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Archive for October, 2007

Don’t Be Clueless About Your Home Owner Insurance

Posted by Pete Sabine on October 25, 2007

Leaky roof? Stolen bike? Broken rain gutter? You may want to think twice before even calling your insurance company. 

Many home insurers count inquiry calls – calls in which homeowners simply ask informally whether their policy will cover certain damages and are told that it won’t – as unpaid losses. 

Most insurance companies file loss information, paid or unpaid, into a centralized database called the Comprehensive Loss Underwriting Exchange, better know as CLUE. 

Even if a policyholder just makes a phone call and doesn’t report any damage, there’s still a chance the call will be logged into the CLUE database as an unpaid loss. The information stays on the record for five years, and can mar homeowner’s chances of obtaining a standard policy the next time they apply for insurance. 

When a homeowner applies for a new policy, the insurance company usually orders a copy of his or her CLUE report. Two or more reported losses, depending on severity, can cause an applicant to be charged a double or triple premium or to be denied coverage altogether. 

While lawmakers in several states are trying to rein in insurers over this issue, there’s not much consumers can do to fight back. But homeowners can take basic steps to protect their CLUE reports:

Know the specifics of your insurance policy and the deductible. Refrain from calling your insurance company to ask about coverage questions that can be answered elsewhere.

Avoid preliminary calls to your insurance company. It’s not necessary to call the insurance company unless you plan to file a claim and know the damage will be covered.

If you do need to call the insurance company, don’t mention actual damage unless filing a claim. Any mention of damage will likely be recorded as a loss, regardless of whether it’s covered.

When in doubt, call a professional repairman first to get an estimate. Insurance companies will often send out a repairman to estimate damages before committing to covered damage anyway.

Report only major damage. Reporting small damages can add unnecessary claims on your report.

Check your CLUE report. Make the effort to clean up any disputed claims before it has a negative effect on selling your home or renewing your policy.

If there is an error on your CLUE report, the disputed item will be sent to the reporting insurer for verification. If the item is not removed, you have the right to append a statement to the report. CLUE reports can be ordered by calling Choice Point (866) 527-2600 or on-line at The cost is $12.95 for California residents. You can’t get a CLUE report for someone else’s home. However, if you are buying a home, the sale can be made contingent upon your approval of the CLUE report provided by the seller. 

Call Pete Sabine (925) 407-0606 for a consultation or visit 

RE/MAX CC Connection


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Sell Your Home:Choosing the Right Purchase Offer

Posted by Pete Sabine on October 22, 2007

Most sellers would be delighted to receive multiple offers from prospective buyers. However, figuring out which offer to accept is not always as simple as you might think. Suppose you receive three purchase offers. One is for $495,000, your asking price. Another is for $10,000 more. And the highest offer is for $525,000 – $30,000 over the list price. If you consider all the factors of each offer, then the best offer might not be the offer with the highest price. Let’s look at each offer a bit more closely. 

Offer 1:There’s more to consider about an offer than the price. The $495,000 offer might be from a pre-approved buyer who has a $250,000 cash down payment and no appraisal contingency. This means that if the house appraises for less than the offer price, the buyer may not use this reason to back out of the contract without the risk of losing their good faith deposit monies. The lender should have no problem granting the buyer a mortgage for approximately 50 percent of the purchase price, even if the appraisal comes in low. The larger the cash down payment, the more likely the lender will approve the loan.  

Offer 2:The highest-price offer might be from a buyer with a 5 percent cash down payment and an appraisal contingency. This means that if the property appraises for less than the purchase price, the buyer has the right to back out of the contract without forfeiture of their deposit to the seller. Even if the buyer doesn’t want out, the lender won’t be willing to grant a mortgage in the amount the buyer needs to complete the sale.  With only 5 percent down, there’s a good chance the buyer won’t have enough extra cash to make up the difference between the appraisal value and the purchase price.  

Offer 3:The third offer could be contingent upon the successful close of escrow of the buyer’s current home that is now under contract. If the transaction on the buyer’s home fails to close, the buyer can withdraw from your contract without penalty and forfeiture of their deposit to the seller. If this happens, you’ll be back on the market searching for a new buyer.  

Counteroffers:In terms of a risk analysis, the lowest price offer appears to be the offer with the best terms. One negotiating option would be to counter the lowest offer with a higher price, based on the fact that you have two offers higher than offer #1. Before making a counter offer, consider that the buyer could reject your counter offer and disappear from the negotiations leaving you with two riskier offers to choose from. If you have already purchased another home, you might be better off leaving the price alone on the lowest offer and asking for a short close of escrow date. A quick close could save you the cost of interim financing, which would effectively put more money in your pocket with less risk. When analyzing offers, the fewer the contingencies, the better. Contingencies can complicate a contract by providing more opportunities for a transaction to fall apart. In general, you’re looking for the highest price, the quickest close and the least number of contingencies. 

