Does that Come with the House? What’s Actually Included.

When buying a home, people typically make certain assumptions regarding the items in the house that are included with the property.

Photo of kitchen with large center island overloooking dining area and family room with stone fireplace

As a buyer you would expect that the seller would leave the pendant lights, window blinds and fireplace insert.

In the same vein, sellers make assumptions on what they will take with them. Of course, the seller’s sofa and dishware will go, but there are other items that are not as obvious. It’s imperative that this is all spelled out in the purchase contract. There is a default list in the contract and if this is not revised, then a seller could risk losing the chandelier that has been in the family for generations or a buyer could expect to find a center island in the kitchen only to learn that it was on wheels and not fixed, and was removed from the property. It’s best for buyers and sellers to be as thoughtful and comprehensive as possible about included and excluded items to avoid any dispute at the close of escrow. Otherwise, you could be in a lawsuit over a fountain in the driveway that the sellers wheeled away and the buyers thought was part of the purchase. (True story.)

What the Contract Says is Included & Excluded

Included items and excluded items are addressed in the Residential Purchase Agreement (RPA) in paragraphs 8B and 8C, respectively.

Paragraph 8B: Items Included In Sale

The included items are the typical fixtures that are installed or “fixed”, lending to the expectation that they will stay with the property: kitchen cabinets, bathroom sinks, lawn. There are other items included in this paragraph that are deeemed fixed that have been debated over whether they are fixtures or not including light fixtures, shutters, fountains, curtain rods, garage door openers, gas logs/grates, security systems/alarms. If a seller wants to keep any such items, he or she needs to state so explicity in paragraph 8B otherwise they are to stay with the property.

Paragraph 8C: Items Excluded From Sale

And alternatively, if a buyer wants to include anything that is personal property, he or she must list it in Paragraph B(3). Specificty is key. Identify the item, the make/model if applicable, color, the room it’s in, etc. There are easy to use checkboxes for items that are techincally personal property but are often included with the property, i.e. stoves, refrigerators, and washer/dryers.

Additional Items to Consider

In recent years another category has become more prevalent and has the potential to cause some friction between buyers and sellers if not clarified in the contract: home automation systems, i.e. security cameras and doorbells, electronics that automate lighting and air control. The “brain” of such systems has to remain with the property as well as the parts, but the controllers are only left behind if they are exclusively used for that purpose. For example, if your phone has an app that controls the automation, you do not leave your phone, but if a tablet is posted by the front door to manage the automations, then that tablet stays.

Like everything else in the purchase contract, the more explicit you are up front, the smoother the transaction will go. Leaving items up in the air to deal with while you are in escrow is never ideal and by that point you may longer have any leverage to get what you want.

The Truth About Arbitration in Real Estate

If you ever made an offer on a property in California, you have read an Arbitration Clause. This clause only becomes a part of the contract if both buyer and seller agree to it, meaning they both initial the clause in the contract. And more than likely your agent told you to agree to it because “everyone does” or “it’s better than court” or for no reason at all. Well, agreeing to Arbitration may not be the right decision for you. Let me break it down for you.

Before You Get to Arbitration There’s Mediation

If a dispute arises in a real estate transaction over more than $10,000, buyers and sellers in California are required to go to mediation. Mediation is designed for both parties to find a compromise. You may find yourself in a situation where you don’t believe you should compromise. It doesn’t matter — you have to go to mediation. However, as long as you show up to mediation, you have met your contractual obligation. You aren’t required to come to a meeting of the minds. (If the value in question is less than $10,000, you would go to small claims court which is a lot cheaper and expedient.)

Next Step Arbitration

Assuming you have tried Mediation or you showed up for Mediation and promptly left, then your next step is Arbitration if you have agreed to it. Arbitration is voluntary but the decision is binding.

Advantages of Arbitration over Court

1. Your case will be heard faster.
2. The case will be resolved more quickly.
3. It will cost less.

Disadvantages of Arbitration

1. You don’t get a jury trial. If you go to court, your case will be heard by a jury of your peers.
2. There is no appeal process; the decision is binding.
3. Although it’s cheaper than court, you have to pay for it in a shorter amount of time while court & lawyer fees are spread out over
a longer period of time.

