How to purchase distressed homes and property

Many of the houses coming on the market today are foreclosure sales, which usually sell "as is" and are often in poor condition. This may create a buying opportunity for some buyers, but it may be a hazard for others.

Purchase opportunity

A purchase opportunity arises because many potential buyers don't want the hassle of fixing up a house in poor condition, which means that there are fewer competing buyers. In addition, those who sell houses "as is" are frequently in a hurry to get it done, which means that they are disinclined to wait for a higher offer.



The buyers in the best position to take advantage of such opportunities are those with the skills and knowledge required to assess what needs to be done and how much it will cost.

Risk of value uncertainty

But purchasing a house in poor condition has serious risks. One risk is the greater uncertainty connected to its value. The worse the condition, the more costly the improvements required to make the house livable, and the larger the potential error in judging in advance what these costs will be.

The appraisal may reduce but not eliminate the uncertainty connected to the property's value. Appraisers mainly rely on the sale prices of comparable properties, after adjusting for the differences between the subject property and the comparables.

But because information on the condition of comparables is often difficult for appraisers to obtain, the error in making price adjustments is relatively large when the property is in poor condition.

Risk of not finding a mortgage

But today the greater risk in buying a property in poor condition is that the buyer will be turned down for a mortgage or forced to find a lender who will make the loan but at a premium price.

This problem seldom arose before the financial crisis because there were very few foreclosure sales, and lenders generally operated on the assumption that valuation errors would be erased by property appreciation. Today, those looking to buy a house in poor condition need to consider this risk very carefully.

Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) recently developed a classification system for housing condition ranging from C1 (the best) to C6 (the worst), but only C6 is unacceptable to the agencies in "as is" condition. Nonetheless, many lenders require a C4 or better.

Rationale for condition requirement

It is understandable why the agencies that bear the risk of default would either require that the condition of mortgaged houses meet some minimum standard, or base their purchase prices or insurance premiums on house condition.

As noted above, the potential error in appraisals is larger for houses in poor condition, which would result in greater losses on loans that default. When defaults occur early, furthermore, the house that was in poor condition when the loan was made is very likely to be in poor condition at default, which increases marketing costs.

Why some lenders are stricter than the agencies, however, is not clear. Presumably the servicing of loans on properties in poor condition is less profitable, perhaps because these loans have relatively short lives. It is also possible that the cost to servicers of managing foreclosures of properties in poor condition is relatively high.

Whatever the reasons for lender caution, homebuyers looking for bargains in the sale of distressed properties need to take it into account in planning their purchase strategy.

A purchase strategy for distressed properties

An inspection report from a licensed expert will help in the decision as to whether to buy the house but will not eliminate uncertainty regarding how an appraiser will classify the condition of the house. If the house is classified C5 or C6, a loan may not be available.

If the sales contract has a mortgage contingency clause, which is a standard provision in some states, the buyer who can't get a mortgage because the property is classified C6 or C5 will get his earnest deposit back and the deal is canceled. However, the thwarted buyer will not be reimbursed for the cost of the inspection or the appraisal, which might total about $700.

If a property is being sold "as is" and the standard sales contract does not have a mortgage contingency clause, I would pass unless the seller agreed to return my earnest deposit if the property is classified C6 by the appraiser. You could be more conservative and require the return of the deposit with a C5, which would avoid a mortgage problem because most lenders will accept a C4 or better, but it may substantially reduce the number of sellers who will deal with you.

While accepting a C5 will give you access to more houses, you must find one or more lenders who will accept a C5. You would be well advised to do this in advance of purchase.

Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.



Contact us with any questions you may have about purchasing any distressed property
www.oc-coastalhomes.com

Douglas Pemberton
White Water Realty Inc.
608 Avenida Victoria
Across from the San Clemente Pier
dougpemberton@gmail.com
949-273-0018

VA Loans are now less expensive for our Military.

 

The VA department of housing will be reducing their Funding Fee starting October 1st 2011.

