July 30, 2016


Many people enjoy single family homes that are not under the rules and regulations of an association.  However, there are some association practices that would benefit the average homeowner.  Every year the association prepares a budget for the upcoming year.  This is the basis of the Homeowners Association (HOA) dues.  As one would expect, the budget projects the costs for repairs and maintenance of the complex for the next twelve months.  But it contains something more.

A number of years ago, when HOAs faced expensive replacement costs, homeowners would be hit with a special assessment that needed to be paid immediately.  This practice created a heavy burden on many and California began requiring the associations to prepare reserve studies every three years.  From those studies, a portion of the dues is now earmarked for a reserve account.  So when the roof needs to be replaced, the pool resurfaced, or private streets repaved, the funds are already in a reserve account.

A homeowner can create a similar study.  First, make a list of major replacement projects that must be done every several years. Assign the useful life left on each project and the cost of doing that project today.  The annual reserve amount for a project is determined by dividing the cost by the useful life.  When a project is done, it gets added back to the list with a new useful life.  Costs should be updated every few years.

Project Remaining Useful Life (in years)  Cost  Annual Reserve (Cost/Life)
Paint exterior 3     5,000  $   1,667
Replace roof 15   15,000       1,000
Resurface pool 7     8,000       1,143
Replace water heater 4     1,200          300
Total Annual Reserves  $   4,110
Monthly Reserve  $      342


November 14, 2015

(or How to make it difficult for your neighbor to sell his home)abandoned_house_royalty_free_080916-026182-569042

  1. Don’t mow the grass or water it.  Two foot high dead weeds are always a neighborhood downer.
  2. Let juniper hedges and ivy overgrow the public sidewalks.  This will keep nosy people from walking past your house while giving rats a nice place to live.
  3. Park all your cars and other vehicles on the street.  Come on – you need your garage to store your beer can collection and the driveway is for your skateboard ramp.
  4. Have your dog bark incessantly – day and night.  Better yet – let him go on a morning romp through the neighborhood sans leash, of course.
  5. Turn up the volume on your music and TV especially when suffering from insomnia.  If you can’t sleep, why should anyone else?
  6. Don’t clean your pool.  Mosquitoes are a great way to scare away pesky humans.
  7. Why replace your wood shake roof just because it’s leaking.  After all, isn’t that what pots and pans are for?
  8. Don’t paint your house, fix broken windows, replace the banged up garage door, take down holiday decorations, or bring in the trash cans.  Who in their right mind would want to buy a house in close proximity to yours?
  9. Don’t replace the almost non-existent asphalt driveway as your neighbors have.  Use the money instead as a down payment on a four-wheel drive vehicle for those rainy days when the mud makes it difficult to get to your front door.
  10. Never smile or have a kind word for potential neighborhood buyers.  Let’s face it – no one’s Dream Home includes surly neighbors.

Just remember these actions can come back to bite you.  If you should need to refinance, take out an equity line, or sell your home, your value will be based on neighborhood sales during the past few months.  If your actions or neglect caused prior sellers to have to accept lower values for their homes, that will lower the value of your property as well.

Rich & Jan McMillen

November 10, 2015

“AS-IS”: To Sellers, it means a quick and easy escrow after negotiating only once with a Buyer. Buyers, on the other hand, think it means they are getting a smoke-smelling cosmetic fixer with 70’s green shag carpeting and 80’s ivy-print wall paper for a decent price. At the time a contract is accepted by all parties, the chances are minimal that the Buyers have seen the Seller’s disclosures, let alone know the secrets of the house.
When Buyers exercise their legal right to do inspections of the property (and they usually do), they often walk away with a much-changed perspective of the dream home they thought they were buying. What is a Buyer to think when the Seller says there is no problem with the roof, only to have the inspector reveal that besides water stains on the rafters, there are pots and bowls set out in the attic surrounded by towels? (Yes, this happened.)

