As a buyer of a short sale it is imperative that your agent “qualify” the seller to determine the probability of a successfully transaction. By qualify, I mean try and determine the status of the current loans, the willingness of the seller to contribute cash towards the escrow, and if the seller is looking for full settlement language from the second and third lien holders.

Short sales can be frustrating for the buyer, and often for the seller as well, but if you are able to hold on for the weeks and months they often require, you may end up buying a home for a favorable price.

Pebble Beach Homes for Sale that are Short

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Higher priced REO homes face the same issues as all higher priced homes, the limited loans available for purchase at price levels above $800,000. But that doesn’t explain the shift entirely. What appears to be happening is a combination of the following:

• Banks are waking up to the fact that they are their own worst enemy. By discounting REO homes and using the “price ‘em, stack ‘em and sell ‘em” approach they are driving neighboring values down and forcing additional borrowers into foreclosure.
• Most banks have decided to shift their focus on “high value assets” towards maximizing the value, or “retained value” of the asset.

If you are buying an REO home in Carmel, Carmel Valley, or Pebble Beach you should be aware of the following impact of this shift in strategy:

• Properties used to appear in the MLS within days of foreclosure. It now takes as long as several months before the property is listed.
• Initially banks would at best provide the buyer with a termite report. Now, on most of these high end asset homes on the Monterey Peninsula the selling bank is completing the section 1 work before close of escrow.
• Banks will still consider paying a portion of closing costs, but the buyer’s agent must make sure that the bank’s commitment to pay those closing costs survives each of the counter offers.
• In some cases, banks are undertaking some cosmetic repairs before putting the property on the market. Most are also making sure that there are appliances, bathroom fixtures, etc.
• And, finally, as has always been the case, once the list price is set the bank typically switches to a formula for responding to offers. So, if the bank makes an error in pricing it may take months to get down to market value, no matter how eloquent the argument is supporting your offer.

Sometimes, yes. But, often there are other factors at play.

What is Market Value

Market Value is the price that a property could bring in an open market with both a willing buyer and seller. With neither the buyer or the seller facing undue pressure from outside factors. And, with the buyer and seller having perfect market information (only an economist could envision such a thing) and no barriers to entry or exit from the market. As you will remember from econ class, real estate is a beautiful example of an imperfect market.

Given its imperfections a property’s market price (the price at which the property actually sold) may be markedly different from its market value.

For example, a home may appraise for $950,000 but the seller is in the midst of a divorce or may have lost his or her job. When presented with an offer of $875,000 with a relatively quick close the seller may accept, regardless of the market value. Or more likely these days, a seller may be faced with growing monthly payments and declining income and a sense that the clock is running out on their ability to escape unscathed.

It can, although not often lately, work the other direction as well. There could be a buyer who is undertaking a 1031 exchange and has a limited period in which to purchase a property. She may opt to may a higher market price because the property she desires meets her needs, can be closed within the time limits, and the tax benefits of completing the exchange are sufficiently large to justify paying over market value to close the deal.

How Does Market Price impact Future Market Values?

Each time a property sells it becomes a comparable for the future sale of a similar property. This is where market price has its impact (beyond the impact it had on the seller and buyer of the specific property.)

For example, I know of a bank owned property that was listed at about $1,125,000 even though all indications were that its market value was under $1,000,000. The seller received highest and best offers from three different agents, all at $950,000. The seller declined those offers and remained on the market for two months before contemplating a price change. By the time the seller reached a list price of $950,000 those original buyers were long gone and no new buyers considered the property to be worth $950,000 given the several months it had been on the market.

Remember, to the market of buyers who originally thought the property was exciting at $950,000 it appeared that the bank had received no offers. Perfect information? Not at all. Those prospective buyers were shying away from the property figuring there must be something wrong with it. After all, it was bank owned and the banks wanted to get rid of inventory fast…so the fact that it was still on the market after so many weeks could only mean it was worth less than they thought it was worth.

Time passed and the property ultimately sold in the mid $800,000 range.

The buyer apparently got a great deal. By the time he came along he was able to buy a property for a $100,000 less than the market said it was worth a few months earlier. Buyers ultimately determine a properties value, and this property had 3 buyers all at the same purchase price.

Unfortunately the ultimate market price had a negative impact on all the neighboring properties market values. Over the coming months a future seller, buyer, appraiser or other Realtor would have no way of knowing what happened during the marketing of the property and would ultimately consider the $850,000 sale price as a good indication of market value.

At the moment there are only three foreclosed homes listed for sale, but over the last six months a total of ten bank owned homes have sold in Carmel, California.

24802 Eastfield. $1,450,000 in 77 Days

On the high side there was a 4,226 square foot home at 24802 Eastfield Place that sold for $1,450,000 in March. The other extreme was a home on Canada Lane that sustained major damage when a tree fell through the roof. Some repairs had begun before the foreclosure but there was well over $50,000 worth of damage to be repaired….not including the desperately need improvements. It sold for $402,000 in February.

Two of the 10 homes were in Carmel-by-the-Sea versus the surrounding area of Monterey County known as Carmel. A property on Alta Avenue sold for $760,000 in February of this year. It was an updated but small home, 1,100 square feet. On Santa Rita a 1,553 square foot home, also updated, sold for $522,000 also in February.

In fact, of the 10 homes that have sold in the last six months, 2 sold in January, 4 in February, 1 in March, 2 in April, and 1 in June. There are three pending homes ranging from $979,200 at the high end down to $419,000.

The icons below will link you to a pdf of the 10 sold homes and 3 pending REO sales.

I often get calls from clients who have seen that a given property has received a notice of default and the foreclosure process has begun….asking if we can call the bank and make an offer. In an upcoming blog post I will review the steps in the process, but it is important to note that on average at the moment it takes 449 days for a property to progress through the foreclosure process from the 30 day late notice to listing of the foreclosed property. A property receiving notice today, that does not correct the situation or succeed with a short sale, won’t be on the market for over a year.

At the moment there are three foreclosed /REO homes on the market:

Nationally the banks do appear to be holding REO (Real Estate Owned) properties, sometimes for months.  The average time between 30 days delinquent notice to the ultimate sale of a home at foreclosure is at an all time high of 449 days. Most homes that are receiving notices today, and are unable to correct their position, will reach market over a year from now.

The number of properties repossessed by lenders was 1.13 million in May, up about 1 percent from April but up 21 percent compared to a year ago, according to Lender Processing Services (LPS)

Between April and May of this year the number of borrowers that were behind one mortgage payment went up by 10% to a total of 1.62 Million which was off 6.4% from last year and off 9.3 percent from this year’s high of 1.79 million in February.