Real Estate Column: Break the Bank

By Danita Kulp

There is plenty of good news to report. Money is starting to move, people are starting to spend again, new businesses are opening (including relocations into California), buyers are leaving rentals and purchasing homes. The Bay Area, in particular, is strengthening daily.

In February, we were at or near the bottom of our market. Real estate values are definitely stabilizing, especially with entry-level properties. And, yet, many lenders are reluctantly lending appropriate amounts, or appraising properties at present and true values. They are still protecting themselves by reducing risks. This is understandable, of course, yet it also hinders the stabilization of our economy. One solution for this temporary situation is that sellers, when possible, “Be The Bank.”

San Francisco is approximately seven miles by seven miles, a very contained area with limited supply, strong international demand and a desirable Mediterranean climate. The influx of companies and newly-relocated employees increases daily. Agents are seeing strong activity from our clients, referrals, relocations, floor calls and open houses. And, if you read beyond the headlines regarding bankrupt companies, for many the true story is that they are restructuring or being absorbed, and, in fact, plan to expand. Plenty are eyeing opportunities in California while our values are low.

Sales of homes under $650,000 are brisk, with many taken by surprise at the multiple offers on competitively-priced properties. The buyer mix is first-timers, combined with owners seeking second (investment) properties, oftentimes, using lines of credit and competing as all-cash buyers. Plenty of investors are actively looking for buildings to fix up and hold, or for condos for their college-aged kids.

Due to the continued reluctance by many banks to lend appropriately for both the property value and the buyer’s financial strength, one solution is sellers carrying loans instead. When sellers carry either a 1st or 2nd deed of trust, the buyer’s purchasing power increases. Not only does the seller get a better sales price, but they receive interest on the loan too. Title companies are very skilled at helping with the paperwork and recording documents properly.

Many owners are refinancing, yet, problems still remain with money sources. Banks advertise they are lending, yet not until the end of your transaction do you learn their appraisers didn’t appraise at true market value. Instead, the values oftentimes come in so low you don’t qualify on the loan-to-value ratio. So call your real estate agent and find out which lenders they are finding success with. Personally, I’m using a mix of very seasoned mortgage brokers, mortgage bankers, small banks and credit unions. When appropriate, I’m also suggesting sellers strongly consider (with the blessing of their attorney and financial advisor, to temporarily “Be The Bank.” It moves sales along, while stabilizing values and our economy.

Only once lenders realize how much money they are losing by not lending appropriately will they eventually step back into the game. I do not mean to minimize an extremely complex banking situation, however, sometimes you just have to move forward and spend money in order to make money. That is the lesson for today’s banks – in spite of their present risks and losses. They really do need money pouring back into their coffers – right now – so they can lend it out and make more.
Eager buyers and owners wanting loans and refinances are abundant again. Banks could use this opportunity to stabilize themselves faster, rather than undermining an already difficult situation, by reluctantly lending, while, at the same time, collectively shooting everyone in the foot at the eleventh hour.

Danita Kulp is a broker associate with Paragon Real Estate Group. She has sold property since 1981 and has written monthly real estate articles, geared towards consumer education, since 1994 for various SF neighborhoods newspapers. She can be reached at (415) 738-7081. Or visit paragon-re.com.

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