See the new schedule of fees below

 

 

Purchase Loans Funding Before October 1st, 2011
Down Payment	Active Duty	Reserves/NG
0% to 4.99%	2.20%	2.40%
5% to 9.99%	1.50%	1.75%
10% +	1.25%	1.50%
Second time use, purchase of an eligible property
Down Payment	Active Duty	Reserves/NG
0% to 4.99%	3.30%	3.30%
5% to 9.99%	1.50%	1.75%
10% +	1.25%	1.50%
Purchase Loans Funding On or After October 1st, 2011
Down Payment	Active Duty	Reserves/NG
0% to 4.99%	1.40%	1.65%
5% to 9.99%	0.75%	1.00%
10% +	0.50%	0.75%
Second time use, purchase of an Eligible Property
Down Payment	Active Duty	Reserves/NG
0% to 4.99%	2.80%	2.80%
5% to 9.99%	0.75%	1.00%
10% +	0.50%	0.75%

 

 

As housing prices drop, closing costs are rising - money - TODAY.com

As housing prices drop, closing costs are rising - money - TODAY.com

Is it Still worth it to remodel? Yes it is!!!

Remodeling your home,,, Is it worth it?  Yes it is.!!!

The home-sale market has taken a beating in the last few years, which begs the question: Does it makes sense financially to invest in home improvements? Remodeling Magazine's annual “Remodeling Cost vs. Value Report for 2009-10,” published in agreement with the NATIONAL ASSOCIATION OF REALTORS®, indicates that remodeling still pays off, but more so on less expensive projects. Most high-end remodeling projects don't return dollar for dollar on the investment even in a good market. That is, unless homes are appreciating at a fast clip. In this case, you might get your money back due to appreciation. But the profit on the sale might not be as much as it would have been if you hadn't done a high-end renovation. Just as today's homebuyers are making pragmatic decisions, so are today's homeowners when it comes to making improvements. Most of the remodeling projects with the largest return were for such things as replacing exterior siding and windows. On average the cost involved was less than $14,000, according to Remodeling Magazine. These projects returned from 71 to 83 percent nationally depending on the materials used. The project that paid back the highest return was a midrange front-door replacement that cost approximately $1,200 and returned an average 128.9 percent nationally. Sellers may wonder why it would make sense to invest in an improvement just for the sake of selling if it won't repay the amount invested. In today's challenging home-sale market, these improvements may be warranted for the home sell at all if there is a lot of inventory in your neighborhood. Buyers expect more for their money and gravitate to listings that are in the best condition for the price. HOUSE HUNTING TIP: Be judicious about how you spend your money fixing your home up for sale. For example, if your kitchen is a disaster, it makes more sense to do a midrange than an upscale renovation. According to the “Remodeling Cost vs. Value Report,” a midrange minor kitchen upgrade will return an average of 78.3 percent nationally. A major upscale kitchen remodel will pay back only 63.2 percent. The national average returns on remodeling investments do not give an accurate picture of the renovation returns that might be typical in your neighborhood. For instance, the payback for Honolulu homeowners for most of the 18 remodel projects analyzed returned 100 percent of the investment. San Francisco was close behind with 10 projects paying back the full investment. The cost versus value report recommends the following cost-effective improvements you might consider to prepare your home for the market: tidying up the kitchen cabinets using organizers will make your cabinets roomy; add an inexpensive tile backsplash to a tired kitchen, and use inexpensive tile to give an old bathroom a new look; add a breakfast bar by cutting an opening between the kitchen and family room; and install granite tile rather than slab. Other suggestions include: Replacing outdated light fixtures; freshening up the basement; giving the kitchen cabinets a new look by reconditioning and adding new knobs or having cabinet doors and drawers replaced; updating a bathroom without replacing tile by changing the medicine cabinet, light fixtures, vanity, cleaning the grout or replacing it and adding glass shower doors. The findings of this report were based on a survey sent to 150,000 appraisers and real estate agents in the summer of 2009. The survey included information about the cost and description of the remodel projects and median price data for the 80 metropolitan areas surveyed. Some 6,233 survey respondents estimated how much value the improvements would add to the house at resale in the current market. THE CLOSING: Before starting any fix-up-for-sale projects, seek your real estate agent's advice so that you don't waste money on improvements that won't pay back much in your area. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. Contact us Cynthia Peeden or Douglas PembertonRealty Executives OC Coastal SouthOCEstates@gmail.com 949-429-7476 or 949-273-0018

