Springtime Maintenance

As April showers make way for May flowers, it’s time to start tackling annual upkeep to keep your home in prime condition.

You can start by grabbing a pad and pencil, and walking around your house to note all the miscellaneous maintenance needed in the coming months: the board in your deck that’s begun to lift out of place (the toe-stubber), gutters that need cleaning, debris on the roof that needs removing, a tree with roots encroaching on your home’s foundation, and anything else that grabs your attention.

Sadly, I just had to remove an oak tree that was growing up through my deck. The tree died, so it was a fire hazard, a visual blight, and its branches could’ve dropped on unsuspecting family members at any time. While it can be expensive to take care of some maintenance, the cost of not doing so can be far more costly.

As you walk around, be sure to check the eaves for birds’ nests or hornets’ nests. To eliminate hornets’ nests, there’s a nifty product on the market with a directional nozzle that allows you to spray a nest from 20 feet away—giving you an excellent head start before a swarm of angry buzzing comes your way.

If you have a wood-burning stove, spring is the perfect time to buy wood. Buying it now gives the wood all summer to dry out, and plenty of time for your teenagers to stack it. Do not stack the wood against the house—that’s a recipe for a termite or powder post beetle disaster.

Many of us don’t think about termites or other pests after we purchase our homes unless we see clear evidence of their work. However, pests do a lot of damage before you know they’re there. Each spring, you should put on your overalls and grubby shoes and crawl under your house to look for anything out of the ordinary—moisture, a loose or broken heating/air conditioning duct, and any evidence of pests.

I once had to crawl under a house to re-route a dryer vent. The space was so tight I had to slide on my back, pulling myself along using the joists. As I pulled myself deep into the space, I came nose-to-nose with a black widow nest teeming with baby spiders. It’s amazing how quickly you can move in a tight space with proper motivation. Hopefully your crawl space experience will be less exciting than mine.

As you inspect your crawl space, pay special attention to moisture, either standing water or damp earth, because hot weather will cause that moisture to evaporate and condense on the subfloor, which can lead to dry rot and termite infestations, according to Matt Miller of Mendo-Lake Termite. If you find termite mud tubes (Google this if you don’t know what they look like), black widow spiders, or other unwelcome creepy crawlies, my advice is to call Matt Miller immediately.

The solution to moisture under the house is almost always more ventilation. It may not solve the problem completely, but it will help. Matt says, “I’ve never seen a house with too much ventilation in the crawl space.” Just make sure you cover the vents with screens to keep out the unfriendlies: raccoons, squirrels, skunks, and the neighbor’s cat.

Once your crawl space under the house has been attended to, head up to the attic to make sure nothing is amiss there—no leaks causing fungus or dry rot, and no critters. If you don’t have an attic fan, consider getting one. In Ukiah, attics can get up to 160 degrees, taking years off the life of your roof and wasting electricity because your air conditioner is working harder than it has to.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Hope for the Best, Prepare for the Worst — Prevent Wildfire Damage

With summer right around the corner, now is a good time to prepare your property for the threat of wildfires. Most fires start small. If you are ready, you may be able to stop a fire from spreading. Be sure you know where the closest fire hydrant is, as well as your garden hoses and hose bibs. If you have a well that produces at least two gallons per minute, consider filling a 2000-gallon storage tank so it’s ready if you need it.

Clear flammable brush 100 feet from your home and trim trees 10 feet off the ground. Make sure tree limbs do not hang over your roof and clear any debris off your roof. If you have aboveground utilities in your neighborhood, keep an eye on electrical lines that go through trees—make sure there’s plenty of clearance. A good tip from the University of California Agriculture and Natural Resources Department is to locate woodpiles and other fuel sources at least 30 feet from all structures and maintain a 10-foot clear area around them.

Unfortunately, even with all this preparation, your home can go up in flames. Just ask the families who returned to find ash where their houses used to be in Lake County in recent years. For insurance purposes, you should create a photo or video log of all your possessions. While tedious, it’ll be time well spent if you need an insurance company to pay a claim.

