While San Carlos is a truly wonderful place to purchase a home, it is not without its quirks and pitfalls.  Unfortunately, some buyers are not aware of some of these red flags until it is too late. The following is what I would say should be the top 4 red flags that do not get the attention they deserve from prospective buyers in San Carlos:

(1) Bedrooms/Bath/Square Footage. The following is a typical example of a problem that has plagued San Carlos for years:  A buyer purchases a home that appears to be a 3 bedroom, 2 bath home with 1,500 square feet. It is also advertised as such on the MLS and marketing brochures.  The buyer will then move into the home and not suspect any issue, maybe for as long as a few years.  Commonly, buyers will refinance the property within a few years.  Any refinance will trigger an appraisal.  The appraiser will take a look at the county records and see that the home is actually only a 2 bedroom, 2 bath home with 1,250 square feet of permitted living space. Many homeowners will then be stunned to learn that they, in fact, were taken.  Sometimes sellers do this intentionally, but more often it is unintentional.  San Carlos is famous for this type of issue because many of the homes in San Carlos are 50 to 60 years old and have been the victim bad remodeling over the years, and much of that work was never done with a permit.  If the work was not done with a permit, the increased square footage, bedroom modification, etc., will not show up on any city or county record. In the above example, the current homeowner and the previous owner are going to find themselves in a difficult predicament.

>>> How to prevent this: Unfortunately, the majority of the blame in these instances falls on the listing agent.  Sellers often look to their agent for guidance in this area.  By law, the listing agent can only advertise what is permitted.  So, if the county is showing a 2 bedroom, 2 bath home with 1,250 square feet, even though the house has 3 bedrooms and measuring out to 1,500 square feet….the agent can only advertise the home as a 2 bedroom, 2 bath home with 1,250 square feet.  They can advertise the unpermitted section as a “bonus” room or area that is not permitted. If you are a seller, insist that your agent only advertise what is permitted by the county and city.  If you are a buyer, insist that you and your agent visit the county and city to verify that the home is permitted as to what is being advertised.

2.  School District. Now, more than ever, this topic deserves serious attention.  There are a few different items to look into:

First, on the high school level, intra-district transfers for properties assigned to Sequoia and wanting to go to Carlmont are mostly being rejected.  Some properties in San Carlos, mostly north of San Carlos Avenue are still assigned to Carlmont.  However, most of Howard Park and White Oaks are districted for Sequoia High School.

Second, moving to a particular area of San Carlos no longer guarantees a spot in the neighborhood school.  And if you think this is overstated, just ask many of the families expecting to attend White Oaks in the fall who are being transferred to other San Carlos elementary schools.  There is a growing consensus that the San Carlos School District will need to re-draw the school district boundaries.

Third, many San Carlos buyers do not realize that buying in San Carlos does not guarantee San Carlos Schools.  The majority of the Alder Manor Area is assigned to Redwood City schools.  Even more surprising to some buyers is that some homes in northern San Carlos are assigned to Belmont schools.

>>> How to prevent this: Call the school district prior to putting the offer in on the property.  Call the San Carlos School District and the Sequoia Union High School District to confirm the schools pre-assigned to the particular property.

3.  Adobe. While White Oaks and Howard Park remain the two heavy hitters for San Carlos, many home buyers do not realize that most of the homes in these two areas are built on adobe clay. Adobe does not absorb water well and tends to expand and contract more easily causing drainage issues and possible foundation problems.

>>> How to solve this issue: Do your homework.  The installation of a sump pump is key for most of these homes. Ask your property inspector to pay extra attention for settling and foundation issues.  If need be, bring in a foundation expert. Be especially concerned if the ground under the home is wet during the summer months.

4.  Market Conditions. Homes in San Carlos are currently following one of two patterns.  Sellers have  either priced them especially well or they have built in some serios negotiating room.  Do not be afraid to be aggressive on an underbid for a property that has been on the market for a lengthy period of time and do not be afraid to go all in if a property is truly priced very well.

One example of what we are seeing more and more of are situations such as the following:  Buyer’s agent:  “How did you arrive at your market price?’….Listing Agent:  “Well, we looked at what the sellers would need to do to break even and then added in the real estate fees, and that got us to our market price.”  Unfortunately, this type of “logic” is becoming more and more common. Be very cautious with this type of property.

>>> How to solve this issue: Solving this issue is not much different than with any other type of offer situation.  I have always told my buyers that the listing price is irrelevant in most cases.  Each buyer and his or her agent should come up with their own market analysis and pricing point for each particular property and offer a price and terms in line with that analysis.  Basically, each agent needs to do their homework and fully communicate those thoughts to each buyer.

Thanks for your patience.  The site is about 48 hours away from full functionality.  Sunday, June 28th the site will be fully loaded!

Thanks!

