Archive for the ‘Foreclosures’ Category

Sacramento County Real Estate Market Update

Well, the numbers for homes sold in May are in, so it’s time to take a look at our local real estate markets, beginning with Sacramento County. To look at unit volume first, it’s practically unchanged since last year, at 1761 units sold in May 2010 versus 1757 in May, 2011, a difference of only .2%. However, when we start to see what’s happening on the foreclosure front, a different picture emerges. Compared to the same time last year, foreclosures are up significantly, some 15.5%, from 644 last year to 744 this year. Short sales are down slightly, 2.4%, from 421 last year to 411 this year. Meantime, non-distressed sales are down substantially, from 696 homes in May of 2010 to 602 homes in May of 2011. The net result is that the number of distressed properties selling has risen from 60.5% to 65.7%, or just under two thirds of all sales.

Interestingly, the Sacramento numbers seem to be an exception to the trend in California. According to RealtyTrac, from May to April the number of foreclosures sold statewide has dropped from 22,488 in May, 2010 to 14,724 in April of 2011. Unfortunately RealtyTrac hasn’t yet published May numbers, so there’s a little bit of an apples and oranges thing going on here, but it does look like we’re an exception to the rule.

As you might expect from the breakdown of what’s selling, prices are down — a lot! The average sold price per square foot fell 13.6^from year to year, from $125.55 in May of 2010 to $108.48 in May of 2011. The median price has dropped from $180,000 to $160,000 during this time (remember that this number includes condos, so single family homes are no doubt higher). The average sale price of $207,162 in 2011 has fallen to $177,491 in May of 2011, a 14.3% drop.

In terms of inventory, once again short sales throw the numbers off at 9.5 months of inventory. Inventory for both foreclosures and non-distressed sales are low, at 1.1 months and 3.5 months, respectively. Overall inventory is at 3.8 months, with 1587 homes selling per month over the last six months, an 6,020 homes active as of this article.

Unit Volume Data

Units Sold May, 2010 May, 2011 Change
Foreclosures Sold 644 744 15.5%
(% of total units) 36.6% 42.3%  
Short Sales Sold 421 411 -2.4%
(% of total units) 23.9% 23.4%  
Non-distressed Sold 696 602 -13.5%
(% of total units) 39.5% 34.3%  
Total 1761 1757 -0.2%

Price Data

Prices May, 2010 May, 2011 Change
Sold Price / Square Foot $125.55 $108.48 -13.6%
Square Feet 1650 1636 -0.8%
Average List Price $209,102 $180,676 -13.6%
Average Sale Price $207,162 $177,491 -14.3%
Median Sale Price $180000 $160000 -11.1%

Inventory (Based on 12 months of prior sales)

Sale Type Average Sales Per Month Active Months of Inventory
All Sales 1564 6020 3.8
Foreclosures 671 825 1.2
Short Sales 371 3479 9.4
Nondistressed 525 1723 3.3

Inventory (Based on 6 months of prior sales)

Sale Type Average Sales Per Month Active Months of Inventory
All Sales 1597 6020 3.8
Foreclosures 737 825 1.1
Short Sales 365 3479 9.5
Nondistressed 498 1723 3.5

Foreclosure Crisis Villains Part I: Loan Servicers

When I talk to homeowners I know about their problems getting a loan modification or when I work on a short sale, a common theme that comes up over and over again is “Why is this process so hard if the bank is going to lose more money on foreclosure than they will on a loan modification or short sale?”

Implicit in this question are two assumptions:

  • That there’s “the bank”, someone who owns the loan and stands to lose if it isn’t paid.
  • That “the bank” is controlling whether some kind of modification / sale goes through or whether you go into foreclosure.

The reality is much more complex than this. A far more likely scenario is that there are several parties involved here, not just you and the bank. Most likely the people involved in your loan include:

  • The bank or mortgage broker that originated the loan, who may now be irrelevant because they’ve sold the loan to someone else.
  • A loan servicer, which often is a mortgage bank or a company with a business relationship with one or more mortgage banks. These are the people responsible for collecting your payment, and who will foreclose on you (or not).
  • Any number of intermediate entities through which the loans were aggregated in a pool of mortgage and “securitized”, i.e., converted into one form or another of a mortgage backed security that can be sold to investors.
  • The investors who have purchased the mortgage backed security that includes your loan.

Who Wins and Who Loses?

Remember our original assumption about “the bank”? Well, there isn’t one.
When you say that “the bank” will lose if they foreclose, what comes closest to the truth is that the investors who hold the mortgage backed security will lose. The problem is this: the servicer stands to gain more and lose less if you go into foreclosure than if your loan is restructured in any way that’s going to really help you.

Why Servicers Prefer Foreclosure

The main source of a servicer’s income is a percentage based on the current principal balance of the loan. For prime loans this might be 25 basis points (i.e., 25/100 or 1/4 of one percent). For subprime loans it might be higher, up to 50 basis points. So the higher your principal balance, the more money they make.

Now, if the loan is modified in such a way as to reduce the principal, the servicer loses. They’re still paying the investors their full payment while this is being negotiated, and they’re having to borrow money to do that. Now just like you, part of their “credit score” is based on how much debt they have already. Probably because of this, credit rating agencies rate them higher if they move people to foreclosure quickly.
Moreover, once the loan is modified, servicers typically have to wait to be reimbursed for whatever expenses they had to be paid to them.

So in the case of a loan modification, the servicer has to borrow money, is losing money while the loan modification happens, and has to wait to recover that money when the modification goes through. Now let’s look at what happens in the case of foreclosure. The servicer loses an income stream on your principal balance here of course, but the foreclosure sale generates cash.

Guess who’s first in line to receive this cash? Is it the investors who own the loan? No, it’s the servicer. Out of the cash from the sale a the servicers get a hefty fee for doing the foreclosure. Moreover, the servicer recovers whatever late fees and penalties they assessed you along the way. (Now I know why servicers will advise borrowers in trouble to pay late — the servicers will then get paid more when they foreclose!). They also get reimbursement for services they’ve purchased such as broker price opinions (BPOs). When they charge these services against the cash from the sale, they’ll often mark up the services, so that (for example) the $50 they paid fora BPO turns into a $125 BPO that the investors pay for.

All of this is paid out to the servicer first, then the servicer sends whatever’s left to the investors.

That Sick Feeling You Have Now Is Normal

If you’re feeling sick to your stomach that this is how the system works, I’m with you. How about some nice protest music to cheer us up? Here’s Pete Seeger doing “The Banks Are Made of Marble”, with suggestions for further reading (the articles on which this was based) below.

Further Reading:

This article was based in large part on a much more detailed treatment of these issues in a Background Paper done by the California State Assembly. I highly recommend this article. To a lesser degree I also consulted one of the articles cited in that paper, The National Consumer Law Center’s Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior.

This is serious wonk stuff. Pete Seeger is much more accessible if you’re in a hurry.

Sacramento Area Foreclosure Numbers

I’ve just processed the sales data for the past March, so it’s time to start looking at the numbers as we always do. Rather than start out going county by county, this month I thought it would be interesting to take a look at how foreclosures and short sales are stacking up between Sacramento County, El Dorado County, and Placer County. The famous saw about real estate, “location, location, location” applies as much — indeed, probably more — to market statistics as a whole than it does to individual homes.

What we seem to be seeing for March is that, compared to a year ago, banks are more willing to just foreclose on a home in Sacramento County rather than processing a short sale. The number of foreclosures rose 20.2% from March of 2010 to March of 2011 in Sacramento County, while at the same time, the number of short sales fell 10.4%. At the same time, sales of non-distressed homes also fell by some 17.7%. The result is that, for March at least, the overall sales volume was fairly flat (actually down less than 1%), from 1845 homes sold in March of 2010 to 1833 sold this March.

Investors and others are grabbing foreclosures in a very short time indeed in Sacramento County, resulting in inventory levels of only two months county-wide.

Sale of non-distressed homes were also off in El Dorado County by 16.9% year on year, while foreclosure sales soared by 31.7% during this period. The number of short sales also rose during this time by 13.2%. Overall for all categories, unit volume rose during this time by 6.3%, from 175 homes in March of last year to 186 homes this year. As in Sacramento County, short sales continue to make up the bulk of the inventory, with foreclosure inventory at a low 2.7 months.

