Estimates of Fair Market Value Versus Cap Rates and Gross Multipliers

Often you may hear the terms estimate of fair market values, cap rates or capitalization rate and gross multipliers in relationship to real estate.  What exactly do these terms relate to or mean? 

Estimates of fair market value or comparable market analysis are primarily used for residential properties and sometimes up to four unit buildings. Cap rates and gross multipliers are usually used on residential income properties and commercial property. 

There are formal and informal appraisals and estimates of value.  Formal appraising consists of estimating value by the collection and analysis of data.  A formal appraisal analyzes factual material and reduces it to written report form so that a disinterested third party can easily review the appraisal and understand how the conclusion was reached.  Usually, only licensed professional appraisers compile formal appraisals for the lenders, courts, estates, etc.

The informal appraisal is where the conclusion is reached by using intuition, past experience and general knowledge.  Often Realtors look at many properties for business purposes, for one reason or another on any given day.  A Realtor estimates the value of residential homes in the neighborhood they work in on a daily basis.  By visually inspecting a property and doing a comparable analysis an “estimate of fair market value” can be arrived at.  A good Realtor is so used to doing this that they can roughly figure out value using these methods in their heads without using pencil and paper.  If a Realtor needs to put the information in writing for a client, they can return to their office, and prepare an informal appraisal or estimate of market value. This is why it is important to work with a local expert.

There has to be a practical way to quickly look at a property or several properties and be able to do a prompt calculation in your head.  Realtors often need an expeditious way to evaluate a piece of property in their day to day business.  

Realtors rely on capitalization rates and gross multipliers as a steady constant to arrive at value for residential income property and commercial property. The gross multiplier is arrived at by taking the monthly, or usually yearly, income a property produces and dividing the price by the rental income.  This gives an economic characteristic of the property from its income.  The cap rate is the process of converting the net income of a property into its equivalent capital value.  The capitalization rate is defined as a rate of return, or percent, used to convert income into its value equivalent, a return on your dollar invested.  Both of these methods are primarily used to establish value of income or rental property and commercial properties.  

Sometimes the meaning or “weight given” to evaluations and estimations of property can vary depending on what the intended use is.  Lenders can look at property from one perspective, courts another and we all know that buyers and sellers see the same property differently.  With investment or rental properties using “cap rates” and “gross multipliers” can help make the evaluation process more uniformed, less subjective.    

These rates and figures are not set in stone.  As market conditions change, gross multipliers and cap rates change in their significance. 

Always remember, the condition of the property and the location of the property play a huge impact on any evaluation.  Local knowledge and experience of market conditions is critical.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Which Realtor Is Right For Me?

We are often asked “Does it make any difference which real estate company  we use?”  Our response is “not really”.  What does make a difference is the individual real estate professional you decide to work with. As in any field, there are some real estate agents who rise to the top of their profession, while the majority do not. 

Successful real estate professionals not only have have education and  experience, they have a genuine love for their business.  They are known and respected by their peers.  The real estate profession is not just a job for them, it is their passion.  

Some agents will lead you to believe that there are advantages to working with a large franchise real estate brokerage company, when today  there is nothing further from the truth.  Real estate salespeople who work for some of the larger companies are often very restricted in what they are able to do for you.  These companies are often referred to as having a cookie cutter approach to the real estate business. 

Sophisticated Realtors that have years of experience and knowledge of the business are often able to fulfill special needs for their clients.  For example,  they can  locate or provide short term financing to help facilitate a transaction, they have intimate knowledge of exchange regulations and  possibilities, or they can creatively structure transactions to meet special tax or estate planning situations.   

Today you do not need a company that touts their size.  All that this means is that they may have a lot of offices and a lot of agents.  Some of their agents are good, hardworking professionals, but many are not.  With the internet all salespeople are able to expose your property on the “world wide web’.  It doesn’t matter how large or small the real estate office is.  

Any good agent with access to the internet can expose your property to the world. This will result in more people knowing about your property and its availability. The  best chance you have of obtaining top dollar for your property will be as a result of working with an experienced professional who is skilled in marketing and negotiating on your behalf. 

There are various measures of success in the real estate business.  Finding the right agent to work with is imperative.  You need an agent that your feel comfortable with and be able to really talk and share your feelings without reservation.

How long has your agent been in the real estate business?  How long has your Realtor been working in your area? Is your Realtor proactive?  Does your Realtor return your phone calls and emails quickly?  Does your Realtor keep in constant contact with you?  A good agent gives constant valuable advice and guidance based on experience, knowledge, and a proven track record. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Fear and Real Estate Investing

Fear can be a great motivator.  Fear of having little control over your financial future can drive you to succeed. Over all the years of being in the real estate business we have guided many people through the fears of real estate investing. Fear can show up in many different areas of an investor’s thinking and, if you allow it to become pervasive, it can become paralyzing.

