“Gee – why don’t you ask your Realtor?”  I asked.  “She is from out of the area and doesn’t know.” was her answer.

OK, I get it.  She wants to save money, so she listed the house with a relative or friend who is probably not charging her much, if anything, to put the house in the MLS.  Maybe she is a part-time agent who sells one house per year, or less, for friends.  Maybe she is a brand new agent who just got her license and has never sold any houses, but this person wants to help her get started.

Maybe there are a lot of good reasons to list with someone who doesn’t know how to find some basic information about the property, but I can’t think of any worth taking that risk if I were the seller!

Other things she may not know:

• Is that neighborhood considered more desirable than the one 2 blocks away where you got all of the comps?
• Is the school for that neighborhood on the list of potential school closings for next year?
• Are there any neighborhood problems that will require a special assessment to fix?
• Is the city going to put in a new traffic signal, or widen a street that will affect the value of this house, or neighborhood?
• Have many of the homes in that neighborhood had recent slab leaks or other physical problems that should be addressed before marketing?
• Is there an environmental issue that the City, County or HOA is currently fighting?  (We had an invasion of bugs many years ago that killed a lot of trees in a particular neighborhood!)

I gave her the answer to her question, she thanked me and told me that I was the 3rd agent she had called, and the others had just told her to look up the City Building Department in the phone book.  (Of course, she didn’t have a phone book for this area.)

I will just keep an eye out for a listing with an out-of-area agent who will probably either over-price it, or under price it substantially, and not be able to answer any questions that the buyers or buyer’s agents call about.  I wonder if I should help one of my buyers “steal” this house!

Homeowner’s associations in California are governed by state law (California Civil Code), and the section that specifically addresses HOAs (also called CIDs for “Common Interest Developments”) is called the Davis Sterling Act.  This is the collection of rules that cover operating the association, collecting member assessments, privacy, elections, notification of meetings, penalties for late payments, access to information, homeowner’s rights, and other consumer protection provisions.

1366.1. An association shall not impose or collect an assessment or
fee that exceeds the amount necessary to defray the costs for which
it is levied.

So what would be reasonable fees to defray the costs?

For the Document fee, I estimate a maximum of 500 pages of documents @ 25¢ per page to copy (although a pdf on disk would be more efficient) + maybe $25 for courier or mail delivery?  That total would be $150.  Add another $25 for the time it takes a person to make the copies and put them in an envelope?  Ok, maybe $175 could be justified, but only by being generous with rounding factors.

The Transfer fee may require spending a total of 30 minutes to look up the balance due on that property and sending that bill to escrow, then changing the name in the records at close, along with providing new membership cards and keys.  Some associations also require that someone physically view the property to make sure that it conforms to the association standards and that nobody painted it purple or extended a balcony without permission.  A reasonable Transfer fee could be as high as $150, by my calculation.

Unfortunately, the Davis Sterling Act does not limit private HOA management companies who manage associations as a business.  They have a right to make a profit, and when challenged in court, the court ruled that  “Competitive forces, not the statute, will constrain the vendors’ fees and charges.” In reality, there are no competitive forces available in this situation.  The management company that has the authority to provide the documents and complete the transfer is essentially a monopoly and there is no alternative but to give in to their extortion!  (Some of the private HOA management companies in Orange County are charging as much as $700, and when a condo is part of several associations & sub-associations, it can add up to a substantial part of the closing costs!)

What can be done about this? By the time you are either a buyer or a seller, it’s too late!  The management company is going to gouge someone.   If you currently live in a HOA that is managed by a private management company, you need to bring this to the attention of your Board of Directors.  The Board selects the management company and has the authority to control them. They have a contract that states what monthly fees will be charged to the homeowners for managing the association, and can put a limit on these fees if it is brought to their attention.  If enough homeowners demand that this be controlled, it can be!

Today, there are a total of 11,577 homes for sale in Orange County.   Of those, 4783 (42%) are labeled as either bank owned or short sales.  Of the 4363 that are currently in escrow, 2925 (68%) are distressed.  In the last 30 days, 1018 (61%), of the 1653 closings were distressed.

Buyers are looking for the best values that they can find, and the best priced homes are usually bank owned.  Short sales are closing more often than in the past, but it is still frustrating for a buyer to make an offer, then have to wait weeks or months to get an answer from the lender.  It will be interesting to see what effect, if any, the President’s new stimulus plan will have.  

The latest foreclosure listings are now posted for selected cities or areas in South Orange County.  If you are looking in an area that I haven’t included, please let me know and I’ll run the list just for you!

Other posts like this:

2008 End of Year Report 
2008 Orange County Mid-Year Report
2007 Orange County Sales Report

Search the 11,500+ homes in Orange County

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Single family homes :

20 homes closed escrow in January.  Foreclosures or short sales were 14 of the 20, so 70% of the sales were “distressed”.  The average price came to $498,512 ($270/square foot).  The *median was $473,500. 