Compared to El Dorado and Sacramento Counties, the picture in Placer County looks almost good, with year on year volume up an encouraging 14.7%. More surprisingly, of the three counties, Placer was the only one that saw a substantial increase in the number of non-distressed homes sold (14.5%) . Foreclosures rose only 1.3% during the period, but short sales rose some 34.9%. The inventory of short sales in Placer County is high but slightly less than that of Sacramento and El Dorado Counties at 10.1 months. Not surprisingly given these numbers, Placer County saw the smallest year-on-year price drop, at 5.8%, versus 7.2% for El Dorado County and 8.4% for Sacramento County.

Wanted, Owner Occupants — Sacramento Area HUD Homes

This article is part of our How To Buy A Home Series (Learn More, Subscribe)

There is one type of foreclosure property that you should know about, especially if you are a buyer who plans to occupy the home (as opposed to an investor).  That category is the HUD foreclosure or “HUD home”.   HUD homes are homes that have had an FHA buyer who defaulted on the loan.  Remember that FHA is a program that insures the lenders against risk when they participate in this low-down-payment government program.  Therefore, when an FHA home is foreclosed, the lender submits a claim to HUD, who pays the claim, takes possession of the property, and puts the home on the market as a HUD home.

Why should you care?  Well, on a non-HUD foreclosure, here’s what you’re up against.  First, you’ll be competing with investors who are cash buyers.  Lenders don’t like having homes in inventory, and they prefer an escrow that is quick and painless, where the home is sold in “AS IS” condition.   Moreover, if you’re a first time buyer with only a modest down payment, you should realize that many (not all) banks with foreclosures don’t like to do FHA financing, because they know that FHA imposes certain minimum housing standards — and often foreclosed homes have major work that needs doing to bring them up to these standards.  The cash buyers have access to the home as soon as you do, so naturally this makes competition fierce, and accounts for why we typically only have about 2 months of homes in inventory.

With a HUD home, you stand a better chance, for several reasons.  First, it’s a matter of HUD policy to give preference to owner-occupants.  If you are prepared to stay in the home for one year or more, you will have the first chance to bid on HUD homes.  For the first thirty days a HUD home is on the market, it’s “No Investors Allowed” — HUD only wants to look at bids from owner-occupants.

Second, if you’re a first time home buyer especially, you should know that HUD offers extremely attractive terms.  Some HUD homes are available with FHA financing, and some of these are eligible for FHA 203K rehab loans, meaning you can finance the repair work that needs to be done to bring the home up to FHA standards.  On some HUD homes, HUD will pay up to 3% of the price of the home toward your closing costs, and on some, you can bring in a down payment as little as $100. So for $100 and the remainder of your closing costs, you can own a home.

Imagine that, owning a home for a couple of thousand dollars, and being able to successfully compete against cash buyers.

To find out what HUD Homes are available in our area, your best resource is HUD’s official web site, HUDHomestore.com.  New HUD homes come on the market every day, so be sure to sign up for email updates in the areas you’re interested in.  HUD is its own beast, and many folks have found that these email updates will serve you even better than the MLS.

We’re very excited for the opportunities for buyers in HUD homes, and can refer you to a reputable HUD agent who can help you if you find something you like.  I’m also pleased to announce that that “reputable HUD agent” will soon be Lockwood Real Estate, since I just got back from submitting my Selling Broker application with HUD.  As I write this there are currently 46 Sacramento County HUD Homes, with more being listed every day.  As lending standards have tightened making FHA far more important in recent years, of course in this economy with many folks losing their jobs, this has meant more FHA foreclosures.  Unlike foreclosures on conventional loans, however, you don’t have to be a real estate mogul to take full advantage of what’s available.

If we  can answer any questions for you about HUD homes that you see in the MLS or on the HUDHomeStore web site, please send us an email or give us a call at 877-735-5657.  To learn more about HUD homes and other things you should know when you’re in the market for a home in the Sacramento area, why not subscribe to our How to Buy a Home Newsletter today.  Your email address is safe with us.

Mortgage Delinquencies Continue

The Associated Press recently reported that one out of every ten mortgages had at least one delinquent payment this summer. The Associated Press quoted a report from the Mortgage Bankers Association which stated that 9.9% of borrowers fell into the category of second-quarter delinquencies as of June 30th, 2010. This is an obviously worrisome sign especially after delinquencies dropped slightly last year.

If you are a homeowner whether you are behind in your home mortgage payments or are concerned about upcoming problems making your mortgage payment a good place to start is the Making Home Affordable website. You might be able to get your bank to work with you to modify or refinance your mortgage or accept a short sale.

Although the number of homes in the foreclosure process fell slightly, other reports show that there were weaker than expected home sales this July and sales of new homes are at their lowest point since the government began keeping records in 1963.

After a Foreclosure

With the number of foreclosures, short sales and other financial hardships affecting so many people in Sacramento and elsewhere in the country, the question often comes up: Will I ever be able to buy a home again? Will any bank ever give me a loan to finance a real estate purchase?

The short answer is: yes. The longer answer is: yes, but…

And here’s the “but…” part of it. Lenders will always ask for reasons why. One friend said it very matter-of-factly that you will always have to explain a foreclosure but because there are so many right now, the stigma, if you will, of a foreclosure on your record at this time might not affect you as much as it would have during a financially good time. This does not mean that you will not have to provide documentation that you did not strategically let the home foreclose but getting a home loan might not be as distant and impossible as it seems today.

In approximately two to five years after a foreclosure, the financial situation of the borrower could look considerably different to a lender. And you want to keep in mind that although your FICO scores have suffered as a result of the foreclosure, you might be able to show other factors as a good savings history, employment history and so on. Also, other bills paid on time will have a great impact. A larger down payment might also be necessary.

This is to say that if you have genuinely experienced a financial downturn in your life, all is still not lost. The dream of homeownership might still come true for you. It just might take a little longer than you hoped.

Can California Homeowners Be Sued after a Foreclosure?

Unfortunately, for a lot of homeowners, that might just be case. If you’re one of the homeowners who has had his home foreclose due to lack of mortgage payments, there is a chance that in the state of California the lender may be able to sue you for the difference the home is currently worth and the mortgage amount. This can happen only if you have refinanced the home since you bought it.

Currently, if a homeowner defaults on a mortgage used to purchase his or her home – called a “purchase money mortgage” – the homeowner’s liability on the mortgage is limited to the property itself. Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate.

Californians who refinance a property currently do not have protection if they default on a mortgage greater than the property’s value. Called a “deficiency” liability, under current California law, the lender can sue the former homeowner for the amount of the deficiency even after taking back the property. This is also called a deficiency judgment.

The California Association of Realtors is sponsoring a Senate Bill to close this loophole. We’ll keep you posted. For more details on the SB 1178 go here.

Foreclosures are Down, But…

Spring has definitely sprung. I don’t know about you but a few days ago when I saw the weather report and saw an entire week of uninterrupted sunshine, my heart gave a little jump. And obviously home buyers are feeling the same way. This is the last official month of the homebuyer tax credit and tax returns are in. The real estate season seems like it’s definitely here!

It might not be time for homeowners in Sacramento or people considering selling their homes to rejoice yet, however. True, we are seeing some great news come out of foreclosure sales. In fact, over the last three months foreclosure sales are consistently at 50% of what they were a year ago at the same time. (This is of course referring to the number of sales and not real estate prices.)

Non-distressed properties are also gaining momentum in sales. Closed escrows now tell us that 1 out of every 3 sold homes is non-distressed, which means that the homeowners are not upside down in their home and they do not have to get bank approval to forgive their mortgage debt in order to sell it. That’s good news. A year ago, just 1 out of every 10 homes was in that situation. Quite a dramatic turn around.

Unfortunately, the one dark cloud in this real estate recovery is the short sale inventory. And it could just be the reason why the green shoots springing up from the ground might take a while to show the bloom of price gains. For the last three months, we have seen more than a year of short sale inventory every month. With just over 300 short sales closing escrow, the 4200 or so short sales on the market might take a while to get absorbed.

