Over the next two months homebuyers are going to have the best chance to find a decent deal. The less-motivated buyers will be on the holiday sidelines, and any sellers still on the market have to be getting desperate.
Once we get into 2010, the tax-credit frenzy will likely kick up more interest from buyers, and make it tougher to get a clean shot at a real deal.
Buyers are clamouring for the bank deals, so don’t expect to score an REO without competition. In fact, if you offer on a bank deal, and there aren’t multiple offers, you gotta ask yourself why.
For example, dafox can start thinking about where he’ll be sporting his new t-shirt, because we opened escrow today on Buena Vista. It took four days to rustle up three offers, and after countering for highest-and-best, all we could do was $603,000 on our $601,800 list price. But at least I won’t have to worry about losing my job for selling them too high!
True, it was a funky house in a not-so-family-friendly area, so it’s not a great example of REO sales in 4Q09. Those in the more popular areas are still cooking.
The 55 REOs that have gone pending in Coastal North County since October 1st have averaged 19 days on the market. Counting the time it takes to get a signature from the bank, you can figure that most had offers in the first couple of days.
Look elsewhere for the real deals, and if you don’t cringe when making the offer, it’s not low enough:
1. Sellers with a high loan balance, but still have 30% or more in equity.
2. Any new listings coming on the market over the next 45 days.
3. Listings that have been on the market for 200+ days.
4. Listings that are hard to show.
5. Short sales that have been lingering.
6. Agents who have lots of listings.
Here’s an example:
Jim, I agree on REOs not necessarily being great deals. I do think that some of them end up being great deals but they are usually the ones that linger and start off over-priced.
I’d add one more potential strategy to your list:
– Look for a house just above the “hot” price ranges for the area.
I’m seeing the best deals on properties listed just outside of the market’s sweet spot. In many cases, I’m seeing these types of houses close at prices comparable to inferior properties that listed in the sweet spot and were able to find the early and eager buyer.
Sometimes these houses are not “over-priced”, they are just in a price range with fewer buyers. If you can get a seller to panic you may end up with a great deal in the price range you want.
has there been a winner in the reo contest yet ? heh
I must say, considering I personally stole one from the bank personally, it is possible. However, you need more luck than skill. I got a REO house in Riverside for about 30% below comps (which were all REOs themselves; very few organic sellers, especially on the low end). However:
1. The listing sucked. Only one picture, which was a big problem due to point #2.
2. There is a large addition that was permitted by the city in 1970’s (house built in 1950’s) that is not on the tax rolls for whatever reason. So, the listing showed what the tax rolls showed for square footage, which is only about 60% the actual square footage to the house. The text of the listing mentioned the additional family room, without giving it’s actual size, or noting it was permitted by the city, or having a picture of it, and completely missed the new master bedroom (listing said it was a 3 bedroom, house is actually a 4 bedroom-no mention anywhere about the extra bedroom in the listing).
3. The kitchen was basically original to when the house was built and was completely not up to modern standards. A few grand worth of work made it acceptable, but any real big time cook would have nixed the house for the kitchen alone.
4. This happened back in May. Doubt this sort of thing still happens today, since the supply/demand equation is now such that buyers are begging for any little thing and checking out every listing.
If this was a standard listing, with a agent like Jim that actually cared, maybe the square footage could have been straightened out with the tax people, and there would have been enough pictures (or maybe a video) to show what the house was really like. As it was, it looked like an overpriced small house from just looking at the listing when it was in fact a underpriced medium sized house. So, a lot of people probably didn’t bother to look at it, and those who did were probably turned off by the kitchen. So I got it at list price for about $85/sq ft when the area was selling for $115/sq ft or so, which was over 60% off peak pricing.
Geotpf, out of curiosity how long did it take to find? I looked from Jan to June ’09 to find a deal in oceanside (and it remains to be seen how good a deal it was)
Also I should mention Jim’s advice is dead on when it comes to buying off season. I bought a house in Atlanta for a steal the week of Christmas ’02, a nightmare for me and the agent but a great buy.
I was only looking for a short time (a month or two), and it was the first house I put an offer on (although I had previously seriously considered two inferior houses).
Like I said, I got real lucky.
“If you don’t cringe when making the offer it’s not low enough”
Really? How specific to San Diego is this advice? I’ve got a couple listing that I’d love to low-ball, but I’m loathe to offer more than 10% off list on any listing younger than 2 weeks.
The REOs I’ve seen lately have needed substantial repairs so even if I bought it at the fairly low list price, eventually I’d spend over market price just to get it into decent shape.
The last one I saw (Estancia in Encinitas) had very uneven floors and cracks at the wall joints and where they meet the ceiling (some 1/4″ wide). I just couldn’t stomach paying half a million for a house with foundation issues. Apparently someone else didn’t mind – it’s pending.
