The available housing inventory throughout Orange County is still at an all time low. Because of this, homes are selling quickly, with multiple offers and over asking. The seller’s market appears to still be strong.

When a market changes into a sellers market, if you are buying a home, you need to change the strategy with how you are approaching the market to purchase the home of your dreams. You will no longer have the upper hand. Because of this, you need to make some concessions.

While you won’t necessarily have the luxury of being tough when you negotiate the price you are willing to pay, and you will have to move much faster in order to get the offer in on your “dream home”, it doesn’t have to be a chaotic process. Here are a few key strategies to consider when putting offers in on homes in a Seller’s Market:

Make A Good First Impression

In a situation where multiple offers are coming in for a listing, making a good first impression with the sellers and the Realtor® that represents them could be the critical factor in determining whether your offer gets accepted or somebody else’s does.

One great exercise we regularly ask our buyer clients to do is write a letter to the seller. Introduce them to your family, let them know all the great things you love about their home and illustrate to them how you see your family living in and enjoying being a family in their home. This will make you much more than simply “an offer”. It makes you human.

Look At Homes Within Your Reach

Unless your Realtor® is completely ignoring your needs, in a sellers market, you will have gotten prequalified for your loan, BEFORE you even look at one home. That said though, it is important that you pay attention to that pre-qualification. Take into account that homes are most likely going to go for full list price, and/or over list price. This means that you need to look for a home that’s price range is a bit more conservative. This will give you room to offer full price, make a counterbid over list price, and afford the extras, such as closing costs.

Not paying attention to these fine details will definitely delay your process and only cause you frustration.

Be Ready To Go At Any Time

Remember- The market is going to be moving very fast. If you see a listing you truly love, don’t delay. Jump on it and get your offer in. Once your offer is accepted, you’ll have a little extra breathing room, but still keep in mind that getting your offer accepted is only half the battle. You still need to be receptive, making sure you get things like inspections done on time, and realistic, not over analyzing things and not giving the seller trouble over things that in the grand scheme of the deal are minor items.

Buying a home in a sellers market is a little more stressful than a buyers market. A professional Realtor® though can help you through this process and make sure you are happy with the home you found, and that it is exactly what you wanted.

Selling a home is a very exciting time for most homeowners. It marks the end of one chapter and the beginning of a new one. It’s also a time though where many, many things are going on, often all at once, and it can be overwhelming.

When offers come in from buyers, it will feel like things are even happening more quickly. This is an important time. You cannot be nervous. You need to be able to confidently know you are making the right decisions, and not second guessing whether you are making important financial and legal decisions too quickly, without enough thought.

To successfully get through the closing process and feel like you are in control of everything, as it rapidly happens, you really need to come to grips with these three things, right when you home goes on the market and DEFINITELY before you start taking offers. Today we want to share these with you:

1) The Home You Are Selling Is No Longer Your Home

As we’ve written in many articles before, when you prepare your home for the market, you are decluttering it and updating things. You are doing this not to your tastes and likes, but what will be the most appealing to the highest number of sellers. Parallel to this, you need to resolve in your mind that the home is “no longer yours”. The faster you can remove emotion from the selling process, the better you will prepare your home and the more effectively you’ll be able to handle objections, negotiations or questions when evaluating offers.

2) You Got The Home Ready To Go To Market. Your Done Right? WRONG!

While preparing your home to go to market can be a big ordeal, it’s only the first step of many in the home selling process. To those ends, you need to stay in a frame of mind that is open. For instance, you might accept an offer from a buyer, but it includes some requests about financing, moving dates, contingencies, etc.

Some of these things are to be expected. Others though can be an inconvenience or cost you money. This is where having alternatives planned and the costs and benefits weighed of as many potential situations you can think of is important. Considering these things ahead of time will help ensure your transaction goes as smoothly as possible.

