TANNER HOSS: You mentioned the California Coastal Commission. What does that add to the process?
MITCH ROCHELEAU: So that’s a really interesting one. From what we’ve seen, working on homes in the coastal regions, is if the property is subject to the California Coastal Act, which kind of a general rule of thumb is 1,000 yards inland from the coast — that’s a very, very, very general way to describe it. There’s
kind of more nuanced definitions of it as you move up and down the coast, and depending upon the area or jurisdiction that you are working in, but the 1,000 yards inland — if your property is in that area, it’s going to be subject to the California Coastal Act.
If it’s subject to the California Coastal Act, that’s — in our mind, as the architect, we’re immediately adding, right now, probably one year on to our schedule for the project because it has to go through a series of design reviews. It has to be reviewed by the California Coastal Commission. And, you know, if you are an investor and you have two pieces of property along the coast — let’s just say, in a theoretical situation, one which is not subject to the California Coastal Act and one which 15 is — I would definitely — I mean, as an architect you want to advise your client, working with a Realtor, to go with the property which is not in the coastal zone.
TANNER HOSS: So would you recommend having a brief meeting with an architect prior to even purchasing a property?
MITCH ROCHELEAU: Absolutely.
TANNER HOSS: Especially if it’s a coastal property?
MITCH ROCHELEAU: Absolutely. The more, I think, the larger scope of the project that you are trying to pursue, I think the need to engage an architect early in the process increases.
TANNER HOSS: So, Mitch, when does a client typically engage an architect?
MITCH ROCHELEAU: So in most cases, for a single-family custom home for an end user, the client will engage us after they purchase the property, work with their Realtor, own the piece of property; however, there have been some instances where a client — and this has mostly happened with developers — will engage
us prior to a property purchase.
There’s a standard AIA contract that you can use, which is called a site analysis contract, where you can engage an architect to go on to a piece of property and do a preliminary site analysis. Now, this includes things such as preliminary zoning analysis. We’ll look at the topography of the site. We’ll look at what kind of environmental regulations will apply to that particular site along the coast. We’re often dealing with the California Coastal Commission.
So I think, you know, speaking in terms of an investment property, I would always suggest that a investor/developer, if they are searching to purchase a raw piece of land or a home, which they are going to tear down or rebuild or do a major renovation or remodel, I would always recommend getting an architect on board to do a preliminary zoning analysis. You know, what we do in that is look at, you know, what’s the maximum height you can build on a piece of property, what’s the maximum allowable buildable square footage you can build on a property, what are the setbacks. You know, you can really, really get a good feel for what size of home or building you can put on a piece of property, and then all those factors will be very, very useful in implementing into the developer or investor’s pro forma, which will show their return at the end of the day.
So I always recommend, if you can, engaging an architect as early as possible.
MITCH ROCHELEAU: Switching gears to your appraisal business. What type of clients do you have as an appraiser?
TANNER HOSS: I have a wide range of clients. My main clientele are lenders, from small credit unions to national banks. Another type of client that I have are probate attorneys for estate purposes, another type are divorce attorneys, and another type are Realtors.
If a homeowner comes to you and they are hesitant and they have a unique property, they are not sure what to list this property at, I would hire and employ an appraiser to assist in developing that list price. It gives a piece of mind to the homeowner, it gives a piece of mind to the agent, and it creates a
sense of trust between the entire parties.
MITCH ROCHELEAU: So, yeah, it seems like there are many, many different parties that use your services as an appraiser. I mean, when you said, you know, home equity loan, that makes perfect sense, you know, validating what your home is worth and getting an appraisal on that.
TANNER HOSS: Correct.
MITCH ROCHELEAU: Yeah. So, Tanner, for what reasons would somebody need an appraisal? And then can you summarize the process a little bit for us for an appraisal?
TANNER HOSS: Yeah. So any time someone refinances their house, purchases a home, usually when people get a divorce, when someone dies and there’s estate reasons, home equity lines of credit, those are all typical reasons someone needs an appraisal. The appraisal process is a complex one. I’m going to try to explain it to you in laymen’s terms.
