Factors affecting an investment property’s value

Investment Property Value Considerations

Property values will be determined taking the following variables in mind:

  1. Vacant Buildings.
  2. One unit currently owner occupied or vacant
  3. One or more units to be recovered for owner occupancy and/or extended family occupancy.
  4. Completely tenant occupied to remain that way (leased, month to month,  or protected rentals).
  5. Evictions already performed on the building creating a ‘tainted unit’.
  6. Ellis Act evictions on the premises.

In establishing marketing strategy, there are several options:

  1. Approach the tenant/tenants as buyers.
  2. If the tenant plans to move at any point in the future, be flexible with them on expected time lines, offer to help them with moving expenses, or wait until the unit becomes vacant.
  3. Wait to market the building until the tenant, or tenants vacate.
  4. Sell the building now at a value consistent with its income.
  5. Consult an attorney to explore your options.

Consider talking to an attorney who specialized in real estate law; particularly landlord-tenant law.  The City and County of San Francisco has implemented varied legislation over the years; sometimes in contradiction to each other.  Have a firm understanding of the impact of your tenancy on how you may market your building and in how you can use it after you own it.  If you need any resources for local attorneys, please don’t hesitate to reach out to me.

Laws affecting the sale of your property

There are numerous codes, statutes and laws governing the transfer of Real Property.  Some are quite easy to handle, while others have implications that can be catastrophic if not handle correctly.  Your real estate professional should assist you understanding and complying with each law.

San Francisco City Requirements

  • Energy & Water Conservation
  • Report of Residential Record
  • Hazardous Waste Disclosure
  • Smoke Detector and Water Heater Ordinance
  • Rent Control Ordinance
  • Underground Storage Tank Disclosure and remediation if necessary
  • Sewer lateral where required

Federal Requirements

  • Foreign Investment in Real Property Tax Act

State Requirements

  • Seismic Hazards Mapping Act
  • Earthquake Safety Disclosure/Hazards Report
  • Real Estate Agency Relationships Disclosure
  • Real Estate Transfer Disclosure
  • Environmental Hazards Disclosure
  • Condominium Disclosures
  • California Real Estate Withholding

Prudent things to do

  • Order a CLUE report to disclose any insurance claims that may have been made
  • Have a pre-sale structural pest inspection performed on the property
  • Consider other pre-sale inspections such as: sewer, furnace, roof and fireplace

Will an insurance claim affect my sale?

Obtaining hazard insurance on property can sometimes be a challenge.  This is because of the extraordinary losses that insurance companies have paid out from disasters and mold claims.

Since lenders require hazard insurance to be in place prior to close of escrow, unknown claims discovered prior to close could be frustrating and/or expensive through a delayed close date, or renegotiating the purchase price should the buyer in contract on your property not be able to close escrow.

Its prudent to order a CLUE (Comprehensive Loss Underwriting Exchange)  report from your insurance carrier to disclose any claims that may have been made on the property over the last five years.  Your insurance agent, for a small fee, can order this document for you, or you can order it yourself online from www.choicetrust.com-you can obtain one free report a year by signing up on the site, which does require a social security number to order the report.

I am ready to sell my property

The good news is that San Francisco is and has been for a long time, a very desirable place to live.  Supply has historically been short of demand, so prices remain stable in down markets and appreciate in up markets. With equity in property and changes in personal financial ability, many homeowners find it possible to make the next move-either moving up, or accumulating property for retirement.

There are many things to consider in the sale of your property, such as establishing the target market, marketing schedule, and an appropriate list price that will generate maximum exposure to the property.  If you are selling a property to purchase a replacement, timing will be even more important. Then there is the discussion about what repairs, remodeling, or market preparations are needed.

You may need to refinance to pull cash out for a down payment (if that is possible financing wise-that will depend on what is available at the time), or find out what you can afford once you sell. Check out my posting on this site ‘Getting started with financing’

The key to making the marketing and sale of a property go smoothly is when there is planning and preparation.  That means getting your house looking ship-shape and ready for interested buyers to view, and having presale inspection reports and disclosures available for review when marketing begins.

A comprehensive list of the items that should be considered to be accomplished to make your home the most presentable for a prospective buyer can be found in my posting on this site ‘Presenting your Property Checklist’

Why disclosure is important when you sell

Since the 1980s, an increasing number of legal claims have been filed against sellers of real property in California by buyers claiming damages due to conditions which were not disclosed prior to purchase. Many of these claims have resulted in lawsuits and hefty judgments against the sellers and/or their real estate agents. Others, while small and perhaps never reaching the stage of a legal filing, have cost sellers thousands of dollars in attorneys’ fees and in nuisance value settlements.  I believe that the best form of protection against such claims is scrupulous and complete disclosure of all aspects of the property being sold.