It’s important to know what your homeowners insurance covers, especially in light of a new clause included in some policies, called the brush warranty. The brush warranty says your insurance company won’t cover your home for wildfire damage if your home is within 100 or 200 feet (depending on policy) of brush vegetation, even if the brush is on someone else’s property. With the Valley Fire in 2015 and the Clayton Fire in 2016, insurance companies are doing their best to reduce the risk of huge payouts. If your policy is up for renewal, be sure to read the whole thing before signing it. As I’ve said before, “The big print giveth and the small print taketh away.”

Most renters hear the term “homeowners insurance” and assume it isn’t for them. They’re wrong. While they may not own the structure they’re living in, they have a home where everything except the structure can be covered by a homeowners policy. Much to some people’s surprise, homeowners insurance can cover everything from fire damage to the mailman slipping on your driveway.

When it comes time to buy insurance, I strongly urge you to go with a local agent who can walk you through the various options. When you buy an online policy, no one explains the details. The “deal” you think you’re getting may include a 200-foot brush warranty, for example. As I said, insurance companies are taking a hard look at rural Northern California. Certain areas in Mendocino County have “brush hazard scores” above 80 (on a 100-point scale). Anyone with property with a score in the mid-80s or higher is going to have a hard time finding affordable insurance.

While homeowners insurance is helpful after a disaster, it’s best to be prepared, because some items cannot be replaced. In addition to food, water, and medications for you and your pets, you’ll need clothing and, depending on the situation, you may need your own shelter for a while. You may also need fuel for your vehicle.

If you have time to pack more than the essentials, I recommend grabbing the irreplaceables: photo albums, family heirlooms and keepsakes, important documents, and if you can, your computer. For more information about disaster preparedness, go to www.ready.gov.  They have a wildfire safety toolkit, as well as many other resources.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

All Properties are Sold “As-Is” Unless You’re Paying Attention – Part II

As I said last week, when you buy a property in California, you’re buying it “as-is” unless you negotiate an agreement pertaining to a specific item. Without that special agreement, you’re accepting the property in its current condition.

This is why it’s worth investing in several inspections. Once you’ve had the inspections pertaining to structures, land, and features (reviewed in last week’s column), it’s time to get the inspections pertaining to ownership, property definition, and natural hazards.

Title insurance takes care of ownership and property definition issues. Without title insurance, you cannot be sure that your claim on the property has priority over someone else’s. With title insurance you’re really paying for the research—which is why I’m including it with other inspections. With most insurance, your premium is based problems happening in the future. With title insurance, you’re paying to see if a problem has already occurred.

In addition, title insurance provides a legal definition of the property, including its shape and location. I know this sounds crazy, but people have actually purchased the wrong property before. I know a contractor who built a house to sell on the lot he thought was his. Sadly, it wasn’t. (Surveys aren’t included with the title insurance, so if you want precise location measurements, talk to your Realtor about hiring a surveyor.)

Long story short, you definitely want title insurance so you can be sure of what you’re buying, and so you don’t buy a property only to discover there are back taxes or recorded liens which weren’t paid; or worse yet, that the deed you were given was not signed by the true owner of the property and therefore worthless to you.

Moving on to natural hazard disclosures (NHDs), the inspection for NHDs includes a review of public records to see whether your property is in a flood zone, on an earthquake fault line, near an old dump site, or any number of other hazards. Depending on the findings and your intended use of the property, you may decide to do an environmental inspection.

A Phase I environmental inspection is a public records search for suspected contamination: did there used to be a gas station at this location? A Phase II environmental inspection is an on-site inspection to see whether any concerns from Phase I appear grounded in fact. A Phase III environmental inspection basically requires the world to come to a screeching halt. You dig big holes to remove toxic material. It’s called “remediation.” It’s not fun, it’s not cheap, and it’s not quick, but hopefully it will make the property usable.

As important as inspections are, they are no replacement for walking the property yourself. And, regardless of what the inspections uncover, the seller and Realtors involved in the transaction must disclose anything they know (or should reasonably be expected to know) about the property.

Any inspection is limited to what can be seen without destructive testing. In other words, if an inspector has to cut a hole in the wall to see a problem, that problem won’t be included in the findings.