Dark cloud? Yes, definitely. The only silver lining I can see here is that based on the last year of real estate sales, we had 13.5 months of short sale inventory and based on the last six months of sales, that number of short sales has gone down to 12.7 months. It’s a beginning. Let’s hope so, anyway.

What’s so Scary about an REO?

Happy Halloween everyone! And if you’re wondering what’s the scariest thing on most home buyers’ minds today, you’ve come to the right place for an answer. Although most buyers are excited about the opportunities REOs (foreclosures – REO stands for Real Estate Owned by a bank, for the uninitiated) present in today’s real estate market, especially in the greater Sacramento area, I find that many are also concerned about buying a home that can have many unseen problems which may not show up until long after escrow closes. Today, I am here to address some of their concerns. Boo!

How a Home becomes an REO
As explained earlier, an REO is a foreclosure. When you buy a home in California, unless you pay cash for it, chances are you will have to finance the purchase. A home is financed in much the same way a car is financed – you sign legal documents called “a note” for a loan. The lender gives you the money which you agree to pay back with interest over a term of (usually) 30 years. If you default on the loan, the lender can then take the home back and sell it to someone else. The legal process of taking the home back for default on a note is called foreclosure. Although the process in California includes a trustee who is given the note and who is notified by the lender to begin foreclosure proceedings in the event of non-payment the basic idea remains the same: default on the mortgage and lose the home.

The lender is required by law to send a homebuyer who has defaulted on the loan a Notice of Default. This notice is recorded at the county clerk recorder’s office in the county where the property is located and is a document of public record. This means that anyone with an interest in the property may see it. The notice states when the lender is planning on foreclosing, ie. the date of the trustee’s sale and the outstanding amount the homeowner can pay to cure the default and stop the trustee’s sale.

Usually, as you can imagine, the default is not cured and the trustee auctions the property to anyone who will buy it. If there are no buyers at the trustee’s sale, the house becomes a foreclosure and is referred to as an REO – real estate owned by the lender.

What you should Know about an REO as a Homebuyer

Most lenders are not in the business of real estate; they are in the business of finance. And so, the house acquired by a bank through a foreclosure is usually put back on the open market. To come up for a sales price for the property, the bank hires a Realtor® and asks for a BPO – a Broker Price Opinion. The Realtor® appraises the property based on similar properties also known as “comps” and offers to list it. Since most foreclosures are fixers, they are usually placed on the market for a substantially discounted price.

As a home buyer of a bank owned home, your concerns are justified. An REO is usually a fixer. The most obvious reason for this being the family that was foreclosed upon was low on finances. If they didn’t have enough to make their mortgage payments, chances are there are quite a few things about the house that went unrepaired. This is also called deferred maintenance. Deferred maintanence can be a small problem, like a leaky faucet, or can hide bigger problems, like a leaky faucet that rotted the bathroom sub-floor.

You should also be aware that as a purchaser of an REO, you don’t receive full disclosure about the house. The bank is not required to provide you with a Transfer Disclosure Statement, partially because the lenders have never been in the home and are unaware of what exactly is wrong with it. They are also unaware of other problems a property may have, like boundary line disputes, and are unable to let you know if, say, there has been a death on the property.

How to Resolve your Concerns

Does this mean you are left completely at the mercy of Chance when you decide to buy a foreclosure? Sure, the price is deeply discounted, but does that make up for everything else? While that may be a question only you and your pocketbook might be able to answer, here is the most important pointer to take the sting out of potential problems: Always, always, always get the inspections!

Brokers recommend a variety of inspections, including pest, roof, septic system and a complete home inspection. Disregarding any of these inspections can be a big mistake on the part of a homebuyer. While most banks will not repair any items listed as potential or real problems during these inspections, you can get an idea of how much work is involved in making the home as habitable as you want it and decide if the asking price is worth the risk and work involved. The price you pay for the inspections (approximately $1000 for all included) is well worth its weight in gold.

You, The Smart Homebuyer

Okay, great! So you got the inspections done! The home seems structurally sound, but it looks like the roof can’t be certified. Can you knock off $10,000 from the asking price because the lender won’t put a new roof on? Not so fast! You should take into account the fact that the lender has already figured deferred maintenance into the price of the house. While there is no overt harm in making a lowball offer, you should also apply the comps in the neighborhood and balance them against your own timeline and budget for a house. Also remember that escrows today take longer (45 to 60 days as opposed to the 30 days from a while ago) because lenders are more careful about checking documentation.

With so many bargains out there in foreclosures, if you are serious about buying a home at a deeply discounted price, chances are you will find what you are looking for. So, go ahead. Get the facts, look hard and deep and don’t be scared to make an offer when you find the right one!

Foreclosures and the Changing Real Estate Market

Residents of Sacramento have reached a new level of understanding about the real estate market, I think. While conversations during the real estate boom revolved mainly around how much their home had appreciated, now the talk is mainly around how much the market has been affected by the recent foreclosures. They seem to take a macrocosmic view of real estate as it is as opposed to the simplistic microcosm they were living in just about five years ago.

But the statement I hear most often is, “I wish I had some money right now. I would buy the entire street!” And while many are concerned that the market might continue to fall further, many others have taken the leap. We’ve seen the numbers rise for sales over the last year in every neighborhood and Sacramento county as a whole. Clearly, there isn’t as much anxiety over prices falling further today as there was a year ago.

Or is there?

Investors see this in the stock market every time – the tendency of most people is to think they are going to swoop in when the market is low, buy up everything and then make a ton of money by selling high. The reality is that most people feel confident buying a stock that has already performed well and then end up selling it when it is obvious it will not go any higher (at best) or when the price falls (at worst).

We see the same thing in the real estate market. When the prices of homes were headed up, homeowners were reluctant to sell and people felt more comfortable buying. There was not enough inventory for all the buyers. A home saw multiple offers on the first day it was listed and sellers couldn’t believe their luck. We see the opposite today. While many swear they want to buy a house at the bottom of the market (or close to) they are now holding off. The old adage of “Sellers sell in a seller’s market, but buyers don’t buy in a buyer’s market” is holding true, at least anecdotally. The overall numbers however are telling a different story. Clearly, some people are buying. These will probably be the same people selling when the time is right.

It’s time to review the numbers. It’s time to see what you can afford and head out there and start investing in the future.

Before Foreclosure: Before you Walk Away

While I was having my early morning cappuccino today, made with a rather indulgent birthday gift I gave my husband, this impassioned email sent to us by someone who had been to our website caught my eye:

“Their loss is your gain” Very tacky marketing! We loved that home & left it in great condition. We worked with your representive [sic], I actually that [sic] about sending her a thank you note. Were [sic] is your empathy! I truly hope someone can purchase the home that I designed & finish it right. I hope that you are happy that your posting sent me & my family into tears again. OUR LOSS? Yes we did have a loss I am sure you do not care about exactly what our loss was/is. Did it occor [sic] to to [sic] that terminal illness could have played a roll [sic]? You should think again before marketing a foreclosed home in such a ruthless way.

I hurried off a reply explaining that the marketing was not ours. We never use tacky terms like that and are hugely empathetic to sellers in this market, especially ones that have ended up in a foreclosure / short sale situation through no fault of their own and genuine financial hardship. Unfortunately, there are so many others that simply want out of their homes because they are so called “upside down” in them that even the banks are having a hard time distinguishing between the genuine cases and the ones that just sick of falling house values.

So let me reiterate: this post is for those with genuine financial hardship. Here are some of the steps you can take before you decide to walk away from your home.

Determine if there is Genuine Hardship: As I mentioned earlier, some people in this market simply want out of their homes and the mortgage agreement because they see the value depreciating. Depreciating value in itself is not a reason for the bank to accept a short sale. You must prove genuine financial hardship. Remember that the mortgage agreement you signed when you bought the home is a contract and letting someone out of a contract requires a strong reason. Depreciating value of an asset is in itself not a good enough reason.

Get on the Phone: The single biggest mistake people make when they are beginning to have trouble making payments is to avoid all phone calls. As a landlord, if the rent doesn’t get to me in the specified time and the tenant does not call, it is my first red flag. I can tolerate the rent being late for a long time if there is communication. Your mortgage holders have the same thinking. They really don’t want to foreclose. They just want the payment. So, your first response to a difficult financial situation should be to call your creditors. That would include your credit card companies, the IRS, your mortgage holders and so on. You might be able to get your mortgage holders to rewrite the loan (and have a different monthly payment and terms) and stay in your home.