Call Pete Sabine (925) 407-0606 for a free consultation or visit 

RE/MAX C.C. Connection  

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San Francisco Real Estate: KTVU Interview With Real Estate Consultant, Pete Sabine, and Ross McGowan – #2 in a series

Posted by Pete Sabine on October 15, 2007

During this 4 minute interview,  Ross McGowan poses questions of Bay Area Real Estate Consultant, Pete Sabine.  Topics covered include: the Bay Area real estate market as compared to the national market,  jumbo loans and their limitations in the San Francisco Bay Area, the recent interest rate cut by the Fed and it’s probable impact on the real estate market, and finally advice given by Pete Sabine to buyers and sellers of real estate in the Bay Area.

Click on the photo to view this interview on YouTube.



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Investment Property: Is your investment property keeping you from doing the things you love?

Posted by Pete Sabine on October 15, 2007

Are you looking for an opportunity to defer capital gains tax and retire from managing your income property? Many income property owners are comfortable with real estate investments and have had good returns in the past, but they do not like the daily management headaches that accompany property management. If so, discover the benefits of a 1031 tax deferred exchange and the tenant-in-common exit strategy.


Internal Revenue code section 1031 provides an excellent strategy for the deferral of capital gain, which would ordinarily arise from the sale of income real estate. Exchanging defers the tax, leaving the property owner with substantially more proceeds with which to purchase a replacement property, gain greater leverage, diversification, improved net cash flow, geographic relocation or property consolidation.


A 1031 exchange is a three-way transaction in which an intermediary is used to facilitate the transaction. The exchange allows the investment property owner to exchange their management-intensive property for professionally managed real estate with the potential to generate steady income tax benefits and appreciation.

When the exchange is complete, you will own a tenant-in-common interest in one or more quality income properties. Your income from the replacement property will likely be higher than you were receiving from your relinquished property.


Some of the benefits from this solution include:

  • Increase your depreciation tax credits

  • Increase your net asset value and invest in high quality multi-unit apartment properties with possibly no cash out of pocket

  • Capture profits from highly appreciated real estate and take advantage of other markets with strong upside potential

  • Reduce or eliminate your property management duties

  • Consolidate or diversify your real estate portfolio

  • Simplify your estate planning while paying no tax

  • Maintain or increase your monthly net cash flow income

How does it work? The basic steps are:

  1. Determine the current market value of your property
  2. List and market your property for sale

  3. Facilitate the sale through a qualified intermediary

  4. Assure proper contract and escrow language

  5. Meet the 45 day deadline to identify the replacement property

  6. Transfer sale proceeds to the qualified intermediary

  7. Open the acquisition property escrow

  8. Complete the exchange within 180 days of close of escrow of your relinquished property

The end result is relief from your real estate management burden while you enjoy more free time as well as the income and capital appreciation from your investment.


Call Pete Sabine at 925.407.0606 for a consultation or visit

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Real Estate Tip: Mastering Your Next Move

Posted by Pete Sabine on October 9, 2007

Spread moving day over several weeks to avoid the hassles of a last-minute scramble  

5 Weeks Before The Move

  • Take an objective look at what you own, and decide what can be left behind.  Extra weight  on the moving van costs more.
  • Draw a floor plan of your new home, and consider where you’ll want to place the furniture. Mark and label specific pieces of furniture on your diagram.  If a piece of furniture won’t fit, don’t take it with you.
  • Make any personal travel arrangements—flights, hotels, rental cars—for your trip.
  • Organize a garage sale if you have items worth selling.
  • The mover will do all he can to make your move as smooth as possible.  Ask for estimates to include the option of having the company pack some or all of your belongings.  While the mover is liable for breakage to any items it packs, you’re responsible for damage to items you have boxed.
  • Start a central file for all the details of your move. Collect all receipts for moving-related expenses.  Depending on the reason for your move, you may be entitled to a tax deduction.  

4 Weeks Before The Move

  • Select your mover and discuss dates and costs.
  • Decide now whether you want to pack your things or hire the mover to do it.
  • Start gathering boxes if you decide to pack.  Your mover can provide boxes best suited for moving, including special containers for clothing on hangers, lampshades, and dishes.  

