(photo credit: mop squad)

Kevin Costner was hot 20 years ago in Field of Dreams. So was that comment “If you build it, they will come.” I received a fantastic comment from a home buyer today for my previous post How Listing Agents Unintentionally Sabotage Their Own Staged Listings:

1. Danica Says:
   May 12th, 2008 at 10:51 am That is so true. As a potential buyer, I have been frustrated many times by Craigslist ads that have no picture. There are a ton of houses out there, and I’m trying to weed out the ones I don’t want to look at - it’s really impossible without a picture.I’ve seen so many places, staged or unstaged, that sounded great on paper and then turned out to be hideous-to-unlivable in person.More importantly, even though online listings at a place like Craigslist are free and offer almost unlimited space, a lot of sellers just put up one or two sentences and no pictures - and to me that says “I don’t have it together enough to actually market this house.”

   And my experience has been that often, that means they don’t know how to deal with the paperwork, or with my questions, or even with basic social skills.I guess in a way it’s helpful to see a boring, picture-less, one-line house ad - because it tells me I don’t want to deal with that seller. But it’s still hilariously frustrating to see an ad online that says something like, “2 BR 1.5 BA NICE!!! MUST SEE CALL JAMES SMITH REALTOR 555-1414!”

This is a brilliant comment, it just goes to show that with that in this fast changing real estate market, our buyers’ behaviors have changed. The old attitude of “If you list it, they will come” no longer works. That worked in the movie Field of Dreams for Kevin Costner but guess what? Kevin Costner is OLD news now. That phrase was coined 20 years ago, so is that attitude. It’s freaking 20 years old. Shouldn’t we move on with the times?

A savvy marketer knows that today’s consumers are so de-sensitized by advertisements that they need more interactive and user-friendly contents [Note: "content," NOT "ads."] to make an educated decision before buying. You can see that through the fast rising numbers of business blogs and web 2.0 services. People want interaction, not sales agenda ramming down their throats.

Also, today’s agents no longer holds monopoly to MLS information. Internet has made today’s buyers more savvy, shrewed, efficient and much more likely to start their buying process without agents. Additionally, if the consumers cannot be satisfied by you, it’s very easy for them to go elsewhere. To be able to work in a competitive market, as a listing agent or FSBO (For Sale By Owners), you will need to get on with the time to provide a comprehensive and user-friendly marketing package.

To do so, here are a few tips as pointed out by Danika, our lovely buyer:

*Online presence is KEY. Staging the property will instantly make the home show-ready online. Once you have staged, having big & high quality photos is a must.

*Don’t just do 1 photo, if you are allowed to post 10, why not do 10?

*Place ONLY good quality photos that will entice buyers’ appetite. Photos like featuring the local eateries or parking lots are not really adding anything to your listing.

*Be creative, not boring and cookie cutter in your listing descriptions. “2Br for sale” is kind of a duh since anyone can read it from the sheet. Why not say something more descriptive that showcase the unique selling points of your listing?

*MOST IMPORTANT: Provide reasonable expectations for buyers. If your listing sounds like the “IT” property to buy and buyers walked into an ill-maintained home, they will turn around and leave immediately because you have wasted their time. If the house is staged, keep it staged while you sell. If you property was already on market then staged, showcase the staged photos online and on flyers and take out the old unstaged photos.

Happy selling!

Cheers,

Cindy

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As our resident expert, Kevin Boer noted in his April 1 posting, the housing market officially hit  bottom a couple of weeks ago. For those of you who  were  skeptical of his information given the  April 1 posting date, and Kevin’s well known reputation for satire and irony, the California Association of Realtors published some new market data yesterday (April 24) showing how real estate really is local, and that the local real estate market in Silicon Valley is humming along nicely, thank you:

In case you’ve been wondering why high-end real estate markets continue to perform relatively well:  One out of every 10,000 American families has an annual income greater than $10.7 million, according to two university professors who study the super-rich.  By their tally, there are some 15,000 Americans who fit into that category.  These individuals also are getting an increasing share of the economic bounty:  In 2006, the super-rich possessed 3.89 percent of total income, up from .87 percent in 1980 and the highest level since 1916.

