Frequently Asked Questions

1031 tax-deferred exchanges

Advertising (see Marketing, below)

Accommodators

Affiliated Companies

    Many real estate companies have affiliated companies they work with to develop additional revenue streams. These can include escrow companies (for example Coldwell Banker is affiliated with West Coast Escrow), title companies, lenders, exchange accommodators and insurance services, to name a few examples. My overall opinion of affiliated companies is that they are generally good for the real estate company and bad for their clients. I believe that my clients are best served by getting competitive pricing and services. When I co-owned a Century 21 franchise my partners often brought up the idea of opening an escrow company of our own or providing other services in house. I was opposed to the idea as again, I didn’t think it was an honest way of serving the interests of our clients. Too often clients are steered toward affiliated companies because of the incentives or rules for the company’s real estate agents and not because those affiliated companies provide the best services or are competitively priced.

Broker

    Most real estate agents in California are licensed as real estate salespersons. Real estate salespersons are only allowed to conduct real estate business under the umbrella of a real estate brokerage. This has a lot to do with why most agents work at large real estate companies.  A higher level of training and licensing is required to be licensed as a real estate broker. I was first licensed as a salesperson and then took additional classes and tests to become a real estate broker.

C.A.P. Rate

Commission and Fees

    When I represent buyers, in almost all cases, I work at no cost to my client. My commission as a buyer’s agent is paid by the seller and is pre-negotiated between the seller and the seller’s agent. It is customary that the commission a seller offers to a seller’s agent be split evenly between the agent representing the seller and the agent representing the buyer.

    My commission representing sellers is paid at the close of escrow. I’m happy to answer any questions you have about commission. Commission is negotiable. Generally, I do not charge my clients for other fees other fees. I don’t believe in adding in nickel and dime charges. Many real estate firms require their agents to charge a “service fee” of hundreds of dollars to their clients, in addition to the commission at close of escrow. Also, many agents are now passing on the cost of transaction coordinators (contracted by the agent to help with their transaction paperwork) to their clients. I usually hire a transaction coordinator and I believe that is an expense I should pay myself.

Earthquake preparedness

    There is a lot of information on this subject. Yes, we all should have emergency supplies in our homes (extra water for example). But as a property owner there are also important considerations like should you buy earthquake insurance and are there structural issues that need to be addressed. You can download the federal earthquake booklet here. A note on earthquake insurance: Earthquake insurance is often considered to be very expensive but it may be well worth the cost. I just want to encourage you to check the deductible amount on any proposed policy and weight the costs of both having and going without earthquake insurance. Most regular insurance policies in California exclude earthquake coverage unless you pay extra for it.

Electronic Signatures (see Paperless Transactions, below)

Escrow

    For a list of escrow companies, go to the links page. I’ve pulled this definition of escrow from the website of Glen Oaks Escrow: “An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer�s and seller's instructions. People buying and selling real estate often use an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller�s requirements, including the receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. An escrow is convenient for the buyer and seller because both can move forward separately and simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed, and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This leaves much time and facilitates the closing of the transaction.”

   

Financing

Foreclosures

Gas Shut-off Valves

    Earthquake gas shut-off valves are required to be installed for the sale of residential properties in the City of Los Angeles (amongst some other cities) prior to close of escrow. The valves are a simple, common sense idea. A plumber installs a valve on the gas line near the gas meter. The valve is supposed to automatically close if it is shaken. Since gas pipes can break in an earthquake and cause fires, this is a prudent safety measure in California. The cost to buy and have a valve installed should not be more than a few hundred bucks.

Gross Rent Multiplies (GRM)

    The Gross Rent Multiplier is a simple and crude way of quickly evaluating the potential profitability of apartment buildings and other income property. The formula is easy. Take the sales price and divide by the total gross annual rents for the property and the resulting number is the Gross Rent Multiplier (often abbreviated as G.R.M.) Investors can quickly compare properties by looking at the GRM (often this number is provided with the listing information or you can quickly calculate it yourself).  Here’s an example. A 30 unit apartment building is listed for sale for $6,300,000. The total gross annual rents (all income with no deductions for expenses) are $487,311. $6,300,000 divided by $487,311 equals 12.928 or rounded to 12.93 Gross Rent Multiplier.

Investors may want to set a goal of purchasing a property based on a target GRM. In this case, an investor can take the gross annual rents and then multiply that number by their chosen GRM to generate a proposed offering price.  So take the same example property above. The investor wants to purchase property only with a GRM of 10 or less. In this case take the $487,311 gross annual rents and multiply by the GRM of 10 and the investor knows that he or she is willing to offer $4,873,110. The lower the GRM the better for the buyer. The higher the GRM the better for the seller.

