I adore the neighborhood of Willow Glen in San Jose. I remember when I first moved to San Jose I lived in Cambrian Park (another great neighborhood) and would come to Willow Glen each holiday season to admire the Christmas Trees that the residents would place in their front yards. Yes, Christmas trees completely decorated with lights, ornaments, and a tree topper; a sort of neighborhood "festival of lights". To walk up and down the brightly lit holiday streets and then have a cup of cocoa at one of the coffee shops in downtown Willow Glen remains one of my family's favorite traditions.
Willow Glen offers that community that so many of us are looking for. Diverse architecture, diverse population, kid-friendly, dog-friendly, and active. There is always something going on. The annual festivals throughout the summer and fall months keep us all full of kettle corn and live music. The parks are great social gatherings for sporting events, birthday parties, and plain 'ole family fun. We can walk our streets and wave hello over and over to our extended neighbors.
I am a little biased. Five years ago, I was able to make one of my dreams come true by moving into this great neighborhood called Willow Glen. Yes, I bought at or close to the peak of the market. But I have been very pleasantly surprised at how well our little corner of Willow Glen has weathered the financial storm. I thought it would be interesting to take a look at where we were and where we are in regards to the housing market of Willow Glen.
Below is a graph that outlines the boom and bust time specific to Willow Glen. If you look at the average sales price for a home in September 2009, you will see we have dropped back to 2004 prices. When I have run these stats for Alum Rock, they dropped back to 2002. Some parts of South Santa Clara County dropped to 1998 prices. There is something to be said about stable neighborhoods. (These averages are for single family detached homes. Reflective of the majority of homes in Willow Glen.) 
In this next graph you can see the market barometer that indicates whether or not the Willow Glen area is in a buyer's market or seller's market. Currently, there is only about four months of inventory on hand which would lean toward a seller's market. The challenge that you can't see in these graphs for Willow Glen is the number of higher priced homes for sale.
Looking at the price range of a neighborhood also indicates the local market. A buyer requiring a loan for $729,000 or above is paying close to 2% higher to borrow money than someone who's loan amount is under $729,000. Even better if the loan amount is $417,000 or below. Therefore, you can look at the market in how a buyer affords a home. If the home is under $300,000, many buyers are investors with all cash. Between $300,000 and $500,000 a mix of first time buyers and investors. Many of these loans are FHA loans requiring a minimum of 3.5% down payment.
The $600,000-$800,000 are typically two-income buyers with at least 20% down ($120,000-$160,000). Above $900,000 the buyer either is a "move-up" buyer utilizing equity of a home they sold to buyer a bigger/better home or a home in a better neighborhood or a buyer with the means to support a 25-30% down payment and mortgage payments of $5,000/month or more. These are broad generalizations but it helps to identify the type of buyer and therefore the activity you might see in a neighborhood. Depending on the availability of "jumbo loans" (>$729,000) and their associated interest rates high-end homes may see substantial price pressure in the coming months on these upper level homes in Willow Glen.
Finally, the infamous "straw" for any neighborhood value lies in how many distressed homes are in the make up of total homes for sale. Willow Glen has averaged around 20% of its active inventory in distressed homes over the last two years. If we look at the number of sold homes over the last year in Willow Glen, a total of 37% were distressed. Distressed is broken down into short sales and foreclosures. Compared to other neighborhoods Willow Glen has been on the light end of the foreclosure stick. East San Jose has seen nearly 60% of the homes for sale to be distressed. However, we may see foreclosures increase slightly in 2010 due to unemployment and adjustable rate loans due to adjust this coming year.
Overall, Willow Glen has managed the economic storm quite well considering the challenges facing each home owner. It is interesting to think maybe, just maybe, what makes a neighborhood stable is the community that lives there. Good, stable incomes lead to a reduction in the "struggle factor" related to raising families and the ability to place food on the table and a roof over heads. There is an social economic wake up call that has come out of these last two years. For those just barely "hanging in there" we have to recognize the American Dream remains a difficult dream to make come true. We must continue to find ways to help families not only obtain the American Dream but also help them keep it. In the meantime, another holiday season is approaching and I know the streets of Willow Glen will make me smile once again. Cocoa anyone?
The "AS-IS" title has a different meanings to different people. When I speak with buyers and sellers about selling or purchasing a home, they rarely have the same definition of what "AS-IS" means. If you speak with a seller they might believe that by having their real estate agent advertise the home "AS-IS" on the local multiple listing service (MLS), it will prevent them from completing any repairs that the buyer might request. Sellers can also believe the "AS-IS" statement protects them from legal charges down the road. If you speak with the buyer they might believe the "AS-IS" really means there is something terribly wrong with the home or more specifically, what is on the MLS is not exactly the true picture of the home itself. Let's break this down from both perspectives.
