Private Sellers
“Normal” transactions where an individual or group of people own the house. In today’s market, these people probably bought the property (and haven’t refinanced) before the 2004-2005 price spike and have some equity.
Typical Private Seller Transaction:
Listed asking price realistic, often selling within 95-97% of list price
Respond quickly to buyer’s offer
30-45 day closing
Closings are generally on time because the seller gets to pick the escrow and title company
May be one or more counter offers between buyer and seller before a final price and terms are settled on
Full range of disclosures including property defects, neighborhood issues, and environmental problems
Request for Repairs may be granted
Normal 17 day inspection contingency period before buyer’s deposit is at risk
PROS: quick response to offer, full disclosures, and negotiating room
CONS: unless seller is highly motivated the price may be higher than foreclosures & short sales
CONSIDERATIONS: Finding a realistic, motivated seller is great, but rare these days
STRATEGY: Depending on the circumstances, submitting a reduced (but reasonable) offer isn’t out of the question, as long as it can be substantiated by market data. This only holds true if your offer is the only under consideration however, and if the property is “hot” with a lot of interest, private sellers may opt to hold out for full price. Understand that the seller will likely counter back and showing some price flexibility on the buyer’s end may get the deal done. Once in a deal, there’s a chance that a Request for Repairs may be granted, saving you additional money.
Foreclosures
A bank has repossessed a house from the owner. The bank is the official owner and seller of the property. Banks aren’t in the real estate business and are motivated to sell REO (Real Estate Owned) properties.
Typical Foreclosure Transaction:
Listed asking price realistic, often selling within 97-100% of asking price.
Respond within 3-7 days of buyer’s offer
30-45 day closing or sooner contracted closing time, but the bank selects their own escrow and title companies, which may be very backed up, so the closing date can be significantly delayed- up to 2 months in some cases
Often want “highest & best” offer presented, which is accepted or rejected without counter offers
Terms of contract restricted:
Shorter inspection contingency period, often 3-10 days
Penalty to buyer if closing is delayed, often $100-150/day
Home warranty paid by buyer not seller, often $350
Exempt from most disclosures since the bank has never occupied the property
No Request for Repairs granted. Property sold in “as-is” condition, unless a major unknown issue arises.
PROS: often aggressively priced and a relatively quick response time
CONS: property may need cosmetic fixing (paint, carpet, etc.), little room for contract negotiating, no disclosures; may be in HIGH demand with lots of competition, many well priced “move in ready” foreclosures sell for ABOVE list price- up to $20k in some instances.
CONSIDERATIONS: Don’t think that a bank is going to accept a lowball offer. The property is often aggressively priced already. Be ready for the occasional fist hole in the wall and ding mark from moving, dirty paint, missing appliances, unkempt yard, and worn carpet. Most listing agencies and escrow companies are employed by the bank and get properties in bulk, and provide very little information on the property and notoriously poor services.
STRATEGY: Find a foreclosure you like? SUBMIT AN OFFER QUICKLY! The best foreclosures often sell within a week of being listed, and have multiple offers – sometimes creating bidding wars. You’ll absolutely, positively need a Pre-Approval Letter, Copy of the Deposit Check, and Verification of Down Payment Funds. Asking for closing cost assistance will make you look like a weaker buyer than others not asking for help, and putting higher down payment amounts will make you look stronger.
Other Foreclosure Considerations
Bank’s aren’t in the business of real estate and need properties to be sold quickly, hence the great listing prices. Some banks have started listing properties to generate an “auction mentality”. Banks will purposefully list a property $100,000 or more under market to generate immediate interest. They will tell all buyers to submit their highest and best offer within 5 days of listing, and the highest bidder will “win” the house. However, if none of the offers meet the “reserve” price (the bank’s REAL bottom line), then it won’t be sold to anyone and they will readjust their pricing. Recently, a property came on the market for $200,000 that was really worth around $400,000, but the bank told everyone that within the first few days they had received offers up to $400,000, and that a buyer shouldn’t even bother submitting an offer unless they wanted to beat that price. It worked, and the property sold for $409,000 - a far cry from $200,000! Don’t get caught up in the game!!!
Short Sales- NEW Listings
An individual or group of people still own the property, but are trying to sell it for less than they owe on the mortgage. The lender must approve any “short payoff” of their loan in order for the transaction to close. Often the owners are in the process of being foreclosed upon, but not always.
Typical Short Sale Transaction for a NEW Listing:
Listed asking price may NOT be realistic
Some agents (especially initially to attract the first offer) will under price the property just to get some “action”. The listed asking price is just a guess by the seller & agent of what the bank will accept, which can range widely. Nobody will know the real price the bank will accept until about 15-90 days after an offer has been submitted.
Response to offers can vary depending on several factors, but often 45-90 days. Some transactions with smaller banks get approval in as little as a week, while others (like with Countrywide) take forever- somestimes up to 6-8 months! There’s no way to tell.
