There are three primary ways to resolve disputes in business transactions, including real estate transactions: arbitration, mediation, and litigation. Arbitration involves no court activity at all except in choosing a neutral third party, and in fact courts must abide by arbitration even if the decision is erroneous. Mediation is similar to arbitration in that the initial decision is not made by the courts, but it allows to courts to intervene if a resolution is not found. Litigation involves a lawsuit in court.
Historically, businesses have favored arbitration since it was considered the quickest and cheapest method of dispute resolution, and having an arbitration policy protects them from many lawsuits. Now, businesses such as Amazon are quietly changing their policy. Arbitration has turned out more costly than they expected — primarily because they’ve been losing the disputes, in which case they are required to pay both sides. It’s also not always quick. And when the businesses are losing, they’re also not too hot on the decision being legally binding despite not necessarily being legally correct. Instead, mediation is turning out to be a cheaper, fairer, and sometimes quicker method of resolving customer disputes.
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After an intensely competitive market, things are finally starting to slow down, with pending sales dropping by 12% nationwide since May. We’re not quite sure if that’s good or bad, though. Part of it can be attributed to seasonal variation — the market does start to slow heading into Q4 — but it never slows this much. It’s unclear whether the steep dropoff is because the market was already incredibly hot, or because buyer demand has lost its momentum. Either way, 2021 was decidedly not a normal year for the real estate market.
And it will continue to not be a normal year. Foreclosure moratoriums have ended, but people are still protected from evictions until September 30th. After that, expect a huge increase in supply as a result of distressed or forced sales. The good news is that rising supply will prompt decreasing prices. But demand is already decreasing, and we aren’t sure yet if it’s going to continue to decrease. People are going to be forced to sell, but may not be able to find buyers. Experts expect that demand will still be high enough in California to soften the blow, and we shouldn’t see prices plummet too far until 2023.
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Though certain areas have always been at higher risk for certain types of natural disasters, only since climate change have people heavily prioritized climate risk as a factor in their search. Wildfires, droughts, and floods are becoming much more common, so people are avoiding these areas more. People don’t necessarily know how to research which areas are high and low risk, though. Fortunately, one real estate service, Redfin, is noticing the need and has begun publishing climate ratings.
The ratings aren’t from Redfin — they’re from ClimateCheck, a company which assesses future risk and change in risk on a scale of 0-100. They start with several different global climate models to project risk on a global scale. Then, they localize the data to specific areas by filtering the global risk through local weather patterns. ClimateCheck is now also sending that data to Redfin so that it’s easily accessible for people searching for a home. Of course, you can also visit the ClimateCheck website directly at climatecheck.com.
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While it may seem like it was pandemic restrictions that forced the US further into the digital era, most people are actually not uncomfortable with it at all. In a recent survey, 81% of respondents trust online transactions. They don’t necessarily trust all online transactions, though, and they disagree on what exactly makes a transaction feel safe to them.
Predictably, some of the older generations aren’t aware of all the options available to them, such as online notorization services. Perhaps not so predictably, the older generations are actually the most likely to feel safe with digital forms of security. These include two-factor authentication (53% of older respondents), security questions (61%), and PINs (49%). The younger generations, on the other hand, would rather talk to an actual person (53% of younger respondents), even if the discussion is held remotely by phone or online, and don’t want to go through too many online steps to make a transaction go through (22%).
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We’ve mentioned a few times that people now working from home more often have been making purchases to make their home more comfortable to live in. This doesn’t merely extend to smart technology, entertainment centers, or upgraded appliances, though. Home renovation projects increased by 25% in the first half of 2021.
36% of people renovating are trying to make better use of the space their have by remodelling rooms, including basements and attics. In many cases, this is probably to create a home office space. 12% have decided they want an entirely new room and are building an addition. 17% are aiming more for the comfort and entertainment aspect, and have opted to add a pool or hot tub. Such renovations are likely for personal reasons as a response to the work-from-home model, but they will also add value to the home later down the road.
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In San Francisco and surrounding areas, wage growth has recently outpaced home price growth. Some real estate analysts are now calling the area “affordable,” since prices are dropping relative to wage growth. That label discounts a few rather important factors, though.
