So Cal Real Estate News

There are some amazing opportunities for buyers right now. Two of them, “short sales,” and REOs, also involve some amazing incompetance by the same lenders that helped get us into this mess. (see “How we got into this mess“)

We saw both at work today at two homes about 100 yards apart in Downey.

Amazing opportunities for buyers:

This morning my colleague Blair and I were shooting a virtual tour for a new “short sale” listing we have (you can check out some of it at AdwenStreet.com). A “short sale,” which is anything but short, is a sale in which the lender takes a “short” or reduced payoff to facilitate a sale. The last one we closed, in Lakewood, saw the lender reducing their demand by well over $100,000.

Short sales present some unique opportunities for buyers who aren’t in a hurry if their agents are willing to do twice the work for a reduced commission. The downside is often a month or more of waiting to see if the seller’s lender will accept your terms. As part of the process, your agent generally has to agree to reduce his commission.

As a result, lots of agents and buyers just skip over short sales. But deals can be had for the patient. For example, at $347,777 our listing is currently the best priced home in the MLS in Downey, it’s in a good location, has a nice recently remodeled kitchen and big family room. The home across the street, also a short sale, just went into escrow at a record low price–but we’re now lower than they were.

As we were driving off, we noticed an open house being set up at a new “Bank Foreclosure” listing that isn’t even in the M.L.S. yet. Stopping in we discovered a home that was priced at $300,000–$50,000 below the two formerly lowest priced listings down the street.

When I got back to my home office, I checked the public records to see what similar homes were selling for when the market peaked. I found four comparable homes in the same neighborhood that sold in the summer of 2006 or early 2007 for about $650,000.

That represents a decline in prices of over 50%!

Now the foreclosed home needs a good cleaning and some yardwork. It’s back yard seemed small, and the floorplan a bit choppy. But it’s got three bedrooms and a bath and a half in a decent neighborhood that’s close to L.A., LAX, and the OC for $300,000!

I think the REO is priced below market, and will sell pretty fast, possibly above list. Still, it represents an excellent opportunity for someone who can act fast.

Because most agents don’t want to hassle with the double negotiations and pay cuts of a short sale, it may actually represent a better value for someone willing to come in with a low offer and wait a month or two. It’s in much better condition, has lots of upgrades, and has twice the garage & twice the back yard of the short sale.

What struck me, however, is that this is a market where the qualified buyer who can put together at least a 3% down payment rules. When the market does bottom, qualified buyers who wait on the sidelines for the market to drop further risk competing not just with the thousands on the sideline like them, but also with thousands more who currently don’t qualify but eventually will as lenders again relax their standards from the current overreaction to the market downturn.

Continuing lender incompetence:

The flip side of this good news for buyers is some bad news for homeowners and the economy in general, made worse by the continuing incompetence of too many lenders.

The owner of our new short sale listing called us a couple months ago to discuss her options. I referreed her to our post for upside down and troubled borrowers, “Trouble making your mortgage payment? 7 ways to get back on track.”

The family’s situation had changed since they refinanced, and she knew it would be impossible to continue making the payments once her mortgage reset. I suggested as a first step, and to avoid selling, that she try to negotiate with her lender for a reduction in both interest rate and principal.

Unfortunately, her loan was with well known subprime lender EMC, a subsidiary of Bear Stearns. They took 45 days to tell her they wouldn’t do anything until the actual reset hits in about a year. Kind of like a bank robber asking you to trust him. Pretty much left her no alternative to the short sale.

The REO was even worse. Foreclosed by GMAC mortgage, the home was listed about $20,000 too low, the agent didn’t even count the bathrooms right (missed a half bath!), & a $100 cleaning would raise the value even more. Besides missing a bathroom, the black and white flyer didn’t even have a price on it. And the agent was holding it open before even bothering to put it into the M.L.S., a typical tactic of unethical agents to shaft the seller in order to “double end” the listing by picking up the buyer. Typical of so many lenders that stick with a handful of often lazy out-of-area agents rather than take the time to find an honest, competent local agent–and there are plenty of them with time on their hands right now!

Two examples of how lenders are making things worse for themselves and homeowners everywhere because their loss mitigators and asset managers just aren’t doing their jobs. Sometimes it’s because they’re overworked, but there are plenty of underemployed Realtors and loan agents and processors out there they could easily hire & train.

Info for those thinking about buying:

If you’d like more info on either of these homes, or just want further information, you can call me (Dave Emerson) at 562.822.7653 or e-mail me at RealtorDaveE at msn dot com. (I wrote out the @ and the . to avoid spamming bots.)

Please understand: we think the absolute bottom’s still ahead, due to all the foreclosures just entering the pipeline (see “Oh-oh! We just passed a nationwide bottom!“)

But we also think nobody knows for sure what the future holds. (See “How low will prices go?“).

And we think that for many of us, there are more important things in life than market timing. (See “What to do when nobody knows what’s next.”)

When you can get a 50% discount, it may be time to think about buying.

Coming soon:

Thanks for stopping by. Please check back from time to time–we try to post our “news and perspectives from the SoCal real estate front lines” at least 3 to 5 times each week. On Monday we’re planning “A Tale of Three Closings” chronicling a “flip” gone bad, a seller gone mad, and today’s escrow problems on three homes that just closed escrow on the same Lakewood block.