While investors believe they will be able to outbid first-time buyers in the “rush” to snap up houses at today’s bargain-basement prices, a large majority apparently plan to use a combination of cash and credit to purchase properties as they build their inventories.
According to a new survey by Move Inc., which operates a number of key real estate-related web sites, three out of every four investors will finance at least part of their deals. And more than half will put up less than half the purchase price out of their own pockets.
That flies in the face of conventional wisdom that today’s investors are mostly cash buyers, said Steve Berkowitz, CEO of the Campbell, Calif.-based company, which runs Realtor.com, the official website of the National Association of Realtors, and Mortgagematch.com, a site which helps consumers find financing.
And it suggests, Berkowitz says, that investors are tapping into their credit sources, including taking out second trusts or home equity loans on properties they already own, to take advantage of what they see once-in-a-lifetime opportunities.
The survey also found that even though just one in five investors will be all-cash buyers, they believe the difficulties first-time buyers are experiencing in qualifying for financing will make it easier for them to compete for properties.
Another interesting finding: Today’s investors are not “flippers” who buy and sell right away. Instead, only 11% plan to hold for less than a year, whereas two-thirds say they are in their deals for the long-term. In addition, three out of five are new to real estate investment.
Short sales increased rapidly over the last several quarters, but wherever there are home sales, there are home sales fraud.
Sales of properties on the verge of foreclosure tripled over the last two years and will increase another 25% this year, according to analysis fromCoreLogic.
Analysts found one in every 52 short sales conducted in the first half of 2010 were “suspicious,” meaning the lender may have incurred unnecessary losses from fraud. Over the first six months of last year, banks showed $150 million in losses from these suspicious transactions. By the end of 2011, banks could face $375 million in losses from short sale fraud, according to CoreLogic.
Short sales pose a suspicious risk in a variety of ways. One example occurs when the buyer flips the property for a 10% profit less than one month after the bank unloads it.
Analysts also found any property flipped less than three months after the transaction for at least a 20% profit as suspicious. Even at six months after the transaction, a short sale can be suspicious if the buyer flips the property for 40% more than the short sale price.
Analysts said not all of these transactions were fraudulent. Buyers, often investors, can quickly rehabilitate the property, which poses no significant risk to the bank. However, as CoreLogic analysts looked through hundreds of thousands of short sales, some were resold on the very same day.
Nearly one in six suspicious short sales are resold on the same day. On average, these transactions that were flipped within 24 hours showed a 34% profit between what the short sale went for and what the investor flipped the property for, CoreLogic said.
“This same day turnaround of a short sale can be achieved by what is known as a ‘back-to-back’ closing,” analysts said.
In these deals, the investor has two separate contracts. One is the purchase contract with the lender. The other is a separate agreement the investor has with a third-party buyer. The two transactions are choreographed and presented to the title company on the same day with the short first executed, followed by the flip to the third-party buyer.
Overall, roughly 65% of the resales after the originally short sale transaction were deemed “suspicious” and caused direct and unnecessary losses to the bank.
States with the highest short sale volume showed the most suspicious activity. Roughly 34% of the suspicious short sales found in the first half of 2010 occurred in California, followed by 17% in Florida and almost 10% in Arizona. The rest of the country accounted for about 38% of all suspicious short sales.
Most of these occurred on properties that were sold to investment companies. Of the short sales conducted with investors, 28% were suspicious, compared to 1.9% for all short sales.
Craig Focardi, senior research director of consumer lending at The TowerGroup, said the study validates an industry perception related to limited liability company buyers in a short sale transaction.
“While they comprise only two percent of all buyers, they comprise more than 25% of buyers in suspicious short-sale transactions,” Focardi said.
CoreLogic provided some ways to mitigate the risk. Analysts recommended lenders review all short sale documentation, including any disclosures to resell the property at a higher price. They must ensure the short sale buyer is not aware of any other parties involved with the transaction, validate claims significant renovation was actually completed before the flip.
But most importantly, banks should apply the proper due diligence in order to understand the current market value of the property, analysts said.
“Identifying risk and monitoring distressed asset sale trends is absolutely essential for lenders to preempt potential losses,” Focardi said.
Pity the poor Arcadia couple trying to sell a house with a street number 44. Most local buyers are Chinese — and for them, such a number can kill a deal.
That’s because, in Mandarin and Cantonese, the word for four sounds like the word for death. So 44 essentially adds up to double death.
Josh Grohs, managing partner of Sol-Mur Development, LLC, buys up Arcadia houses, tears them down and then builds new homes. He knows his market and the dangers of picking the wrong property.
“This property is worth $1.4 million if the address was not two fours. If they don’t change it, that would knock $300,000 to $400,000 off the property,” Grohs said of the owners of No. 44, who do not want their street name mentioned for fear of making a bad situation worse.
“No one would have thought anything of it 30 years ago,” he said. “Now it definitely, 100%, does not make their home that attractive.”
In 2002, the California legislature passed a law requiring cities to allow construction of “granny flats,” small apartments built as attached or detached additions to single-family homes.