1.5-5 month closing, which includes 15-90 days of bank review, plus 30+ days to close
No contract negotiating on the seller’s part. They just want an offer – any offer – to submit to the bank and let it decide.
Terms of the contract may remain normal with 17 day inspection period, etc.
Full disclosures
Often no Request for Repairs, property sold “as-is” usually
PROS: final sales price may be comparable to foreclosure prices, full disclosures, less competition that foreclosures because other buyers may be scared off by the potential wait time, often the property is in better condition than a foreclosure but is comparably priced
CONS: BUYER BEWARE!!! Long time before close, often 3-5 months. Meanwhile, you can be outbid at anytime during the process by another buyer and have to start over. Plus, there’s no guarantee that the bank will even accept the short sale and instead choose to foreclose (yes, this does happen). Also, the bank may not accept the offer and ask for more money, even if the offer is at full listed asking price.
CONSIDERATIONS: Be prepared to wait, and wait, and wait some more. Unless you have months before you want to move, don’t bother with short sales. Don’t put all your eggs in one basket. The sale could fall through 3 months into the transaction without warning.
STRATEGY: Many buyers think of short sales as back ups, and many request that I filter short sale out of their property searches completely. Buyer’s can submit an offer on a short sale and during the wait look for foreclosures or private party sellers. Ethically, the listing agent of the short sale should be informed of this when the offer is submitted. If something better comes along a short sale offer can easily be withdrawn.
Short Sales- OLD Listings (90+ Days)
Seller still owns the home, but is more likely to be in the process of a foreclosure. After missing 2 payments, the bank can begin the foreclosure process, which takes a minimum of 115 days. Depending on where the seller is in the foreclosure process, there may be a time pressure to submit an offer in order to delay the completion of the foreclosure. Most of the previous considerations still apply, except for the following.
Typical Transaction Differences for an OLD Listing:
Hopefully, an offer has already been submitted by another buyer (who later withdrew the offer, which is common), and the bank has reviewed and approved the short sale. If so, a BPO (broker price opinion, an “informal” appraisal) has been performed and the bank has disclosed their bottom line acceptable price
Listing price may have been adjusted to reflect bank’s wishes
Negotiator may have been assigned by the bank, thereby limiting the wait time associated with a new short sale listing
Offer can be accepted by seller, contingent on lender approval, and the property can be put into escrow. This removes the risk of being outbid by another buyer.
Quick response time from the bank, within 3-14 days
PROS: realistically priced, at this stage is resembles a normal private seller transaction
CONS: still a possibility of a wait, but much less than a new listing
CONSIDERATIONS: You must meet the bank’s pre-established bottom line. If you want closing cost assistance, we’ll have to add that into the purchase offer above the bank’s bottom line.
STRATEGY: If we find an approved short sale (which is rare), JUMP ON IT QUICKLY! Sometimes these properties slip through the cracks because other buyers are scared of the long wait time. Once word spreads that the short sale has been approved it becomes very attractive and may sell quickly. Banks generally approve short sales at foreclosure prices, and we must come in at least 90% of the BPO price, which may or may not already be reflected in the list price.
Other Short Sale Considerations- IMPORTANT!!!
The list price of a short sale may be “shocking” in some cases. If it’s too good to be true, it probably is! The HIGHLY UNETHICAL strategy some listing agents use is to list the property ridiculously low and hope to generate an offer quickly. Without this offer the bank won’t review the short sale, so the listing agent tries to attract anything. They know the bank will never accept the price, but for their purposes they have to submit an offer to get the process started. You could submit an offer of $1.00 on a short sale and the seller wouldn’t care. DON’T BE FOOLED!!!!! From the seller’s perspective their property becomes more desirable if the bank reviews the short sale because it will then get approval and sell quickly after that. Yes, you’re getting used!!! Banks have the final say in the sales price and the listing price means absolutely nothing to them! The bank bases this acceptable sales price on comparable market sales, so you’re not going to get a smoking deal on a short sale if it can’t be supported by market data. As stated previously, you’ll get the same deal for a short sale as you would a foreclosure.
PS- Buyer’s Agents hate it when listing agents do this, and there are a number of complaints about this unethical practice (including from yours truly). It is a serious problem, and it generates a lot of unneeded work for buyer’s agents.
Tuesday, July 1, 2008
Saturday, June 28, 2008
The inventory is getting picked over quickly!
The following is an email I sent out to some of my clients regarding the state of the market. I thought it would be helpful to everyone:
Dear Cameron, Gerald & Jamie, Greg, Illyana, Israel, Jacciel, Jodessa, Ketesemane, Lisa, Liz & Jeff, Mario, Matthew, Matt, Michael, Miguel, Mike, Mike 2, Michelle, Nick I., Nick M., Phong & Kim, Tom & Cammie, and Wei (23 in alphabetical order),
While I run the risk of scaring some of you, I feel that it is my duty to you as your agent to tell you what is happening in the market. This isn’t a sales pitch, it is a WARNING!!! It is my STRONGEST PROFESSIONAL ADVICE!!! (I know it’s long, but you NEED to read this…again, it isn’t spam, but a very urgent market update).
