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Kelly at the Voice of San Diego is working the beat!

http://www.voiceofsandiego.org/articles/2008/05/23/news/01foreclosure052308.txt

One of the people arrested, Diego Gil, is a well-known realtor in the hispanic community of North SD County.  I checked his sales history between 1/1/05 and 12/31/06, and found that he had 22 sales where he represented the buyer.  Here is the current scorecard on his buyer clients in that two-year period:

NODs = 3

NOTs = 3

REOs = 8

Fourteen of 22, or 64% of his clients are in foreclosure or have already lost their house.

He did sales and mortgages, and his loan program du jour was the 100% financing package – you can guess the remaining 36% of his buyers may not make it either. 

As usual, when checking the state DRE website for Diego, it shows:

"NO DISCIPLINARY ACTION"

Reader Angela asked:

"Jim, do sellers (banks) really care what type of financing you get as long as  you are pre-qualified and have the required down payment? Or is it better to use conventional financing and not require them to provide closing cost assistance? Do they really look at their bottom line that closely that they would give up a sale over paying some buyer  non-recurring closing costs or an offer 5% below asking price, etc.  Just wondering what I will be up against when we start making offers."

Generally they don’t care, they are making decisions based on the net proceeds to them.

But let’s use this Oceanside REO on Securidad for an example.  There are now seven offers in on it, and the bank has requested that buyers submit their highest and best terms.  Six of seven have improved their offer, and three of them are within a couple of thousand dollars of each other in the mid-$140,000s (list price is $127,900).

Now what?

I want to hurry up and pick a winner.  In these multiple offer situation where the buyers are asked to improve their offer, they start feeling like they are getting worked.  It’s my job to treat them and their agents with respect, and get to the finish line quick before they get frustrated and bail out.

I mentioned that one of the agents has purchased five of these properties recently himself, so I like my chances of his deal making it to the finish line – he believes in the product.  But he called late this afternoon to tell me his buyer had submitted a second offer on a different property one street over, and got it for $140,000.  I convinced the agent to dig through his buyer leads to find another investor, and sure enough, he has one going over for a look tomorrow morning.

Ideally in a close race like this, the second priority is to select a buyer who will close the deal.  This will probably be our only shot at selling in the mid-$140,000s, once a multiple-offer situation happened and fails, it is nearly impossible to re-ignite it.  So we want to pick one of the three that can finish.

One of the offers is based on FHA financing, and the agent bumped the price to $152,000 to allow for a closing cost credit – her buyer has a minimal cash to work with.  Both the bank and myself have concerns about the appraisal, both because of the high price and because FHA is looking at the condition of the property too.  When I expressed that to the agent, she got her lender to confirm that the FHA concerns about the property’s condition isn’t as harsh as it used to be.  (realize that I haven’t done a FHA or VA loan in years)

This buyer had the first offer in on Friday, and here we are on Wednesday and she still doesn’t have an answer.  The agent told me early on that they had missed out on 3-4 other deals, and they really want to see this one happen. 

So we have the FHA offer, and a new investor going for a look tomorrow.  The third offer is the lowest, and the bank’s asset manager told me that the actual property owner, Deutsche Bank, will be critical of the deal because of how fast it sold – we need to show we got top dollar.  So we might end up taking the FHA deal if the new investor doesn’t pony up just to maximize the return.  But I’ve been very pleased with how the Countrywide asset manager has handled this, and has been in full communication each day.

We’ll see what happens tomorrow!

To answer Angela’s question – make a clean and simple conventional offer, and figure that the net proceeds to the seller is what matters most. 

There have been times when a seller will strongly object to paying closing costs for the buyer, even when the net proceeds are acceptable.  I had one old guy tell me, "I have to carry my own luggage, I’m not carrying theirs too!"

During the frenzy (2003 and 2004) the market was cooking almost year round.  But as you can see in this chart, each year since the spring surge has been getting weaker.  What used to be about a 10-month selling season is going to be down to three or four months this year.  There have been 862 closings this month, so we’ll be lucky just to match last month’s 1,533.  If you are selling, I’d plan on being in escrow in the next 30 days.

The hype machine is out with an interview of Lawrence Yun, and his prognosis for the rest of the year.  At least that’s what he was babbling about, before I couldn’t take it any longer – I made it to 3:11 mark. 

Anyone who makes it to the end gets a free bubbleinfo.com t-shirt!

http://easylink.playstream.com/gvimedia/NAR/NAR_Midyear_Mkt_Update.wvx

Keep your barf bags handy!

The five same-house sales for Carmel Valley (92130) this month are still looking pretty strong.  The median sales price of the overall 24 that have closed so far is $945,000, and last year there were 42 closings in May with a median of $947,500 – virtually unchanged year-over-year. 

The overall median SP/average SF is dropping, from $329 to $306, but the worst loss of these five same-house sales was $47,000 (plus closing costs). 