Fear of virtually anything in life usually arises from feeling a lack control.  One reason for never investing in real estate is a lack of understanding of the concepts involved in real estate investing.

Many fears are reasonable and often justified.  Successful investors must attempt to understand and identify the source of their fears. What if the value of real estate goes down or rent prices dip?  What if the water heater goes out or the tenants ruin the carpets?  What if I cannot rent the property and I have to make the payment?  The list of possible fears is almost endless.

We all worry at times, but once the source of our fears is recognized we must make decisive and constructive plans to overcome them. Those who never take action will never acquire the almost unlimited wealth and financial freedom that real estate investing has to offer.

What truly successful real estate investors understand is that no matter how much knowledge you have or how carefully you have researched an investment property, problems or mistakes can and do occur;  however,  not nearly as often as you might think. Terrace has been in the business of owning and renting properties for over 50years.  We’ve experienced almost everything that can go wrong and share that experience with our clients. The key is to minimize, not avoid, your mistakes by learning from the mistakes and successes of others.

Surround yourself with motivated, informed, and successful people. With knowledge comes confidence, and with confidence comes successful investing. Understanding that real estate has cycles, and though you cannot always accurately time the market you can prepare for it. Work out your strategies and work toward your goal of property ownership one step at a time.

Always plan a “back door” or exit strategy if you encounter obstacles. Be willing to make mistakes. Successful investors always have a plan for things not going perfectly.

Gaining confidence, knowledge, and motivation to move forward is the key to successful real estate investing.  

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Which Loan is the Best for You?

Many potential home buyers are priced out of the housing market, either because they lack the required down payment or because they cannot afford the monthly payments.  When a home buyer goes to a lender to get qualified for a new home loan one of the critical factors the lender looks at is today’s income. The amount of the monthly payments a family can afford depends on the income, or dual income, earned per month. Usually borrowers will occupy the home well into the future, when their income is likely to be much higher, but it is just today’s income that is considered.

Lenders set their mortgage interest rates based on their cost of the funds plus a margin for their profit.  This margin reflects the lender’s estimate of the future rate of inflation.  Traditionally lenders have offered fixed rate mortgages to borrowers that provide for a monthly payment that is constant for the life of the loan (typically thirty years). 

In the 1970’s more and more families were being priced out of the market so lenders sought a way to make it easier for more families to qualify for loans.  Lenders were not being humanitarians; they stay in business by making loans.  When the price of a product or service is too expensive for potential customers to buy, you either have to make the product more affordable or suffer financially; perhaps even go out of business. In the late 1970’s lenders came up with the idea of the variable interest rate loan and the adjustable interest rate loan.

These loans are basically the same in theory, but have minor variations.  The initial interest rate is ordinarily below the going rate of a traditional fixed rate mortgage.  The biggest benefit to the adjustable rate mortgage is that because the initial rate is lower, the monthly payments are lower.  When a lender is qualifying a buyer for a loan the ratio of the monthly income to the monthly payment is improved.  This was good for the banks because they could make more loans.  It was also good for buyers because they were able to purchase a home that they may not have been able to afford with a fixed rate loan.

Due to the financial and mortgage melt down in 2008, many new regulations have made borrowing much more difficult. Today lenders are much more stringent in the qualifying process.

With either a fixed rate or adjustable loan the best rates available will require a minimum of 20% down payment.

If a buyer fully intends to stay in their home for a long time the best choice is always to get a fixed rate loan and enjoy the comfort of knowing that your payment will remain constant.  On the other hand, if it is known that the home will be an interim residence the low payment advantage of an adjustable rate loan should be considered.

Usually acquiring the home now is the single most important issue. If a buyer doesn’t like the loan, or would prefer another loan, they can refinance later when their income is higher and, in all probability, the home will be worth more. The loan that allows a buyer to obtain their dreamhome now should be considered the best loan.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Quick Profit or Investment

There are two basic approaches to investing in real estate.  One is to acquire properties for short term gain; the other is to acquire properties for long term appreciation and eventual cash flow.

The first approach can yield significant profits that are taxable as ordinary spendable income.  The second defers income in favor of long term wealth formation.

In highly aggressive sellers markets, like we have today, some people hope to get in and out quickly with significant profits.  Buying, remodeling or improving, and then selling for a quick profit is a very legitimate pursuit.  This approach often falls into the category of real estate speculation.  Remember, with short term investing you always have federal and state income taxes to consider.

If your cash reserves are limited, short term investing may be attractive.  This approach can help accumulate capital for later long term investing.

When discussing real estate investments with our clients we always try to communicate our real estate investing philosophy.  We strongly advocate acquiring property as long term investments.  As an example, if someone acquires a $1 million property they might make an after tax profit of $100,000 on a short term sale.  That would then become spendable income.

