New Year, New Laws

With the housing market taking center stage among the nation's concerns, both Congress and California's State Legislature have enacted significant new laws affecting real estate agents and real estate transactions. Topics of the new laws are below. Highlights of the new laws are summarized here. To view the full text of a California legislative bill, go to http://www.leginfo.ca.gov/.

Late 2008 Laws:

Debt Relief Income Exempt from State Income Tax
Started September 25, 2008

Tenant Victimized by Domestic Violence Can Terminate Tenancy
Started September 27, 2008

Emergency Economic Stabilization Act May Help Homeowners
Enacted on October 3, 2008

Pool Drains Must Be Properly Covered
Starting December 19, 2008

2009 Laws:

DRE Can Discipline Licensee for Inflating BPOs
Beginning on January 1, 2009

DRE Can Suspend Licensee for Acting Against Public Interest or Committing an Offense Involving Dishonesty
Commencing January 1, 2009

Duty to Disclose Agent is Arranging Financing
Starting January 1, 2009

Landlords and REO Lenders Must Take Charge of Abandoned Animals
Effective January 1, 2009

Title Company's Promotional Items and Marketing Reps Regulated
Effective January 1, 2009

No Text Messaging While Driving
Commencing January 1, 2009

Right To Farm Disclosure
Effective January 1st, 2009

DRE License Number Must Be on First-Contact Materials
Effective July 1, 2009

Holiday Message

Understanding CA. Prop 8

Decline-in-Value Reassessment

Proposition 8, passed in November 1978, amended Proposition 13** to recognize declines in value for property tax purposes. As a result, Revenue & Taxation Code Section 51 requires the Assessor to annually enroll either a property’s Proposition 13 base year value factored for inflation, or its market value as of January 1st, whichever is less.

Decline in market value, Prop 8 assessments, are TEMPORARY reductions that recognize the fact that the current market value as of the January 1 lien date of a property has fallen below its current Prop 13 factored value. Once a Prop 8 reduced value has been enrolled, that property’s value must be reviewed each year as of January 1, to determine whether it's current market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value. In no case may a value higher than a property’s Prop 13 factored value be enrolled.

Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.

The Process is as follows:

Property owner provides Assessor with facts they feel justify a reduction in value and requests a review of the property’s value. (The Assessor may initiate the review if the problem is discovered independently*.)

Appraisal staff reviews market data, estimates the property’s market value as of January 1 and then compares this market value to the property’s current Prop 13 factored base year value.

If the January 1 market value is below factored Prop 13 value, then:

• Assessed value is lowered to market value for next fiscal year



• Owner is notified of reduced value



• New tax bill is based on lower value for next fiscal year



• The following year, Assessor repeats process and enrolls the January 1 market value at that time or Prop 13 factored value, whichever is lower
  

If January 1 market value is higher than factored Prop 13 value, then:

• No change in assessed value is made, and



• Owner is notified that value will not be reduced



• If owner still feels value should be reduced, then owner may file an assessment appeal with the Assessment Appeals Board, July 2 - Nov 30 every year
  


• Appeals Board hears evidence from the property owner and Assessor; the Board then determines proper assessed value

*The Assessor may also initiate the Prop 8 process without a request from an owner.

The office constantly monitors market conditions and, when practical, lowers assessed values on a mass basis. Owners are notified and may file an Assessment Appeal if they feel the value was not lowered sufficiently. Read more about the Assessment Appeals process and deadlines.

Although the market values of all properties may suffer a significant decline during a recession, not all will qualify for a Prop 8 reduction. The current market value must fall below the prop 13 factored base year value (assessed value) before the Assessor can recognize the decline. Following are examples of how the Assessor processes declines in value.
Examples of Assessments Involving Properties Declining in Value:

Example 1
Home purchased January 2005, for $400,000 and assessed with $400,000 base year value.
On January 1, 2006, factored base year (assessed) value is $408,000 ($400,000 +2% inflation) but market value has declined to $300,000.

Action:
Assessor reduces assessed value to $300,000 for 2006-2007 assessment roll.
On January 1, 2007, the home’s value continues to decline and is now $280,000, while its factored base year value has risen to $416,160 ($400,000 + 2% inflation compounded for 2 years.)

Action:
Assessor reduces assessed value to $280,000 for 2007-2008 assessment roll.
On January 1, 2008, the homes market value increases to $350,000 while its’ factored base year value rises to $424,483 ($400,000 + 2% inflation compounded for 3 years.)

Action:
Assessor raises assessed value to $350,000 for 2008-2009 assessment roll.
On January 1, 2009, the home’s market value increases to $450,000 while its’ factored base year value rises to $432,972 ($400,000 +2% inflation compounded for 4 years.)

Action:
Assessor reinstates factored base year value of $432,972 for the 2009-10 assessment roll.

Example 2
Home is purchased in 1986 for $130,000.

On January 1, 2005, the current market value of the home has risen to $300,000 well above its’ Prop 13 factored base year value of $185,713 ($130,000 + 2% inflation compounded for 19 years.)