3) It's more than just "Sale Price"

The value expressed in a buyer's offer to purchase involves 5 key elements - it's a financial package:

1. Purchase Price is not automatically the amount the seller receives since other factors, like unpaid property taxes, can reduce the total. It's not the purchase price, but the net proceeds of the sale that sellers should concentrate on. Real estate professionals can calculate, or at least estimate, the seller's net proceeds after costs related to the offer and deduction of commission.
2. Closing Date, or the day ownership is transferred and the seller receives the money, can represent cost or value to sellers. If the seller has to make two moves or has to pay two mortgages during the transition from one home to another, costs can add up and offer value goes down.
3. Inclusions and Exclusions represent costs and value. Appliances, light fixtures, and draperies are common seller inclusions, but the cost of replacing them in the next home reduces profit.
4. Terms and Conditions are clauses in the offer which cover "what if" risks and the obligations of both parties. These clauses detail what the buyer asks the seller to do for the purchase price. The degree of uncertainty attached to the conditions and the buyer's related ability to close effect the value of an offer.
5. Intent and Sincerity are vital aspects of an offer although difficult to quantify. For the seller, offer value lies in the certainty that the buyer will close in spite of market shifts and other problems ahead.

Discussing strategies and contingencies with your listing salesperson ahead of offer presentation will help the professional negotiate a solid high-value Agreement with the buyer. Mentally preparing yourself, and anyone else who has a say in what happens to the property, means no one will be pressured into snap decisions or miss opportunities under the tight timelines common with offers.

Real estate professionals are trained to help sellers make decisions in their own best interest by providing necessary context and details, but these professionals cannot advise sellers exactly what to do, nor make decisions for them.

To gain full benefit from the knowledge and experience of the real estate professional who lists your real estate, let them fully prepare you for offer presentations in advance. When an offer comes in (usually at a very inconvenient time), you'll feel as confident and prepared as possible faced with this life-changing opportunity. You will understand which decisions to make and how to evaluate the full offer.

When you buy a new home, everything should be brand new, without flaws and working perfectly, right? In theory “yes”, however the reality of the situation is that even if you are buying a new home, you should consider getting a home inspection. The builders of the home may object, stating that the county inspector is going to be inspecting the home, so that should suffice, but the reality of the situation is there are many flaws in homes that only a true professional can pinpoint.

This is not to say that County inspectors are bad, or inexperienced, but let’s be realistic here. Counties only have so many funds available to devote to services, and undoubtedly the inspectors that work for the counties overworked, with too much on their plates. This makes the possibility of them rushing through an inspection and missing something a very realistic scenario.

One way you can approach the subject with your builder is to let them know that this is a necessity, BUT it is going to be something that you will have performed at your expense. If you don’t know the name of a competent inspector, talk with a Real Estate Professional. For instance, when asked, we regularly refer our arsenal of experts to our clients, sphere of influence and prospects, when asked. One of the tools in our arsenal of experts is a great home inspector.

Every inspector will likely have online reviews of their performance. You should look online to find some client reviews. You also should ask for the terms and conditions of the work they are to perform, to ensure that they will truly be doing the job you are seeking them to do.

Purchasing a new home can be exciting and stressful all at the same time. Eliminate one of the elements of stress by getting an inspection to determine that your home has been built properly, according to what you were promised. It will help you sleep at night and you will know you are getting 100% of the value for your hard earned money.

Something just changed in the market that has sparked demand. It’s not values; homes have not all of a sudden gotten a lot cheaper. On the contrary, homes are a bit more than they were a year ago. Is it the gigantic savings at the gas pump? Yes, gas prices have dropped substantially, but those savings have not resulted in anybody stock piling enough money for a down payment on a home. Low gas prices have helped boost consumer confidence, but will not prop up the residential resale market in an area where the median sales price is nearly $600,000. The big difference in today’s market is cheaper money in the form of low interest rates. 

Low interest rates are fueling housing demand and, as a direct result, the Orange County housing market has blasted off. Today’s rates are a half a point cheaper than a year ago. For a jumbo conforming loan, loans between $417,001 and 625,500, rates are at 4% versus 4.5% a year ago. For the median priced home in December, $591,000, and a 20% down payment, a buyer is looking at a monthly mortgage of $2,257 at today’s rate, versus $2,396 at 4.5%. That’s a savings of $139 per month, nearly $1,700 per year, or $50,000 over the 30-year term. 