Strong employment and wage growth are two factors that have helped the San Francisco Bay Area stave off the kind of home sales and price declines experienced in the inland regions of California.  For example, Santa Clara County residents earn nearly double the nation’s average weekly wage and surpassed Manhattan as the county whose residents take home the largest paycheck, according to the U.S. Bureau of Labor Statistics.  Santa Clarans take home an average of $1,585 per week, slightly more than Manhattanites, who earn an average of $1,544 a week.  San Mateo County ranks fifth in the nation at $1,322, while San Francisco is eighth at $1,286.  Nationally, the average is $818.  San Francisco ranked tenth in new-job generation, adding 18,000 jobs for the twelve months ending Sept. 30, 2007.

Despite the above, some worry that California’s technology sector may be in for another “dot bomb.”  But experts say technology and Internet companies are better prepared to weather the storm this time around.  Their reasoning?  Many Web 2.0 companies learned a lesson from their free-spending predecessors and have discovered ways to operate with fewer employees and at lower costs.  That appeals to venture capitalists, who have tightened their criteria but continue to seek companies with strong revenue models.

Lately, I have been describing the market as “upside down”, where I am seeing unusually strong sales activity in the over $3 million market, while under $1 million is about the same as last year, or a little off depending on the neighborhood. What is interesting, is the $1 million to $3 million market, what I call “tweeners”, because these homes are in-between the entry-level and high-end.

Gross simplification warning: Buyers of “tweener” homes have significant amounts of cash or equity to put down, but still need a mortgage, and often a significant one. As banks and other mortgage providers have tightened their lending guidelines from recent years, it has become harder to get a $1.5 - $2 million mortgage, and those have become more expensive. As a result, more people aren’t upgrading, or they are getting priced down from say, $2.5 million to $2 million. Thus reducing demand relative to supply and creating a soft spot in the market.

In my experience, in the $3 million and over market, Buyers have more cash, Euros, Rubles, Yuan, Dinars, stock, gold, trust money, etc. to use to purchase their new “executive home”, so they are less concerned or affected by interest rates and loan qualification hurdles.

Let’s hope that VC money mentioned in the article above keeps flowing so we can keep paying for our million dollar tract homes and $5 a gallon (you know it’s coming!) gas.

I know you will have an opinion or comment, share it here.

Thanks for reading.

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If you’re Eliot Spitzer, probably three feelings come to mind: panic, disorientation and regret.  But if you’re a potential home buyer in the Peninsula region of California, you have good reason to feel excited, encouraged and confident!  Why?  If you read my last post last month, you know that the conforming loan limits for many California Counties are going up and that means cheaper mortgage rates on loan amounts between $417,001 and $729,750.  Now that HUD has made it official that ALL bay Area counties qualify for the revised maximum conforming loan limit, that means potentially big savings on mortgages for qualified applicants looking to purchase single-unit properties up to $810,000 with as little as 10% down!

We’ve all heard the cliche, “the devil’s in the details”, so what are the latest requirements to obtain a conforming loans between $417,001 and $729, 750?  Since I’ll provide you with a link to Fannie Mae website and announcement , I’ll provide you with some highlights that I think are most relevant and let you read further at your leisure:

1. Single-unit properties only

2. Purchase and “limited cash out” transactions only (i.e. no greater than $2,000 going into your pocket upon settlement)

3. If primary residence purchase, up to 90% loan-to-value (”LTV”) allowed if fixed-rate program is selected–700 minimum FICO(R) required; 80% LTV if an adjustable-rate loan is selected–660 minimum FICO(R) required; if refinance

4. If second home or investment property purchase, maximum 60% LTV allowed with minimum 660 FICO(R) regardless of eligible loan program selected

5. If refinance, regardless of type of eligible mortgage program, up to 75% LTV allowed, plus subordinate financing allowed in addition up to 20% LTV–660 minimum FICO(R) required

     a. SPECIAL NOTE, consolidating existing first mortgage and subordinate mortgage into one loan NOT eligible AND six  months of “seasoning” (six payments made on existing mortgage) required to refinance!

6. Loans are eligible for origination NOW 

7. Eligible programs include 30-year fixed, 15-year fixed, LIBOR-based 5/1 ARM (amortized and interest-only payments allowed for this program)– more programs may become available

8. Sufficient employment, income and assets must be verified and each file will require manual underwriting– automated underwriting engines not allowed at this time

Again, I do encourage you to read the Fannie Mae announcement from the 6th of March for all the details, but the above are the top highlights.

