Some readers had concerns about the La Costa lowball short sale mentioned on Friday.
My intention was to point out the future of the real estate business – it’s going to get tougher on agents who can’t keep up with the hustlers.
There are plenty of questions about the ethics of this type of deal, where the agent approaches an over-encumbered homeowner and puts together a sale with their waiting buyer, without exposing the property to the open market. They then throw it on the MLS for all to see a new listing they can’t buy, because the deal is already done.
But let’s examine this case further, shall we?
Here’s is the property in question:
4 br/3 ba 2,536 sf
Lot size = 11,100sf
SP: $580,000 1/04
LP: $450,000 7/09 Contingent
The photo above is in the current listing, but the agent got it from the old 2004 listing. Here’s how the house looked early this morning (click for close-up):
The owners have received their NOD, so they won’t be there much longer anyway. What can the lender, Wells Fargo Bank, look forward to if they were to foreclose on their $650,000 worth of refinance loans, instead of allowing the short sale to go through?
The agent involved didn’t include any additional photos, but mentioned that the house needed TLC, which is code for full makeover required. These are 1970’s tract houses that’ll need $100,000 just to get started, so I’m not sure that WFB would get much more than $450,000 on the open market, between the lousy condition and other action nearby.
Here’s what they’ll see within a couple of blocks:
4 br/2.5 ba 2,636 sf
Lot size = 10,890sf
SP: $315,000 1/98
LP: $459,900 4/09 Contingent
This is the agent who started the run in the neighborhood, though this house might be the worst floor plan ever conceived. In April we didn’t have the ‘contingent’ status yet, so we don’t know exactly when she contracted with the buyer, but with comps in the $600,000s and higher nearby, it was probably another “smoke-job”. But it probably isn’t worth any more than list anyway.
If you look closely you’ll see a ‘door ornament’ on this one, but it isn’t a foreclosure notice – but similar. Bank of America has been aggressive in sending crews in person to monitor the condition of the defaulting properties, and they are maintaining the vacants. More on this later.
4 br/3 ba 2,653 sf
Lot size = 12,632 sf
SP: ?? (in escrow)
LP: $575,000 Pending
This is the other version of the ‘smoke-job’. The buyer (soon-to-be-seller) of this home has already processed the package with the seller’s lender, and is wrapping up a short sale. Feeling confident being able to close that deal, he has now put it on the open market to flip it to a second buyer. This is what’s known as a “double escrow”, which is illegal if not disclosed to all parties.
But look at what could go wrong – the current homeowner is facing his trustee sale on Wednesday, and the amount owed is $735,547. If the trustee sale doesn’t get postponed again, and both deals fall apart, and the bank takes it back to try their own resale, probably in the $400,000s. Or if the trustee sale is delayed again to allow for the short sale to close, at what price is it worth it for the flipper to buy? It must be around $450,000? Which, based on these other two deals, would be seen as retail if the second buyer’s appraiser gets picky. The flipper could get stuck with this one over appraisal issues on the flip.
All three of these houses are old and hammered – a minimum of $100,000 in improvements are needed to bring them into the 21st century. If you are bummed about missing these “deals”, think again.
These three “low” sales are expediting the price declines.
Here’s why they are better than REOs:
1. No open market exposure probably means lower-than-market pricing, for now.
2. No repairs means low pricing.
3. Long, drawn-out escrow probably means lower pricing to get buyers to stick around.
These short sales WILL BE THE COMPS that will help determine the future pricing – especially if the foreclosure tsunami runs through here. Long-time homeowners who are thinking of selling might ignore these, but the foreclosing banks won’t – they’ll price all the REOs in the nighborhood over the next six months based on these.
The goal for buyers is to LET THESE HAPPEN, and then scoop the future listings that are in better shape, but priced about the same.
Back to BAC monitoring the homes in default, but not yet foreclosed. I spoke to one of the field techs, who is one of the fifteen independent contractors state-wide that handle the lock-changing/cleanouts/lawn-trimming tasks for BAC. He said that they are cutting the list of 15 contractors down to three for the entire state, and those three will be responsible for sub-contracting.
It could be another indicator of how B of A will be handling the Countrywide REOs in the near future: to send them to a third-party REO outsourcer who’ll then contract with individual realtors to sell them (which has been long-rumored on the street), a method which has proven to be less-productive, and very frustrating for all parties.