Katie Somple

Recent trend shifts and a bevy of new laws are making it more difficult for real estate buyers and sellers to navigate their way. Which opportunities are relevant, and which are lost leaders? Upon which expert forecast should one base a plan on

Some of the major changes every buyer and seller should be aware of include:

The Fed’s new HAFA guidelines that significantly alter the short sale process; California’s AB 183 First Time Home Buyer’s incentive; recent changes and extensions to the American Recovery and Investment Act of 2009; CalifOrnia’s newest law, SB 401 Conformity Act, which relates to short sale and foreclosure debt forgiveness; and lastly, updated forecasts by leading market studies projecting as long as a decade before California sees real estate values increase to the bubble-era benchmarks of 2005 and 2006.

As if on queue with these new opportunities and forecasts, Napa Valley real estate activity has increased exponentially in the past several weeks, with a flurry of buyers making offers, and trying to beat certain deadlines for taking advantage of buying incentives. Local Realtors are putting serious mileage on their cars, traversing up and down the valley with buyers carrying check books. Sellers who remain stubborn on price expectations of yore, hoping to see recovery in a year or two, are thus far missing out on this wave of purchasing, albeit temporary, or perhaps not. Despite this encouraging activity, we still hear of record numbers of homes heading toward short sale or foreclosures, putting more distance between seller's hopes for a quicker recovery.

Compounding the woes of current sellers is what appears to be a complete paradigm shift in the country's socio-economic attitude toward the sanctity of the home mortgage, fueling a new wave of niche 'voluntary' foreclosures. This niche of sellers is building from a growing mind set that, "if a short sale or foreclosure is inevitable, why continue to throw good money after bad?" For those mortgage holders who are one spouse's job loss, or one major medical incident away from being underwater, paying the monthly mortgage is measured on par with the priorities of food, prescriptions and gas money.

Past generations would never dream of walking away from a mortgage and risking their credit rating! The mortgage payment always came first. Today's mortgagees who are on the fringe, walking away has become the lesser of several evils.

It would be an injustice to attempt to explain in one post the details and potential benefits of the aforementioned laws recently enacted or modified by the state and federal governments. As with most government programs and policies, there are many devils in the details. It is imperative for buyers and sellers to work with a well educated, straightforward real estate adviser to get all the facts. Otherwise, you may be missing a key opportunity, or worse, rush into a real estate transaction expecting tax credits only to discover at tax time next year that your purchase didn't qualify!

For example, the Federal Recovery Act's first-time-buyer tax incentive, which, in theory, provides up to $7,500 tax credits has been extended to April 30^th. . This is one reason so many buyers are making offers now. However, many are not aware of the laundry list of additional qualification requirements, and most have not calculated their MAGI (modified adjusted gross income), or reviewed IRS form 5405, which, when calculated in detail, disqualifies a large number of unwitting buyers.

Buyers and sellers need to investigate these very recent changes in the real estate landscape. Buyers who don’t qualify for the Fed credit may qualify for the revised state credit if they open an escrow between May 1 and Dec 31^st. But that is only one qualification requirement of that opportunity.Does your agent, CPA and tax preparer know the other small print details before you make a purchase based on an assumption?

Sellers who are, or think they might be, approaching an upside situation with their debt-to-value ratio need to get a Windex-clear picture of their options, including the details of the state’s new debt forgiveness law, which was signed by Gov. S on April 12^th. It is intended to align with the Feds’ debt forgiveness policies on phantom income but it has unique formulations for qualifications and some different restrictions.

Current and potential sellers also need to pay close attention to where the future of real estate values is headed. According to a recently published Wall Street Journal article quoting the research of First American CoreLogic, equity stabilization is projected to occur between 2013 and 2017. A lot of folks are depending on equity recovery much sooner than that to avoid a discounted or forced sale. A second article, posted on April 1^st in the San Jose Mercury News quoted economist Chris Thornberg:“Many homeowners are just now coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California.”

If your reaction to this forecast is like mine....Fourteen years? Is this an April fool’s joke? This is the Napa Valley real estate market. We don’t do long term equity loss. Fourteen years, or even six or seven years, is far longer than any of us hope to, or can, wait for the value of homes to get to 'normal'. This length of time is quite frankly unfathomable, and not likely accurate for historically hot markets like Napa Valley. But what IS the real number? It's not likely spring, summer or fall of 2010 as some hopefuls were predicting as recently as 2009.

Real estate professionals are tasked with helping buyers and sellers navigate through real estate transactions in any market condition. Even though Realtors can’t raise the level of the tide with our garden hoses, we’d better be as clear and honest and informed as possible in order to lead our clients through this current obstacle course fraught with new risks and opportunities.

