To Purchase or not to purchase earthquake insurance, that is the question

While friends and relatives post their images of frozen, snowbound misery from the Midwest and East Coast, the Bay Area continues to enjoy the advantages of a mild winter with the occasional, though not enough, rain shower.  The test of California’s weather courage has always been a running punch line.   It is hard to complain about February days in the 70s, only breaking out the sweaters and jackets in evening when the mercury dips into the high 40s and low 50s and it’s why people flock to the area in search of tract homes in the half-million dollar range and higher.

But California isn’t without its faults.  Literally.  While residents of the Golden State continue to pray for even more rain, it isn’t dangerous weather on the minds of homeowners and building managers.   It’s earthquakes.  Recent natural catastrophes in the east like hurricanes Sandy and Katrina, flooding in the Midwest and ice storms in the east remind of the need for vigilance as Mother Nature doles our her wares.  But one cannot prepare for earthquakes, though the California Earthquake Authority is trying.

Homeowners and building owners can purchase earthquake insurance.   But like all things in the insurance industry, the question isn’t one of the total protection, it’s about the cost benefit analysis.

“It would have to be an enormously destructive earthquake to be of benefit to the homeowner,” Insurance Agency LLC in Scotts Valley.  “We sell a lot of earthquake insurance here through our agency and every story is different.”  Cassidy said he does not carry earthquake insurance for his own property.

“When my wife and I decided to spend some money allaying our earthquake paranoia, we decided to spend some money having a contractor put in cripple walls and additional bolting of things,” he said.  Cripple walls are small wall structures built between the first floor and the foundation of a structure, allowing them to bear the seismic weight of the load of the structure.

“It really does depend on what the cost benefit analysis is,” said Cassidy.  “With a 10 or 15 percent deductible, which is what most policies offer, if you have a million dollar home,  then your deductible is $100,000.”  That’s a lot of money to lay out in the event of an earthquake powerful enough to do that much damage to your home.

“When you’re dealing with high rise rise condominiums, multi-level home or if you’re in an area where there is geographic liquefaction or serious catastrophic risk, then I would highly recommend earthquake insurance,” said Melinda Gedryn (cq) of Coldwell Banker San Jose. “Replacing your structure is not cheap with severe damage and so in that sense, it may well be worth having, again depending on your situation.”

But insurance and real estate professionals also think that after a natural disaster so destructive, the question arises as to what the Federal Emergency Management Agency would do.  After Katrina, for example, FEMA worked with homeowners to help them get back on their feet.  Would they do the same after a destructive earthquake?

And it’s not as if buying earthquake insurance is a simple matter of buying a policy.   The annual cost can be equal to or greater than what homeowners pay for their regular homeowners insurance, doubling their annual premiums.

“Private carriers and the Earthquake Authority run some pretty sophisticated mapping models based on address of a house.  They know what type of soil it’s sitting on, what the last earthquake did in damage and what the probabilities are,” said Cassidy.  “So the deductible will be the same, but the pricing will be based on the actual exposure.”  Thus, a house sitting along the Loma Prieta fault line is going to be more expensive to insure than a house located in a more stable area.

“Nuances affect the price,” Cassidy continued.  “What kind of construction is it?  Is it on a slab or not?  So, the quote that a company offers will have a 10, a 20 or a 25 percent deductible, or they may make the decision to offer only one deductible based on their risk analysis.”

But earthquakes aren’t really predictable in any way.  On the California Earthquake Authority’s webpage, the organization points out that the 1994 Northridge Earthquake in Southern California, which registered 6.8 on the Richter scale, occurred along a previously unknown fault line.  Even the science can only reach so far.  California is also home to two-thirds of the earthquakes in the U.S. registering more than 100 every day along more than 2,000 known fault lines.

“Each person is going to have different preferences,” said Demi Chizgi (cq) of Keller-Williams in Cupertino.  “We should all have earthquake kits and prepare for emergencies and be ready.  But reality sets in.  An earthquake feels so far away and if someone is in the middle of buying a house and doing all of those details, it just seems like something that’s not important.”  Chizgi said that every homeowner needs to do their own personal risk tolerance, just like they would when they’re investing money.