So what will pricing look like on these “new” conforming mortgages?  Well, pricing has just recently been released by only a few institutions, but it looks like the 30-year fixed is running at about 6.375% and the 15-year fixed is running at about 6.25%.  The 5/1 ARM pricing is expected to be released next month.  What I do think is that pricing may actually get a little better in the short term as more institutions post pricing and auctions are successful with Fannie Mae and Freddie Mac. 

What’s right for you as a would be home buyer on the Peninsula?  That depends of course on your specific situation, and I do encourage you to consult with your trusted mortgage and financial consultant before placing an offer on a home or refinancing your mortgage.  What I can say is that the majority of our clients who are buying or refinancing today are selecting a jumbo 5-year ARM in the mid-5% range due to its balance of savings, security and flexibility.

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All hail our legislative and executive branches for passing into law the latest shot of adrenaline to our economy: the 2008 stimulus package. And it looks like a record was set with how fast the bill became law– wow, pretty impressive… Efforts like providing consumers with tax refund checks and businesses with additional write-offs should certainly inject the economy with billions of dollars, but many have asked me how raising the conforming loan limit, especially in CA, will truly stimulate the economy. Further, many of those have asked me whether it’s really the right thing to do.

Let’s start with whether it’s the right thing to do. Probably one of the better arguments against raising the conforming loan limit is the fact that doing so seems to reward those institutions and individuals that/who put us into this mess. If estimates by the National Association of Realtors is correct, 500,000 refinance transactions will be generated, 300,000 additional homes will be purchased and 210,000 foreclosures will be avoided. So if we conservatively estimate the revenue generated and the losses avoided using industry standards, the total is over 40 billion dollars! $40 billion certainly helps answer the question of how such an effort helps the economy; but again, why help those who caused billions of dollars of losses and a turned the market upside down? Shouldn’t we be punishing those bad, bad people and institutions? Well, the truth is that many of those institutions and individuals have gone away or moved on. So let’s take a moment to see what’s being created here.

Raising the conforming loan limit has the following benefits:

1. It does in fact greatly stimulate the economy
2. Many consumers who got in over their head will now be able to afford their mortgage
3. Greater affordability for housing is created
4. It will influence a portion of the jumbo market that has been lost and create some investor confidence, and finally
5. California has been long overdue to have a raise to the conforming limit given that over 50% of the nation’s jumbo mortgages were originated in California.

Okay, let’s say that raising the conforming loan limit is good for a moment. What’s next and what are the details? There’s still some speculation, but here goes:

1. The conforming loan amount will be determined based on 125% of the median price of a given county…
2. This allowance will NOT go into effect for purchase or refinance transactions until July 1, 2008 (that’s the earliest date that the loan application may be signed) since the market needs from now to June 30, 2008 to liquidate current qualifying mortgages available for sale from institutions
3. The types of programs allowed will be fixed-rate programs on a full-doc basis, which means that the hybrid, interest-only programs using “stated” income will not be allowed
4. The property must be single-family and owner occupied, which means that 2nd homes, investment properties and multi-unit properties are ineligible
5. Credit scores must be “reasonable” with a combined loan-to-value not to exceed 90%
6. No cash-out, which means that a refinance may not allow the borrower to receive any greater than $2,000 at closing
7. Loans must be funded and closed prior to December 31, 2008

The last question really has to do with what pricing of conforming loans will look like come July 1, 2008. My prediction is that, all things being equal today, that conforming loan rates will increase and that jumbo loan rates will decrease, leaving a much smaller margin between conforming and jumbo loans in the future. Since all things won’t be equal due to decreased short-term rates by the Fed and the overall stimulus package helping the economy, conforming loan rates will increase greater than jumbo loan rates will decrease. So, if you’re buying closer to the conforming level today, you’re better off getting a mortgage for the long term; if you’re at the jumbo level today, you’re likely better off going more for a short-term solution. Of course always consult closely with your mortgage, tax and legal professional for the best advice as it relates to your individual situation.

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I’d like to thank Kristen Emery at Princeton Capital in Palo Alto for providing me with the first bit of information that actually explains what the changes to conforming loans will mean to someone in Silicon Valley trying to buy a home.

