Over the last decade, the Los Angeles real estate market, and much of the California real estate market for that matter, was rather inflated in price.  Since a recession has caught up to the high prices and overzealous loans issued by Los Angeles real estate professionals, the market is left with lots of short sales, foreclosures and bank owned properties.

Because of this, the Los Angeles real estate market is in a state of flux, trending back to lower (and more reasonable) prices based on the current cost of living throughout the United States.

Whether you’re interested in commercial real estate, residential real estate to live in, or residential real estate to generate income in the area, talking to a Los Angeles real estate broker is the best way to get some information regarding the home-buying process and check up on current listings.   Here are a few key terms to learn so you can prepare yourself for the process.

Cash Flow:

The amount of cash you generate from an income-producing property—your cash flow should be enough to cover the expenses of the property as a rule of thumb, such as mortgage, utilities, improvements and taxes.

Closing:

The last meeting between all parties involved with the sale of a property, where funds actually exchange hands legally.

Closing Costs:

All the expenses that arise for buyers and sellers that are a result of the actual transaction of a property—taxes, title insurance, credit report fees, appraisals and document prep fees are all examples of closing costs.

If you’re a first-time buyer, talking to Los Angeles real estate brokers can get a little overwhelming, especially if you’re just trying to gather information and aren’t necessarily in the buying stage yet.

Real estate in Los Angeles, like the rest of the United States, is highly regulated and many professionals are required to effectively buy or sell homes.  While a good Los Angeles real estate agent can always guide you through the process and give you a good window to real estate listings in your price range, it’s always good to be armed with a little information of your own.

In our continued effort to help first-time buyers get familiar with the Los Angeles real estate market, here are a few key terms to know when beginning to hunt for available houses.

Bill of Sale:

Basically a receipt for your house or property.   A bill of sale is a legal document that details the transfer of ownership of a title to an apartment of house.

Blanket Mortgage:

A mortgage that covers more than one property a buyer is financing—some lenders will cover two or more properties under one mortgage.

Blended Payments:

Loan repayment for a home or piece of property where the same amount is paid each period, but the composition of interest and principal fluctuate. This structure helps keep payments consistent for buyers.

Broker:

A real estate broker is simply a real estate agent that is licensed to list properties. Los Angeles real estate brokers are licensed to list real estate in California.  A mortgage broker helps arrange funds and negotiate contracts with lenders on behalf of buyers.

If you’re a prospective home buyer or investor looking to capitalize on the lower prices of homes in Southern California, you’ve probably shopped the market and found a number of foreclosures and short sales that have attractive prices.

But if you’ve ever made an offer on one of these homes, especially if you’re checking out real estate in California, you know that these listings are oftentimes very difficult to get.  In addition to the red tape that goes along with lenders approving short sales and offers exceeding listing prices, (sometimes by as much as $100,000), these homes also usually carry other disadvantages with them as well, such as maintenance needs. They may even just be in neighborhoods that aren’t attractive to investors.

If you’re an investor, a quick internet news search for “California real estate” will yield a slew of negative predictions, especially in the last couple months.  Though home sales were up pretty significantly in May over 2009, a lot of real estate experts are predicting a market “hangover” based on recent government incentives that expired in late April.

One of the words you might hear thrown around is “shadow inventory,” a name with ghastly connotation that almost seems to describe haunted houses or cobwebbed shacks hidden somewhere deep in the woods.  Really, the term shadow inventory isn’t necessarily a totally bad word.  Though it can affect the overall market, it has a very broad definition and might even be semi-positive for those looking to close on a home at a price much lower that southern California real estate has sold for in previous years.

In a nutshell, shadow inventory refers to houses that are on standby to be sold in some sort of distressed sale. Generally, they are those that have been foreclosed upon or repossessed by banks and are waiting to be put on the market.  Lots of real estate experts will include a vast amount of other properties in their definition of shadow inventory as well.  Some include homes where owners have stopped paying their mortgage, and others even count homes owned by buyers that wish to sell but are holding back because of the down market.

So shadow inventory is really just a “list” of homes ready to be placed on the market at lower market value.  If this number is high, experts worry because if tons of homes flooded the market under value, the real estate market as a whole would suffer.  We say the market would “suffer” because average market value might decline, but also discounted homes might prevent fair-value homes from selling in the same neighborhoods.

While prices are lower for buyers looking for a home, short sales and foreclosures usually are sold at a loss to lenders, so the long term effects could include rising mortgage rates and fewer lenders in general.  This also hurts the return of investment on those looking to sell their homes, because buyers are more likely to make offers on the discounted properties.

In essence, shadow inventory is the amount of poor inventory projected to be available in the housing market.  They are usually distressed homes in need of some kind of distressed sale.

While some less-optimistic real estate experts believe that a glut of shadow inventory will negatively affect the market, typically these homes aren’t all placed on the market in amounts great enough to saturate the industry and drive down market prices.

While a high amount of shadow inventory is not desirable for market value or investors, it’s not necessarily a great indicator for severe market disaster either—especially since the definitions can be so broad.  High shadow inventory could actually mean it’s a great time to buy, just be sure to check the numbers in your prospective neighborhoods to be sure you’re making a wise investment decision.

In essence, a short sale is getting a lender to take a loss on their initial inflated terms of mortgage, allowing the homeowner freedom from the initial debt. This can be a very convoluted process, since many lenders may be involved and all will have to agree on the loss.  A buyer is necessary as well, and though short sales typically have a very attractive price tag, most of the time cash is the preferred method of payment since convoluted financing is what caused the unreasonable mortgage to begin with, and cash is much better to cover losses than credit that may not be there in the future.  It’s not uncommon for there to be at least 10 or 20 offers on a home being short sold, and oftentimes the offer with the most cash constitution—not necessarily the highest dollar amount, is the most desirable.

This can be a good thing for investors, as they typically have much greater capital than families or first-time buyers, but the process can be extremely arduous and contain rolls of red tape based on the number of parties involved that have to negotiate and agree on the deal. Many short sale offers ultimately fall through.

This is where the Obama Administration is attempting to step in. With a new standardized short sale plan that is rolling out this year, parties involved are required to use uniform documentation, pre-approved terms and accelerated turn-around times in an attempt to avoid the long drawn out negotiations that sometimes ruin short sale offers. It also offers incentives in the way of homeowner relocation grants, mortgage servicing fees, real estate agent commissions and stipends for secondary lenders and investors.

Though the jury is still out as to whether the streamlining will be effective and encourage more short sales to be initiated and taken to completion, it seems any kind of standardization process will be in favor of investors with cash capital that can benefit from purchasing these homes, as well as homeowners that need to free themselves of over-inflated mortgages.

If you are interested in learning more about the short sell process or want to invest in properties that are offered for short sale  please call me at 818-241-5196.

And again the same pattern started apx.  2.5 years ago and it was devastating to see all these homeowners in default. I believe we all learned a few lessons this time around.

• 1-Don’t buy a house if you can’t truly afford!
• 2-Don’t trust a “too good to be true” loan program!
• 3- Don’t borrow again you equity so much!

That said; now let’s concentrate on today’s market. I feel the market is turning around. There is a big demand of housing in our area, recently  every e bank owned property that I have put an offer for my clients have received a minimum of 10-15 offers  and the chance of buying a house for an average buyer is very small compare to an all cash investor.