What about issues that even the Seller may be unaware? Broken sewer lines, unsafe fireplaces, and compromised electrical systems are often discovered in these inspections. What would anyone’s reaction be to learning that the firebox in the furnace is cracked?
Most of the concerns of Buyers have to do with health and safety issues and code violations. Even if the Seller has lived with these issues for years, the Buyer may not wish to test their luck. They may have been ready to tackle paint and flooring, but not have the funds to remove asbestos ceilings or correct serious code violations. However, with some concessions by the Seller, the Buyer may be willing to continue in the transaction. This will mean another round of negotiations where the Sellers need to stay focused on their ultimate goal and what is in their best interest to reach that goal. Sometime a $500 or even a $5,000 concession is better than starting the whole process over again with a new Buyer. By the way, the Seller will need to give any inspection reports or quotes received from the previous Buyer to the new Buyer.

Rich and Jan McMillen


March 23, 2015

When considering buying a home, one of the first topics of conversation is the down payment (and closing costs) – how much is needed and where is it coming from. Do you know what’s OKAY and what’s NOT okay? While not everything is covered here, these are the most common money sources mentioned.

house_money_pile_shutterstock_83573653Acceptable Sources of Money

  • Deposit accounts, vested retirement accounts, stocks, bonds, trust funds
  • Gifts (minimum investment requirements)
  • Sale of asset (home, car, boat – proof required)
  • Secured loans: Vehicle, 401k, home equity
  • Rent-to-own: Credit toward down payment cannot exceed the difference between Market Rent and the Actual Rent paid for the last 12 months.
  • Seller contributions: Certain percentage of the sales price depending upon LTV (loan to value ratio) & Occupancy
  • Down payment assistance: Grant funds or community loans

Money in MattressUnacceptable Sources of Money

  • Undisclosed, interested-party contributions
  • Payment abatements
  • Sweat equity
  • Funds that have not been vested
  • Personal unsecured loans
  • Cash

The bottom line – Buyers will have to PROVE with documentation the source of their Down Payment funds. “Unacceptable sources” of these funds make it difficult to get approved for a mortgage loan. For this reason, speaking with a loan professional should be at the top of your To-Do list when contemplating the purchase of a home.

Rich and Jan McMillen

March 21, 2015

Water Heater 1Effective April 16, 2015, higher energy factor ratings will be required by the National Appliance Energy Conservation Act (NAECA) on virtually all residential gas, electric, oil and tankless water heaters.

For homeowners, these changes will ultimately result in a better, more efficient product with lower operating costs, but the upgrades come with some cost. Changing the capacity and insulation factor of the water heater increases overall size of the unit. If your water heater is installed in a tight space now, there is a good chance that the new models will not just slide into place. This might mean relocating the water heater to a new location or retrofitting the current space to accommodate the upgraded model. Upgrading the venting to the new standards also affects replacement; expect increased installation times to adapt current venting to new EF requirements. The addition of the new electronics could result in increased maintenance costs due to increased complexity of design. Expect a few extra visits to fine-tune the water heater for optimum performance and possibly working out the bugs in new technologies.

When products become more complex, it is less likely that they will be purchased and installed by the do-it-yourself consumer. Also, some homeowners may now take notice of tankless technology as it already incorporates the demands of the new NAECA guidelines. The units are wall-hung, meaning that they will readily fit into tight spaces that cannot accommodate the new and larger tank water heaters.

 Rich and Jan McMillen

October 30, 2011

A man in Michigan is suing his in-laws because he fell through their attic helping them retrieve Christmas decorations.  So we are using this opportunity to remind everyone most attics are built for one purpose – to hold up the roof.  The rafters and trusses are designed to support the weight of the roofing material.  They are not normally engineered for the weight of stored items.  Stressing the trusses, rafters, and joints beyond the structural integrity they were designed for can cause damage and ultimately failure of the roofing system.

Unfortunately, many people think that the attic and the rafters in the garage are great places to store stuff.   They often lay wood flooring in the attic and will install a ladder to create permanent storage space unconcerned with the weight of the items they store.  We have seen boxes of books and paper records, furniture and more stuffed into these spaces.

To compound the problem, homeowners often wish to promote an attic storage area as a feature of the house when they list it for sale. They don’t understand the potential future liability of promoting this illegal storage space in the event that the trusses are structurally compromised later by the unwitting buyer.