“Spending $1,000 a year on a policy you’re not sure you’re ever going to use is not something people warm too very well.  Fires, floods- they happen all the time and we see that,” said Chizgi.  “But earthquakes that do such extreme danger don’t feel like something real that they need to prepare for.”

Chizgi said the one thing that would make earthquake insurance a more appealing commodity is a lower price.  “If people hear they’re going to pay another $900 annually on a homeowner policy, they’re not as likely to buy it.   If it were offered for another $200 per year, it might be easier to make that purchase,” she said.

Cassidy said he can imagine being in a phase of life where spending $1,000 to $2,000 a year on earthquake insurance might be worth it.  “But personally, I can’t imagine it right now unless I had 100 percent equity and it was my primary asset.  Then I could see doing that.”

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Redwoods walk gives visitors chance to learn

Park employees tell tales about history, loop animal life

BIG BASIN- The ancient giants of Big Basin Redwood State Park have many secrets to share, if the right person is there to tell their stories. 

Susan Blake is an interpreter at the park.  The seven-year veteran said as much with her arms and hands as she does with her voice.  “I speak redwood, banana slug, oak, raccoon,” Blake said before starting the Redwood Loop Walk.  The half-mile walk takes about 60 to 90 minutes because there is so much history and science to learn.  But with Blake, there isn’t a single dull moment. 

At the start of the tour, she explained that Big Basin is the oldest state park in California.  Established in 1902, it originally spanned about 3,500 acres.  The park now extends to across 18,000 acres and boasts the “largest continuous stand of ancient coast redwoods south of San Francisco,” according to the park’s website.

Ancient coast redwoods are the tallest species of redwoods, achieving heights of more than 200 feet. 

As the path from the parking lot winds into the trees, one oak can be seen with a small lamp jutting out of its side.  Blake said the fixture is all that remains of a picnic ground from when the park was a resort in the first half of the 20th century. 

The park was originally founded by photographer Andrew P. Hill.   Hill had come to the Santa Cruz redwoods to photograph a fire that had been doused with wine from a local winery.  The property owner found him and said he would either have to pay to take photos or get off his land.  Blake said the incident so incensed Hill that he decided to start a group to save the redwoods.  After an intense letter writing campaign, California Gov. Henry Gage established the park. 

The desire to preserve nature was unusual at the turn of the century.  “At the time, nature was really seen as something to conquer, to use, that the resources would be unlimited,” Blake said.

Tenacious Trees

The first stop on the loop walk-which is usually led by volunteer- demonstrated the tenacity of the redwoods.  Blake hopped the fence and placed her feet in the middle of a wide circular opening within the trees.  She directed her attention to skinny, needled, red and green twigs sticking out of the ground just next to one of the larger trees on the edge of the ring.   “Those are the babies,” she said, “and this is the teenager.”  She pointed to a taller tree that is about a foot wide. 

The “babies” and “teenagers” are new trees growing out of the roots of the older, more established trees.  Blake explained that older trees damaged by fire sometimes send out a hormone, or a chemical signal, to start sprouting new trees from its roots.  “This is one of the many adaptations of the redwoods,” Blake said.

And when the original parent tree dies and falls down, it allows the smaller baby trees to get enough sunlight to grow tall and wide, leading to the circular pattern known as the fairy ring. 

Deeper into the forest, the fresh, chilly air feels slightly damp.  It carried a scent like a mixture of a hardware store and pine only not so pungent.  In the distance an acorn woodpecker knocked softly.  Just next to the path is a downed redwood, its height somehow more imposing now that it’s parallel to the ground.  Blake explained the reason there’s no moss on this tree, or any of the redwoods, is because their bark is full of tannins, the same acids that give Cabernet Sauvignon its lingering bite.

The tannins repel moss and the “FBI,” a term that Blake used for a host of fungi, bacteria and invertebrates.  But as the bark slowly breaks down, the tree begins to release its nutrients onto the forest floor, which are processed by the microscopic critters in the soil.  The nutrients, in turn, make the soil fertile for future redwoods to grow. 

