Underwater Homeowners Renting Out to Move Up, Over or Down

• Silicon Valley’s Julie Larsen Wyss, a broker associate with Intero Real Estate Services, recently met a couple who wanted to buy one of her listings, but had an existing, slightly underwater home they didn’t want to sell because of the loss potential.

Luckily, the existing home was financed with an adjustable rate mortgage (ARM) currently adjusted to a rate that kept payments low enough so the owners could rent the existing home for $2,800 — enough to cover the mortgage payment, taxes and insurance and allow them to move up without selling right away.

What they didn’t count on was that several qualified renters were willing to pay more – $3,500 a month – to rent the existing home, allowing the homeowners to move up with an actual cash flow from the old home, which became a rental property, according to Wyss.

• New home builder Chicago-based Lexington Homes’ Marketplace Homes program allows buyers to purchase a new home while leasing the old one. The program comes with a “guaranteed lease” deal for an existing home for up to six years — homeowners get the guaranteed rent each month, even if there is no tenant.

Marketplace finds tenants and covers utilities, maintenance, and repairs. If Marketplace Homes sells the home during the term of the lease, the owner gets 100 percent of the asking price.

• Christine Karpinski, HowToRentByOwner.com real estate investor and author of “How To Rent Vacation Properties By Owner” (Kinney Pollack Press, $26), says some homeowners in prime travel destination locations are putting an even more profitable spin on renting out the old home to move up, down or otherwise out – they turn the existing home into a vacation rental for short-term rents that can be a windfall.

“In lieu of renting their home on a long-term lease, they are renting it on a nightly or weekly basis, which generally yields more money than a long term lease,” says Karpinski.

“It’s the best of all worlds. No one wants to sell their home at the low prices, but everyone wants to buy during a down market. The solution? Buy the new home and hold your existing home to rent it out until the market rebounds,” she adds.

Homeowners stuck with a mortgage larger than the value of their home, but who know a bargain when they see one, are cashing in on rising rents by renting out their existing home to move up, down or sideways to a different home, without selling at a loss – for now.

Necessity is the mother of invention

Spawned by a housing market that demands a new level of creative finance thinking, the rent-out to move-up strategy is a new spin on an old approach to moving and investing.

During boom markets, many homeowners rolled over equity into a move-up property or used it to buy a second home. Others tapped equity to buy a vacation rental that would pay for itself. Still others checked out and bought a smaller home to pocket the equity difference for, say, retirement, kids’ education or a business venture.

Today, without the “psychological equivalent of gold” to bank on, thebooming rental market, rock-bottom home prices and low mortgage rateshave converged to give some housing consumers a silver lining.

The strategy’s primary goal is to stave off a loss on an existing home by not selling it while it’s worth less than the mortgage balance.

Those with faith the housing market will recover while the rental sector is still strong can choose to buy up to a larger home or a more expensive home in a better neighborhood.

Others who want to hedge their bets can themselves choose to rent or buy down to a smaller or less expensive home.

Still others, like those in vacation rental markets, can use the strategy to become investors, if they can turn their existing home into a cash cow.

No matter how the rent-out to move-up deal flies, the strategy requires adept financial logistics. You must have a level of good credit to help the deal gel. You must be able to document that you can afford a new mortgage or rent, as well as the old property’s carrying costs, if any, not covered by the rent. And you must otherwise pass muster with a lender who’ll certainly go over the deal with a fine-toothed comb.

“The challenges of financing are there, especially if you choose to rent your home on a short-term basis. If you have a signed long-term lease it’s much easier to get the bank to recognize the rental revenue,” says Karpinski.

“The major difference we’re seeing in the vacation rental world is that these people are buying that second home without traditional financing,” she added.

Chicago’s Taylor Johnson (TJ) , a real estate industry marketing consultant, puts the strategy at the top of current housing trends as the calendar flips over to 2012.

TJ reports that MACK Companies, a Midwestern company that redevelops foreclosed properties into single-family rentals, offers a Real Estate Cash-Flow & Appreciation Program (RECAP) for investors who don’t have the time, expertise or knowledge to manage property. The investors can buy already redeveloped and rented properties enjoying positive cash-flow.

