There is not one design, style or size that embodies a luxury home. It could be a sprawling 15,000-square-foot French manor set on several rolling acres, or it could be a 4,000-square-foot contemporary home nestled into the side of a mountain. Although it’s difficult to quantify exactly what luxury means, most buyers think they know it when they see it. Across the United States, sales of luxury homes have been hitting records. The number of California homes selling for $2 million or more, for example, reached an all-time high in 2013, as the state rebounded from the foreclosure crisis. The U.S. is not the only place seeing bitg sales of luxury homes. Vancouver, Canada’s priciest real estate market, saw a record 36% increase in 2013 over the previous year on sales of homes priced over $2 million. Prices for luxury real estate have also seen significant increases over the last couple of years. According to Knight Frank’s Prime Global Cities Index, which tracks luxury real estate in 30 metropolitan markets around the world, the hottest luxury market now is Jakarta, which saw price increases of nearly 38% at the end of 2013 over the previous year. Knight Frank defines luxury real estate as homes that were sold in the top five percentile in terms of value. Other double-digit price increases in the last quarter of 2013 over the same quarter 2012 include Dublin (17.5%), Beijing (17.1%), Dubai (17%), Los Angeles (14%), Tel Aviv (12.7%), Bangkok (12.3%), San Francisco (10.4%) and New York (10.4%). Why the Growth? It may seem incongruous that luxury markets are heating up, given that much of the world is still recovering from the 2008 financial crisis. Like the financial markets, the real estate market operates under the law of supply and demand. And by nature, there are a limited number of luxury homes for sale at any given time in a particular market. That limited inventory alone can help drive up prices as multiple buyers bid on a single luxury property. Strong Job Market In many metropolitan markets, such as Denver, low unemployment rates coupled with well-paying jobs have fueled the luxury real estate market. Chris Mygatt, president of Coldwell Banker Residential Brokerage in Colorado, said, “We have never seen this kind of frenzy in luxury home sales before. The strongest single market segment for 2013 was clearly the luxury home market. If you include the sales of properties priced at over $500,000 – the top 10% of the market – we saw an increase of 44% year over year.” International Buyers In the U.S., international buyers represent a growing percentage of the real estate market, including the luxury market. From April 2012 – March 2013, international transactions were at $68.2 billion, which made up more than 6% of total U.S. existing home sales (in dollars), and more than 4% of transactions, according to the National Association of Realtors (NAR); 2013 Profile of International Buyers. Florida, California, Texas and Arizona were the leading destinations during that period, with the majority of international buyers coming from Canada, China, India, Mexico and the U.K. These numbers represent a small decrease from 2012’s $82.5 billion in sales to international buyers, but NAR believes this is related to the slow growth in some major European economies and that the issue “should dissipate over time.” The publication also cites that international buyers typically purchase higher-priced properties compared to domestic clients: international buyers spent an average of $354,000 versus $228,000 for domestic purchases. Due in part to the tight U.S. credit standards facing foreign buyers, the majority of international purchases are all-cash deals (63%). This can put other buyers who need financing at a disadvantage, since all-cash deals tend to move faster through the process. U.S. Relatively Inexpensive The U.S. is home to only one of the top 10 most expensive cities in the world, making the U.S. a relatively inexpensive and attractive destination, both in terms of cost of living and housing. According to Forbes Magazine, the top 10 most expensive cities in the world (as of March 2013) are:
- Hong Kong, China
- Tokyo, Japan
- London, UK
- Paris, France
- Moscow, Russia
- New York, NY
- Shanghai, China
- Mumbai, India
- Sydney, Australia
