Brian Brubaker

Home | Contact | Bio | Affiliates | Gallery | Video
Archive Newer | Older

Monday, August 29, 2011

Commercial real estate properties include:
  • Investment (tenant occupied) properties
  • Owner occupied properties

Most commercial real estate properties are for investment, and therefore the decision by an investor to purchase a commercial property is primarily based upon a financial performance analysis of the asset. One of the fundamental components of the financial analysis is the Capitalization (CAP) Rate.

What is the CAP Rate?

The CAP Rate is calculated as follows:

CAP Rate = NOI/Price, where NOI is the Net Operating Income of the asset and Price is the price of the property. The CAP Rate is analogous to a simple Rate of Return (ROR) calculation for an investment. For example, if you invest $100,000 into a CD (Certificate of Deposit) and your annual return is $10,000, then your ROR = $10,000/$100,000 = 10%.

Similarly, if an investor purchases a commercial property for $1,000,000 and the Net Operating Income is $70,000, then the CAP Rate = $70,000/$1,000,000 = 7%.

Of course, the commercial property’s Net Operating Income (NOI) is needed for the CAP Rate calculation. The NOI is determined from the asset’s gross income and expenses. An investor (buyer) typically obtains the necessary financial information by requesting it from the seller or the seller’s agent prior to executing a commercial real estate sales transaction.

It is customary that the sale transaction purchase contract sets forth the details by which the buyer and his agent verifies or determines a CAP Rate and other important components of his financial analysis by his own due diligence work while in escrow.

7:26 pm pdt 

Thursday, August 25, 2011

Residential Real Estate Statistics for Buyers and Sellers

Buyers and sellers often find residential real estate statistics confusing. In this blog we will shed some light on these numbers. We’ll take a look at the most widely used statistics and we’ll review each one to better understand them.

What are the some of the more important statistics?

Existing-Home Sales” is one of the commonly used statistics. This number represents completed resale transactions of single-family, townhomes, and condominiums. New homes are not included. This statistic is prepared and reported monthly by the National Association of REALTORS (NAR) and is considered to be a good indication of trends in residential real estate. NAR’s “Housing Affordability Index” is also an important statistic. NAR develops this index by expressing the typical monthly mortgage principal and interest payment as a fraction of gross household income. A low index indicates very good housing affordability. The “Median Existing Home Price” (reported by NAR) is reported both nationally and by region, and represents the sale price at which half of all homes sold at a higher price and half of all homes sold at a lower price. NAR also reports its “Total Housing Inventory” which is an accounting of existing homes that are available for sale. This number is then divided by the current sales pace (homes being sold per month) to establish the current number of months of supply of homes for sale.

The U.S. Census Bureau and the Department of Housing and Urban Development (HUD) jointly release their monthly estimate of “Sales of New Single-Family Houses” and the “Median Sales Price of New Homes Sold” and “New Houses for Sale.” All of these numbers arseasonally adjusted, and the “New Houses for Sale” statistic is used to develop an estimate of the number of months of supply of new houses in inventory on the market and available for sale.

San Diego-based DataQuick monitors real estate activity nationwide and each month reports “New and Resale Houses and Condos Sold” nationally, statewide, and by metropolitan area. Another important statistic prepared by DataQuick is its monthly-reported “Median Price Paid for a Home.” DataQuick also provides statistics on distressed property sales (foreclosures, short sales) and “Typical Mortgage Payments” by home buyers.

Zillow Inc prepares and reports quarterly its “Home Value Index.” This number is widely used to demonstrate possible trends in improving or deteriorating home prices.

Inventories of Unsold Homes” is shown in the Wall Street Journal’s quarterly survey of housing market conditions in 28 major metropolitan areas. Inventories are expressed as the number of months of supply of homes listed for sale in each market at the current sales pace.

What should I look for when reading these statistics?

Existing Home Sales” is a good number to follow to get a good broad sense of the direction and strength of the market. If the month-to-month number is generally rising, this would indicate an improving sales pattern, and if the number is falling it would indicate a deteriorating sales pattern. The same is true for DataQuick’s “New and Resale Houses and Condos Sold.” The rate at which it rises or falls will indicate the relative strength or weakness in the market.

