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A reader and I have been discussing his travails since his house burned to the ground in the October fires. The struggle he’s had with the insurance companies has made him an expert on the latest going-ons, and he shares them today – mostly the concerns about being under-insured.  I always thought that I had ‘guaranteed replacement cost’ in my policy, but that has gone away:

Attached is the appellate court’s ruling (attached PDF). Like I said, if you haven’t already, it’s really important to call your agent and make sure you have enough coverage. It is amazing, I’ve talked to dozens of people and everyone thinks they have sufficient coverage. I think people are scared to talk to their agent because their premiums will go up. It’s not always the case. I convinced my neighbor who didn’t lose his house to call his agent and he got his coverage doubled and his premium actually went down. Like a lot of things the first $250-$300K is the most expensive part of insurance … the last $700K is cheap!

The insurance industry admits that nationwide 65% of home owners are underinsured by an average of 30%.

 http://www.realestatejournal.com/buysell/taxesandinsurance/20060829-mcqueen.html

http://moneycentral.msn.com/content/Insurance/Insureyourhome/P35340.asp

A quick way to see is to run a quick Marshall and Swift

www.accucoverage.com

I’ve got a full version of the software package and can run a very thorough “appraisal” and let someone know just how bad their situation is. The Marshall and Swift software is what the insurance agents use to determine your policy limits. BTW, they use another package to decide what your house was worth after it burns down (Xatimate) … Guess which one is more conservative in it’s estimates?

The people I’ve been working with in Southern CA place the underinsured number at 95% locally. Sounds really high, but they are working very close with the “fire victims”. I can’t believe it’s only the people who lost their homes that are underinsured … I think you just don’t realize it until you need it (i.e. it’s too late).

Insurance companies are like bookies. The chances of you having a total loss are <1%. But the insurance companies are risk adverse and they want market share, so they want to underinsure you. They want the most expensive part of your policy (the first $250K or so) and then after that it’s all risk, so they really don’t want that part. They also layoff their liability on the secondary market (just like a bookie) so they can mitigate risk. Funny how you hear that insurance companies are going to go belly up after a Witch fire or a Katrina. Last year alone CA homeowners premiums were $7B. http://www.insurancecoverageblog.com/archives/first-party-insurance-southern-california-wildfires-and-insurance-claims.html

On average the insurance industry only pays out 33 cents on the dollar http://www.insurancejournal.com/news/west/2006/06/30/70010.htm

… pretty good racket. With 1 in 8 people in this country living in CA and profit margins like that, they aren’t pulling out of CA and they certainly aren’t going broke. Even a year after one of the biggest disaster in this country (Katrina) the insurance companies had record profits. http://www.pantagraph.com/articles/2007/04/07/money/doc4618639ef29c3204754284.txt

Also, just for your own edification, all insurance companies are not created equal. All State is far and away the worst (yes I do have data to back up that statement). According to one well respected Bad Faith Lawyer “they are the only company out there that will spend $20M in lawyer’s fees to keep from paying $1M over policy limits”. State Farm is pretty bad, but not as bad as All State … every year they get a little closer to All States model. In this fire, Farmer’s has been the best of the big 3, but I guess in other fires they weren’t so good … not sure what that means.

USAA and AAA are both seen as excellent and fair. I’ve also heard good things about Liberty Mutual , Travelers and The Hartford. Chubb is suppose to be very good, but also very expensive.

Two organizations that are out there to help people are:

www.carehelp.org (these guys are incredible)

and

www.unitedpolicyholders.org

Trust me, no one is prepared for this sort of thing, and I’ve seen grown professionals (Doctors and Lawyers) totally devastated by the over whelming situation this places you and your family in. In the last fire (Cedar) a couple of people committed suicide and there were numerous divorces. There are organizations out there that can help and do a good job. Everything from insurance problems to counseling … I’m not a big counseling guy, but if you need it there are several support groups.

