[Steve Leung:  I’m proud to introduce this article by my friend Dan Noble, a mortgage expert with 26 years of financing experience.  The real estate financing world is obviously a different place now, especially for buyers looking to move up, and Dan describes some of the changes.]

It’s Sunday morning, and the coffee you’re sipping not only smells great but tastes extra good.  Your husband has the main section of the paper and you have the real estate section: it’s been your habit since the two of you have been so captivated by all the great deals everybody has been talking about.

Sure enough, once again this week’s paper is filled with even more and now new home builders have joined in big ads.

You’ve had your first home for a little over 4 years and the original plan was to hold it for five and leverage into another, moving up the quality of living scale.  Appreciation was part of that equation and although there’s been some recent deterioration in value, the property is worth nearly half again as much as you paid for it.  The two of you have secure employment and last year’s bonus was the biggest ever.  Your 401k is building and the company matches your contribution. 

Life looks really good right now but will it continue, what about all this trash about the economy and the bailout, and what’s up with banks that even you recognize failing, what does that mean with new home financing?

I own a personal finance coaching and consulting business named Satori Alliance.  Having 10 years experience selling real estate, 26 years financing it, and 4 years working strictly with real estate investors, please understand THIS IS A DIFFERENT GAME than ever before. 

If you think about it, act, or have the same expectations as before you will soon be boarding down a black diamond slope with an avalanche behind you that you cannot outrun!  Here are some of the changes that you need to consider.

Today’s move-up buyer has the same thoughts as always.  Sell this one buy another and keep going.  “Sure it’ll be a bit tougher today but we can deal, and besides the built-in value we get will be worth it in a few years.”  This is what a recent client said as we began our long discussion of what they needed to do as a well qualified buyer in today’s market.  See “A Turn Down Day” for their story.

Credit

The credit scoring system has just been changed, maximum scores have been increased and all lenders are uncertain what impact that will have on a buyers score, and how they will interpret the risk.  Ask yourself these questions:    

• Have you made all you payments on time?
• Paid any late charges or payments in the last 12 months?
• Are your balances on those cards high enough that your score decreased?
• Do you have too many new credit accounts (you know, the ones where they give you 0% interest if you just transfer your other card balances to them?
• What is your median score anyway and did you know that what you could do two years ago now requires at least 50 points higher in score to accomplish – do you have it?  If not, how can you get it and how long will it take?

There are 50 more questions that have become intricately relevant I could ask that you could likely answer, but with those answers, how can you responsibly prepare yourself?

Collateral

This would be the property, not you or your financial condition.  Lenders today care more about the property than any other single issue.  More questions:

• Is it in an area of declining value, how severe, for how long?
• Is the condition acceptable to the lender?    How about buying a Short Sale, Foreclosure, or an REO, that’s where the real discounts are what does it take in time, expertise, and patience to accomplish these. What are the risks of buying bank owned property and for how long?
• Is the roof or plumbing too old and will it need to be replaced before you can close on it?
• Will you need to pay for 1, 2, 3, 4, 5, 6, or 7 appraisals, you may depending on how you personally do your business and who you hire.
• What will you need to repair prior to closing that has never been required before and what will that process cost you, how much time will it take, and will your ream anticipate this in you escrow time?

Needless to say a property in a declining market condition, and most are, will require a more sizable down payment and the terms of your financing may be impacted.  How can you responsibly prepare yourself for this new paradigm? 

Capacity

Finally we get to your personal finances and what they look like but not to you, to your prospective lender.  Oh, by the way, lenders on the brink will have tighter standards for qualification than those who are clearly solvent, choose wisely.  For your final set of questions:

• What is your two year income history and how will you prove it with 3rd party documentation that will pass lender scrutiny?
• What income to debt ratio’s will you need to have to qualify for that move up property?
• How much increase over your current monthly payment can you have before you will be declined for new financing?
• What kind of liquid assets do you have and how many months of total new monthly payment (principal, interest, taxes, and insurance) will you need to have AFTER you close the deal?
  What kinds of loans are available and who is offering them, really, I mean, is the money really coming from the lender you think it is and does it matter?  It does if you’re interested in peace of mind after you close.

Each question in all 3 sections above have answers, sometimes several, and each of those answers prompts other questions again with several answers.  Today’s lending landscape paradigm is 100 times more complex than ever before.  Previous knowledge is useful and will be like a machete in the jungle but only if you hire a professional experienced guide educated on the 14 months of new regulations and their impact on your situation.  (See “I’ve Had It Up To Here”.)