I write all of your names to make a very significant point- there are A LOT of buyers looking for exactly what you want. You are all looking (most for single family homes, 3+ beds) in the low $300 to $400k range. This is the typical 1st time home buyer range, and the huge amount of San Diegans who have been waiting to “time” the bottom of the market. I’m just one agent- think of the other 18,000 registered agents in the county, and how many buyers are out there!!! Fortunately, most of you are looking in slightly different areas, or have little differences in exactly what you want, so I haven’t seen a whole lot of overlap (except the Otay Ranch/Eastlake bunch- things are getting sparse down there, huh!).
Part of my job is to help manage my client’s expectations, and right now all home buyers (including your competition) are looking for “move in ready” properties in prime locations. But it’s getting to the point that these “move in ready” properties don’t exist in this price range anymore. They’ve all been bought (6 of them in the last month by my clients who trusted my previous predictions)! Every property left has something slightly wrong- a little too old, needs carpet/paint, location isn’t perfect, yard is a little small, floor plan isn’t perfect, kitchen needs updating, etc.
I’ve literally looked at 300+ properties in the past 1.5 months, and 90% have a little problem. The 10% that doesn’t is usually sold by the time I call about it. We’re seeing nice properties sell within 2-5 days, often at or up to $30k above asking price! I’ve encountered numerous situations where 10-25 offers are submitted within 3 days of listing for the best properties. The 6 properties that I closed ALL made aggressive bids above list price. Everyone else has been outbid (I think I need to start an “Outbidders Anonymous” support group!).
If you think I’m exaggerating, please see this article (link below) from the LA times that came out today. I quote: “REO homes (bank shorthand for "real estate owned") that are in good condition and listed at $300,000 or less are drawing as many as 15 to 20 bids from home buyers and investors looking for bargains, area real estate agents report.” We know that $300k translates to $400k in the areas we’re looking at in San Diego.
http://www.latimes.com/business/la-re-market1-2008jun01,1,7861975.story
Or consider these numbers for the block east of 125, north of 8, south of 52 all the way to the beach (this link takes you to the numbers- Residential One-Line):
Last month 30 (thirty) 3-4 bedroom properties sold. This month 75 (seventy five) are in escrow, meaning that the market activity has nearly TRIPLED this month. There are less available properties on the market (85 available vs. 105 sold) than have sold in the last 90 days or are currently in escrow. That’s right- MORE THAN HALF OF THE INVENTORY HAS SOLD IN THE PAST 90 DAYS!!!!! I’ve previewed most of the properties remaining, and they are all dumps. This will only continue, and we see how many buyers are out there for each new property that comes on the market.
Most of you have received my warning emails several months ago, and unfortunately many of your situations dictated that you couldn’t buy right then. For others, I’ve had friendly discussions about the direction of the market, and I respectfully disagreed that prices would continue to drop and the market would be soft for the entire year. Please take this email very seriously because the market will be picked over very soon, and only the “fixer” or “TLC needed” properties will be left. For your sake, please trust me this time!
FACT: Properties average 97% of sales price vs. asking price (even this is deceivingly low because of how they calculate the numbers). YOU WILL HAVE ALL “LOWBALL” OFFER OUTRIGHT REJECTED. “Move in ready” properties sell for 100% or more.
FACT: The media is DEAD WRONG about what is actually going on. They are typically 8 months behind. How many of you have seen headlines like “Transactions had an unexpected increase last month”. Unexpected to who? Not us realtors in the field!
FACT: If you want to live in National City, North Park, east Santee, Lakeside, El Cajon, or Jamul you’ve got plenty of time! Wait until the winter to buy. But if you’re looking at Mission Valley from La Mesa west, north of the 8 up to Carmel Valley, all the way to the beach; or Otay Ranch/Eastlake; or downtown- you’re on the verge of being too late.
FACT: Markets have yearly cycles, and the most buyers are looking May-September. There will continue to be more and more and more buyers until Fall- we haven’t even hit the mid-summer peak yet!!!
FACT: If you want a perfect 3 bedroom property, plan on spending $450-500k. If you have a little extra cash set aside, you’re in good shape if you are willing to do a little “cosmetic fixing” that will cost you $30k.
Ok, so here’s the good news…
I write this knowing that if we hustle, and I mean within the next couple weeks, we can still have a puncher’s chance at getting one of these ideal properties before the real buyer flood hits. We’ll have to be aggressive, but it’s not unreasonable. Let’s hope the media doesn’t catch on before then. (Incidentally, look for my article about this phenomenon in the Union Tribune shortly.)