We recommend homeowners not to utilize their attics for storage; and when selling their home, never advertise it for that use.

Rich and Jan McMillen

March 28, 2010

The California First-Time Buyer Tax Credit is designed to be an economic stimulus plan.  Following is the typical scenario that the State is banking on:

Several years ago, Mark received an inheritance from his grandfather and decided to purchase a two bedroom, one bath condominium for $150,000.  This home served him well, but three years ago he married Jane and last year they had a son.  Suddenly, there is barely room to turn around.  So Mark and Jane have made the decision to buy a larger place.   Little did they know that their move could help stabilize their state’s economy.

Mark and Jane live in California where the first year’s property tax basis is the purchase price due to the infamous Prop. 13.  Thereafter, it goes up only two percent each year.  As time passes, long time owners usually see that they pay substantially lower property taxes than their newer neighbors.  (A declining market may give a temporary retrieve, but that would be another blog.)

In order to purchase a new home, Mark and Jane need to sell their condominium.  Cindy is a first-time buyer.  She falls in love with their home and purchases it for $200,000.  Cindy is excited because she qualifies to receive a tax credit of up to $10,000 for first-time buyers in California that will be spread over three years, or a maximum of $3,333 a year.

Now Mark and Jane are ready to find their new home.  Tom and Patty bought a three bedroom, two bath townhouse ten years ago for $250,000.  Their three children are now all in school so Patty has resumed her career as a nurse.  With the extra paycheck, Tom and Patty want to buy a four-bedroom home with a yard for their dog Scooter.  They are thrilled when Mark and Jane fall in love with their townhome (“It has a garage”) and buy it for $350,000. 

So now Tom and Patty are house hunting.  Their search leads them a lovely four-bedroom home owned by Hal and Sylvia who bought it fifteen years ago for $300,000.  They strike a deal for $500,000 allowing Hal and Sylvia to look for their dream home. 

With a property tax rate at one percent of tax basis (again Prop. 13), these three transactions will increase annual property tax revenues by $3,500, easily covering the annual first-time buyer tax credit and after three years it is all tax revenue.  But let’s take the chain one transaction further.

Hal and Sylvia have spent twenty years building a business from nothing.  Their hard work has paid off and now they want to reward themselves by buying their dream home.  They find a beautiful ranch home on a third acre of land with a three-car garage, RV access, views, and a pool.  They immediately offer Linda, the original owner, $800,000.   She happily accepts it and cashes out to move to Colorado to be close to her son and grandchildren.  She and her recently deceased husband had purchased the place thirty years earlier at $300,000.  This sale is now an additional $5,000 in the state’s coffer. 

Further each of these transactions will also create additional revenue that could be subject to taxation, i.e. sales commissions, escrow fees, title insurance premiums, inspection fees.  However, it is most important for the state to stabilize the property tax base if they are to stabilize our economy.  In the process, California will be helping every one of its homeowners retain value in their homes. 

Buyer  Purchase Price   Tax Basis Before Sale   Increased Tax Basis   Increased Property Taxes 
Cindy   200,000    150,000     50,000         500
Mark & Jane   350,000    250,000   100,000      1,000
Tom & Patty   500,000    300,000   200,000      2,000
Hal & Sylvia   800,000    300,000   500,000      5,000
Increased Property Tax Revenue      8,500
 Rich & Jan McMillen

September 20, 2009

No day is typical in the life of a real estate agent.  Recently, we had a home in escrow that needed to be fumigated for termites.  Normally not a problem, but in the rafters of a breezeway between the house and garage, there was a nest of turtle doves.  When the buyers first viewed the home, they spotted the mother on her nest and felt it was a sign of good fortune.  Now that two fledglings faced imminent peril, the buyers were concerned of bad karma.  Therefore in the days before the tenting, we were on the phone trying to find someone to rescue these baby birds to no avail.  So an hour before the tenting crew was to arrive, we attempted with virgin gloves to remove them ourselves.  To our wonder and jubilation, just as we reached for them, they took flight!  The house was fumigated, escrow successfully closed, and the buyers are settling into their new home.

Rich & Jan McMillen