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5487 White Oak

5 br/3 ba  2,673 sf

$925,000  SP 6/07

$1,020,000  LP 11/07

$885,000  SP 5/08

YB: 2005, HOA = $46, MR = $225

For a house that backs to apartments and has a view of the freeway 100 yards away, I think the sellers did pretty good – it was a short sale too.

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10707 Heather Ridge

5 br/3 ba   2,724 sf

$1,092,000  SP  5/06 (new)

$1,075,000  LP  2/08

$1,045,000  SP  5/08

YB: 2006, HOA = $66, MR = $104

Another one that did OK, considering that they back to a busy street too.

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5289 Foxhound Way

4 br/3.5 ba  3,523 sf

$1,147,500  SP 1/07 (new)

$1,299,000  LP 3/08

$1,250,000  SP 5/08

YB: 2007, HOA = $60, MR = $104

Derby Hill resale that had $150,000 in upgrades but no view or canyon frontage.  This lot is 6,800 sf, and it backs right up to two other houses - but hey, what do you want for $1.25?  (Wasn’t this a FSBO for quite a while?)

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13243 Evening Sky

5 br/4.5 ba  3,922 sf

$1,209,500  SP 8/05 (new)

$1,660,000  LP 2/08

$1,585,000  SP  5/08

YB: 2005  HOA = $104, MR = $104

The former owners had at least $100,000 invested in exterior upgrades, including a salt-water pool with solar heating.  They did alright, all considered.

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6105 Del Mar Mesa

6 br/5.5 ba  8,022 sf

$2,089,766  assessed value

$5,750,000  LP 12/07

$3,800,000  SP  5/08 cash

YB: 2006  HOA = $0, MR = $97

This was a new-built by the sellers on 4.77 acres in an area where there is enough competition that you still have to be sharp on price.  But if they had less than $3 million into it, they did alright too.

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If five of the 24 were previously sold since 2004, what about the others?  They have sufficient equity to carve a little more off their price – could there be a slow deterioration in pricing due to the long-time owners not needing to hold out?  In other words, could the Case-Shiller index be missing some real-time action?

A review of the 19 sales that were previously sold in 2003 or earlier, and compared to other recent sales of identical square footage:

Recent Comp               May Sale, same sf

$684,000 – 2/08    $722,000  (+5.5%)

$815,000 – 1/08,    $792,000  (-2.8%)

$876,000 – 12/07,  $815,000  (-7.0%)

$845,000 – 4/08,    $820,000  (-3.0%)

$1.015 M – 1/08,      $1.045 M  (+3.0%)

No huge revelations there either – could Carmel Valley hold up?

Looks like SD is faring better than the rest in Southern California, price-wise, but you know what the lower sales counts probably mean – more pressure on pricing ahead:

It’s probably just a coincidence, but interesting that both the median sales price and number of sales were down by a nearly-identical amount.

These REOs are providing some great entertainment - here are some of the highlights:

#1 - We saw the high-dollar Valley Center house lacking in curb appeal, but that is one of two I’ve been assigned in the area.  The other REO is a manufactured home on 1.1 acres on a hill with a great view of Palomar Mountain.  So good, apparently, the sellers have had a hard time leaving.

The first visit found the house vacant, but the garage was full of tools.  Good enough, send the crew in to change the locks, which they did.  When I came back to verify that the house was secure, I found the doors open, a dog inside the house, and a suitcase spread eagle on the kitchen island.

OK, so the guy came back for his tools – I called the sheriff for a drive-by and was on my way.  The next visit was what you’d expect, the tools were all gone, and so was the dog and suitcase.  Great, let’s get busy on selling!

I stopped by yesterday on my way to the other REO, thinking I’d find the clean-up crew complete and ready to sell.  Instead, I found a bed, a television, and a dining room set with six chairs moved back into the house!  The house was secure, so the intruder had to break in or force a window open.  Why are you moving back in – some ploy to extend occupancy?  The neighbors had told me that the owners had moved to Arizona, and could it be the kid? 

They left a check for $100 on the front door for the gardener, for May’s service.  I callled the sheriff and waited for him to arrive to file a formal B&E report.  We talked about real estate, and then he helped me move the goodies out to the patio – where I left a nasty gram for the intruder, encouraging him to never come back.

About 30 minutes later I get a call from a realtor who wants to show and sell my new VC listing – turns out it’s the sheriff’s wife!

She was nice about it, and could very well be the agent who sells it, for all I know. 

#2 - One house that is tenant-occupied had an interesting fraud case behind it.  Kelly at the Voice of SD is covering it, so I won’t steal her thunder, but it’s the typical buy-the-house-and-rent-it-but-don’t-make-the-payments package.  The tenants get caught in the middle, and when they asked if C-wide would let them stay until mid-July so they could testify, C-wide said OK (the perp is in jail awaiting trial).

#3 – The cash-for-keys program is loosey-goosey, to say the least.  The first owners that agreed to vacate in two weeks, in exchange for the $2,500, and left last week as agreed.  Nothing yet from Countrywide – no calls, no emails, no responses to the daily messages I left for the party in charge – and no cash or check.  Not a good sign, so far.