If that same property is held and appreciates at 5% per year, in two years they would gain the same $100,000.  And, the property would continue to appreciate by the same amount every two years.  Over time the increase in equity can be borrowed (or leveraged ) to acquire another property that will then become another appreciating asset for the owner.  That appreciating asset is not taxed until it is sold.  Over time the owner will have two properties that can be leveraged to acquire additional properties.  And as time goes on, these properties will also be producing spendable cash flow.

Over a period of many years the growth in equities and cash flow can be huge.  We have many clients that we have helped with this approach over the years.  Most of them have equities of multiple million dollars.  On the other hand, the $100,000 after tax profit from a short term sale will normally be long gone.

 We firmly believe that long term investing is truly the best way to become financially independent, create wealth, and generate passive income.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Unusual Peninsula Market

The real estate market that we have had on The Peninsula since the first of the year has definitely benefited sellers.  There has been a very low inventory of available properties for sale, and that has been coupled with a very high demand caused by our strong jobs market. Sellers routinely are getting much more than their asking price. Compared to most other parts of the state and country, our local market is very unusual.

The current real estate market has been very difficult for buyers and for the Realtors that represent them.  Realtors have difficulty locating properties for their clients.  When a Realtor finds a property suited for their buyer, they go through all the steps required to make an offer to purchase for their clients, and routinely do not get the property.  It can be extremely frustrating for the potential buyer and the salesperson.  Often two, three, four, or more offers are written on various properties over an extended period of time. The process is a lot of hard work for the client and the Realtor, and often yields no results. 

Our competitive, or hot, market has been responsible for conditions that normally do not exist in a more balanced market.  In anticipation of multiple offers and overbids it has become routine for sellers to set a date for accepting offers.  On this date all of the offers are reviewed and normally the highest or strongest offer is accepted.  In addition, most sellers are looking for a strictly “as is” sale.  This has lead to buyers making offers that contain no property condition or inspection contingencies.

Routinely offers are made at prices significantly above the asking price with absolutely no contingencies: no financing contingency, no appraisal contingency, no inspection contingency, no property condition contingency, etc.  In a highly competitive market with multiple buyers competing for the same property, buyers are doing this to make their offers more attractive.

Sellers, and their agents, have expected multiple offers, high overbids, no contingencies, etc. to be the normal and routine situation.  Consequently the majority of listings have specified an offer date, required that all disclosures be approved in advance, and required that sales be “as is”.

We think that most people would agree that a more balanced market would be more desirable.  A balanced market, one where there is a somewhat proportionate number of properties for sale and buyers for those properties, is a lot less stressful.   Real estate markets are cyclical and regularly change over time.  These changes normally come about gradually, but on occasion can happen quickly.

Just recently the inventory of available homes for sale has increased significantly.  At the same time fewer listings are setting offer dates.  This is a trend worth watching and could well be the start of a cycle toward a more balanced market. There will always be people who need to sell, and there will always people hoping to buy. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Bundle of Rights

In the past we have written articles on the importance of becoming “business fit”. 

The more you understand about the terms and conditions associated with real estate, the more likely it is that you will be successful in real estate investing.

Often real estate instructors teach the concept of the “bundle of rights” to help explain the complexities of property ownership.  Understanding the “bundle of rights” can help you grasp and visualize how real estate ownership is defined and understood.  Property rights originated, and have their roots, in English common law.

Property rights have been compared to a bundle of sticks where each stick represents a specific right, privilege, or benefit. 

Real estate ownership carries with it a complex set of rights.  The bundle of rights expands as sticks, or rights, are added. Equally, it gets smaller as sticks are taken away.

The owner of real estate has rights which can include the right of possession, the right of control, the right of exclusion, the right of enjoyment, and the right of disposition.  

A right is something due a person by claim, or legal share, or privilege.  Understanding the concept of the “bundle of rights” is fundamental to a good comprehension of real estate.

The bundle of rights normally varies from property to property.

  A particular property will often have restrictions on use, easements granted to others, mineral or water rights granted to others, etc. 

Concessions like these reduce the rights, or bundle of rights associated with the property.

The community where the property is located also has a “bundle of rights”.  The public view of e rights would include the right to tax, take for public use, control of the property with zoning restrictions, etc.

 Routinely the private and public rights will be in conflict.

Property owners take their private property rights very seriously. The individual’s concept of their rights may not be in agreement with the public or governmental perspective.

Remember that property rights are not absolute; they are a function of what society is willing to acknowledge, defend and enforce.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Deposit Receipt

When your Realtor prepares an offer to purchase a home for you it is done on a form called the deposit receipt. 

If the offer is accepted the deposit receipt becomes the contract the spells out all of the terms and conditions for the purchase transaction.