Buyers are making the wise choice, to buy now because rates are cheap and are back down to historical lows. They may not fully know just how genius of a move it is by pulling the trigger now. Current interest rates are historically low for a reason, because they have been artificially pushed down by the Federal Reserve for years. The Federal Fund rate has been kept at nearly zero since December 2008. They have hinted at raising it this year. As the short term rate increases, long term rates, home mortgages, will soon follow. 

Let’s look at where rates have been historically. Prior to the Great Recession, interest rates were at 6.5%. For the December median sales price home, that’s an extra $731 per month every single month. In 2000, rates were at 8%, or an extra $1,212 per month. In 1990, rates were at 10%, and in 1981 they reached 18%. The point is simple, today’s rates are unbelievably low and buyers should take advantage of this gift, complements of our federal government.

Are rates going to reach those prior year levels? Not anytime soon. We are more likely looking at rates in the low to mid-five-percent range within the next couple of years. That may not be astronomically higher, but the difference in monthly payments will put a dent in buyers’ pocketbooks and their monthly budgets. For now, cashing in on rates today means more disposable income saved as rates eventually increase. Rates will increase, it is just a matter of when. 

Active Inventory: The inventory rose by only 2% in the past two weeks. 

The active inventory added an additional 118 homes in spite of a huge shift in demand, and now totals 5,449. Since ringing in the New Year, the inventory has increased by 9%. Last year at this time there were 5,283. The current inventory is up only 3% year over year. 

The big question is where do we go from here? Some speculate that the market will continue to catapult forward and the listing inventory will have trouble rising as higher demand prevents it from increasing. However, the 2015 market is not at all like the heydays of 2012 through 2013 when home values were soaring from month to month. Instead, home values have already inched closer to their prerecession levels. Many argue that we will not reach those levels soon because they were achieved on the backs of subprime mortgages where fogging a mirror was just about the only requirement in obtaining a loan. 

It is more likely that the discerning buyer will continue to adamantly demand to pay the Fair Market Value for a home this year. From the official start of spring, the end of March, through the start of summer, the end of June, more homes will come on the market than any other season. Success is determined by a seller’s price. A flood of overpriced homes hitting the market all at once has a strong potential in cooling the current trend in increased demand. There’s just not much room for appreciation unless we start seeing incomes rise.

Distressed Breakdown: The distressed inventory increased by 6 homes in the past two weeks. 

The distressed inventory, foreclosures and short sales combined, increased by 6 homes in two weeks and now totals 256. Year over year, there are only 8 fewer homes today. Only 5% of the active listing inventory and 8% of demand is distressed. Distressed properties continue to play an insignificant role compared to just a few years ago. 

In the past two weeks, the foreclosure inventory decreased by one home and now totals 61. Only 1% of the inventory is a foreclosure. The expected market time for foreclosures is 39 days, one of the hottest segments of the Orange County housing market. The short sale inventory increased by seven homes in the past two weeks and now totals 195. The expected market time is 43 days, also a hot segment of the housing market. Short sales represent just 3.5% of the total active inventory.

Let’s face it. There isn’t one person on the planet that isn’t at least a little bit curious of what their home is worth. That raises the all important question of how do you get an accurate valuation of your home?

While the Internet is a thing and it does make life easy, those Automatic Valuation Models such as Zillow, Trulia and many others similar do very little in getting you an accurate estimate. Determining how much your home is worth is much more complicated than a few clicks of a mouse.

Every property is unique. Each property has certain valuable pieces to it that are strictly related to that property. Because of this, no algorithm in the world, no matter how complex can truly assess the value of your home accurately. This is actually a great problem creator in the Real Estate Industry. Both buyers and sellers that use these AVM sources to get home values will inevitably end up pricing their home, or offering money for a home in a way that is either too high, or too low, thus not only giving them a bad deal, but impacting the prices of other homes in the area as well.

