Wait...why didn't we get it???

"Tim, what am I supposed to do?," my client exclaimed this afternoon.

We were standing on the dead grass in the front lawn of plan G for this particular client. I could sense the frustration in her voice, I could see it in her eyes and her body language as we stood looking at this "new" home. I felt it too. You knew there is a story coming...

My client is a lovely woman who is trying to get her family a new home. She is a single mom who works hard to provide for her family. Last week we fell in love with a beautiful home in Moreno Valley. The home was a little more than she could afford. We made a very reasonable offer...but we just couldn't reach an agreement.

So we met late last Wednesday night. The house was perfect. It boasted a big back yard, 3 bedrooms, a den, and it was perfectly in her budget. We got to work on submitting an offer.

The listing price was $145,000. The seller was offering $5,100 in closing costs. This nets the bank (the seller) $139,900. Our offer was $155,000 with $10,000 in closing costs. This offer nets the bank $145,000. A difference of 3.645% above the banks net.

I begin calling the listing agent daily...multiple times a day. I speak with the agent on Saturday and he tells me that they have received 2 offers. He told me to call his assistant to determine if we were "competitive" with our offer. I called her on Monday, Tuesday...finally chatting with her late yesterday afternoon. She said she was unaware of the other offer price and that she would call me back. I am still waiting for that call.

My client wanted this home very bad. So, I called again this morning, and was informed that they had accepted another offer. I called the listing agent and asked him how far we were from being accepted. His response...

We had the higher offer!!!!

Why would this be? How could the bank accept less? Who makes these decisions?

The only logical explanation I can come up with is that the bank (sellers) are in the business of closing deals. Therefore, someone had to have a stronger offer. What constitutes a stronger offer (more downpayment, better pre-qual letter, higher credit scores, etc...)?

Either way...the ebbs and flows of this market continue to change. Summer is typically a very competitive time of year for buying a home. This year proves to be more challenging...because there is no rhyme or reason to which offer the banks are going to accept.

Foreclosure List pt.3

Corona

Foreclosure List pt. 2

I don't know how the rest of the summer is going to go...BUT, in the main 6 cities that I work in...there are 260 new foreclosed homes in the last week.

Corona (49)
Lake Elsinore (31)
Murrieta (40)
Temecula (24)
Perris (35)
Moreno Valley (81)


Check back every week...as these lists obviously are changing quite rapidly!!!

Foreclosure Lists

Here are the first lists. These are the homes that are listed as bank owned in the MLS.

Corona
LakeElsinore
Murrieta
Temecula
Perris
Moreno Valley

I will update these lists every week. The subsequent lists will be much shorter because they will only include the homes listed in the previous 7 days. Also, I am thinking about adding a short sale link in the coming weeks.

Check back soon!

New Tuesday Feature

I am going to start publishing REO lists for the following areas. Please let me know if you are interested in another area.

1. Corona
2. Lake Elsinore
3. Wildomar
4. Murrieta
5. Temecula
6. Menifee
7. Perris
8. Moreno Valley
9. Hemet

How much is too much?

"How much should we offer?" exclaimed my client as we enjoyed our vanilla lattes at the Coffee Bean.

It is an interesting question. It implies that the bank will accept less than the listing price. Also, most buyers are under the misconception that banks "always" counter-offer. I am not sure where this myth has come from... It also implies that the bank will accept "less" than the listing price. I say this because I hardly hear, "I know they are asking $300,000, but I think it is worth $350,000, therefore offer that."

I have a couple of clients looking in the same area of Corona. So, I thought I would go back and look at the homes that we have made offers on (and not gotten accepted). All of the offers were written between 30-60 days ago...and most of the homes closed escrow in the past 10 days.

The statistics are a little surprising. On average homes sold for 5% ABOVE list price - please remember these are closed statistics on homes that I have written offers on. The lowest below the average was 1.1% below the asking price. This was on the second highest priced home in the data. The highest above was 7.9% above the asking price. This was the highest priced home in the data.

As we continue to look at this numbers we see that a total of 10 homes were in the field and only 2 of them sold for less than the asking price. And as we saw above...this was not that far below asking price it was just over 1% below asking price. Last bit of information of the 10 homes, 9 were REOs and 1 was a short sale...there was NO resales in the data.

A couple of suggestions for why this is: 1.) the listing agents have lowered the prices to make "virtual auction". By lower the price below market value, they get people to perceive it as a "bargain". 2.) the buyers are frustrated at writing low offers and not getting a home so they reverse course and begin to offer MORE than asking to "just get a home."

How then do we go forward?

We base our offers on the "market value" of the property. We don't decide before we walk through the doors how much we want to pay for the home.

My usual response to the question I got that morning at the Coffee Bean - "I think they will accept 10% below market value" - just isn't accurate anymore. My boss always says, "I know they will accept the listing price" - this might not be the case either!

Math that makes NO cents...

One lazy day last month I was sitting at my computer when an email comes over from a client.

"Tim, the house we made an offer on last month is back on the market. It is on the market for a lot less than we offered. Can you tell me what is up with that?"

What happened next was truly puzzling. It also is something that most clients (and this Realtor) don't fully understand.