The deposit receipt is in fact a receipt for your deposit, often called the earnest money deposit.  The deposit is not given to the seller, but instead is held by a third party (usually the Realtor) until your offer is accepted.  It is then deposited into your escrow account.

Over the years the real estate deposit receipt has continued to evolve.  Years ago a deposit receipt was a purchase contract that consisted of one page.  It outlined the purchase price, initial deposit, balance of down payment, and loan amount that was to be obtained to pay the balance of the funds required to close the escrow.

Today, there are two or three publishers of deposit receipts that are most commonly used in the State of California.  These deposit receipt contracts have as many as ten or twelve pages and are very detailed. 

They are designed to spell out the complete understanding of both the buyers and sellers respective responsibilities throughout the escrow period, until the close of escrow.  It becomes the road-map for navigating your way through the escrow process.

Today’s deposit receipts, or purchase agreements, also include the terms of the financing, the time periods for obtaining financing and removing financing as a contract contingency. It also details the disclosures that the sellers are to provide and the amount of time allowed to approve or disapprove them.  In addition, it provides for a multitude of inspections and the time frames for approving or disapproving the property condition.  All of the buyers and sellers responsibilities are clearly defined. 

When all parties to a transaction follow the terms set forth in the deposit receipt, the odds of a smooth transaction increase.  Problems begin when the contract is not strictly followed.  Transactions can get out of control very quickly when there is deviation from the contract. 

The Realtor’s job is to help their client understand and follow the provisions set forth in the deposit receipt.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Local Rental Markets

Rental prices, fueled by the healthy jobs market, continue to rise in the Bay Area. 

This past year we have seen rental increases ranging from 10% to 25% on the peninsula.  A number of other metropolitan areas across the country are experiencing a similar tight rental market.   There is a lot of pent up demand causing pressure on the rental market, and it is very expensive to live here; the affordability index is getting worse.  

Rent prices have been steadily rising since 2000 and now a steadily growing portion of monthly income is needed to support the rising cost of rent.  Tenants are often paying as much as 50% of their take home income towards the cost of rental housing in the cities with high demand.

The inventory of houses and income properties for sale continues to be very low and consequently purchase prices are up significantly.  This in turn puts pressure on the already tight rental market. 

San Francisco has had about a 15% rise in rents over the past year.  20 of the country’s larger markets have experienced rent increases that far outpace growth in income.

Our local rents are high, but so are rents in Seattle, Portland, Denver, Orange County and San Diego.  Areas across the nation that are experiencing strong job growth are seeing rental demand exceed available supply and the consequent large increases in rental prices.

Redwood City is adding approximately 3,000 new apartment units. 

Some are already completed and many more are nearing completion soon.  This will help ease the pressure that results from low inventory.  Redwood City has also built about 500,000 sq. ft. of new Class A office space to meet the growing demand due to job growth in the area.

Our job market is strong and techies are coming here from all over the nation and world.

Typical one bedrooms are renting for $1,700.00 to $2,200.00,  two bedrooms $2,400.00 to $2,700.00, and three bedroom $3,000.00+.   If you are looking at one of the newly built units, you can add $600.00 to $1000.00 to these prices.

One thing that is always certain is that real estate markets are constantly in transition.  We feel we are somewhere in the middle of our local rising market, and perhaps may be working our way toward the end of this cycle.  The market should stabilize in the near future and become a little less volatile.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

What Creates Value?

Some factors that tend to create value and demand in the real estate market include scarcity, population, employment, wages and vacancy levels.  On the San Francisco peninsula we have very limited space for new construction.  Most of the real estate sold in our area is pre-existing real estate.  There is very little new development, except where a tear-down has occurred.  

There is only so much “dirt”. This, combined with other factors, creates a type of scarcity that only exists in a few other areas in the country.

Population trends have a basic influence on the sale of real estate.  Since shelter is a basic human need, it is obvious that the general need for housing will grow as the population grows.  This need for housing, whether in the form of owned or rented property, is very evident in the Bay Area.

The employment and wage levels have an added impact on local real estate values.  With the unemployment level being one of the lowest in the country, employment opportunities are great in the Bay Area.  Wage levels are generally higher here because of the various types and diversity of businesses.  Many businesses are experiencing a major expansion cycle.  The long term trend appears to be generally smooth and continuous, with only minor adjustments.

Tech jobs are booming in San Francisco and on the Peninsula.  We have record levels of employment.  The Bay Area has one of the strongest job markets in the country.  Last year the Bay Area added about 125,000 jobs. All of these factors have played a big part in strengthening our real estate market. The median price for a home in San Francisco is $945,000.00; 32% higher than a year ago. Asking rent increased about 20% to $2,152.00 per month or more.  