Now more than ever buyers and sellers should pow wow with their Realtor, their CPA and financial planners and review all the new options and risks that are on the table. If you are a potential Napa Valley buyer or seller, and would like to meet and discuss the ramifications of the changing real estate landscape give me a call (707) 235-8585, or drop an email to Katie@lifestyleproperties.com.

Suggested resources to learn more about the laws and forecasts mentioned in this post:

http://www.irs.gov/newsroom/article/0,,id=215791,00.html

http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml

http://www.realtor.org/government_affairs/short_sales_hafa

http://www.ftb.ca.gov/aboutFTB/Newsroom/Mortgage_Debt_Relief_Law.shtml

http://blogs.wsj.com/developments/2010/04/13/for-some-markets-bubble-era-prices-decades-away/

See original blog at: http://www.vinography.com/archives/2010/04/the_coming_carnage_in_the_cali.html

Enlightening post, though I tend to question the agenda of any source who may stand to profit as consultants to panicked wine label and winery real estate owners, myself included. I've been quietly and confidentially selling wine related real estate assets in Napa and Sonoma for the past 10 years. The impetus for selling wineries today has not changed in the past decade, which include no cash flow, indebtedness, lack of financial planning and burn out. I have witnessed a repetitive and-predictable 5-part cycle that causes the turnover of a large percentage of wineries.

Level I- Romanticism, egotism and enthusiasm- turns to:

Level II- cash flow choke; inventory build up and denial- turns to:

Level III- backdoor discounting, increased debt and a worrisome willingness to sell for a unrealistic price- turns to:

Level IV- pressure from investors, pressure from lenders, wholesale level build up of wine inventory- turns to:

Level V- Oh shit, we need to stop the bleeding. Sell it or lose it.

The sad and very avoidable part of this cycle, which coincidentally is when I get called in, is Level IV, lasting two to three years typically. There is no going back to a Level III value of your winery, which was the last chance to get a realistic price. When you wait until you're bleeding into the water, even docile buyers turn to sharks.

The sources in Alder's blog refer to the quantity of winery and wine brand owners who are in Levels III-V, which is about an 8 to 10 year cycle for most. The blog's anonymous sources ponder why lenders aren't freaking out more, but this is not a new experience for them. Wine inventory devaluation, and calling in notes based on a shrinking security is something lenders did during the end of the last 10 year cycle, which was wisely noted by the comment posted above on the theory of reflexivity.

I'm not a big fan of anonymous sources predicting doom, but i get why they chose not to reveal their identities. Here are three things I know to be fact, and put my name to:

Fact #1. Record number winery (real estate) owners have entered into Level III and beyond in the winery ownership cycle. Compromised winery owners wait to act on imminent outcomes because they're afraid. They're afraid distribution channels will hear about a possible sale; they're afraid key employees will find out and leave; they're afraid their lender will find out and call in their chips; they're afraid to face the fact that their real estate and business assets will sell for 1/2 of what they want or need in order to get out of trouble.Selling your blood/sweat/tears/ego winery that you birthed is like giving a grown child up for adoption.

Fact #2: Opportunistic buyers (and that's the only kind who close escrow by the way)are fierce negotiators but they are not to be blamed whatsoever for the predicaments winery owners find themselves in, partly due to the lack of reasonable alternatives, and partly due to the nature of denial in a business of image and egos.

Fact #3. The process of selling and buying wineries is broken, adding further difficulty to an already difficult situation. I have put forth great effort to provide a safe harbor for real winery sellers and real winery buyers to discuss and negotiate winery transactions, but surprisingly only a small percentage of sellers will cross even the most confidential threshold. There is so much denial and masque wearing and fear of exposure that sellers don't know whom to trust or where and when to turn!

Selling wineries is a tough row to hoe in any market condition. Always has been.

Writing that Sells Real Estate

Good real estate writing seizes the attention of buyers, definitively communicates features and advantages, and ultimately gives your client’s property the advantage in a voluminous inventory of choices. Ultimately good writing paints a picture in a buyer’s mind, allowing them to understand your points faster, enjoy your information more and remember it longer. But most importantly great writing compels a potential buyer to action, which is to schedule a showing. Bulls-eye!