Bob

“A lengthy document with a bunch of fill-in-the-blanks and legal jargon.”  This is how one San Carlos home buyer described the contract.  In a sense, she is right.  However, too often buyers do not truly understand the numerous pitfalls that exist in the contract. I remember when we were buying our first home in San Carlos.  At the time, I still had my law practice and I remember the realtor going through the contract with us. The amount of items that were glossed over with an “initial here” and “this is standard” and outright incorrect explanations over the legal meaning of certain terms, was alarming.  I remember sitting at that conference room table distinctly thinking that I now understood why real estate litigation was so prosperous.

There are many different types of purchase contracts.  The one that is commonly used in San Carlos is called PRDS Real Estate Purchase Contract.  Another form that is commonly used is the CAR Real Estate Purchase Contract.  If you have your choice, I would have you tell your agent to use the PRDS form.  It my opinion the PRDS form is better written and has fewer gray areas.

This week I will be highlighting two areas that deserve more consideration and explanation in the PRDS contract:

(1) Liquidated Damages.  Section 5 of the PRDS form talks about Liquidated Damages.  By initialing next Section 5, you are asking the seller to include that particular clause in the contract.  Here is how I would explain Liquidated Damages: It may surprise most people to learn that while civil litigators care about whether they can prove the “more likely than not” burden that is required in California for a judgment in their favor, they care equally about proving damages. Many times an attorney will advise a client that the probability of a favorable outcome of their case is high, however, if you can’t prove damages, you just paid a lot of money simply to give an I-told-you-so to the defendant. Liquidated Damages takes that “proving damages” out of the equation.  Basically, when both parties initial the Liquidated Damages section of the contract they are agreeing ahead of time that, if there is a breach of the contract by the purchaser, the damages will be X. In most instances, X, is 3% of the purchase price.

>>> How Liquidated Damages affects buyers and sellers:  It’s good for buyers because they know that if they have to breach the contract for an unforeseen reason, they will never be liable for more than 3% of the purchase price in damages.  Items such as consequential damages, loss of economic advantage and other costly causes of action that the seller may have are taken off the table. It’s good for sellers because they have the assurance of knowing that if something goes wrong and the buyer breaches the contract the seller will usually end up keeping the buyer’s deposit of 3%.  The seller can pocket the money and put the property right back on the market.

(2)  Arbitration.  Sections 7 A & B of the PRDS contract bind arbitration on the buyer and seller if the buyer and seller initial next to this particular section.  Buyers are normally very confused on whether to include this clause in their offer.  First, an explanation of arbitration:  Arbitration is much like a court proceeding but it is done informally.  There is not a court room, just a conference room.  There is not a judge, just an arbitrator (normally a retired judge or very experienced attorney).  The plaintiff and defendant make their arguments to the arbitrator and the arbitrator then issues a ruling which is binding on all parties.

>>> Why buyers and sellers like arbitration: Arbitration is far less formal and less intimidating than an actual courtroom, discovery rules are somewhat relaxed, and the process is usually far cheaper than taking a case through the verdict stage in a courtroom.

>>> Why buyers and sellers do not like arbitration:  The arbitrators ruling is binding.  Appeals are not allowed, except for highly unusual circumstances. Depending on the arbitrator, you risk a decision that is not exactly grounded in the most logical legal sense.  Many attorneys will tell you horror stories of cases that would have gone one way in an actual courtroom and far differently in front of an arbitrator.

>>> What I recommend for my clients:  For me, the answer depends on the behavior of the party on the other side of the transaction. I am generally in favor of arbitration because I believe that the benefits outweigh the disadvantages.  However, if you have reason to believe that something is a little shady on the other side or the property is one that could be fraught with issues which may not be disclosed, I would recommend not initialing this clause and leave the door open for a courtroom action.

>>> Here’s why:  The issues the buyer will encounter are usually obvious and should have been disclosed by the sellers.  While arbitration is usually less costly and less formal than a courtroom action, obtaining a summary judgment is usually cheaper and the buyer or seller would most likely never set foot in a courtroom.  Additionally, the buyer can usually get a much faster result than with arbitration.  When my firm was conducting summary judgments they usually ran about $5,000.  $5,000 would probably be the fee just to hire the arbitrator….so it’s an easy decision under those circumstances. The one item to keep in mind here is that the breach on behalf of the seller would need to be obvious in order to make it through summary judgment.

Upcoming blog posts will further expand on other sections of the PRDS contract.  Please note the totality of all cirucumstances should be used in making determinations in the PRDS contract.  Therefore, these determinations should only be made with an experienced realtor or legal counsel.  Please remember that none of the posts on the San Carlos Blog should be considered legal advice.

1578 Morse Blvd is a perfect blend of craftsmanship and location.  Listed by Shirley Kraus of Intero Real Estate Services, this spectacular home has approximately 3,100 square feet and is listed at $1,980,000.