When I explain this to my clients, they typically don’t sign the Arbitration clauses. They understand that it’s still an option later on. But if a seller is dead set on it, then it can be agreed to in a counter offer. I will say that I’ve never had an client who’s an attorney that was willing to sign an Arbitration clause. And for that matter, the E&O insurance companies typically don’t want Brokers to sign these clauses in listing agreements, because they want to leave their options open.

It’s always a good idea to ask legal counsel if you are unsure of what to do.

Real Estate Advice: Rent-Backs

A woman sits in a chair with her head in her hands. There are boxes all around her. She is exhausted and frustrated with moving. A rent-back agreement would give her more time to move.

Woman frustrated and exhausted with her move.

Just when you thought the stress of getting your home sold is over, there’s the next challenging hurdle of moving into your new place… if you even have one yet! A rent-back can be a helpful tool for a seller who needs more time to pack up a lifetime of belongings or still needs to find a new place to live. Some sellers need the proceeds from the sale before they can pay for and close on their upleg so there is a period of time between closes that they are essentially homeless.

As a buyer, including a rent-back in your initial offer may give you a leg-up on the competition. If the seller is going to need more time after the close of escrow, a rent-back can make your offer more attractive. Other buyers may not have the ability or willingness to offer a rent-back.

How a Rent-Back Works

Image of a lease which is part of a rent-back agreement

Rental Agreement

A rent-back agreement is a legally binding part of a purchase contract that does what it says: the buyer rents back the home to the seller for a specific period of time. The seller/tenant and buyer/landlord agree on how long the seller will stay in the property and how much the buyer will charge. Typically, the seller agrees to pay the buyers’ PITI which is their total monthly payment for their loan plus taxes and insurance. In this way, the buyer is not losing any money while the seller is still living in the property. But like everything in the contract, it’s negotiable. For instance, I just sold a home in which my client, the seller, got a 30 day rent-back for free. We had so many offers that several buyers were willing to offer the rent-back at no charge in order to sweeten the deal.

It’s best to negotiate all terms up front at the same time you’re negotiating the offer. Terms including deposit, utilities, renter’s insurance will be more easily agreed upon early on. But once the offer is fully executed, if the buyer did not stipulate a deposit, there’s very little chance the seller will agree to it later on.

Also, keep in mind the following: Lenders typically allow rent-backs for no more than 60 days. A rent-back for 29 days or less requires a simpler agreement than a rent back for 30 days or more. The buyer gets the keys at the close of escrow, but possession of the property is not delivered until the end of the rent-back. The buyer/landlord must give the seller/tenant 24 hour notice, per the agreement, for access to the property.

The Potential Negatives of a Rent-Back for Buyers and Sellers:

An image of boxes stacked up along with a plant, chair and some pillows. A rent-back gives a seller more time to move.

Household goods packed up for the big move to the new house.

For a seller who has lived in a home for a long time with a small mortgage, paying the buyer’s PITI can cause sticker shock, because it’s based on a higher value and subsequently a larger loan amount. Another possible downside for the seller is that you’re now living in someone else’s house! This can have emotional implications that are hard to imagine beforehand.

From the buyer’s perspective, you own a home, but someone else is living in it now! You have the responsibilities of a landlord. And there is the risk that the seller may not move out on the scheduled date.

When executed properly, a rent-back agreement can be a win-win for everyone involved. If you have more questions about rent-backs or are looking for a solution for your particular situation, feel free to call me at (310) 428-8804.

Real Estate Advice: The Arbitration Clause in the RPA

Buyers signing an arbitration clause in a real estate contract

Signing the residential purchase contract.

To Sign or Not to Sign the Arbitration Clause in the Residential Purchase Contract

The Arbitration Clause in the Residential Purchase Contract (RPA) in Southern California is the only section of the contract that may not be agreed upon by buyer and seller and yet you still have a fully executed contract. Most buyers’ agents tell their clients to sign this clause without fully understanding it, and without fully explaining it.