As a seller, you will be asked to complete a number of disclosure forms, many of which are mandated by State law such as the Sellers Transfer Disclosure Statement and the Residential Earthquake Hazards Report, others of which have been created by the Greater San Francisco Association of Realtors, such as the Supplement to Sellers Transfer Disclosure Statement, and still others which have been created by various real estate companies.

Knowledgeable and experienced real estate professionals will walk you through the necessary documents to complete.  Many of these documents have boiler plate questions which may need further explanation in your answers.  Just checking yes or no on these questions is likely to raise eyebrows and create additional questions.  Please be as complete and descriptive as possible and don’t worry about ‘over-disclosing’.  My experience has been that buyers in love with your property will forgive many things upfront, but will be less forgiving after the fact.  Don’t take a chance at leaving out anything; if you wonder if it should be in your disclosures, chances are, it should.

What paperwork do I need to pull together to sell my investment property?

Investment Property Checklist

The following is a checklist for you to work from to generate the tenant related information to provide tenant related disclosure to a potential purchaser:

  1. Rent History.  Understanding the tenancy and rules of the building will be critical in the building’s sale because investors will want to know what they are buying. Calculate the allowed banked increases on each unit, note when the last increase was done and identify what is allowed.
  2. Consider banking increases with notification to the tenants, or raise them as allowed.
  3. Pull together copies of leases, 6.14 notices, and all tenant/landlord correspondence.
  4. Pull together documentation on capital improvements and operating and maintenance expenses, which can be passed through to your tenants.  The city’s form is lengthy and time-consuming; you may want to hire someone to do this for you.
  5. Pull together any rent board hearing information or small claims court information.
  6. Consider getting some necessary repairs or deferred maintenance fixed.
  7. Empty units generally are a premium and will raise the value of the building; if you have vacant units, consider selling the building with the unit(s) vacant.
  8. Have structural pest control inspections.  This gives a clear picture of the condition of the building and will take some of the negotiation away from the purchaser of the building.  The condition of the building may contribute significantly it’s value in the marketplace.
  9. Serve Rental Questionnaires and Protected Status Addenda.  A rental questionnaire is a statement completed, on a form provided by the landlord or real estate agent, by a tenant on their understanding of the tenancy; it should match the landlord’s interpretation, but occasionally this does not happen, this mis-match needs to be worked out between landlord and tenant in advance.
  10. The protected status addenda is also significant in that it is intended to identify protected status claims for tenants who are elderly, disabled or catastrophically ill which would protect them from eviction for an owner moving into their unit.  Children under 18 years old who have lived in the property for 12 months or more, are on their way to becoming protected tenants in a legislation currently under consideration.  A protected tenant does significantly affect property value.
  11. Tenants are not required to fill out either one of these forms.  By trying to get them completed by the tenants in advance, we will have a clear picture on how to market the building, if the tenants will be cooperative, or if there are documents that are not available to provide to a prospective buyer.

For more information about the rent control ordinance, contact the Rent Board information line at: (415) 252-4600 or visit their web site: www.ci.sf.ca.us/rentbd/.  You can download a copy of the latest rent ordinance and rules and regulations.

Mistakes people make when buying or selling a home

Mistakes

Prevented By

1.  Not knowing how much they can afford to pay for a house before they make an offer. Get pre-approved for a mortgage, so you know in advance exactly how much you can afford.
2.  Not finding out in advance whom the real estate agent represents.  Asking your Realtor.  Most people think their agent is working for them.  But unless the agent is working as your buyer representative, he/she represents the seller.
3.  Not realizing that the wrong mortgage can cost thousands of dollars in unnecessary interest and taxes.  Consulting with a mortgage consultant, accountant, and/or financial planner before making a final decision on which mortgage to choose.  CPAs can tell you the long-term effects on your income.
4.  Not discovering hidden defects before buying a home. Hiring a professional to conduct a pre-purchase home inspection.
5.  Not knowing how debt can affect their ability to buy or refinance a home. Asking your mortgage professional to help you review and repair your credit file in advance.
6.  Setting their asking price too high because of personal need or emotion rather than fair market value. Consulting with a professional real estate agent.  He/she can assist you in pricing your home correctly.
7.  Failing to “showcase” their home by highlighting the best features. Thoroughly cleaning, repairing, and readying your home for showing before you put it on the market.
8.  Signing a listing contract with no way out. Asking your real estate agent if you can cancel your listing agreement at any time, no questions asked, prior to signing the contract or agreement.
9.  Choosing an agent for the wrong reasons.  (For example, listing a home with the agent who works for the most popular company.) Selecting a listing agent with the best marketing plan and track record.
10.  Not knowing their legal rights and obligations. Consulting a knowledgeable, trustworthy professional who understands the technical and legal aspects of a real estate transaction. Contracts are legally binding.   Neglected details can wind up costing sellers thousands of dollars.