Keep in mind also that a home is a secured debt, which means it is secured by your house. If you stop making payments, the mortgage holder can take your home. Your credit cards are unsecured debt. If you stop making payments on those, the credit card companies cannot technically come after your home. If you have the stomach for it, you can keep your home and see about negotiating with other creditors.

Begin Building a Case: A banking job is very paperwork-heavy. Remember the thick stack of documents you signed as a home buyer? Well, to get out of it, the stack will be just as thick. Start collecting any and all documentation of your hardship. Collect bank statements for the last entire year, tax returns for the last five years, pay stubs for the last year and all other documentation you have which shows and documents the reasons for your hardship. This may include a letter from your employer if you have lost your job, a medical letter if you have a disability or illness, medical bills, IRS bills – anything to establish in the eyes of the negotiator that you are not someone who simply wants out. A paper trail is very important to a successful short sale.

Start Looking for an Apartment or Rental Home: Do not plan on living in the house until the date of the foreclosure. While this might seem like a good idea on the surface because you are not making mortgage payments and getting free rent, remember that every month of a missed mortgage payment hurts your credit score – something most landlords check when you apply for a place to live in. Even if the short sale does not go through, you will have to leave and need a replacement place to stay. There is no doubt about that. Your credit is going to be in a downward spin. The smartest thing you can do now is get a place to live and explain to the landlord that you are losing your home.

Try to get an Approval or a Dollar Amount: This is unfortunately the toughest part of a short sale. Before you call a Realtor®, send in the paperwork to the bank and try to get an idea of what price they will accept. Lenders are notorious for not telling you their price and having you wait for an offer before they send someone out for a broker price opinion. The problem with this approach is that the buyers tend to get tired of waiting and walk away. If you can get the bank to send someone out before an offer comes in, it saves time (lesser time also means your credit will be hurt less) and you are more likely to get a home buyer to make an offer. This does require that your paperwork be complete however, so make sure to get that sent into the bank and follow up with them.

Call a Realtor®: At this point, all a Realtor® has to do is advertise your house as an approved short sale, be open to an offer and send it over to the bank for final approval. Approved short sales can close in less than sixty days. Also remember that you do not have to pay either Realtor®, as would be the case in a traditional sale where the seller pays the Realtors® involved. In this case, the lender would be the one making the payment for services rendered. That is why the lender will often ask for a net sheet from a title company before the final approval is issued.

Don’t Forget your Accountant! Your short sale or foreclosure may have tax ramifications and perhaps legal ones as well. Be sure to talk with your tax preparer and attorney regarding these. Deciding to walk away from your home is a difficult and painful process – one that we hope you never have to do. But if it is inevitable, I hope the tips in this post help.

Buying a Foreclosure? Here are Some Facts to Consider

Elite Properties agents have been representing buyers on lots of foreclosure sales this year.  What’s more, we’re not alone — some 65% of the more than 12,000 homes that sold this year through the MLS were bank owned properties.  With a typical selling price of about 20% less than a comparable non-distressed home, it’s no wonder that most buyers opt for an bank foreclosure if they can find one that suits their needs.

Though we think the rewards of a foreclosure purchase generally far outweigh whatever minor difficulties we help our buyers overcome in the foreclosure buying process, there are nevertheless a few differences from a traditional sale that we think buyers should know about when they buy a foreclosure.  This is not to scare you away from foreclosures, which we think are great opportunities.  However, as always, the more you know up front, the more likely you are to have a transaction that runs smoothly and successfully.

How Foreclosure Transactions Differ From Non-Foreclosure Transactions

  1. The sale will almost always be an "As Is" Sale
    Bank foreclosures are typically sold As Is, meaning the bank will not generally agree to make any repairs.  You still have an inspection period where you will have your inspectors examine the property and give you written reports on its condition, and you have the right to cancel the agreement if anything alarming shows up.  What you don’t generally have is any leverage to have the seller fix conditions for you. 

    Of course, every rule has an exception, and the exception in this case is that banks will sometimes agree to fix items required by an FHA lender, if you’re getting FHA financing.  We’ve negotiated this successfully many times.  To be sure, banks prefer conventional financing because conventional loans don’t generally have such prior-to-close conditions, but if you need FHA financing, it’s doable in many cases and we have a lot of experience with it.

  2. The banks will counter our standard California Association of Realtors® (CAR) Offer With Their Own Addendum
    You should read over the addendum the bank sends back carefully, and go over any questions you may have with your Realtor®.  In almost all cases, the addendum will include:
  1. A shortening of the escrow period.
    We often use 30 days as a "typical" escrow period when writing the offer.  Expect the bank to counter with a shorter period, often 21 days or thereabouts.
  2. A shortening of your inspection period.
    The "default" inspection period in the CAR purchase agreement is 17 days.  The banks will often want to shorten this to something like 7-12 days.  Our main concern is that you have enough time to perform your inspections, so your agent’s job becomes getting all your appointments scheduled quickly and getting you the reports you need.  We have a lot of experience getting this done.
  3. A per-diem penalty if the buyer fails to close on time (due to buyer’s default).
    The bank addendums typically include a clause where the buyer will pay a daily fee to the bank if they fail to close on time.  Often this daily fee runs somewhat higher than typical rents, with $100 to $150 per day being common. 

    Because the seller has both shortened your time to close and will charge you if you don’t get it done on time, it’s very important to get your financing in place if you’re buying a foreclosure before you write an offer.  At minimum, you should have a completed loan application with credit check submitted to your lender before you write a foreclosure offer.  This is not only important so you’re able to close on time and therefore avoid per diem charges, but many banks require direct lender approval for the offers they’ll consider.  This means approval from an underwriter working for the person with the money, not a mortgage broker loan pre-qualification letter.  Getting to this stage means getting with your lender before you shop, not while you’re in escrow!

  • The Banks Are Exempt from Some Disclosures, and Your Agent Should Know Which Ones!
    The law on real estate disclosures recognizes that — unlike a private owners — banks that own foreclosures almost always have never even seen the home.  Therefore, many disclosure forms that would otherwise be required such as a Seller’s Transfer Disclosure Statement are not required on a bank foreclosure.  The agents and brokers still have a statutory duty to disclose the results of a reasonably competent and diligent visual inspection, however, and you as a buyer are strongly advised to order a whole house inspection, pest inspection, and other inspections as needed.

    Because the banks are exempt from some disclosures, REO sellers (and often the listing agents representing them) are often ignorant of what disclosures they are NOT exempt from.  Again, we have a lot of experience making sure you get the proper disclosures in the file so you can review them.

  • The Bank’s Title and Escrow Providers Warning:  Idiots In Mirror Are Dumber Than They Appear
    On a non-foreclosure transaction, Title Insurance and escrow providers are often suggested to buyers by the agents on the transaction, based on which providers have done a good job for our clients in the past.  On a foreclosure transaction, in contrast, title and escrow providers are selected by banks who choose the absolute cheapest alternative regardless of the quality of the work.  As a result, we often get in a situation where it’s difficult to get a response from people who are crucial to providing you with some of the reports and disclosures you need.   Our approach in this case is three-fold.  First of all, we stay on them.  Secondly, we get the listing agent involved as much as possible.  Third, if there are inevitable delays because the title company is non-responsive, we document this well to avoid having the per diem charges apply.

    • In spite of the issues above, we believe the major discounts of bank owned properties represent a great opportunity for our buyers.  Our job is to inform you about the differences and minimize the negative impact of those issues that seem to be endemic to foreclosure transactions, so you get the benefit of the price without having to give up too much in the way of convenience.

    Greater Sacramento Foreclosure Sales By Area

    The report below shows foreclosure sales for the past two months for the Greater Sacramento area, broken down by zip code.   To see how things are changing, compare to the June 16th Foreclosure Report.