A little light reading for you:

We have seen a whirlwind of legislative activity these past few weeks! There is much confusion surrounding the recentlypassed Economic Stimulus Package and higher loan limits. Unfortunately, the new law can be confusing to decipher, andnot everyone will benefit. For this reason, we have provided an outline below that clarifies what this new law means for youand how you can benefit from the higher loan limits. 

Description and Overview:An economic stimulus package just passed Congress on February 7, 2008 and was signed into law by the President onFebruary 13, 2008. This new law is effective immediately and includes a temporary increase in both the FHA andconforming loan limits to as high as $729,750 in high cost areas. This means that the interest rates on many mortgages willgo down because these loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the FederalHousing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances lower than $200,160 -$362,790, depending on the county where the property was located. Also, Fannie Mae and Freddie Mac were only allowedto purchase loans with balances at or below $417,000. This resulted in limited options and higher financing costs for thosewith loan balances above these limits. The new law substantially increases these limits in high cost areas and opens upnew options and lower financing costs for many people. 

How to Determine “High Cost” AreasThere are two things you must know in order to determine if you are in a high cost area: 

1. Understanding the Formula

If 125% of the local area median home price exceeds $417,000, the temporary loan limitwould be that 125% of the median home price with a cap of $729,750. Here are threeexamples to illustrate this concept: If the median home price in your area is $375,000, 125% of that number is$468,750. Thisis above the current $417k conforming loan limit. Therefore, the conforming loan limit inyour area WILL change and go up to $468,750. This number is also higher than thehighest FHA loan limits, so therefore your FHA loan limit will also go up to $468,750. If the median home price in your area is $650,000, 125% of that number is $812,500.This number is greater than the maximum cap of $729,250. Therefore, the conforming loan limit in your area willincrease to highest allowable amount under this new law which is $729,250. (Our median home price is $612,000 for Santa Clara County). 

2. Determining the Median Home Price in Your Area

The Secretary of Housing and Urban Development (HUD) will publish the median house prices within 30 days of the billgoing into effect (30 days from February 13, 2008). HUD does not have any interim stats or information for us to use. However, the bill also states that HUD can use any commercially available data if they are unable to compile theinformation on their own within the 30 day timeframe. With that in mind, it is likely that HUD’s numbers will be relativelyconsistent with the data published by the National Association of Realtors (NAR), which already has a solid track record oftracking and publishing this information on a quarterly basis. Therefore, until HUD actually publishes their version of the median home prices, the most accurate way to get thisinformation today is to utilize the data that is published by NAR. Ironically, NAR just released their latest median homeprice update for the 4th quarter of 2007 on February 14, 2008! Contact me today and I’ll research your info and let youknow exactly what the median home price is in your area and how you can benefit from this information. 

What do all the dates mean?

There is some confusion because the bill has a provision that says the higher limits areonly effective for loans originated between July 1, 2007 and December 31, 2008. Inshort, the reason it is effective beginning July 1, 2007, is because the credit crisis startedto unfold in July and August of 2007. Mortgage market conditions rapidly deterioratedalmost overnight. Many secondary market investors suddenly refused to purchase loansthat couldn’t be sold to Fannie Mae and Freddie Mac. (For more info on how this processworks, please see the article entitled Saga of the US Mortgage Industry.) Unfortunately, many mortgage banks had already funded these loans in their ownportfolio or through their warehouse lines of credit. Their intention was obviously to sellthese loans on the secondary market after the loans were funded. However, the creditcrisis prevented them from doing so, and they were stuck holding these loans in theirportfolio. The July 1, 2007 date in the bill is designed to allow these lenders to unloadthese mortgages and sell them on the secondary market to Fannie Mae and Freddie Mac. 

However, the July 1, 2007 date has no bearing whatsoever on new refinance transactions!

In other words, it doesn’tmatter when the loan you are refinancing was originated. The old loan could have been originated in 2005, 2006 oranytime before or after July 1, 2007 and it would have no effect whatsoever on your current purchase or refinancetransaction.

If you are refinancing a new loan today, whether it is a purchase or refinance transaction, that loan issubject to the new limits set forth in the bill. 

The other date of December 31, 2008 means that the old limits will go back into effect after this year. In other words, now isthe perfect time to buy a new home or refinance your mortgage because after this year, your costs will be higher and youroptions more limited again. 

When does this all go into effect?