Advice and Coaching

Time – Be sure you safely have enough to get from here to there without unforeseen obstacles costing you money or killing your chances.

Planning – This is the most crucial and requires a specific sequence of event and professional involvement.  Do not try this at home!

Trust – Sincerity, reliability, and competence are the elements of trust.  Trust is an assessment you make about another.  If any of these 3 elements are missing, the assessment of trust is merely hope.  One must make a promise and deliver on time for you to trust unless you rely on the recommendation of someone you do trust.  Trust carefully! 

(c) Dan Noble for the Silicon Valley Real Estate Blog, 1SiliconValley.com 

Recommended Reading:

• Keeping Your Sanity While Moving Up to a Larger Home
• How to Stop Renting
• Creating a Better Standard of Living for Your Family
• Reducing Your Stress When Searching for a Home

That’s why it’s important for agents to educate consumers about both of our roles in a real estate transaction.  The Internet has more than enough information to help buyers identify neighborhoods they’re interested in exploring further, so I explain to clients that they don’t need an agent to begin the first part of their property search.  From that point on, however, an experienced, professional agent is invaluable.  Here’s why:

1/  The best agents are market experts, and continually renew their expertise by having their ears to the ground at all times. 

Consistent tracking on the pulse of the real estate market is a trait of any good agent: we’ll provide current, sometimes up-to-the-minute, information on schools, neighborhoods, and even tracts of homes and builders.  Many times it’s information you will never find on a website.

Recently had a client that had been monitoring a luxury development in Emerald Hills.  Persistently keeping track of the activity in the neighborhood early and often helped my client purchase a bank-owned property before the property was put on the market — and for several hundreds of thousands dollars less than he would have paid otherwise!

2/  Agents know what makes sellers tick.

Steve Leung covered some of how you can walk in a seller’s shoes.  Good agents can help you get the property you truly love at the best price possible. They can advise when to write an offer for lower than the asking price or when to be aggressive by offering at or near a property’s full listing price.

They know that by being good at selling homes, you develop the empathy to be able to make good offers to buy them.  And they know how to talk to other agents of different ages and experience levels.  That versatility helps you in every step of the way, particularly in the little details that need to be caught before they cost you your dream home.

3/  Agents negotiate on your behalf.

Because they have a fiduciary responsibility to protect their clients, agents will fight on your behalf over not only a property’s price but also the contract terms, which in many cases are just as important as the amount of money you offer.

Experience and negotiation are what set some agents apart from others.  You can’t buy experience in this area.  During a recent offer presentation to a seller, I made the decision to present an offer with my clients by my side.  The competition and negotiation was not easy, but this decision ultimately helped my clients get their offer accepted and buy the property.

4/  Agents can refer you to trusted associates.

The best agents have a team of other professionals, from appraisers to lenders to home inspectors, whom they trust to make sure buyers and sellers are protected through every stage of the real estate process.  Agents stake their reputation on their referrals.

Why is this important? I recently worked with buyers who ended up switching to a discount broker. First, I put introduced them to the mortgage broker I consider part of my team, who pre-qualified them and secured a good interest rate for their purchase. Then, because they were interested in a wide range of neighborhoods, I suggested they drive through those neighborhoods. Often, that helps buyers determine which they like best and which they don’t like after all. After their short driving tour, we planned to look at properties in their favorite neighborhoods.

After driving through several neighborhoods, the buyers told me they’d decided to work with a discount broker since they were already doing the legwork of touring neighborhoods to narrow their search. I wished them well, and we both moved on.

Not long after, the buyers called the mortgage broker to whom I’d referred them. They explained that their current mortgage broker couldn’t get them an interest rate as low as my teammate had provided. Could he arrange for a new loan before the closing in two days? Unfortunately, he couldn’t. The buyers ended up with a higher-price mortgage — and we’ll never know how well the discount broker negotiated on their behalf.

The moral of the story is this: real estate agents provide real value.  When you try to navigate the purchase or sale of a home on your own, you may end up wishing you’d had an expert on your side.