For January 1, 2006, the market value falls to $200,000. This is still above the Prop13 factored base year value of $189,427 ($130,000 + 2% inflation compounded for 20 years.)
No Prop 8 reduction is granted for the 2006-2007 assessment year, even though the property has lost $100,000 in value over the last year. The factored base year value ($189,427) is still less than the market value ($200,000.)

It is important to understand that Prop 8 reductions are not permanent and may decrease or increase more than 2% from year to year. Also, Prop 13 base year values suspended by Prop 8 values continue to increase by an annual inflation factor of no more than 2% per year.

If you have any questions about the Decline in Value Prop 8 process, you may direct them to your County Assessor's Office.

Information deemed reliable but not guaranteed. Consult your legal or real estate professional with questions pertaining to your specific situation.

** Proposition 13:
Proposition 13 was a 1978 amendment of the California Constitution (Article XIIIA), aimed at controlling housing price increases. It limited the assessed value of existing homes to 1975-1976 values, limited tax rates to one percent of assessed value (plus any voter-approved surcharges), and limited inflation-based increases to two percent annually. Proposition 13 value is the full market value, adjusted according to these limits. Thus, the factored base year value of the original residence is the original base year value, adjusted by the annual inflation factor for each taxable year under the current ownership.

Article #24 6/9/08
Provided by Jackie DiSalvo
Financial Title
Account Manager
(408) 687-7553
jdisalvo@financialtitle.com

Music To Our Ears

The words every real estate agent wants to hear:

The Housing Crisis is over.

These words were printed on May 6, 2008, in the Wall Street Journal. Music to the ears of Team Patereau, I can tell you.

The main points for Team Patereau included:

• The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
• ...So what's going to stop the housing decline? Very simply, the same thing that caused the bust.
• The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
• Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Read the full article!

5 NEW Rules for Home Buyers

A recent article written by Amanda Gengler, Money Magazine, is circulating. The gist of it is that there are NEW rules for home buyers. Here's what she has to say:

There's no telling how long the housing crisis will drag on. Here's what you need to know before you start shopping in a rocky market.

Rule 1: You can't time the bottom of the market
Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low. Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller's asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you're trading up, your home could sit. So sell before you buy.

Rule 2: One reason to buy now - mortgage rates
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don't directly follow the Fed. They reflect the bond market's expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody's Economy.com. That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.

Rule 3: Another reason to buy - rates on big mortgages
Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates. Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far "jumbo conforming" loans average 6.6%. The program has gotten off to a slow start; you'll need to shop around. And unless Congress acts, this bargain will disappear at year-end.

Rule 4: Don't buy cheap; buy good schools
By now you've heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you're also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn't afford. That's not a recipe for stability. Prices and quality of life could both decline further. Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.

Rule 5: Choose an agent that has your best interest at heart
Do you understand dual agency? Basically, it means that the listing agent's primary fiduciary (monetary) responsibility is to the seller. Make sure you and your agent are clear about expectations communication, pre-qualifying for financing, showing property, writing offers, and overall assistance through the process. Does he/she focus on your priorities? A good
buyer's agent will save you time, money and peace of mind.

Team Patereau is ready to guide you through your buying tansaction in these volatile times. Give us a call!

5 THINGS EVERY HOME BUYER SHOULD KNOW

Most buyers know the basics of a real estate transaction; the information directly affecting their situation such as mortgage payments, closing costs, commission and so on. Most feel confident in their choice of houses and may have put some time into researching the area and schools, but there are a few things that catch many people off guard. These details often appear at the last minute and the buyer is aware then details usually cannot be changed and the results can often cause delays and or loss of funds. Here's 5 of them:

1. Your Initial Deposit: When you made an offer to purchase, this included a good faith deposit. This deposit is also called "earnest money." This deposit is held in escrow until the close and is credited to the buyers closing costs. But, if escrow gets cancelled what happens to the deposit? Most people are unclear about the disposition of their deposit; sellers assume the deposit is automatically theirs if the buyer cancels but this may not be the case. It's best to find out how this process works and what is needed in order for the buyer to recoup their deposit or what details constitute the forfeiture of the buyers’ deposit. This is often spelled out in the initial offer, so ask Team Patereau to explain the process.



2. Taxes: Most people are aware of their tax rate, but have never calculated what the actual yearly amount will be. Something else to consider, if you purchase a new home from a builder you're going to receive a supplemental bill shortly after the close of escrow. This supplemental bill will be equivalent to one year's worth of property tax. This is a shock to many people, since most people never know its coming. Another little detail that often slips through the cracks are assessments. Newer communities likely have assessments in addition to your basic property tax rate. Many people don't know that often assessments can change and be added yearly, which equates to higher property taxes every year.



3. Homeowners Association: When considering a home within a homeowner's association, it's always prudent to thoroughly read all the Covenants, Conditions and Restrictions (CC&R). Yes, this is often a huge document, but it's given to you before you close escrow for a reason; these CC&Rs directly affect you. If you don't know and understand all the rules, this can lead to a less than ideal situation if you unwittingly break a few. Little things like permission to paint your garage door or installation of a backyard patio can lead to huge problems including legal action. Know the rules!



