Category: Sellers

One of the things that I constantly talk about on OC Voice, is the need to be an educated buyer or seller.  My goal is always to provide information that helps to educate my readers about what trends we are seeing – without putting you to sleep.  Heck – I still want you to keep reading and I know statistics are boring.

So today – I had an interesting conversation with an agent regarding her philosophy about showing buyers property.  I’ll be honest, I’m a little shocked by the philosophy.  She shared with me that she shows her clients homes that are up to $50,000 outside their budget because of course, ‘in this market, there is room to negotiate.’  Okay, fair enough.  This isn’t the strongest market, but I’m not biting.  Let me explain why….

  • In the price range her clients are in, there is very little inventory.  In addition, if they are hoping to avoid a short sale purchase, and want a bank owned home or an equity seller, that accounts for approximately less than half of what is on the market.   There is competition for the quality product.
  • The closed sales in the area are selling at 98.65% of list price.  In this instance, the buyer’s agent is hoping to negotiate 17% off list price.  Based on local numbers, I think it’s fair to say that it might not be a realistic method of searching.
  • Average time on market in this area, at this price range, is 60 days.  This is a far cry from a buyer’s market.  However, going into the higher price points – then it becomes more of buyer advantage.
  • This strategy has nothing to do with value.  What if the home was listed 10% below current market value?  Isn’t that already a good deal?  What if the home were $50,000 overpriced?  That certainly isn’t the good deal that they are hoping for.
  • Lastly, why show a buyer a home that is out of their price range?  Long term, this isn’t fun for anyone.

The key is to understand the details of the market you are buying or selling in – not just an overview.  All of Orange County is not the same.  Each city is different and each price range is different.  It is critical to understand the market within the larger market.

Again, the message is to be educated about your market.  Don’t let mass media, your friends, or even your agent be your sole source in your decision making process.  Let the numbers speak to you because without fail, they’re telling you a story.

Steven Thomas, President of Altera Real Estate recently released his latest Orange County Housing Report and it is definitely worth taking the time to review if you are curious about how the 2008 housing market finished and the possible outlook for 2009. It’s a very comprehensive summary.

I would encourage you to review the charts for Active Listings and Pending Sales. I love the way that it visually lays out the ‘05, ‘06, ‘07, and ‘08 numbers for comparison.

One thing worth noting is that current inventory is way down – 11,842 homes off the March peak of 15,617. Homeowners have definitely taken to heart that selling will not be easy and pricing is critical. If they don’t have to sell, they generally are opting not to.

The biggest facet of our current market is the distressed inventory. As I’ve continued to repeat here, one of the indicators that a recovery is on the horizon is declining numbers in the distressed sector of the market. Right now, Thomas states that 46% of all the current inventory are distressed sales; 76% of those are short sales and 24% are foreclosures.

So where is the demand? Believe it or not, it is a strong seller’s market when it comes to foreclosures and they are selling at 101% of asking price.

Short sales continue to be a frustrating facet of the market because they continue to stay active on the market while a bank approves the offers they have pending. This creates negative and misleading numbers when one analyzes the active inventory. These offers can take weeks, even months, for the bank to approve. The sale to list price on short sales is running at 97%.

If you have questions about how these numbers impact your buying or selling plans, I’m happy to discuss it with you.

I did some research for a client tonight and the findings are important to share with readers here.  If you are a serious buyer or seller, this information is telling.  Please stick with the tedium of the stats because the story it tells is meaningful.

This particular buyer is looking in Mission Viejo between $450,000 and $550,000.  He wants a single family residence.  With that criteria, I hit the MLS looking for a picture of where we really are. 

As many of you know, I’m the last person to jump on the ‘Hurry Buy Now’ band wagon.  However, if you are in this price range in South Orange County – this is speaking to you.  What did I find?

There are 40 Active single family residences currently listed in Mission Viejo between $450,000 and $550,000.  How do those breakdown?