    Sacramento County

    Area Name Zip Code Total Units Foreclosures Short Sales Non-Distressed
    Carmichael 95608 85 37.6% 9.4% 52.9%
    Citrus Heights 95610 60 61.7% 11.7% 26.7%
    Citrus Heights 95621 107 64.5% 13.1% 22.4%
    Courtland 95615 1 0.0% 0.0% 100.0%
    East Sacramento & Vicinity 95819 31 12.9% 3.2% 83.9%
    East Sacramento & Vicinity 95817 34 64.7% 2.9% 32.4%
    Elk Grove 95624 136 77.2% 5.9% 16.9%
    Elk Grove 95758 193 67.4% 8.3% 24.4%
    Elk Grove 95757 143 68.5% 11.2% 20.3%
    Elverta 95626 6 83.3% 0.0% 16.7%
    Fair Oaks 95628 53 37.7% 7.5% 54.7%
    Folsom & Vicinity 95630 143 24.5% 11.2% 64.3%
    Galt 95632 73 79.5% 9.6% 11.0%
    Mather 95655 16 81.3% 12.5% 6.3%
    North Highlands& Vicinity 95660 102 78.4% 13.7% 7.8%
    North Sacramento Natomas Del Paso Heights 95833 91 68.1% 6.6% 25.3%
    North Sacramento Natomas Del Paso Heights 95838 117 87.2% 3.4% 9.4%
    North Sacramento Natomas Del Paso Heights 95835 159 75.5% 7.5% 17.0%
    North Sacramento Natomas Del Paso Heights 95834 81 76.5% 1.2% 22.2%
    Orangevale 95662 60 43.3% 11.7% 45.0%
    Ranch Cordova Gold River 95670 101 54.5% 7.9% 37.6%
    Rancho Cordova 95742 52 55.8% 7.7% 36.5%
    Rancho Murieta 95683 20 15.0% 5.0% 80.0%
    Rio Linda 95673 36 80.6% 5.6% 13.9%
    Sacramento Antelope 95843 145 74.5% 12.4% 13.1%
    Sacramento Arden Arcade Creek Vicinity 95821 50 52.0% 6.0% 42.0%
    Sacramento Arden Arcade Creek Vicinity 95864 42 23.8% 2.4% 73.8%
    Sacramento Arden Arcade Creek Vicinity 95841 28 57.1% 3.6% 39.3%
    Sacramento Arden Arcade Creek Vicinity 95825 48 39.6% 10.4% 50.0%
    Sacramento Arden-Arcade Creek Vicinity 95815 66 84.8% 4.5% 10.6%
    Sacramento Downtown Midtown 95816 21 19.0% 0.0% 81.0%
    Sacramento Downtown Midtown 95814 8 12.5% 0.0% 87.5%
    Sacramento Elder Creek Fruitridge 95820 87 73.6% 1.1% 25.3%
    Sacramento Elder Creek Fruitridge 95824 53 83.0% 5.7% 11.3%
    Sacramento Florin & Vicinity 95830 4 100.0% 0.0% 0.0%
    Sacramento Florin & Vicinity 95829 65 67.7% 10.8% 21.5%
    Sacramento Florin & Vicinity 95828 162 85.2% 6.8% 8.0%
    Sacramento Foothill Farms 95842 78 79.5% 10.3% 10.3%
    Sacramento Franklin Freeport Vicinity 95823 188 87.2% 2.7% 10.1%
    Sacramento Franklin Freeport Vicinity 95832 49 87.8% 6.1% 6.1%
    Sacramento International Airport & Vicinity 95837 1 0.0% 0.0% 100.0%
    Sacramento Land Park Curtis Park 95818 32 18.8% 6.3% 75.0%
    Sacramento Rosemont College Greens Mayhew 95827 25 56.0% 16.0% 28.0%
    Sacramento Rosemont College Greens Mayhew 95826 70 51.4% 11.4% 37.1%
    Sacramento So Land Park Greenhaven 95831 46 30.4% 10.9% 58.7%
    Sacramento South Land Park Greenhaven 95822 72 73.6% 4.2% 22.2%
    Walnut Grove 95690 2 0.0% 0.0% 100.0%
    Wilton 95693 10 70.0% 0.0% 30.0%

    Placer County

    Area Name Zip Code Total Units Foreclosures Short Sales Non-Distressed
    Alta 95701 1 0.0% 0.0% 100.0%
    Applegate 95703 2 0.0% 0.0% 100.0%
    Auburn 95603 38 28.9% 10.5% 60.5%
    Auburn 95602 19 31.6% 10.5% 57.9%
    Colfax 95713 15 33.3% 20.0% 46.7%
    Foresthill 95631 13 46.2% 15.4% 38.5%
    Granite Bay 95746 29 13.8% 6.9% 79.3%
    Lincoln 95648 141 44.7% 7.8% 47.5%
    Loomis 95650 23 34.8% 0.0% 65.2%
    Meadow Vista 95722 5 40.0% 0.0% 60.0%
    Newcastle 95658 2 50.0% 0.0% 50.0%
    Penryn 95663 4 50.0% 0.0% 50.0%
    Rocklin 95765 76 30.3% 11.8% 57.9%
    Rocklin 95677 43 55.8% 4.7% 39.5%
    Roseville 95678 104 51.9% 12.5% 35.6%
    Roseville 95747 141 40.4% 12.1% 47.5%
    Roseville 95661 45 35.6% 6.7% 57.8%
    Sheridan 95681 1 0.0% 100.0% 0.0%

    El Dorado County

    Area Name Zip Code Total Units Foreclosures Short Sales Non-Distressed
    Camino 95709 6 50.0% 0.0% 50.0%
    Cool 95614 7 28.6% 14.3% 57.1%
    Diamond Springs 95619 8 50.0% 25.0% 25.0%
    El Dorado 95623 4 25.0% 25.0% 50.0%
    El Dorado Hills 95762 97 25.8% 8.2% 66.0%
    Garden Valley 95633 2 50.0% 50.0% 0.0%
    Georgetown 95634 3 0.0% 0.0% 100.0%
    Greenwood 95635 3 100.0% 0.0% 0.0%
    Grizzly Flats 95636 2 50.0% 0.0% 50.0%
    Pilot Hill 95664 2 0.0% 100.0% 0.0%
    Placerville 95667 51 25.5% 0.0% 74.5%
    Pollock Pines 95726 18 38.9% 0.0% 61.1%
    Rescue 95672 5 60.0% 20.0% 20.0%
    Shingle Springs / Cameron Park 95682 48 29.2% 6.3% 64.6%
    Somerset / Fair Play 95684 5 40.0% 0.0% 60.0%
    South Lake Tahoe 96150 1 0.0% 0.0% 100.0%

    Sacramento Area Foreclosures and Short Sales By Zip Code

    The chart below shows the total number of homes that sold in approximately the last sixty days.  (I say “approximately” because there’s usually some lag time between the sale and when the sale is entered in the database.) 

    For each area, we then break the total number of units down to show the percentages of foreclosures that sold (these are bank foreclosures, or REOs).  Then we show the number of short sales that sold.   Finally, we show the number of non-distressed sales — where the seller was not in foreclosure and had enough money to pay off their loan.

    At the risk of once again grinding our favorite ax, note that in almost every case, short sales are the smallest category.  Their failure to close in any significant numbers relative to the offers written on them is why we often refer to them as fake listings.  What’s especially telling is how they compare to the non-distressed category, which typically are priced much higher yet outsell the short sales by a wide margin.

