What Realtors Should Expect in Today’s Hot Selling Market
There’s no doubt about it: we’re in the midst of what is termed a “seller’s market” in the real estate world. The pandemic has shaken up the way we live and work. In response, home buyers are flocking to the market.
Demand currently exceeds the supply of homes. We know that when these conditions occur, buyers must compete with one another, prices typically rise, homes sell more quickly, and bidding wars can erupt. While this situation can work out well for those selling homes in sought-after areas, a hot market can bring with it certain challenges.
Buyer’s agents know that their clients are at a disadvantage right now. Time is a primary challenge, as desirable homes often sell as soon as they hit the market. In order to compete in a timely fashion, agents might urge clients to take these steps:
- Get pre-approved for a loan, not merely pre-qualified – not only to arrive at a maximum offer amount, but to appeal to sellers who want to make a quick sale
- Examine priorities, and focus accordingly. Now more than ever, buyers must know exactly what they want, so that they can jump on the right opportunity when it presents itself
- Be prepared for a roller coaster ride. Multiple “perfect ones” might come and go before a buyer finally makes an offer that sticks
- Get your clients emotionally prepared to move fast. Delaying even an hour or two can mean a great home slips away
- Watch out for Fear of Missing Out, which can trigger overbidding and severe regret, or worse, later
- Be flexible. With low inventory on the market, consider all options such as buying land and waiting to build, alternative housing options, and more
- Consider location carefully. Even just a few miles can equal a much hotter market and higher prices
Seller’s agents have found themselves in a terrific position. Even so, selling a home for top dollar and with preferred terms is always a priority. Seller’s agents can help clients make the most of a hot market by taking these steps:
- Spruce up the property. Even minor repairs and a full cleaning will make the home show much nicer, making it far more alluring to frenzied buyers
- Attract more attention to a listing by pricing it fairly, even if you expect a bidding war to erupt
- Consider more than just the dollar amounts of bids. Sellers want to reap the most profit possible, but weighing other factors is important, too. This might include a buyer’s pre-approval status, financial capability, and timeline for closing. These factors can help ensure that a contract proceeds to closing day
- Watch out for contingencies in contracts. Sometimes it can be easier to accept a slightly lower bid than to deal with expensive contingencies and frustrating delays
- Harness the power of social media
A hot real estate market brings benefits and drawbacks, depending upon whom you ask. Frustrated clients should be reminded that this situation will pass. Market conditions are cyclical, and these current trends won’t last indefinitely.
In fact, lowering case rates and reopening of the economy could be expected to stabilize things a bit in the future. Those who are eager to sell might be motivated to get it done now, while those feeling discouraged might be better served by waiting for conditions to change.
If complications do occur, contact our real estate attorneys at Larson and Solecki for guidance.
Do I Need a Real Estate Agent to Sell My Property?
If you’ve decided to sell your home, you’ve just answered the first in a long series of questions. The next will be, “Do I need a real estate agent to sell my property?”
Technically, you can sell a property without enlisting the services of a real estate agent. But there are plenty of reasons why you should consult with one anyway, ranging from convenience to legal issues to potentially attaining a higher selling price. Here’s what you need to know.
Achieve much higher visibility. Only licensed agents can enter a home into the multiple listing service, or MLS. Once your home is in the system, any licensed buyer’s agent in the state can share it with their clients. The listing will also show up on multiple websites which draw from the MLS.
Realtors connect clients with faster sales. Many buyers are under pressure to find a new home quickly, either because their own home has sold, they’re relocating for work, or some other pressing reason. These buyers usually go straight to a realtor and ask to see every home in the area that fits their criteria, and quickly. This is true even though they’ve often done research online first. If your home is not represented in the MLS and by an agent, the reality is that a “FSBO” (For Sale by Owner) home will most likely be lower on the show list of a buyer’s agent.
Avoid unnecessary hassles. An experienced real estate agent can tell you if your home needs updates to show better and spot any other problems that could hold up the sale of your home. With this information at hand, you can address those problems head-on rather than be surprised at the last moment during a promising negotiation.
A seller’s agent protects your interests. By law, your real estate agent is bound to fiduciary duty to their clients. This means they must act in your best interest. Their expertise can help to avoid the disputes that can and often do occur after a real estate transaction is completed, or help extricate from any disputes that might arise.
A real estate agent knows how to market your home correctly. Because they talk to buyers and sellers every day, real estate agents understand current and upcoming trends in the market. They know which buyers will be most interested in your home, which standout qualities will attract interest, and how to leverage that information to get more visibility for your listing.