San Clemente Times - Colors of the City

Colors of the City

by David Zimmerle

Apr 22, 2010 | 214 views | 0 | 7 | |

Betty Woods cuts the ceremonial ribbon Monday as (L-R) Mike Cotter, Michael Kaupp, Michael King, Jay Fisher and councilmembers Lori Donchak and Wayne Eggleston look on. Photo: David Zimmerle

San Clemente celebrated the completion of two more tile murals along Avenida Del Mar Monday, April 19.

The series known as “Landmarks on Del Mar” had its third and fourth murals installed as the event was celebrated with a ribbon cutting ceremony by local dignitaries from city council, the historical society and the downtown business association.

The two landmarks–San Clemente’s historic Casino ballroom and the 1926 office of city founder, Ole Hanson–are now set as a tiles in the bulb out, or walking rest area, in front of Carbonara’s Trattoria Italiana, 111 Avenida Del Mar.

“This is a perfect example of the long term partnership between the city, the historical society and the downtown business association on this project,” Planning Commission Chair, Michael Kaupp said. “The spaces have become more human and usable and these tiles are absolutely spectacular.”

A total of 14 tile murals are planned and sponsors are needed to complete the project. Mike Cotter, of the San Clemente Historical Society, said the total cost of the installation is $22,000 with the floor image $18,000 and the wall image $10,000.

“Out of the that, the historical society is trying to raise $6,000 for its capital fund,” Cotter said.

Betty Woods, in light of her $10,000 donation in memory of her late husband James, made the wall mural of the Casino possible and cut the ceremonial ribbon on Monday. The historical society sponsored the floor mural.

In February 2009, the first two tile murals in the series were completed–as they sit right in front of Café Calypso, 114 Avenida Del Mar–and are across the street from the ones celebrated Monday.

The next two tiles will be in the rest area further down the street in front of Griffin Optometric, 140 Avenida Del Mar. According to Cotter, a ground mural will depict the Ole Hanson Beach Club, but an image for the wall mural has yet to be selected.

Completing another cycle to this classic project, watercolorist Jay Fisher painted the works from images he obtained from the historical society, and artist Michael King translated the works to tile. David Ochoa then spearheaded the installation of the murals.

The project started in 2004 with the Downtown Business Association wanting upgrade the seating areas on Avenida Del Mar.

“Over time the project evolved into what you are seeing today with these beautiful historically correct tile murals, reminiscent of the murals on Catalina or in Santa Barbara,” Kaupp said. “This will be an asset that the community can value for generations to come.”

San Clemente seeks bike solutions on 2 traffic-heavy routes | city, cameron, camino - News - The Orange County Register

San Clemente is calling in experts to come up with the best way to provide safe passage for bicyclists on two of the most challenging roads to ride in town.

On a 5-0 vote Tuesday night, the City Council agreed to pay Fehr & Peers Transportation Consultants $64,300 to:

A cyclist heads south on El Camino Real in San Clemente. The city is studying how to make the road safer for cyclists riding between Avenida Pico and Dana Point on PCH and between Camino Vera Cruz and El Camino Real along the busy Pico corridor.

PAUL BERSEBACH, THE ORANGE COUNTY REGISTER

• Find the best way to get bicyclists safely between Camino Vera Cruz and El Camino Real along the busy Avenida Pico corridor.

• Recommend the best way to engineer a safe bikeway between North Beach and the Dana Point city limit along El Camino Real (Pacific Coast Highway). (Click here to see map)

City Engineer Bill Cameron said he would like to see a Class 1 bikeway – separated from cars – for as much of the Pico route as possible.