A future blog topic that you might be interested in is the class action vs SDG&E … it’s going to be huge. All of the insurance companies are trying to retain subrogate rights and they are going to sue them for well over a Billion Dollars. It’s pretty much common knowledge that SDG&E started 2-3 of the fires and it looks like the lawyers have dug up a mound of evidence showing neglect.

This is going to be a real polarizing topic. As we all know SDG&E will just pass the losses off to their customers. I’ve heard that SDG&E has a billion dollars of liability coverage … I’ve also been told (by one of the lead lawyers in the class action) that SDG&E made a cooperate decision to not have any liability coverage … sounds crazy, but he should know … he sued them back in circa 2004 for the fabricated rolling blackouts and won $500M (ruling was something like $24B, but they settled on $500+Meg).

I think the pending class action will make that decision look like found change.

http://www.allbusiness.com/legal/trial-procedure-summary-judgment/5536318-1.html

People who were affected will be looking for more (or in some cases some) money, people who weren’t affected will take SDG&E’s side and say “you shouldn’t live in the sticks”. Some people who were really underinsured will only be able to move on if they get some money from the class action.

Both sides probably have a valid argument, but the last time I looked Rancho Bernardo isn’t exactly the sticks. One of these years we’re going to have a fire that will burn to the pacific (ala Malibu last year) and it is going to be devastating on a whole new scale.

So far this month there has been 54 houses close escrow in Carlsbad, and almost a third of them, 17, had previously sold since 2004. To keep the focus purely on values, here is a comparison of the two sales prices, with a few comments:

Carlsbad Same-House Sales, May 2008

On average with these you are looking at a 8%-10% drop in pricing from the peak, but when you add in the improvements and closing costs, I think the average loss would be 20% or higher.

The low-end sales in Oceanside have increased quite a bit this year.  Here are the annual-closed-sales totals for detached homes under $300,000:

2003 = 354

2004 = 41

2005 = 6

2006 = 14

2007 = 31

2008 = 83, year-to-date

There are currently 226 active listings of detached homes under $300,000 in Oceanside – my, how times have changed!

One thing the Carlsbad Unified School District did to help with their cash flow is designate the rest of town as it’s own Mello-Roos district.  The area outlined in yellow is the remaining vacant land in town – so say thanks to the future new-home buyers, they’ll be carrying the load for us!

An interesting note in an article published today in the North County Times.  Because the Carlsbad Unified School District is now bringing in more money from property taxes, it will be designated as a ‘basic-aid’ district.

"In the past, allowing students to transfer into Carlsbad schools from outside brought more money for the district. As a basic aid district, that will no longer be the case because the amount of money coming in will be based on property taxes instead of attendance."

"Because of this, the district may begin to reject requests from parents to transfer their students into Carlsbad Unified schools, Superintendent John Roach said Wednesday."

How many home buyers have purchased homes in Rancho Carrillo, San Elijo Hills, or Oceanside who hoped to transfer their kids into the Carlsbad school district? 

How long will property taxes be the determining factor – will there come a day when it changes back?  The assessor’s office is buried with requests from homeowners looking to lower their tax value, will that be enough to change the school’s income back to per-pupil basis? 

http://www.nctimes.com/articles/2008/05/29/news/coastal/carlsbad/zbcf2c505d5719681882574570076f163.txt

So how bad is it in Carmel Valley – what is lurking under the surface?

We know that there are 199 active listings of detached homes, here are other facts that are obvious to those who look hard enough at the MLS:

28  are vacant (that aren’t listed below)

9 are short sales

1 is a probate

2 are REOs

5 are builder sales

10 are agent-owned (at least)

55 total

We’ll figure that the agents know enough that we can call them motivated sellers, and won’t hold out if a deal can be made.  Four of them are among the most prominent realtors in the area too.  So we’ll call 55 of the 199 the motivated sellers – ones who will be setting the pace for the others.

Is that all there is?  Just 55 out of 199?

Who is lurking under the surface?

Nine are short sales, but we’ll guess that there are 10% to 20% (at least) that if they had to price ‘em to sell, they’d be underwater.  Let’s use 15% of the 199, or 30 more motivateds. 