The Arbitration Clause comes into effect if buyer and seller have a dispute, and mediation does not work. Mediation is compulsory, but not binding. This mean that if there’s a dispute between buyer and seller, they must go to Mediation. However if they don’t like the result, they don’t have to adhere to it. Arbitration, on the other hand, is voluntary but the decision is binding. There is no jury in an Arbitration, and you can’t appeal a decision. The upsides are that it’s much faster and much less expensive than going to court.

What a lot of agents don’t tell their clients is that you don’t have to agree to Arbitration at the time you sign the offer. Both parties can always decide to go to Arbitration at a later date even if the clause is not signed. In fact, my broker, RE/MAX Estate Properties has been instructed by our E&O insurance company not to sign the Arbitration Clause in a listing agreement for this very reason. The E&O company wants the flexibility to decide at a later date if there’s a dispute between the Broker and a seller.

Many agents go on auto-pilot when it comes time to sign the contract. They see a blank line for a signature and they assume it needs a signature. Make sure to ask your agent more questions. Ultimately the decision is up to you, but your agent should be giving you the information to help you make these decisions.

Real Estate Tips: Termites & Tenting

What you need to know about termites

Termites are a fact of life in California. Without the cold, harsh winters, termites are able to thrive. Here are some things to keep in mind when it comes to termites whether you’re buying or selling a home:

1. It takes approximately 8 years for termites to rear their ugly heads.

2. Even if you’re buying new construction, it’s possible to have termites. They have no problem taking residence in wood at the lumberyard.

3. If there is serious infestation, you will need to fumigate your home to rid yourself of termites.

4. Most termite companies outsource their tenting which results in a marked up price for the homeowner. There are companies who do the tenting in-house which will save you money so don’t be afraid to ask!

5. There are non-toxic treatments but at the end of the day if you have a full infestation, fumigation will most likely be the only way to get rid of the little buggers. The company will still recommend fumigation as the number one treatment, and the non-toxic alternative will only be a secondary treatment without the same warranties most likely.

6. How termite treatments are being negotiated in a real estate purchase contract has recently changed in southern California. Just about two years ago, buyers would ask sellers to handle Section 1 termite items in the offer before there was even a termite report on hand. But now, termite work has been grouped with all other possible repairs. Buyers typically negotiate termite repairs at the same time they are requesting other repairs based on the home and other inspections. What this has successfully done is take termite treatments off the lenders’ radar. And now the lender doesn’t have to require fumigation prior to funding, and the seller won’t be forced to move out early or leave for 3-4 days during tenting and then return to move out again.

Have more questions regarding termites, tenting, and negotiating them in a real estate transaction, feel free to contact me!

 

Other ways to compete in an offer other than price

When making your strongest offer on a property, there are other things to consider other than price.

First, you should know what’s important to the seller. Maybe the seller has some specific needs that not every buyer can meet. But if you can craft you offer to meet their needs at the beginning, you stand a better chance of getting your offer accepted.

Second, there are plenty of terms in the purchase contract, making may different opportunities to make your offer stand out from the rest.

Escrow Period
You can shorten your escrow period, making it a quick transaction.

Contingencies
You can shorten or eliminate contingencies. Contingencies are a buyer’s “outs”. You can cancel the contract based on several contingencies including a loan contingency, appraisal contingency, investigations contingency, preliminary title contingency, and so on. If you are making an aggressive offer and you suspect you will be paying more than market value, you may want to consider eliminating your appraisal contingency. In this way, the seller doesn’t have to be afraid that the home won’t appraise and you will walk away from the deal. Of course, you have to be prepared to come out-or-pocket for the additional cost.
You can shorten the time period for your investigations and other contingencies.

Seller’s Closing Costs
In a buyer’s market, sellers are often more apt to pay for some of the buyers’ closing costs. Well in a sellers market, a buyer can do the same thing. If you pick up some of the seller’s expenses, you increase their bottom line, making your offer stronger. Sometimes a buyer is not even able to increase the purchase price due loan restrictions, but if he has extra cash, he can pay for some closing costs and possibly win the bidding war.

