REO-Auction Contest Results

My high school baseball coach used to say,

“I don’t believe anything I hear, and only half of what I see!”

In our latest contest, readers submitted their guess at the highest bid + 5% buyer’s premium for this property in SE Carlsbad:

https://www.bubbleinfo.com/2014/06/03/carlsbad-reo-contest-2/

lamaca4

The auction included an outrageous set of conditions, which many thought would drive down the price to compensate.  They included:

  1. The 5% buyer’s premium tacked onto the highest bid.
  2. No showings.
  3. Tenant-occupied, and buyer was responsible for evicting.
  4. Cash only.
  5. No buyer’s agent commission paid.
  6. Not in the MLS.
  7. 5% deposit required upon winning.
  8. Reserve price.

They conducted the auction online, which gave participants the convenience of bidding from their couch at home. It should have allowed bidders the chance to double-check the comps as the auction wore on – because every time a new bid was made, they extended the ending by 1-2 minutes.

Those checking the comps would have seen that in the heat of the frenzy last year, three of this identical model sold for $638,000, $653,000 and $679,000.  Then in October this sale with nice view closed for $705,500, which was the highest price since May, 2007:

http://www.sdlookup.com/MLS-130050274-2704_La_Duela_Ln_Carlsbad_CA_92009

The bank foreclosed in 2011, and nobody wanted it then for $459,088.  The opening bid this week was $325,000, and once the auction started the initial bid increment was $25,000.

Most of our readers guessed it would sell in the $400,000s, which would be an adequate buffer to evict and remodel.

Look what happened today:

lamaca42

AND IT DIDN’T HIT THE RESERVE PRICE!!!!!!

Somebody was willing to pay almost $200,000 more than the bank didn’t get in 2011, and that wasn’t enough to reach the reserve price?  Hopefully the bank will come to their senses and reconsider before that bidder changes their mind.  Counting the 5% buyer’s premium, the highest bid was $678,038!

Our closest and winning guess was $568,050, and submitted by blucore – congratulations!

SD Flips

The MLS shows that 11% of the 1Q14 residential sales in SD County were REO and short sales, and this article shows 7.1% flips (hat tip to SD Squatter):

Realty Trac, the nation’s leading source for comprehensive housing data, today released its Q1 2014 U.S. Home Flipping Report, which shows 3.7 percent of all U.S. single family home sales were flips — where a home is purchased and subsequently sold again within six months — in the first quarter of 2014, down from 4.1 percent in the fourth quarter of 2013 and down from 6.5 percent in the first quarter of 2013.

Among metro areas with a population of at least 1 million and at least 25 single family homes flipped in the first quarter, those with the highest share of flips in the first quarter were New York (10.2 percent), Jacksonville, Fla., (10.0 percent), San Diego (7.1 percent), Las Vegas (6.7 percent) and Miami (5.9 percent).

Eighty-two percent of all properties flipped in the first quarter were sold to owner-occupants; 18 percent to buyers with a different mailing address than the property.  Forty-three percent of all properties flipped in the first quarter were all-cash sales to the new buyer.

http://www.realtytrac.com/content/foreclosure-market-report/q1-2014-us-home-flipping-report-8047

home_flipping_price_ranges

The History of Bubbleinfo TV

Wondering how it all got started at Bubbleinfo TV?  The first video was from March, 2007 – just click the link below to start at the oldest, and if you make it through all 1,600+ youtubes, you will have experienced the real estate bust-to-boom in living color:

https://www.youtube.com/user/JimtheRealtor/videos?view=0&flow=grid&sort=da

Here is the 25th video, a classic from the early days when I was mostly cruising my own REO listings:

San Diego REO Pricing

Institutional investors entered the housing market at a rapid pace this past year, but their level of purchasing activity is relatively small compared to the overall market.

For instance, Blackstone Group is expected to be the largest institutional purchaser in 2013, committing to 15,000 properties.

However, when compared to the 600,000 individual investor purchases in 2012, it’s clear that institutional investors are still the underdogs in the market, according to CoreLogic’s market pulse report.

