Thursday, August 14th, 2008 at 2:06 PM
El Caballero
We haven’t seen auctions in the MLS lately – until now. This 2,568 sf house in San Elijo Hills has been on the market since February, looking for around $600,000, but no takers.
They cancelled the listing, and selected a new realtor who has it in the MLS at $399,000. He is advertising that this house will be sold at a live auction on September 9th, and that “List price is the suggested opening bid, which does not mean that a 1st bid will not be lower, nor that the final bid price will not be significantly higher, that the suggested opening bid.”
But he’s facing a daunting challenge. First off, the house backs to San Elijo Rd., as you can tell in his photo with the flags in the background.
Plus, the sellers paid $806,500, and have loans of $745,150. They’re going to take the high bid from the auction and run it through as a short sale. I guess it is a tolerable way to get the buyer-procurement process out of the way, so they can get back to enjoying the free rent – the NOD was filed May 13th.
This will be an interesting test – the price is about right to attract buyers, but I’m not sure many are going to go above $400,000 and wait out the short sale process. I doubt the bank is going to like the result either, the last sale on the street was in May for $630,000 for a 2,646sf model. But there are two notices of trustee sales on the street too, so what else can they do to rustle up a better sale?
Posted on Thursday, August 14th, 2008 at 2:06 PM in Auctions | 38 Comments » | 
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You are correct, the list price does get buyer’s attention. Got mine anyway! But the moment I read auction, my interest goes away. It’s just a gimmick.
I mean, even if nobody else shows up, and I’m the only bidder at $400K – they have no obligation to actually sell it to me for that, right?
How do these kind of auctions work anyway, are they cash only, like the trustee sales?
simone | August 14th, 2008 at 2:58 pmAn auction to get a highest short sale bid. I would be surprised if any buyer shows up (or bothers to stick around and bid), once they learn about the "catch".
Smithers | August 14th, 2008 at 3:29 pmSometimes you get the bull and sometimes you get the horns. This is a case of both too much bull and too many horns. IANAL and all that but it appears this object is not theirs to auction. They don’t own it and they don’t have permission from the owners.
Rob Dawg | August 14th, 2008 at 3:51 pmYet another $300-400k on the banks books goes to money heaven and this on just one property.
JE | August 14th, 2008 at 3:53 pmAt least the realtors are trying. Auctions are going to become more and more popular.
When it comes down to it. Something is better than nothing.
It will be interesting to see what the bank does.
shadash | August 14th, 2008 at 4:40 pmYou couldn’t make this stuff up! Truth is stranger than fiction.
greenlander | August 14th, 2008 at 5:35 pmok folks this house has never been owner occupied.
Duh | August 14th, 2008 at 6:01 pm2 bad trash it renters, it’s a mess inside, grass is toast, beebe holes in window, agent was a joke, never been cleaned inside, not sure who is inept at selling this but it’s a joke and a shame, house has island views and has so much upside…bank must be a pain to deal with
never been owner-occupied
If this was 100% financed, I could understand the gamble. But they put down $61,350 down payment, plus another $6,000 minimum in closing costs.
Then the payment, including $800/mo in taxes and $359/mo in HOA and MR, is around $5,500 per month, just to rent it out for what, $3,000 tops?
$60,000 = losing $2,500 for two years
$61,350 = initial down payment
$6,000 = closing costs
$127,350 actual money lost (unless neg-am, then a little less)
but not counting vacancy.
All on the gamble that a house that backs to San Elijo Rd. would go UP in value from $806,500?????
Jim the Realtor | August 14th, 2008 at 6:26 pmInteresting that the teaser auction price is about what it would take to cash flow best case. It’s still 130x rent so I’ll keep my powder dry.
Rob Dawg | August 14th, 2008 at 7:12 pmAccording to RealtyTrac, the whole area of Questhaven is plagued by bank owned and pre-foreclosures. If we assume 50% accuracy on RealtyTrac data there are still three times more REO’s than what is listed in MLS.
Is there a bank that would loan more than 80% of the asking price in that neighborhood? And is there a person with ~$100K for the down payment who would buy there?
BGinRB | August 14th, 2008 at 7:26 pmI really wish I knew someone who is looking to buy and thinks now it is time to do it.
Gotta love those horns over the fireplace!
Downturn | August 14th, 2008 at 8:25 pmA house where everybody looks down on you… (literally)
CVman | August 14th, 2008 at 8:46 pmI think you’d have to be crazy to pay $400k for this place. But as they say, it takes one to know one.
Are 50+% losses now obvious to everyone? Anyone think these losses will be "contained?"