For the Seller:
First and foremost, as a seller you are never protected from legal actions because of an "AS-IS" statement. You are best protected by disclosing all known issues with the home. If you know about it, disclose it. If you suspect something is wrong, not working, might be, could be not quite right; disclose it. If you think there might be a plumbing leak but think that if you don't look for it, you don't have to disclose it, an you are covered. You are not. However, if you had no clue, no reason to suspect, no one ever told you, that the foundation had a crack; you are not responsible for disclosing the fact you didn't know. If you are not clear on what to disclose, here is a simple rule; If you know of anything that might affect the value of the home in a buyer's eye - disclose it.
If you have lived by the railroad tracks 40 years and you fall asleep every night to the sound of the choo-choo running down the tracks, you should disclose that there is a rail road track near your home. Don't wait until you are in the court room to state, "But your Honor, it never bothered me." Even with incredible tools like Google Earth, the seller is responsible for telling the buyer everything that is known about the home and neighborhood.
One piece of advice to sellers. Forget "AS-IS". In my opinion advertising "AS-IS" raises questions that don't need to be raised about the home's condition. When a buyer comes to buy your home they see the home "AS-IS". They are buying it "in current condition". The seller does not need to explain why the house is 40 years old, it simply is 40 years old. The advertising "AS-IS" sets up more challenges then it is worth. Leave opportunity for negotiation on everything. If it is a simple plumbing leak, why wouldn't you want to fix it to sell your home? If it is a foundation crack with a $40,000 price tag to fix, why should a buyer simply accept it without seeing a credit for repair or discount in price to reflect the true value of a home with foundation issues? The best way to negotiate any deal to the best interest of all parties is to slip on the other side's moccasins. Remember, a key component of any contract is a meeting of the minds between parties.
The next piece of advice to sellers is to complete inspections prior to marketing your home. Knowing what needs to be fixed and fixing it almost always cost less then when the buyer finds it through inspections. Negotiating repairs in the middle of the contract almost always cost more because of the emotions involved. Always complete repairs with an appropriate professional. Your local code may require licensed contractor for repairs over a certain dollar amount. Make sure the receipt details the work completed and ask for a transferable warranty.
For the Buyer:
Fair market value is in the eye of the buyer. The buyer should be aware that signing an "AS-IS" addendum may be a good trick to get an offer accepted to the unknowing seller but in the end, the buyer has the right to negotiate anything discovered during the contingency period. If you write an "AS-IS" addendum, expect an agitated seller when you ask for repairs. It is much more difficult to negotiate with someone who thinks you pulled a fast one on them with an "AS-IS" addendum. If the buyer makes an offer on the house based on an hour walk through, then completes inspections and finds items that were not known to the seller but affect the value of the offer they presented, they should attempt to negotiate repairs, accept the home without repairs, or cancel the contract.
On the other hand, if as a buyer you receive all the inspections and disclosures from the seller before you make the offer and then later ask for repairs of known/disclosed items, it is a tough negotiation. The buyer has the absolute right to ask for anything during the contingency period, but your chances of getting your wish may be limited by your knowledge at the time of writing the offer. It is always best if you can review disclosures and or inspections prior to writing an offer. It is better for everyone involved when a buyer is able to make an informed offer to purchase. Before writing an offer to purchase a home ask your agent for comparable properties sold in the last three months and if there are any inspections or disclosures available to review. If you can, see all the homes that agent provides to you as comparables.
In summary, the "AS-IS" discussion is kind of moot. It does not prevent a buyer from asking for repairs or re-negotiating price. It does not limit the buyer in completing all investigations of the home during allotted contingency time. It does not remove the responsibility nor protect the seller from legal action regarding the disclosing of known defects. It does not mean something is wrong with the home. It does not mean nothing is wrong with the home. It is an intention. It is an intention for the seller to say to the buyer, "Don't ask for the moon because I won't be able to give it to you" and the buyer to say to the seller "OK, I won't ask now, but maybe later I will ask for the moon". Both are silly as you don't need a stated intention to realize, this is a negotiation. Beginning to end.
In the last couple of weeks, I have heard more and more real estate agents and loan officers tell me that they believe we might be near the bottom of the housing market in San Jose. Their biggest support for this theory is kind of interesting. It goes like this: " How much lower can home prices possibly go?" Hmm. Well there you are. Scientific, (not), analytical (not), a hypothetical guess (barely), coming right from the professionals.
I decided to look at the stats to see if I could see any indication that we are near the bottom of the housing market in San Jose. I looked at the average sales price for each neighborhood for single family homes, condominiums, and town homes from February 2008 to February 2009. Out of the 15 neighborhoods, 7 were continuing to trend down on average sales price. Saratoga had a huge down in January and then a huge up in February so I will call that a wash. Four areas, Milpitas, Central San Jose, Cambrian, and Willow Glen showed an average sales price slightly higher in February 2009. Certainly hard to call one month's results a trend in this market. Especially, when over the last year we have seen some bump ups in almost all the neighborhoods at one time or another.