A FINAL CONSIDERATION:
Interest rates have risen significantly in the past 2 weeks, and look like they will continue to rise throughout the summer. This is bad news for you!!! A common question I get is, “Won’t that mean there will be less buyers or price drops because when interest rates rise, buying power goes down?” The answer is NO! Most of you could handle an extra $100/mo increase in your mortgage payment, and so can everyone else out there right now. Even 7% interest rates are historically amazing, and don’t scare buyers off. However, every day you waste not locking a loan rate will mean that you pay significantly more over the life of that loan when you do buy.
I’m sorry for being so blunt, using so many capital letters and exclamation points, and causing a general sense of disillusionment. Most of you know that I’m very nice in person and not the “car salesman” type, but in your best interest I needed to say something. Please understand.
PS- For the 6 “active” lookers who I’ve been working with over the past month, all of which have been outbid on properties or seen first hand “multiple offer” situations, please don’t interpret this email as anything but an attempt to be informative. I’m not attempting to put pressure on you, but want you to know that I’ve had the same experience with many other clients lately. I understand everyone would like to find a great place, and I’m happy to continue to work with you, and will do my best to find what you’re looking for.
PPS- I’ve Cc: a few others, most in the under $300k range, and this situation is only worse for you. Sorry. For my clients above $500k, you aren’t in such bad shape, but it is picking up significantly.
As you know, I take great pride in providing excellent personal service to every client, and I look forward to the day that I hand you the keys to your new home!
Dear Cameron, Gerald & Jamie, Greg, Illyana, Israel, Jacciel, Jodessa, Ketesemane, Lisa, Liz & Jeff, Mario, Matthew, Matt, Michael, Miguel, Mike, Mike 2, Michelle, Nick I., Nick M., Phong & Kim, Tom & Cammie, and Wei (23 in alphabetical order),
While I run the risk of scaring some of you, I feel that it is my duty to you as your agent to tell you what is happening in the market. This isn’t a sales pitch, it is a WARNING!!! It is my STRONGEST PROFESSIONAL ADVICE!!! (I know it’s long, but you NEED to read this…again, it isn’t spam, but a very urgent market update).
I write all of your names to make a very significant point- there are A LOT of buyers looking for exactly what you want. You are all looking (most for single family homes, 3+ beds) in the low $300 to $400k range. This is the typical 1st time home buyer range, and the huge amount of San Diegans who have been waiting to “time” the bottom of the market. I’m just one agent- think of the other 18,000 registered agents in the county, and how many buyers are out there!!! Fortunately, most of you are looking in slightly different areas, or have little differences in exactly what you want, so I haven’t seen a whole lot of overlap (except the Otay Ranch/Eastlake bunch- things are getting sparse down there, huh!).
Part of my job is to help manage my client’s expectations, and right now all home buyers (including your competition) are looking for “move in ready” properties in prime locations. But it’s getting to the point that these “move in ready” properties don’t exist in this price range anymore. They’ve all been bought (6 of them in the last month by my clients who trusted my previous predictions)! Every property left has something slightly wrong- a little too old, needs carpet/paint, location isn’t perfect, yard is a little small, floor plan isn’t perfect, kitchen needs updating, etc.
I’ve literally looked at 300+ properties in the past 1.5 months, and 90% have a little problem. The 10% that doesn’t is usually sold by the time I call about it. We’re seeing nice properties sell within 2-5 days, often at or up to $30k above asking price! I’ve encountered numerous situations where 10-25 offers are submitted within 3 days of listing for the best properties. The 6 properties that I closed ALL made aggressive bids above list price. Everyone else has been outbid (I think I need to start an “Outbidders Anonymous” support group!).
If you think I’m exaggerating, please see this article (link below) from the LA times that came out today. I quote: “REO homes (bank shorthand for "real estate owned") that are in good condition and listed at $300,000 or less are drawing as many as 15 to 20 bids from home buyers and investors looking for bargains, area real estate agents report.” We know that $300k translates to $400k in the areas we’re looking at in San Diego.
http://www.latimes.com/business/la-re-market1-2008jun01,1,7861975.story
Or consider these numbers for the block east of 125, north of 8, south of 52 all the way to the beach (this link takes you to the numbers- Residential One-Line):
Last month 30 (thirty) 3-4 bedroom properties sold. This month 75 (seventy five) are in escrow, meaning that the market activity has nearly TRIPLED this month. There are less available properties on the market (85 available vs. 105 sold) than have sold in the last 90 days or are currently in escrow. That’s right- MORE THAN HALF OF THE INVENTORY HAS SOLD IN THE PAST 90 DAYS!!!!! I’ve previewed most of the properties remaining, and they are all dumps. This will only continue, and we see how many buyers are out there for each new property that comes on the market.
Most of you have received my warning emails several months ago, and unfortunately many of your situations dictated that you couldn’t buy right then. For others, I’ve had friendly discussions about the direction of the market, and I respectfully disagreed that prices would continue to drop and the market would be soft for the entire year. Please take this email very seriously because the market will be picked over very soon, and only the “fixer” or “TLC needed” properties will be left. For your sake, please trust me this time!