Termite Work
You don’t need to ask the seller to do termite work. A buyer can take this on themselves at their own discretion. It’s a good idea, however, to still get the termite report in order to determine how much work is needed and what it will cost.

The list can go and, and I’m happy to go over your options with you.

Last, it’s always a good idea to impress upon the seller that you are a motivated buyer to will move quickly with the intent to close. By preparing a complete offer package with all financials, by putting your lender in contact with the listing agent, by giving the seller as much information as possible, and responding in a timely manner will assure the seller that you will be a good partner in the transaction.

Which Inspections Should I Do When Buying a Home?

In a typical real estate transaction in southern California, the buyer has 17 days to do all their due diligence. This includes hiring inspectors to evaluate the condition of the home. Here are some of the inspections that you can consider doing:

Home Inspection
This is the bread & butter of inspections. Everyone should have a home inspection. This is a generalist who will assess the following: foundation, roof, plumbing, electrical, appliances. This inspector is not a specialist in any of these areas, but will be able to tell you the general condition of these items and point out any safety concerns and recommended upgrading. The home inspector will recommend you seek an expert in any of these areas if there is some concern about the condition of these items. For instance, if the inspector sees droppings in the attic, he will recommend a termite inspection. If the inspector, sees moisture under a sink, he will recommend a plumber for further investigation. But often,  a buyer can base his Request for Repairs on the home inspection report. Keep in mind, that not all home inspectors are created equal. Make sure you use an inspector who is licensed and bonded. Also, it’s a good idea to use someone that either your agent or friend/family member has had experience with.

Mold Inspection
Mold inspections are not done as regularly as home inspections. But they should be! I always insist that my clients get a mold inspection. Water is a homeowner’s worst enemy and often water damage can go undetected, wreaking havoc behind the scenes. A good mold inspector helps give you a more well-rounded picture of your soon to be new home. And often it can save you from walking into some nightmarish repairs.

Video Sewer Line Inspection
If you want to know the condition of your sewer line, you can have a plumber or sewer line specialist come to the property and put a video camera into the sewer line. You will be able to see if there are any blockages in the line or possibly even tree roots that are impeding the sewer line. I usually recommend this to people who are buying older homes with mature trees on the property.

Roof Inspection
If you have any questions about the condition of the roof that your home inspector can’t answer or if your home inspector recommends further investigation by a roofer, it’s a good idea to bring someone out who can quote you the cost of a new roof or needed repairs. Often, you can get a roofer to come out for a free estimate.

Foundation Inspection
If you are concerned with some visible cracks or the home inspector thinks there could be some foundation issues, it can be a good idea to hire a foundation inspector. I think it’s helpful to find a foundation inspector who’s also a structural engineer.

Geologic Inspection
Depending on where this house is located, a geologic inspection is something you may want to consider. If there’s concern with the soil or condition of the land, this can be a worthy investment. Areas like Malibu would be a good place to do a geologic inspection.

Termite Inspection
Normally, the seller will pay for a termite inspection. This report will show signs of termite damage, termite infestation, and dry rot. Keep in mind, when a Wood Destroying Pest Addendum is included in a contract, the lender will require that all termite work be done prior to funding the loan. Typically, a seller will agree to pay for these items. It’s just a matter of coordinating the work prior to escrow closing.

These represent a good number of inspections that you can do as a buyer. Basically, if you have any questions or concerns, you can always bring in an expert for further evaluation. The money you spend on inspections can add up, but it’s a good insurance policy against purchasing a home that will be a money pit of repairs.

405 S Gertruda Ave, Redondo Beach – Real Estate Analysis

405 S Gertruda Avenue in South Redondo Beach has been on and off the market over the past few years. It’s a lovely home with a lot to offer. And yet it hasn’t had an offer that has sealed the deal. This gives us an opportunity to look at one property over 3 distinct time periods in the South Redondo Beach real estate market.