    Sacramento County

    Area Name Zip Code Total Units Foreclosures Short Sales Non-Distressed
    Carmichael 95608 85 35.3% 11.8% 52.9%
    Citrus Heights 95610 51 56.9% 5.9% 37.3%
    Citrus Heights 95621 119 58.8% 12.6% 28.6%
    East Sacramento & Vicinity 95819 27 3.7% 7.4% 88.9%
    East Sacramento & Vicinity 95817 34 58.8% 0.0% 41.2%
    Elk Grove 95624 134 75.4% 6.7% 17.9%
    Elk Grove 95758 194 61.9% 11.3% 26.8%
    Elk Grove 95757 153 71.2% 6.5% 22.2%
    Elverta 95626 12 91.7% 0.0% 8.3%
    Fair Oaks 95628 58 37.9% 8.6% 53.4%
    Folsom & Vicinity 95630 128 24.2% 10.9% 64.8%
    Galt 95632 72 76.4% 6.9% 16.7%
    Mather 95655 14 71.4% 14.3% 14.3%
    North Highlands& Vicinity 95660 90 76.7% 7.8% 15.6%
    North Sacramento Natomas Del Paso Heights 95833 72 65.3% 6.9% 27.8%
    North Sacramento Natomas Del Paso Heights 95838 98 88.8% 2.0% 9.2%
    North Sacramento Natomas Del Paso Heights 95835 136 73.5% 6.6% 19.9%
    North Sacramento Natomas Del Paso Heights 95834 79 60.8% 1.3% 38.0%
    Orangevale 95662 59 45.8% 10.2% 44.1%
    Ranch Cordova Gold River 95670 100 49.0% 8.0% 43.0%
    Rancho Cordova 95742 45 57.8% 8.9% 33.3%
    Rancho Murieta 95683 17 17.6% 11.8% 70.6%
    Rio Linda 95673 29 75.9% 10.3% 13.8%
    Sacramento Antelope 95843 154 74.0% 12.3% 13.6%
    Sacramento Arden Arcade Creek Vicinity 95821 49 42.9% 8.2% 49.0%
    Sacramento Arden Arcade Creek Vicinity 95864 31 25.8% 3.2% 71.0%
    Sacramento Arden Arcade Creek Vicinity 95841 34 64.7% 8.8% 26.5%
    Sacramento Arden Arcade Creek Vicinity 95825 44 34.1% 6.8% 59.1%
    Sacramento Arden-Arcade Creek Vicinity 95815 60 85.0% 6.7% 8.3%
    Sacramento Downtown Midtown 95816 21 9.5% 4.8% 85.7%
    Sacramento Downtown Midtown 95814 10 10.0% 0.0% 90.0%
    Sacramento Elder Creek Fruitridge 95820 80 71.3% 1.3% 27.5%
    Sacramento Elder Creek Fruitridge 95824 41 82.9% 4.9% 12.2%
    Sacramento Florin & Vicinity 95830 4 100.0% 0.0% 0.0%
    Sacramento Florin & Vicinity 95829 55 69.1% 7.3% 23.6%
    Sacramento Florin & Vicinity 95828 158 88.0% 3.8% 8.2%
    Sacramento Foothill Farms 95842 79 79.7% 7.6% 12.7%
    Sacramento Franklin Freeport Vicinity 95823 161 87.0% 4.3% 8.7%
    Sacramento Franklin Freeport Vicinity 95832 51 88.2% 3.9% 7.8%
    Sacramento International Airport & Vicinity 95837 1 0.0% 0.0% 100.0%
    Sacramento Land Park Curtis Park 95818 32 15.6% 6.3% 78.1%
    Sacramento Rosemont College Greens Mayhew 95827 25 56.0% 8.0% 36.0%
    Sacramento Rosemont College Greens Mayhew 95826 65 50.8% 9.2% 40.0%
    Sacramento So Land Park Greenhaven 95831 45 35.6% 4.4% 60.0%
    Sacramento South Land Park Greenhaven 95822 65 73.8% 6.2% 20.0%
    Walnut Grove 95690 3 0.0% 0.0% 100.0%
    Wilton 95693 11 54.5% 0.0% 45.5%

    Placer County

    Area Name Zip Code Total Units Foreclosures Short Sales Non-Distressed
    Alta 95701 2 50.0% 0.0% 50.0%
    Applegate 95703 3 33.3% 0.0% 66.7%
    Auburn 95603 38 34.2% 10.5% 55.3%
    Auburn 95602 15 53.3% 6.7% 40.0%
    Colfax 95713 11 45.5% 9.1% 45.5%
    Foresthill 95631 14 50.0% 7.1% 42.9%
    Granite Bay 95746 28 21.4% 3.6% 75.0%
    Lincoln 95648 132 48.5% 7.6% 43.9%
    Loomis 95650 23 34.8% 8.7% 56.5%
    Meadow Vista 95722 5 20.0% 0.0% 80.0%
    Newcastle 95658 4 25.0% 0.0% 75.0%
    Penryn 95663 3 100.0% 0.0% 0.0%
    Rocklin 95765 76 36.8% 5.3% 57.9%
    Rocklin 95677 49 49.0% 6.1% 44.9%
    Roseville 95678 98 57.1% 14.3% 28.6%
    Roseville 95747 151 41.1% 11.3% 47.7%
    Roseville 95661 41 39.0% 4.9% 56.1%
    Sheridan 95681 2 0.0% 50.0% 50.0%

    El Dorado County

    Area Name Zip Code Total Units Foreclosures Short Sales Non-Distressed
    Camino 95709 6 33.3% 16.7% 50.0%
    Cool 95614 5 40.0% 0.0% 60.0%
    Diamond Springs 95619 4 75.0% 25.0% 0.0%
    El Dorado 95623 4 50.0% 0.0% 50.0%
    El Dorado Hills 95762 95 22.1% 9.5% 68.4%
    Garden Valley 95633 4 0.0% 25.0% 75.0%
    Georgetown 95634 4 25.0% 0.0% 75.0%
    Greenwood 95635 3 66.7% 0.0% 33.3%
    Grizzly Flats 95636 2 50.0% 0.0% 50.0%
    Pilot Hill 95664 1 0.0% 100.0% 0.0%
    Placerville 95667 52 34.6% 1.9% 63.5%
    Pollock Pines 95726 17 41.2% 0.0% 58.8%
    Rescue 95672 8 37.5% 0.0% 62.5%
    Shingle Springs / Cameron Park 95682 45 28.9% 6.7% 64.4%
    Somerset / Fair Play 95684 4 25.0% 0.0% 75.0%
    South Lake Tahoe 96150 1 0.0% 0.0% 100.0%
    Twin Bridges 95735 1 0.0% 0.0% 100.0%

    Where’s The Bottom? The Prophet Speaks.

    As prices in greater Sacramento (you know, the whole USA) continue to fall, naturally everyone wants to know where the bottom is.

    I’ve been saying for some time now that we’ll reach the  bottom of the real estate market on May 20th, 2009 at 10:20 AM.  Actually, I’m not exactly sure.  It might be 10:15 if all goes well.

    I am the eyes of Johnstradamus, and all your ways are known to me.

    No, but seriously, we’re all curious.  Purva Brown posted a very interesting article to The Sacramento Real Estate Gal recently discussing Alan Greenspan’s recent prediction that the real estate market will begin to rebound in 2009.  (Hey look, Alan agrees with me!)  In discussing the article, Purva made the point that anecdotally we’re seeing some increases in demand.

    I would go one step further to say that depending on the area, the pent up demand is not anecdotal at all, it’s quite real and measurable.  The unit volume numbers tell the story.  Elk Grove unit volume is up about 100% in April.  In East Florin, 95828 and 95829, unit volume is up 172% from last year.  Even in Roseville, where the price declines have been less precipitous, volume is up some 40% from April to April.

    I believe we’ll continue to see increased demand as time goes on, as long as interest remains reasonably low.  In one respect this is a simple manifestation of the demand curve in action.  As price goes down, demand goes up.  Another way to look at the potential for real estate prices to reach equilibrium was one that Sean O’Toole recently reminded us of in his excellent post Death Spiral?  How to Find the Bottom in Your Market.  Sean’s point is one that I’ve believed for many months, that as more and more properties begin to offer positive cash flow, we’ll reach an equilibrium point.  This will be true even if Option ARMs continue to reset and cause additional foreclosures, and and there’s no shortage of articles on the bear side are predicting that they will.  See for example this article in Slate and this evaluation of the ARM Reset Problem.   Of course as Sean points out, you still have to predict what cap rate is reasonable for a given area to reach equilibrium.  With this in mind, those of you who may want to argue for a different recovery date than Johnstradamus predicts may easily be able to prove it using no more than a keyboard and a slide rule. 

    Don’t get your fingers caught.