Cara – Don’t be shy about offering low ball numbers if you think its YOUR vision of a true value. There is nothing magical about a listing price, so don’t even begin by looking at the price. Look at the home, make your own judgement and offer.
You must be confident in your value, not someone elses value…even if you don’t get the property. Be strong, smart, and confident. When the right house at the right price for you comes along you will never have any regrets and it will keep you out of financial pain down the road.
FYI – I just offered $1.85mm on a listing of $5.5mm (cost $15mm to build in 2007/8) and will likely get the deal for the low $2mm range. This is a brand new 66,000sf commercial office building as an investment with multiple investors, however, the principal is the same…did my math, made my offer w/o regard for the listing.
Congratulations dafox on your win! That was truly a fantastic guess!
Jim, can you REALLY lose your job for selling too high? That just doesn’t make any sense! Even in a “socialist” nation such as Canada, we still believe in making money! 🙂
“I’m loathe to offer more than 10% off list on any listing younger than 2 weeks.”
Do you take it personally when people decline your offers? Seems like you’ve got to be ready to hear people say no if you want to make a good deal.
Since yall are curious, more particulars.
I’m in the suburbs of DC. Inventory right now is insanely tight. Most closed sales have been going for 95%-110% of final list price.
Everything we’ve seen so far has been a case of, let it age. If someone wants to pay near list, let them, there are other houses.
My husbands price for things is well under the “going” price for things this fall, whereas for neighborhoods I really like, I’m more willing to live with the current prices.
But the $8k is ending or entering a new phase, and it’s winter, so the rules of “if it sells within the first week it’ll be for within 2% of list” may not hold any longer, and we just don’t have the experience to know how should we be viewing the bidding process.
I agree whole-heartedly with the sentiment that the list price is just a seller’s suggestion, and that we have to determine value on our own. That’s why we’ve been walking out of places that need a lot more work than the owners seem to think they do and saying to ourselves (and our realtor), mmm, $335k huh? At $270k that might be a good buy, but I’m not touching it now.
The other thing is you only get to buy one house to live in (at a time). So with inventory this small, and judging things sequentially rather than all at once, I have to think of us as being in the cat-bird seat. I don’t want to buy something with no “location” (woods, parkland, lake, convenience) now just because I got it for cheap, and have something we would truly have loved come up later.
The lady who sold this house as some serious bucks and could afford to take the hit. She also has (had?) her Del Mar home on the market somewhere North of eight digits. Big philanthropists, etc. Anyhow, I know this house well and the buyers got a GREAT deal.
Clearfund,
Are you a professional investor? Where did you learn to do this stuff?
Do you take it personally when people decline your offers? Seems like you’ve got to be ready to hear people say no if you want to make a good deal.
NateTG | November 3rd, 2009 at 9:08 am
Why would you take it personally? It’s a business transaction-either they accept or they don’t or they counter. You usually don’t even speak to the seller directly. It’s completely impersonal, IMHO.
IMO, Clearfund is using more common sense than anything else.
One must realize that most of the properties on the market today are still WAY overpriced.
Today’s buyer that is jumping in with both feet thinking/hoping that RE is going to sky again is going to be very disappointed. It’s going to take 15-20 for prices to reach where they were in 2005/2006.
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Clearfund,
Are you a professional investor? Where did you learn to do this stuff?
JK | November 3rd, 2009 at 10:57 am
Yes, professional investor, mainly on the commercial side. Was trained in pure real estate investing via a brand name Wall Street investment banking firm (still in business)in their multi $$BB real estate funds. Trust me, its a very different world doing it from an institutional approach vs. the “local” approach.
Have not bought anything for 3+ years….now we are making offers and starting to buy again…it may be a glorious time to set yourself up for retirement…not a quick flip.
I’m a little confused. Do you think that buying will actually kick back up in few months? Everybody I know that had been sitting out the market jumped in for their $8000 credit this summer. Even if they extend it, most have either already bought or will benefit from its extension because they are in a delayed closing. In addition, the proposed credit expansion is going to motivate people to move up, that is, sell their old house and expand the supply.
I think this spring will be a bloodbath, even if the market isn’t pounded with a tsunami of foreclosures. I don’t see how buying in the next two months is more advantageous, but that’s just my opinion.
Spring is rarely a bloodbath, even in a downturn. Even this downturn saw a slowing of price decreases every spring/summer, before we got to increases this spring/summer. That’s more a reflection of just how bad this crash was in 2007-2008. In the 90’s there were gains in most springs/summers as well. Most of the declines happened in the winter in those years.
There are definitely fortunes to be built on the CE bloodbath. I’ve found myself close to ringside for some of the Tishman and Carr entity spillage. Amazing stuff. Happy hunting clearfund.