3 Weeks Before The Move

  • Notify the post office, magazines, credit card companies, friends, and family of your change of address.  The U.S. Postal Service offers a kit to make this process easier.
  • Call utilities to schedule disconnection on the day following your move.
  • Talk with your mover to schedule, a few days before your move, disconnection and service of the major appliances being moved.
  • Arrange for utilities and services needed at your new home.
  • Start your self-packing with seldom-used items: fancy dishes, specialty cookware, non-essential clothing, curios, decorative items. 

2 Weeks Before The Move

  • Decide what you will discard.
  • Start your serious self-packing.  Label contents of all boxes.
  • Arrange to clean your new home as close to before your move-in as possible.
  • Arrange for copies of school and medical records and make bank safe-deposit arrangements in your new town.
  • Hold a garage sale.  

1 or 2 Days Before The Move

  • Expect movers to arrive to start the packing process.
  • Empty and defrost refrigerator and freezer; clean both with disinfectant and let them air out.  Put baking soda inside to keep them fresh.
  • Empty your safe-deposit box.  Plan to take important papers, jewelry, cherished family photos, irreplaceable mementos and vital computer files with you.
  • Arrange for payment to the moving company.  Write directions to your new home for the van operator, provide the new phone number and include numbers where you can be reached  in transit.
  • Leave your forwarding address and phone number for your new home’s occupants.  

Moving Day

  • Remove blankets and pillows from beds and pack in an “open first” box.
  • Review all details and paperwork when movers arrive.  Accompany van operator to take inventory.  Verify delivery plans.
  • Leave electric garage door opener and all the spare keys for new residents. 

While moving is one of life’s most stressful events, proper planning and preparation can ease the way. Call us to help you orchestrate a smooth move into your new home. 

For a consultation, contact Pete Sabine (925) 407-0606 or visit 

RE/MAX CC Connection

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Real Estate Finance: One of the World’s Leading Experts on Credit Derivatives Explains The Secondary Market Credit Crunch

Posted by Pete Sabine on October 4, 2007

This article was forwarded to me from one of my clients who is retired from Moody’s and S & P…this is one of the most clear and concise explanations I have read on the current state of affairs in the secondary market as related to the credit crunch. Read on-

Satyajit Das, one of the world’s leading experts on credit derivatives, is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch — and I expected him to defend and explain the practice. This is not a defense of the practice.

Das says “massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way”.  Das is not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times…    as an optimistic era of too much liquidity, too much leverage and too much financial engineering…   slowly and inevitably deflates.

Like an ex-mobster turning state’s witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen (mostly banks and hedge funds that pay him consulting fees) that the jig is up. (read old pals as Moody’s, S&P, etc. of supermodels fame)

Rather than joining the crowd that blames the mess on American slobs who took on more mortgage debt than they could afford and have endangered the world by stiffing lenders, Das points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors; hedge and pension fund managers who gorged on high-yield debt instruments they didn’t understand; and financial engineers who built towers of “securitized” debt pools with mathematical models that were fundamentally flawed.

Das’ view sounds cynical, but it makes sense if you stop thinking about mortgages as a way for people to finance houses and start thinking about them instead as a way for lenders to generate cash flow and create collateral during an era of a flat interest-rate curve. Although subprime U.S. loans seem like small change in the context of the multitrillion-dollar debt market, it turns out these high-yield instruments were an important part of the machine that Das calls the global “liquidity factory.” Just like a small amount of gasoline can power an entire truck given the right combination of spark plugs, pistons and transmission, subprime loans became the fuel that underlays derivative securities many, many times their size. Here is basically how it works…

Banks “originate” loans, “warehouse” them on their balance sheet for a brief time, then “distribute” them to investors by packaging (pooling) them into derivatives called Collateralized Debt Obligations, or CDOs, CLOs and similar instruments. In this scheme, banks don’t need to tie up as much capital, so they turn it around and simply put more money out on loan.

The more loans that were sold, the more they could use as collateral for more loans, so credit standards were lowered to get more paper out the door — a task that was accelerated in recent years via fly-by-night credit brokers now being accused of predatory lending practices. Buyers of these credit risks in CDO form were insurance companies, pension funds and hedge-fund managers from Bonn to Beijing. Because money was readily available at much lower interest rates in Japan and the United States, these managers leveraged up their bets by buying the CDOs with borrowed funds at the much lower rates.

So if you follow the bouncing ball, borrowed money bought borrowed money. And then because they had the blessing of credit-ratings agencies relying on mathematical models suggesting that they would rarely default, these CDOs were in turn used as collateral to do more borrowing. In this way, Das points out, credit risk moved from banks, where it was regulated and observable, to places where it was less regulated and difficult to find or identify let alone rerun or even recalibrate default probabilities with the same math models that built them.