I like using the GRM to quickly evaluate dozens of properties and eliminate properties that I know don’t work. However, as the GRM does not factor in building expenses, tax advantages, and it does not provide the investor with a rate of return on the investment, before purchasing an investment property a more thorough analysis should be performed.

Home Warranties

    There are a number of choices for home warranty companies. Sometimes a seller will buy a home warranty for a buyer and sometimes a buyer will purchase one for themselves. Basically a home warranty buys a little peace of mind for both parties. It is limited as to what it covers and how long the coverage lasts. Usually a home warranty is for one year from the date of sale and it is designed to protect a buyer from unforeseen costs in repairs to the home. Policies do not cover any known issues. So if you buy a property and you were told by the seller or your property inspector that the drain lines regularly clog from root intrusion then if your pipes clog up because of root intrusion, likely you’ll be paying to fix it yourself. Buyers who are purchasing total fixer properties (where almost all the major systems are known to be faulty) may not want to purchase a home warranty. Some home warranties may include some personal property like major appliances. Home warranty policies are very affordable and vary based on the carrier, type of coverage and the size and price of the house.

Inspections

Lead, Mold and Asbestos Testing

    A few years ago there was a lot of commotion about the harmful effects of certain molds. Mold is still an issue buyers want to investigate, especially on properties that have moisture issues, smell musty or where mold is visible. But even when you can’t see or smell mold, mold may be present. It is a good idea to hire a mold inspector to test a property during your inspection period. Getting rid of mold can sometimes be very expensive so it’s good to have a mold inspector provide you with peace of mind or alert you to areas of concern. Mold inspectors are usually specialty inspectors. Unfortunately a general building inspector usually is not qualified to test for mold and will tell you that mold is not part of the general inspection.

    Most people are most concerned about lead in paint. Lead was often used in paints before 1978. After that it was banned. There is a booklet titled “Protect Your Family from Lead Based Paint.” You are welcome to download a copy for yourself. I’m concerned when I see lead based paint chipping or flaking, especially around windows. You can buy a home testing kit for a few dollars at your local hardware store. For a more accurate test, take a sample (a paint chip for example) in a plastic bag to a testing lab and pay them to test the paint. You can also take samples (carefully as you don’t want to kick up dust) of any material to a testing lab to see if asbestos is present.

Marketing Techniques

    Marketing property is handled very differently by real estate agents. I’ve trained agents in marketing techniques, especially technology based marketing. Most real estate agents will agree that the main marketing effort of any property should be on the internet. More and more buyers are turning to the internet first and properties are cast aside if they don’t look good as presented. I’m a firm believer in quality virtual tours (not all virtual tours are created equal), great pictures (don’t you hate seeing pictures of someone’s bathroom with the toilet seat up?), floor plans and clear information.

    I market each property differently based on its strengths. Call me and I’ll be happy to present you with a marketing plan for your property. Although my focus is on marketing properties online (though a long list of websites and by email) I also do direct marketing, print marketing and extensive agent networking. As I’m not part of a large real estate firm competing to recruit agents from other real estate firms, I’m able to market my properties to all agents without company managers wondering if I’m trying to lure their agents to a new company.

 

Mills Act

    If you have a historic property, you may be eligible for lower property taxes through the Mills Act. I helped my client who owns the Golden State Theatre in Monterey, California gain approval for a property tax reduction for his 1926 built 1000 seat historic theatre property. The Mills Act is also available to home owners. I may soon apply for Mills Act property tax relief for a property I own. Though the Mills Act is national, it is administered by local government. Take a look at what the City of Los Angeles has to say about the Mills Act. (http://www.preservation.lacity.org/mills-act)

Mortgage Calculator

    There are lots of mortgage calculators available online. I’ve got a couple of hand-held financial calculators designed for real estate that help me quickly estimate mortgage payments. Click here to use a simple mortgage calculator on this website or just search Google for lots more choices. While a mortgage calculator is good for approximating, I strongly recommend that buyers talk directly with a mortgage broker or direct lender to learn what the payments will be based on a specific loan product quoted to you. Take a look at my links page under lenders for some lenders that clients of mine have had good experiences with. Note, unlike some real estate agents, I do not process loans nor do I receive any kickbacks from lenders. I believe I serve my clients best by helping them find competitive resources not directing them toward a lender that pays me a referral.