Remember, it’s always better to check things before you close escrow, when fixing the problem may be a joint effort of the buyer and seller, rather than afterwards when the responsibility is yours alone.

As an aside, property boundaries are based on surveyors’ monument points. In Mendocino County, we use the Mt. Diablo base meridian to the south and a landmark in Humboldt County to the north. Surveyors have put “pins” in the ground between those two landmarks to precisely identify distances from those landmarks so people can more easily determine boundary lines. This works well unless someone makes a mistake, which they did years ago. A surveyor’s point near Boonville Road has caused many of those properties to be misidentified by about three feet.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

What’s the Difference Between a Comparative Market Analysis and an Appraisal?

Before you buy or sell a house, it’s important to know its market value. As a buyer, you want to pay as little as possible, while still putting in a winning offer. As a seller, you want to maximize the sales price. So how do these two parties ever come to an agreement? Through the use of comparative market analyses (CMAs) and appraisals.

If you’re a seller, you will invariably ask the question, “What’s my house worth?” To which your Realtor should reply, “Let’s look at the CMA I’ve done for your property.” Realtors depend on a database of properties for their market research. The database includes properties of all descriptions that have recently been put up for sale and either sold, remained on the market, or been removed from the market without selling. Your Realtor uses that database to search for properties similar to yours in terms of age, condition, size, style, and location.

In preparing a CMA, your Realtor will review properties that sold, and see how long they were on the market; properties that still haven’t sold, but have remained on the market and may have had price reductions; and properties that never sold and eventually were pulled off the market. Each of these situations provides valuable information about how your property fits into the housing market. The houses that remain on the market are the most interesting to your Realtor, since those are the properties with which your house will compete for the ready, willing, and able buyers. Realtors create CMAs as one of the many services they provide to clients, or even as a way to demonstrate their value to prospective clients. There’s no specific fee for a CMA.

An appraisal, on the other hand, includes similar data but is usually done by a certified or licensed appraiser with hundreds of hours of training and expertise, and most importantly, with no financial stake in the transaction at hand. Lenders depend on this expertise and objectivity to determine the fair market value of a property upon which they make lending decisions. An appraisal is the highest price at which a property is likely to be sold from a willing seller to a willing buyer who both have all the material facts. The cost of an appraisal varies widely from a few hundred dollars to a few thousand dollars (or even tens of thousands of dollars).

Depending on the type of loan and type of property, a lender usually chooses to loan between 50 percent and 100 percent of the appraised value. If you are buying raw land, you can expect closer to 50 percent. If you are buying a commercial property with the first deed of trust, you can expect about 60 percent. If you are buying an owner-occupied, single-family house, you can expect between 75 and 100 percent.

Lenders are not the only ones to use the appraised value. Buyers can use it to negotiate the sales price. In fact, I have a Realtor in my office right now involved in a transaction where the property value is highly subject to opinion. We have sent the seller a letter of intent noting that the buyer is willing to enter into a purchase agreement for whatever the appraised value turns out to be. This particular property will be extremely difficult to appraise and the appraisal will therefore probably cost tens of thousands of dollars. However, with a buyer ready to commit to purchasing the property, the seller may decide the cost of the appraisal is worthwhile.

Neither CMAs nor appraisals are based on exact science. They are both opinions of value, albeit from well-educated sources. Usually, the final sales price falls within 3-5 percent of the appraised value. Now and then a unique property breaks that rule.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

What NOT To Do When Putting Your House on the Market

I’ve written several columns reviewing what to do when you decide to sell your house, but it occurred to me that I might not have shared what NOT to do. Here are four recommendations to help you avoid expensive mistakes.

  1. Don’t Over-improve

As you contemplate putting your house on the market, think carefully before you take on major renovations. Some improvements are cost-effective and will yield a decent return (you’ll be able to increase the sale price to cover your construction costs and hopefully make a profit); others will not. Be mindful of what potential buyers would be willing to pay for if the house belonged to them. Let that guide your decisions about which improvements to undertake. You should complete needed repairs—if something’s broken, fix it. Go ahead and take care of deferred maintenance—if you need a new roof, now’s a good time. Definitely address pest and/or fungus problems—if you don’t take care of the termites, the new owner will have to.