The Bay area economy is strong and has staying power with tech, tourism, and foreign trade leading the market. 

The real estate market in most other areas is slow in adjusting to variations in supply and demand.  The real estate cycle is based on building activity.  The lag time between the demand for units and the completion of those units usually causes the real estate cycle to peak after the rest of the economy does and to take longer to recover from depressed periods than other economic sectors.  However, because of the unique combination of scarcity of land, diversified employment, a relatively high wage scale, low levels of unemployment, and an extremely strong economy in general, the demand for housing here is probably stronger than almost anywhere else in the entire nation and, perhaps, the world.

Your opportunities for great real estate investments are tremendous on the peninsula.

 Your Realtor can help guide you through the process.  The best time to invest is now.  You will be sorry tomorrow if you do not buy real estate today. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Best Investment Of All

There is probably no better place to start building financial security than with the purchase of a home.

 Few, if any, countries in the world have as high a percentage of home ownership as we enjoy.  The personal residence is usually the biggest investment that most people make. 

People usually do not have any fears about taking on a mortgage to buy a home.  After all, a home is the cornerstone of every family’s security.  Today lenders have a large variety of home loan programs available to home buyers and rates are still at historical lows.  Obviously the higher your income the better, but with a good job and good credit you generally have an excellent chance of securing a home loan.  The best approach is to shop for the best loan and rate, then become pre-qualified, before shopping for your home.

Over time you not only can enjoy living in your home, but you also build equity.  

The equity you have in your home not only gives you security, but it also can create great opportunities.  

We realize that people enjoy the comfort and security that comes with substantial equity in their homes, but this equity could be put to better use. 
Unlocking your equity and using it to make additional real estate investments is something worth considering. 

Nobody should put their home at risk, but sound real estate investments can help you build financial independence.

 The equity in your home can help you purchase an investment property that can significantly increase your rate of equity growth.  

You will  have two real estate investments working for you, instead of one.  Your equity is still there, it is just in two properties instead of one. This is an example of having your money work for you, instead of you working for your money. 

When considering making a real estate investment, whether it is your home or income producing property, it is always be a good idea to shop for a real estate professional before shopping for the investment.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

What Makes A Good Real Estate Agent?

There are many skills and talents involved in the making of a good Realtor.  As in any profession, there are a few people who do exceptional work and rise to the top.  There is not any one thing that puts a Realtor at the top of their profession.  

 A successful Realtor must have an intimate knowledge of the market and available inventory.

 Good Realtors know real estate and contract law, as well as the intricacies of the whole transaction process.  Possessing good negotiating skills is a must.

The real estate business is more than just a neighborhood storefront with the sign “Realty” hanging in the front window.  The real estate industry is composed of professionals specializing in many different fields and dealing with many different types of real estate.  These include residential real estate, commercial real estate, residential investment properties, property management, appraisal, and property development……just to name a few.

Real estate brokering is the process of bringing together people interested in making a real estate transaction.  Typically, the broker acts as an agent.  They negotiate the sale on behalf of others for a fee.  This relationship between broker and the general public is one of extreme trust.  The broker has a fiduciary relationship with his client. Due to the complexity of the real estate business, the more educated and experienced the broker is, the more likely his or her performance will be to the highest of standards.  

In addition to professional expertise a good Realtor should possess a

number of personal skills.  

A good Realtor should be able to communicate and listen well.  Good agent need to be proactive.  Experienced agents think ahead and anticipate many challenges before they become problems.  Consistent follow through and close attention to detail is mandatory.

Exceptional agents must also be flexible and adapt to their client’s

needs and concerns.

 A good agent needs to understand that a real estate transaction can be very stressful for their client.  Steady client communication through the transaction process can eliminate much of that stress.  

A good Realtor has to be highly motivated and a self-starter.  

Realtors are expected to be excellent problem solvers, and above all, honest and trustworthy.   

We have always recommended that a client spend the time necessary to establish a close relationship with their broker.  The relationship you have with your broker is extremely important.  Having the right broker can make all the difference in the world when you are involved in a complex real estate transaction. Your real estate transaction will definitely benefit from a strong relationship with a well qualified, well educated broker who has a track record that was obtained through dedication and experience.  

Choose your representation well.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Real Estate Agency

What is real estate agency?  Why is it important for the consumer to have a general understanding of agency relationships?  The basic definition of an agency is simple.

Agency is the relationship created when one person, an agent, acts to represent another, the client or principal, in a business transaction.  

This concept is not new.  Agency has its roots in English common law. Over the last forty or fifty years, the U.S. economy has grown tremendously.  Following the Second World War the growth in the population and the economy produced an enormous increase in the need for housing.

 The clear cut, simple concept of agency has become much more complex.  