Negotiating Style

    First and foremost, I negotiate for you. Negotiating is something I do very well. I pride myself on honest negotiation (which, in addition to being ethically appropriate also gives me good credibility with other agents and leverage when making proposals). I listen a lot and I ask as many questions as is appropriate. Then I provide choices to my clients on ways we can proceed and guide them with potential outcomes and risks. Representing buyers I often help clients purchase properties for much less than they would have thought they could. Representing sellers I often exceed expectations on securing a great price and terms. Equally important I recognize that negotiation doesn’t end until escrow closes. I provide cautiously assertive negotiation on behalf of my clients, as they direct me, throughout the escrow process.

Paperless Transactions (well, not paperless but less paper)

    In many states in this county you can buy real estate with a simple one-page contract and a handshake. California is not one of those states. The real estate industry has a seemingly unending barrage of contracts, disclosures, addendums, reports and instructions that will make up your file. I’ll provide you with paper or electronic copies of documents at your request. I use a truly mobile “office” with my tablet computer, fax software and secure electronic signing signature software. Combined with my wireless internet card, I can meet you, you can sign documents directly on my computer screen and then I can simultaneously email a copy of what you just signed to your email account along with copies to the other agent, escrow and title representatives, your lender, etc. If I receive a fax it arrives to me electronically and you can sign it and return it without ever having to print it.  At the end of your transaction I’ll provide you with a compact disk with all of your transaction files in electronic form (as PDFs).  Not only do I think this is better for the environment, it is also a lot more convenient and easier to organize. Of course, if you prefer, I’m happy to print documents for you to sign.

Property Insurance

    Buyers should begin getting quotes on property insurance as soon as they open escrow. Sometimes it can take time to get a good quote and most lenders require buyers to purchase property insurance before they will lend on the property. My links page has a few property insurance sources or you may already have an insurance broker you like to work with.

Property Taxes

    There is a ton of information on property taxes. Most of the questions I get from clients deal with supplemental tax bills, the reassessed cost of taxes after a sale, and if taxes are paid current at the close of escrow. For properties in Los Angeles County you can go to the assessor’s website at http://assessor.lacounty.gov/extranet/default.aspx.  You’ll find more details on the assessor’s website about supplemental taxes  and you can get a copy of your tax bill. At close of escrow, the escrow officer is supposed to credit the seller with funds from the buyer if property taxes are paid past the close date and credit the buyer or pay the taxes from seller proceeds if the taxes are delinquent.

Property Types (commercial, single-family, multi-units, etc.)

    Most novice real estate investors buy single family homes, duplexes, triplexes and fourplexes. Two reasons for this are that residential homes are usually the easiest investment to relate to and understand and also because the financing of residential properties with one to four units is usually the most attractive (lowest required down payment and low interest rates). Lenders divide property types based on loan packages available for each type of property. Commercial investment property often requires a down payment of 30% or more. Apartment buildings with 5 units or more are the same. Property investors have very different goals and circumstances. Depreciation is different for different property types. Capital gains taxes affect properties differently. Cash flow and appreciation may be radically different. I’m happy to talk with you about your investment goals and preferences so you can make a good choice about what property types to pursue. I can also help seasoned investors who’d like assistance with comparing investments, calculating CAP rates, Return On Investment (ROI) and running spreadsheets to learn if a property pencils out.

Realtor

    The term Realtor is a registered trademark of the National Association of Realtors. Only members are allowed to call themselves Realtors. I, like most agents in California, am a member and thus a Realtor. The website realtor.com is run by our association. Real estate agents do not need to be Realtors.

Referrals

    Nearly all of my business comes from referrals. I don’t have my mug shot on bus bench ads. I don’t give away refrigerator magnets with my phone number. When I market properties I market the property itself rather than big banners and slogans about who I am. So if you are happy with the services I offer you and know of someone else looking to buy or sell real estate property, I would really appreciate the referral. Thanks so much to all the people who have recommended my services to their friends and colleagues. 

Short Sales

     A short sale occurs when a property is sold by the owner for less money than the owner owes his / her lender(s). Short sales are a bit tricky, they require a bunch of patience and they often can bring incredible deals to buyers. For the seller, a short sale is the lesser of evils. The seller gets no money from the proceeds of the sale but the seller avoids foreclosure and often, the lender(s) officially forgive the remaining debt they would otherwise be due.  Short sale properties are usually listed on the multiple listing service as a regular sale. But to close the deal, the seller and the buyer must agree on price and terms and then the seller’s lender(s) have to approve the deal. This can take months and sometimes the property is foreclosed before escrow can close leaving a foreclosure on the seller’s credit and the buyer with much time invested and no property to show for it.  Not all sellers upside down on their property are eligible for a short sale. Sellers must prove economic hardship. The seller’s lender(s) won’t cooperate on a short sale if the seller is otherwise wealthy or has enough money to make ends meet and keep the property. I’ve found that in short sales, the buyer has a contract with the seller but spends most of the time negotiating with the lender(s) who aren’t even parties to the contract. Difficult to do compared with regular sales but often well worth the effort.