A mistake I sometimes see occurs when a seller renovates to the point where his or her house no longer fits with its surroundings. In a neighborhood of 2000 square foot homes, don’t add 1500 square feet to make yours a 3500 square foot monstrosity. People looking for big homes want to live in neighborhoods where everyone has big homes. Would your house be as valuable if it were moved to an inner city neighborhood full of housing projects? Nope. While that’s a more dramatic example, the same principle applies to overbuilding in a middle class neighborhood.

Another mistake I see is the choice to convert a garage into a family room. Most Realtors will tell you, the increased value from the additional square footage in the new family room is almost exactly offset by the loss of the garage. It’s a wash. And when you add in the cost of the renovation, it’s a loser.

  1. Don’t Over-decorate

Décor is a personal thing, and it’s highly unlikely that you and the future owner of your property will agree on every style choice. (Most of us can’t even agree with our spouses on paint color.) So when it comes to the décor of a house you plan to sell, neutrals are best. While you may love your daughter’s pink walls and the green shag carpet that looks like the grassy meadow from a storybook, the prospective buyer with three sons is unlikely to be thrilled with these choices. Less is more. If you want to add a splash of color, buy fresh flowers and put them in vases around the house.

 

  1. Don’t Hang Around

Whether your Realtor is hosting an open house or bringing an interested buyer for a tour, your job is to be somewhere else (and take Fido with you). I know it’s tempting to stick around and answer questions about your house and the neighborhood. After all, who knows this information better than you? But trust me, you should leave and let your Realtor do their job. Buyers rarely feel comfortable expressing concerns about the house with the owner present. Instead, they will keep quiet and simply move on to the next house.

 

  1. Don’t Take Things Personally

When your Realtor relays questions from potential buyers, try to keep your emotions in check. When buyers ask for a credit so they can redecorate the princess room you spent years perfecting, try not to be offended. When they come in at a price that seems ridiculously low, recognize that they are simply doing their job: trying to get the lowest price possible. You have three potential responses to an offer: accept it, counter it, or reject it. An outright rejection is foolish. Counter the parts of the offer you don’t like and see where it goes from there.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Prepayment Penalties – The Double Whammy

You may have heard you can save a bundle of money by paying off your mortgage early. Have you ever asked yourself, “If I’m saving money, who is losing money?” Well, the answer is: your lender. Sometimes, especially with big commercial properties, lenders protect themselves against early payoffs by including pre-payment penalty clauses in their loan agreements.

Many lenders insist on pre-payment penalties to ensure their continued yield over a period of time. This allows them to cover their expenses, since their up-front fees to arrange the loan do not always cover the cost of doing the work. I’m sure you’ve seen the ads promising, “Refinance with us and we’ll pick up all the costs!” In some cases, that means lenders not only pay the title and escrow fees (and related transaction costs), they also pay the loan origination fees, which can add up to 1-2 percent or more of the loan amount.

If that loan is paid off in the first year (instead of over the course of 15 years), the lender will have suffered a significant loss. A friend of mine who does private party, owner occupied loans argues vehemently that his cost to put one new loan on the books is about $7500; and that doesn’t include the escrow costs, title insurance, or the drawing and recording of documents. In those situations, he’s not allowed to charge a pre-payment penalty. Consequently, he either charges an up-front fee to cover his costs or he assesses the situation carefully so he can be confident the loan will stay on the books long enough for him to recoup his costs.

Pre-payment penalties can take many forms. Typically, they are calculated based on some time frame for which the buyer is required to pay interest. If the loan is paid down or paid off early, the lender charges the penalties. In many cases, the lender will only accept a full pay off the loan if the payment includes the remaining principal plus 4-6 months’ worth of interest.

Most lenders hide pre-payment penalty details in plain sight. All pre-payment penalties must be clearly outlined in the loan agreement, but reading through the verbiage and understanding it might require a law degree and a finance background, especially if you want to negotiate on this point.