#4 – I have run into a couple of ‘foreclosure consultants’ – agent-type people who negotiate on behalf on the foreclosed borrowers.  They don’t exactly ‘negotiate’, they just tell them that some old fat guy is going to knock on their door some day and offer cash-for-keys – take them up on it.  Not sure yet how much the ‘consultation fee’ is for such sage advice, but I’ve at least enrolled them into getting the required signatures for me.

#5 – We’re up to six offers in on the Securidad property, and the Countrywide asset manager was right on it today.  Any time you hear that it takes days or weeks to get a response, look at the listing agent as much as the banker.  We counter-offered all buyers to submit their highest and best offer, and we agreed that FHA offers are discouraged.  There are extra fees that the sellers must pay on behalf of the buyer, plus the appraiser has to identify repairs that the seller is then required to fix.

#6 – The former owners aren’t all taking advantage – of the 20 I’ve been assigned, six of them were vacant on day one, and three others have left since.  Another four have chose the cash-for-keys program, so only 7 of 20 are choosing eviction.  No problem, you better enjoy the free rent while you can, because trying to rent with a recent eviction on your record won’t be easy.

We agree that we’ll go broke working REOs only, and the only reason to do it is to be there when it moves up the food chain.  Stay tuned!

I mentioned that a couple of offers have come in over list price on the REO listing in Oceanside, both of them a net $133,000 offer price.  A reader remarked:

“Is it ethical to reveal details of offers? After all you don’t reveal details of open escrows.”

Let’s review the definition of fiduciary: 

“One often in a position of authority who obligates himself or herself to act on behalf of another (as in managing money or property) and assumes a duty to act in good faith and with care, candor, and loyalty in fulfilling the obligation.”

My interpretation of fiduciary is to do everything I can to benefit my client.  Does announcing the offer prices publicly do that?  I think it does – it puts other buyers on notice that:

1. Other over-list-price offers are in.

2. Gets them to act promptly if they want to participate.

3. It makes it clear what the number is to beat.

Number three is the most important.  How many times has a buyer gotten dejected because they hear that there are multiple offers, and then the listing agent further deflates them by not giving them a number to shoot at.  It happens all the time, and if the buyer just had a number to beat, they might do it.

I think it is my fiduciary duty to announce the offer prices, creating an auction setting.  I’m already 8% over list price, the only time I could be compromising my fiduciary duty is if a buyer out there is thinking about offering 20% over, and sees that he only has to bid 10% over to get it.  In this environment, I’ll take my chances on that not happening much.  I’d rather inspire those waiting buyers with a number to hit – then it just becomes a yes or no, instead of playing games.

There is enough insanity out there for buyers, I’m not going to contribute to it if I can help it.  I told one agent who called about writing an offer that there were multiple offers in that were over list price.  What does she do?  Writes a $120,000 offer on a $127,900 list price.  I guess you have to do what your buyers want you to do, but don’t you try to explain to them that they are wasting their time?  She thought her offer might be stronger – sorry, it’ll take more than that.

One of the agents who made one of the $133,000 net offers called back to to see if he was going to be the winner, and I said no, you are going to have to do better.  He improved his offer by another $4,000.  I think the seller will be happy I said that.  In summary – let’s stop with the games and just make it easy for buyers to buy.

As for the revealing of the sales prices once in escrow, I think that is an old wives tale, and I don’t know why we make such a big deal out of it.  Agents guard the sales price with their life until recorded, thinking that if it gets out of the bag that they have somehow breached their duty.  Everyone I know who has been around the business a while knows that sellers are liable to change their mind at any point about what they sell their house for.  If I have a listing at $1,050,000, and I told you it was in escrow for $1,000,000, and it fell out of escrow – don’t be surprised if the seller doesn’t agree to sell it again for that – they might go higher OR lower.

I don’t make it a habit to tell people what the sales prices are, because it is so standard that they aren’t revealed I rarely get asked.  But if an agent or appraiser asked me to help them with another deal, I tell them.  I don’t think it’s a big deal – though most every agent who reads this will be up in arms at the thought.

The middle of May is prime time – the graduation season is right around the corner, and then the vacations start. Those buyers actively in the hunt have either bought something, or are getting tired of the search. Sellers – don’t be surprised if you see these numbers get worse between now and July/August. If you have been trying to sell for more than 30 days and haven’t, it’s time to lower your price!

Here is a chart showing how the actives-to-pendings ratio has changed since April 4th, plus a comparison of closed sales from April 2007 to April 2008.

Ratio of Active/Pending Listings of Detached Homes, and YOY April Closings

In bold are the best of category. Generally if your favorite zip code is under a 4.00, it’s doing OK, and under 3.00 is “healthy” (the foreclosures are running under 2.0). But if closed sales are substantially less this year than last, then you can probably figure that the additional ‘correction’ coming is probably as severe as the difference between the YOY sales.