“We predict single-family rental homes as a particularly bright spot, driven by the millions of families who either lost their home to foreclosure or simply can’t secure a mortgage. And we’ll see more investment in distressed single-family homes rehabbed as rentals, both from individuals and real estate investment trusts (REITS),” Jim McClelland, CEO of MACK Companies told TJ.

BY BRODERICK PERKINS · DEADLINENEWS.COM © DECEMBER 26, 2011 

The Five Fiduciary Duties

By Chris Moles
Brokerage Counsel
Intero Real Estate, Inc.

Most real estate agents know that they owe a fiduciary duty to their clients. And they know the fiduciary duty is “the highest and utmost duty of care and loyalty.”

However, the fiduciary duty is actually a composition of five distinct professional duties. Each is a co-equal and important duty and the failure to meet any of the five can constitute a “breach of fiduciary duty” for DRE and civil court purposes.

The Five Fiduciary Duties

Listed in no particular order, the five duties that make up the fiduciary duty are 1) the Duty of Loyalty, 2) the Duty of Care, 3) the Duty to Communicate, 4) the Duty of Confidentiality, and 5) the Duty of Full and Frank Disclosure. When meeting one’s fiduciary duty, the agent must pay each of these duties to the principle. Scholars have written books on each of the aforementioned duties, and the purpose of this article is to simply introduce them and explain how they are commonly breached.

The Duty of Loyalty

The Duty of Loyalty is incredibly important in real estate practice. It is essentially the duty to remain free of actual or potential conflicts of interests with one’s client. If a professional agent has a personal stake in the transaction that might somehow directly conflict with that of the principle, the agent has already breached his fiduciary duty. For example, if an agent represents himself as buyer’s agent he also acts as listing agent for the seller, the agent can be automatically considered in breach of his duty of loyalty. Even if the seller remains happy with the service, the agent has placed his own personal interest in direct conflict with his client. Real estate agents have great latitude to “double end” transactions and coequally represent adverse parties (which is a breach of fiduciary duty for most other professionals – like lawyers), but some real estate agents overstep that latitude when they actually become the adverse party.

The Duty of Loyalty also manifests itself whenever clients claim that a real estate agent breached his fiduciary duty by convincing the client to enter into a bad deal. The argument is essentially that the agent placed his own interest (taking a commission) before that of his principle.

The Duty of Care

The Duty of Care is the duty to use the skill and care of a reasonable professional under the given circumstances. Fiduciary professionals cannot be careless. At all points during the representation a fiduciary agent must take those actions that other professionals might reasonably take in similar situations. For real estate agents, the Duty of Care is often alleged to be breached in situations where the principle elected to release contingencies prematurely or the principle waived his right to order inspections or something. While this is certainly the principle’s right and the agent must do as the principle directs, an agent has a duty to advise the principle in a careful and professional manner. In hindsight, many clients claim that they made a bad decision because their agent failed to adequately help them evaluate and weigh the risks. These are technically Duty of Care attacks. Keeping email strings and advising principles to get professional advice is a great way to defeat these attacks.

The Duty to Communicate

The Duty to Communicate is a duty that can survive after the transaction and it is a very common way that real estate brokerages are attacked. Simply put, the fiduciary duty includes a duty to correspond with your client. Obviously, this includes the duty to share details and return calls. Agents are representatives, and so they need to be accessible to their principles.

This is a huge problem in times where agents and brokers find themselves in disputes with clients. The natural tendency is to say “go pound sand” and then not return a phone call. However, this can be improper under certain circumstances. Even though there is never a duty to “settle” disputes or to “give into” a client’s demand, there is always a duty to communicate. Sometimes this means sitting with the client and saying “I disagree and I am not in a position to do as you ask, but you can seek legal counsel and/or forward any grievance to the local trade union if you deem it necessary.” Regardless of whether or not an agent owes some form of remuneration to his client, all governing authorities will consider how responsive an agent was to his client’s concerns when determining a fiduciary duty issue.

The Duty of Confidentiality

The Duty of Confidentiality is a big deal for real estate agents. Real estate agents are trusted with very sensitive personal information about the client’s job, finances, income, and family. This information can indicate the leverage that the client has or lacks during contract negotiations and its unauthorized disclosure can have negative consequences. The fiduciary duty includes a duty to properly use and protect the client’s information.