Obviously at the end of the day, no matter how much research and how solid a home valuation is, a home is only worth what a buyer is willing to pay for it. There is nothing wrong with being prepared though, and today we’d like to share with you three ways you can get a home valuation that will be accurate.

Ask a Realtor® For A CMA

If you know a Real Estate Agent, ask them to prepare a CMA for your home. CMA stands for competitive market analysis. Unlike automated valuations, Realtors® that prepare CMA’s will be able to take into account the value of all the improvements you have made on your home, trends that are going on in your marketplace, and many other tiny details that only a professional Real Estate Agent would know.

We provide CMA’s for all our clients and even prospective clients we are looking to work with. If you ask, anyone should be happy to prepare one for you.

D.I.Y.

Again, like the Automated Valuation Model, this is nowhere near as effective as working with a Realtor®, but with a little elbow grease, and taking the time to build intelligence, this can work.

Start by searching your local MLS for open houses of homes in your area, that on the surface seem the same. Go to the open house, tour the home and OBJECTIVELY compare the features, amenities, location, etc. to your own home. Next, you want to keep an eye on those homes and see what they ended up selling for. Based on those two things, you can put together a rough assumption as to what your home is worth.

I say “rough assumption”, simply because it’s not as good as a professional valuation from a Realtor®, however, given the fact that you can take into account improvements, and the nuances that only someone in your neighborhood would know about the home, you will be much closer to the actual valuation then the AVM models.

Get An Appraisal

An appraisal is an on-site inspection, combined with a selection of comparable sales in the area. Appraisers also review local market trends. By following this combination of items, they are able to get a very accurate value for your home.

While it is true that an appraisal isn’t necessarily the final word on the value of a home, as far as a financial institution may be concerned, they are still pretty solid indicators of what your home is worth.

While any Realtor® will tell you to plant new plants, clean up any clutter, paint and polish your home before it goes on the market, chances are you’ve probably scratched your head before and actually wondered if it was actually going to contribute to a higher sale price of your home. HomeGain.com had some information on their website that you might find surprising. In fact, they pinpointed some of the top home improvements that will cost you less than $1500 that actually will get you a higher sale price for your home.

Today we want to share with you the top 5 home improvements that they list will get you the highest return on investment:

1. Cleaning and de-cluttering ($290 cost / $1,990 price increase / 586% ROI)

2. Lightening and brightening ($375 cost / $1,550 price increase / 313% ROI)

3. Home staging ($550 cost / $2,194 price increase / 299% ROI)

4. Landscaping ($540 cost / $1,932 price increase / 258% ROI)

5. Repairing electrical or plumbing ($535 cost / $1,505 price increase / 181% ROI)

 It used to be that buyers would pay any price for a home, but that is just not the case anymore. That was 2012 and 2013. By the end of 2013, properties in Orange County had realized substantial appreciation. Values were no longer a “deal,” so buyers were unwilling to pay much more than the last sale. They honed in on the Fair Market Value for a home. 

A homeowner last week contacted me after reading the 2015 forecast and asked “How do you determine the Fair Market Value?” He wanted to know if the printout that he had received in the mail which highlighted the lowest value, highest value, and then a recommended value was adequate in establishing his home’s Fair Market Value. The answer was “no.” There is not a computer program or website out there that can really provide an accurate assessment of what a home is worth. 

Zillow, the top real estate website on the web, has their infamous “Zestimate®,” an estimation of market value “computed using a proprietary formula.” Drill down a little deeper and its inaccuracy is eye opening. For Orange County, only 43% of all closed sales were within 5% of the home’s Zestimate®. That means that 57% were off by more than 5%. 70% were within 10%, meaning that 30% were off by more than 10%. And, 88% were within 20% of the home’s Zestimage®, which still leaves 12% that were off by more than 20%. As an economist, the errors are way too large to overlook. On the site’s accuracy page they even admit that this tool should only be used as a “starting point” in determining value. The bottom line, you cannot establish a home’s Fair Market Value if you are a buyer or seller simply by pointing your web browser to the most popular real estate site on the Net.