Smoke Detectors and Water Heater Strapping

    It is required that residential properties have smoke detectors. It is also required for water heaters to be strapped so they don’t fall over (breaking the attached gas line) in the event of an earthquake. These items are required to be in place prior to close of escrow.

Solar Power and Solar Hot Water

Termites

    Termites are common in California. Many lenders will require a termite clearance (a certificate that states that any needed treatment has been performed) before funding a loan. In the last few years it has become common for residential real estate transactions to attach to the purchase agreement C.A.R. form WPA (California Association of Realtors form titled “Wood Destroying Pest Inspection and Allocation of Cost Addendum.” This form can be used to negotiate in advance who will pay for termite and wood damage, if any, once an inspection has been conducted. Sometimes, when buying a fixer or a foreclosure property, a termite clearance may not be practical. If a loan is required to purchase the property it is a good idea to check with the lender in advance to make sure they will not require a termite clearance certificate as a condition of funding the loan.

    If termites are being treated there are now a number of types of treatment available. It used to be that nearly everyone threw a big circus tent over their homes and pumped it full of poison. While tenting a property is still common, there are concerns about the lingering gas in furniture, walls, etc. and the effect it may have on future human habitants. Tenting also can kill plants in and around the house. Other methods of treatment include using heat, cold, boric acid and dehydration. Not all treatments work as well as others. I strongly suggest comparing warranties offered by different termite companies. There are a few companies listed on my links page.

Title Insurance

    Title insurance is usually a really inexpensive form of insurance. The general idea with title insurance is to make reasonably certain that when you buy a property, you will really be buying the property. Though no insurance covers everything and policies vary by company, I highly recommend buyers secure title insurance (and your lender will likely require a title insurance policy, too).First American Insurance Company sums it up this way on their website: “Title Insurance: Protects the policy holder from disputes over the ownership of a property.”

http://www.firstamericantitle.com/buyer_seller.php?id_pag=54 [Note to web programmer – this is the link for “their website” above]

Utility Companies

    My links page lists many of the common utility companies in Southern California.  Often a seller of a property needs to notify their utility companies to transfer service to the buyer before the buyer can call and establish a new account. I think it is usually best to call utility companies about a week before escrow is expected to close (presuming there is a high expectation that escrow will close on-time or within a few days of the intended close date) and then provide a date for which you’d like to have utilities disconnected in your name. Err on the side of generosity. If you have to guess, pay for a few days of utilities after the close date. I think that is better than having power cut off prematurely. Many utility companies will leave their services on as a courtesy to the buyer even after you have notified them to discontinue service in your name. Some services can take a while to get turned on so if you are buying a place, establish your accounts at least a few days before you move in.

    A note about internet access; Sometimes it can take a week or two to get new internet service to a property. If you need internet service at the property you are buying right away, order service well in advance of closing.

Virtual Tours

    More and more properties are being photographed for virtual tours. These tours are intended to allow someone to get a good idea of what the property looks like by viewing it online. Some virtual tours just show still pictures usually with digitally programmed zooms, pans and tilts of standard photos. I like virtual tours that allow you to look around a room and tours that have floor plans of the property so you know what part of the property the photo reveals. In many cases, still photos look better than stretched or fish-eye moving images. The goal of any virtual tour should be to show a buyer enough great images of the property to encourage them to see it in person. Additionally, a good virtual tour can help build enthusiasm after a showing and allow a prospective buyer to “tour” friends and family though their intended purchase seeking their feedback in return.

Zillow

    Zillow.com is a really incredible tool that allows anyone to get a quick sense of how their property compares with neighboring properties. Zillow compiles a lot of data on their website, including aerial views of properties, approximate lot lines, square footage and lot size. It is very easy to view neighboring properties to see how they compare. But beware, the prices listed on Zillow, Zillow’s estimates of value, are often way off the mark. I’ve seen many examples of properties whose actual value can be off from the Zestimate by 30% of more. I was interviewed National Public Radio’s show Marketplace on a short story about Zillow. To listen to the show, follow the link on my press page.