Benefit from the services of an experienced negotiator. Negotiations are a large part of a real estate agent’s job. Aside from haggling over price, a skilled real estate agent can get you the best terms and close a deal quickly, without unnecessary delays and hassles.
Agents can find just the right buyer for your home. Aside from working with their own buyers, real estate agents network constantly with other agents. If there is a buyer out there looking for a home just like yours, a real estate agent will find them, including through networks, real estate caravans and their brokerages.
Agents can handle the tremendous amount of work needed for a transaction. A real estate transaction requires a considerable amount of work. Who is going to coordinate with the buyer’s home inspector, the termite inspector, the appraiser and the potential other inspectors who will visit the home? Who will coordinate with escrow? There is a tremendous amount of effort required, and the agent will assume that burden.
Agents can provide the multiple required documents and help you find the necessary affiliate services. When you sell your home there are multiple disclosures a seller should provide to the buyer, some required by law and all necessary to help protect yourself as a seller from future liability. You will also need to connect to an escrow company and a title company, at a minimum, in order to complete your transaction. An agent can assist you with all of these matters. Absent an agent you will be on your own, and most individuals have no idea how to handle this situation.
Save yourself the hassle. Selling a home can quickly become a maze of paperwork and legal red tape. Experienced real estate agents navigate this maze every day. They have already mapped out the path of least resistance. Save yourself the stress and hassle of endless paperwork and legal hang-ups, and consult with a seller’s agent instead.
As for those legal hang-ups, give us a call if you have any questions or dilemmas. Our real estate attorneys can help you sort out any complications so that the sale of your home can proceed as smoothly as possible.
4 Tech Trends Impacting the Commercial Real Estate Market
2020 challenged the way we live and work. This includes the impact of a changing society on the commercial real estate market. However, many of the real estate trends we’ve recently witnessed were set in motion years ago. The pandemic simply accelerated them to the point they have become widespread and unstoppable.
In 2021, we can expect the commercial real estate industry to adopt technology more than ever before. These following tech trends provide a glimpse into some of these forces of change:
Increased data capture and use. We don’t often think about it, but the commercial real estate industry captures a lot of data. By increasing that data capture to include not just the building itself, but the Internet of Things within, developers will be able to access information such as:
- How to make operations more efficient
- How to improve shopper/resident/patient experiences
- Identifying and solving certain problems
Changing digital engagement. The pandemic demanded installation of touchless services. Those won’t disappear when the pandemic is over. In addition to facilitating a healthier environment, touchless services automate traditional processes for the end-users of commercial real estate. It is doubtful anyone will argue for rolling back more convenient services to an earlier, less efficient way of conducting business.
Data analysis will drive commercial responses. As consumers alter their behaviors, commercial real estate companies will rely upon hard data to understand new behaviors and respond more appropriately.
The adoption of robotic process automation. Commercial real estate has been slow to adopt robotic process automation. That trend is expected to pick up steam. As developers work to improve operational efficiency while reducing overhead costs, robotic process automation will increasingly become the answer to those challenges.
Adaptation to consumer concerns and needs has always underscored the success of any business. In the post-pandemic environment, the relevancy of commercial real estate companies will depend upon this flexibility, and in particular, the industry’s willingness to utilize technology.
The Hot Housing Market in 2021
After the year we’ve all had, it’s about time for some good news. The housing market is set to be red-hot in 2021. That means increased values, inventory moving quickly, and sellers feeling incredibly motivated. Let’s take a closer look at what’s going on in today’s residential real estate.
Home prices. Demand for homes is currently high, but inventory remains lean, a classic setup for higher property values. That’s great news for sellers who hope to capture top dollar for their properties. It’s perhaps not-so-great news for buyers. We hope to see an improving economy so that buyers won’t be priced out of the market. With coronavirus cases expected to level off and then drop between March and September, leading to economic recovery and increased consumer confidence, this summer could usher in the ideal scenario for a seller’s market.
New construction remains limited. Lumber shortages have contributed to a 60 percent increase in the cost of lumber, which of course impacts the cost of housing construction. New construction leveled off in November 2020 and seems set to remain that way for the foreseeable future. This situation sets the stage for a bidding war over existing homes.
Workers are relocating. Remote work put a stop to commuting for many workers, allowing them to move to the location of their choice. While many of these workers have already moved and settled into their homes, remote work has not yet become a permanent option at many companies. However, some surveys have shown that about 70 percent of workers expect remote work to become permanent.
As employees pressure employers for the remote work option, we can expect the migration trend to continue. As newly-eligible remote workers flee crowded cities like San Francisco and Los Angeles, pandemic-driven relocations are still on the move. We can reasonably foresee the real estate markets in popular, livable smaller cities and towns heating up dramatically this summer and early fall.