Who can sellers rely on to determine a home’s value? The answer is simple, their REALTOR®. It sounds easy, but most sellers ignore data, facts, and the professionals they hire to sell their home when they initially come on the market. After sitting on the market for some time, many sellers come to the realization that it’s their price that has prevented them from realizing their goal in selling. For some, it takes several price reduction before they arrive at a value where they are able to successfully sell. Still, others just don’t get it. They point the finger at the marketing for their home, the lack of advertising, and that their real estate agent is just not doing enough. Yet, the problem is really that they are focusing on a price that they want to get for their home rather than the price that the market is able to bear. 

How is value then determined? After carefully considering all of the most recent closed and pending sales, and then scrutinizing a home’s amenities, upgrades, condition, and location, one is able to ascertain a home’s real Fair Market Value. This is not a simple process. If it were, 95% of all sales would be within 5% of a home’s Zestimate® and not 43%. For REALTORS®, it is their profession. It is what they do for a living. They help determine a home’s value by knowing the data and comparable properties that must be factored. They are the experts and have the capacity to meticulously weight all of the components that are used to establish value. 

Active Inventory: The inventory rose 3% in the past two weeks. 

It’s winter and over 70 degrees. No wonder the Winter Market in Southern California is so short. Sellers are already coming on the market in anticipation of the Spring Market, which typically starts right after the Super Bowl. We don’t have snow, ice, sleet and very much rain. Instead, we are known for our blue skies and ideal weather for finding a home. So, while the rest of the country still hasn’t thawed out, our Spring Market comes early. 

As more sellers hit the market running to take advantage of the busiest time of the year in terms of sales, expect the inventory to continue to blossom. Many of these homeowners will stagnate on the market as they overzealously approach pricing. Thus, the active inventory will build and buyers will have more choices. 

In the past two weeks, the active listing increased by 255 homes and now totals 5,255, the largest increase since July. At this time last year, the inventory was at 5,077, 3% fewer than today.

Real Estate Investment continues to be one of the most sound ways to build to your retirement, ensuring your financial stability, when you do finally decide to retire from your career. Given the long term gains Real Estate makes, it’s a very attractive proposition:

1) Real Estate is one of the few investment vehicles where you literally build your portfolio using the bank’s money.

2) Because of depreciation and mortgage interest deductions, your cash flow should be tax free. (Most of the time you won’t pay taxes on your cash flow)

3) By definition, these long term investments are retirement planning. Unlike a 401k, IRA or other retirement account, you can’t put this off. Your property is always appreciating, over the long haul, and thus helping you prepare for retirement.

Sounds exciting, right? It is. Buying property on the speculation of it increasing in value can be risky. To those ends, today we want to share with you four tips that will ensure your success, as you build your Real Estate Investment Portfolio.

1) Remember: Start Small

There is definitely a learning curve as you get started in Real Estate Investing. If you don’t do your homework or rush into something underprepared you risk loosing your chances of making any money. Starting with a smaller property, such as, a one-unit rental property or a small flip can be a great way to “earn your chops”. After your first success with an income property you can use your earning to invest in something a little bigger and better.

2) There Are Deals Out There – Look For Them

You will not make money if you buy a property for over market value and it’s hard to make money buying a property for current market value. Look for an investment that is devalued and put a little work into it to rennovate it to raise it to the price you know it’s worth.

3) Need To Fix Something? Don’t Wait – Better Property Condition = Higher Rental Rates

If your investment property needs any renovations, updates, or modernizing then don’t wait. Start the necessary improvements as soon as you can, so that if you are planning on flipping the property, you don’t end up holding the property longer than you want, or if you are going to rent the property, you will be able to ask for a higher rent amount. Get a couple bids from contractors and go with the best deal that will complete the project in the shortest time.

4) Consider Things Like 1031 Exchanges

If you want to keep real estate in your investment portfolio then don’t sell all your assets. Rollover your profit into a bigger and better property to continue your cash flow. Or, if you have invested in a rental property then you can always buy a second rental property as long as you have budgeted for all expenses. Keep your real estate portfolio growing.