Genius | August 15th, 2008 at 1:13 amI wonder how many telescopes there are on the top of that slope…
GeneK | August 15th, 2008 at 1:54 amIt’s no wonder that truth is stranger than fiction. Fiction has to make sense.
Mike S | August 15th, 2008 at 2:23 amattributed to Mark Twain
"I really wish I knew someone who is looking to buy and thinks now it is time to do it."
I just purchased a home for my family and myself. We’re not going to sell anytime soon, so it doesn’t matter to me that we’re not quite at rock bottom yet. It’s a spectacular home at a decent price, and now my toddler son has a place to call home until high school at least.
It’s a bad time to buy if you’re just looking at it as an investment, but if it’s your home for the next decade or so, I think it’s a pretty decent time. I feel lucky that we squeaked in before mortgage rates got any higher and obtaining a loan became nearly impossible.
Kwaping | August 15th, 2008 at 2:38 amAn agent emailed to say they went to one of the listing agent’s previous auctions, and there was a reserve price, plus a 9% premium for the buyer to pay.
If there is a premium on this deal that the buyer has to pay, good luck getting anybody to bite.
The LA mentions in the listing that ‘no bids will be accepted before the auction’, but when you go to his website, he has two properties marked as ’sold by auction’, and 10 other marked "sold prior to auction".
Jim the Realtor | August 15th, 2008 at 2:54 amYeah, it’s interesting how the seller’s agent is trying to create an "upper hand" thru an anticipated auction frenzy.
I also get a kick out of the phrase "seller will entertain offers between…XXX"
I always picture Mr. Burns leaning back in his chair, rubbing his hands together when I hear that.
Can you please do a follow up story on this later, Jim?
Nan | August 15th, 2008 at 3:19 amKwaping,
do you think a property equally matching your needs will be available for less than what you paid for yours in let’s say a year?
How would you feel if it turns out that you could have saved amount equal to your annual savings by waiting 6 months? Would you care? If you have to pick between one year of top tier college and 6 months of place to call home for your toddler which one would you pick? Or you are already removed from that kind of financial considerations (i.e. you can afford both and more)?
I am looking at places that sold for $400K’s in early 2003 with asking price of high $500’s. I just don’t see how income which could not support $400K house five years ago can now justify $550K for the same place.
BGinRB | August 15th, 2008 at 7:38 am"never been owner-occupied"
One of my very favorite phrases. This might be the tell to one of the biggest lies in real estate. I wonder what the loan docs to this home say?
And they thought it would go from $806K? Delusional doesn’t begin to cover it.
ice weasel | August 15th, 2008 at 12:41 pmBGinRB, Why can’t you just be happy for Kwaping? Yes, it is a poor time to buy now. But if one can afford the prices, then why not? He has a place to call home now.
I don’t think it’s necessary to bag on people because they made responsible decisions that you would not have made.
garbler | August 15th, 2008 at 1:59 pmBecause purchases now delay the correction
Hibiscus | August 15th, 2008 at 3:14 pmOops – apparently my formatting went a bit crazy there.
Hibiscus | August 15th, 2008 at 3:15 pmMy realtor up north (who was also a friend of many years) once told me that in any given market it is always a good time for someone to buy or sell and a bad time for someone else to do it, and the trick is to always know which someone you are.
If you have very specific needs that are hard to fill, anytime you find a home you can afford that meets them *could* be the right time, depending on your situation. After we moved down here I created a search for the house we were looking for. Today is one year to the day since we closed, and in all that time that search has turned up exactly one house. It’s currently on the market for about $30k more than we guesstimate the current value of our house, which I think means we could probably buy it for the same value eventually – if we were willing to make a try on a short sale home. If we had waited that year after selling our old home up north we would have about $50k more in the bank today, but my wife would have spent 18 months (so far) in our temporary home (which was not terribly well suited to her disability even though it was the best we could find) instead of the six months we actually were in it, and from Jim’s accounts of other short sales by the time we were done it would probably be more like two years. Some trade-offs are easier than others to make.
GeneK | August 15th, 2008 at 3:23 pmGeneK,
bearing01 | August 15th, 2008 at 4:58 pmAre you saying that you bought your house in SD for $30k more than the house you previously owned? Also, when you bought this previous house (or when you bought your first house) was that during bubble prices or was it back when real estate was reasonably priced?