Will vaccine rollouts have an impact? As vaccines roll out and consumers begin to feel more confident, the resulting economic recovery could prompt more new home construction. Schools in California may also continue to reopen as teachers feel more confident going back to work, and parents feel safer regarding the school environment. However, interest rates, which dropped in response to economic conditions, could also begin to recover as well. When that happens, we could see home prices begin to level off.
We will continue to update our clients and contacts regarding real estate market conditions. In the meantime, contact our real estate attorneys for assistance with the legal side of buying or selling a property.
Own a Home? You May be Impacted by These Upcoming Changes
This past November, California voters approved Proposition 19, which is now set to revamp certain tax issues regarding home ownership. In particular, those who inherit real property in the state might face surprising property tax burdens.
Prior to Prop 19, children (or possibly grandchildren) who inherited their deceased parents’ primary home could also “inherit” the tax basis for that property. Without a requirement for a fair-market reassessment upon transfer, heirs would continue paying the same tax amount once imposed upon their parents. In most cases, that tax amount was significantly lower than an amount based on the current fair market value on the date of death or transfer.
Also, previously, secondary properties such as vacation homes, rentals, or commercial properties could be transferred to children with $1 million of the new assessed value excluded from taxation.
However, the passage of Prop 19 is set to change those rules beginning February 16, 2021* when the law takes effect. Inherited properties will now be reassessed at current fair market values, and the heirs will face larger property tax bill as a result.
Those who inherit their parents’ real estate properties will face a few choices:
- If the inherited property is used by the children as a primary residence, then $1 million of the reassessed value can be excluded from the new property tax basis.
- If the heir chooses to use the property as a second home, rental, or commercial property (or any purpose other than a primary residence) then the $1 million exclusion of property tax basis will not apply. Therefore, the child who inherits their parents’ real property will be subject to new, and likely substantially increased, property tax amounts.
With February 16th rapidly approaching, those who plan to leave real property to their children should reevaluate their estate plans. Depending upon the circumstances, other options might be available to limit the impact of this situation upon the heirs. Call our tax and estate planning attorneys soon if this situation applies to you.
*The actual deadline is Feb. 11, 2021 because Feb. 15 is a holiday, and many Recorders’ offices in California are closed Feb. 12-15. Ideally, the transfer will also be recorded before the deadline. However, the Recorder’s office is greatly backed up due to Covid-19 delays.
Commercial Leases: Communicate with Your Landlord for Options
This past spring, when the Covid-19 pandemic began, both the federal and state governments issued various orders to help businesses stay afloat. However, some of these protections have now expired, leaving business owners wondering what to do next.
An important development to know is that the rent moratorium is over. Until recently, business owners were not subject to being evicted due to failure to pay rent. Now that the moratorium is over, those who cannot or do not pay rent will be subject to eviction. However, it is still possible to negotiate with landlords to reach a solution that is satisfactory to all involved parties.
Check the lease contract. If the landlord has a duty to mitigate damages, this means that they must take reasonable steps to avoid or minimize financial damages in the event of a breach of contract. Therefore, they cannot sue for an unreasonable amount of damages if they did not fulfill their duty to mitigate the impact. With regard to the pandemic, such a clause will motivate landlords to work with tenants to identify workable solutions.
Get started now. Landlords are much more willing and capable of working with tenants who approach the situation early and proactively. Those who know that they won’t be able to make rent should start the conversation sooner rather than later.
Emphasize your strengths. Remind your landlord of facts such as a solid rent payment history before the pandemic, high credit score, investments you have made in the property, or anything else that makes you a good tenant.
Focus on the future. If your business fails, you will default on the lease anyway. But in the meantime, working with you to help the business stay afloat will help ensure that your landlord keeps a long-term tenant as the economy recovers.
Hint: Landlords know that during a serious economic downturn, it can be difficult to find new commercial tenants.
Bring something to the table. Business owners who can’t make full rent should be prepared to offer something to the landlord. For example, some might accept lower rent payments in exchange for a longer lease term or upward-adjusted lease payments as the economy improves.
Know what you want, but be ready to compromise. Approach mitigation as a discussion and an attempt to find a reasonable solution that benefits all parties. Landlords have their own concerns and limitations that must be considered as a compromise is negotiated.
For more information or assistance with renegotiating a lease, call our real estate attorneys for guidance. We can help you reach a conclusion that benefits both parties and helps your business continue to operate during this difficult time.