FACT: Properties average 97% of sales price vs. asking price (even this is deceivingly low because of how they calculate the numbers). YOU WILL HAVE ALL “LOWBALL” OFFER OUTRIGHT REJECTED. “Move in ready” properties sell for 100% or more.
FACT: The media is DEAD WRONG about what is actually going on. They are typically 8 months behind. How many of you have seen headlines like “Transactions had an unexpected increase last month”. Unexpected to who? Not us realtors in the field!
FACT: If you want to live in National City, North Park, east Santee, Lakeside, El Cajon, or Jamul you’ve got plenty of time! Wait until the winter to buy. But if you’re looking at Mission Valley from La Mesa west, north of the 8 up to Carmel Valley, all the way to the beach; or Otay Ranch/Eastlake; or downtown- you’re on the verge of being too late.
FACT: Markets have yearly cycles, and the most buyers are looking May-September. There will continue to be more and more and more buyers until Fall- we haven’t even hit the mid-summer peak yet!!!
FACT: If you want a perfect 3 bedroom property, plan on spending $450-500k. If you have a little extra cash set aside, you’re in good shape if you are willing to do a little “cosmetic fixing” that will cost you $30k.
Ok, so here’s the good news…
I write this knowing that if we hustle, and I mean within the next couple weeks, we can still have a puncher’s chance at getting one of these ideal properties before the real buyer flood hits. We’ll have to be aggressive, but it’s not unreasonable. Let’s hope the media doesn’t catch on before then. (Incidentally, look for my article about this phenomenon in the Union Tribune shortly.)
A FINAL CONSIDERATION:
Interest rates have risen significantly in the past 2 weeks, and look like they will continue to rise throughout the summer. This is bad news for you!!! A common question I get is, “Won’t that mean there will be less buyers or price drops because when interest rates rise, buying power goes down?” The answer is NO! Most of you could handle an extra $100/mo increase in your mortgage payment, and so can everyone else out there right now. Even 7% interest rates are historically amazing, and don’t scare buyers off. However, every day you waste not locking a loan rate will mean that you pay significantly more over the life of that loan when you do buy.
I’m sorry for being so blunt, using so many capital letters and exclamation points, and causing a general sense of disillusionment. Most of you know that I’m very nice in person and not the “car salesman” type, but in your best interest I needed to say something. Please understand.
PS- For the 6 “active” lookers who I’ve been working with over the past month, all of which have been outbid on properties or seen first hand “multiple offer” situations, please don’t interpret this email as anything but an attempt to be informative. I’m not attempting to put pressure on you, but want you to know that I’ve had the same experience with many other clients lately. I understand everyone would like to find a great place, and I’m happy to continue to work with you, and will do my best to find what you’re looking for.
PPS- I’ve Cc: a few others, most in the under $300k range, and this situation is only worse for you. Sorry. For my clients above $500k, you aren’t in such bad shape, but it is picking up significantly.
As you know, I take great pride in providing excellent personal service to every client, and I look forward to the day that I hand you the keys to your new home!
Monday, March 31, 2008
Otay Ranch EXPLOSION!!!
I wanted to give everyone an update on Otay Ranch. At the end of February and into March there has been an explosion of activity in the area. Here are the numbers for detached homes, 1700+ square feet, between $300-400k.
In the past 6 months (prior to March) ONLY 1 PROPERTY SOLD.
Since the end of February, 9 PROPERTIES SOLD and 32 WENT INTO ESCROW!!!!!!!! That’s all within the past month!!! (And that doesn’t even include the “short sales” that have an accepted offer that are still required to list the property as active until bank approval). Feel free to ask me for a chart detailing these numbers.
Against all the pundits predictions, February’s numbers were up, and the stock market reacted with the good news. I predict March will show another increase in transactions, and the summer (generally the hottest time in the market) isn’t even here yet. Both my preferred lender and inspector report the busiest months in their entire careers. I personally have never had so much activity either. Since October almost nothing happened, then once mid-February hit I've been working non-stop (just ask my lonely wife!).
In a follow up with my previous post on "Mini Bidding Wars," I'd like to share a few situations that I've encountered recently. With one client we've been out bid on 6 properties, and all of our offers were at or above list price. We're in escrow on the 7th. On separate occasions two clients were in love with a property and when I called to ask if there were any other offers, I could tell right away from the stress in the voice of the other agents that there were many - but I wasn't expecting 18 and 22 offers respectively! A third client put out 3 simultaneous offers on foreclosures, with one $21,000 over asking price - and it was still rejected!
MY PREDICTION: The situation in Otay Ranch isn't much different than other desirable areas in the county. The March numbers will come out in mid-April, and San Diego will have a sign of hope. April's numbers will be even better, because many properties in escrow will take 30 days to close, and San Diegans will have a whole new outlook on the market. Prices will remain flat, and we'll be in the "absorption" phase of the market cycle where the inventory is reduced as more people buy.