    I admit I was pretty shaken when I first saw the ARM resets and Option ARM recasts lasting into 2011, but one thing that’s different about these resets will be that this “second wave” is not composed primarily of sub-prime borrowers, as I understand it.  So although it’s cause for concern, let’s remember that sub-prime borrowers by definition should have a higher default rate.  I wouldn’t be surprised to see more foreclosures in El Dorado and Placer County relative to Sacramento County as this unfolds, but that’s strictly a hunch.

    What’s really encouraging to me is to see such an increase in demand in Sacramento County already, even though the numbers for rentals in areas like 95828 and 95829 still didn’t impress me as all that wonderful.  I suspect that most of these buyers are not investors, but first time buyers who are feeling like a home is now within their grasp.  Beyond that, however, I believe that if we ever get to the point where you can routinely get $200 per month on a single family with reasonable assumptions about expenses and vacancies, we’re going to get to a point where it won’t matter how many foreclosures get dumped on the market — enough investors will scoop them up that prices will reach an equilibrium.

    What Do Foreclosures Look Like?

    It’s not (always) what you think.

    I came across this beauty in the MLS that was sold last year in El Dorado Hills.

    5364 square feet, 4 bedroom, 7 bath.

    Selling price? $1.16 million. Including an 800 Square Foot Racquetball Court.

    Nifty.

    The transaction history is fascinating.

    The owners purchased the home in 1998 for $550,000, and took out a $100,00 line of credit within a month of that. In 2001 they obtained another line of credit for $200,000, refinancing the whole shooting match in 2002 for a $750,000 first and another $150,000 line of credit. Three years later, in 2005, they took out an adjustable rate first at $1,267,500 getting another line of credit a couple of months later for $292,500.

    El Dorado Hills — That’s Where I Want to Be!

    Fewer Foreclosures in April?

    I must admit, I tend to track the “trailing indicators” of the foreclosure process. A sold REO is nothing if not a property that has been well and truly through the whole nine yards of the process. If instead you look at short sales or track Notices of Default, you’re looking at the leading edge of foreclosures.

    One encouraging bit of news I read about recently was the possibility that foreclosure numbers were down for April. Carol Lloyd suggested this in her article, Making Sense of Contradictory Foreclosure Numbers.

    Of course, as you can guess from the title of that article, the jury’s still out on whether there really was a decline in foreclosure filings in April or whether we’re still well and truly on a path to inevitable destruction, combining the $4.00 home with the $250,000 gallon of gas.

    Oh the humanity.

    But meantime, check out this tidbit from Foreclosures.com, the rosier of the contradictory numbers:

    “In most of our areas it’s getting better or staying the same and in some of our areas, there were huge drops in foreclosures ,” she told me. “In California, we went from 47,000 in March to 39,000 in April. That’s huge.”

    I’ll take my good news where I can get it.

    Pent up Buyer Demand?

    Now that we all know how much we hate short sales, I thought I would drop in my two cents with regards to what I’m hearing from other Realtors I talk to. (Yes, I do have a short sale listing. And yes, it’s getting a lot of attention from everyone but the bank.)

    But from what other Realtors tell me, there are multiple offers on almost all well-priced bank owned homes. There are also multiple offers on short sales, especially if they are approved short sales.

    What does this point to? I may venture a guess to say pent up buyer demand. I recently wrote an article on my other blog Sacramento Real Estate Gal about how the real investors are beginning to jump into the Sacramento real estate market. Historically, the investors jump first followed by the first-time homebuyers and then the rest.

    So if you’re making an offer on an REO and your Realtor tells you there are multiple offers on the property already, don’t assume she’s lying just because you’re full of bad housing news. The good news is coming.

    Real Estate Market Update – Rosemont

    Unlike areas like Antelope and Elk Grove, the Rosemont area of Sacramento (95826 and 95827) is still in a buyer’s market, with fairly high inventory and declining unit volume.  The average home sold in Rosemont in April of 2008 for $216,135, down 27.1% from last April’s average of $296,360.  The median price fell 31.2% during the same period, from $305,000 to $209,900.  Average sold price per square foot is down 26.7%, from $202.57 last April to $148.44 this April.

    As we mentioned earlier, Rosemont has yet to turn the corner into a recovery.  Unit volume is down 8.1% from last year, and the expired to sold ratio has risen from 54.1% in April of 2007 to 70.6% in April of 2008.  Average days on market are also up, from 48 last year to 56 this year.  There are 9.1 months of unsold inventory in Rosemont.

    67.6% — approximately two thirds — of the homes that sold in April in Rosemont were bank foreclosures.  Of the thirty-four homes that sold, only one was a short sale (2.9%), in spite of the fact that 38.8% of the homes in active inventory are short sales.

    Antelope Real Estate Market — The Return of the Seller’s Market

    Two areas in Sacramento County hold some special fascination for me — Elk Grove and Antelope.  In both areas, a large number of foreclosures have fueled steep drops in prices, and the fall in prices has created hot markets for bank foreclosures. 

    Antelope is on the verge of transitioning from a buyer’s market into a seller’s market.  To be sure, the “sellers” are banks, and there are still a lot of foreclosures to get through.  Fully 84.1% of all homes in Antelope that are currently for sale in the MLS are either in foreclosure (22.1%) or being sold short (62%).

    In spite of the number of foreclosures — which would lead one to suspect that further price cuts are in the cards — all indicators in Antelope are showing that the price decreases have already hit a sweet spot where demand is turning up sharply:

    • At 72 units sold last month, unit volume is up 71.4% over last year (compared to 46% overall for Sacramento County).
    • The expired to sold ratio has fallen to only 18.1% in April, compared to 73.8% last year.
    • Days on market are down 25%, from an average of 60 in April of 2007 to an average of 45 in 2008.
    • The ratio of the sold price to the list price has risen from 98.5% last year to 99.3% this year. 
    • Current inventory is down to 6.79 months.  Anything under six months is traditionally considered a seller’s market.

    No doubt many of the 199 short sales that are currently available will go to foreclosure soon, and as they do, they’ll be purchased by eager buyers.  In April, 9.7% of the homes that sold were short sales, even though they make up 62% of inventory.  In contrast, 76.4% of the homes that sold in Antelope were bank foreclosures, though only foreclosures make up only 22.1% of inventory.

    Sacramento County Real Estate Market (Part II)

    In Part I of this article I talked about the sharp decline in average prices over the last year in Sacramento County, and how demand has risen dramatically in April in response.

    In this article I want to revisit a theme that I first wrote about in March, that the different types of properties for sale effectively constitute Sacramento’s Two Real Estate Markets.

    A Seller’s Market In Sacramento?

    One of the Sacramento County real estate markets is the foreclosure market, and this market is behaving like a hot seller’s market.  Because the price of foreclosures is low compared to other homes, we very commonly see multiple offers, and offers over asking price.  The average discount for foreclosures is 2.3 % off of list price, while for non-foreclosures the average discount is 3.8% off of list price.  (Note that closing costs and other “non-price” concessions do not appear in these figures).

    In April, 63.3% of all homes that sold were bank owned foreclosures.  Looking at the number of foreclosures now in inventory, there are only 2.7 months of inventory — which is extremely low.  By comparison, for homes that are not in foreclosure at all, there are eight months of inventory, and for Short Sales, (which I hate because they’re neither short nor sales), there are 38.8 months of inventory.

    The Market Overall

    I would characterize the real estate market in Sacramento as follows:

    • Overall
      The overall market in Sacramento County is behaving like a buyer’s market.  Overall inventory is about 9.2 months.
    • Non-Distressed Homes
      The market for homes that are neither being sold short nor being sold by banks (privately owned homes that aren’t in foreclosure) is a buyer’s market, with eight months of inventory.
    • Short Sales
      The market for short sales is weak and tenuous at best.   There is an absurdly fat 38.8 months of inventory, meaning there’s a less than 5% chance that any given short sale will close in a given month.  Calling it a buyer’s market is charitable.  Since you don’t know if a given short sale will even get approved, it’s probably more appropriate to characterize the short sale market as a pseudo-market.
    • Foreclosures
      The foreclosure market in Sacramento County is a hot seller’s market.  At 2.7 months of inventory, the inventory figures are comfortably below the 6-month demarcation line that traditionally separates a buyer’s market from a seller’s market.  Multiple offers are common, and the discounts from list price are typically quite low (because the discounts from the “average” (including non-REO) market value are already quite high).