The Duty of Confidentiality is limited to the client, and it is NEVER owed to the property. If the property has a defect or if the property has a cloud on title that will materially alter the adverse party’s evaluation (like it is overleveraged and it will be a short sale), agents must reveal that information. Serious dilemmas occur when the client objects to making a material disclosure. This situation is never easy. However, the answer is always the same. Strongly advise that the client make the disclosure and, if the client refuses to act properly, discontinue the representation. The fiduciary duty does not include a duty to aid a client’s fraud.

Duty of Disclosure

The Duty of Full and Frank Disclosure is the all encompassing duty. An agent has to give the client all the information the client needs. All five fiduciary duties overlap, but elements of the Duty of Disclosure are found in each of the other fiduciary duties – making it extremely important. Clients have a right to know what you know. In real estate, unique exceptions are made for the confidential information of the adverse party in instances of duel agency. However, the Duty of Disclosure burdens agents to reveal all known information that might be desirable to the client.

Of course, the most common cases for Breach of Disclosure are cases where the agent does not give information, like certain purchase offers or adverse information, to his client. While these infractions clearly overlap with the duties of loyalty and care, they are most clearly violations of the fiduciary duty to disclose.

Top Home Buying Tips For 2011

By Julie Wyss, Broker Associate

Intero Real Estate Services

518 North Santa Cruz Ave. Los Gatos, Ca.

www.juliewyss.com

julie@juliewyss.com

408-687-2026

Research Recently Sold, Comparable Properties

A comparable property is one that is similar in size, condition, neighborhood and amenities. One 1,800-square-foot, that was recently remodeled, one-story home with an attached garage should be listed at roughly the same price as a similar 1,800-square-foot home in the same neighborhood. That said, you can also gain valuable information by looking at how the property you're interested in compares in price to different properties. Is it considerably less expensive than larger or nicer properties? Is it more expensive than smaller or less attractive properties? Your Real Estate Agent is the best source of accurate, up-to-date information on comparable properties. You can also look at comps that are currently in escrow, meaning that the property has a buyer but the sale is not yet complete.

Check Out Comparable Properties That Are Currently on the Market

In this case, you can actually visit other homes and get a true sense of how their size, condition and amenities compare to the property you're considering buying. Then you can compare prices and see what seems fair. Reasonable sellers know that they must price their properties similarly to market comparables if they want to be competitive.

Consider Market Conditions and Appreciation Rates in the Area 

Have prices been going up recently or going down? In a seller's market, properties will probably be somewhat overpriced, and in a buyer's market, properties are apt to be underpriced. It all depends on where the market currently sits on the real estate curve. Even in a seller's market, properties may not be overpriced if the market is on the upswing and not near its peak. Conversely, properties can be overpriced even in a buyer's market if prices have only recently begun to decline. Also consider the impact of mortgage interest rates and the job market on the economy.

What Is the Expected Appreciation for the Area?

The future prospects for your chosen neighborhood can have an impact on price. If positive development is planned, such as a major mall being built, the extension of light rail to the neighborhood, or a large new company moving to the area, the prospects of future home appreciation look good. Even small developments like plans to add more roads or build a new school can be a good sign. On the other hand, if grocery stores and gas stations are closing down, the home price should be lower to reflect that, and you should probably reconsider moving to the area. The development of new housing can go either way - it can mean that the area is hot and is likely to be in high demand in the future, increasing your home's value, or it can result in a surplus of housing, which will lower the value of all the homes in the area.

Does the Price Feel Fair to You?

If you're not happy with the property, the price will never seem fair, even if you get a bargain. Even if you pay a little over market value for a home you love, in the end, you won't really care.