Buying a Luxury Home According to the 2013 Profile of Home Buyers and Sellers published by the National Association of Realtors, nine out of 10 buyers used the Internet at some point when looking for a home, and 43% of recent buyers first found the home they purchased online. While the vast majority of homebuyers rely on the Internet at some point during their home searches, luxury homebuyers can be at a disadvantage when it comes to finding properties online. Many high-end properties aren’t listed on MLS or search engines. And, in order to protect their privacy, many sellers avoid putting information and photos of the property on the internet. Find a Qualified Real Estate Agent If you are in the market for a luxury home, a qualified real estate agent who knows the luxury market may be your best bet for finding properties that are for sale but that are not necessarily easy to find because of privacy concerns. An agent familiar with the luxury market may have inside information about listings before they hit the open market. And, an experienced agent will be able to help you determine the market value of a luxury property. Most residential real estate is valued using comparables – similar properties in the area that have recently sold. Valuing luxury properties can be a challenge since often there are no similar properties in the area. Financing The loan process for luxury homes typically takes longer than for smaller mortgages. Even if your financials are in good order, it may take 45 to 60 days to secure a loan. Since it can take extra time, and because the seller of a luxury home is often interested in showing only to qualified buyers, many real estate agents recommend having your mortgage broker, loan officer or personal banker obtain your financing approval early on in the process. Due Diligence As with any real estate purchase, it is important to take the time to properly inspect a luxury home prior to purchase. In many cases, luxury homes are larger and have amenities that may require specialized home inspectors, such as:
- Pools and spas
- Fountains and ponds
- Lawn irrigation systems
- Exterior fireplaces
- Automatic screen and awning systems
- Central vacuum systems
- Heated floors/driveways
- Sophisticated security/surveillance systems
- Landscape lighting
By Chris Birk | CREDIT.com
It’s easy to get caught up in credit scores when considering a home purchase. But as lenders continue to loosen requirements, the need to have money in the bank doesn’t get any less acute.
Getting prescriptive about how much you need in savings to satisfy a mortgage lender is tough business. The answer can depend on a host of factors, from the type of mortgage and size of the loan to the property itself and more.
You’ll most likely need a solid chunk of change upfront to cover a down payment and closing costs. Lenders might also want to see a stockpile of “reserves,” which often translates to a certain number of months’ worth of mortgage payments.
The bottom line is that it’s tough to talk specifics about your bottom line. That’s why it’s important to get a solid understanding of your mortgage options and seek clear guidance from lenders.
Credit scores are critical, but so are income and assets when you’re applying for a home loan. Here are some of the important savings you’ll need to accumulate first.
Down Payment Needs
Down payments are inescapable for the vast majority of non-cash homebuyers. Outside of state or local programs, only government-backed VA and USDA rural development home loans allow qualified borrowers to purchase with no money down.
Conventional and FHA loans typically require minimum down payments of 5% and 3.5%, respectively. On a $200,000 mortgage, that’s $10,000 for conventional and $7,000 down for FHA. But buyers often put even more skin in the game.
Conventional borrowers last month had an average loan-to-value ratio of 80%, according to mortgage software firm Ellie Mae. For FHA loans, it was 95%. That means buyers are putting down an average of 20% for conventional loans and 5% for FHA loans.
Existing homeowners often have an advantage because they’re able to put the proceeds of a home sale toward a new purchase. It can take first-time buyers years to scrape together enough money for a down payment.
That’s partly why home sales among first-time buyers hit their lowest point last month since the National Association of Realtors began tracking the figure in October 2008.
Paying the upfront costs of homebuying represents one pool of money. Lenders want to make sure you’ve got plenty left over to keep the monthly payments rolling in long after closing day.
One way they hedge risk is by requiring a certain amount of reserves. Guidelines can vary by lender, loan type and borrower. One month of reserves is usually equal to your monthly mortgage payment, including property taxes and insurance.
Conventional lenders typically seek from two to six months of reserves, but it could be as many as a year’s worth, depending on your risk factors.
Neither FHA nor VA loans have a reserve requirement for single-family homes. But purchasing multi-unit properties under these programs typically requires three to six months’ worth of reserves. Reserve requirements will also vary for jumbo loans.
A healthy amount of reserves can help homebuyers on the edge. Lenders can consider these assets as a positive compensating factor, which can help a spotty loan file overcome credit or debt issues and help the mortgage process move along faster.