"Pico is our most heavily traveled road," he said. "I'm a cyclist and I don't want to ride on that street."

The city expects to receive options with cost estimates attached. Solutions could involve routing the bikeway along a storm-drain channel or even tunneling under I-5, which would be expensive, Cameron said. The city would apply for grants and work with the California Department of Transportation and the Orange County Transportation Authority to incorporate bicycle improvements into a proposed widening of the Pico freeway undercrossing.

On El Camino Real, the city needs to decide whether to have protected bike lanes on each side of the highway or use a single, two-way protected lane like Dana Point has. Cameron said he would want San Clemente's to be wider.

There's also the question, Cameron said, of how bicyclists should negotiate the intersection of El Camino Real and Avenida Estacion, which will get a traffic signal. Right of way is limited in that area.

Cameron said the city expects some partially engineered answers in time to meet a June 9 deadline for a grant application.

Pete van Nuys, a San Clemente cycling expert, questioned whether the city is going too fast. He said he doesn't like what he called the Dana Point "cattle chute" approach and that he could envision a Class 1 trail halfway up the Marblehead Coastal bluff.

Brenda Miller, a local bicycle enthusiast and city planning commissioner, said the city needs to ensure connections to neighborhoods such as the Marblehead Coastal development and Shorecliffs. "Do it right rather than twice or thrice," she said.

Cameron said a route halfway up the bluff would be nice, and Marblehead Coastal developers show a walking trail there in their plans. Only the Marblehead Coastal stretch of bluff north to Camino Capistrano is suitable for the trail, Cameron added.

Though the city hopes to apply for an El Camino Real grant by June, Cameron said the city has longer to deal with options for Pico.

Dana Point luxury home sells for $6.9 million in less than a month

Luxury home sells at The Strand at Headlands The property was purchased during a live auction last week. BY ASHLY MCGLONEPublished: April 20, 2010 08:27 AM

9 White Water Lane A waterfront home at The Strand at Headlands in Dana Point sold in less than 60 days. The property was sold during a live auction last week. The home's reserve price was $6.9 million, though the final cost is currently undisclosed. The sale – conducted through New York-based Concierge Auctions and Coast Sotheby’s International Realty – attracted about 160 prospective buyers. And, more than 9,000 people from 48 countries clicked onto the Web site to view the property. “I am extremely pleased with the outcome," said Kelly Burt, the seller of the home at 7 White Water Lane. “Concierge Auctions exposed the property to a global audience of qualified buyers and accomplished my objective of selling in an accelerated period of time amidst a very challenging market.” A second home at 9 White Water Lane – also owned by Burt – is slated for auction on May 20 at 2 p.m. at a reserve price of $7.9 million. At more than 11,000 square feet, it features a Spanish-revival style, with six bedrooms and eight baths. An online auction of two separate Strand properties by Newport Beach-based LFC Group of Cos. closed on April 1. Sealed bid offers on the properties at 49 Beach View and 15 White Water Lane are being reviewed. Each had a minimum bid of $7.5 million. The Strand at Headlands sits on 121 acres of beachfront terrain between Laguna Beach and San Clemente. Property offerings include a private Beach Club, a 90-room luxury resort and spa, and 24-hour gated security.

Rare shark sighting close to Laguna shore

DANA POINT About 80 people on a noon Friday whale watching trip out of Dana Point harbor came upon a rarely sighted 20-foot basking shark, according to Dana Wharf Sportfishing and Whale Watching.

"I have never seen a Basking Shark this close to shore in 90 feet of water off the coast (of) South Laguna Beach," said Capt. Tom White in a news release.

About 80 people on a noon Friday whale watching trip out of Dana Point harbor came upon a rarely sighted 20-foot basking shark, according to Dana Wharf Sportfishing and Whale Watching. "I have never seen a Basking Shark this close to shore in 90 feet of water off the coast (of) South Laguna Beach," said Capt. Tom White in a news release.