Although I said “plain sight,” many of the people who read the pre-payment penalty clause don’t know what they’re looking for. It may be referred to as a “yield maintenance provision” or similar title. And like I said, even if you know you should be paying attention, this stuff is dry; I call it bedtime reading (that is, if you’re trying to fall asleep).

The short story of yield maintenance provisions is this: the lender wants to be sure their investment is protected and their long-term yields will be realized. So if your 30-year loan was written at 8 percent ten years ago and you want to refinance it today at 5 percent, the lender will require a penalty of 3 percent of the loan amount times 20 years. Most of us will never experience a yield maintenance provision pre-payment penalty as they are fairly exclusive to very large commercial loans. However, this is the prime example of why it is so important to READ YOUR LOAN DOCUMENTS.

Pre-payment penalties are a negotiable item and many times a lender will be willing to forego (or reduce) a pre-payment penalty in return for a higher interest rate, a lower loan-to-value ratio, or a higher up-front fee. But if you don’t read your loan documents, you won’t know about the penalties. If you don’t know about the penalties, you won’t know you need to negotiate.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Getting Ready for a Successful Open House

 Every weekend, Realtors hold open houses so prospective buyers can walk through properties and imagine themselves in a new space. Some open houses are more successful than others, because the sellers plan ahead. If you’d like to get the most out of your open house, consider these recommendations.

4 WEEKS BEFORE

Several weeks before your open house, make plans for all family members, including pets, to be away during the open house. If you have young children, ask the grandparents to take the kids that day. If you have dogs, call a kennel—or friends with a fenced yard—so the dogs can remain offsite while visitors check out your property.

This is also a good time to schedule repairs and carpet cleaning. Although the sagging gutters, loose railings, leaky faucets, and minor pet odors may not bother you; they can certainly bother others.

3 WEEKS BEFORE

With three weeks to go, de-clutter your house. Create clean surfaces and remove half of whatever is in your drawers and closets. When drawers and closets are full (or overfull), people assume the house doesn’t have enough storage. Take your clutter offsite: do not put it your garage. People who visit your open house will look in every available space.

In anticipation of visitors, consider buying fluffy white towels for the bathrooms and a new welcome mat for your front door. You should also purchase a box for each bathroom big enough for shampoo, soap, razors, toothpaste, and other personal bathroom items you’ll want to remove the day of the open house. The only thing on the bathroom counters that day should be a new decorative soap and some fresh flowers.

2 WEEKS BEFORE

With only two weeks left before your open house, it’s time for a deep clean. Remove dead bugs from light fixtures, clean the fingerprints off the sliding glass door, clean the doorknobs and light switches—and the dirt around them; and if you’re up for it, power-wash your house, deck, and driveway. If you’ve never used a power washer, find someone who has. This is not a good time to blow holes in your driveway, and believe me, it happens.

1 WEEK BEFORE

A week before the open house, clean the inside of appliances like your oven and refrigerator, declutter your pantry, and put out the new doormat so it isn’t so obviously new for the open house visitors.

THE WEEK OF

The week of the open house is the time to attend to final details. Purchase fresh apples or lemons to place in a pretty bowl in the kitchen. Clean the windows. Mow the lawn a few days before the open house, so the allergens settle down before visitors come. Make sure you have vanilla extract in the pantry. If you have a fireplace, make sure you have fresh logs.

THE DAY OF

First thing in the morning, take your children to their grandparents’ house and your dogs to the kennel. Put yard clutter away, including toys, hoses, and Fido’s water bowl. Walk around the house and collect any valuables, and put them in the trunk of your car or in a locked safe. (It is really rare, but occasionally people who attend open houses steal.) Put personal bathroom items in the boxes you’ve prepared, and put those boxes under the sink. Stow all kitchen appliances away so countertops are clear (which allows people to imagine their own appliances there). Put fresh logs in the fireplace. Prepare a fresh pot of coffee.

RIGHT BEFORE YOU LEAVE (AND YOU SHOULD DEFINITELY LEAVE)

Open all the blinds. Turn on all the lights and put a drop of vanilla extract on a light bulb in each room. If it’s cold and you have a fireplace, light a fire.