The most interesting graph came from the Alum Rock neighborhood. Alum Rock has been hit hard as a result of sub-prime lending. Alum Rock was one of the last areas to "boom" in San Jose. It was also one of the first to show signs of trouble. Over and over again, I see the "entry" level markets hit hardest by the sub-prime debacle. There were not a lot of sub prime loans made in Atherton. You see the results of sub-prime lending where minorities, blue collar workers, double and triple job Mom and Dads, with extended families wanted a part of the American Dream. But I digress.
Alum Rock has been fairly in regards to average sales price for the last 4 months. Number of listings on the market coming down and new listings are down as well. With 4 months of steady numbers, you might very well be able to call this a trend.
Once again, Alum Rock calls out to anyone looking for an opportunity. If you are a first time buyer, Alum Rock offers single family detached home with a yard for under $300,000. The Alum Rock neighborhood makes up about 17% of total active homes for sale in San Jose. Alum Rock has 570 current listings with about half of those listings as short sales and about a third REOs (foreclosed, bank-owned, corporate-owned). Another interesting stat that simply screams "affordability" is the break down in pricing of the active listings. See the graph below.
Nearly 300 homes under the sales price of $300,000. That hasn't been seen in San Jose since the year 2000. Wow. Nine years of appreciation gone. Which now, you can go back to the original view point of some of my colleagues and ask, "How much lower can home prices possibly go?" It is a question to ponder.
With nearly 50% of the listings short sales, you have to wonder how many of those loans will be modified in the next couple of months. If loan modification works, we could see a continued reduction in inventory and therefore the potential for more stabilized pricing. On the other hand, if loan modifications do not work and/or the lifting of the moratorium on foreclosures (due to expire April 1st for the big banks) sends a flood of REOs to the market, we could potentially see another drop in average sales price. How much? The Alum Rock neighborhood of San Jose has lost 50% of value since the peak of the market in 2007. Can it lose 60%? 70%? 80%? At some point you have to ask how much is the land worth?
Has Alum Rock reached the bottom of the housing market? Does seeing a upshot in average sales price for Willow, Cambrian, Cental San Jose, and Milpitas indicate other neighborhoods may be approaching the bottom? Will interest rates increase and trump any 5-10% drop in sales price over the next quarter? Will Richard Branson be the first person to truly master space travel for the average citizen? Who knows. But I believe if you are a fence sitter, it is time to get uncomfortable enough to jump down and start looking. The pundits are correct about one thing; hind sight is 20/20.
Buyer's look forward to closing escrow (COE), because they have been told that after escrow closes they will receive the keys to their new home. Signing documents regarding the purchase of a home can be a little overwhelming for some and for others a white and black blur. For many clients simply signing their legal name after years and years of signing their "preferred" name is enough of a challenge, let alone reading and understanding all that they sign. With that in mind, I wanted to take a moment to explain some of the documents involved in the purchase of real estate.
The Escrow Officer's Role.
Simply put, this is a third party that insures that the contractual obligations of the buyer and seller are documented as satisfied. They provide a neutral environment to sign documents and insure that the monies are dispersed according to the contractual directions. Many times, escrow agents are employees of a title company. In Santa Clara County, commonly the seller or listing agent chooses the escrow and/or title company that will be used for the transaction. However, it is actually the right of the buyer to designate. If you have a preference, please make sure you discuss it with your agent at the time you create the purchase contract.
The difference between a mortgage and a deed of trust.
In California, the deed of trust is utilized as a security device for real property. It is held by a third party (many times a title company- called the trustee) and has two simple functions. The first responsibility of the trustee in regards to the deed of trust is the reconveyance of the deed (ownership) from the trustee to the borrower once the note is paid off. The second job of the trustee is in regards to the foreclosure process if the borrower fails to pay. In essence, the trustee insures the contractual agreements between the beneficiary (lender) and the trustor (the borrower) are satisfied.
The mortgage as the security device.
There is no third party in the set up. There is the lender and there is the borrower. In this situation the borrower is dependent on the lender to transfer title to the borrower once payment is received in full. The lender is dependent on the borrower paying off the debts as prescribed in the note or has the right to begin foreclosure proceedings. So even though we might refer to paying our "mortgage" each month, the more accurate description in California would be loan payment.
With a deed of trust, either the trustee or a hired agency by the trustee, will handle the foreclosure process.