February 13, 2008 – immediately upon the President’s signature. Therefore, HUD is obligated to publish the median homeprices within 30 days of that date. However, Fannie Mae, Freddie Mac, and various wholesale lenders may have different policies as to how these new loans are going to be priced and underwritten.

 - - - Information provided by:

Kristen Emery

Princeton Capital

kemery@princetoncap.com

650-566-5754

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. . . Said my friend Amy to me the other day. Since she is sort of a typical first time buyer, (actually not), I decided to make an example of her and contribute to her 15 mins of fame.

Amy is your somewhat typical Sillycon Valley MBA tech-marketing type. She works in marketing for a large company, so her income is derived from her salary, as opposed to commissions or stock options that may or may not vest. The company is stable, so her bonuses tend to be consistent and her income fairly predictable. She recently moved from one giant tech company to a large one, so she has a number of years of experience in her industry and job classification, excellent credit, and some equity from a condo that she sold.

Being an MBA, and financially conservative (politically liberal), she can comfortably afford something in the $650K price range, even in the current lending environment. The previous idea was for her to take out two mortgages, a conforming loan of $417,000, and then a second or equity line to cover the rest.

Now that Mr. W. has signed off on the stimulus package that included a short-term increase in the conforming loan limit for 2008, Amy’s interest in buying a house has gone up. The tax rebate will let her buy her kids a happy meal and some new jeans, so her interest is much more in the mortgage changes.

At the time of our conversation, the difference in rates between a conforming (under $417,000) and jumbo ($417,001+) loan was about .75%, depending on a million things, which I will leave to co-contributor Eric Trailer to explain. Jsut plugging in some numbers, on a loan of $585,000 (10% down on our $650K house), her payments would drop about $4300 a year excluding taxes if that loan was at the lower rate. Now we are talking interesting.

Admittedly, this is very simplified, because it doesn’t take into account the cost of a conforming first and then a second, or whether lenders will have tiered pricing based on the loan amount, or credit scores, documented vs. non-documented income, etc., etc., etc.

My intent is to show the effect of this new law on “normal” Silicon Valley home buyers who have “normal” jobs, and are trying to put a roof over their heads. While the tax rebates of a few hundred dollars will only have minor impacts on most of us (I get $300, I think), the effect on home buying capability will be potentially significant.

Let the comments fly, and thanks for reading.

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The Superbowl traditionally marks the beginning of the Spring real estate market here in Silicon Valley. True to form, we are seeing inventories climb from seasonal lows, and a lot more people visiting open houses on the weekends. As the media continues to run stories on increasing foreclosures, and an economic stimulus package that includes an increase in the limits for conforming loans wends its way through Congress, more and more people are asking me if this is a good time to buy a home.

 In our area (Palo Alto, Los Altos, Los Altos Hills, Menlo Park, Mountain View), prices have been stable in 2007 (except Palo Alto which is up significantly), and we aren’t seeing the big jumps in foreclosure activity that are widely reported in the media in other areas. As the Federal Reserve has cut interest rates to stave off a national recession, loans have become more affordable nationwide, with rates near historic lows.

The majority of short sales and foreclosures in the area have been in homes in the $600,000 price range, having the effect of making many of these homes more affordable as lenders want to get rid of them. In contrast to most economic downturns, the higher - end market is doing better than the lower end.

Fellow contributor and mortgage banker Eric Trailer at Absolute Mortgage Bank in Palo Alto had these thoughts on the local housing market for the next few months:

“The coil on the Spring market is winding tighter every day this year already.  Applications are up 100+% this month over December and January’s production is more than double December’s.  In addition, we continue to be flooded with refinance inquiries this month.  Many of the buyers that we had on the fence have been jumping off in an attempt to get into contract on a home prior to February 9.  Why Feb 9?  That’s the weekend following The Superbowl, and those fence-jumpers feel as though they can avoid the threat of multiple offers by securing their home now.  With many of the top agents that we do business with stating that they have multiple listings coming on the market the week of February 9, combined with the flurry of activity on the buyer’s side, combined further with the strength of our local economy, it’s looks like this Spring will produce transactions well beyond expectation.”

Well Eric, it’s February 10th, my open house for today sold without contingencies 3 days after going on the market, and the number of new listings in Palo Alto this week was double that of any week for about 3 months. It looks like we are off to a good start to 2008, and the local economic indicators are still favorable.