Top 10 mistakes sellers make

Provided by the California Association of Realtors, here is the top 10 list of mistakes that sellers make; and they can be easy to do.  You get excited because there is an offer in hand and you think changes can be dealt with during the escrow process.  That doesn’t usually happen.

The time to get what you want and need is before you get into contract.  Your realtor should professionally navigate the way for you and advise on proper action in accepting the best offer and terms possible.

1. Accepting the buyer with the highest offer without regard to the other contractual terms.

Sometimes a buyer and their agent will bid very high to tie up a property, only to bail on it later.  Anything that seems to good to be true, probably is.)

2. Not properly handling multiple offer situations with multiple buyers.

Agents owe honesty and fairness to all parties in a transaction.  Agents need to make sure that sellers are treating all parties the same and giving the same opportunities.

3. Not properly handling back up offers.

It is easy to ‘sell a property’ to multiple people, so make sure to have the proper paperwork stating that your backup offer is not in ‘first position’ until signed contract and cancellation instructions are signed by the original first position buyer.

4. Entering into an agreement with no (or a small amount of) earnest money deposit from the buyer.

5. Entering into an agreement before verifying the buyer’s financial ability to close.

6. Not disclosing known material facts affecting the value or desirability of the property.

It is better to bring all the skeletons out of the closet.

7. Not providing the buyer with legally required disclosures.

8. Not obtaining the buyer’s written acknowledgement of disclosures.

9. Not considering whether to require the buyer to remove contingencies.

This goes back to item 1 above.  No one really wants to rock the boat when you want to move on with your life.  The issue here is that buyers have three days to review and consider disclosures and whether it will affect their quiet enjoyment of a property.  You don’t want to find out right before close that the buyer has all of a sudden decided something is an issue.  Two impacts from this: renegotiating at the last moment, or the deal blows up entirely.

10. Not excluding items from the sale that the seller wants to keep.

Where I have seen this being an issue is generally around light fixtures.  If there is a light fixture you would like to keep, please take it out before you market the property.  Why show the buyer something they can’t have?  It just sets up the opportunity for bad feelings.

Bonus mistake

11. Listing agents representing buyers in a multiple offer situation.

This is my opinion.  I don’t think it is ethical (although it is legal in California) for the listing agent to write an offer for a buyer when there are other buyers writing offers.  It is too easy for the listing agent to have access to the other offers, prices and terms-having an unfair advantage, which is a legal problem.  Agents owe honesty, fairness and full disclosure to all principals in a transaction.

Have any of these happened to you?  Do I need to add any to the list?

 

To-do list for property preparation

Property Exterior

  • Property painted, repaired
  • Front door & door area freshly painted, polish the door knob and house numbers.
  • Put a seasonal wreath on the front door.
  • Porches, stairs, and walkways swept at all times
  • Nice door matt at front and back doors
  • Trim freshly painted
  • Doors work easily and silently
  • Doorbells operate
  • Windows in good repair; clean
  • Consider a new mail box or slot

Yard

  • Fence in good repair
  • Walkways and driveways in good repair; swept
  • Clear leaves, newspapers, litter
  • Hedges trimmed-at windows, trim so windows are exposed
  • Trim low hanging tree branches
  • Eliminate dead branches, stalks and blooms
  • Add colorful flowers around the home
  • Weed flower pots and beds
  • Lawn cut & green
  • Plantings have been watered and look healthy
  • Put away toys, bikes, lawn tools, etc…
  • Upgrade or add exterior lighting for the property to sparkle at night showings
  • Clean gutters
  • Fences, gates and hardware in good repair

Living Room

  • Walls and ceiling freshly painted; clean; free of smudges, fingerprints and dents.
  • Window coverings clean and in good condition
  • Furniture aesthetically arranged
  • Fireplace clean; consider a fire in the fireplace for open houses
  • Appropriate temperature

Eating Areas

  • Set the table with pretty dishes, placemats, flatware and candles 

Kitchen

  • Range and oven clean and in working order
  • Clean kitchen hood
  • Fix slow drains
  • Kitchen cabinet faces clean and in good condition.  If they appear worn, painting them is a cost effective to make them look fresh and new.  New chrome hardware makes them sparkle.
  • Walls and ceiling freshly painted and/or clean
  • Sink and counters clear of dishes and kitchen appliances
  • Cupboards neat
  • Floors clean and in good condition-repair or replace if necessary-I can help you pick finishes if necessary.
  • Clean seals at oven, refrigerator and dishwasher doors