Lenders will take a close look at the ratio of your major monthly debts against your gross monthly income. This is known as debt-to-income (DTI) ratio, and different loan programs have different requirements.
Money-wise, it’s not just the income stream some borrowers need to worry about.
Some lenders and loan types may require you to have a certain amount of money left over each month after paying major expenses. The VA loan program has pioneered this requirement, known as residual income. VA borrowers must meet a monthly residual income benchmark that can vary based on where you live and your family size.
For example, a family of five in the Northeast needs at least $1,062 left over each month after paying those major bills (think mortgage, student loan, child care).
The FHA recently adopted the VA’s residual income requirement as a test for borrowers with higher debt-to-income ratios. The change takes effect in late April.
Residual income doesn’t necessarily represent funds you need to earmark for savings. But knowing how to budget and save are key traits of successful homeowners.
Other Upfront Costs
Securing a mortgage will come with other upfront expenses. Many will vary depending on the type of loan and your specific purchasing situation. All loans have closing costs, which can include things like origination fees, title insurance, prepaid property taxes, homeowners insurance and more.
But who pays them is often a matter of what you can negotiate with the home seller. It’s not uncommon for VA buyers to purchase with $0 down and have a seller pay all of their closing costs.
Read more on other upfront Costs here…
Once you’ve located the perfect house for you and your family, it is time to prepare an offer. The offer is the foundation of real estate transactions, and upon review, the seller will either accept or decline your bid. It includes basic information, such as the location and physical description of the property, the proposed price, down payment information, and stipulations. It goes without saying that preparing a real estate offer is anything but easy. For this matter, it’s best (though not required) to work with a professional real estate agent.
You can’t make a home seller accept your offer. However, following these tips and strategies can put your offer ahead of the competition.
Factors to Consider When Making an Offer
Your bid indicates how serious you are about buying a particular house. This isn’t the time to play games or submit an offer that’s substantially below the asking price, unless your agent believes it to be fair.
When making your offer, take these factors into consideration:
1. How Long Has the House Been On the Market?
A seller is more likely to lower his or her asking price if the house has been on the market for longer than six months. At this point in the game, he or she is probably eager to sell the house and move on. For this matter, an offer that’s $5,000 or $10,000 below the asking price might work in your favor. And if the property has received few showings or prior bids, then this is even better. The fact that someone is finally interested in the property may move the seller to accept your bid.
2. How Motivated Is the Seller?
Real estate agents often talk with one another, and your agent may have a little background information on the seller, including the reasons behind the sell. This information can help you assess the seller’s motivation, thus helping you to make the best offer.
For example, if the seller isn’t in a rush to move, he or she may hold out for offers that are close to the asking price. On the other hand, if the seller is going through a divorce or is relocating for work, chances are that he or she will accept a lower offer to quickly unload the property.
3. What Are the Prices of Recent Comparative Sales?
A comparative market analysis is another tool to help you make the best offer on a house. Your agent can provide this report, or you can check comparative sales on a website such as Zillow. This report includes active, pending, and sold listings for similar homes in the area. With this information, you can learn the asking price of similar homes currently for sale, as well as the actual sale prices of homes that have closed within the past six months.
Based on the comparative analysis, you and your real estate agent can determine the best price for the house. For example, if you’re bidding on a house with an asking price of $200,000, yet a review of comparative sales shows that similar homes in the neighborhood have only sold for $185,000, an offer that’s $10,000 beneath the asking price might be fair.
Understand, however, that a comparative analysis is simply a guideline. If the house that you’re bidding on has several high-end upgrades – such as a room addition, a finished basement, or newly remodeled bathrooms and kitchen – the seller may not entertain a low bid.
Real Estate Contingencies
Understandably, sellers prefer real estate offers with zero contingencies. However, stipulations are routine in these types of transactions. The key to getting your offer accepted is being fair and keeping contingencies to a minimum. While you generally should include some of the following contingencies, you may not want to include all of them:
1. Home Inspection
A home inspection is not required, but recommended. In your offer, include that the home sale is contingent on a satisfactory home inspection – a thorough examination of the house to check for hidden problems. Areas examined by the inspector include the roof, attic, ventilation system, drainage, doors, windows, heating and air system, plumbing, electrical system, and foundation.