Networks for marketing homes, such as the Multiple Listing Service, have been developed.  The Multiple Listing Service helps market  properties and exposes properties to a much greater portion of the population was possible prior to its existance.  This, naturally, helps a seller obtain the highest possible sale price for their property.

An agency relationship is created by an expressed or implied agreement.   A real estate agent is one who represents another (typically the principal) in dealing with third parties. However, the agent who has the authority to bind the principal and a third party is not a party to the contract.  

The more complex the marketing systems become the more confusing and complicated the question becomes of just who the agent is representing.  A principal needs to understand that the benefits of being represented by an agent are great.  The real estate agent is a professional.

 The agent possesses superior knowledge and a body of theory underlying many separate aspects of his specialty.  Agents have professional authority, the sanction of the community, and are guided by a strict code of ethics.  

A fiduciary relationship is established when an agent represents a principal.  This relationship requires the agent to act in a manner of utmost trust and loyalty and obligates the agent to act in the principal’s best interest.  An agent cannot act in a manner that is detrimental to this fiduciary relationship.  A principal should always discuss their agency relationship with their agent and understand the differences between an agent representing a buyer, representing a seller, or representing both a buyer and seller at the same time.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Multiple Offers: Is It Even Worth Trying To Compete Against Other Offers In This Seller's Market?

Multiple offers have been more of the rule than the exception for at least the last year or two in the Bay Area and the Peninsula real estate markets.  Buyers often wonder if it is even worth trying to compete against other offers in this seller’s market.  

There are more qualified buyers than there are properties available for sale. 

When there is very little inventory on the market, it is not uncommon for a seller to get 4-5 offers.  We have seen many properties attract over ten offers.  If you find the right property it is probably a good idea to make your offer, even if you feel your chances are slim of having the winning or accepted offer.

 If nothing else, experiencing the home buying process is valuable even when you don’t have your offer accepted.

Frequently pending home sales fall out of escrow and that can create an opportunity for people who made the other offers.  Many sellers worry that once they accept the “best offer” that the buyer might get buyer’s remorse and start questioning their commitment to purchase.  When a buyer backs out of a transaction, all of the other offers can disappear.  At that point many buyers wonder if there is something wrong with the property.  Offers fall apart for a variety of reasons.  Sometimes a concern about the property is the cause, but very often it is due to the buyer having a change of heart.   

It is important that you always make the best offer you can.  The highest priced offer with the best terms and conditions usually is the winning offer.

When contemplating writing an offer, finding out what the seller’s motivation is can be very important.  

If you can be flexible and work with the seller to accommodate their needs, it can be to your advantage.   

 Buying and selling real estate can be a very emotional experience.  It is a suspenseful roller coaster ride with a lot of unexpected twists and turns.  It is important to remember that during these extreme market conditions buyers are often coerced into offering terms and conditions that would never be expected, or considered, under more normal market conditions.
 
First, buyers need to realize that the prices being offered may not be attainable when the market stabilizes.  Secondly, to be competitive buyers need to make offers with no contingencies. Thus, you are waiving the opportunities for your own inspections and appraisal.

It is important to fully understand and be comfortable with, the concessions being made to participate in this unusually competitive market.
 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Do You Know How to Choose A Good Neighborhood?

Why are neighborhoods important?  There are many reasons.  Municipalities often try to plan or create neighborhoods, but more often than not, neighborhoods evolve through the normal everyday actions of people.  Neighborhoods play an important integral role in forming community and social interaction.  Defining a neighborhood can help create the quality of life style you desire. 

When you start to think about buying a new home, you should evaluate neighborhoods before you start looking at specific homes.  Everybody’s needs and tastes are different.  Property characteristics that are important to one person searching for a home might not be important for another.   Regardless of particular tastes there are important factors to consider before you buy, such as:  researching the area schools, comparing property values, observing traffic flow, checking out crime rates, and taking notice of neighborhood conditions or development.  

First, research schools and see where they stand in relationship to other schools in the area.  This decision can be crucial for the social and educational development of your children.  Even if you do not have children and do not plan on having any, it is always beneficial to live in an area where the educational system maintains high standards.  Excellent schools often denote a community that cares, and living in a community like that typically translates into higher property demand.

Usually there is a correlation between the quality of schools and property values. What are the property values in the area you are looking at?  How do they compare with other surrounding areas?  Your Realtor will be able to give you a market analysis and comparison of properties in the neighborhoods of interest.   

There is often the consideration of traffic.  Even if you are looking for a home in a busy city, some streets are thoroughfares and others are quieter pockets off the beaten path.  Some people prefer to be in convenient downtown locations, regardless of the traffic and noise.  Proximity to schools, shops, hospitals, public transportation, beaches, parks and cultural activities are always important considerations.  However, there are often areas that can provide both convenience and serenity.  In general, we believe most people would enjoy living in a quiet location with few distractions.  Whether you are one who likes the hustle and bustle, or one who would rather just tune out, it is important to consider the traffic in the area you like before you make any decisions.  