To come to this conclusion, CoreLogic created a list of 16 markets that include the top five markets for REO declines, the top 10 markets ranked by the total of REOs and the top REO markets identified as attractive by investors.

REO pricing YOY

San Diego had the highest increase in 4Q12 REO prices of the cities that don’t have a rising share of institutional investors.  Go Mom and Pop!

Read the full article here:

http://www.housingwire.com/news/2013/03/18/institutional-investors-remain-out-focus-reo-space

JtR in Realtor Magazine

From NAR’s Realtor Magazine:

It’s widely agreed that foreclosures and REO properties devastate nearby home values and impede the housing recovery. But we don’t hear similar complaints about short sales. How do the two categories compare where housing prices and a healthy real estate market are concerned?

Here’s my take on their differences:

– Seller motivation issues. Properties listed as short sales are often occupied by home owners who aren’t concerned with getting top dollar. Instead, their motivation may be to extend their “free rent” program or get out of their financial obligation to pay off a mortgage. Consequently, they often don’t fix up their house to sell it and may be less than co­operative about showings. On the other hand, REO listings are vacant properties and have a lockbox for easy access.

– Delays. Short sales require that home owners submit their financials to the bank every month—and if they don’t, the sale stalls. The delays and uncertainties make these listings very difficult to sell. In contrast, it takes a week or so to get a REO listing into escrow, with deals closing in about 30 to 45 days, whereas short-sale approvals these days take 30 to 60 days. To be fair, this is an improvement over a few years ago when it could take six to 12 months or more to hear from a lender.

– Pricing. Short-sale agents often price their listings aggressively low to compensate for the difficulty in selling. They hope that a lower price will draw buyers interested in a bargain. REO listings, on the other hand, are appraised by neutral third parties and priced for retail sale by the asset managers, who have a fiduciary duty to their investors to maximize return. So-called “bank deals” are largely a myth—asset managers don’t determine retail value and then knock off 10 percent or more. And if they do inadvertently price a property too low, their selling strategy enables every buyer to make an offer within the first few days. When that happens, the sales price can be bid up to retail—or even higher.

– Buyer preference. Buyers shy away from short sales because of their uncertain, murky reputations. Because of lower demand, they sell for a lower price. But there is a high demand for REOs because bank-owned properties enjoy the reputation that they are underpriced, even though they have been selling well for years.

– Fraud potential. Short sales are fertile ground for fraud. These properties, priced to sell by the listing agents, are sometimes shopped around exclusively to a small group of buyers already known by those agents. Deals that are made “prior to listing input,” and sold at an untested price without open-market exposure, are unethical in my view—and if district attorneys were to investigate, those transactions might appear fraudulent. Now, those listing agents might claim that if the bank approves the sale, then who cares? However, the NATIONAL ASSOCIATION OF REALTORS®’ Code of Ethics states that NAR members are to treat all parties honestly. It is not honest to send your short-sale package to the lender for approval and claim that you exposed the property to the open market if you haven’t actually done that. By comparison, REO asset managers insist on open-market exposure to ensure the best possible sales price.

As an industry, we should acknowledge that REOs offer a better way to sell homes and improve the housing market than short sales—for consumers and practitioners. Vacating houses, sprucing them up, putting a lockbox on them, and exposing them to the open market for a period of time is how you can sell distressed properties for the best price.

Jim Klinge has been selling homes since 1984 and is broker-owner of Klinge Realty, a company of eight agents with headquarters in Carls­bad, Calif. He and his renegade blog, bubbleinfo.com, have been featured on ABC News Nightline, CNBC TV, and Reason.tv, as well as in The Wall Street Journal, Businessweek, Grant’s Interest Rate Observer, and the Los Angeles Times.

REO Prices Rising

From HW:

National home prices lost ground with declines of 1% over the past year, but REO demand — fueled by enthusiastic investors — showed price gains, Clear Capital said in its April home data index report.

Investor demand could be a driving force behind increasing prices for REO properties, as measured on a median price per square foot, which is increasing at a much faster pace than non-REO sales.