What Californians Need to Know About Prop 15
What is Prop 15? Proposition 15 is a proposed amendment to the state constitution that is on the November 3 ballot. Currently, commercial property owners in California pay taxes based on the price originally paid for the property with annual increases limited to no more than two percent of the assessed value. As you might imagine, that amount is typically much lower than if the assessed value were to be based on current market value. Prop 15 would require that taxes be assessed on the current market value of many commercial properties.
The new law would not apply to homeowners (residential property), or to commercial properties valued at less than $3 million. Farmland would also be exempt from the tax hike. If passed the change will not take effect until fiscal year 2022-23, and properties with occupants containing 50% or more small businesses would not be affected until fiscal year 2025-26.
What is the motivation behind Prop 15? Proponents of Prop 15 say that the new tax structure would raise an additional $6.5 to $11.5 billion for the state budget. Those funds would be allocated to cities, counties, and special districts (60 percent) and to schools (40 percent). An estimated 10 percent of property owners would pay 92 percent of the new taxes, according to some estimates.
What is the potential downside? Those who oppose Prop 15 recognize that imposing higher taxes on certain property owners could result in higher rents for tenants and/or customers. This would likely be an unpopular idea at any time, but with the state currently reeling from the economic effects of the pandemic, the opposition says now is not the time for increases on rent and/or prices.
How will the law pass? With the 2020 election already underway, Prop 15 is on the ballot. In order to pass the amendment, the proposition must receive a “yes” vote from a majority of voters.
How will Proposition 15 affect me? If you’re a commercial property owner, your taxes could be adjusted to reflect the current market value of your property rather than the price you originally paid. If that value amounts to more than $3 million, you may be subject to the new property tax rate.
As real estate attorneys, we strive to keep our clients informed of policy changes that might affect them. This is the case with Proposition 15. For more information on Prop 15 and its potential impact on your business, contact our real estate attorneys.
Foreclosure Proceedings: Does the Fair Debt Collection Practices Act Apply?
The intent of the Fair Debt Collection Practices Act (“FDCPA”), enacted in 1978, is to protect consumers from unfair or abusive debt collection tactics. The Act sets forth clear standards which debt collectors must follow and establishes rights of the consumer with regard to these communications and procedures. However, as recently determined by the US Court of Appeals for the Ninth Circuit, the FDCPA does not apply to foreclosure proceedings.
In Barnes vs Routh Crabtree Olsen P.C., the borrower filed a complaint in federal court alleging that the mortgage loan owner, loan servicer, and attorneys violated the FDCPA by failing to make required disclosures and then proceeding with illegal foreclosure actions. The court ruled in the loan owner’s favor, and that ruling was later upheld in appeal.
The decision came down to definitions of “debt collection” and “debt collector.” The Ninth Circuit noted, “[t]he crux of the parties’ dispute is whether the defendants’ pursuit of judicial foreclosure was a form of debt collection.” It then explained that the FDCPA’s definition of “debt” boiled down to “a consumer’s obligation to ‘pay money.’”
With regard to the definition of a “debt collector,” the Court found that “since the FDCPA defines ‘debt collector’ as someone ‘who regularly collects or attempts to collect … debts owed or due or asserted to be owed or due another[,] … an entity that collects a debt owed itself—even a debt acquired after default—does not qualify under this definition.”
As the Court reminds us, the FDCPA is designed to regulate those whose principal business is debt collection with regard to money owed by a consumer to a third party. By contrast, the enforcement of a security interest – such as a mortgage – does not qualify as an attempt to collect money from a debtor.
The borrower argued that the loan owner “crossed the line into debt collection by including in its foreclosure complaint a request for a money award.” However, the Court rejected that reasoning, saying that the request “served simply to identify the amount of the debt secured by the property, which authorized a sheriff’s sale to discharge that liability in the same manner as for a typical judgment debtor.”
In conclusion, the Court affirmed that “[a] judicial foreclosure proceeding is not a form of debt collection when the proceeding does not include a request for a deficiency judgment or some other effort to recover the remaining debt.”
For more information on foreclosure proceedings, contact the real estate attorneys at Larson & Solecki LLP.
Sellers: Why Full Disclosure is Critical
A Seller’s Worst Nightmare
Once a seller has closed escrow and possession has been provided to the buyer, the last thing the seller wants to do is revisit the sale. This might come some time later through a claim for damages by the buyer. In order to reduce the chance of claims from a buyer, the single most important action a seller can take during escrow is to properly disclose any issues with the home. A significant majority of transaction-related lawsuits are filed by buyers against sellers alleging that the sellers failed to disclose. For example, a buyer might say, “You did not tell us about the leak that you had in the master bathroom that flooded the downstairs.” The ounce of prevention that will avoid this situation is extremely simple – use the disclosure forms provided by your real estate agent to fully and properly disclose anything that might reasonably affect the value or desirability of your property. That last statement, by the way, is the legal standard that governs disclosures.