  • 19 are short sales (BTW – refer to my posts on shorts sales to understand the challenges with these sales)
  • 4 Bank Owned
  • 17 are supposedly equity sellers.  Upon further reading of the agent remarks in the listings 2 more of these are actually short sales and 1 is bank owned.

So, what does this leave us?  14 Traditional, Equity Sellers?  I should add 5 of these 14 are 55+ communities.  There are really only 9 equity sellers in my client’s search criteria out of 40.

It then becomes important to analyze the recent resale activity.  I pulled sales from the last 30 days with the same criteria - Mission Viejo, single family residences, $450 to $550.  Here are the stats:

  • 21 Sales
  • 6 Bank Owned
  • 3 Short Sales
  • 13 Traditional Sales (one 55+ community sale)

No rocket scientist needed here.  This is out of balance.

If you are not a numbers person, it’s okay, just try to stick with me here – 52.5% of the Active Inventory are short sales, but last month only 14.3% of the sales were short sales.

12.5% of the Active Inventory is bank owned, but last month 28.6% of the sales were bank owned.

And most telling, 22.5% of the Active Inventory are equity sellers (not to include senior communities), yet the sales from the last 30 days indicate that 51.1% were traditional sellers.

I’m actually not a numbers guru.  I love reading.  I love writing.  But, I also love logic and this should speak volumes to you.  The sellers that don’t have to sell have chosen not to; they’ve heard the message.  Buyers that have been fence sitting or have had affordability problems, have found that it is indeed their time.  Demand does exist.  The inventory may actually be lacking.  Do I hear – supply and demand?

Just to temper my enthusiasm, let’s look the sales prices.  No question – these are some other stats to consider from the last 30 days with that same criteria:

Short Sales – Sold at 98.29% of asking price with an average days on market of 143.  The average price per square foot was $253.09

Bank Owned - Sold at 101.55% of asking price with an average of 16 days on the market.  The average price per square foot was $263.06.

Traditional Sellers -Sold at 97.38% of asking price with an average of 34 days on the market.  The average price per square foot was $323.09.

I will suspect that the knee jerk response is that traditional sellers are overpriced on a per square foot basis – but look at the demand.   There’s a reason these are selling.  They are in superior condition (sometimes by a lot) and you can actually submit an offer to a live body, that has real emotion, and a desire to sell.  What’s the value in that?

So, if you think it’s a buyers’ market, think carefully and ask for the stats.  You need more than a cursory overview.  You need to drill down into the makeup of what it means to get a clear picture of the marketplace.

This is one picture of the OC marketplace, but from what I’m seeing, in certain pricepoints, it’s not isolated.  Thoughts?  I’m open to our interpretation of these numbers.

Brainstorming a solutionThere has been much discussion about the big bailout.  But in case anyone with any influence is listening – I have an idea that could make a big contribution to our market recovery.  Just call anytime and I’ll share my insight with you – from the trenches.  I’ll be waiting for your call.

For the rest of you that might be curious about what I have in mind, I’ll share with you some of what happened to me this week.  Brace yourself because I feel a rant coming on….

As I have said countless times on this blog, short sales are a HUGE factor that is driving our market prices and inventory in Orange County.  For example, 64% of the active homes on the market today in Rancho Santa Margarita, under $500,000, are short sales!  In Mission Viejo, 50% of homes active on the market today under $500,000 are short sales. 

These short sales have offers that have been submitted to banks and are just awaiting approval.  They may have multiple offers.  This is buyer demand that is waiting and the last thing we need in this market is pent up buyer demand waiting.

I’d like to share with you a story about one of my short sale listings.  Within 72 hoursof listing the home back in May, I had 4 offers for asking price, and over.  We submitted them to the bank, along with the package from my seller that clearly qualified for a hardship.  The following dialogue is from this week between my short sale coordinator and the the banking institution’s (a very common and well known lender) negotiator.