Test the Waters

Even in a seller's market, you can always offer below list price just to see how the seller reacts. Some sellers list properties for the lowest price they're willing to take because they don't want to negotiate, while others list their homes for higher than they expect to earn because they expect to negotiate downward or they want to see if someone will make an offer at the higher price. If the seller accepts your price or counteroffer, you'll get an indication that the property probably wasn't worth what it was listed for and you have a good chance at getting a fair deal. On the other hand, some sellers may underprice their properties in the hope of generating lots of interest and sparking a bidding war. Unlike on eBay, however, the seller doesn't have to simply sell to the highest bidder: sellers can reject any and all offers that don't meet their expectations. If you have your heart set on the property, be warned that some sellers may be offended by lowball offers and refuse to work with you if you chose to employ such a tactic. Also, when you offer less than the list price, you may increase your risk of being outbid by another buyer.

Get an Appraised Value and a Home Inspection 

Once you're under contract, the lender will have an appraisal of the property done (usually at your expense) to protect its financial interests. The lender wants to make sure that if you stop making your mortgage payments, it'll be able to get a reasonable amount of its money back when it forecloses on your home. If the appraisal comes in at considerably less than your offering price, you may not be getting a fair deal. In fact, the lender may not even let you purchase the home unless the seller is willing to bring the price down. A home inspection, which is completed after you're under contract, will also give you a way to gauge your offering price. If the home needs many expensive repairs, you'll want to ask the seller to make the repairs for you or discount the purchase price so you can make them yourself.

Conclusion

When you're shopping for a home, it's important to understand how homes are priced so you can make a sound investment and reach a fair agreement with the seller. Using these tips, you'll be able to make a confident and well-informed offer on any home in any market.

Looking for a great buyer’s agent in the Los Gatos Area? Give Julie Wyss a call at 408-687-2026.

How to Prepare Your House for Sale

How to Prepare Your House for Sale

By Julie Wyss, Broker Associate

Intero Real Estate Services

518 North  Santa Cruz Ave. Los Gatos, Ca.

www.juliewyss.com

julie@juliewyss.com

408-687-2026

Time Required: Seven to 10 Days

Here's How:

1)  Disassociate Yourself With Your Home.

Say to yourself, "This is not my home; it is a house -- a product to be sold much like a box of cereal on the grocery store shelf.

Make the mental decision to "let go" of your emotions and focus on the fact that soon this house will no longer be yours.

    

2)  De-Personalize.

Pack up those personal photographs and family heirlooms. Buyers can't see past personal artifacts, and you don't want them to be distracted. You want buyers to imagine their own photos on the walls, and they can't do that if yours are there! You don't want to make any buyer ask, "I wonder what kind of people live in this home?" You want buyers to say, "I can seemyself living here."

3)  De-Clutter!

People collect an amazing quantity of junk. Consider this: if you haven't used it in over a year, you probably don't need it.

• If you don't need it, why not donate it or throw it away?
• Remove all books from bookcases.
• Pack up those knickknacks.
• Clean off everything on kitchen counters.
• Put essential items used daily in a small box that can be stored in a closet when not in use.
• Think of this process as a head-start on the packing you will eventually need to do anyway.

4)  Rearrange Bedroom Closets and Kitchen Cabinets.

Buyers love to snoop and will open closet and cabinet doors. Think of the message it sends if items fall out! Now imagine what a buyer believes about you if she sees everything organized. It says you probably take good care of the rest of the house as well. This means:

• Neatly stack dishes.
• Turn coffee cup handles facing the same way.
• Hang shirts together, buttoned and facing the same direction.
• Line up shoes.

5)  Rent a Storage Unit.

    Almost every home shows better with less furniture. Remove pieces of furniture that block or hamper paths and walkways and put them in storage. Since your bookcases are now empty, store them. Remove extra leaves from your dining room table to make the room appear larger. Leave just enough furniture in each room to showcase the room's purpose and plenty of room to move around.

6)  Remove/Replace Favorite Items.

    If you want to take window coverings, built-in appliances or fixtures with you, remove them now. If the chandelier in the dining room once belonged to your great grandmother, take it down. If a buyer never sees it, she won't want it. Once you tell a buyer she can't have an item, she will covet it, and it could blow your deal. Pack those items and replace them, if necessary.

7)  Make Minor Repairs.

• Replace cracked floor or counter tiles.
• Patch holes in walls.
• Fix leaky faucets.
• Fix doors that don't close properly and kitchen drawers that jam.
• Consider painting your walls neutral colors, especially if you have grown accustomed to purple or pink walls.
• Replace burned-out light bulbs.
• If you've considered replacing a worn bedspread, do so now!