Blake explained that a downed tree is critically important to the health of the ecosystem of the forest.  As the tree decomposes – which can take 1,000 years or more – it functions as a home for host of animals large and small.  “I like to think of a decomposing tree as a time-release vitamin,” Blake said.

Eventually the path winds around to a tree that has a gash twisting up its side.  The tree can fit at least three adults within its embrace.  At the top there is a perfectly circular opening toward the sky.  It’s like standing inside a giant spyglass. 

This tree, aptly named the Chimney tree, is “vibrantly alive,” Blake said.  The tree, although hollow, still has its layer of living tissue, called the cambium layer intact.  Blake also noted that in time, the bark will grow around the tree to close up the hole in its side.  But the heartwood, the dead core of wood inside the tree that fives it its strength, will never regrow.  Blake stands within the tree and says “in 1,000 years, I would be standing inside a hollow tree.” 

-By Cynthia McKelvey- Santa Cruz Sentinel- Bay Area News Group- Wednesday, February 12, 2014

 

 

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How to Buy a HUD Home video

Mike talks about how to buy a HUD home including what is a HUD home, who can buy and what to expect in during the process. For more information contact Mike Castle at (831) 588-1988.

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Affordable Boulder Creek Home

Affordable Boulder Creek Home

Why rent when you can buy? Remodeled kitchen, nice view of the forest. Just 3 minutes and 1.3 miles to downtown Boulder Creek. Close to BC Country Club, golf, tennis, swimming, and dining. Short drive to Big Basin State Park.

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Housing gets tough for buyers, renters (Part 2)

For rent:  Shortage of units keeps apartment prices high

Rents in large Bay Area apartment complexes flattened out in the last quarter of 2013, according to a report Wednesday from RealFacts, continuing a slowing trend from the previous quarter.

The average rent for a Bay Area apartment in complexes with 50 or more units was $2,084 a month, up 10 percent from a year ago but almost unchanged from $2,080 in July-September quarter.  Average Bay Area rent ranged from $1,728 for a studio apartment to $2,766 for a three-bedroom unit.

In Oakland the average rent was $2,133; in Concord $1,357; in San Jose $2,022; and in San Francisco $3,056.

The Bay Area’s burgeoning workforce has put pressure on both housing and rents, creating shortages and pushing prices beyond the reach of many people with good jobs but not high-paying tech jobs.

Renters complain of sharp rent increases and a shortage of vacancies that’s caused for long lines of would-be renters to form in front of studio apartments.

Sara Kidder, 38, of Oakland, said she and her roommate wanted to move to a newer place and began looking last year.  They found 80 people waiting to view one studio apartment, their credit histories in hand.

“And a lot of the places were awful,” said Kidder, who runs an event coordinating business.  They decided to stay in their current apartment, which, while small and costing $2,250 a month, is in a trendy area near Lake Merritt.

“Supply certainly is not going to outstrip the demand,” anytime soon, said Nick Grotjahn of RealFacts.   “San Francisco is hiring like gangbusters, and that’s really the driving force here.”

Also, few new complexes have opened since the downturn, he said.   The backlog is beginning to be addressed by developers “but it will take a couple of years before we see anything that’s going to slow rents down.”

People looking for apartments in the South Bay should “keep their running shoes and their checkbook by the door,” said Ron Stern of Bayrentals.com, which helps people find rental housing.

“The competition is pretty fierce,” he said.   “If you’re number five in line you’re too late.”

Veronica Ramos, who directs a migrant worker project for the Santa Clara County School District, was shocked at the rents when she relocated to the South Bay from Stockton.  She moved in with her parents in Campbell.   This week, she finally landed a studio apartment in Campbell for $1,800 a month, with a hefty deposit.  “How do you afford a studio apartment and save money for a house?’ she asked.

While Ramos looked for a place to rent, she saw “entire families looking for a one-bedroom apartment.”

Elisa Fischer-Somit, a legal secretary, and her husband, Jacob, of Lafayete, were hit with sticker shock when they started looking for a bigger place recently.  Not only had prices jumped 30-40 percent in the 18 months they’d lived in their one-bedroom, but there weren’t that many available.