Homes are not liquid investments like stocks, so make sure you actually like the house you are buying, and plan to be there for 5 years or more. With those caveats, in this area, it’s almost always a good time to buy a home.

Thanks for reading.

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Several changes are afoot that may give some breathing room to the troubled parts of the housing market — which includes much of the country, even some areas here in the Peninsula. The Fed’s surprise 75-basis point rate drop a few days ago may lead to lower mortgage rates, and some of those with soon-to-reset adjustable rate mortgages may also be breathing easier.

The news today is that the House of Representatives has signed off on at least a temporary increase in the conforming loan limit, from its current level of $417,000 (more than enough for much of the country, almost irrelevant here) to $625,000, and perhaps as high as $700,000 in high-cost states. Now if the Senate and W. sign off on it, we could have ourselves a deal!

Currently, conforming loans (those which are guaranteed and resold by Fannie Mae and Freddie Mac) are limited to $417,000 in most states, but are about 50% higher in “high-cost” states like Hawaii and Alaska. By some twisted government logic, California is not included as a “high-cost” state.

What impact would raising the limit from $417,000 to $625,000 have on our local market? As a non-mortgage professional, here’s my take on it… (I’m hoping that a local mortgage expert or two may chime in here.)

First, if you’re buying a $1.5M home and putting $300K down — ie you’re borrowing $1.2M — nothing would change for you. Since you’re borrowing more than the limit, your loan can’t and won’t be resold and guaranteed by Fannie and Freddie, and the risk premium for this has increased dramatically over the last year. A quick check over at bankrate.com shows a full 1.16% price difference between a conforming 30-year mortgage at 5.25% and a jumbo 30-year mortgage at 6.41%. Sorry, you’re stuck in the 6.41% camp.

However, if you’re buying a less expensive home — or putting down a lot more money — this could help dramatically. Say you’re buying a $750,000 home and you’re planning on putting $125,000 down — ie you’re getting a $625,000 loan.

Currently, that’s above the conforming loan limit, so with today’s rates you’d be paying (click click click on my calculator) $3914 per month. If the bill passes, you could get that same $625,000 loan for for 5.25% (click click click) or $3451 per month. That’s a handy pre-tax savings of a tad over $500/month, hardly chump change.

The lesson? If this bill passes, and the numbers work out such that the home you’ve been eying would require a loan between $417,000 and $625,000, here’s what you need to do:

• Scramble, beg, borrow, steal — do whatever you need to do in order to get enough of a downpayment to bring your loan in under $625,000.
• Work with your mortgage person to get a big enough second mortgage so that your first comes in under $625,000

Further coverage:

• Brian Brady notes that some political horse-trading may be ongoing as part of the negotiations. In particular, President Bush may have dropped his insistence on increases in loan limits being tied greater regulatory oversight.
• The Front Steps blog posits that this will cause a rush of demand for appropriately priced properties in San Francisco, leading to a good year for real estate.
• A commenter at Socketsite notes the downside of this move: Hooray! Privatize profits, then socialize the losses…Now all the troubled lenders can refinance this toxic garbage and put it into Fannie/Freddie’s lap (oh, and FHA too.)…I’m saving my $300 tax rebate (that I don’t qualify for) so that I can pay my share of the bailout.
• The OFHEO (government body charged with oversight of Fannie Mae and Freddie Mac) released a hefty 19-page position paper earlier this month with some fascinating statistics. Of particular note:
  Nearly 50% — half — of all jumbo loans come from California.

  Secondly, this graph, from the same OFHEO report, clearly shows the havoc the whole mortgage fiasco has caused to the Jumbo loan market:  the difference in interest rates between conforming and Jumbo loans more than quadrupled in 2007.  Here’s how to read this graph:  In January 2007, the interest rate difference between conforming and Jumbo loans was a scant 20 basis points; a confirming loan product at, say 6%, would have a comparable Jumbo product at 6.2%; by the end of 2007, that difference had increased to 80 basis points, so a conforming product at 6% would have a corresponding Jumbo product at 6.8%.

  That’s real money, folks!

  

Caveat: I am not a mortgage broker or banker. In particular, I am not your mortgage broker or banker. The above represents my layman’s understanding of the issue. Don’t make any kind of home purchasing decision based solely on the above. Talk to your mortgage professional. ‘Nuff said.