Law of averages says you probably never use the word “Escrow” in your day to day conversations with colleagues, friends and family. While Escrow can actually mean many things, when it comes to a Real Estate Transaction, the most basic way to look at it is as a third party, uninvolved entity that is the mediator between a home seller and a home buyer.

This third party will collect things such as your earnest money (the check you wrote when you originally put your offer in on a home), documents such as the sales agreement and inspection reports. They will also prepare the deed and record it with the County when everything is finished and the escrow will close.

Escrow is someone with nothing to gain or lose from your real estate transaction. Depending on where you live, that third party, an escrow agent, title agent, or closing attorney, is the person handling your escrow process. They will juggle all incoming paperwork and money from buyers, sellers, agents, lenders, and assorted others. They will arrange the title search, give each party instruction, schedule the closing meeting, disburse all funds, and see to it that everything that needs to be recorded with the county is completed.

Holding Back Funds

There are some circumstances when funds will continue to be held in escrow after the ownership transfers to the buyer.

For example, maybe during inspections there were things you discovered that were wrong with the home. In cases such as that, funds will be held back, until all the work is performed and the costs of the work are covered.

Or, maybe you have agreed to let the seller’s family stay in the house for a short period of time. This is what is referred to as “rent back”. Most likely, your agent will suggest to have escrow hold back a portion of the seller’s proceeds until they’ve moved out and left the home in the condition agreed to in your contract.

Close of Escrow

When buyer and seller have signed all the paperwork and all the funds have come in, the closing agent disburses the funds and oversees the recording of the documents with the county.

When the deed is filed, title to the property is transferred to you, the new owner. The deal is complete. The escrow is closed.

You and the seller will receive a final closing statement and other documents in the mail. Check the statement carefully and call the closing agent immediately if you spot an error. File the statement with your most important papers. You'll need it when you file your next income tax return.

Are you considering the need to move up to a larger home (or down to a smaller home), a house in a different area, or even a new home in your same community? If you have enough equity in your current home, it is an attractive proposition. You can take the equity you’ve built and use it not only to put a down payment on a new home, but also put some savings in your bank.

But what if you didn’t have to sell your home to get to the next one? What if you could retain that property and leverage it to get into another home? What if you could do that and then rent out your existing home?

This practice actually is possible. It’s not only possible, but many times, it can be a very good idea. For instance, with the recovery in the economy, all the “bargain deals” for buying homes are exhausted. This has resulted in ongoing, record low inventories and much higher sale prices for homes.

The higher prices and low inventories have made it so there is actually a much larger, lively rental market than you would think. Renters are paying high rates for rental homes, and provided you have good credit, and a long term lease signed, you can actually qualify for another home loan, as if you don’t currently have the loan on the house you now own.

So is jumping into “being a landlord” right for you? Here are a few things, both positive and negative to consider when contemplating renting your home instead of selling it:

1) Grow Your Portfolio

While sale prices are high right now, there is still more room to go up. If you leverage the appreciation on your current home to get into your next home, you are expanding your Real Estate Investment portfolio, and the opportunity to continue growing your equity into the future.

2) Renting May Provide Tax Breaks

A landlord can deduct out-of-pocket expenses related to owning and renting a property from the landlord's federal taxable income. This includes the cost of liability insurance, property taxes, and mortgage interest payments.

3) Renting Out Your Home Comes with Responsibilities

As a landlord, you have certain legal responsibilities to your tenants. You must provide your tenants with a safe living environment and respond promptly to complaints. If your tenants fall behind on rent, you may have to go through legal channels to evict them.

4) Think In Terms of Cash Flow

Your tenants' rental payments will result in a positive cash flow for you. Nevertheless, if you move to another home and take out a mortgage on that residence as well, you may end up paying on two mortgage loans every month.

No Matter What, Consult Professionals

It can sound very exciting to keep your home and become a landlord. Remember though that these things can be tricky. Consult a trusted Real Estate Professional, Your CPA and a Real Estate Lawyer when contemplating any moves such as this. With careful planning and execution though, you can build yourself a diversified portfolio that will continue to grow and expand over the years