“Now we’re looking at a different option, maybe buying a condo instead.  We’re thinking that maybe a mortgage may not be that much more than paying rent.  Buy again, we’ve noticed it seems like not a whole lot of people are selling,” she said.

Buying may mean moving farther east in Contra Costa County, lengthening her commute to Oakland.

“It’s been very stressful for us.  My husband grew up in Concord.  We both want to stay and not have to move way far away to get the size house we want,”  she said.

Some renters are thinking about leaving the Bay Area for some place more affordable.

Stephanie King, 33, and her two children, have been living with her parents in Pleasanton while shopping for an apartment there.  She’s gradually coming to the realization that she may not be able to afford one in that pricey community.

“Modesto and Stockton are looking better and better,” she said.  “I went to an open house this past Saturday.  It was a 700-square-foot, two bedroom for $1,100 a month.  It was super tiny.  There had to be at least 50 people there at the time I was there, and they were still coming when I left.  Central Valley, here I come.

By:  Pete Carey  Bay Area News Group  Thursday, January 16, 2014

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Housing gets tough for buyers, renters (part 1)

For sale: Tight supply pushes sales to lowest in six years

     The ongoing tight Bay Area housing market pushed December home sales down to their lowest level in six years, driving the median sales price for single-family homes up 21.3 percent – to $570,000.  

     Across the nine-county Bay Area, December saw only 4,584 single-family homes sold, the lowest number for any December since 2007 according to data released Wednesday by DataQuick.

     The dip was helped by a sharp drop in foreclosure resales and short sales, which fell to less than half of what they were a year ago, the real estate information service said.  The continuing decline in foreclosures is good news for the region’s housing market, which is likely to see  a spring rebound as thousands of homeowners finally above water on their mortgages may be in position to sell for the first time since the downturn.   A larger number of homes for sale should also dampen, but not stall, further price increases. 

     “Our next opportunity to get a good read on where the market’s heading will be spring- March at the earliest- because that’s when a lot of traditional buyers and sellers get back into the housing market,” said DataQuick analyst Andrew LePage.  “You still have people, particularly in the inland areas, who owe more than their homes are worth and can’t practically sell yet or are going to wait until spring.   Then there are those who are holding out because they’re not content yet with what their home will fetch.” 

     Like the rest of the Bay Area, Contra Costa County had its lowest December single- family home sales in seven years.  Alameda County’s December sales were at a six-year low and Santa Clara County saw a five- year low. 

     San Mateo County, which had a higher median sale price, had a 10.8 percent increase in sales from the year before.   “High-end areas tend to be more stable because prices tended to not go up as much in the boom times or go down as much during the mortgage crises,” LePage said.

     Along with reluctant sellers, the Bay Area and much of California continue to see sluggish new home construction, further stifling sales. 

     “Inventory has been incredibly low, and that continues to be our biggest challenge and our biggest problem,” said Myron Von Raesfeld, a Santa Clara County- based broker at ClickHome Realty and president of the Santa Clara Association of Realtors.  “Last week, the entire city of Santa Clara had 28 townhomes, condos and homes on the market.  I have never seen anything like that before.” 

     The number of all types of homes that sold for less than $500,000 in December was down 28.9 percent from last year, according to DataQuick.  Homes that sold for more than $500,000 were up 12.3 percent. 

     The lack of inventory drove December’s median Bay Area price for all types of homes 23.9 percent higher than the year before and represented the 21st consecutive month of price increases, Data Quick reported.  The Bay Area’s median price has risen more than 20 percent on a year-over-year basis for 14 consecutive months. 

     The result was that “buyers took a break for a couple of weeks,” said Laura Wucher of Better Homes and Gardens Mason- McDuffie Real Estate, who works with buyers and sellers in Contra Costa County.  “They’re just a little more skittish.”   

   The median sale price of an existing single- family home was up 30.2 percent in San Mateo County to $846,500; up 24.7 percent in Alameda County, to $560,000; up 24.2 percent in Contra Costa County, to $410,000; and up 13.7 percent in Santa Clara County, to $685,000.  