The least expensive single family home in January was reported in the MLS as closed at $310,000 although when checking the title records, it shows a sales price of $330,000 with a $326,701 FHA loan.  (?)  I am only guessing, but the seller must have paid some closing costs and the buyer’s loan amount includes the upfront mortgage insurance premium along with some other closing costs.  The other possibility is that the listing agent made a typo when entering the closed price, and hasn’t corrected it.

The most expensive home sold in January closed at $795,000 ($245/square foot.)  It had been on the market since 4/07/08 and had been reduced 8 times from $919,900 down to $799,900 when it finally sold.  If the seller had priced it correctly to begin with, he would have saved 8 months of interest payments, taxes, insurance, and HOA dues, which I calculated to be worth a little over $30,000!

Condos & Townhomes:

19 condos or townhomes were closed in January.  Foreclosures and short sales made up all but one of them, so 95% of the January condo sales were “distressed”!  The average sales price was $209,350 ($194/square foot) and the median price was $210,000. 

The least expensive condo was a 2 bedroom with 944 square feet that sold for over list price ($124,900) at $133,000 ($141/square foot).  The buyer put down 20%, so I am guessing that he is an investor who will rent it out.  With total payments (PITI+HOA) of less than $950/month, that investor should have a positive cash flow of $150 – $200 each month.  

The most expensive condo sold also happened to be the only condo that was not distressed.  It had 3 bedrooms, 2 1/2 baths and a 2 car garage and sold for $345,000 ($252/square foot) after 75 days and a 10% price reduction.  I found it interesting that it only took 10 days at the corrected price to attract the final buyer!

 *The median is the price where 1/2 of the homes sold for more, and the other half sold for less.

IMPORTANT : Upon a preliminary check your assessed value appears to be higher than your current market value. You may obtain property tax relief, even if you have received a reduction for a previous tax year.

For a fee of only $93, they will “advocate as my agent for the purposes of filing an application, answering all questions pertinent to the inquiry, attending a hearing, and accepting a modified assessment through the Assessor or the Assessment Appeals Board.”

Our former Governor, and current Attorney General, Jerry Brown, warned today that many of these companies are complete scams and will only take your money and disappear while you patiently wait for your tax adjustment.

This is something that most homeowners can do for themselves, by contacting their county’s assessor’s office and asking about it. There are a few forms to fill out, and it helps if your local real estate agent can provide a list of the current comps (call me if you are in Orange County!), but the proceedure is very simple and shouldn’t cost you more than the price of a stamp!

The Orange County Tax Assessor’s website has a good explanation of the process, and forms available to download.

 Search ALL the homes for sale in the Southern California MLS  (there must be at least one that you like!)

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Condo sales ranged in price from $102,900 to $355,000, with an average of $198,965 at $194/sqft.  In 2007, sales of condos totaled 7, representing less than 25% of the total, but the average price was $294,628 @ $292/square foot!  At that time, 5 out of the 7 units were bank-owned, one was a short sale and there was only one traditional sale.  Comparing $/sq foot, condos have fallen about 34% in the last 12 months! 

Single family homes in December 2008 ranged from a low of $310,000 to a high of $975,000 with an average sale price of $481,611 at $239/square foot.  Compared to 2007, our average sale price ranged from $449,900 to $905,000, with an average sale price of $605,600 at $301.51/square foot.   Comparing $/sq foot, the SFRs have now declined a bit over 20% in one year.

Some things I got right :

The volume increased, (but not as much as I hoped.)  As of today, there have been 24,237 closings in the MLS since 1/1/2008 in Orange County.  It is about 20% above the 2007 volume of 20,000, but I had predicted it to come out between 25,000 and 30,000.  Since there may be some more closings tomorrow, and many of the recently closed sales won’t get reported until the listing agent remembers to update the MLS, it is still possible to hit my “25,000″ mark, but it won’t go much higher than that.  I’ll admit that I was  optimistic.

Prices decreased - even more and faster than I thought they would!  The median price for a single family resale home now stands at $430,000 (off 34.4% from November 2007) and the median for a condo is $260,500 (off 38%).  See the DQ News Chart

There were a lot of foreclosures, and there will be more to come.  The big bailout, and help for homeowners has been a bust.  Very few delinquent borrowers have been able to modify their loans and keep their homes.  The foreclosures have slowed, but that is probably only due to the new California law that lenders have to document that they have worked with the borrowers prior to foreclosing.  There will probably be a big flood of new foreclosures that will hit the market around March.

A lot of real estate agents have left the business.  Final numbers won’t be available until late January, but I know many agents who have found other jobs and will not be renewing their local Association of Realtor®s  memberships.

The Real Estate Industry has become more “transparent.”   Let’s face it – there are too many places for consumers to do their research and credibility means a lot!   If you aren’t honest and open with your advice and opinions, buyers and sellers  will find someone else who will be.  

Nobody is going to buy a house simply because they see an ad that says “Now is a good time to buy or sell!”  DUH!   Actually, I have gritted my teeth recently when I saw a full page newspaper ad that declared “Work with a Realtor® because they know your market!”  The truth is, some do and many don’t!  To become a Realtor®, you need to have a license and pay dues of $115 per year.  You also agree to abide by the Code of Ethics, but there is no required education or additional testing to maintain your membership.  I am a dues paying member of the National Association of Realtors, and I abide by the Code of Ethics and enjoy some benefits like access to research reports, and publications, but membership alone does not give me any knowledge or authority, and I hate that they waste my dues paying for ads like that!  ( End of rant.)