Turning $1 into $20

This liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money “rose in value”, players could borrow more money against the same assets, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house. But the homeowner can only do it once.  

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper — the short-term borrowings of banks and corporations — which was purchased by supposedly low-risk money market funds.

According to Das’ figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das’ research, a single dollar of “real” capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of actual real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion — or eight times total global gross domestic product of $60 trillion.

Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn’t know what they were buying or what any given security was really worth. The math models had long been put away because the underlying assets were simply undetermined.

A painful unwinding

Now here is where the U.S. mortgage holder shows up again. As subprime loan default rates doubled, in contravention of what the mathematical models forecast, the CDOs those mortgages backed began to collapse. Because they were so hard to value, banks and funds started looking at all CDOs and other paper backed by mortgages with suspicion, and refused to accept them as collateral for the sort of short-term borrowing that underpins today’s money markets.

Through late last month, according to Das, as much as $300 billion in leveraged finance loans had been “orphaned,” which means that they can’t be sold off or used as collateral. Remember the underlying assets were simply undetermined.

One of the wonders of leverage is that it amplifies losses on the way down just as it amplifies gains on the way up. The more an asset that is bought with borrowed money falls in value, the more you have to sell other stuff to fulfill the loan-to-value covenants. It’s a vicious cycle. In this context, banks’ objective was to prevent customers from selling their derivates at a discount because they would then have to mark down the value of all the other assets in the debt chain, an event that would lead to the need to make margin calls on customers already thin on cash.

Now it may seem hard to believe, but much of the past few years’ advance in the stock market was underwritten by CDO-type instruments which go under the heading of “structured finance.” I’m talking about private-equity takeovers, leveraged buyouts and corporate stock buybacks — the works.

So to the extent that the structured finance market is coming undone, not only will those pillars of strength for equities be knocked away, but many recent deals that were predicated on the easy availability of money will likely also go bust, Das says. That is why he considers the current market volatility much more profound than a simple “correction” in prices. He sees it as a gigantic liquidity bubble unwinding — a process that can take a long, long time.  While you might think that the U.S. Federal Reserve can help prevent disaster by lowering interest rates dramatically, as they did last Wednesday, the evidence is not at all clear.

The problem, after all, is not the amount of money in the system but the fact that buyers are in the process of rejecting the entire new risk-transfer model and its associated leverage and counterparty risks. Lower rates will not help that. “At best,” Das says, “they help smooth the transition.”  So, will we just muddle along through this or is something big coming?

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Move Up Buyer: How to Buy Another Home Without Selling Your Current Home First

Posted by Pete Sabine on October 1, 2007

Avoid the inconvenience and added expense of moving into a rental home in between selling your current home and buying another suitable property. Now move-up buyers can find relief with an affordable and flexible financing strategy. By obtaining an equity line of credit secured by your current home, you can position yourself to find the right home without the worry of not having enough time to sell your home and find another. This financing strategy for your down payment offers many advantages such as a loan fee of no more than $1,000, borrow up to 90% of the value of your current home, pay no interest until you use the loan to finance the down payment of your new home, pay off the loan from the proceeds of the sale of your current home plus this loan is available to borrowers with a less-than-perfect credit history. 

Follow these key steps to find out if this strategy will work for you: 

  • Contact a local real estate professional to assist you with determining the current fair market value of your home. Your Realtor will provide a comparative market analysis (CMA) of recent sales of similar homes in your neighborhood.

  • Subtract the existing loan amount from the current value of your home to determine your equity. Most banks will allow an equity line of credit up to 90% of the appraised value behind your existing loan.

  • Apply for the equity line of credit

  • Apply for a new loan for the purchase of your next home.

Once the loans are approved for the equity line of credit and the new loan for the purchase of your next home, add the sum total of the two loans to determine your top purchase price range. Now you are ready to begin the home search and when you find the right home, your purchase offer will not need the contingency to sell your current home as a condition of completing the sale of the new home. Once your offer has been accepted by the seller and you are confident that you want to complete the sale, list your current home for sale to minimize the time period of owning one home too many.  The equity line of credit secured against your current home is paid off at the close of escrow as well as the existing first loan. This strategy gives you the peace of mind to take your time to find the right home and the confidence that your financing is pre-approved when you need it. 

Call Pete Sabine (925) 407-0606 for a consultation or visit    

RE/MAX CC Connection

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