Over the last year, REO-only prices have jumped a healthy 5.5%, while fair market sales prices dropped 2.9%.

The portion of national REO sales relative to total sales continued its creep in April, marking the third straight month of quarterly growth — without the typical price decline seen when REO saturation rises. Saturation was at 27.9% in April, up from 25.3% in December.

The sensitive balance between REO supply and demand will help determine how market prices react to shifts in REO saturation, Clear Capital said. If REO-to-rental investment activity increases, it likely will provide the lift needed to support price increases.

“Home prices continue to show relative strength in April with virtually no change over the short term and tapering losses over the longer term,” said Alex Villacorta, director of research and analytics at Clear Capital.  

“Should investor interest continue to drive the expansion of REO-to-rental programs over the next several months, there could be a significant impact on the market overall in terms of providing a rising floor to home values,” he said.

Clear Capital’s index looks at rolling quarters. The index compares the most recent four months to the previous three months.

The firm said quarter-over-quarter results were notable only in how little change was seen, with numbers very similar with the price changes reported last month. 

Rent the REOs?

Hat tip to daytrip for sending this along, from the wsj.com:

The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.

While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.

Trimming the glut of unsold foreclosed homes on the market is “worth looking at,” said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week.

Nationally, home prices in May were 7.4% lower than a year earlier, but after excluding distressed sales, prices fell just 0.4%, according to CoreLogic Inc. Foreclosures and other distressed sales now account for about 30% of homes sold each month and sales from government-related entities make up about one third of that number.

“Adding more stock simply increases that overhang. If that can be avoided, it should be,” says Jared Bernstein, an economist who left the White House in April and is now a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. Because rents are firming up, “this idea could have some legs,” he said.

Renting out homes could cover the costs of holding the properties until they can be resold once markets stabilize, potentially turning a profit for mortgage titans Fannie Mae and Freddie Mac or the Department of Housing and Urban Development, which handles foreclosures on loans backed by the Federal Housing Administration.

But scattered-site rental programs could require the government to become a national landlord, an area where the mortgage firms have little experience. They also pose accounting challenges that could produce big upfront losses.

One proposal winning support among some federal officials would sell thousands of foreclosed federal properties to private investors who agree to rent them.  Investors would rehab homes, run the leasing process, and contract with national property management firms to handle day-to-day tenant demands.

The government could keep a stake in the venture, modeled on loss-share transactions by the Federal Deposit Insurance Corp. Officials have received interest from around a half-dozen private investors, according to people familiar with the matter.

HUD owned about 69,000 homes at the end of April and sold 11,000 homes in that month. Fannie and Freddie held another 218,000 at the end of March.

Analysts at Credit Suisse estimate that reducing Fannie and Freddie’s foreclosed-property sales to around 30,000 each month, from the current rate of 50,000, would cut total distressed sales by one third and avoid a further 3% to 5% decline in home prices.

By flushing foreclosed properties onto markets with few traditional buyers, Fannie and Freddie are “undermining their own recovery,” says John Burns, the head of a homebuilding consulting firm in Irvine, Calif., who backs the public-private rental approach.

Per Public Records

From the sales brochure: Scripps Investment and Loan Building is a 15,916-square foot office building on approximately one third of an acre located in the Village of La Jolla. The subject property boasts unobstructed ocean views in a location that would be considered, by most, to be one of the premier locations in the United States. Built in 1920, by Irving Gill, the architecture is unique and masterful.

This landmark three-story property has 44 executive office suites and collects additional income from the 30 space, secured, underground parking garage, which is located adjacent to the subject property. There are over 3,000 square feet of deck space of which 1,200 square feet is ocean view. The property also offers tenants five private decks and an elevator. Since 2002 the property has seen substantial capital improvements and an over one million dollar balcony upgrade.

La Jolla, California is located 15 minutes from downtown San Diego and is known for its wonderful beaches, cultural activities, fine restaurants and exclusive boutiques. La Jolla is known to be one of the most affluent communities in the United States yet it maintains a down to earth feel due to the beautiful natural scenery and the helpfulness of its residents.

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