets, per city:
Closed home sales 2013  

$1 Million+ Market

San Francisco
2,294
Los Angeles
2,220
New York
2,076
San Jose
963
Chicago
900

$5 Million+ Market

New York
163
Beverly Hills
99
Los Angeles
98
San Francisco
62
Miami Beach
59

$10 Million+ Market

New York
43
Los Angeles
27
Beverly Hills
26
Miami Beach
16
Aspen
12

 

Active listings (as of Report):
$1 Million+ Market  

New York
3,538
Naples
 931
Scottsdale
826
Miami Beach
825
Miami
735

$5 Million+ Market

New York
1,041
Miami Beach
196
Greenwich
126
Naples
108
Aspen
108

$10 Million+ Market

New York
440
Miami Beach
67
Aspen
43
Greenwich
39
Malibu
38

If you would like the full report e-mailed to you, send a request to: Cynthia@RealtorRadom.com

NOTE: Speaking of luxury home sales, here are some stats in the greater L.A. area market:


$5M to $10M: 369 Sold in 2013 (eight more than in 2012 and 107 more than in 2007 during the market high)
$10M+: 95 Sold in 2013 (four more than in 2012 and 24 more than in 2007)

 

Condos on the Rise 
How have condo median prices in your area fared in the first quarter of 2014 vs. 2013?
Beverly Hills
+40%
WW-Cent. City
+23%
Culver City
+20%
Marina del Rey
+19%
Sunset Strip-HH
+19%
West Hollywood
+18%
Pac. Palisades
+16%
Playa del Rey
+13%
Brentwood
+08%
Santa Monica 
+02%
Playa Vista
     -26%
Malibu Beach
-55%
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Respecting your privacy and confidentiality, names and e-mails will only be used for providing pertinent material by Cynthia S. Radom and will not be shared with any other organization.

2014 Coldwell Banker Real Estate LLC.  Coldwell Banker is a registered trademark licensed to Coldwell Banker Real Estate LLC.  An Equal Opportunity Company.  Equal Housing Opportunity.  Owned By a Subsidiary of NRT LLC.  This is not intended as a solicitation if your property is already listed.