After the inspection, you can ask the seller to make needed repairs. If he or she does not comply, you can walk away from the sale.
If your offer states that the sale is contingent on your ability to secure a mortgage loan, the seller might pass on your offer. The seller is undoubtedly eager to sell the house – therefore, he or she may be unwilling to take a chance on someone who may or may not qualify for a home loan. Have your financing in place before you submit an offer, and include your pre-approval letter with your offer.
3. Earnest Money Deposit
This good faith deposit shows that you are a serious buyer. Submit your earnest money deposit with your offer, and if the seller does not accept your offer (or if you withdraw your offer due to reasons permitted in the contract), you will get your money back. If you proceed with the sale, the earnest money is credited to your closing costs. Earnest money deposits vary by region, but range between $500 and $1,000.
4. Expiration Date
Always include an expiration date with your offer. With this contingency, the seller must respond to your offer within a certain number of days or the offer expires. Choose a length that you’re comfortable with – perhaps 7 to 10 days.
This inclusion protects you in the long run. If you don’t hear back from the seller, you may assume that your offer was not accepted, and you may bid on and purchase another house. However, if you fail to include an expiration date with a prior offer, the seller could legally accept your offer months late, at which time you’re obligated to purchase the house or lose your earnest money deposit.
The seller is obligated to disclose certain issues with the property, but is not obligated to make repairs. Laws regarding what a seller must disclose vary by state. However, most states require sellers to disclose any major repairs or issues that have occurred within the past five years, such as mold removal, water damage, or electrical or plumbing problems. Additionally, sellers must disclose any existing hidden issues.
Maybe a window or the roof leaks during heavy rain. Or, perhaps a few of the windows may have broken locks, or the electrical outlets in a particular room do not work. To protect yourself, make sure that your offer is contingent on satisfactory disclosures.
Sellers complete a disclosure form during the negotiating process. After reviewing this form, you can ask the seller to fix issues or adjust the sale price to compensate for these issues. If the seller agrees to make the necessary repairs, but doesn’t fulfill his or her end of the contract before closing, you can legally pull out of the sale.
In your offer, state your wish for a walk-through on the day of closing. This way, you can conduct a final inspection of the house. If the walk-through reveals issues not previously disclosed – perhaps a hole in the wall, a broken appliance, or a water leak – you can legally postpone or cancel the home closing.
Competing With Other Buyers
Ideally, you want to be the only one bidding on a house, as this allows you to take your time preparing the offer. But if other buyers are also interested in the property, time is of the essence, and you have to make your offer count.
There are several ways you can successfully outbid other bidders while still paying a fair price:
1. Include an Escalator Clause
If you really want to purchase a particular home, include an escalator clause in your offer. Simply put, the escalator clause increases your proposed offer up to a certain amount should another buyer submit a bid higher than yours.
Let’s say you submit an offer for $200,000 and include an escalator clause up to $220,000, in which you agree to offer $1,000 over a competing bid. If another buyer submits an offer for $205,000, your proposed price for the house will jump to $206,000, putting you ahead of the competition. This method works wells for homes priced under market value.
2. Increase Your Earnest Money Deposit
Perhaps your real estate agent recommends a $1,000 earnest money deposit. If you learn that others are competing for the same property, it doesn’t hurt to up your earnest money deposit by a few thousand dollars, if possible. This move demonstrates your seriousness.
3. Don’t Ask for a Lot of Extras
Most sellers realize that they will need to make reasonable repairs and updates if they are to unload a home. But if you include a bunch of unnecessary extras in your offer, the seller might go with another bidder. For example, don’t ask sellers for new doors and windows when the current ones work fine. And don’t request a complete bathroom remodel simply because you dislike the present design.
