So Cal Real Estate News

A while back the Sacramento Bee ran a good article on buying foreclosures. It reminded me of a very interesting experience with a HUD auction during the last recession in 1994.

Auctions

I teamed with a fellow Realtor and friend to research and bid on a major HUD auction of repossessed properties. From experience, we knew there would be lots of bidders and lots of competition, so we decided to focus on the least desirable location with the most REOs, which was at that time was Compton, and the least desirable type of property with the most REOs, which was condos.

I spent days researching about 50 Compton properties that were on the auction list. I walked through each property, checked sold comparables and similar homes available on the M.L.S., spoke with neighbors, etc. Most of the properties, although boarded up, had been stripped of heaters, major plumbing fixtures, even light bulbs. They were being sold as-is. I carried abaseball bat as I inspected, being on the lookout for homeless people who might have moved in.

When we showed up at the auction, it was like a circus! Adrenalin-pumping music, thousands of buyers, many sitting in groups with their gold-coated Realtors. (I’m not ridiculing any company here, just reporting what I saw.) The chairs were arranged in sections of maybe 200, each one worked by a smiling, enthusiastic, tuxedoed Texan.

We sat calmly amidst the chaos, opening our large 3-ring binders to our detailed notes on each respective property as it was loudly announced in a southern drawl by the animated head auctioneer. Every single property we had researched was bid up way above our market value. Sometimes there were real pride-of-ownership homes on the market on the same block with an asking price well below what the HUD repo sold for. We were grossly outbid on all 50 homes.

At one point I commented to the Texan working our area, “These homes are going for way above market value.”

“Oh oh!” he said, between prodding buyers to up their bids. “That means most of these deal will probably fall out and not close.” Even auction buyers apparently get remorse and sometimes realize they overpaid.

Our conclusion: There are buyers who are willing to pay any price for a foreclosed “bargain!”

From the Bee article, and others in local papers, I don’t think much has changed.

5/30 update: I spoke today with a friend who is also a former President of one local Board of Realtors. He’s now on the homeowner’s association board where he lives, & he told me that a townhome in his mid-priced OC complex just sold in a foreclosure auction about 20%- 25% below market, so apparently there are bargains out there at auctions right now.

We still recommend that you do your homework, like we did, and be careful of getting caught up in the euphoria of an auction.

By the way, that 20% below market margin is my minimum discount for buying a “flip” in a modestly improving market. I think I’d want 30% or more before I’d buy to flip today. That townhome was apparently bought by a Realtor who does a lot of business in that tract and intends to flip it. I hope he does better than the Realtor whose flip I plan to describe in a new post in the next day or two.

Foreclosure Tips

Now here’s a summary of what the Bee says you need to know in advance about buying bank-owned properties:

- First-time buyers will need to be pre-approved by one or more lenders.
- Don’t be surprised if the bank that owns the home requires that you finance your
purchase with them.
- Expect competition. Many buyers bid on multiple properties.
- Banks won’t accept offers that are contingent on selling your home.
- The best deals generally are those homes with the longest time on the market.
- Bank-owned homes typically sell for 10 to 20 percent less than their listing price.
- Be sure to pay for an inspection and consider the cost of repairs or damaged or
missing appliances when bidding on a foreclosure.
- The bank is likely to make a counter-offer. Be sure to consider this when submitting
your first offer.
- Some banks will not accept an offer unless it is submitted by a REALTOR®.
- Banks generally are looking to close quickly, within two weeks to 45 days.

Note added 4/9: From today’s release of SoCal stats on homes beginning the 4 - 8 month foreclosure process in March, it looks like we’ll have lots more foreclosure auctions in the months ahead. (See “So Cal Foreclosures Up Again & What It Means“)

late June update: for our latest projections post, check out So Cal home price bottom near?

For our view on how we got into today’s foreclosure crisis, check out “How we got into this mess“

For seven options for homeowners trying to avoid foreclosure, see “Trouble making your mortgage payment? 7 ways to get back on track“

For what a seller should do in today’s market, there’s “Top 5 ways NOT to pick an agent and “How to sell your So Cal home for top dollar in 30 days.”

Buyers might be interested in see “Time to buy?“

If all this down market is depressing you, that means you’re a homeowner and not a buyer. To keep things in perspective, consider any of the posts in our “perspective” category in the column to your right.

Today’s market presents many challenges and opportunities. Each cycle is different, but they all come to an end. That’s one reason they’re called cycles. The sun will come up tomorrow. Especially in Southern California!

Tags: Bank Repos, Buying Foreclosures, Buying Southern California Real Estate, Foreclosures, HUD auctions, real estate auctions, Southern California Real Estate

This entry was posted on Friday, March 28th, 2008 at 6:57 am and is filed under For Buyers, Investing in Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.