Home Warranty Does Not Cover Known Pre-existing Conditions

A/C RepairI was negotiating repair items on a deal last week. I represent the buyer. The property inspection revealed, among other things, that both A/C systems in the home were showing splits that were out of compliance with normal readings.

A “split” is the difference in temperature between the air that is drawn into the system through the intake and the temperature of the air as measured from the output grills.The difference should be between 15-20 degrees on a properly operating air conditioning system. So, if you measured the air at your air filter grill, where it is drawn into the system, and it is 78 degrees, then you measure the air temperature of the output grill, where the cold air blows out, the output air temperature should be somewhere between 58 and 63 degrees, representing a 15 to 20 degree “split”.

On this particular home, the splits were 9 degrees on one unit and 30 degrees on the other unit. That means a problem exists with both units. A high split means there may possibly be air flow restrictions caused by a dirty/clogged air filter, dirty/clogged coils, or perhaps a freon charge issue. Low splits indicate, among other possibilities, possible low charge on freon, which could mean a leak or a bad coil.

The only way to know for sure what the problem is is to have the unit checked out by an A/C company. Due to time limitations, and the Option Period near its end, we wrote into a proposed amendment that “Seller to have licensed HVAC company evaluate, service and repair both HVAC systems and document that units are operating as designed”. We didn’t have sufficient data to guess an amount to ask for, so we just wanted the systems fixed. Usually, I prefer to break everything down into dollar amounts and just ask for money to offset important repair issues, but it’s not always possible

What happened next was that the listing agent violated the Realtor Code of Ethics in multiple ways.

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Housing and Economic Recovery Act of 2008

Well, the big Housing Act of 2008 has been signed. Based on what I’ve read and studied, this political move will do little in the long run. It may simply postpone true recovery in the national housing market by impeding the movement of the real estate to where it eventually wants to go. It might bail out some home owners, at our expense, but people who get themselves into financial trouble like that will probably do so again.

The borrower bailout is intended to help stem foreclosures. HUD Secretary Preston isn’t sold though. When asked in a Bloomberg TV interview if he was confident that money for the loan bailout program would be spent effectively with no loss to the taxpayer.

“No, I’m not,” Preston said. “Roughly a third of the people who get this assistance will end up in foreclosure,” he said, citing Congress’ own estimates, “and many more, we believe, will be chronic delinquencies.”

Another way the act is suppose to help America and the economy is to generate more buyer demand by offering a $7,500 tax credit to “first time” home buyers”. I put “first time” in quotes because the word “first” means something different to our government than it does you or me.

Using the govenment’s definition of “first time”, your marraige would be a “first” if you’ve been single/divorced for at least three years. If you haven’t bought a new car in at least three years, your next one would be your “first” car purchase. If you give birth to a new baby this year, that baby would become your “first” if all your other children are older than three years.

Thus, you are a “first time buyer”, as defined by this new Housing Act, if you haven’t purchased or owned a home in the past three years. What will the tax credit do for you?

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Dear Out of State Investors – We Told You So

Austin Foreclosures by California OwnersToday’s Austin Statesman has an interesting, if not predictable article about California investors being disproportionately represented in Austin area foreclosures. We’ve participated in several sales by California investors (not ones that we sold to though) bailing out, some of which were short sales or pre-foreclosures.

As the Austin real estate market rebounded at the end of 2005 and through 2006 and the first part of 2007, Sylvia and I were deluged with calls from investor prospects, mostly from California, wanting to invest in Austin real estate. We were careful in screening those buyers. We never departed from our philosophy of sticking “closer in” rather than chasing better cash flow to the outskirts. As stated on the Investing in Austin page of our website;

Our approach to investing seeks to do more than simply help you buy or sell a rental property in Austin. We have some specific ideas and values about the manner in which real estate investing should be approached, and the effects it can have on neighborhoods and the greater Austin Community. If you agree with our viewpoint, we want you to consider working with us.

Mainly, we do not wish to participate in the mass caravan buying approach that other real estate agents have implemented in Austin in recent years. We don’t think riding in a bus full of other investors out to a new home neighborhood where you buy what your “real estate investing club” tells you to buy is very smart. This approach results in the overselling of homes in many of the new subdivisions around Austin. Especially in the “starter home” areas that young families and first time buyers can afford.

We think you should spend a little more money and buy a better home in an area that less enlighten, short-sighted investors stay away from. Or consider purchasing your investment property in a mature and established neighborhood. While other investors are looking for the cheapest homes with the best cash flow, you should be looking at the neighborhoods with better appreciation potential, where the homes are well cared for, or the area is undergoing a renewal.

The above is verbatim what we’ve told investor since 2005 when we started working heavily with real estate investors buying in Austin.

How did we do?
Were we right in holding this viewpoint?

This philosophy of ours eliminated a lot of potential clients who would have been easy sales for cheap homes in Pflugerville, Round Rock, Hutto, Kyle, etc.  We left a lot of potential sales and commissions on the table by turning away misguided buyers who wouldn’t agree with us on where they should buy rental property in Austin.