Writing great real estate copy artfully blends (boring but necessary) facts with a descriptive benefit for the buyer. Often we are challenged by limited space; therefore, employing concise and powerful words is key. Because real estate writing is a unique skill set, requiring both fact promotion and creative description, a skill too few Realtors possess, or have been willing to improve. As a result, skeptical buyers find themselves scrolling through a sea of clichés, over-used adjectives that reveal nothing except that the agent simply did not take the time to write an effective description. At any given time there are approximately 7 million homes for sale in the United States. That represents a lot of breathtaking, stunning and amazing residential assets for buyers to endure.

Buyers today want instant gratification and thorough understanding. They don’t want to waste their time being misled, or misinformed. They want affirmation, not disappointment, when they walk through the door of a property they were compelled to see in person because of good writing and photos. A personal pet peeve, and a huge time-waster, is to make a property sound like something it is not. A misleading property description is just as bad as a lazy one that doesn’t do the property justice.

Today’s real estate buyers simply cannot get enough photos and video with written details that awaken the senses like: “smooth, cool-to-the-touch, marbled granite” (touch), “unobstructed, pastoral views” (sight), “fragrant garden border”(smell), “a seasonal creek gently flows behind the private deck”(sound).

The opposite side to the coin of effective real estate writing is that more real estate attorneys are advising agents to ‘avoid adjectives’ altogether. Property descriptions and ad copy have been used in disclosure related lawsuits. Agents are more cautious than ever about editorializing their listing descriptions because of this. However, this should not prevent agents from writing accurate and compelling descriptions. Sadly, some agents spend less than a few minutes quickly typing facts and clichés into the property description section when they load a new listing on to their MLS- bad spelling, poor grammar and all. These are the same agents who upload four photos instead of the 20+ photos most MLS programs allow. And forget photo details. My personal favorite: room names such as“kitchen” Gee, thanks for pointing that out, duh.

I applaud my colleagues who recognize that good writing plays a significant role in effective real estate marketing. Bad or lazy descriptions are like posting blurry (or upside down) property photos. Why not write in bold letter in the property description: “I’m a lazy agent and I just don’t care!”

Ksomple Feb 2010

The majority of my clients are married couples, like me. Couples bring a particular set of challenges to the table when buying real estate. For example, clients who recently came to my office for their initial 'wants and needs' interview stated entirely different lifestyle preferences right off the bat.

"I want to live in a neighborhood and build relationships with neighbors", said the wife.

"I want to live in a forest setting. I love the woods", said the husband. Both of them laughed at each other and at my raised eyebrows.

Then there was the couple who was relocating to the Napa Valley from another state. They started emailing me separately, lobbying for their strong preferences of outdoor living styles. She wanted a large back yard for entertaining and gardening. He said he didn't ever want to own a lawn mower again- in all capital letters! They ended up buying a house that backed to a vineyard with a large rear yard, a pool, raised bed gardens, and a massive deck- not a single blade of grass.

These physical preference differences between the sexes aren't difficult to overcome compared to the difference between the way men and women approach negotiation and sealing the deal. This issue hits very close to home for me. Before I was licensed and active in real estate, my husband and I purchased three homes in the Napa Valley during a down swing in prices in the late 1990's. Each and every time, over a three year period, I forced him into looking, offering and signing the deals. Each and every negotiation he wanted to walk away from the purchase over what i saw as negligible amounts of money (in the big picture). If left to his instincts I can tell you with 100% certainty we'd still be renters.

Today, those three houses are our comfortable retirement. Now he brags about "our" timing and "our" foresight. Okay, fine, whatever. This real estate dynamic gets repeated to me over and again by many couples.

Call it moxy, call it instinct. When it comes to real estate many women get that, in real estate, the definition of 'winning' is owning. But to get to the owning you have to exit a negotiation with the prize, which isn't bragging rights about walking away over a $2,500 difference. It all comes down to how the sexes define success differently. A man wants to win the negotiation battle. Women want to win the financial security war.

Let's face it, ego plays an integral role in our society, and it is part and parcel of our progress as a species. I'm just saying there are reasons we enter into partnerships: finding balance in our individual strengths and weaknesses is one of those reasons. Buying real estate is one of the largest partnership decisions couples make. Not every couple follows the male/female dynamic I use as an example here, but regardless of sex, in most partnerships one person is more reason based, and one is more ego based. Both play key roles in the success of the partnership. When it comes to buying real estate, I am suggesting that the reason based partner should take the lead.

In my personal experience, and in my experience selling real estate for the last ten years, females tend to dominate the reason-based approach to real estate the vast percentage of the time- but I have seen the opposite on occasion.

Bottom line-when it comes to owning real estate, listen to the feminine side of reason. And if your partner is anything like mine, eventually, bragging rights about smart real estate investments become a plural pronoun, and it's all good.