Copyright (c) Alex Wang for the Silicon Valley Real Estate Blog, 1SiliconValley.com

Recommended Reading:

• Creating a Better Standard of Living for Your Family
• Winning the Bidding War
• Choosing a Home Inspector in Silicon Valley
• How a Win-Win Saved My Client $25,000

The Los Altos, Saratoga, Cupertino, and Palo Alto elementary school districts all maintained district API averages above 900, an excellent score (which is par for the course in these districts).

The competitive Cupertino Union schools improved from an already-elite score of 930 to 941, and its border school Stocklmeir Elementary — which students who are living in Sunnyvale can attend — notched up 13 points to 959. To offer some perspective as to the strength of these scores, the average state API for all grades is 742, up from 728 last year.

This year’s score report also reflects improvements at both Cumberland and Cherry Chase, the two top elementary schools in Sunnyvale. Both broke the 900 mark once again, with respective scores of 920 and 909.

Also emerging are up-and-coming schools to watch. Take Ellis Elementary in Sunnyvale, which entered the 21^st century with a score in the mid-700s and now consistently scores in excess of 800. This year, Ellis improved 17 points with a score of 831.

The Campbell Union Elementary District’s Forest Hill is another school on the move. At a 2008 score of 888, Forest Hill is inching closer to breaking the 900 barrier. Up from 879 last year, Forest Hill was a low-800s school in 2000. We’ll continue to keep an eye on these continually improving school systems as they maintain their march up the API ladder.

We sent agent and Silicon Valley Real Estate Blog writer Alex Wang to talk about the details of a recent transaction he was a part of and he recounts how the demand for good schools pushed that sale to go faster and for a higher sales price.  And you can see what he had to say starting at 01:30 of the KRON 4 report below:

You can also see the report through its direct link.

"…the site offers many well-written articles on a variety of relevant subjects, from school API scores to new developments built or approved in a particular neighborhood."

"…a great source of information for South Bay first-time buyers."

Our own Alex Wang is featured in their Residential Market Report on page 40, "Boom and Bust Still Exist Side by Side".  In an interesting anecdote about the lending crisis, he offers a story of a self-employed client with a $200,000 annual income who had to endure a complete third-party audit before his loan could close.

Related: Choosing a Home Inspector in Silicon Valley

This has become desirable for many bay area residents that want to have entertainment, shopping and a social outlet waiting just outside their front door.  Many downtown businesses sense the high demand of residential-retail zoning, which is alluring many business districts to take advantage of this commercial high density epidemic.

The public concern for high density zoning is that it will bring unmanageable traffic and cars and high taxes and noise to the community.  On the flip side, some residents have voiced excitement and acceptance that it will bring money to the city, restaurants and better quality entertainment.  Moreover, it will lead to higher economic activity and productivity, save tax dollars, and increase property value.  As worrisome or exciting as it may be to the community, there is hardly an area untouched by this new wave of high density development; San Jose, Santa Clara, Sunnyvale, Palo Alto, Campbell, Los Gatos and even Willow Glen are all conforming to this new way of life.

An example of high density development that has majority of public acceptance is Sunnyvale Town Center’s new urban development project.  It has been underway for some time but the ultimate outcome will be 991,000 square feet of retail space, 315,000 square feet of office space and 292 ownership housing units.  There will be a 14-screen movie theater and a 200 room hotel located at Murphy and McKinley Avenues.  The 184-acres project encompasses a large block bounded by Mathilda, Washington, Sunnyvale and Iowa Avenues, known as the Town Center Mall.  The shops are planned to start opening in early 2009.  The vision of this new development is for a lively people-friendly place for shopping, working, living and entertainment. 

Sunnyvale residents are actually quite pleased with the new development, as it will bring in revenue for the city, increase visibility to the area, bring in restaurants, and retail and ultimately boost their home values.  Some residents of other neighborhoods are not quite as pleased.

Voices from Willow Glen

I have heard public outcries from the Willow Glen Neighborhood Association (WGNA) when they recently heard the news of the latest high-density development proposal.  The plan is to create a Community Benefit Improvement District (CBID), with ‘mixed-used’ buildings along Lincoln Avenue with housing above retail; the project is said to attract better businesses on the avenue, and promote affordable housing. 

There has not been a very positive reception to the idea that the ‘beloved’ Lincoln Avenue will potentially lose the charm and character that it has preserved over the years.  The majority of the public is outraged that big developers will come in and modify the old-fashioned downtown area and bring in retail chains and large department stores and push out the ‘mom and pop’ businesses, thus destroying the neighborhood.  Another obvious concern of is the excess of cars and traffic that will result.