MY ADVICE: Buy! There are still deals out there, but they're going quick. More will pop up throughout the year, but they will go quickly. Don't chance it.
In the past 6 months (prior to March) ONLY 1 PROPERTY SOLD.
Since the end of February, 9 PROPERTIES SOLD and 32 WENT INTO ESCROW!!!!!!!! That’s all within the past month!!! (And that doesn’t even include the “short sales” that have an accepted offer that are still required to list the property as active until bank approval). Feel free to ask me for a chart detailing these numbers.
Against all the pundits predictions, February’s numbers were up, and the stock market reacted with the good news. I predict March will show another increase in transactions, and the summer (generally the hottest time in the market) isn’t even here yet. Both my preferred lender and inspector report the busiest months in their entire careers. I personally have never had so much activity either. Since October almost nothing happened, then once mid-February hit I've been working non-stop (just ask my lonely wife!).
In a follow up with my previous post on "Mini Bidding Wars," I'd like to share a few situations that I've encountered recently. With one client we've been out bid on 6 properties, and all of our offers were at or above list price. We're in escrow on the 7th. On separate occasions two clients were in love with a property and when I called to ask if there were any other offers, I could tell right away from the stress in the voice of the other agents that there were many - but I wasn't expecting 18 and 22 offers respectively! A third client put out 3 simultaneous offers on foreclosures, with one $21,000 over asking price - and it was still rejected!
MY PREDICTION: The situation in Otay Ranch isn't much different than other desirable areas in the county. The March numbers will come out in mid-April, and San Diego will have a sign of hope. April's numbers will be even better, because many properties in escrow will take 30 days to close, and San Diegans will have a whole new outlook on the market. Prices will remain flat, and we'll be in the "absorption" phase of the market cycle where the inventory is reduced as more people buy.
MY ADVICE: Buy! There are still deals out there, but they're going quick. More will pop up throughout the year, but they will go quickly. Don't chance it.
Thursday, February 28, 2008
Timing the Bottom of the Market...
...is impossible!!! Don't try! Ok, you don't believe me. I understand. But at least let me explain, ok?
In the real estate industry we know that on average the public's opinion of the market has an 8 month lag, and relying on the media for updates is unreliable at best. Of course, the public isn't you, so I won't try and convince you otherwise.
But this assumes that there is such a thing as the "bottom" of the market, which we could mark as the exact day in which prices went from falling to rising. We could stick a pin on the low point of a "V" on a graph and all point to it and say, "Yup, everyone that bought on March 13, 2008 at 1:34pm got the absolute best deal possible, but those suckers on March 14 got taken for a ride."
In reality there's more of an extended time period when seller desperation peaks and presents an opportunity for buyers to take advantage. Remember, this isn't the stock market where transactions take a few seconds to complete and report, and exist somewhere in cyberspace. Real estate escrow often takes 30-45 days to complete, and localized communities experience independent trends that can differ widely from the surrounding area. To say that a market has "bottomed out" would only take into account the general market data of a large area. Even if we could point to a specific time that prices were the lowest everywhere on Earth, once we figured it out all the buyers would have to wait a minimum of a month to close a deal-- and the secret would be out by then!
I'll save my discussion about purchase price and interest rates for another post, but trust me when I say that .3% of an interest rate increase can easily offset a minor reduction in purchase price over the 7-11 years a person generally stays in their home.
MY PREDICTION: All the best deals in prime locations will be gobbled up by home buyers (see "Mini Bidding Wars" post) throughout the year. They will recognize that buying a home isn't all about price, and those people will have a tremendous amount of pride of ownership over the next decade. Rates are still at historic lows, but are expected rise, so those people may even be paying less per month than the "market timer" that got in too late.
MY ADVICE: Buy when the rates are low and the inventory is high. Make sure you can afford the payments and plan on living in the home for a minimum of 3-5 years. Get exactly what you want in a home and don't settle (but still recognize that no home is 100% perfect)! Your buyer's remorse will only last a week or two until you settle into your new home. In five years you won't even remember that you might have been able to save $5000 if you'd only waited three months longer to buy, and instead you'll laugh all the way to the bank because your house doubled in value.
In the real estate industry we know that on average the public's opinion of the market has an 8 month lag, and relying on the media for updates is unreliable at best. Of course, the public isn't you, so I won't try and convince you otherwise.
But this assumes that there is such a thing as the "bottom" of the market, which we could mark as the exact day in which prices went from falling to rising. We could stick a pin on the low point of a "V" on a graph and all point to it and say, "Yup, everyone that bought on March 13, 2008 at 1:34pm got the absolute best deal possible, but those suckers on March 14 got taken for a ride."