The idea was to promote more affordable rental housing in existing residential neighborhoods and allow more room for extended families that wanted to stay together.
But then-Mayor Dick Murphy, concerned about neighborhoods becoming too dense, disliked the idea and led the San Diego City Council to approve restrictions that made it nearly impossible to actually build granny flats in the city. To get a building permit, for example, a person’s property had to be at least twice as large as the size of a typical single-family home parcel, effectively ruling out granny flats in many core neighborhoods because most parcels are not much larger than the minimum required size.
But a law change approved by the city’s Planning Commission last week would eliminate many of the restrictions if it’s ultimately approved by the City Council, making it easier for property-owners in many city neighborhoods to build granny flats as large as 700 square feet.
Even as some San Diego property owners worry that their values will not rise in the near term, preservationists remain optimistic that they can turn an old house into a gem and enjoy the experience as well as make money.
“They are able to see the potential in things,” said Jaye MacAskill, president of the Save Our Heritage Organisation. “It’s not for someone who’s easily discouraged. And generally, people who do this type of thing are doing it for the right reasons. They don’t have ulterior motives or subversive motives. They’re doing it for the pure joy and pleasure of doing something like that.”
I’m a little confused about your comment in the other related posting on this topic:
“REOs will sell for retail”.
What does that mean? Isn’t the whole point that we don’t know what “retail” really is? Maybe I’m missing something.
The reason I say that is because banks and servicers use the retail method for price discovery.
The asset managers vacate the properties, and spend some money to get them in selling condition. They compare the appraisal(s) to the listing agent’s BPO and come up with an attractive list price. Then they make sure the property has been on the MLS for 5-7 days to ensure that potential buyers had ample time to see the property.
If there is an offer, they counter to see if the buyers will come up. If there are multiple offers, they request that all submit their highest and best offer, and hopefully they’ll pick one.
Occasionally they won’t, and instead try to work one of the buyer up even higher. This just happened yesterday on the Harvard property, where two cash offers submitted their H&B and both were just over list price. The asset manager countered again for an extra $2,000, one of the buyers agreed, and then the AM made them cough up an extra $200!
How do we know that this is retail?
When every buyer has a fair chance to participate, the retail value is defined by the price that a ready, willing, and able buyer is willing to pay.
The process enables the maximum participation, and thus, ensures top dollar.
The best chance for any homeowner to get top dollar is early on in the listing, when the urgency is highest. Almost all elective sellers IGNORE this advice, and insist on pricing high, and then chase the market down later.
How do I know that a seller won’t get lucky, later? It is possible, but highly unlikely in a soft market. It is much more likely that their high price will cause lower-priced homes to sell, creating a downward trend. Lucky sales happen more in an rising market – so if you selling and want to hold out 2-4 months, ask yourself, “are we in a rising market?”
How do I know this is the best way to achieve top dollar?
Anyone who is in this market full time will realize within weeks that buyers are well-educated on values (usually better than the realtors), and the motivated (read: frustrated) buyers are scanning the new inventory every hour, hoping to find the perfect house and buy it before anyone else beats them to the punch.
It should be common sense that urgency matters, and sellers should take advantage of it, like the banks do. But it isn’t that obvious, especially to realtors who are happy to take listings priced way too high (saw one last week that listed for $1,000,000 higher than my recommendation!) and hope they get lucky or can work the sellers down on price later.
Move.com, which runs the Realtor.com website, has identified the 10 top metro areas where it thinks housing markets have started down the road to recovery. Move.com, with a database of homes for sale all over the United States, looked at several factors.
One is changes in asking prices, which reveals seller confidence (or lack thereof). Then there’s the time homes are sitting on market, which shows how fast homes are selling. Move.com also looked at how often prospective buyers were logging on to Realtor.com.
One example of a turnaround town is San Diego. Like the rest of the coastal California housing markets, it went through some post-bubble hard times, with high foreclosure rates and a big dip in home prices. They fell about 40% from their boom highs.
Now, with mortgage related foreclosures pretty much cleaned out of the system, the city has begun a recovery; it has been on the comeback trail for more than a year. Its prices rose 1.6% in 2010, according to Fiserv.
Move expects the recovery to strengthen. Sales have gotten brisker and inventory lasts on the market only a median of 79 days, about half the national median. Sellers have noticed the improvement and raised their asking prices 1.4% in March, compared with a month earlier.
Three months later the Carlsbad modular project is looking a bit desolate, an example of the shadow inventory’s impact on a local CV market – plus some goofy drivers!
P.S. How’s the foreclosure market in Carmel Valley in May? Only two houses foreclosed so far this month, Blue Dawn (which is in PHR and really a detached condo) and the Collins Ranch house seen here a few months ago that backs to Carmel Valley Rd.
Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor.
When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since.