It is the trustee that records the Notice of Default with the county where the property is located. If the borrower does not correct the default through payment, loan modification, or sale, the trustee moves toward foreclosure. This is why the public sale of a foreclosed home is called a trustee sale. This is the attempt of the trustee to retrieve the debt owed the lender. If the property does not sell, the property title (collateral for the loan) is turned over to the lender (beneficiary) and becomes part of the lender's asset portfolio known as REO or Real Estate Owned. Then the lender will most likely list the home for sale to recover any debt that is possible.
The actual note itself.
This is your promise to pay the lender. This document details the terms of the note. It will indicate the annual percentage rate charged. It will indicate the number of years (period) payments are to be made and will include any changes in the loan interest rate if an adjustable rate mortgage (ARM) is involved. Most likely, an amortization table will be included in this document that outlines for each payment what amount will be applied to the principal (a portion of the actual amount borrowed) and how much will be applied to interest (based on the interest rate applied for that period). It will also indicate how much the borrower will have paid in total at the end of the note. The most scariest number of all!
The CC&Rs (Covenants, Conditions, and Restrictions).
These are the binding "rules" established for the property and it is very important that the home buyer understand these items completely. Do not scan these documents. Read them. Your agent should provide a copy prior to release of contingencies and it is important to take the time necessary to understand the details. Breaking the "rules" can result in fines and/or even reversion of the property back to original owner. Amazing, but true.
The preliminary title report.
Offered by the escrow agent prior to closing. Ask any questions about outstanding liens on the property. Title insurance is purchased by the seller in order to provide good title to the new owner. Title insurance is also purchased by the buyer for the lender to confirm clear title. Here is a great resource on title insurance policies.
Determining how the buyer hold title.
The professionals best to advise a client on how to hold title is an attorney or a tax professional. The escrow officer or the real estate agent will not be able to assist in this decision. There are tax and legal implications to how title is held and therefore this decision must be thought out carefully in consideration of the buyer's estate. Here is an online resource to explain the different ways in which one can hold title to property in California.
This an overview of the process and depending on the type of property being purchased or the loan you will be utilizing to purchase the home, there can be additional documents that need your review and signature. Make sure that you are comfortable with every document that is presented. It is our job as professionals, to answer any questions you might have. Being informed appropriately for any document requiring signature is the best policy for this most important purchase. Ask your agent about any of these documents ahead of closing to be best prepared.
Not every real estate agent works a deal the same way. That is why every seller should make sure they insist on seeing what is commonly called the "net" sheet. Formerly, this is the "Seller's Estimated Proceeds" worksheet. It is exactly what the title implies, an estimation of the proceeds a seller should receive from the sale of their home.
This sheet takes in account the sales price, the anticipated closing date, the typical fees associated with the sales transaction and gives an estimated bottom-line for the seller. There's a signature opportunity at the bottom for the seller and the agent. But amazingly, many sellers never see a net sheet. The form is not required and some agents would rather you do the math or wait until the day you are sitting across the desk from the escrow agent and their pile-o-papers to see the bottom line. By the way, those agents are typically not at your closing.
When I sit down with a seller, many times before I have listed their home, we work out a net sheet. Every seller has a mental bottom line they want and there is no better way to see if that is at all realistic than by completing a net sheet. I also tell the seller when they list with me that there are two documents they will sign several times during the selling process. The agency disclosure and the net sheet. Anytime a change occurs in the selling process or a new player enters the arena, these documents need to be updated and confirmed by signature.
The net sheet indicates many items but here are the basics:
I use the net sheet with my clients constantly. I use it as a way to demonstrate different selling strategies and I use it as a way to demonstrate if their goal is realistic. In my mind it is the only way to be truly honest about the proceeds of the process. There are very few sellers who know all the different transaction costs involved. That is certainly one of the reasons why most hire a professional.
One other thing to keep in mind; it is an estimated sellers proceed. Why estimated? Because some items may adjust one way or another. For example, I enter the pay-off the seller gave me for the loan and when the actual pay-off comes from the lender it a different. Or the exact day of closing requires and adjustment in how many days of pre-paid interest will be credited back to the seller. Personally, I always try to make sure my estimate is on the conservative side so my seller is pleasantly surprised on closing day.
If you are a buyer you should receive within 3 business days of applying for a loan a booklet from HUD (Housing & Urban Development Department) explaining the settlement statement and costs involved. The HUD-1 settlement statement includes the costs both side may pay. You can download this booklet to review on the HUD web site. Your agent can also prepare a buyer's estimated cost sheet. You should always correlate the HUD and estimated buyer sheet and make sure you understand all the charges.
The bottom line; know your bottom line. Hold your agent accountable to providing an Estimated Sellers Proceeds document so you are not surprised on the day of closing the sale. Make sure you are working with a professional and you won't be selling without a net.
Senior Real Estate Specialist specializing in residential sales and purchases. I give every client my complete attention. Make your next move with someone who cares.
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