No, the house coming up on my search is on the market for $30k more than what our current house has fallen to since we bought it. I’m guesstimating that current house has lost close to 100k (previous house has dropped close to $200k since we sold it, so we’re ok with that). We paid about $60k less for this house than we got for the house we sold after sales expenses (we weren’t about to invest Silicon Valley prices in a house in SD County and I wanted cash in the bank because I could see the general economy was about to tank).
Previous house was bought in 2001, with the proceeds from its predecessor bought in 1997, which was bought with the proceeds of house #1 bought in 1983. All the Monopoly-money "gains" and "losses" I’ve experienced over the past 25 years are calculated from my original 1983 purchase price of $122k, and I’m too lazy to adjust my numbers for inflation.
GeneK | August 15th, 2008 at 5:38 pmInteresting post, GeneK. I was in a similar situation, in that I have been waiting out the ridiculous pricing of the past few years to purchase a home. During that time, we had been renting a condo in Mission Valley. Well, about 9 months into the year lease, we found out that the owner of the unit was going to put it on the market when our lease was up. That did indeed happen in March, so we started shopping around in February.
We could have found another place to rent, but we’re sick of throwing money away on rent and don’t want to keep moving around while my son is growing up. Around that time, the housing market was really starting to crumble, so we decided that we would look for a place to purchase.
We searched and searched in our target area from February through July. We found one or two interesting places but nothing that was perfect. Finally, we found the perfect home. 3br/2ba, 1900 sq ft, built in 1995 in Mira Mesa with *no HOA or MR*. Great yard, cul-de-sac, walking distance to parks and shops, good neighbors, and at a price we could afford. Great schools for my son from K-12 too (option to go to Scripps Ranch HS instead of MMHS).
What would you have done in that situation? Waited and kept looking because you thought we weren’t quite at the bottom of the market yet?
Kwaping | August 15th, 2008 at 6:10 pmSorry Gene, the final questions were directed towards BGinRB, not you.
Kwaping | August 15th, 2008 at 6:12 pmCongratulations, Kwaping! I know from personal experience that it can be very hard to find the right place.
Not all wealth is measured by digits on a bank statement.
Dwip | August 15th, 2008 at 6:48 pm"…in any given market it is always a good time for someone to buy or sell and a bad time for someone else to do it, and the trick is to always know which someone you are."
Great comment. Of course everyone wants to buy low and sell high, whether it be real estate or the stock market. But let’s look at our alternatives to buying a home — inflation’s running at 5.6%, savings rates are at the very best 3%, the stock market is down 20% since November, and I still need a place to call home.
Some people don’t mind the rental lifestyle. I rented for 10 months after moving here, with every intention of renting until the market turned up (my gains from our house in LA sitting tidily away in a MM account). I told myself we’d rent for up to 5 years if that’s what it took! But if you do find that great home in that great school district with the great layout and the great yard in the neighborhood with little turnover and NO MR or HOA, what do you do? Keep making -2% (after inflation) on your savings, keep losing 20% on your stock investments, and wait 2 months for your landlord to change the broken lock on your back door (true story)?…or do you sack up and buy and take pride in where you live, make connections with your neighbors, and give your kids a solid foundation (literally) in which to grow? I think the answer is different for everyone, but I do think it’s human nature to plant your roots somewhere, and renting forever and paralyzing yourself over marketplace conditions as they are this minute will not feel good, simply put.
I’m not saying ignore market conditions; I’m sure it doesn’t ‘feel good’ to be upside down on a house. I would never buy in a place with major MR or HOA, or an SEH-type neighborhood. 10 minutes of research on the SD marketplace will lead you to that conclusion — there is clearly no bottom in those areas right now. But back to the above quote…just know who you are right now: the good-time-to-buy person, or the bad-time-to-sell person and be on the right side.
Maybe our lesson from all this is: look less at real estate in So Cal as part of our investment portfolio and merely call it what it is. Our home! And if you sell in 10 years and procure a profit from it, then what a happy day.
BAM | August 15th, 2008 at 6:53 pm"Maybe our lesson from all this is: look less at real estate in So Cal as part of our investment portfolio and merely call it what it is. Our home!"
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I would argue that the opposite may be true in the current real estate environment.
The two key factors are what premium is being paid to own versus rent, and how much devaluation is likely to occur. Sinking thousands of dollars a month into premiums to own versus rent into a property that is likely to continue to significantly devaluate is a very nasty combination that can have a devastating effect on net worth.
Everyone puts a different psychological or emotional value on home ownership and you can’t tell someone right from wrong in that respect. To each his own. Some folks are fine in paying premiums to own a devaluating asset and that is absolutley fine – they have their own reasons.