What happened to those investors who disagreed with our long term approach and found other Realtors to work with? Let’s look at an example quote from the Statesman article:

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Austin Real Estate Sales Breakdown by MLS Area – June 2008 YTD

Below is the breakdown of year-to-date home sales in Austin by MLS area. This is for houses only, no condos, townhomes, etc. I’m often asked, “how is the Austin real estate market?”, to which I reply, it depends on which market you are talking about. There are multiple “markets” and sub-markets in Austin. Here are some summary points I gleaned from the stats.

* Of the 42 Austin MLS areas tracked below, all but 1 have fewer sales Jan-Jun 2008 compared to 2007. The only area with more sales than the same 6-month period last year was the UT area with 26 sales YTD this year compared to 24 last year.

* 28 of the 42 Austin MLS areas have higher average sales prices for 2008 than the same period last year. That’s 2/3 of Austin’s MLS areas experiencing price increases for average sales price.

* The same number (28) of Austin MLS areas have increases in Median Sold prices compared to a year ago.

* 24 MLS areas saw an increase in both average and median sold prices.

* 27 of the 42 Austin MLS areas saw an increase in average price per square foot on homes sold.

* Of the 24 MLS areas that saw an increase in both average sold and median sold prices, 21 of those areas also showed an increase in the average sold price per square foot. This means half of all Austin MLS areas have experienced price increases in all three of the main metrics that indicate price appreciation. These areas generally tend to congregate around Central Austin. 14 of these areas are within a 20 minute drive of downtwon. 7 are east of IH35.

* 7 of the Austin areas saw a decrease in all three metrics of avg, median and psf sales prices. Those areas were 8W (Eanes West), EL (Elgin), LN (Lake North), LS (Lake South), MA (Manor), SC (Far SE Austin) and W (West Austin). It’s interesting that, with the exception of area LN, all of the areas with triple drops are either way above or way below the Austin average and median sales prices. This jives with what we know, that both the upper and lower ends of the market are slow.

* 7 of the 42 MLS area saw a decrease in the Days on Market, meaning homes are selling faster in those areas than a year ago. Most areas saw an increase in days on market, indicating slower sales.

Check the chart below to see how your particular area is doing. As usual, questions and comments are welcome.

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Austin Sales Market – June 2008 and Mid-Year Stats Update

Below is the June 2008 Austin real estate market update, including YTD stats. For starters, I thought I’d post a graph showing Average Sales prices in Austin from 1999 through June 2008 for houses, condos and multi-family properties. Austin’s real estate market has historically moved in fits and starts. The slowdown indicated by the June 2008 YTD dip in the graph is real and present, but I’ll match this graph against that of almost any other metro area in the US and say that, relative to the rest of the country, the Austin real estate market is looking pretty darned good.
Austin Sales Market History 1999 through June 2008 Graph

The average sales price for houses in Austin increased 0.47% in June from $263,421 in June 2007 to $264,653 June 2008. We continue to have a large number of expired and withdrawn listings though, and days on market continues to creep upward. Nevertheless, many homes are selling fast with hardly a sign of a slow market, while others, though seemingly well priced and in good showing condition, sit with no offers. Sylvia and I placed a new listing in South Austin on the market a couple of weeks ago and had it under contract in 4 days with a good offer. It was in average condition. Other listings we have in south Austin are equally as well priced and in better showing condition, but no offers yet. I just placed a new listing in Cedar Park yesterday which is priced at about 97% of market value, and I expect it to sell fast, but can’t be as confident as I could in 2006 and 2007. The market seems fickle and somewhat unpredictable at present.

Here is a quick summery of the June stats.
• Number of homes sold is down 25% from 2,702 June 2007 to 2,032 June 2008.
• Average sold prices in Austin were up 0.47% over the same month last year to $264,653.
• Median sold price was up 3.62% over the same month last year to $202,000. I’ll have to doublecheck, but I think this is the first time the median sales price in Austin has broken through the $200K mark.
• Avg sold price per square foot is up 0.84% over June 2007 to $124 per sqft.
• Avg days on market is up 11 days (22%) from 50 last year to 61 this May. Exactly the same as last month.
• Median days on market is unavailable again this month because our $1M/yr MLS software, MLXChange, won’t produce it. (I continue to be dismayed and deeply disappointed in the poor performance of our MLS software, MLXChange, which we are 8 months into and still experiencing numerous data intergity problems.)
• Number of “Not Sold” (exp or withdrawn) is up a whopping 29% over the same month last year, but a far less increase than last month.

Below is the chart with these stats, along with a YTD chart. I’ll have area breakdowns posted in a separate post later today or tomorrow, so check back to see how your area is doing.

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Dotzour’s Take on Freddie and Fannie Collapse

(TX A&M Real Estate Center) – Freddie Mac and Fannie Mae stocks plunged this week, increasing fears over their ability to raise the capital they need to purchase home loans and hold down mortgage rates.

Freddie Mac shares fell 22 percent to $8 yesterday, while Fannie Mae stock lost 13.8 percent to close at $13.20.

Dr. Mark Dotzour, chief economist with the Real Estate Center at Texas A&M University, said it seems increasingly likely that the U.S. government is going to nationalize these two mortgage giants, and he sees that as a good thing.

“The concept of Fannie and Freddie is a good one,” he said, “but they have made some mistakes and squandered the value of the stockholders. Once the government takes over, the stockholders will be washed away but the bondholders will probably be bailed out.”

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