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.

Today, both sellers, buyers, and definitely Realtors are very clear about Short Sales.  It impacts everyone, at every level of the process.  And in truth, the poor, reactive approach the banks are taking to this epidemic problem is really only hurting them, and consumers, here in Orange County and across the country.

To truly understand all the implications here, it’s important to understand the process.  Please note, this varies from bank-to-bank and there are currently no industry standards to the process.

• Seller determines they are in a Short Sale position and must sell.
• Sellers apply for a Hardship Package from the bank.  A consumer can complete the package verifying they have suffered a hardship (loss of job, divorce, illness) and can no longer make the payment.  They also must show they do not have other assests to cover the shortage.
• The package is submitted to the bank.  Here is where the problem lies.  Banks likely will not even consider the Hardship Request until a seller supplies them with an offer.  And this is where I think the banks are really hurting themselves and consumers.  Lets talk about that…..

If you are a seller and have been told that your hardship package won’t be looked at until you bring an offer with it to present it to the bank, what do you do?  It’s often at this point that agents are brought into the matter. 

As an agent, you have a seller in distress, possibly in foreclosure, and in need of a quick sale.  What will the bank take?  No one knows.  Will they approve the hardship?  Maybe, maybe not.  Precarious and odd position to be in as an agent.  Where do you price the home to get a quick sale?

 Let me give a hypothetical, but not unrealistic circumstance.  For this example let’s assume the following:

Home’s Value Based on Recent Sales:  $500,000

Amount Owed:  $575,000

Closing Costs:  $35,000 (may include unpaid taxes and HOA dues)

# of competing homes on the market: 25

Now – an agent knows that getting Agents to show their Short Sale Listing will be difficult.  Why? 

1. Some of these agents have been working with these buyers for months or more.  They know the short sale process sets up their clients for heartbreak and delays a successful transaction.  In addition, Agents commissions are often severely cut.  While the brokerage fee may say 3%, it may actually be only 2% or less. 
2.  The bank may take weeks to respond.
3. There are likely multiple offers due to the low price (we’ll get to this)
4. A hardship may never be approved in the first place.
5. Their impatient buyer will still be looking in the meantime and possibly want to move on to something ‘better’ making this sale an exercise in futility.

So how does an agent attract showings to their Short Sale Listing?  A low price!  It looks like the best deal in town.  In our example a $425,000 list price wouldn’t be unrealistic.  The seller doesn’t care where it’s priced anymore.  The bank has given no guideline.  The agent has to generate offers to submit to the bank for consideration of that Hardship Request.

Time is of the essence in these situations.  Pricing it agressively, they will get many offers of anxious buyers looking for a deal and NOW they have the offers to submit to the bank so that they will consider the seller’s hardship.

In the meantime, traditional sellers and other bankowned homes are forced to compete with the short sale.  In all likelihood, the bank will never approve the sale at that price but at least you get the hardship approved and you can reenter the market at a bank approved price of, in our example, $475,000.  In the meantime, traditional sellers have been competing with $425,000.

The implications:

1. Listings remain in ‘Active’ status while waiting for the bank approval.  They aren’t really ‘Active’ but meanwhile it misrepresents the inventory to be higher than it is.
2. Traditional sellers are competeing with lower and lower prices that may not every even sell at that price.
3. Banks create their own comps for future Short Sales, Foreclosures and Bank Owned inventory.
4. Buyer demand is pent up while they wait for the word from the bank.

Why don’t banks take a proactive approach?  Review hardship requests first.  Reach out to delinquent sellers and disuss Short Sale options.  Establish an approved Short Sale Price before the home ever enters the marketplace! 

This type of strategy would serve their own interest, the sellers they are servicing, the buyers they are hoping to sell to, and the agents working in the industry.  Reactive is not working!  It’s driving prices down, misrepresenting inventory, and impacting consumer expectionations and results.  It’s a no win for anyone.