First, a little background. The home is in Lake Arrowhead, CA. My client is looking for a second home. We went up to Arrowhead in April and looked at 7 homes (5 REO, 1 Resale, 1 Short Sale). As usual my client loved the short sale. It was a quaint Chateau just outside of the "woods" in Lake Arrowhead. The home was built in 1963 and has a very nice view of the lake. However, because it is outside of the "woods" it does not have access to the lake. The home was listed for $279,900. We ran a comp check and determined that this might be a bit high, yet we made a full price offer because of the short sale status. The listing agent said that they had already done a BPO and had approval at $325,000. Side-note...it is amazing to me how many listing agents list homes BELOW their approval price.

After a few weeks of waiting, the bank came back saying, "we will not go lower than $315,000." I advised my client not to raise their offer. I felt that the home was actually overpriced at $279,900. We sent over comps on the property showing the bank closed sales in the area (out of the "woods") for $240,000. We let them know that we were still willing to pay $280,000 (my clients really liked the place).

"No," the bank said.

My client was disappointed. We moved on. We have continued looking in the area finding nothing that knocked their socks off.

After a very short month...I got the above mentioned email.

The house was back on the market for $218,000. This bank had an offer for $280,000 that they would not accept 28 days before. On this day, they were about to accept a "full price" offer of $218,000. Literally, they cost themselves $62,000 + any foreclosure fees (usually $20,000-30,000).

We have a couple theories as to why this happened. 1.) The seller didn't qualify for a short sale, so the bank would rather foreclose than help out the seller. 2.) The lost mitigation departments at banks pay their employees more for the disposition of an REO than they do for a short sale.

These are just theories...all we know for certain is that when short sales are involved banks make no cents!

Where is the best deal?

As we walked into the front door, the finely appointed furniture and the wood floors stood out to me. We had just been through four or five bank owned homes and this one was not. This home was being sold by some folks with a lot of equity who need to be closer to their kids school. We moved through the meticulously cared for rooms, the kitchen, into the fully landscaped backyard and marveled at the differences in the places we had seen that day. Absent were the mysterious odors, gone was the dust from another Realtor leaving a window open, there was no dead grass in the backyard...instead those things were replaced with candles, posters from kids favorite rock bands, antique furniture, and an amazing pool in the backyard. My clients fell in love.

My weeks are usually consumed by wandering in and out of many vacant homes throughout Riverside County (Corona, Riverside, Lake Elsinore, Murrieta, Temecula). Homes where you need to have a creative mind to see the potential of what might be. These homes are missing kitchens, they have holes in the wall, they have mangled carpet (or tile, or wood), dead grass in the front yard and no landscaping in the backyard, they have left behind desks in the garage and sometimes trash all throughout the backyard.

This dichotomy presents a big problem. My clients are looking for turnkey homes. They want to get the best deals AND they want the home to be perfect. Clients usually want Wal-Mart prices with Saks Fifth Avenue service. However, this place usually does not exist. And when it does, it is listed for $318,000 and sells for $385,000...true story of a home in Corona 6 weeks ago.

In today's market, buyers need to understand that turnkey means that there is a seller (not the bank) involved. A seller who measured their kids in the kitchen doorway. A seller who used to have Thanksgiving dinner in the dining room. A seller who had barbecues in the backyard for the Fourth of July. A seller who last year knew their house was worth at least 30% more than it is today. A seller who has a mortgage on this home.

The bank usually isn't too worried about the condition of the property. The bank cares about none of these things. The bank cares about one thing, the bottom line (which usually is 92% of market value).

As we walked out of the house, my clients looked at me and said, "we want this one."

I knew...I could see it in their eyes.

They made a decision that is so hard for buyers to make today. They made their decision based on the location of the property, based on the needs of their family, based on what they wanted. They wanted turnkey...and they paid top dollar for it. Most buyers want the best home in the neighborhood for less than the worst home in the neighborhood.

Unfortunately, they spend a lot of time looking at homes, writing a lot of low offers while someone else is moving into their home.

Short Sales

Short sales are very hard to read, and are not always a good deal. Let me try to explain the process. In order to sell property as a "short sale"...the owner must "qualify". In order to "qualify", they (the owner) must submit documentation (bank statements, financial statements, tax returns, etc) proving that they can no longer afford their mortgage. A "short sale" is an attempt by the owner to sell the property short of foreclosure AND what they owe. In order to get the lender to look at the "short sale", they need to submit an offer from someone willing to purchase the property. Therefore, the primary motivation of the owner and the listing agent is to get the initial offer...NOT listing the property at market value. After the lender gets the initial offer (and the owner's financial statements), the lender orders an appraisal and BPOs (this is where the lender asks a few Realtors in the area how much the Realtor thinks the property is worth). This process takes 2-6 weeks...to just get an approval! After the approval, they must now accept an offer from a buyer. After they accept an offer, escrow is opened, which typically last 30 days.

Short sales are not necessarily a good deal because...1.) they are often listed below market value and banks are typically trying to sell the property for approximately market value, 2.) you are agreeing to a price on a property 10 weeks before closing the transaction. This can cause 2 problems, 1.) the buyers lender may not approve of the deal after that much time (interest rates may rise, loan programs may go away), 2.) the buyer is agreeing to a price on a property 10 weeks before it may close escrow (in a declining market the home may actually be worth significantly less before escrow closes).

The primary thing to be considered when making an offer on a short sale is the market value of the property NOT the list price.