We decided to sell and move to AZ at Thanksgiving. Dec. 1st we met with Jim to sell our home. We closed today (29 days later). Jim orchestrated a feeding frenzy -- we had 25 showings in 2-1/2 days, multiple offers, and sold for well over asking price. I'd say he earned his commission! We have owned and sold homes in 5 different States always using experienced, productive, full-time realtors. Jim outshines them all.
You don't decide to sell and close 29 days later over Christmas (with COVID lockdown) without some miracles. Donna was amazing at performing lots of those miracles and ensuring that everything was done right and on time. They are a terrific team with a very responsive and professional network.
Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. Basically we just approved what they suggested and Donna handled literally everything. We placed our house on the market and within the first day we had multiple offers well above asking price! We couldn't believe it. We were overjoyed! Jim countered the offers to weed through them, and everyone came back with way more. It was amazing, and we are ?? sure it was because of the staging and repairs the Klinges suggested we do.
Due to unforeseen dishonesty from the buyers lender, we hit a big hurdle when trying to close. We had already moved out of state and were shocked when three days before closing the lender dropped a bombshell on the buyers and us. However, Jim and Donna handled it like veterans, not afraid to play hard ball and represent their clients. After a few phone calls with us, and several between Donna and the lender, they had a plan B-Z to make sure we were taken care of. In the end we closed with even more money than we ever thought possible and with very little work from us. The Klinges handled this entire "2020" worthy event with the utmost professionalism and did everything in their power to not only make this as smooth as possible for us, but we also walked away with more money from the sale of the house than we ever hoped for. After working with Jim and Donna, you don't ever use anyone else. They are hands down the best team to represent you in any scenario.
Working with Klinge Realty Group was a great experience! They are very responsive, professional and knowledgable about the real estate market! I would definitely recommend Klinge Realty Group.
Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. We had a few challenges with our property and they were able to coordinate the resolution to everything, including items that I would not think would ordinarily be their responsibility to handle. They made the whole process effortless on our part. They are folks with high integrity and we cannot recommend them highly enough.
Review for Member: Donna Klinge
I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in about 15 years. On the buy side, Jim is the PERFECT combo of: completely digitally savvy (he will pull data all day long until you feel comfortable with your chosen house, area, school district, anticipated appreciation rate...anything!), he's super well respected and known in the area by other agents, an amazingly cool but strategic negotiator, is totally devoid of desperation for a sale/commission, and more.
Then once you get into contract phase, Donna literally handles every last and final detail in a concierge-like manner -- totally shielding you from the daily back and forth, noodling and annoyances of the buyer's requests. She solves it ALL; it's miraculous what that woman accomplishes over and above what is even expected in a buy/sell transaction.
On the sell side, Jim and Donna do the same, but even moreso. Donna in particular truly takes everything off your plate: she'll manage getting the house painted, the carpets replaced, she'll go on site (as she Jim both did for me when selling our rental properties) to work with the renters and make sure the house is ready to show -- freeing me to have to take time off of work to do so. They work with A+ integrity, too, so you know you are serving all parties fairly and lawfully throughout.
A home purchase/sale is the most considered you'll ever make. HIRE A SAVVY AGENT, not a friend!, and get what you need out of the transaction. Jim and Donna are our agents for life.
Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community. Jim's vast experience means he has worked with several realtors and knows the market all over north county. Donna is AMAZING in processing everything in the transaction. She scheduled trades people to work on the house in preparation for the sale as well as the repairs needed before closing. She communicated clearly every step of the way about what would be happening. She took the weight off my shoulders for the whole process. I will always use Jim and Donna for my future real estate needs and I whole heartedly recommend them to anyone buying or selling a home.
Jim and the team at Klinge Reality are without a doubt the best in the business! Not only was Jim helpful and extremely knowledgeable, he was patient and determined to help me find my first home. Jim and his team have been in the business for many years, and it shows. Jim is a wealth of knowledge and was my biggest proponent despite the temperature of the competitive market. I ended up getting the perfect property in my dream neighborhood all thanks to Jim. From the day my offer was accepted, Donna was a real lifesaver. She was extremely helpful, responsive, and knowledgeable when it came to every minute detail, and held my hand through the process. As a first time home buyer I had no idea what the process would entail, but Donna curtailed every concern I came across and made the escrow process feel seamless. Jim and Donna provided me the best home buying experience, and I am very grateful for all they did for me. It was truly a pleasure to work with Jim and Donna and I am already looking forward to the next time we work together!
Review for Member: Richard Morgan
Richard is an amazing realtor! He has high integrity and genuinely cares about his clients and their needs. Richard paid close attention to what I was seeking in a home and was very patient in our search to find it. I would highly recommend Richard and will use him for future transactions. Truly a different kind of realtor experience!
Could not be happier with my experience with Jim and his team. He helped me sell a very unique and challenging property. Throughout the entire process he was always available, honest, transparent, trustworthy, and always put my interests as a seller first. A (rare) true professional! During close of escrow Jim went above and beyond to complete the deal. It would not have been possible without his experience, fantastic team, and pure dedication. Highly recommended!
Thanks Jim and Donna Klinge!