When I appraise a property, I typically use the sales comparison approach to value. The sales comparison approach to value uses comparable properties from within your subject property’s neighborhood. I will inspect the property, and throughout that inspection I will take photos of all the rooms, note all the upgrades, measure the exterior of the property, verify the square footage, and from there, I will try to find like-properties within the immediate marketing area.
Once I find these properties, I use paired sales analysis, multivariate regression analysis, and a mixture of different cost extracting methods to find exact costs for each line item. For example, bedroom count, bathroom count, garage capacity, square footage, each of those will be assigned a different value and that value is based on what the market is paying for each of those parameters.
MITCH ROCHELEAU: Okay. So, Tanner, when a buyer places an offer on a piece of property and enters escrow, how easy is it for them to get out of escrow or cancel a contract?
TANNER HOSS: That’s a good question. One of my main goals, as your real estate broker, is to ensure that you are entering into an agreement that is locationally, financially, and physically up to par with what you need as a buyer. So I’m going to touch base on three outs, and an out — the technical term is a “contingency.” The buyer’s physical inspection contingency, the loan contingency, and the appraisal contingency.
MITCH ROCHELEAU: Okay. So those are three tools to get out of an agreement.
TANNER HOSS: Yes. Correct. So when you enter into an agreement, you are given a finite number of days that you can conduct all of your physical inspections. If, during that period, you come into contact with something that you don’t like about the property, for instance, a cracked foundation, damaged plumbing, even if it is soiled carpet, we can get out of that agreement due to those issues.
MITCH ROCHELEAU: Okay. So, Tanner, if we’re in escrow, we’ve just gotten our inspections on a property and we find a physical defect, whether it be foundation, the roof, somewhere on the piece of property, what are some actions that you can take as a licensed real estate agent and broker to kind of remedy for the clients on the sale price?
TANNER HOSS: My first step would be to take my findings — and I wouldn’t just take a home inspection. If there’s a foundation issue, then I would take the foundation inspection findings, which typically would include a bid to repair that foundation issue. I would take that finding to the seller and I would ask the seller for a price reduction to cover the costs to repair the foundation issue.
Now, if the seller is being stubborn and they don’t want to reduce the offer amount at all, then I would ask — try and negotiate for either a full or partial credit at the close of escrow to cover either all of the work done or part of the work to be done. Now, if both of those — it’s a no-go, then we’re going to have a conversation with the buyer to see if they are willing to accept the flaws and fix it on their own, or we could just go ahead and cancel escrow.
MITCH ROCHELEAU: Sure.
TANNER HOSS: The next contingency I’m going to touch on is the loan contingency. So if for some reason during the escrow period your client isn’t able to qualify for a loan, due to a loss in job or other income-related issue, you can quickly, easily cancel the escrow and get your deposit back.
The last contingency I’m going to touch base on is the appraisal contingency. An appraisal contingency means once you put an offer in on a property, if the appraisal comes back below that offer amount and the seller isn’t willing to reduce the offer amount to that appraised value, then you will have to come in with the extra money, because your lender is only going to lend on the appraised amount.
For example, if you have a $500,000 offer on the property, the appraiser comes in and appraises the property at $475,000, I attempt to negotiate with the seller to reduce the offer to $475,000. The seller isn’t going to budge, so ultimately you have to bring in $25,000 at the close of escrow on top of what you are already bringing in.
As a real estate broker and appraiser, I will typically not try to have you enter into a contract that is too far above market value. I’ll use my years of experience to place an offer at what I feel is market value to try to remedy these kind of issues.
MITCH ROCHELEAU: Sure. For me, as somebody who is being represented by you, that’s where I see the most value; you coming to the table as both a broker and as an appraiser. You being able to see a property, what it’s being appraised at and, you know, make recommendations or guide the client to say, “Hey, you know, this property, the appraisal came in low. Me, you know, as an appraiser myself, I would say that this appraisal is either accurate, below, or above.” I mean, to me, that’s huge.