When looking at the higher end homes in San Carlos I tend to look at four things (1) General Location (2) Street Location (3) Builder (4) Layout. Let’s briefly break these down.  First, the general location is Howard Park.  Howard Park has outperformed the other five areas of San Carlos in terms of price per square foot.  The White Oaks area and Howard Park area are, by far, the two highest performing areas of San Carlos in terms of resale.  Second, when looking at street location it would be tough to argue that the 1500 block of Morse is not one of the most desirable in all of Howard Park. All of the houses have been nicely updated, and some have been totally rebuilt.  The physical location of Morse is a huge plus.  Just a few blocks from downtown and Burton Park, but far enough away so that overflow parking and noise are not overly burdensome from either.  Third, the builder is Mark Marx.  Mark is a local, high-end, custom builder.  I have seen a few of his houses and there is clearly a distinct difference in his quality. I have consistently been impressed with his work.  For more information on Mark, please click here.  Finally, the layout is a major plus. A large master suite and two spacious bedrooms upstairs and a fourth one located downstairs.  A finely detailed great room, formal dining and living rooms and a spacious backyard.  Bottom line, this house gets a big thumbs up from me.  This home will be open on Sunday afternoon.

San Carlos is “in play” for many buyers.  Over the last 30 days, San Carlos has had 30 single family residences go into contract.  While we are not out of the woods with regard to our local real estate market, the San Carlos market has undeniably picked up over the last four weeks.  Our inventory, which spiked two months ago at 77 Active homes, has dwindled to a mere 53.

While some will disagree, there is a growing feeling among buyers and sellers that the San Carlos market may have bottomed out.  Whether that notion is true will remain to be seen.  One item which could derail this optimistic suggestion is that we may experience a jump in interest rates and a nice dose of inflation in the very near future. In fact, interest rates have already had a moderate jump over the last ten days.

This post will be updated again next week with updated numbers.

For those with a lot of patience and real estate expertise, short sales can represent a tremendous opportunity to obtain a property at a market-bottom price.  However, many buyers are often unaware of just how tough short sales can be.

Let’s start with the basics.  A short sale starts when the seller of a property finds themselves in a situation where they can no longer afford to make payments on their primary residence and the value of the residence is less than what is owed on the property.  Sellers in this predicament are left with two unattractive options:  (1) foreclosure; and (2) consult with their lender(s) regarding a short sale.  There are advantages to both.

In a foreclosure action the seller can basically stop making payments and let the property go to foreclosure.  This is usually a four month procedure once the Notice of Default is filed.  The benefit to the seller is that the seller can basically live in the house rent-free for up to four months and save their mortgage payments.  The downside to a foreclosure is it that will most likely devestate the seller’s credit rating.

A short sale action can sometimes limit the negative effect on a seller’s credit rating.  Essentially, the seller contacts their mortgage bank and states that they cannot continue to make payments on their mortgage because of serious financial distress.  The seller then asks the bank to consider a short sale.  A short sale generally lists the property, which is underwater in value, on the market at the prevailing market rate.  The bank then can decide whether to accept a prospective offer or reject it.

Why would a bank consider taking such a loss?  In California, loans which are used to purchase a buyer’s primary residence are subject to anti-deficiency judgment statutes which prohibit the lending bank from collecting any amount that is deficient from the sale as it relates to the total amount loaned.  During a short sale, the bank is simply looking to cut its losses.  Of course, the bank can refuse the short sale and simply foreclose on the property.  This will depend on the proposed purchase price from the prospective buyer and overall market conditions.  A short sale does have some benefits for the bank as well.  First, the bank never has to take ownership of the property as they do in a foreclosure.  Second, the bank saves the legal and administrative costs of the foreclosure process.  Finally, if it is conducted correctly, a short sale can make better financial sense for the bank.

So, why are short sales so difficult to perfect?  There are many reasons.  First, banks are completely overwhelmed right now with short sales.  Banks which traditionally funded credit lines are especially backed up.  Many of these credit lines offered by banks went out as far as 90 or 95% of the value of the property during times of peak property values.  These banks are in second position in terms of being paid from the proceeds of the sale, with the traditional 80% mortgagor getting paid first.  Most banks are taking an average of 30 to 45 days to even give an initial response to an offer.  Second, if you do not have a seller who is extremely organized, the odds of completing the short sale go down even further.  During a short sale banks have many documents that they require from the seller and listing agent.  These documents are put together in an organized package and shipped off to the bank.  If even one item is out of place the bank will simply reject it.  Third, even after the entire process is completed the bank looks at the offer and they may come back with terms that are far different than what the buyer and seller had agreed to.  The most common items that the bank will counter with are (1) price; (2) length of escrow; and (3) financing items. Many buyers end up being blindsided by the fact that their supposedly “accepted” offer by the seller can be re-negotiated by the bank.

We have not had many short sales and bank owned property sales in San Carlos, thus many San Carlos buyers and sellers are not fully aware of the benefits and ramifications of both.  Short sales are highly complex transactions which require the expertise of an attorney or a very well qualified real estate agent.  This article only summarizes part of the process.  If you are considering selling your home in a short sale or foreclosure action I would highly advise you to meet with an expert so that you can find the solution that is best for your unique situation.

This is an update from the article below dated May 18, 2009.  The numbers for May continue to be impressive for San Carlos.  To date, 20 properties went from Active to a Pending status in May. Expect this number to most likely go up to 23 by May 31.