In reality there's more of an extended time period when seller desperation peaks and presents an opportunity for buyers to take advantage. Remember, this isn't the stock market where transactions take a few seconds to complete and report, and exist somewhere in cyberspace. Real estate escrow often takes 30-45 days to complete, and localized communities experience independent trends that can differ widely from the surrounding area. To say that a market has "bottomed out" would only take into account the general market data of a large area. Even if we could point to a specific time that prices were the lowest everywhere on Earth, once we figured it out all the buyers would have to wait a minimum of a month to close a deal-- and the secret would be out by then!
I'll save my discussion about purchase price and interest rates for another post, but trust me when I say that .3% of an interest rate increase can easily offset a minor reduction in purchase price over the 7-11 years a person generally stays in their home.
MY PREDICTION: All the best deals in prime locations will be gobbled up by home buyers (see "Mini Bidding Wars" post) throughout the year. They will recognize that buying a home isn't all about price, and those people will have a tremendous amount of pride of ownership over the next decade. Rates are still at historic lows, but are expected rise, so those people may even be paying less per month than the "market timer" that got in too late.
MY ADVICE: Buy when the rates are low and the inventory is high. Make sure you can afford the payments and plan on living in the home for a minimum of 3-5 years. Get exactly what you want in a home and don't settle (but still recognize that no home is 100% perfect)! Your buyer's remorse will only last a week or two until you settle into your new home. In five years you won't even remember that you might have been able to save $5000 if you'd only waited three months longer to buy, and instead you'll laugh all the way to the bank because your house doubled in value.
Sunday, February 24, 2008
Breaking News: Buyer Down Payments Increase
Kick us while we're down, why don'tcha!
Fannie Mae, a government sponsored enterprise involved in the secondary mortgage market, recently tagged San Diego (and many other areas of the nation) as a "declining market". Besides stating the obvious, what does this mean to you, me, and the market?
Buyers, even ones with excellent credit, will be hard pressed to find a loan. The days of 100% financing are gone, and across the board a minimum of 5% down payment will be required. That's an additional 5% on what you normally would have spent. If you qualified for a 100% program, you'll only get 95%. Investors, are you used to supplying a 10% down payment? Not anymore, you'll need at least 15%, possibly even 20%.
MY PREDICTION: The middle of the market ($350,000-700,000 or so) will see a drop in transactions, while the effect will be less for lower priced properties. Many first time home buyers can come up with the extra cash it takes for a down payment on a $175,000-225,000 condo. Some will do it by cashing out their 401k, others by draining their bank account. Previously, these buyers didn't buy because prices were so high that their monthly mortgage payments were more than their paycheck, and it had little to do with the down payment. Now, with prices lower the mortgage payment is manageable, even if they need to go "all in" with their chips. However, for buyers in the middle of the market the problem isn't making the mothly payments, it's that extra $20,000+ down payment money will be a deal killer. Not that they won't be able to afford it, they will just be less willing to zero out their bank account than buyers in the lower price range.
MY ADVICE: Be creative in your contract writing. Ask the seller to pay all buyer closing costs to minimize the out-of-pocket money a buyer needs. Use language like "recurring and nonrecurring closing costs" to ensure a buyer gets the full amount of the funds requested. Buyer's remember that sellers look at the net amount that they will receive and not the sales price, so figure out what you should offer without the closing costs, then adjust your purchase price upwards to offset the amount requested. Also, if you find yourself in a "mini bidding war" (see previous post) on a property with multiple offers, don't ask for closing cost assistance if you don't need it. When comparing two equal net offers, the buyer who needs less out-of-pocket assistance will look stronger and will get the property. Or, try increasing your deposit to 10% of the purchase price if you can afford it.
Fannie Mae, a government sponsored enterprise involved in the secondary mortgage market, recently tagged San Diego (and many other areas of the nation) as a "declining market". Besides stating the obvious, what does this mean to you, me, and the market?
Buyers, even ones with excellent credit, will be hard pressed to find a loan. The days of 100% financing are gone, and across the board a minimum of 5% down payment will be required. That's an additional 5% on what you normally would have spent. If you qualified for a 100% program, you'll only get 95%. Investors, are you used to supplying a 10% down payment? Not anymore, you'll need at least 15%, possibly even 20%.
MY PREDICTION: The middle of the market ($350,000-700,000 or so) will see a drop in transactions, while the effect will be less for lower priced properties. Many first time home buyers can come up with the extra cash it takes for a down payment on a $175,000-225,000 condo. Some will do it by cashing out their 401k, others by draining their bank account. Previously, these buyers didn't buy because prices were so high that their monthly mortgage payments were more than their paycheck, and it had little to do with the down payment. Now, with prices lower the mortgage payment is manageable, even if they need to go "all in" with their chips. However, for buyers in the middle of the market the problem isn't making the mothly payments, it's that extra $20,000+ down payment money will be a deal killer. Not that they won't be able to afford it, they will just be less willing to zero out their bank account than buyers in the lower price range.