Then leave and allow your Realtor to do what they do best.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

California Laws That Took Effect in January

As awareness increases about building safety, environmental concerns, and equality for people with disabilities, construction regulations evolve. Initially, new rules only apply to new construction or major renovations, but eventually existing structures must come up to code. Such is the case with water-conserving plumbing. As of January 1, 2017, we must all have replaced high flow with low flow.

In 1994, new dwellings were required to use low-flow toilets and interior faucets. In 2014, retrofits and renovations to kitchens and bathrooms in existing homes were expected to use the new appliances and fixtures. And now, legislators have decided to spread the love to everyone in single-family homes. In 2019, multi-family dwellings (i.e., apartments and duplexes) and commercial structures will be required to retrofit toilets and interior faucets, too.

If you can find a plumber to certify that it is impossible for you to upgrade to the water-saving devices because of the way your house is built, then you can forego the expense. Good luck with this. Otherwise, you’re in it with the rest of us.

Of course, I don’t expect everyone to run out and purchase new toilets and faucets right this minute, but if you plan to sell your house in 2017, you’ll have to disclose the fact that you haven’t upgraded. If you don’t, and the buyer relies on the non-disclosure but later discovers you violated the ordinance, you may be required to pay for the retrofits down the road.

What are the retrofits, exactly? You must replace any toilets with a flush volume of greater than 1.6 gallons, showerheads that emit more than 2.5 gallons per minute, and interior faucets that run more than 2.2 gallons per minute. As silly as it sounds, I don’t see any exclusions for bathtub faucets, so it appears you must replace those faucets, too—even though doing so makes no sense.

While we’re on the subject of retrofits, here’s a government mandate that does make sense: smoke and carbon monoxide alarms in all dwellings. While alarms have been required for some time, recent changes to the law require smoke and carbon monoxide alarms to be present in every bedroom as well as hallways. In multi-story dwellings, alarms must be present on every floor. “Dwellings” are basically anywhere you’d sleep: single-family homes, apartments, duplexes, time-shares, dorms, hotels, etc. Mendocino County augments State requirements for smoke and carbon monoxide alarms, so be sure to ask your Realtor for the details if you plan to buy or sell a house and you want to know whether the property complies with local ordinances.

Here’s a fun fact about smoke and carbon monoxide alarms: you are safe in California unless you are in a dwelling owned or leased by the State or by local government agencies. Yes, that’s correct—our legislators have once again exempted themselves from requirements they impose on the rest of us. Ugh. I’ll get off my soapbox now.

If you want to know whether a property complies with existing laws, consider having a home inspection. With construction standards continually changing, it can be hard to keep up, whether it’s insulation, dual pane windows, fire sprinklers, ADA-compliant door knobs or other details. It’ll cost you about $500 and there are half a dozen inspectors in Ukiah to choose from. Ask your Realtor for a list.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Can I Get My Deposit Back?

 

When buyers and sellers sign a purchase agreement to transfer a piece of property, they typically do so in good faith. But what happens when buyers get cold feet? What happens if there’s a misunderstanding and the parties cannot come to an agreement?

Before I continue, here’s my disclaimer: I’m about to cover a topic that requires far more than 700 words. I’m going to talk about things like liquidated damages, mediation, and arbitration. If you need to embark on any of these, please ask your Realtor for a copy of the California Association of Realtors Q&A on these subjects. After you’ve read it, if you have questions, consider scheduling an appointment with your attorney.

With that said, let us proceed.

Liquidated Damages

In California, courts don’t like it when buyers and sellers negotiate a non-refundable deposit. Realistically, they won’t enforce such an agreement, so when a buyer makes a deposit on the purchase of a house and backs out for no reason, the sellers are likely to be forced to return the deposit unless they can specifically prove how they were damaged—a time consuming and expensive process.

What the courts will enforce is a liquidated damages clause in your purchase agreement. This clause basically says, “Because it would be difficult to determine the damages if the buyers cancel this transaction without due cause, both parties agree that a good approximation of the damages is equal to the amount of the deposit (up to a maximum of 3 percent of the purchase price on residential properties).”