     First- time home buyers Himanshu and Neeti Sharma were living in Emeryville and looking to buy somewhere along the BART line to get to their jobs in San Francisco.  But they were repeatedly beat out by buyers offering all cash.

    When the market slowed in December, the Sharmas paid list price for a three-bedroom home in Pleasant Hill.  

    “We got lucky,” the Sharmas said.  “December was a great time to buy.”

     If the trend of year- over- year price appreciations of 20 percent continues, a typical home would sell for $50,000 to $60,000 more by spring, DataQuick President John Walsh said in a statement.

     “If prices go up,” LePage added in an interview, “a lot more people will have equity, or at least can break even on a sale.  That’s the theory.  The problem remains on the supply side.  It’s the Bay Area, after all, and there is not a lot of new construction going on.”

                    By Dan Nakaso and Pete Carey-  Bay Area New Group- January 16, 2014

 

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Report: 3 banks short on relief tests

     Washington (AP)-  Three of the biggest U.S. lenders failed this year to meet some requirements for giving relief to struggling homeowners in a $25 billion settlement over foreclosure abuses, according to an official. 

    The monitor overseeing the settlement said in a report issued Wednesday that Bank of America, JP Morgan Chase and Citigroup together failed to meet seven of the 29 requirements tested in the first half of the year. 

    The failures include requirements to notify borrowers of any missing documents in mortgage modification applications within five days of receipt and to give borrowers accurate information before foreclosure is started.  Monitor Joseph Smith said the banks had taken steps to correct the errors. 

     “We proactively addressed the monitor’s findings and are pleased that he determined our corrective action plan is complete,”  JP Morgan spokeswoman Amy Bonitatibus said.

      Citigroup said that it “remains committed to fulfilling the terms of the national mortgage settlement for the best interests of its clients.”  The bank said it became aware of some problems in May and began taking corrective action. 

     A Bank of America spokesman didn’t immediately return a call seeing comment.    

     The three banks, Wells Fargo and ResCap parties (formerly Ally Financial and GMAC) agreed in the settlement with the federal government and 49 states to provide relief to borrowers such as reducing interest rates and monthly payments. 

                                                               -Bay Area New Group, Thursday, December 5, 2013

 

 

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Market Snapshot

Calif. median home price: September 2013:
California: $428,810
Calif. highest median home price by region/county September 2013: San Mateo, $908,000
Calif. lowest median home price by region/county September 2013: Glenn, $134,000
Calif. Pending Home Sales Index: September 2013: Decreased 1.8 percent from 108.3 in August to 106.4 in September.

Calif. Traditional Housing Affordability Index: Second Quarter 2013: 36 percent (Source: C.A.R.)

Mortgage rates: Week ending 10/31/2013 (Source: Freddie Mac)
30-yr. fixed: 4.10% fees/points: 0.7%
15-yr. fixed: 3.20% fees/points: 0.7%
1-yr. adjustable: 2.64% Fees/points: 0.4%Image

Photo via San Jose Mercury Newspaper,

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Inspecting the Home Inspection

After the price haggling and before closing, home inspections are an essential part of the homebuying process. Here are the top 5 misconceptions:

 

Considering that a home purchase is one of the biggest investments you’ll ever make, it’s smart to enlist the help of a professional home inspector prior to buying a property. However, many buyers aren’t aware of what to expect from the inspection and what to do with the results.

To separate fact from fiction, here are 5 major misconceptions about home inspections:

1. All home inspections are the same: The truth is that only 35 states currently regulate the home inspection agency and require licenses, and even those that do may not require much training.

“Even in states that have licensing requirements, there is a huge variation in the type of inspection you will get from each company. And just by having a license, you are not assured of getting a thorough inspection,” says Kenneth Peter, certified home inspector and franchise owner with Pillar to Post Home Inspectors in Boulder, Colo. “Comparing home inspectors and companies can be difficult, but you must perform your own due diligence for your protection.”