TANNER HOSS: Yeah, it is — and I do have to tread lightly. I have to wear each hat at individual moments. You know, when I’m a real estate broker, I have to wear my broker hat. When I’m an appraiser, I have to wear my appraiser hat. But just having that background hopefully makes my clients feel a lot more comfortable when placing an offer, especially in markets where there are multiple offers and you need to offer just the right amount —
MITCH ROCHELEAU: True.
TANNER HOSS: — when there’s a large level of competition.
MITCH ROCHELEAU: So with all the contingencies, I think the big takeaway that I’m getting is, you know, there are ways to get out of a contract. So as a developer, as an investor, somebody buying a piece of property, I think it would be safe to say you shouldn’t be kind of gun-shy when entering into a transaction.
TANNER HOSS: Yeah.
MITCH ROCHELEAU: If you see a property that looks appealing at face value, then go ahead and get into it. If you have somebody like yourself to work with and if, you know, a physical defect comes up, you have options to get out of the contract.
TANNER HOSS: Yeah, that’s one of my main goals is to make sure that you can exit that agreement just as quickly as you entered the agreement. Because real estate is very time-oriented and you need to jump on a property and you need to be able to get out of that as soon as possible as well —
MITCH ROCHELEAU: Right.
TANNER HOSS: — and receive your entire deposit amount back.
MITCH ROCHELEAU: Right. Being agile and knowledgeable. You know the rules of the game.
TANNER HOSS: Exactly. And that’s important, having a knowledgeable real estate broker who knows all of the exits, all of the contingencies —
MITCH ROCHELEAU: Right.
TANNER HOSS: — and doesn’t cause you to lose your deposit amount for any reason.
MITCH ROCHELEAU: Tell me why, me as a buyer, a piece of real estate, why would I choose to use a licensed real estate agent or broker over somebody who is unlicensed?
TANNER HOSS: Buyers who don’t use licensed real estate brokers expose themselves to a multitude of issues. For example, you could overpay for that property because there’s no one properly counseling you on market values within the neighborhood.
MITCH ROCHELEAU: True.
TANNER HOSS: You could overlook a major structural issue, such as foundation, electrical issues plumbing issues, something that you don’t have the inspectors lined up to observe and report on.
MITCH ROCHELEAU: Yeah. And a licensed real estate broker or agent would be able to have the correct people lined up to take a look at the house and make the proper analysis?
TANNER HOSS: Correct.
MITCH ROCHELEAU: Gotcha.
TANNER HOSS: As a real estate broker, I have a Rolodex full of individuals ready and willing, in different areas, to inspect properties at a moment’s notice and each licensed individual is fully trusted by me and used by me on multiple occasions.
MITCH ROCHELEAU: So if you have a list of many individuals who want to come and, you know, investigate the property, who are they going to be?
TANNER HOSS: Yeah. So that’s going to depend on the location of the property, the age of the property, and just generally the overall condition of the property, on my initial inspection. I will always recommend a home inspector to come in first, and that home inspector, he’ll come in and give you a pretty thorough rundown of what’s going on with the property. He’ll check out the foundation, if it’s on a raised foundation; he’ll point out any cracks or anything major that he sees. Now, they are typically not licensed to go beyond their immediate scope of work.
MITCH ROCHELEAU: True.
TANNER HOSS: So if there is a crack in the foundation, then I will ask a professional foundation inspector to come in. That foundation inspector will give me his professional opinion, that I trust, and see if that issue can be remedied, and if it could be remedied for a reasonable amount. Now, on most older houses as well, I will recommend a sewer line inspection. Roots grow through these sewer lines. No one really ever pays attention. And down the line that could cost tens of thousands of dollars.
MITCH ROCHELEAU: True. And they are typically the older homes with the clay pipes, correct?
TANNER HOSS: Correct. Yeah, even some newer homes, if there is a tree that has disturbed the pipes and started to grow in, then that is going to need to be replaced eventually.
MITCH ROCHELEAU: True.