Ask a realtor anything (San Diego, Orange: sales, home, buyers)

[USCTrojanCPA]

Originally Posted by Charles

Are recently sold short sales legitimate comps? Meaning, when a short sale sells, is it's sale price a valid comp for that neighborhood? Or, would a it be considered an outlier (assuming it sells for less than other previous neighborhood sales) and not considered for comparison?

I would say YES but many will argue that short sale are outliers because they are distressed sales. It is true that most short sales do close 5-10% below what organic sales close at. That could be a for a number of reasons...the bank is willing to take less than market price (or they dont know the market), the property is in bad shape and needs TLC, the offer was put in 6-12 months ago, etc. Appraisals will tend not to want to use short sale closings as comps for regular sales as it will result in a lower appraised value. From the appraisals that I have seen, appraisals will use regular sold comps instead of short sale comps (they'll only use the short sale comps if there's nothing else and they'll make their adjustments). The problem for many buyers today is that if they use the short sale comps to make their offer they will most likely get outbid because prices have ticked up 5-10% from the spring/summer of 2009. Also, a fair number of short sale closings are all cash transactions (the banks are more willing to take a lower price with a full cash offer on these short sales).

[USCTrojanCPA]

Originally Posted by mrwumpus

How come people who don't pay their mortgage aren't being evicted? After failing to pay their mortgage, my neighbors have lived rent-free for at least a year in a house that's far nicer than my cramped little rental I pay off every month.

Why would banks choose to do that rather than, say, renting it out at a discount to people who pay it off every month?

The banks have to go through the legal process. In perfect world here is what the timing of a foreclosure/eviction looks like:

1. Notice of Default (NOD) filed & recorded after 90 days of first missed payment
2. Notice of Trustee Sale (NTS) filed & recorded after 120 days of the NOD being filed
3. Lender schedules a sales date of at least 21 days after the NTS is filed
4. Lender can file the paperwork for the eviction once they record the Trustee Deed after the auction
5. Eviction process in Orange County takes about 3-4 weeks

So in a perfect world the time from the first missed payment to the time the owner is evicted should be about 7 months. Well, we all know it's taking a lot longer than that because banks are dragging their feet in filing for the NOD, NTS, or just keeps delaying the auction date. There are a number a reasons for that....banks are overstaffed and asset managers have too many properties on their desk, the Feds aren't pushing the banks to clear their distressed inventory, market-to-fantasy accounting rules are in place so banks don't have to recognize losses until the property is foreclosed on, or a mix of the any of these. It really pisses me off that it takes so long because inventory levels are so low right now. The banks to increase the velocity of their REOs and have them clear the market quickly. Also, it can take banks months and months after they foreclosure to list the property for sale (this is the shadow inventory many talk about).

[USCTrojanCPA]

Originally Posted by Charles

Sometimes I see home sale on Redfin that shows a home that sells for $25K or something like that in a neighborhood that typically has sales closer to $600K. Why is that?

For example:

Aliso Viejo for $25K???
32 Cliffwood, Aliso Viejo, CA 92656

Ladera Ranch for $10K???
10 John St, Ladera Ranch, CA 92694

Laguna Niguel, 3500 sqft feet for $135K???
29201 Dean St, Laguna Niguel, CA 92677




Here are a few others which I would like explanations for:

List price goes up in November (raising price in slow season??? Why?)
7 FLINTRIDGE Ave, Ladera Ranch, CA 92694 | MLS# S571151

Purchased, then listed six weeks later for $120K less
22 VIA BABERA, Rancho Santa Margarita, CA 92688 | MLS# T09133536

Purchased then listed three weeks later for $140K more
45 EL MORRO, Rancho Santa Margarita, CA 92688 | MLS# S600411

Alternates between $639K and $640K five times in 13 days (bizarre)
59 STARGAZER Way, Mission Viejo, CA 92692 | MLS# S575362

Purchased then listed nine weeks later for $80K less
10 MAGNOLIA Dr, Ladera Ranch, CA 92694 | MLS# S573494

Purchased and listed five weeks later for $259K less (What the Funk???)
6 DOWNFIELD Way, Coto de Caza, CA 92679 | MLS# S596262

There are various explanations. Some of the sale amounts that you see on Redfin (it is not 100% perfect and hence I tell my buyers to trust MLS) are the sale amounts from the bank taking the property back at the foreclosure auction (no one bid on it and it is recorded at their opening bid), a flipper buys a property at the foreclosure auctions for cash and then tries to flip it for a profit, the super low amounts are the secondary mortgages that go to the auction that don't get any bids, and the rest are just funky short sale listings.