88 of 199

What about those who have defaulted, but aren’t listed as active or pending on the MLS?  Add another 23 detached homes to the list.

111 of 222

There was only one REO found that wasn’t on the open market yet – we have seen it before and wondered if Navy Federal might eat their $100,000 second mortgage (they did).  I had guessed a list price of $849,000 then, but the opening bid was $733,125 at the trustee sale, so it could come on the market in the $700,000s:

4344 Corte al Fresco

4 br/2.5 ba  2,555 sf

$980,000  SP 8/05

$799,000  LP guess (any day now)

YB: 1992, HOA = 0, MR = $85

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In summary, we can count 112 of 223 as motivated sellers, just over 50% – and that could be conservative.  Are the buyers aware of the odds?  A casual glance would only see a scattered handful of short sales and two bank deals, but in this analysis it looks like there is more beneath the surface. 

Carmel Valley has been the strongest around – if you are in other areas, consider the percentage of motivated sellers to be higher, due to more bank deals and more erosion of prices that has already taken place.

The real estate market seems to be in turmoil, with foreclosures news dominating the headlines.  The local statistics aren’t real promising either, when comparing to last year:

Detached and Attached Listings, Jan. 1 through May 25

Total Listings

2007 = 31,791

2008 = 28,301

diff = -11%

Total Closed Sales

2007 = 10,818

2008 = 8,550

diff = -21%

Though the number of listings are lower than last year, the sales have been dropping faster.  The motivation this year seems to be higher too – of this year’s listings,  44% are vacant, compared to 39% last year.  The foreclosure business is cranking too, as you can imagine.  The same four foreclosure agents we’ve followed have closed 548 sales this year, compared to 256 in the same time frame last year – an increase of 114%.

But are there areas surviving, and if so, for how long?  Can they continue to beat the odds?  Look at these examples of houses that have gone pending this month, and you decide.  The recent sales in area are listed first, then the list price of the pendings:

7898 Sitio Abeto, La Costa Valley

4 br/3.5 ba,  2,722 sf

$900,000  SP same floor plan, 12/07

$1,175,000  LP – PEND

14 days on market

There are TWO single-story 2,915 sf floor plans for sale nearby of K. Hovnanian homes.  They are listed for $929,000 and $959,000!  Yet this Davidson-built house blows out within the first two weeks – was it the white picket fence?

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7496 Circulo Sequoia, La Costa Oaks

4 br/4.5 ba  3,994 sf

$925,000  SP same model  1/08

$975,000  SP bigger model 5/08

$1,249,000  LP – PEND

17 days on market

Sure the $975,000 was a short sale and backed to power lines, and took almost a year to sell. But it just closed, doesn’t that have an impact on the buyer here?  This one is further up the hill so there is some ocean view, and it doesn’t back to power lines, but 28% higher?

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10628 Senda Acuario, Torrey Hills (CV)

5 br/2.5 ba, 3,275 sf

$1,125,000  SP same model 1/08

$1.15 to $1.25 million LP – PEND

50 days on market

These both back to a busier street, and are only three doors apart – yet appear to be holding value this year.  I sold the same floor plan last summer for $1,200,000 that backed to a canyon, could this one close higher? Hard to believe!

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13355 Winstanley, Carmel Valley

5 br/4 ba,  3,124 sf

$1,250,000  SP two blocks away 3/08

$1,399,000  LP – PEND

28 days on market

Remember the 3,900 sf ‘Niagara Falls’ house, the one with the big waterfall in the backyard?  It closed in March literally two blocks away, and on a culdesac.  This REO on Winstanley only had a mortgage around $1 million, yet the owner went down with the ship.  Citigroup listed for more, even though it’s on a busier stretch of Winstanley with no canyon or view - we’ll see what it closes for!