The parts I got wrong: 

The mortgage market has still not settled down completely.  The FHA loans have made a big come-back, after being close-to-obsolete in California for the last few years, but they have also tightened up on their qualifications for many borrowers, and won’t approve a loan for a property that has changed ownership in the last 90 days.  This puts investors in a riskier position if they want to buy a foreclosure, fix it and put it right back on the market.  Loans of over $417,000 are difficult to approve, and the interest rates are substantially higher.  This is causing problems for buyers (with good credit and documented income)  to buy homes in the higher price ranges.

The lenders are pricing their inventory to get rid of it.  I never would have guessed that they would take this agressive approach.  I’ve been seeing REO properties come on the market at 10% below the most recent comps.  This has created a frenzy for buyers who can’t resist what appears to be a real bargain.  Multiple offers have become the norm for many of the REOs, and buyers have been bidding them up to an average of 102% above original list price.  The REOs and short sales, especially at the lower end of the price ranges, have made up 42% of all sales for 2008.

Overall, my predictions weren’t too far off, so I’ll give myself a B+ for getting close.   In the next few days, I will make my new predictions for 2009 and this time I will be more specific and try to get closer to actuals.

This photo has nothing to do with this post - I just liked it!

If you are planning to buy a condo, or a house in Lake Forest, Mission Viejo, Rancho Santa Margarita, or other South Orange County area, there is a good chance that you will be buying in to a home owners’ association (HOA).  If that is the case, make sure you read over all the HOA documents soon after you receive them.  These are usually provided to you during the escrow process, and you will normally have 5 days after receiving these to either approve them, or cancel the purchase and get your money back.

What should you look at, or what should you look for?

Start with the budget. This will show you the items that are expected to be paid each month by your dues.  Some budget items can be expected to go up almost every year – like costs for electricity, water, utilities, gasoline, insurance, and most labor.  Also, look at the year-to-date actual financial statements to see how they compare to the budget.  Have there been unexpected or substantially over-budget expenses?  Is the income (from dues) under the budgeted amount?  If there have been a lot of foreclosures in the association, the unpaid dues from those homes will have to be written off, and the shortfall will have to be made up by an increase to the next year’s dues budget.  By law, in California, the HOA dues may be increased by the board of directors by up to 20% without a vote of the homeowners.  If a 20% increase is not enough to cover any shortfall, a “special assessment” of up to 5% of the annual budget may be declared by a vote of the board of directors.  Most associations publish their new budgets in November for the following calendar year, and the new dues assessments go into effect in January.

Review the Rules. Most HOAs have rules that address many areas of your life.  Putting a basketball hoop on your garage, or a portable one in the driveway, may be restricted.  Do you have a boat or RV?  Many HOAs require that they not be visible from any other property or from the street, or that you may only park your RV in front of your house for the time it takes to load or unload it after a trip.  Also, if you drive a commercial vehicle, know that there may be restrictions on keeping that in your driveway.  Do you work from home?  Some associations will not allow any kind of manufacturing or retail types of businesses, or will restrict the hours that you can operate.  What kind of pets do you have?  Chickens, ducks and pot-bellied pigs are often outlawed, and some associations put a weight limit on the size of dogs that are allowed.  Read over the rules and make sure there aren’t any that you can’t live with!

Architectural Guidelines. Before you plan that room addition, front porch, patio cover, or major remodel to your new home, find out what is likely to be approved by the architectural committee.  If you want to add a 2nd story, or change the exterior look of the home, find out before you buy that it will be allowed!

Meeting Minutes.  The minutes from the Board of Directors’ meetings will tell you what is going on in the Association.  Much of the time, the minutes are quite routine and boring, but check to see what issues are coming up at board meetings.  Are neighbors fighting about something?  Is the association failing to enforce the rules?  Are they anticipating discontinuing any services, or upgrading any of the commonly owned facilities?  Are there any lawsuits threatening the Association?

Buying a home that is part of an association means that you are buying ownership in that association.  Do your homework – You need to know what you are buying!

]]> http://livelakeforest.com/2008/10/before-buy-hoa/feed/ 2 http://livelakeforest.com/2008/10/lake-forest-market-update/ http://livelakeforest.com/2008/10/lake-forest-market-update/#comments Fri, 03 Oct 2008 03:10:52 +0000 Vicki Lloyd http://vickilloyd.wordpress.com/?p=251 Homes in Lake Forest are selling!  The preliminary numbers for the month of September are up from last year, although the average price is lower than a year ago.  In September 2008, 63 properties closed escrow compared to 26 in September 2007.  The sold prices ranged from a low of $100,000 for a one bedroom condo to $1,387,400 for a lake front custom home.

The current active inventory, is 251 properties.  Of those, 124 are coded as short sales, and 44 are lender owned.  The remaining 79 “non-distressed” properties range in price from $179,000 for a one-bedroom condo, to $1,695,000 for a custom lake front home.