Lincoln Avenue is the centerpiece for a lot of residents in Willow Glen and to lose the small downtown feel would be tragic for some.  When comparing other high-density developments, the one key element that say Santana Row, Sunnyvale, Campbell and downtown San Jose have is several blocks to develop; Lincoln Avenue is only one long street with single family houses surrounding.  It will be interesting to see what the final outcome will be when business property owners in Willow Glen vote this month for the CBID initiative.

If you have a stance about this new high-density trend in your neighborhood, let your community know how you feel by participating in your local neighborhood association.  Feel empowered to take part in your community and get involved.  High-density building is part of the future; to better embrace this new wave of development, there is a lot of research available online to better educate yourself with this up-and-coming boom.

(c) Sara Greenwood for the Silicon Valley Real Estate Blog, 1SiliconValley.com

Recommended Reading:

• Creating a Better Standard of Living for Your Family
• Santana Row Neighborhood Information
• Consumer Rights When Purchasing New Homes
• Considering One HOA vs. Another

She’s hosting a neighborhood mixer in her home town with plenty of food, wine and non-alcoholic beverages too.  For more information and details on the event, please visit her page on Willow Glen 2.0.

Here are some details of the event they’d like to publicize:

5:00 p.m. – 7:00 p.m.
Wednesday, July 2, 2008

Berryessa Branch Library
Community Room
3355 Noble Avenue
San José, CA 95132

Attendance is free and open to the public.

Please RSVP by email at Honda.RSVP (at) mail.house.gov

For more information please contact Christine Pham or Chris Schwarz in the Campbell office at 408-558-8085.

Most home buyers and sellers in Silicon Valley understand that ordinarily, home purchases are contingent upon or "subject to" their approval of the property’s condition and upon getting the desired loan. Under the broad umbrella of property condition and financing, though, there are other relevant or supporting issues, and consumers may not be aware of them.

For instance, with a loan or finance contingency, there are several key steps to go through in order to be assured that the lending institution will extend the loan as planned.

A pre-approval means that the buyer has turned in bank statements, pay stubs, copies of recent income tax forms, debt information, and so on - and all of it has been submitted to a lender (not just the person taking the loan application, who has conditionally approved it). With that approval, the lender then should require only a ratified purchase agreement, a preliminary title report, and a satisfactory appraisal.  Actually, though, there’s a little more to it than that. What other issues could there be?

• if loan rates change substantially and the buyer has not "locked" the loan, it may not be guaranteed
• if there’s a delay in the close of escrow (rain forcing a delay in fumigating the property, for instance) and the buyer’s loan lock rate expires, the lender may not grant the loan
• many lenders require an "outside appraisal review" and if it doesn’t get through that step unscathed, the buyer may not get the loan
• natural disasters such as fire or earthquake can cause lenders to pull the loan until the property is reinspected and/or reappraised

So buyers and sellers will want a little more information than simply "the buyer is preapproved". Here’s what they need to know.

The Contingency Details

It’s important to know if the loan rate is locked and for how long. Also it’s imperative to understand if there will be an outside appraisal review, if it is delayed, what the lender will do about that (they can always take it to another company, but may be reluctant to do so). 

A few lenders may be discounting all appraisals by a set percentage - so that is another question to ask. Broadly, it is helpful to ask with the financing "what are the conditions?" and get a list from the lender. Hopefully, it is a short list!

Some sellers are having to part with their homes under a hardship and must attempt a short sale (in which the bank agrees to take less than is owed on the property). They have a seller’s contingency that the offer’s acceptance is contingent upon bank approval. When offers are written, a definite time period exists for that to happen - buyers may allow 3 or 4 weeks or more.

But what happens if the bank does not respond in time (which is often the case)? There’s no sale and the buyers and sellers are "out of contract". If the bank later approves the short sale and the buyers agree to move forward, it may still lead to a closing. In most cases, though, the bank responds so slowly that the home is no longer worth what the buyer previously offered or worse, the bank never responds at all.

Property Condition

Similarly, with the property condition contingency, there are underlying issues besides just how the home does with the inspections. These supporting issues are key for Silicon Valley homebuyers to understand! In California, not only is the structure of the property and the land to be acceptable, but so do other related elements that may impact the buyer’s sense of value for the property.