First, the majority of wage growth in the area was for high income jobs. These people were already homeowners with stable, high-paying careers. Wage growth doesn’t actually help them purchase a home, it just gives them more disposable income — which they aren’t necessarily lacking.
Second, only in San Francisco itself are home prices actually dropping. In the rest of the region, they’re still going up. And throughout the entire region, they remain exorbitantly high. The Bay Area is one of the most expensive regions in the world.
Third, wages actually may not have gone up at all overall when factoring in unemployment. Unemployed people aren’t considered to have an average wage of $0.00. They’re just not counted in the data. Therefore, the unemployment rate doubling to 5.45% in May from pre-pandemic numbers may have caused average wages to become artificially inflated. Not to mention that no home is actually affordable to unemployed people.
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Inventory may be low, but housing isn’t the only thing in short supply. Once work from home became more popular, homeowners started looking to upgrade their homes since they would be spending more time there. Part of that was updating their appliances and buying new furniture, particularly stoves and grills because homeowners would be cooking at home more often. Combined with a decrease in manufacturing productivity due to labor shortages, appliances and furniture are selling out quickly.
While increased new construction is a potential solution to low housing inventory, it’s definitely not going to help the appliance shortage. Even with construction being low, the increased demand for already existing homes is stretching the appliance supply thin — and new constructions would require all new appliances. It’s even affecting the timing of real estate transactions. Closing time is being delayed because the new owners want the place to be move-in ready when it closes, and they aren’t able to get their hands on appliances and furniture.
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The second quarter of this year was thought to be a potential turning point in our recovery, as fewer and fewer people were missing payments. This includes rent payments, mortgage payments, and even student loan payments, though the frequency of missed student loan payments is still alarmingly high at 44.8%. Renters received assistance both from government entities and also from their landlords, and the government provided mortgage assistance as well. However, students with loans haven’t been given much help, and there’s been another recent surge of COVID-19 cases due to the delta variant. Some regions that had previously eliminated mask mandates are now requiring them again. The economy won’t recover until the job market stabilizes, which is made much more difficult by health concerns.
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As more and more employers are considering the possibility of permanent work-from-home, homeowners need to think about ways to create dedicated office space in their home. Of course, if you can afford it, you can make an addition or even just buy a larger home. But not everyone can afford that, so for those who can’t, here are some ways to turn existing space in your home into office space.
For most jobs, a home office needs a desk. But a desk is just an elevated flat surface — it doesn’t have to look like an office desk. You can use a simple table or even just the shelf of a cabinet. You can also just use your dining table. You probably aren’t eating dinner while working. Other types of rooms can also become split-purpose, such as a guest bedroom. If you don’t have guests over — which you probably don’t during a pandemic — you’re free to use it as your office space whenever you want. Even if it’s occupied during the night when your guests are sleeping, you can still get work done there during the day. If you want to get creative and aren’t too spooked out, you can also turn your attic space into a home office with a table and proper lighting.
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Many people try to reduce their energy bill by limiting their usage. While this will indeed reduce your bill, it also reduces your comfort. There are better ways to save money on energy bills without sacrificing anything. All these ways cost money, but the investment is worth it to save money over longer periods.
A couple things you can do are one-time investments that will continue to pay dividends. These are both simple modernization. Incandescent bulbs are largely outdated, and should be replaced with LED bulbs, which are more energy efficient and last longer. Expect to save around $75 per year. Smart thermostats are the other one-time investment that will work wonders to save you money. Your HVAC doesn’t need to be working when you’re working, and it can sleep when you’re asleep. A smart thermostat lets you manage that without much effort.
The other way to save money may need to be redone periodically, but it’s still worth it. That’s just simple routine maintenance. Not only does routine maintenance reduce the likelihood of needing to pay gigantic repair costs further down the line, but it can actually improve efficiency even if no repairs become necessary. Clogged HVAC filters won’t stop it from working, but they will make it work harder and expend more energy. The other type of maintenance you may not think of is sealing leaks. Up to 20% of the money you spend on heating and cooling may just be flowing out of small cracks near doors, windows, lighting units, and chimneys. Trapping the air by sealing these leaks with caulk will reduce stress on your HVAC unit.
