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FREQUENTLY ASKED QUESTIONS

If you don't find the answer to your specific question or would like additional information, please feel free to send me an e-mail.

1. Q. What is my property worth?

   A. In the areas around Sacramento and El Dorado Counties, there are a few methods of valuation that are utilized most frequently.

   Some agents and sellers prefer to value property based on a Gross Income Multiplier (GRM). They determine what a property's gross annual income has been and apply a multiplier. Multipliers vary based on the location, number of units and property condition.

   A more sophisticated and complex method is utilizing a Capitalization Rate or "Cap Rate". To properly analyze value using a Cap Rate, we will consider your actual annual expenses for maintaining and managing the property and use them to arrive at a net income figure. We then apply Capitalization Rates to arrive at the estimated market value. Cap Rates are used less frequently than Gross Rent Multipliers because some sellers and agents do not chose to do a comprehensive job of documenting and disclosing actual expenses.

   Less sophisticated, but equally popular, valuation methods include a "per door cost" and "per room cost." These methods are sometimes utilized by fee appraisers as a comparison method, to check their conclusions from an analysis utilizing Cap Rates or Gross Multipliers.

2. Q. What should I know about tax deferred (1031) exchanges?

   A. If you would like to own another property, or properties, you should absolutely consider structuring a 1031 Exchange. As you may have heard, the Internal Revenue Code addressing 1031 exchanges has strict guidelines concerning timing for the identification and purchase of the replacement property. In my experience, many potential exchangers (often because they are busy people) wait until the last minute to identify a replacement property. This can be potentially detrimental for the exchange and lead to unfavorable tax consequences. If you are seriously considering a 1031 exchange you will want to talk with your CPA or attorney. In the interim, you will find some useful reference documentation on my Information page.

   If you would like to start reviewing possible replacement properties, please send me an email or call me. I actively watch the new properties coming on the market in this area and can send you information on those that come closest to meeting your requirements for an exchange property.

3. Q. What should I do before putting my property on the market?

   A. .Invest some time updating your income and expense statement. In escrow, buyers will always want to review this information. It's customary in some areas to provide the information prior to formalizing a binding sales contract.

   It's best to go to market without any delinquent tenants on your rent rolls. If one of your tenants is having problems, give them the proper legal notices about getting caught up as soon as possible. Buyers are rarely enthusiastic about closing escrow with a tenant who is in default inhabiting one of the units.

   Curb appeal is important when selling any type of property. Even though cash flow is a driving motivator for income property buyers, they are still influenced by first impressions and pride of ownership. Take a good look at your property for to identify the easy and inexpensive tasks to put on your action list. You may want to have a look at the next question and, of course, you can also contact me for input in this area.

4. Q. How can we maximize the final (post negotiation) sales price of our property?

   A. The best ways to maximize the actual final sales price of your property involve three components and are very specific to each property. Strategizing your sale up front helps insure the best possible result for you.

   Visual Appeal - Regardless of whether the property is a home, estate, apartment house or undeveloped parcel, there are usually some recommendations that a good agent can make concerning quick and inexpensive things you can do to improve the curb appeal and overall impression the property will make on buyers.

   Advance Reports - Surprises are usually not welcomed by sellers, or their agents, during the course of an escrow. For this reason my general philosophy is to advise that my clients obtain and provide the required reports and disclosures in advance of negotiations with a buyer. This serves to prevent extended renegotiations, and possibly a cancellation, after the parties are in escrow. One example of this is the Pest Control Report. In Sacramento and El Dorado Counties, most purchase offers will ask the Seller to provide a report and often ask the Seller to pay for work recommended under Section One of the report. Wouldn't you prefer to know the dollar amount of recommend work in advance? Please see the following Frequently Asked Question addressing inspection reports for additional information.

   Create Urgency - The goal here is to create a sense of urgency on behalf of the Buyers in the marketplace. This response is often created when interested parties are concerned that they may lose the property to another buyer if they don't move ahead promptly with an offer, and also put their best foot forward. The two best times to create a sense of urgency are when the property first comes on the market and immediately after a price reduction. Both new listings and price reductions should be accompanied by a flurry of marketing and advertising activity on the part of the listing agent. It's good to be a seller with two, three, or more competing offers.

5. Q. In regards to marketing and advertising, what should my agent commit to? What kinds of ads, materials and internet marketing should I expect to see?

   A. It's best to get a marketing commitment before you list your property. The extent of advertising that agents will commit to varies widely between communities, property types, price ranges and the agents themselves. I recommend that sellers ask the agent to prepare a written marketing plan as part of the agent selection process. Once sellers have chosen an agent, it is a good idea to ask the agent to sign a copy of the marketing plan and attach it to the listing agreement as an addendum. This way all parties understand what is expected.

   For a complimentary copy of my Investment Property Marketing Plan for the Sacramento and El Dorado County area properties, just send me an email or call and ask me. At the minimum, the marketing plan should include the following:

   • Newspaper and magazine advertising - Where and when will the property be advertised?
     
     
   • Internet advertising - Which websites will carry information on your property? When will your property be live on the web?
     
     
   • Color postcards and brochures - The quality, quantity and distribution of these materials may be dependent on the price range of your property and local marketing customs. Just be certain that you understand and agree with the agent's intentions regarding print materials.

   There are a number of additional promotional tools that I utilize to expose my listings to buyers and agents. Details are available upon request.