Also watch the “Total Housing Inventory” and the “Inventories of Unsold Homes.” A large inventory would typically indicate a weak real estate market and a small inventory would indicate a strong market. A balanced market typically has a six-month supply. And, for an understanding of price appreciation or depreciation, watch the “Median Existing Home Price” and the “Median Price Paid for a Home” and the “Home Value Index.”

With all of these numbers, always be attentive to local statistics, not to national or even state-wide figures. This is because real estate markets can vary substantially across the nation, across your state, and even across metropolitan areas.

9:40 pm pdt 

Wednesday, August 24, 2011

The Notice of Right to Cancel: An Explanation for Borrowers

One of the common documents a borrower may encounter in escrow is the “Notice of Right to Cancel.” This document is also referred to as the “rescission document” or the “3-day Notice of Cancellation.” This notice will be found in the loan document package, and it states that the borrower can cancel or rescind their loan transaction within three business days after signing the loan documents. Confusion arises for borrowers as to when the right to cancel applies, and if so, exactly what day the borrower can rescind their approval of the loan transaction.

When does the right to cancel apply?
The right to cancel applies to refinances or “home equity lines of credit” extended on a borrower’s “primary residence.”  The right to cancel does not apply to borrowers who are purchasing a home, borrowers who are refinancing their second home, or on investment or rental properties.

Understanding the important dates on the document.
There are two important dates on the document. The first is the date of signing. The second is the rescission date, or final date to cancel. When the lender prepares final loan documents for an anticipated signing, he may indicate these dates by printing them in advance for the borrower on the Notice of Right to Cancel. However, many lenders prefer to leave the dates blank on the document because the exact date of signing may not be known. In this case, the lender may print instructions on the document for determining the correct dates, or the lender may insert an instruction sheet into the loan package with the Notice of Right to Cancel. If the dates are already printed on the document in advance, but are incorrect, the instructions will provide information on how to properly correct, or how to properly interpret the dates to determine the rescission date.

Determining the rescission date.
The borrower has the right to cancel until midnight on the third day after signing. To determine the correct rescission date after signing, the borrower or his qualified escrow and loan document-signing agent (Notary Public) will count three days beginning with the first day following the signing date (the transaction date is not counted). Sundays and legal federal holidays are not counted, and are therefore skipped. Saturdays are counted because banks conduct lending business on this day. To help with the determination of the correct rescission date, free “rescission calendars” are available and can be found via the Internet.

7:37 pm pdt 

Tuesday, August 23, 2011

The Preliminary Change of Ownership Report: An Explanation for Buyers

In every purchase/sale of Real Estate, a Preliminary Change of Ownership Report (PCOR) must be filed. The PCOR must be filed for other types of transfers as well, but in this blog we will consider only purchase/sale transactions. After opening escrow, a buyer can expect to find the PCOR in the opening document package.

What is the PCOR?

Ordinarily, at the time of transfer when sales of property are recorded via the grant deed with the county recorder, the grantee (buyer) fills out and files a PCOR. It is a two-page questionnaire requesting information on the property, principals involved in the transfer, type of transfer, purchase price, and terms of sale.

The PCOR normally satisfies the change of ownership reporting requirements unless the form is returned incomplete. The PCOR is to be completed, signed and certified by the buyer, as the buyer is signing the document under penalty of perjury. It is then filed in the county recorder’s office for the county where the property is located. The county assessor may also request other information about a deed or other matters related to the transfer after reviewing the PCOR. The PCOR is confidential and is not available for public inspection.

What is the purpose of the PCOR?

Each county assessor’s office reviews all recorded deeds for that county to determine which properties require reappraisal under the law. Once the county assessor has determined that a change of ownership has occurred, Proposition 13 requires the county assessor to reassess the property to its fair market value as of the date of ownership change. The PCOR is important to this process and it must be filed at the time of recording, otherwise an additional $20 recording fee will be assessed.

If the PCOR is not filed at the time of recording, the county assessor will send a Change of Ownership Statement (COS) to the transferee (buyer). If the COS is not filed by the transferee within 45 days of the county assessor’s request, then penalties can ultimately range from $100 to $2,500.