PHOTO COUTESY OF DANA WHARF SPORTFISHING AND WHALE WATCHING; TEXT BY VIK JOLLY, THE ORANGE COUNTY REGISTER

MORE PHOTOS »

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The Encyclopedia Britannica describes the shark as a "huge, sluggish shark of the family Cetorhinidae. ... Named for its habit of floating or slowly swimming at the surface, the basking shark inhabits temperate regions of the Atlantic, Pacific, and Indian oceans."

The encyclopedia says the giant shark grows as long as 46 feet and "is exceeded in size among fishes only by the whale shark."

Basking sharks are not considered dangerous. They eat plankton.

Capt. Larry Hartmann, who was also on the boat, characterized the encounter about a half mile off the beach across from Three Arch Bay as "off the charts."

"It was amazing," he said. "It took us about two hours to decompress."

"You don't expect to see something enormous like that that weighs about 6,000 pounds this close to shore," said Hartmann. "And then he decided to swim right in front of the boat and had his mouth wide open. He then swam under the boat and popped up on the other side."

Hartmann scrambled to get a camera and started snapping pictures.

"The tail was so enormous that it was just sort of shocking actually," said the 46-year-old captain. "It was nice to see such a beautiful animal."

The noon whale watchers also found gray whales, dolphin, and sea lions on the trip, the news release said..

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CLICK TO SEE VIDEO, courtesy of Dana Wharf.

Laguna Beach Living

LAGUNA BEACH – After months of 15-hour work days, Michael Weiss was eager to host friends and family at the completed Sands Café at Aliso Beach.

Weiss and a partner leased the concession stand property in March 2009 from the county with plans to turn it into a year-round café, offering a full menu doesn't work.

Unlike a traditional walk-up concession stand, Weiss aimed to create a dining destination. The café would have served daily beach goers, but the tables in the sand enabled a full menu, including breakfast, with a higher price point and quality. With a café, Weiss said he could count on enough business to stay open ten months out of the year. A concession stand, Weiss said, could only stay open 5 months yearly, which would ultimately lose money.

With its custom décor, quality meal choices and family-friendly atmosphere, Weiss said he hoped the café would draw people to Aliso Beach.

"They were going to have a memory to take home with them," Weiss said.

Orange County owns the land at Aliso Beach, which is a county park. After requesting proposals, the county approved Weiss' business plan and offered a lease, allowing for the beach seating area and storage containers.

Weiss continued to work to get the café ready for opening, when a local activist pointed out the outdoor seating and storage containers needed a new coastal development permit.

The Coastal Commission, a state agency which supersedes county authority, oversees any development that could affect beach access or use. Rich Adler of OC Parks said the county interpreted development as new structures – not moveable tables and storage containers.

"In most cases, we are fully aware of all the issues that relate to what we're doing in our beaches and parks," Adler said. "This is new."

The county saw the café as a positive use of the beach that would encourage more people to come. And since the tables would go into storage at night, Adler said it seemed no more dramatic than other day uses, like weddings or a junior lifeguard program.

"We never really thought twice we couldn't do it on our own sand," he said.

Laguna Beach's planning commission, which handles coastal development permits through the city's local coastal program, approved of the café, said city manager Ken Frank. But the storage containers and tables in the sand were another matter, he said. Though Weiss could go back and apply for a new permit, approval is unlikely.

"We don't approve those types of uses on the sandy beach," Frank said, adding the city was unaware of the tables and storage containers when it approved Weiss' business.

Now, Weiss knows his plan to create a destination café won't happen. When he walks through the building, he points out items that are now unusable if the café reverts back to a concession stand – breakfast foods, a convection oven, extra refrigerators, appliances and of course, the tables.

Unsure when or if he'll be able to continue at the location, Weiss laid off 13 employees, two who had left other jobs to work at the Sands. He doesn't know if the business can be salvaged or if the county can help. Weiss estimates he spent $250,000 building up the café, money he thought would be an investment. Though his four children are all under 6, he hoped they would grow up to help run the family business.

"Lots of mouths to feed with no business," he said. "It's a bad situation."

Contact the writer: ckoerner@ocregister.com or 949-454-7309