My Short Sale Coordinator:

“We now had 4 buyer’s who have cancelled, including the last offer we submitted due to the fact that this process has taken almost 6 months.  We just can’t keep buyers around that long and we can’t keep the value the same for that period of time.  Values are dropping.  We do have another offer, but it is lower than any offer we have received.

“At this point we, as long with the seller, are at a loss as to what to do.  Do you have any suggestions, or any time frame that we can tell buyers?”

The Bank Negotiator:

“I will have to cancel this file because the buyers are no longer interested.  I suggest faxing in the new offer.  Because it is a new offer it will be considered a new file.  Anytime you have a new buyer it starts all over.  A short sale can take 4 - 6 months.  When you send in a  new contract the time frame starts all over. ”

The negotiator goes on to say that they are trying to make time frames shorter and the last response time was 30 days.  But in my experience, that response is inconsistent at best and clearly, they aren’t willing to commit to anything better than 4 to 6 months.

So what’s my big idea?  Let’s save a big bailout expense.  Forget giving money to banks with no accountability for how they use it.  Instead, let’s create an efficient, streamlined method of handling the massive number of properties that are in foreclosure and that are short sales. 

In the case of my listing, it may take one year to get a buyer in that property and a closed sale.  In the meantime, values are detrimentally impacted,  inventory remains misleadingly high,  property condition deteriorates, and suffering sellers can’t restart their lives.  If you shorten this process to 90 days, can you imagine the positive impact on our market?  Just think, 6 months ago I had 4 buyers that wanted to pay full or over list price.  Today’s buyers are thinking about 20% less than that.  THAT is a huge reason prices continue to decline in Orange County and in many parts of the country.

Maybe this is too simplistic.  Maybe this addresses only part of the problem.  But, if we are looking at some of the real, on the ground solutions for the much touted ‘Main Street,’ this seems like a great place to start.  Like I said, to those influential individuals and government institutions dying to hear my Bailout alternative, I’ll be standing by waiting for your call.

It was not long ago, lending was easy, too easy. Did you need money?  No.  Did you need assests?  No.  Did you even need to prove you had income?  No.  So why do an FHA loan?  We didn’t.

Times have changed and there are limited options for first time buyers that aren’t coming away with a ton of equity from the sale of their last home.  Fortunately, there is FHA.

The Federal Housing Adminstration, or FHA, provides mortgage insurance on loans utilizing FHA approved lenders.  The buyer must qualify but only needs a limited down payment. The key here is that if the buyer is looking at condos, the complex must also be FHA approved.

16 Via Garceta

I recently took a listing in Rancho Santa Margarita.  It’s a well priced condo by RSM Lake.  A 2 bedroom, 2 bath home with a 1 car garage, it’s one of the few traditional sellers in that price rangeNo waiting for the banks – but with no FHA approval currently on the complex, we have cut some of the great first time buyer pool that would be great for this home at $285,000.  In the meantime the Brisa Del Lago is working on getting that approval again.

And therein lies the problem.  Whenever a complex has had a litigation of any kind, they loose their FHA approval and must go through several steps to regain that FHA approval once that litigation is settled and work completed.

Because FHA lending has not been an issue for some time, many complexes not only let their FHA approval lapse, but once the litigation was resolved, many of the homeowners associations never renewed the applications.  No one complained because no one was applying for FHA loans.

The Homeowner Associations owe it to the homeowners to get this issue resolved sooner rather than later to maximize the buying pool for their homeowners.

If you are a buyer or an agent looking for a condo, check to make sure it is approved by FHA.  If they are not approved, hope is not lost.  Find out if your lending can do a ’spot approval’ for that one unit.  More and more lenders are working on this while condo’s are processing the applications for renewed approval with HUD, U.S. Department of Housing and Urban Development.

Orange County condos and homeowner associations are working on this but it will take some time to catch up to the changing buyer pool and lending restrictions.

 

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