Of course, checking the crime rate in an area is imperative.  Persistent, on- going crime problems are always a sign of a less desirable neighborhood.  To keep abreast, take note of articles in local news papers regarding acts of crime in an area.  There are web sites that indicate where police activities have occurred.  You can also ask your local Realtor for their opinions.  

Look around, are homes being remodeled or rebuilt in the neighborhood, or do things appear to be in a state of disrepair and decay?   If you notice a high rate of new development, it could be a good sign.  Look for neighborhoods that are likely to become highly sought after in the coming years.  These communities are often contiguous with already desirable locations.  Ask your Realtor how long properties remain on the market; in hot areas the market moves quickly. Consider perhaps a smaller home or a condominium in a more desirable neighborhood.  This way you may be able to purchase in a prime neighborhood that you could not otherwise be able to afford, and will enjoy greater appreciation in the future.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Neighborhood...Are You a Good Neighbor?

What exactly is a neighborhood and how is it defined?  This can be a difficult task because each person or organization has certain ideas as to what a neighborhood is. The definition can vary in importance depending on the individual.  From a Realtor’s point of view, in the scope of their business, defining a neighborhood can come into play when establishing value.   A neighborhood is a cluster of properties, most of which are relatively similar in land use.  As a portion of a larger community, a shared identity creates a neighborhood.  The components that characterize a neighborhood can be positive or negative to prospective buyers.  The value of the neighborhood increases when it has very similar use and a lot of positive attributes.  Every neighborhood offers different advantages to its inhabitants.  There are many factors to consider when purchasing a property; one of which is the neighborhood.  Since each neighborhood offers different advantages to the individual, one must determine what ones needs and desires are before purchasing property. One fact to keep in mind is that all neighborhoods, regardless of use, go through a series of changes over the years.

More expensive or desirable neighborhoods are generally more expensive for a reason.  The correlation between higher rents or home prices and neighborhood amenities is high.  Neighborhoods are often described by the shops, restaurants, and personalities of the people who make up the neighborhood.  This creates a sense of wanting to belong to an area. 

When one decides on a neighborhood to reside in, it is important for that person to take pride in their home.  Each neighbor plays a small part in the responsibility of helping to improve their neighborhood.  We all know what it is like to have that one home owner who does not take pride and responsibility in their property.  Often people are confused about money and the upkeep of property.  It does not necessarily take much money to keep a property well maintained.  It takes the desire to do so and a little extra effort.  If there was a single factor that individuals could do to improve their neighborhoods, it would be taking responsibility for the preservation of one’s property.

I feel that all of us should give this a little thought and ask ourselves “Am I trying to help improve my neighborhood?”  How does the property you live in rank as far as maintenance in your neighborhood?  Improving the maintenance of your property will benefit your neighbors and will benefit you.  The quality of life improves when people take responsibility for themselves.  If you want to increase the value and desirability of your property, maintain it better.  Are you a responsible, good neighbor?

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Understanding the Golden Rule of Renting...Mutual Respect

Do you think local rents are high?  Well you are partially right, they are, but they are high in other metropolitan areas across the nation as well.  Why is this happening?  One Reason is that the Bay Area has seen some of the most dramatic job growth in our history.  Bay Area rents have risen about 15% over the last year.  The job boom continues in the Bay Area, particularly in the high tech fields. Techies are migrating here from all over the nation, and the world.  

It is a difficult time to be looking for an apartment, duplex, or house to rent. You drive your favorite neighborhoods looking for “For Rent” signs, searching for just the right place to call home.  You have looked on the internet and scanned the news papers for rentals on a daily basis.  After finding the right place you feel that you are prepared to sign a rental or lease agreement.  Have you taken the time to review landlord/tenant laws and perhaps a rental or lease agreement?  It would be advantageous for you to understand your rights and obligations under the agreement you are about to enter into.  Preparing yourself in advance can help prevent some of the stress associated with finding a new place to live. 

The best advice for both the tenant and the landlord is to enter into the contract with mutual respect for each other, and for the property.  Each side should be considerate of the other’s situation and act accordingly, basically do unto others as you would have them do unto you.

We have heard of outrageous landlord conduct that has included discrimination, invasion of privacy, refusing to fix dangerous conditions, or failing to return security deposits when a vacated unit has been left clean and undamaged. Conversely, rental property owners all have at least one nightmarish story of tenants with bad behavior ranging from late payments and property damage, to breaking the law and having police involvement.

As a tenant, you should understand that the property owner has a large investment in the property and that he is providing an opportunity for you to keep a roof over your head.  As a tenant, you should have the right to your privacy.  You should be able to depend on the owner to repair those things that can occasionally go wrong, and the landlord should always call to make an appointment before entering your home.  When you are ready to vacate you should return the property to the owner in good condition.