MY ADVICE: Be creative in your contract writing. Ask the seller to pay all buyer closing costs to minimize the out-of-pocket money a buyer needs. Use language like "recurring and nonrecurring closing costs" to ensure a buyer gets the full amount of the funds requested. Buyer's remember that sellers look at the net amount that they will receive and not the sales price, so figure out what you should offer without the closing costs, then adjust your purchase price upwards to offset the amount requested. Also, if you find yourself in a "mini bidding war" (see previous post) on a property with multiple offers, don't ask for closing cost assistance if you don't need it. When comparing two equal net offers, the buyer who needs less out-of-pocket assistance will look stronger and will get the property. Or, try increasing your deposit to 10% of the purchase price if you can afford it.
Saturday, February 23, 2008
How far will the Market Drop? Consider this!
I've heard wildly different predictions about when the market will hit bottom. Some think it is here now, some think it will be years...but consider this:
Bank REOs (foreclosures) and Short Sales are now being listed at 2001-2002 prices in some instances (that’s 2-3 years before the 2004-2005 bubble), especially in the least expensive price range of the market around $130,000-180,000 . That's 6-7 years ago! "Regression to the mean" has already happened and in my opinion there’s been a slight over-correction. How much further can they slide- back to 1999?
Buyers, with a modest down payment, can now pay almost the same to own as they would to rent. Investors with a minimal cash investment can cash flow their condo rentals. That hasn't happened in San Diego for years!..and it won't continue for long.
MY PREDICTION: There are only so many unbelievable deals out there, and many more people looking for them than are available. The biblical flood of foreclosures predicted by many Chicken Littles may end up being more of a flash flood warning (with very heavy rains) as the numerous governmental interventions guard against overall economic recession.
MY ADVICE: Buy an REO or short sale now...hold for 4-5 years...sell...retire to Cancun and live like a sultan!
Bank REOs (foreclosures) and Short Sales are now being listed at 2001-2002 prices in some instances (that’s 2-3 years before the 2004-2005 bubble), especially in the least expensive price range of the market around $130,000-180,000 . That's 6-7 years ago! "Regression to the mean" has already happened and in my opinion there’s been a slight over-correction. How much further can they slide- back to 1999?
Buyers, with a modest down payment, can now pay almost the same to own as they would to rent. Investors with a minimal cash investment can cash flow their condo rentals. That hasn't happened in San Diego for years!..and it won't continue for long.
MY PREDICTION: There are only so many unbelievable deals out there, and many more people looking for them than are available. The biblical flood of foreclosures predicted by many Chicken Littles may end up being more of a flash flood warning (with very heavy rains) as the numerous governmental interventions guard against overall economic recession.
MY ADVICE: Buy an REO or short sale now...hold for 4-5 years...sell...retire to Cancun and live like a sultan!
Mini Bidding Wars!
I feel the need relay my recent experience. A short sale listing that I have was recently put on the market at a very competitive price and I literally had 5 offers within 2 days- all at or above list price. It actually started a mini bidding war! Many properties listed at the bottom of the respective market have similar results, with “multiple offers received, highest and best offer due on…” in the remarks section on the MLS. All the buyers out there seem to ignore 99% of the listings, but when a great deal comes on the market or lowers the price everyone submits an offer within a couple days.
Take from this what you will, but here’s MY PREDICTION: there are a lot of “investors” (i.e., people who were smart and sold their properties during the bubble of ’04-’05 and have been sitting on $100k waiting for the market to drop) that will buy up all the REOs throughout the year at great deals. Meanwhile the average seller’s home will sit on the market and the media will talk about how bad things still are, but transactions will be up as the foreclosures and short sales filter through the market, even though prices will remain “soft”. All that really means is that banks are willing to take less than the average seller and are pricing them out of the market. However, there are a limited amount of foreclosures and short sales on the market compared to buyers looking for "that one killer deal", and when a good one is listed there's a localized feeding frenzy.
MY ADVICE: if you're serious about buying, be ready to pounce at a moment's notice. That means staying in touch with your Realtor and monitoring the market every day. Also, have all your ducks in line- pre-approval letter, deposit amount available in the bank, purchase offer template created, etc.
Take from this what you will, but here’s MY PREDICTION: there are a lot of “investors” (i.e., people who were smart and sold their properties during the bubble of ’04-’05 and have been sitting on $100k waiting for the market to drop) that will buy up all the REOs throughout the year at great deals. Meanwhile the average seller’s home will sit on the market and the media will talk about how bad things still are, but transactions will be up as the foreclosures and short sales filter through the market, even though prices will remain “soft”. All that really means is that banks are willing to take less than the average seller and are pricing them out of the market. However, there are a limited amount of foreclosures and short sales on the market compared to buyers looking for "that one killer deal", and when a good one is listed there's a localized feeding frenzy.
MY ADVICE: if you're serious about buying, be ready to pounce at a moment's notice. That means staying in touch with your Realtor and monitoring the market every day. Also, have all your ducks in line- pre-approval letter, deposit amount available in the bank, purchase offer template created, etc.
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