Why Sellers Do Not Like To Disclose
Typically, a failure to disclose lawsuit occurs because the seller did not advise the buyer of some facts that turn up later as expensive repair items for the buyer. Why does a seller not tell a buyer of the defects in their property? Usually it is because they believe that if they tell, the buyers will not purchase their property. That belief is simply wrong most of the time. Experience shows that most buyers will come to terms with a “defect” issue disclosed during escrow, especially if the matter is disclosed up front when they are most excited about their purchase. In those cases where the buyers do elect to cancel, the sellers should be thankful, not upset, because the buyers absolutely would have found out eventually, when money that they would have invested in new carpet, for example, instead goes to fix the defect. At that point the buyers’ disappointment turns to resentment against the sellers and they have no other recourse but to make a claim against the sellers. Given the costs that are typically necessary to defend a claim, the sellers’ proceeds from the sale are quickly swallowed up by mediation, arbitration and/or litigation costs, which quickly turn into many thousands of dollars – the legal process is designed to be expensive!
Disclosure: The Best Insurance against Future Claims
Full disclosure is, in reality, the cheapest form of lawsuit insurance for a seller as it costs nothing. Under California law, sellers are required to disclose anything that might reasonably be an issue affecting the value or desirability of the home. Sellers should not try to decide what is and isn’t important, because the standard is not what is important to them. Instead, a seller should disclose everything that the seller knows about the property. Sellers should think of each individual bit of disclosed information like a lawsuit inoculation against stressful and expensive litigation related to that disclosed fact. It is one less thing for buyers to later complain about. Sellers should be especially careful to disclose a condition even though they might believe it has been “fixed.” It is amazing how many problems that have been “fixed” end up breaking again a month or so after the close of escrow. Disclosure of an old “fixed” problem typically has absolutely no effect on the sale as it is usually viewed by the buyers as one less problem to be concerned with. If an undisclosed “fixed” problem is discovered after the fact, however, when the “fix” breaks, the buyers often believe that the sellers were intentionally hiding things and hard feelings and a dispute almost always result.
A Simple Rule
Sellers, ask yourselves the question, “Do I want to disclose this?” If the answer is no, you should disclose it. Think about it: why would you not want to disclose unless you believe that disclosure of the information would hurt the chance of a sale? Follow this simple rule – disclose, disclose, disclose – and you will have done everything possible to eliminate the chance that you will ever be a defendant in a lawsuit over the sale of your property.
Commercial Landlords and the Pandemic
As the pandemic hit, the government ordered businesses to close. Now, as businesses start to reopen, restrictions are in place. Tenants stopped paying rent under their leases due to the impacts of COVID-19. In many cases this caused financial hardship to landlords. While the tenants remain liable for the missed rental payments, it may be in everyone’s best interest to pursue a mutually acceptable agreement to ensure that the tenants can continue their business. It is important that commercial landlords do the following before entering into an agreement with the tenant.
Review of Lease. You should review the lease terms related to the payment of rent, force majeure, late charge, interest on late payments, continuous operations, inducement recapture, security deposits, and notice requirements.
Impact of Potential Vacancy. If rent relief is not provided and the tenant eventually goes out of business, how will the vacancy affect you, including the ability to pay any mortgage on the property? Will it be difficult to lease the property to a new tenant?
Verification of Tenant’s Financial Condition. Ask the tenant how the pandemic is affecting their business, including financial documentation (if available) to support the tenant’s claims. Most leases provide that the landlord can request financial information from the tenant, and tenants should be compliant with such a request.
Landlord Defaults. Finally, make sure that you, the landlord, have complied with all terms of the lease. A landlord default may provide the tenant with a basis for not paying the rent and/or terminating the lease.
Rent Relief Alternatives. Under the law you do not have to provide the tenant with rent credit or abatement. You only have to allow a deferral of the rent until a later time. But carefully consider the financial impact of losing the tenant. This includes having the property vacant and the cost of finding a replacement tenant. You may agree to defer some of the rent while at the same time, offer rent abatement or a short term rent reduction so that you can retain a tenant who up until the pandemic had been a good tenant.
Lease Modifications. If you do reach an agreement with your tenant, make sure that you confirm that agreement with a written lease amendment so that there are no future misunderstandings.
The bottom line is, an occupied property with a known tenant is always better than a vacant property, even if you have to give up a little financially. If you have questions, check with counsel to make sure that you fully understand your rights. Plus, document properly the results of any negotiations with a tenant.