But the numbers do not lie. The numbers are what they are. And the fact seems to be that right now there are significant premiums being paid to own properties that are very likely to continue to devaluate substantially in the next several years. The likely negative effect of this combination on one’s net worth is large, I think. So I would say that particularly in this market it makes the most sense to pay attention to the numbers and come to some conclusions from an investment perspective as opposed to the "I want a home" perspective.
dac | August 15th, 2008 at 7:53 pmThere are some advantages to waiting it out. Houses are still overpriced and much room to fall. Instead of buying that house, if you can rent the one next door for $800/mo cheaper, then doing so will give you an extra $10,000/year for 401K or your kids college tuition. After the Alt-A mortgages finish tearing the rear end out of this RE market (in 2010) if you can buy the house down the street for what you’re renting at then you get to keep your $10,000/year for retirement/vacation/new car for the remaining 30 years. The house may still not appreciate a dime for 5 years (remember, it wasn’t an investment) but you still have that $10k/year more.
Advantages of renting: If you don’t like the neighbors then after the lease you can move… without any financial loss. If you loose you job during this recession you won’t have the stress of home ownership that you can’t afford and know you can’t sell without loss. Also, because you’re renting, if anything breaks or leak or rots or gets eaten you’re not faced with the bill. Renting will put more $ in your pocket for that retirement fund.
When cost of ownership (after taxes) equals cost of rent then it will be time for me to buy my first house in San Diego. Until then, I will envy those that bought in back in 1999 and thank god I didn’t buy in 2006.
I owned a house before moving to SD, but have been renting here for the past 6 years waiting for sanity. I almost closed escrow on a house last year, but came to my senses after realizing the market conditions and state of affairs of this nation.
bearing01 | August 15th, 2008 at 7:55 pmI’m not saying renting is bad, by any means. I used to wonder why anyone would buy when you could just pay rent and have everything fixed for you. I’ve changed my stance though. For me, I like being able to do anything I want to my home. (I’ve never fixed anything myself or even painted a room before, and am having a blast!) I don’t mind the short-term losses because I’m confident that the value of my home will eventually rise above what I paid for it. I am not worried about neighbors because we did ample research ahead of the purchase, and besides, you can’t get away from bad/weird people wherever you go these days.
And finally, the big one is that my wife is a nurse, with huge earning potential and excellent job security. I still make slightly more than her, but if I had to change jobs against my will, we would be okay for a while.
I think the general consensus is that everyone has their own opinion on when the right time to buy is, and everyone has their own set of parameters that will make them "pull the trigger". For me, the time has come and my parameters have been met. I certainly don’t blame anyone for wanting to continue renting, though!
Kwaping | August 15th, 2008 at 8:36 pmI think that from a purely financial view it would have made more sense for us to sit on the proceeds from selling our last house and rent. If we were seeing more houses like the one we bought coming on the market by the week, I was single, if my wife wasn’t disabled, if we didn’t own pets. etc., etc., that might very well be what we would have opted to do.
GeneK | August 15th, 2008 at 8:46 pm>>I don’t mind the short-term losses because I’m confident that the value of my home will eventually rise above what I paid for it.
The point I was trying to make above is that buying now versus later is not a short term loss… but actually a long term one (for 30 years/as long as you’re paying that mortgage). Whether your house appreciates a dime or not doesn’t matter if you’re not planing on refinancing, taking equity out, or cashing out and moving to a cheaper community.
With the latest rise in inflation, the Fed will have to drive up interest rates sooner or later(after the election if not before). You won’t be able to refinance for quite some time. However, if high interest rates force sellers to drop their price (to make prices affordable) that too will drive the RE value down. If you purchase then, you also have the chance to refinance at lower rates when they fall again.
I prefer a lower price / higher int rate. You claim more on your tax return and pay less property tax.
bearing01 | August 16th, 2008 at 6:43 pmKwaping,
By the way, I don’t mean to come off as if I’m attacking you. I’m happy for you and your new house. I hope you have great enjoyment doing up your kids room and back yard. I would love to be able to convince my wife and myself to buy now.
I’m just giving my different point of view (as a fence sitter) for others that are in search of answers to help make their financial decisions.
bearing01 | August 16th, 2008 at 6:49 pmThanks bearing01, I didn’t take it as an attack.
Your last paragraph was very enlightening and wise. I think you have a good plan. My family and I couldn’t be happier in our home, so it’s all good.
Kwaping | August 16th, 2008 at 10:56 pmWhat time on September 9th is the "auction"? I mightr bring lawn chairs and popcorn to see the entertainment.
SantaFeHills | August 21st, 2008 at 5:40 am