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5436 Valerio Trail, Carmel Valley

5 br/4.5 ba  3,922 sf 

$1,200,000  SP of only two solds this year

$1,699,000  LP – PEND

0 days on market

OK, so the listing agent found the buyer – just a fluke, right?  Nope, two other went pending this month too!  One of the 3,377 sf plans is in escrow listed at $1,540,000, and a 3,736 sf plan listed for $1,550,000.  There are still seven listed for sale too!

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12804 Toyon Mesa

5 br/5.5 ba, 4,982 sf

$1,625,000 SP for 4,979 sf Cam. Stella

$1,775,000 SP for 5,417 sf Mesa Norte

$2,200,000 to $2,349,000  LP – PEND

43 days on market

Many thought the two foreclosures in Del Mar Mesa might set back the pricing of those that followed this year, but this one is bucking that trend.  It has a nice pool and spa, but is only on a .41-acre lot.

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You can say these haven’t closed yet, and it’s just cherry-picking, but in selected areas there have been a number of these this month that have gone pending at high list prices.  We’ll keep an eye on them to see how they turn out!

For those who want to apply for a ‘temporary’ reduction in your property taxes, you have until this Friday, May 30, to get your application to the assessor’s office.  If you need recent sales to substantiate your case, let me know!

The application:

http://arcc.co.san-diego.ca.us/docs/calrev.pdf

Email me for assistance – I can submit the kit for you, if you’d like:

jim@jimklinge.com

It was reported in the U-T today that Mitt Romney is coming to California - he is in escrow to buy an oceanfront house in La Jolla.  He was here visiting his friends and financial supporters, the Millers, who just purchased Cliff Robertson’s old home in March for $16.5 million.

The house right next door to theirs just opened escrow on May 1st – wonder if that’s the new beach pad for Mitt? 

It’s a 3 br/4.5 ba, 3,009 sf house built in 1980 on a .41-acre lot.  Listed on the range $12,000,000 to $14,000,000.

The U-T suggested that Romney could be establishing residency in California with an eye on the governor’s seat when Arnold is forced out by term limits in 2010.

Those of you who opened your L.A. Times this morning to read about the big Laker victory last night were greeted by advertisement of another auction of foreclosed homes coming up in June.

What were the results of the San Diego auction last month?

The big REDC auction happened on April 12th, and they were adamant about closing the properties sold within 30 days.  Our tax rolls are updated daily but are a few days behind – as of today they show all recordings that happened on May 15 or older.  That is giving those escrows 34 days to close, let’s check and see how they are doing.

If you were an auction house that stood to make a couple of million dollars in commission, you’d have the closing process working like a machine, right?  If you were the bank who owned these properties and were off-loading them at big discounts, you’d be looking for quick money, wouldn’t you?

Countrywide was the in-house lender, you’d think they’d have their loan processing whipping these out.

I was there to see 87 of the 217 properties auctioned off. 

Of the 87, only SIX have closed so far.

The buyers put down a 5% non-refundable deposit on the day of the auction – did a bunch of them walk?  Or was the winning bid too low when sent to the lender/owner for confirmation, and they were rejected?  The banks had 15 days to accept the bid, how many did they kick to the curb?

There have been 21 of the 87 that have gone back on the market since the auction, re-listed by the bank owners.  Of the 21 there have been seven that have found a new buyer, and are in escrow.  They did lower the list prices by 14% on average below the previous prices, but all of them listed higher than the winning bid.  It must mean that the banks cancelled many of the auction bids for being too low, and took a chance trying to make a few extra bucks.

Here was one of the more interesting ones, in Escondido:

727 Bear Valley Parkway sold for $1,122,000 in March 2006, and was financed 100%.  It’s a 3,300 sf house built in 1970 on almost two acres. 

The winning bid at the auction was $585,000, which counting the auctioneer’s 5% fee would have made for a $614,250 sales price. 

It had been listed for $799,000 until March, so apparently the bank didn’t like the auction bid, and put it back on the market for $699,000 – and found a buyer in 18 days.

We’ll check back in a few weeks to see how many others sold at the auction actually closed.  If they can only sell off 10%-20% of the inventory at the auction, it makes you wonder if they will keep trying it.