4. Home Warranty: Understanding how your home warranty works will save you a tremendous amount of frustration and hassle. Research before you close escrow, find a plan you understand and feel comfortable with, then request any extra coverage you think you need. Most home warranty companies offer basic coverage for appliances and air conditioning but, did you know they also offer coverage, for an additional fee, for such items as roof, well, and septic tanks?



5. Homeowner's Insurance: Of course everyone knows they need homeowner's insurance before closing escrow. Unfortunately most people wait till the last minute, run into snags, and then closing is delayed. If you approach this task as soon as you enter escrow this allows time to compare rates and if a snag does arise you have time to handle it, avoiding a hasty decision. If the previous homeowner has had a recent claim this can affect you the new purchaser. Better to know this early rather than the last minute.
   
   

Ask your Team Patereau to help you understand the details that are a part of every real estate transaction and you'll enjoy smooth sailing every step of the way!

Spend, Spend, Spend...

Homeowners, new and old, will soon be receiving their “Economic Stimulus” checks in the mail. What are you going to do with yours? Here’s a few suggestions:

Save it. If you don't have that three to six months-worth-of-income emergency savings fund, now's a good time to begin. Stuff happens around the home when you least expect it. And you'll need some pocket money for incidentals during your home purchase. Look for a savings account that offers the best return. Online bankers generally offer the best interest rates, but shop around for other liquid savings, checking or investment accounts you can start up for the amount of your rebate.

Rent a safe deposit box. After you buy a home, you'll need somewhere to securely stash all those important documents including your mortgage note, title and escrow papers, insurance policies, home improvement contracts, tax returns and estate documents. In many cases, the rebate will give you enough cash to rent a safe deposit box for decades. The boxes cost from $10 to $100 a year, plus a key deposit. If you sock the cash in an interest-bearing account and let the bank automatically withdraw the fee each year -- or do it yourself manually -- you'll earn a small return in the process.

Buy enough homeowners insurance. For small homes, condos and townhomes the largest rebates available will cover many policies for a year. That doesn't mean only buy what your rebate can afford. Make sure you buy enough replacement value coverage. If you work at home, use the rebate to buy extra business coverage as well as special liability coverage for your business.

Complete deferred "green" maintenance. Caulk the windows and doors. Add insulation. Have your furnace or HVAC (heating-ventilation-air conditioning) system inspected and cleaned. Swap out incandescent bulbs for CFLs (compact fluorescent lamps) and otherwise make your home more energy efficient and you'll get your money back from savings on utility costs.

Splurge, but shop around. The real purpose of the tax rebate is to get you to spend money on stuff in the retail sector that will help kick-start the economy. If, after buying a home, you have you financial basics covered, shop around for the best deals at the lowest cost on goods and services for your home. For example, for around $1,000 Consumer Reports found Panasonic, Samsung and Sony offering the best 32 inch LCD TVs and LG, Samsung and Hitachi offering the best 42 inch plasma models. The key is to get the most "stuff" for your money.

If you’re like us, you’ll probably end up putting it in your gas tank!

Tax Day

Today, April 15th, is tax filing day. (In case you needed me to remind you!)

You're not thinking about buying or selling a house today. Neither are we.

We're thinking about taxes.

Here's the link you will need.

We've been there already.

Let's talk later...

Headlines

Team Patereau looks to the online version of Realty Times for the most current real estate news. Today’s postings included an item on Silicon Valley:

Wild, Wild West: Hard to Keep Silicon Valley Down

Realty Times has a video version, as well as the old fashioned text version. Check it out – or let Team Patereau do it for you. We’ll keep you up to date.

Someone Else's Opinion

Here’s a letter I wish I had written:

Dear Editor:

As a Realtor, I am not in favor of bailing out lenders who issued subprime loans, 100 percent no-qualifying loans or loans with "teaser" adjustable-rate mortgages during the boom time. What happened to the billions of dollars they profited from by making such risky loans? I'll tell you what happened: They paid themselves insane amount of bonuses and raped any cushion the company could have kept for the time when their loans began falling into foreclosure. They had to know the risks, calculate the cost and charge up front for subprime loans. Then they went and spent their profits.

I run a business. When times are good I sock away profits knowing times will change and I will have to reach into savings or a "rainy day fund" to keep my business going. Uncle Sam, a.k.a. "We the People," does not bail me out when my business needs more money due to my poor management. We should in no way bail out the lenders and their investor portfolio managers for greed and poor management skills.

Nor should we bail out greedy home investors who swept into communities overbidding for homes and artificially ballooning prices. Many then took out equity lines of credit with their newfound equity to purchase more homes. Or worse still, became involved in loan fraud, inflating the prices of homes with cash back to "third parties" at close of escrow for "property improvements" that never happened. Let the chips fall where they may -- grownups buy houses, not children. We all learn valuable lessons when the consequences are painful. If they are not painful we, like children, will repeat the behavior again.

Susan Ramsey
Glendale, Ariz.