8)  Make the House Sparkle!

• Wash windows inside and out.
• Rent a pressure washer and spray down sidewalks and exterior.
• Clean out cobwebs.
• Re-caulk tubs, showers and sinks.
• Polish chrome faucets and mirrors.
• Clean out the refrigerator.
• Vacuum daily.
• Wax floors.
• Dust furniture, ceiling fan blades and light fixtures.
• Bleach dingy grout.
• Replace worn rugs.
• Hang up fresh towels.
• Bathroom towels look great fastened with ribbon and bows.
• Clean and air out any musty smelling areas. Odors are a no-no.

9)  Scrutinize.

• Go outside and open your front door. Stand there. Do you want to go inside? Does the house welcome you?
• Linger in the doorway of every single room and imagine how your house will look to a buyer.
• Examine carefully how furniture is arranged and move pieces around until it makes sense.
• Make sure window coverings hang level.
• Tune in to the room's statement and its emotional pull. Does it have impact and pizzazz?
• Does it look like nobody lives in this house? You're almost finished.

10)    Check Curb Appeal.

If a buyer won't get out of her agent's car because she doesn't like the exterior of your home, you'll never get her inside.

• Keep the sidewalks cleared.
• Mow the lawn.
• Paint faded window trim.
• Plant yellow flowers or group flower pots together. Yellow evokes a buying emotion. Marigolds are inexpensive.
• Trim your bushes.
• Make sure visitors can clearly read your house number.

Looking for a great buyers agent in the Los gatos Area? Give Julie Wyss a call at 408-687-2026.

How to Lower Your Property Taxes

Here are some cool ideas from the California Association of Realtors®:

Despite home prices in major urban centers decreasing 31 percent between 2005 and 2009, property taxes across the U.S. increased by nearly 20 percent.  There is good news, however; homeowners can fight back.

• Homeowners should keep in mind that property taxes do not always correspond with home values, because local governments typically don’t measure values every year and some have limits on annual property-tax increases.
• As a result, current property taxes might reflect the home’s value when the market was healthier.  According to the Congressional Budget Office, property-tax adjustments lag behind changes in home prices by an average of three years.
• Although homeowners cannot change their property-tax rate, which is set by the local government, homeowners can get their assessment lowered if they appeal to their local assessor.
• One key to a successful appeal is fact checking the assessor’s work. About half of all successful appeals come from homeowners pointing out an error in the assessor’s description of the home, according to one property tax expert.
• During the appeal process, which is similar to a less-formal court hearing, homeowners may present their case to several local officials or representatives.  The simplest way to convince officials that a property has been incorrectly valued is to provide evidence of the sales price of homes that are comparable to the property being discussed.  This should include square footage, amenities, and neighborhood characteristics.  Sale documents and photos of the property in question, as well as the comparable properties also should be brought in.
• Homeowners who have made improvements or substantial changes to the property should be cautious about appealing an assessment though, as it could have negative effects and actually increase the property’s value and, in turn, the property taxes.

If you are a buyer looking at homes in your area, be sure to ask your realtor® for the tax information of the neighborhood. Mello-roos and special assessments can vary greatly from one area to another even in the same city. You don’t want to be in escrow before you find out that the taxes are going to increase your monthly payments beyond your comfort zone.

Looking for a great buyers agent in the Bay Area? Give Julie Wyss a call at 408-687-2026.

Top 5 Characteristics Home Buyers Want in a Real Estate Agent

Julie Wyss, Broker Associate

What do home buyer's want in a real estate agent?

1. Honesty and Credibility

Win them over with the truth!

2. Neighborhood Knowledge

Do your neighborhood homework!

3. Excellent Follow Through

You say it, you do it.

4. Organization

Keep it in order.

5. Good Listener

Everyone is unique. Treat them like it!

MARS' Loan Modification Protections Extend To Short Sales, Other Foreclosure Relief

Rules protecting consumers from being taken by modification services also extend to short sale services and other forms of mortgage assistance, including some assistance offered by real estate agents.