In the long run, the renter is best served if they try to establish a positive relationship with the property owner from the very beginning.  If the property owner has delivered a well maintained property, and makes all necessary repairs, the owner has the right to expect that the tenant will pay the rent on time, get along with neighbors, and keep the rental property well maintained inside and out. 

We have found over the years that the vast majority of landlord/tenant problems can be solved if both parties are honest with each other from the beginning.  We don’t mean to over simplify the problems that can develop, but if each party takes responsibility for their own actions, chances are that good landlord/tenant relationships will develop and be of advantage to both.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Why Wait to Fix Up Your Property

We have all seen the commercial where the mechanic says “You can pay me now or pay me later”.

We all know the importance of preventative maintenance; maintenance that is regularly performed to lessen the likelihood of something failing or deteriorating.  The goal of a successful real estate preventative maintenance program is to establish consistent practices designed to improve the appearance and performance of your property. 

Over the years we have seen the benefits received by home owners who keep their property well maintained.  Also, all too often, we see the disappointment and frustration that deferred maintenance can cause. 

There are generally two reasons why property owners do not keep their real estate in as good a condition as they should.  First, the cost of maintaining a property is an easily avoided, or deferred, expense.  Each month when we are budgeting for our expenses, the money runs out before our obligations have been met.  Secondly, property owners often look at repairs and maintenance as a challenge or dreaded task.  Home repairs, therefore, place low on the priorities of your things to do.  

Stop and think for a moment about where the bulk of your net worth is held.  If you are like most of us, our real estate equity is our largest asset.  Remember that not all real estate improvements have to be expensive.  There are many things that just require rolling up your sleeves and putting a little sweat effort into it. 

Often people wait until they decide to sell before addressing nagging repairs.  Why wait until then?  Why not have  an ongoing maintenance program and be able to enjoy your property as much as you can right now? 

When preparing to sell their home people often made repairs to improve the curb appeal. It is very common for them to say “This looks so beautiful!  I wish I had done this year’s ago.  My home looks the best it has ever looked and now I’m selling it!”

Most people work very hard to earn the money that pays to support their home. A home owner, or investor, can take modest steps to improve the interior or exterior of their property and realize a significant return on small investments of time and money.  

If you need help motivating yourself to take on some routine chores around your house, consider this: where else can you get a 50% or more return on a small investment and from sweat equity?   Big returns are available on simple, inexpensive touches such as interior and exterior painting, light fixtures, updated cabinet pulls, shutters, new carpeting, cleaning, and removing clutter.  

Perhaps it is time to re-evaluate and prioritize the attention you give to your real estate. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Real Estate Exchanges

The 1031 tax deferred exchange offers the opportunity to exchange one property for another without paying capital gain taxes.  You are able to defer the gain until the new replacement property is later disposed of in a taxable transaction.  There is no limit to the number of times you can take advantage of the section 1031 exchange tax rule.

This tax rule applies to investment or income producing properties, not your primary residence.  In a tax deferred exchange of investment property the replacement property must be of like-kind.  In general, all real property is considered like-kind as long as both are United States real property held for use in a trade, business, or as an investment.

It is important that the taxpayer or exchanger does not have constructive or actual receipt of any of the monies or cash from the sale escrow.  The parties to an exchange need to employ a “qualified intermediary” to act on behalf of the exchanger, particularly if the exchange is not simultaneous, but rather a “delayed” exchange.  If the principals to an exchange do take receipt of any of the funds, the funds become taxable.

A high percentage of the exchanges that take place today are delayed exchanges.  There are very specific rules to follow in delayed exchanges.  If these rules are not followed, your exchange could be disqualified and taxes could be due.  Two of the fundamental rules are 1) when an exchange property (relinquished) is sold the seller has 45 days to identify the replacement property (or properties), and 2) the purchase of the replacement property must be completed within 180 days of the sale.

Exchanging investment real estate does not allow you to permanently avoid paying taxes, it just allows you to delay paying federal and state capital gains and depreciation recapture taxes.  The investor or tax payer must be very careful and beware of the complications that can arise.  When exchanging real estate it is advisable to have a well-qualified professional guiding you through the process.

There are several reasons why you might consider exchanging real estate.  Repositioning your investments can unlock some of your equity and help leverage or diversify your portfolio.  Appreciation, depreciation, cash flow, diversification, and tax deferral are some of the factors that motivate investors to consider a 1031 exchange.

Every  individual’s tax situation is different and careful consideration to your specific needs is necessary. 

You Realtor can help bring together the appropriate professionals to work along with the title company, escrow, and exchange facilitator to navigate your way through this complex process.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.