Understanding how to complete the PCOR

The section at the top of the first page of the document is used to identify the buyer (transferee) and seller (transferor), and the property being transferred. The information may be typed in the areas provided. Enter this information as it appears correctly on the grant deed. Be sure to enter the 10-digit Assessor’s Parcel Number (APN), which can be found in the title report provided by the escrow officer, and is also usually also found on the buyer’s purchase contract for the property. Also enter the mailing address to which property tax notices are to be sent.

Part I of the PCOR is used to provide transfer information, and it can be confusing. The assessor uses the information in this section to determine if the transfer may be excluded from reassessment. If a buyer has questions about Part I, the county assessor’s office can be contacted for assistance, or the buyer’s real estate agent or escrow officer may be consulted. Parts II, III, and IV of the document will help the county assessor better understand the nature of the transfer and the purchase price.

Finally, the buyer’s name must be printed at the end of the form, and the buyer must sign it to certify that the information provided is true and correct.

7:24 pm pdt 

Monday, August 22, 2011

An Explanation of the Truth in Lending Disclosure Statement in Escrow

One of the many important documents received by Escrow from a lender is the Truth in Lending Disclosure Statement (TIL). The TIL disclosure statement is one of the most misunderstood documents required for closing, and Escrow Officers are often faced with many questions from the borrower regarding this document. This post is designed to educate the borrower (purchase or refinance) as to how to best understand the Truth in Lending Disclosure Statement.

A lender is required to give the borrower a Truth in Lending “statement” containing information on the loan’s annual percentage rate (APR), the finance charge, the amount financed, schedule of payments, and the total payments required. The statement may also contain information on security interest, late charges, prepayment provisions, and whether the mortgage is assumable. The lender will require that the TIL disclosure statement is signed by the borrower along with many other loan documents, all of which must be received back into Escrow.

What is a TIL?

It is important to understand that the TIL statement is not an agreement between the borrower and the lender. It is a federal-required disclosure document (Regulation Z) under The Truth-in-Lending Act (TILA), which is an important part of the federal Consumer Credit Protection Act. The TIL disclosure statement requires complete disclosure of all credit terms, conditions and consumer costs of obtaining credit. Unlike the “Good Faith Estimate” document which discloses an entire sale transaction’s cost, Truth-in-Lending deals only with the cost of the loan.

Understanding the APR Calculation in the TIL Statement

One of the most common questions Escrow receives regarding the TIL statement often has to do with the annual percentage rate. This piece of information in the TIL statement often confuses borrowers, as the APR calculation is prominently displayed on the document. It is not uncommon for a borrow to panic when they are presented with the statement during Escrow and loan document signing, as the APR is usually higher than the agreed contract interest rate of the loan.

To many borrowers APR, or “annual percentage rate”, sounds a lot like “interest rate.” The APR is not an interest rate. It is a measure of the total cost of credit, expressed as a percentage rate. The contract interest rate is defined in the promissory note. The purpose of the APR is to provide the borrower with a uniform measure of the total cost of a loan. The APR calculation includes the contract interest rate in addition to the other costs of the loan, including any prepaid costs (points and fees) that are part of the cost of borrowing. The contract interest rate in the note is only one part of the finance charges. The APR is a representation of the total finance charges.

Though it is important to understand how the APR is calculated, it is equally important to thoroughly understand the other elements of the TIL statement, as the lender requires the statement is signed by the borrower and given to Escrow. For more specific questions related to a borrower’s loan, Escrow will assist the borrower in contacting the lender representative.

7:00 pm pdt 

Archive Newer | Older

"Carpe diem" (Horace, Rome 65 BC - 8 BC)
Santorini, Greece
"Life is an adventure"

Climbing to 11,500' elevation Meysan Lake
Climbing to 11,500' elevation "Meysan Lake"
Camp Lake at 11,200 feet elevation
"Camp Lake" at 11,200 feet elevation
Setting up camp at "Camp Lake"
Setting up camp at "Camp Lake"
©2018 Brian Brubaker. All Rights Reserved. Use of this site.