Here’s the history: The home was purchased in September 2005 for $1,480,000. As we all know, this was a market on an upswing. Sellers could do no wrong. Homes sold themselves and prices climbed quickly. Then in January 2010, the homeowner put the home on the market for $1,765,000. It was on the market for approximately 3 months. It didn’t sell, and not surprisingly. The market had pretty much come to a stand still, and in many cases prices had dropped back down to 2005 levels. There was no way this home would sell for $300,000 more than what it sold for in 2005 – not in this market. And it wasn’t going to sell at $1,685,000 later in the year when it was put back on the market again.

Fast forward three years, and the home was listed for sale in July 2013 for $1,875,000. This was in the middle of a very hot market. But it’s also been a fickle market. Buyers have gone gangbusters on many properties and activity is rather subdued on others. And South Redondo seemed to languish behind North Redondo, Manhattan Beach and Hermosa Beach. After four months the listing was canceled. And now, in March 2014, it’s back on the market for the same price.

Is there going to be anything different this time? One of its neighbors, 413 S Gertruda, sold in October 2013 for $1,700,000. It’s newer but smaller by about 500 sq feet. If 405 S Gertruda ultimately sells close to its asking price, then we are still in a very upward mobile market. But based on this recent comp, I would deduce that the value is below the $1.8 mark and not above it.

405 S Gertruda shows very well. The views are gorgeous and the roof top deck is extremely usable. I’m not a fan of all the spiral staircases. (Loved them when I was a kid… could run up and down them all day long. But now I just get an awesome case of vertigo.) The neighborhood views are also picturesque. The kitchen is beautifully updated. The master bathroom is lovely. This house gives you a lot of space on a great street with great views. But it’s my feeling that it’s going to need to come down in price before someone is ready to step up to the plate. With that being said, there have been plenty of people stepping up this past year, setting new benchmarks. Only time will tell.

Determining Your Home’s Value

Have you seen the commercials where the kids are handing in homework assignments with ridiculous facts about saber tooth tigers and World War II to illustrate the undependability of information on the Internet? We all get it… the web is chock full of information that is not fact checked or properly sourced, and down right not credible. Then how is it that when they go online to look at home values, they believe everything they read? Web sites like Zillow and Redfin tell you how much a home is worth, but how do they do it? They’ve never been in the home. They may never have even been in that neighborhood before. But they publish home values like they’re the experts. Well, if you look closely they do put a disclaimer in there. For my area, Los Angeles, Zillow discloses a median error of 8.2%. Eight percent is a huge difference in pricing. It’s a home that’s worth either $540,000 or $500,000; $918,000 or $850,000; $1,620,000 or $1,500,000; $2,700,000 or $2,500,000. So now they’re not looking quite so expert-like, am I right?

If you want to determine your home’s value, call a Realtor; call me if you’re in Los Angeles county. Call someone who is knowledgeable about the area, who can come to see your home, who has been in other similar homes, who can give you an educated, expert evaluation.

Real Estate Advice: Termite Inspections

Termite inspections are usually paid for by the seller. And typically the seller pays for Section 1 items and the buyer pays for Section 2 items. This will all be clarified in the purchase contract (RPA) and the Wood Destroying Pest Addendum (WPA). Don’t assume this is how it’s going to be… make sure you deal with this in your negotiations!

Section 1 items are any repairs or treatments that are required in order to get a clearance from the termite company. Examples of Section 1 items are fumigation, spraying, and replacing rotted wood. Section 2 items are those things that do not currently pose a problem but could be a problem in the future. You can consider Section 2 items precautionary measures. For instance, the termite report might indicate that the soil is too high up on the exterior wall of the house. There’s no current problem, but this could lead to dry rot down the road.

Case Study: Termite Inspection in Redondo Beach

Last week, a client of mine had a home inspection for a town home in North Redondo, and the home inspector cited termites in the fence between the property and the neighboring property. The inspector made note of it and suggested any further investigations be taken up with the termite company. However, the termite report didn’t make mention of any termites in the fence.  Fences that appear to be on property lines are never included in termite reports because the termite company has no way of knowing who owns or who has responsibility for the fence. Fences are neither Section 1 or Section 2 items. The termite company also explained that it’s not cost effective to chemically treat a fence for termites. You’re better off taking the money and putting it toward replacing wooden boards.