If a buyer withdraws based on contingencies outlined in the offer (e.g., the loan falls through, inspections find unexpected problems, or his house doesn’t sell), he gets the full deposit back. That’s the whole point of contingencies. If, however, he withdraws his offer for reasons not outlined in the purchase agreement or he has already removed the contingencies, he would not be entitled to the liquidated damages portion of the deposit.

Before you agree to a liquidated damages clause in your purchase agreement, consider it carefully. It also limits the money a seller can get back if a buyer walks away from the agreement. Discuss it with your Realtor. Review the California Association of Realtors Q&A. Talk to an attorney. A liquidated damages clause may be an excellent idea, or it could be an expensive mistake.

Mediation

Just because a buyer doesn’t back out of a purchase agreement doesn’t mean the buyer and seller will become best friends. Once an escrow closes, the buyer and seller can find themselves at odds with one another. If the disagreement is significant enough to warrant the cost, I strongly recommend pursuing mediation, a process whereby a professional mediator listens to both sides and tries to help the parties come to an agreement to settle the dispute. It typically leads to a far easier, cheaper, faster, and better outcome. The standard California Association of Realtors property purchase agreement requires mediation before court action, so if after signing the contract you refuse mediation, you will be forced to forego attorney’s fees you may have otherwise been entitled to.

If mediation doesn’t work, another option is arbitration.

Arbitration

You will find many real estate and legal professionals reluctant to recommend arbitration. It is usually cheaper and faster than going to court, but has different legal rules than court action. Typically, the results of arbitration are legally binding on both parties, not subject to court appeals—even if legal mistakes are made during arbitration. However, a process that could take years to resolve in court could be resolved in months or even weeks in arbitration. Before you sign an arbitration clause, be careful because the consequences are significant.

Be aware, there are exceptions to the rules regarding liquidated damages, mediation and arbitration. Please read the California Association of Realtors Q&A for details.

If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Just When You Least Expect It, Mendocino County Goes Business-Friendly

 

Once we make up our minds, many of us are slow to change them. I am certainly included in this, but I have to tell you, it’s time to correct some outdated ideas about our county.

During the last 25 years, many developers in Mendocino County have left town with a sour taste in their mouth. But starting with the populous of our community, working its way through elected officials, management staff, and the front line customer service people, Mendocino County has joined the small percentage of government entities who can honestly say they are business-friendly and interested in encouraging job growth.

This is NOT to say they’ve tossed out the rule book. They are not granting special favors or making bad decisions. What it does mean is this: if you have a development or business project that meets local standards for zoning and fits within established environmental constraints, this county is willing to work diligently to create an atmosphere of success for your project.

Going back three or four years, when local business man Ross Liberty bought the old Masonite property to relocate his manufacturing facility, the county staff and elected officials were not just helpful, but according to Liberty, their encouragement for him to complete the project bordered on harassment.

In fairness, Liberty was in the process of buying what many would have referred to as a sow’s ear—and the county was eager for Liberty to transform it. Now, that property is more like a silk purse. After that initial purchase, Liberty decided to buy most of the rest of the old Masonite property, and the county has continued to be wonderfully supportive. Since Liberty has been through this before, he has relationships with the people who oversee development projects in the county, so you might think that’s why things are going so smoothly.

Sure, it helps to know people, but I just spoke with the project manager at In-N-Out Burger. He didn’t know a soul in Mendocino County before this project, and he described his interactions with people at all levels of the county with words like “professional, helpful, realistic, and accommodating.” To me, this means our community has turned a corner. We now understand that for our children to have an opportunity to live and thrive in their hometown, we need jobs. To get jobs, we need industry. And for industry, we need some level of development.

None of us is willing to sacrifice our way of life for the sake of development, but I believe we have reached a sustainable long-term balance. Our next challenge is to facilitate the development of affordable housing for our children to be able to remain in the area. Be aware, when I use the term “affordable housing,” I mean it in the economic sense, not the political sense. We need market-priced housing that people can afford on salaries generated by businesses in Ukiah.

If we can bring those two things together, and I believe we can, Ukiah will once again be one of the best communities in which to live and work in our nation. Now if we can just get the City of Ukiah and the Sanitation district to come to resolve their disagreement, we can all move forward ….

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.