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In order to understand what a stepped-up basis is, first you need to know what a basis is. Basis in real estate is essentially the value of a home discounting any effects of appreciation or depreciation, and is used for tax purposes. It’s calculated as a property’s cost when it was purchased plus the value of any improvements made to the property. When determining the amount of taxable capital gains when selling the property, this is the amount subtracted from the sale price.
Where stepped-up basis comes in is in the case of inherited properties. When a property is inherited, the basis is recalculated based on market values, ignoring both the purchase price and any improvement values. It’s possible that this stepped-up basis causes your capital gains amount to be negative, in which case this can be deducted from your taxable income if it is not your primary residence. Only up to $3000 can be deducted in this way per year, but you can continue to deduct in later years until the loss is settled. The estate can choose to use the market value on either of two dates: the date of the previous owner’s death, or six months from that date, called the alternate valuation date.
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Between April 2020 and March 2021, foreign investors purchased 31% fewer properties than the previous 12 months. The total sales volume was down 27%. In a way, this should be expected, since pandemic lockdowns made transactions more difficult. But it comes at the same time that domestic competition was, and still is, heavy. Competition shouldn’t be a huge issue for foreign investors, since they’re usually already wealthy and intending to pay cash.
That said, restrictions are still loosening in other countries, and they’re in a volatile place even in the US. It’s likely that foreign investment simply needs a bit of time to settle back into place. Though there was a drop of over 50% in dollar volume in China, Canada, and Mexico, they’re still all among the top investors in the US, along with India and the UK. This means it was probably a temporary drop-off due to adverse conditions, not a radical shift in general sentiment towards the US.
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Mortgage rates have been low for quite a while, even despite a bump earlier due to pandemic-related fees. Those fees have now been eliminated, allowing lenders to drop their rates back down. The current average of 2.78% is not quite as low as the January record low of 2.65%, but anything below 3% is very good.
With rates being so low, now is probably a good time to refinance if you didn’t take advantage of the low rates already. But refinancing is not always the right choice, even with low rates. If you’ve already had your loan for a long time, starting over could just make you end up paying more overall. If you do think refinancing may be right for you, get multiple quotes and take steps to lower your rates. You can do this by improving your credit score, increasing your home equity, or paying optional fees upfront called discount points.
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While homes are selling quickly in the current market, the vast majority of those are existing homes. Construction has been slow for quite some time, and is weakened by high lumber prices. Though lumber prices are below their peak in May, wildfires are still hampering the ability to procure lumber. With so few homes being built, sales of new homes hit a 14 month low in June.
This is a problem not only for construction companies, but for the economy as a whole. Without many homes being built, supply is significantly lagging behind the already high demand. What’s more, many existing homes are not in the category of affordable housing, meaning low-income homebuyers are struggling to find something within their budget, especially with prices being high right now.
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Properties selling above the asking price isn’t a new concept. It happens regularly if a property is in high demand or demand is just high in general. However, it doesn’t normally happen with condos, which are usually an option for people who are on a low budget. This year, the number of condos sold, percent of condos sold over asking price, the sale price, and the average price over asking all skyrocketed. The trend began in May, and June saw record numbers across the board.
In a climate of high demand and low mortgage rates, like the current real estate market, properties are selling fast. Very fast. The median days on market for condos halved in the past year. The reason it’s condos specifically is that prices are also high, which means many people are looking for a budget option. They still need to stretch their budget, though, since heavy competition means they’re probably not going to strike a deal without offering over asking price or paying cash.
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See the following link for statistics: https://www.redfin.com/news/condo-comeback-selling-above-asking-price/
The best way to turn a profit through real estate is with investment property. Flippers certainly wouldn’t do what they do without some return on investment, but the return is much greater if you’re keeping the property and renting it out. Of course, not everyone can afford to make that type of investment, but if you can, these tips will help ensure you do it right.
It should be obvious that your bottom line is important, so make sure to take a look at average rent values in the area where you’re buying. If it’s not enough to cover whatever your costs would be, look elsewhere. Also keep in mind vacancy rates; investment property won’t bring in any money if the properties are all being left unoccupied. The second factor is location. You can change a lot about a home through renovating or even demolishing it and rebuilding, but what you can’t change is where the plot of land is. The properties with the highest rental values tend to be in areas near good schools, recreation, and public transport, that are quiet and have a low crime rate. The final thing to look for depend on current trends, so be sure your information is up to date. Short of demolishing the home, it’s quite difficult to change a property’s overall floor plan. By contrast, peoples’ floor plan preferences do change over time. A home with a modern floor plan is most likely to be well received by tenants.