[mrwumpus]

Thank you for the excellent and informative reply.

Is it safe to say that if the shadow inventory flooded the market as it should naturally, that prices would drop further in OC? Is your sense that the market is being artificially propped up to prevent further "crashing" sort of like a long, drawn-out crash landing of sorts?

[Charles]

Originally Posted by USCTrojanCPA

Correct, but seller asking prices can be sticky to the downside so here is what you'll see as rates rise...

1. Homes get more expensive (based upon the monthly cost)
2. Existing resales just sit on the market as sellers don't want to reduce their asking prices
3. New inventory comes onto the market and inventory levels keep increasing
4. There will be a forced (truly motivated seller) because of job transfer, death, divorce, etc who will have to sell quickly.
5. Forced seller will lower price to sell the home.
6. Price decline will begin as sellers realize they are overpriced compared to the recent sale and being on the market 90+ days with no offers.

It's all about inventory levels (months of supply is a good barometer). Less than 3 months of supply is a sellers market, 4-5 months is neutral, and 6+ months is a buyers market. The lack of "real" inventory (i.e. non-short sale listings) is causing this to be a sellers market.

It would be a buyer's challenge to find the "sweet spot" of low interest rates/high price vs higher interest rates/lower price. If he is putting a lot down, then it probably pays to wait as he's borrowing less at the higher rate, but the home is probably cheaper. On the other side, if he is taking out a huge loan, not putting as much down, then it might be better to pay a higher price for the house but get get a nice low 4.25% 15 year loan. It takes assumptions and number crunching. And then for others, they can't afford to time it; they have to move, buy a home, get their kids into school in a certain window of time and whatever happens happens.

[BRinSM]

adding on to mrwumpus' question about shadow inventory, do you feel that the backs have the financial leverage to keep this growing inventory on their books for years to come? If not, how long would you say that an average bank will be able to stay solvent before needing to liquidate these properties? Does the commercial real estate market have any effect on this?

Additionaly, are the GSEs going to begin cutting back on their purchasing of conforming loans? If so, what impact will this have on the regional/national real estate market?

thanks!!!

[USCTrojanCPA]

One thing in general that I will tell you guys...if your agent is making you uncomfortable, telling you things like "buy now or you'll be priced out forever" or "nothing like this will come to the market for a long time", pushing you to write an offer on a property you are unsure of, doesn't get back to you the same day, is totally unorganized, or just being a typical greedy, pushy idiot....it is time to find yourself another agent. Most realtors are worthless but there are some good ones out there.

[JohnG72]

Thanks for these postings. Some of the realtors in the real estate forum offer good honest advice, but none are from So Cal. Its nice to see someone from So Cal steer away from the typical realtor sales pitch.

[USCTrojanCPA]

Originally Posted by mrwumpus

Thank you for the excellent and informative reply.

Is it safe to say that if the shadow inventory flooded the market as it should naturally, that prices would drop further in OC? Is your sense that the market is being artificially propped up to prevent further "crashing" sort of like a long, drawn-out crash landing of sorts?

If all of the shadow inventory hit the market all at once then yes, inventory levels would skyrocket and regular sellers would be competing against distressed REO properties which would result in lower prices. Those people that think a tidal wave of REOs coming at one time are mistaken. Banks will continue to bleed in REO inventory for years to come (unless the regulators require them to dispose of those distressed assets quicker). Of course the market is artificially propped up to keep things from crashing. You have the Fed buying MBS bonds to lower mortgage rates, banks working slowly through their REO inventory, and the tax credit all help to keep the party going. If it were me, I'd want to get it over with by pulling off the band-aid, but that's just me.

[USCTrojanCPA]

Originally Posted by BRinSM

adding on to mrwumpus' question about shadow inventory, do you feel that the backs have the financial leverage to keep this growing inventory on their books for years to come? If not, how long would you say that an average bank will be able to stay solvent before needing to liquidate these properties? Does the commercial real estate market have any effect on this?

Additionaly, are the GSEs going to begin cutting back on their purchasing of conforming loans? If so, what impact will this have on the regional/national real estate market?

thanks!!!

Until the Feds stop propping the banks up and the regulators force the banks to release REO inventory quickly, the banks will slowly bleed REO inventory into the market. Banks will stay solvent as long as the regulators don't force them to take quicker losses on the REOs by lifting the "market-to-fantasy" accounting rules. Commercial real estate is hurting the community and regional banks more than the big banks. Are the GSEs going to begin cutting bank on purchasing conforming loans? Not in the near future because that would cause mortgage rates to spike as they are the main secondary mortgage market out there.