2. Inspectors will find everything wrong with a property: Actually, a home inspection find major issues with major home components including the roof, structure, heating/cooling systems, attic, electrical and plumbing. Inspectors aren’t going to scrutinize small details, like broken blinds, minor carpet stains or other cosmetic items.

“Inspectors give a quick overview of glaring faults that can easily be found. For example, if they can’t gain access to an attic at the time of inspection, they can’t find items there,” says Kurt Wannebo, CEO and broker, San Diego Real Estate and Investments, San Diego.

3. Inspectors will issue a “pass” or “fail” grade on the home: “Not true,” says Bruce McClure, home inspector and author of “Buy or Run”(Inspectors International Press, 2013). “Inspectors report on [ the home's ] condition, and then it’s up to the buyer to decide if they want to proceed with the sale. The inspector also shouldn’t comment on the price or recommend that the client buy or run.”

4. Inspectors will provide repairs or repair quotes: Wrong again, the experts say. “Inspectors do not do repairs and they’re not there to asses the value or cost of anything not working,” Wannebo says. Once the inspection is done, you’ll have an opportunity to renegotiate whether you want the seller to fix the problem or you want credits to repair or replace items, but the inspector does not take part in this.

5. The more you pay, the better the inspection will be: In reality, many companies and inspectors charge more than others but don’t deliver a more thorough inspection for your dollars.

“The reputation and experience level of a home inspector always determines the outcome of an inspection, not the price tag,” says Ralph LaTorrace, broker/owner of LaTorraca Realtors in Bloomfield, N.J.

Peter says these and other misconceptions persist “because people buy homes so infrequently that they don’t know or understand the process. Hiring an inspector is much more difficult than many other purchases, so you need to do your homework.”

By Erik J. Martin, Bay Area News Group, Sunday Homes Section, December 1, 2013

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How Many Homes in the Country Are Still Underwater?

In addition to low housing inventory, the unprecedented amount of monetary easing from the Federal Reserve has acted like a life preserver to the real estate market. However, many Americans still find themselves underwater or anchored to their current homes.

In the third-quarter of 2013, the national negative equity rate declined at its fastest pace on record to 21 percent of all homeowners with a mortgage, according to Zillow’s latest Negative Equity Report. In comparison, 23.8 percent of homeowners with a mortgage were underwater in the previous quarter. The peak was made in the first quarter of 2012 at 31.4 percent.

The national negative equity rate has now declined for six consecutive quarters, and fell below 25 percent earlier this year for the first time since Zillow began using its current methodology in 2011. In fact, around 1.4 million American homeowners were freed from negative equity during the third quarter. While this is a significant improvement, many people are still trapped in their homes.

Across the nation, there are approximately 10.8 million homeowners who still owe more than their homes are currently worth. Zillow also finds that the effective negative equity rate — homeowners with less than 20 percent home equity — is at 39.2 percent. Meanwhile, roughly one in seven homeowners owe more than double what their home is worth.

A homeowner technically reaches positive equity when the market value of the house exceeds the outstanding loan balance by any amount, but the associated costs of listing a house and moving prevents many Americans from selling. Zillow notes that listing a home for sale and buying a new one typically requires equity of 20 percent or more to comfortably meet related expenses.

“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter. We should feel good that we’re moving in the right direction and at a fast clip,” said Zillow Chief Economist Dr. Stan Humphries. “But negative equity will remain a factor for years to come, and must be considered part of the new normal in the housing market. Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help.”

With the help of centrally-planned interest rates and low inventory levels, home prices have been on the rise. In September, home prices across the nation increased on a year-over-year basis for the 19th consecutive month. According to CoreLogic, a property information and analytics provider, home prices jumped 12 percent in September from a year earlier. In fact, home prices have posted double-digit gains for eight straight months.

Home prices are still 17.4 percent below their bubble peak in April 2006, but every state logged an annual increase in September. West Virginia and Arkansas posted the smallest gains at 0.9 percent and 1.3 percent, respectively. Looking ahead, Zillow predicts the negative equity rate among all homeowners with a mortgage will decline to 18.8 percent by the third quarter of 2014.

 

Originally appeared on Wall St Cheat Sheet

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