Effective Jan. 31, 2011 modification assistance firms have been banned from collecting fees until a home owner agrees with a written foreclosure or modification plan approved by their lender or loan servicer.

The ban and other related disclosure and regulatory provisions are part of the Federal Trade Commission's (FTC) "Mortgage Assistance Relief Services (MARS) Rule", designed to curb fraud, scams and rip-offs in the distressed mortgage services industry.

While MARS news has been focused largely on the cottage industry of private companies offering modification services to consumers, the rule impacts all mortgage assistance relief services including those offering short sale services and other assistance.

Some real estate agents must comply

Laurie Janik, National Association of Realtors' general counsel, recently reviewed the new rule at a forum during the Realtors 2011 Midyear Legislative Meetings & Trade Expo in Washington, D.C. and put on notice, real estate agents who provide short sale services, according to a recent DSNews report.

"As the leading advocate for homeownership, NAR supports efforts to ensure that mortgage assistance relief services truly benefit consumers. Nevertheless, NAR has some concerns about the rule and its application to real estate professionals involved in short sales transactions," Janik told DSNews.

But it's not just short sales. The official Federal Register Vol. 75, No. 230 rendition of the rule is pretty clear, as federal regulations go.

"The Rule is intended to regulate for-profit providers of mortgage assistance relief services...defined as 'any service, plan, or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer' in negotiating a modification of a dwelling loan…stopping, preventing, or postponing a foreclosure or repossession; or obtaining one of several other types of relief to avoid delinquency or foreclosure... (including) a forbearance or repayment plan; an extension of time to cure default, reinstate a loan, or redeem a property; a waiver of an acceleration clause or balloon payment; and a short sale, deed-in-lieu of foreclosure, or any other disposition of the property except a sale to a third-party that is not the loan holder."

One question is obvious: If a company doesn't charge for mortgage relief services, does the MARS rule apply?

"Most of the local short sale specialists advertise this as a free service to our sellers and understand that the cost of the professional negotiations will be paid out of the hired Realtor's commission," said Julie Larsen Wyss, broker associate, Intero Real Estate Services, Los Gatos, CA.

Janik acknowledged to DSNews that real estate agents who do offer fee-based services must not take upfront fees, as the law requires, but she also voiced concern that other MARS rules could also apply to real estate agents helping with short sales, including rules that touch on disclosures, advertising, communicating with clients, negotiating a short sale or arranging for a short sale negotiation.

"NAR is discussing with the FTC some language in the second and third disclosures as well as some other requirements found in the MARS rule," Janik said, according to DSNews.

"The FTC is considering possible options to help make the rule more applicable to a real estate brokerage…when they are performing traditional real estate functions in a short sale transaction," she added.

A history of fraud

Too many foreclosure rescue and loan modification services became a festering outgrowth of the mortgage market meltdown that left many home owners underwater with a mortgage balance greater than the value of the home.

The operations often promised to be a go-between and negotiate with the lender to obtain a modification short sale  or some other relief from foreclosure. Some also duped home owners into believing they were affiliated with real government assistance programs.

Now, without up-front fees, many fly-by-night operations don't have the capital to resume operations.

MARS does allow licensed attorneys to charge advance fees, provided the fees are held in an escrow (trust) account and provided the attorney complies with state laws and regulations related to the federal rule.

MARS rules are disclosure heavy. The rules say mortgage assistance relief services must disclose:

• The proposed cost of the service.

• That consumers have a right to reject any offer from the service or the lender without charge and can stop doing business with the service company at any time.

• That the service is not affiliated or associated with nor approved by any government entity.

• That the lender can reject any change to the home owner's loan.

• That home owners could lose their home and damage their credit rating if they follow a service's advice to stop paying their mortgage.

If services are offered or negotiated in Chinese, Korean, Spanish, Tagalong or Vietnamese, the disclosures must also be provided in the same language.

Foreclosure rescue and loan modification services are also prohibited from making any false or misleading claims about their services, including claims about results, government affiliation; the consumer's financial obligations; refund and cancellation policies; legal representation and the amount of savings a consumer can expect, among others.

Home owners should also check with their state rules for the services. Some states have stronger regulations than the federal MARS rule.

by Broderick Perkins, Deadline News Group, May 18, 2011