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If you’re looking for a place that is affordable yet in a nice neighborhood, look no further than neighborhoods that are up and coming. The process of gentrification significantly increases an area’s desirability, but unfortunately also significantly raises prices. Areas that have just begun this process, though, are probably still inexpensive.
There are a few things you can look at to determine which neighborhoods are in this category. Two of them involve correlations with hard data that you can access from professionals. The city’s municipal office can provide information about building and renovation permits. A high degree of activity in either of these, but especially renovation permits, implies that the neighborhood is about to become more expensive — but isn’t yet. The other statistic to look for is days on market. Slowly dwindling days on market is a precursor to a highly desirable neighborhood. If this is information you’re interested in, just call or email us, since as your real estate agents, we can help you track it so you can grab the best deals before it’s too late.
The third way to find blossoming neighborhoods may take a wider social network, since it’s not easy to just find the data. This way is to figure out where the young, creative types are going. Young adults and all types of artists generally have lower income and will be looking in cheaper areas, but also seek out trends and will want to know what areas are becoming more popular. In addition, creativity gives neighborhoods a type of personality that strongly attracts multiple kinds of buyers.
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The National Bureau of Economic Research (NBER), a private non-profit economic research institution well known for researching recessions, has declared that the 2020 recession is over. In fact, it ended quite a while ago, and only lasted two months, the shortest recession in history. NBER defines the start of a recession as the month following a peak in economic activity, and the end of a recession as the month at the bottom of economic activity. In this case, those months were March 2020 and April 2020 respectively. The delay in declaration is because it generally takes several months to figure out whether a recession is truly over or not, since there can be ups and downs in between the peak and trough. With this declaration, another downturn would officially be considered a separate recession.
So what does this mean? Well, it doesn’t mean the economy is healthy again. It just means we’re past the worst of it, and are in the recovery stage after the recession. We’ve been in recovery for quite some time, and will continue to be. It’s important to note that while the start of the pandemic and the start of the recession occurred at approximately the same time, they aren’t codependent. Rather, the pandemic was merely an exacerbating factor in a recession that was already approaching. Many of the effects, both psychological and government mandated, of the combined scare of a simultaneous recession and pandemic are still lingering and slowing down the recovery. The major factor keeping us back is lack of recovery in the job market.
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Most of the time, investors look to buy when the market is down and sell when it’s up. This is actually quite useful for the health of the real estate market as a whole, since it makes up the majority of transactions during weak economies, even if it does primarily benefit the already wealthy.
However, that’s not what has happened in this situation. When the pandemic hit, investors were not immediately able to purchase and didn’t have a strong sense of where the market was headed, so investment dropped off dramatically. Prices actually continued to rise throughout the pandemic and even now, meaning there was never a low point for investors to take advantage of. They’re realizing that now, and starting to invest again, expecting prices to continue to go up.
While it’s not a huge cause for concern yet, this is problematic for people intending to buy homes to live in. Investors generally don’t live in the homes they invest in, yet frequently win out during heavy competition due to high cash volume. They’re also not serving the same purpose they do during down markets, since demand is already high. The most problematic type of investor is a flipper, who generates no value or utility at all, merely making a profit off of a home being temporarily vacant.
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The first thing anyone is going to see when looking at a listing is the photos. People aren’t going to be interested if there are no photos. But that doesn’t mean you can just take snaps with your phone’s camera and toss them up there, even with some editing. The fact of the matter is that no one is going to come see your property if it looks terrible in the photos. In addition, while there are plenty of photography tricks to improve the appearance, no one is going to buy your property if it looks significantly different from the photos.
That’s where professional photography comes in. Professional photographers know how to manipulate not the photographs themselves, but the camera settings and lenses, angles, lighting, and even which aspects of your home to highlight. None of these are making false promises. Rather a professional will find the best way to make the truth of what your home is stand out to buyers. Good panoramic shots require a specific type of lens. The colors of your home influence what time of day and which flash settings will provide the best lighting. Pros will seek out intricate details and unique features that make your home stand out from the competition.
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