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Well, it was just a matter of time before someone who bought at the top of the market sued their agent because they paid too much for their house. In this article in today’s New York Times, we learn of the sad story of the Ummels who bought a retirement home in Carlsbad, CA to be near their children.

The Ummels worked with a Buyer’s Agent who had a fiduciary responsibility to assist them in finding and purchasing their home. They looked for quite a while, fired one agent and then canceled contracts on two other homes that they had written offers on. I’m sure nerves were getting a little frayed for all concerned by the time they finally bought their home.

“Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.”

Where things get interesting, and their agent, Mike Little, makes the rest of us look bad is stated further on in the article:

“Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.

A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.

Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.

The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal.

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”

The mortgage brokerage that funded the loan, and the appraisal company both settled out of court, but Mr. Little fights on. I bounced this off of fellow contributor Eric Trailer, and we saw a couple of red flags waving.

1) Mr. Little acted as the agent and loan broker. This is legal, but as noted in the article, he now has twice the motivation to get the deal done.

2) He urged them to get their loan through him - again legal, but the ice in sunny Carlsbad is getting thinner.

3) Mr. Little’s appraiser found the house to be worth $1,150,000 to $1,200,000 in the summer of 2005, the Ummels’ appraiser valued the house at $1,050,000. This is about 10-15%, which is pretty significant, but within the realm of possibilities. I’m getting nervous if I’m Mr. Little’s broker however.

4) Mr. Little didn’t share his appraisal the Ummels. (His broker is drinking heavily at this point.)

Long story somewhat less long . . . The Ummels (plaintiffs) are suing because they didn’t get what they felt was appropriate representation from their agent. This is what many consumers expect of Realtors, and books like Freakonomics don’t help.

One of the things we contributors to 3Oceans preach is Transparency in Real Estate. We share the information and tools that we use with our clients, provide data from unbiased sources like Altos Research, and don’t try to do loans and sell houses at the same time.

End of rant, let the comments fly!

Thanks for reading . . .

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I have long been a proponent of Bay Area real estate, and especially that rare piece of level ground on the Peninsula where the laws of Supply and Demand exert the greatest influence.

Amid tales of worldwide stock market tumbles (US markets were closed today in observance of Dr. King’s birthday), this little tidbit of sanity was embedded in an article in today’s online San Jose Mercury News:

Stock slides: Stocks sank around the world today, as U.S. markets remained closed for the Martin Luther King Jr. holiday.

The most dramatic decline was in India. The bellwether Bombay Sensitive Index plunged 1408.35 points, or 7.4 percent - its largest ever single-day drop in points. The pan-European Dow Jones Stoxx 600 index continued its six week slide, falling 5.7 percent to 308.77 percent.

Yet among the spreading gloom, Silicon Valley is shining.

“Silicon Valley is in better shape than the overall U.S. economy,” said John B. Sloven, director of the Stanford Institute for Economic Policy Research. “My overall assessment is the Silicon Valley economy is going to come through this pretty well unscathed.”

Some facts to consider: Prices in Silicon Valley’s wealthiest areas are holding up. Meanwhile, prices are dropping on low-end homes, increasing affordability. The region added jobs in December for the third consecutive month. Finally, the San Jose region is supposed to lead the state in personal income growth over the next few years.

(Read the full article here)

The interesting point is that the falling prices for lower end housing makes things more affordable for first-time homes buyers. My personal experience is currently supporting this, as I have a couple of clients shopping for their first homes in the $600,000 - $650,000 range, and are seeing personal benefit as homes that were recently listed tantilizingly close to their range, but just out of reach, at $700,000, are now being reduced to under $650,000.

The amazing thing about this area is that the economy continues to reinvent itself, the economic engine continues to churn through economic expansion and recession, and housing remains a scarce commodity because we have very little land to build new housing on.

Not to sound self-serving, but it is a great time to buy real estate here in Silicon Valley, especially if you can scrounge together a 20% down payment and have a history of actually paying your bills. Prices in some areas are down, flat in others, and interest rates continue to be near historic lows.

Donald Trump recently announced that he is seeking investors for a fund that will invest $100 million in California real estate in the next couple of years.

If California real estate is good enough for The Donald, isn’t it good enough for the rest of us?

Thanks for reading.

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