Bedrooms

  • Walls and ceilings freshly painted; clean
  • Beds made-curtains and bedspreads neat and attractive
  • Clothing put away and hung neatly
  • Closets neatly arranged-remove extra items, make closets look like there is room for additional items
  • Toys, belongings put away
  • Window coverings clean and in good condition

Bathroom(s)

  • Walls and ceilings freshly painted; clean
  • Floors/tile clean and in good condition
  • Replace or repair grout and caulk as necessary
  • Curtains/window treatments clean and in good condition
  • Shower or tub tile clean
  • Shower glass clean or new shower curtain
  • Faucets in good condition; no leaks
  • Fix slow drains
  • Toilet lids down
  • Vanities, sinks, and shelves cleared of personal items
  • Your best guest towels out
  • New soap in the soap dish

Basement

  • Stairways clear, painted and with handrail
  • Windows in good repair; clean
  • Floor clean, clear of obstacles
  • Area neatly arranged

Garage

  • Door(s) open easily and quietly
  • Paint fresh and/or in good condition
  • Workbench and tools neatly arranged
  • Floor clear of debris and free of grease

In addition:

  • Have presale inspections such as structural pest inspections, roof
  • inspections, and sewer inspections.  Get estimates of repair costs to present to the prospective buyer as part of your disclosures.  This will be a good way to pre-negotiate with buyers, making sure they are serious at the start of your contract.  I can help you coordinate this.
  • Pull together all warranties, appliance, and operating manuals to remain with the property to pass along to the new purchaser.
  • Tighten loose door knobs and hardware
  • Clean mirrors, picture frames and glass.
  • Electrical items, such as lamps, are plugged in and usable
  • Fix warped drawers
  • Tighten loose banisters
  • Turn on lights; make sure burned out light bulbs are replaced
  • Lamp shades in good condition
  • Make sure light switches and outlets work; replace damaged or discolored covers
  • Lubricate squeaky or sticky doors
  • Consider hiring a cleaning service; this will relieve pressure and have a more professional look.  Keep everything extra clean; for example, clean fingerprints from switch plates, mop and wax floors, clean the stove and refrigerator.  A clean property looks like a well-care for property.
  • Wash all windows, clean window sills, wash blinds
  • Have carpets cleaned
  • Consider replacing out of date light fixtures
  • Get rid of all items you will not be moving-reduce clutter, have a garage sale, donate to charity or hire a hauler to take unusable items to the dump.  Store seasonal closing, pre-move-consider a storage facility.
  • Remove some furniture to make spaces look bigger
  • Remove damaged or badly worn furniture
  • Consider taking on minor repairs that can make a bad impression.  Sticky doors, torn screens, cracked, or moldy caulking, or dripping faucets.  These are easy items that when not done, make the property look uncared for.

 

Preparing for showings

  • Heat or cool the property appropriately
  • Remove or isolate pets-they may be a problem for visitors
  • Air out the home; if there are any offending odors, like litter boxes, or pet stains, eliminate them
  • Hide valuables such as cash, jewelry, or other small valuable objects; it is not possible to watch everyone in the property.  If there are tenants, please notify them of this as well.
  • In general, consider how you would perceive your home if you were a prospective buyer
  • Open shades and blinds.  Consider changing to shear window coverings that allow more light into the property.
  • It is best to show your property if you are not present.  Buyers will feel more at ease to check out your property completely if you are not there.
  • At night, please light property appropriately for viewing and safety
  • Additional touches such as a fire in your fireplace or quiet music are always nice
  • Neatly arrange, or stack magazines and newspapers

San Francisco Crime Statistics

There’s a new spot you can check out crime statistics; Trulia.  Trulia is a real estate website that caters to real estate consumers; giving them the chance to search listings, get real estate information and ask real estate agents questions.

As for the crime statistics, they pull that from the San Francisco Police Department, so it is updated whenever the police department does it.  Each map looks a little different.  The Trulia map is pretty well done on a citywide level-set up like a heat map that you can click on and drill down into specific areas.  The other two, CrimeMapping and CrimeReports give information based on your input of an address onto the site.  And then there is Megan’s Law where you can see if your neighbors are offenders.

Here are some sites to check out crime statistics;

www.trulia.com/crime

www.crimemapping.com/map/ca/sanfrancisco

www.crimereports.com

www.meganslaw.ca.gov