4. Pay Your Own Closing Costs
Buying a house is expensive, and to offset costs, some buyers ask for closing costs assistance. If possible, pay your own closing costs. The less a seller has to come out of pocket, the better. If you need closing costs assistance, be reasonable and ask the seller to pay a small percentage – no more than half.
The information included in your real estate offer can make or break the deal. This is probably one of the most stressful parts of buying a house, as it only takes one bidder to knock your offer off the table. Be reasonable with your proposed price and follow your agent’s advice. If the seller submits a counteroffer, work with your agent to decide the best way to proceed. And if you don’t win a bidding war, don’t get discouraged – there will be other homes for you and your family.
What do you believe makes a good real estate offer?
by Courtney Soinski | The Real Estate Book
Are you thinking about refinancing your home this year? Take a breather and listen to what the expert economists have to say about mortgage rates, housing starts, and new household creations in 2014.
Let’s take a look back.
When our economy was going through the housing boom, the U.S. was producing 1.4 million additional households every year.
In the aftermath of the Great Recession, there is a significant pent-up demand to form households and even to build homes. At least 3 million fewer households formed over the past five years than would normally have been expected. During this period, many college graduates were forced to double-up or move in with their parents.
However, we have come an incredibly long way since then. Over the past year, there has been a significant revival of single-family home production.
What does this mean for 2014?
Housing will continue its climb toward higher ground this year. According to NAHB Chief Economist David Crowe, consumer confidence has returned to pre-recession levels and year-over-year household formations are on the rise. In fact, they are now averaging 620,000 compared to just 500,000 during the housing downturn.
There will be an upward pressure on mortgage rates this year, but don’t worry – it’s not enough to harm housing affordability. As mortgage rates gradually rise, fewer homeowners will look to refinance. Also, purchase originations are expected to increase as the overall housing market strengthens.
“As we move into the 2014 home buying season, it will be a market dominated by home buying originations rather than refinance originations,” says Frank Nothaft, vice president and chief economist at Freddie Mac. “This will be the first time since 2000 that purchase originations will dominate the market.”
For more information, visit www.nahb.org.
By Kevin Smith, San Gabriel Valley Tribune |Daily Breeze
California is on track to reclaim its status as the Golden State, according to a report released today.
The Los Angeles County Economic Development Corp.’s 2014-2015 Economic Forecast & Industry Outlook notes that California’s unemployment rate is falling, more people are finding jobs, the housing market is improving and budget surpluses are finally in sight.
The state has regained 70 percent of the more than 1.3 million jobs it lost as a result of the Great Recession, the report says, although the recovery continues to be “very slow.”
“Regionally, the recovery is advancing in nearly every part of the state,” the report says. “Now, after nearly five years of recovery, California is on a more solid footing.”
The report notes, however, that the state is currently grappling with one of its worst droughts on record. Southern California will likely receive little water from Northern California this year and increased conservation and recycling will help the region keep pace with growth and reduce reliance on imported water.
Orange and San Diego counties led the Southland’s growth last year with year-over-year job gains of 2.1 percent and 1.8 percent respectively. Los Angeles and Ventura counties were close behind with employment growth of 1.7 percent. But the Inland Empire was still struggling with growth of just 1.2 percent, the report said.
“The Inland Empire has a lot of strength in construction, but that sector was very hard hit in the Great Recession,” said Robert Kleinhenz, the LAEDC’s chief economist, who helped research and prepare the report. “We’re still looking at several years before we recover all of the jobs that were lost in the recession.”
Los Angeles County — boasting the largest county economy in the nation — saw its population surpass the 10 million mark last year and the region is expected to see nonfarm job growth of 1.6 percent this year with another gain of 1.2 percent in 2015.
The county’s unemployment rate is expected to average 8.7 percent this year and 7.8 percent in 2015.
The most current reading from the state Employment Development Department put L.A. County’s jobless rate at 9.2 percent in December.
The county’s biggest job gains in 2014 are expected to come in health services with 12,800 new jobs. That will be followed by employment gains in leisure and hospitality (8,900), professional, scientific and technical services (8,800), administration and support (7,700) and construction (5,800) and manufacturing (4,700 jobs), the report said.