6. Q. What will I want to know and do to stay on the correct side of legal issues in a real estate sale?

   A. It's important to work with a broker who understands current disclosure laws and is serious about risk management. In my experience, the basic actions required to stay on the correct side of legal issues involve thorough disclosures, comprehensive contracts and clear written communications. Disclosure requirements and forms vary with the type of property, but the guiding principles remain the same. If the seller is aware of a something that, if known by potential buyers, could affect the value or desirability of the property, they should disclose it to the prospective buyer. There are a number of specific disclosure forms that are required for improved properties. Prudent sellers and brokers deliver their disclosures in writing before or during negotiations and have them acknowledged by the buyer with a date and signature. Not to worry, I will coordinate and track all of this if you choose to work with me.

   In my experience, detailed real estate sales contracts are extremely important. The standard forms provided by the California Association of Realtors are fine although there are many occasions when an addendum or two should be attached. If there are terms or conditions that are not addressed in the standard form, they can and should be spelled out comprehensively. When writing purchase offers and counter offers, it's best to give adequate consideration to realistic timing for the conditions that will need to be met. (For multi-family properties, these conditions can often include the buyer's financing, performing inspections, getting Estoppel Certificates signed by the tenants, closing escrow on the "downleg" of an exchange and others.) It's difficult to estimate all of this with absolute certainty but important to think it through. Lastly, when you are in escrow, your broker should track the events that need to occur carefully to be certain that you are performing as contacted for and ask your agent to be certain that the other party does the same.

7. Q. What do we need to know about trusts, probate and selling a property that we have inherited?

   A. There is quite a bit to know. Some of the first distinctions concerning the real estate sale process for these properties depend on whether property ownership was conveyed by a Trust or a Will. I always advise clients, and prospective clients, to talk with their estate or trust attorney about the legal issues right away. Once a seller has an overview of the regulations and guidelines involved, we can discuss the appropriate forms and process for the sale of the property. In regards to California disclosure requirements, sellers do not utilize the Transfer Disclosure Statement form for probate or some trust sales but will still want to disclose information they have about the property that could affect its value or desirability. (Please see the previous Frequently Asked Question about staying on the correct side of legal issues.) Some estates and trusts require, or may benefit from, a court confirmation hearing. As an added note, I have a good amount of experience with trust and probate sales. If you would like, I can also recommend local attorneys who can help you to define and work through the legal processes concerning your property.

8. Q. What, if any, inspections should I do on my property before we put it on the market?

   A. Prudent sellers will provide as much information as possible before they enter into a sales agreement. This serves to eliminate surprises and late-stage negotiations, and possibly a cancellation, after the property has been taken off of the active market. I usually recommend that the sellers, or their brokers, order the following reports, at a minimum:
   
   For residential and multi-family properties:

   • Pest Control Report (includes termites, dry rot etc)
     
     
   • Natural Hazards Disclosure (this is a mandatory disclosure)
     
     
   • Preliminary Title Report
   
   For undeveloped land:
   • Soils and / or Geology report
     
     
   • Percolation Test report
     
     
   • 'Will Serve' letters concerning the availability of utilities to the property.
     
     
   • Preliminary Title Report
     
     
   • Natural Hazards Disclosure (this is a mandatory disclosure)
   
   For rural properties:
   • If you have a well instead of public water, a water quality test is advisable.
     
     
   • If your property corners have not been surveyed in recent history, and especially if the corners are not marked, you should consider having the property surveyed. Some buyers will prefer an ALTA title policy which requires a survey but is also more expensive.
     
     
   There are a number of additional reports and information that can be provided to buyers, and that they may request, during the course of an escrow. You will want to ask your broker to differentiate the information you should provide from that which the buyer will obtain, by their own means, for your particular property.
   
   
9. Q. If we put our residential property on the market while it is tenant occupied, how can we convince our tenants to cooperate with showings?

   A. These suggestions are directed towards sellers of single-family homes and small income properties (2 to 3 units). Income properties with four or more units (as well as some duplexes and triplexes) are usually offered "subject to inspecition" during the contingency period. This means that the buyers do not see the interior of the units until their offer has been accepted.

   Showing these properties can be a challenge. THere are a couple of possibilities and the best choice depends on your property and yoru tenants.

   Some of my sellers have been successful in eliciting cooperation from their tenants by offering them a cash bonus if the tenant keeps the property clean and available for showings and the property is sold during their tenancy. The terms of these arrangements are very flexible and can be addressed to the situation. Some landlords find this concept considerably preferable to offering the tenants a rent reduction during the marketing period.

10. Q. Can we do a 1031 exchange from some units that we own in Fair Oaks to a commercial property in Seattle?

    A. Clearly I must advise you to talk with your CPA or tax advisor on this question. I can tell you that many property owners have completed exchanges from properties in this area to properties in other areas. The IRS guidelines for an IRC 1031 exchange refer to properties held for the production of income or investment. If your property meets this description, it's certainly worth talking to your tax advisor and or legal counsel. "Like-kind exchanges" can be pretty diverse. There are a number of websites to visit for additional information including: landam.com, firstamex.com and fnx1031.com.

DISCLAIMER - Please note that I am a real estate broker and not an attorney. Information on this website is not to be construed as legal advice to any person or for any situation. Please consult with your attorney or a recommended attorney in your area for legal advice.