These may include things such as local school scores, the crime rate of the area, the presence of natural hazards such as being on an earthquake fault or being in a flood plain, the noise from local businesses or transit, and so on.

For homes belonging to a homeowner’s association, it may also include the HOA documents with revelations about the financial stability of the association, the reserve account, neighborhood nuisances that are discovered by reading the newsletters and minutes of the meetings, etc. Having the house and yard in great condition does not mean that the buyer cannot find a reason to get out of the transaction based on the property condition contingency. The issues included are far broader than what is contained within the property lines.

Buyers should know that at some point, they will be selling.

You are not just buying a condo or a house - you are buying a neighborhood, with all that the area has to offer, good and bad. Visit it several different times on different days of the week to see how it looks and sounds. You don’t want too many cars on the street, but of course if it’s SuperBowl Sunday or Independence Day and it’s just a party, there’s probably nothing to worry about.

Do your due dilligence in person, online, and with the disclosures and reports. Ask questions and persue answers from the experts until you are satisfied that you truly understand the condition of the home and area. Don’t sign blindly, even when the disclosures may look like boilerplate - make sure you understand what you are given so that you are not surprised about the property or area later.

Sellers should address area issues as well as those that come up in their home or yard.

Are there abandoned cars on your street? Do the roads have potholes? Is there a problem with the property line, a loud neighbor, or tree branches growing over a fence? Is tagging or graffitti an issue? Whatever annoys you as a homeowner is likely to annoy the buyer or prospective buyer of your home.  Best to do what you can to address and resolve these issues as the occur so that when you go to sell, you can disclose them as past issues and not ongoing nuisances.

An important mistake for sellers to avoid is making a late disclosure. If the buyer has removed all contingencies and the seller later provides a new, important disclosure, it may provide the buyer a new 3 day "right of recission" (a new opportunity to back out of the transaction). Do the disclosures early on and make sure the buyer receives them as soon as is practical so that there’s not a chance that a new escape clause is inadvertantly given to the buyer. 

Buyers don’t want this either - a new disclosure may come at a time that is too inopportune to back out (moving truck in the driveway, old home sold, or?) so they could be in a bad position of having to close escrow and then seek some sort of justice after closing. That would not be a happy event for buyer or seller.

For everyone involved in real estate transactions, there can be layers of issues to understand. Part of the challenge can be knowing which questions to ask.

With the loan or financing contingency, it seems to be a changing landscape due to the mortgage crisis, but asking the lender what hurdles still need to be cleared or what conditions exist is probably a good start.

With the property condition contingency, there are many sub-areas such as the title documents, the disclosures, the ability to get homeowner’s insurance, and many other subjects. Because of the broad nature of that contingency, buyers do not have a difficult time getting out of a purchase agreement prior to the removal of the property condition contingency.

(c) Mary-Pope Handy for the Silicon Valley Real Estate Blog, 1SiliconValley.com

Recommended Reading:

• Considering One HOA Versus Another
• Why the Perfect House Wasn’t So Perfect
• Preparing Your Finances for Buying a Home
• API Scores: Base vs. Growth

Related: Not Overpaying for Buying a Home

There are two other metrics in the report, statewide rank and similar schools rank, both ratings from 1 to 10.  Each number represents a decile, with 10 being the top 10% of all schools in that category.

This metric compares schools that have similar characteristics, based on ethnicity, socioeconomic status, teacher credentials, and (about a dozen) other factors.  So which number matters more: the state or similar schools rank?

By far, the state number.  Let’s look at some of the Cupertino Union figures for examples. 

The third column is the state ranking and the fourth is for similar schools: Blue Hills is 10/8, Collins is 10/7, and DeVargas is 8/2.  Eisenhower and Muir (not shown) are both 10/2 with API scores of 906 and 894 respectively.

The difference in API between 10/8 and 10/7 is only 10 points, but the difference between a 10/2 and 8/2 is about 60 points.  The reason is because schools that are alike tend to have similar performance.  When you group those schools together and rank them, some turn out to be the best of the group and others the lowest-rated of the group.  

So if a 10/10 school is the best of the best, should parents be worried about a 10/2 school like Eisenhower or Muir elementary?  There is room for improvement, but a 10 means the school is in the top 10% of all schools in California.  At that level, I’d be more focused on what programs, classes and activities a school has to offer than beating other quality schools in standardized tests.