David Aley, an admissions clerk at the West Hills Health & Rehab Center in Canoga Park, said his facility hired more employees in 2013, bringing the total workforce to around 140.
“In health care you’re always hiring and firing … but mostly hiring,” Aley said with a laugh. “People change jobs, moving from one place to another. But we’re always busy.”
Further inland, the report shows that the combined San Bernardino and Riverside counties area has regained more than 40,000 of the 147,000 jobs it lost during the recession, adding more than 14,000 new jobs in 2013 alone.
The Inland Empire’s most recent unemployment rate of 9.2 percent is expected to average 9 percent this year and drop to 8.2 percent in 2015.
“A lot of hope has been placed on the transportation and logistics part of the economy, not just to generate jobs going forward but to also create a sizable number of well-paying jobs,” Kleinhenz said. “Transportation, warehousing and utilities will grow by at least 2 percent this year in the Inland Empire. The job counts have already exceeded the pre-recession peak.”
The Inland Empire’s biggest employment gains this year are expected to come in retail trade (3,200 jobs), leisure and hospitality (3,200 jobs), health services (2,800 jobs) and government (2,500 jobs).
L.A. County and the Inland Empire are both poised for significant growth in residential housing, the study said.
L.A. County saw 15,700 housing unit permits issued last year and that number is expected to rise 34.4 percent to 21,100 permits this year, with another 28 percent gain in 2015. That would bring the total number of permits issued next year to 27,000.
The Inland Empire is primed for even more dramatic gains. The LAEDC said 8,900 housing unit permits were issued last year. That number will rise 53.9 percent this year to 13,700 permits and 45.3 percent next year to 19,900.
Karl Woehrstein, a broker with the Century 21 Amber office in Torrance, said his area is saddled with an all-time low in inventory. The combination of that and multiple bids have driven home prices back up to 2006 levels, he said.
“Usually our multiple listing service would have 3,000 to 4,000 units for sale,” Woehrstein said. “But now we’re down to about 900 to 950.”
The LAEDC report also notes that the Los Angeles and Long Beach ports play a significant role in Southern California’s economy.
The value of two-way trade in the region is expected to rise 4.5 percent this year to $433.3 billion and 6.9 percent in 2015 to $463.2 billion.
By Nick Green | Daily Breeze
Torrance >> A landmark 248-unit apartment building on Anza Avenue that was once the epicenter of the 1960s Southern California “swinging singles” scene that attracted national media attention has sold for $37.8 million.
The Milano Apartments complex, originally built as the South Bay Club, was acquired by M West Holdings, a Sherman Oaks-based company that has significantly expanded its commercial and multifamily residential portfolios in Southern California in recent years. Wells Fargo, which touts itself as the nation’s leading commercial real estate lender, provided a loan for the entire purchase amount, spokesman Darryl Ryan said.
The South Bay Club was built in 1964 during the height of the city’s growth boom, when more than 110,000 people moved to Torrance in a 15-year span ending in 1965, according to a 1960s-era League of Women Voters profile of the city.
Originally restricted to singles only in days before housing discrimination laws, the amenities included three tennis courts with a pro shop and a resident coach, gymnasium, two swimming pools as well as volleyball and basketball courts, according to a post on South Bay Yesterday, the Daily Breeze’s local history blog. Articles about the complex were published in Time and Parade magazines at the time.
The apartment complex was upgraded in 2008 in the wake of its 2007 purchase by San Diego-based Fairfield Residential for $56 million, property records show.
Matthew Ellis, senior vice president with the Acquisition & Capital Markets group at M West Holding, did not return repeated calls seeking comment.
But the company has said its strategy is to acquire multiunit properties in Southern California located in “stable, in-fill markets.”
The company targets “historically underperforming, underappreciated, poorly operated assets,” according to its website.
The Milano Apartments has a mix of studio and one-, two- and three-bedroom units. It is 95 percent occupied.