    Where the Foreclosures Are In Sacramento County, El Dorado County, and Placer County

    Here is a table that shows the areas (zip codes) that have the most bank foreclosures (REOs) currently listed in the MLS.

    For each area, it lists the number of REOs available, the number of all listings available, and the percentage of REOs. 

    It’s sorted beginning with the areas that have the most foreclosures as a percentage of overall active homes available.

     

     

     

    Homes for Sale in Sacramento Area MLS
    Zip Code Area Name REOs All
    Listings    		 % of REOs
    95832 Sacramento Franklin Freeport Vicinity 55 125 44.00%
    95815 Sacramento Arden-Arcade Creek Vicinity 79 199 39.70%
    95838 North Sacramento Natomas Del Paso Heights 171 431 39.70%
    95824 Sacramento Elder Creek Fruitridge 83 209 39.70%
    95823 Sacramento Franklin Freeport Vicinity 235 612 38.40%
    95660 North Highlands& Vicinity 85 226 37.60%
    95820 Sacramento Elder Creek Fruitridge 110 301 36.50%
    95817 East Sacramento & Vicinity 39 109 35.80%
    95828 Sacramento Florin & Vicinity 165 473 34.90%
    95639 Hood 1 3 33.30%
    95842 Sacramento Foothill Farms 79 238 33.20%
    95833 North Sacramento Natomas Del Paso Heights 100 307 32.60%
    95821 Sacramento Arden Arcade Creek Vicinity 46 141 32.60%
    95758 Elk Grove 123 412 29.90%
    95822 Sacramento South Land Park Greenhaven 82 280 29.30%
    95834 North Sacramento Natomas Del Paso Heights 56 200 28.00%
    95621 Citrus Heights 70 251 27.90%
    95841 Sacramento Arden Arcade Creek Vicinity 23 85 27.10%
    95632 Galt 64 241 26.60%
    95670 Ranch Cordova Gold River 75 282 26.60%
    95827 Sacramento Rosemont College Greens Mayhew 26 104 25.00%
    95835 North Sacramento Natomas Del Paso Heights 90 361 24.90%
    95624 Elk Grove 98 417 23.50%
    95673 Rio Linda 33 142 23.20%
    95626 Elverta 8 36 22.20%
    95825 Sacramento Arden Arcade Creek Vicinity 27 127 21.30%
    95757 Elk Grove 75 357 21.00%
    95843 Sacramento Antelope 64 312 20.50%
    95742 Rancho Cordova 21 112 18.80%
    95826 Sacramento Rosemont College Greens Mayhew 37 200 18.50%
    95655 Mather 7 38 18.40%
    95610 Citrus Heights 37 204 18.10%
    95829 Sacramento Florin & Vicinity 35 197 17.80%
    95678 Roseville 41 242 16.90%
    95722 Meadow Vista 7 44 15.90%
    95662 Orangevale 26 165 15.80%
    95831 Sacramento So Land Park Greenhaven 16 104 15.40%
    95619 Diamond Springs 5 33 15.20%
    95608 Carmichael 37 259 14.30%
    95677 Rocklin 21 150 14.00%
    95726 Pollock Pines 17 122 13.90%
    95636 Grizzly Flats 6 44 13.60%
    95628 Fair Oaks 26 195 13.30%
    95747 Roseville 45 338 13.30%
    95651 Lotus 1 8 12.50%
    95830 Sacramento Florin & Vicinity 1 8 12.50%
    95633 Garden Valley 5 41 12.20%
    95672 Rescue 5 43 11.60%
    95693 Wilton 10 88 11.40%
    96150 South Lake Tahoe 1 9 11.10%
    95683 Rancho Murieta 11 113 9.70%
    95635 Greenwood 1 11 9.10%
    95682 Shingle Springs / Cameron Park 21 236 8.90%
    95762 El Dorado Hills 36 414 8.70%
    95648 Lincoln 47 538 8.70%
    95818 Sacramento Land Park Curtis Park 5 59 8.50%
    95765 Rocklin 17 215 7.90%
    95630 Folsom & Vicinity 25 324 7.70%
    95661 Roseville 11 143 7.70%
    95690 Walnut Grove 1 13 7.70%
    95658 Newcastle 3 40 7.50%
    95603 Auburn 13 175 7.40%
    95709 Camino 3 41 7.30%
    95638 Herald 1 14 7.10%
    95681 Sheridan 1 14 7.10%
    95667 Placerville 23 326 7.10%
    95864 Sacramento Arden Arcade Creek Vicinity 8 119 6.70%
    95684 Somerset / Fair Play 4 61 6.60%
    95746 Granite Bay 14 213 6.60%
    95819 East Sacramento & Vicinity 5 80 6.30%
    95634 Georgetown 2 33 6.10%
    95641 Isleton 1 17 5.90%
    95713 Colfax 5 87 5.70%
    95701 Alta 1 18 5.60%
    95631 Foresthill 3 55 5.50%
    95650 Loomis 5 105 4.80%
    95816 Sacramento Downtown Midtown 3 67 4.50%
    95623 El Dorado 2 44 4.50%
    95602 Auburn 2 97 2.10%
    95814 Sacramento Downtown Midtown 1 50 2.00%
    95629 Fiddletown 0 2 0.00%
    95613 Coloma 0 4 0.00%
    95656 Mount Aukum 0 7 0.00%
    95614 Cool 0 48 0.00%
    95615 Courtland 0 2 0.00%
    95714 Dutch Flat 0 5 0.00%
    95735 Twin Bridges 0 3 0.00%
    95715 Emigrant Gap 0 2 0.00%
    95736 Weimar 0 3 0.00%
    95680 Ryde 0 1 0.00%
    95837 Sacramento International Airport & Vicinity 0 8 0.00%
    95717 Gold Run 0 1 0.00%
    95720 Kyburz 0 4 0.00%
    95663 Penryn 0 15 0.00%
    96148 Tahoe Vista 0 1 0.00%
    96050 South Lake Tahoe 0 1 0.00%
    95664 Pilot Hill 0 13 0.00%
    95703 Applegate 0 13 0.00%

    Folsom Real Estate — Market Update

    In the first quarter of 2008, the average home that sold through the MetroList MLS in Folsom sold for $419,955, down 16.9% from last year’s average of $505,263.  The size of this year’s average home was somewhat smaller than last year’s average, however, so sold price per square foot dropped much less dramatically, 11.7%, from $231.14 in the first quarter of 2007 to $204.16 in the first quarter of 2008.  The median sale price fell 10.9% from year to year, from $460,000 in Q1 2007 to $410,000 in Q1 of 2008.

    The drop in value in Folsom was much less than it was for Sacramento County as a whole, which posted a loss in Average sold price per square foot of 29.1% versus Folsom’s 11.7%. 

    If Sacramento’s numbers are turn out to be anything like those for Placer County, however, it may turn out that some of those “losses” are actually a result of lower priced areas being more heavily represented, with higher unit volume.  We’ll take a look at that possibility in a future article.

    Meantime, back to Folsom.  In addition to having a relatively low drop in price, Folsom also enjoys a comparatively low inventory, at 5.53 months.  In active inventory, 9.7% of homes are bank foreclosures and 20.8% are short sales.  In contrast, among sold homes, short sales accounted for 9.5% of sales in the first quarter of 2008, and bank owned foreclosures made up 29.7% of sales.

    If you’re interested in bank foreclosures in Folsom or elsewhere, you can search for them here.

    What’s Listed, What’s Selling, And What’s Not

    As we saw last time we looked at Elk Grove, prices are down substantially (about 1/3) over where they were in the first quarter of 2007.  As a result, unit volume is up by about 20%, with foreclosures making up some 71% of what sold in the first quarter of this year.

    So where are we now?  What are the prices on short sales and foreclosures in Elk Grove, and how do they compare to other types of sales?  If you’re in the market, what should you be looking at?  We can use Elk Grove numbers to learn a lot about what’s likely to sell and what isn’t.  Is it worth your time to be focusing on short sales, or should you ignore them in favor of foreclosures?

    Let’s look at the numbers.  Currently there are 1221 units available in Elk Grove, and with an average of 135 units selling every month, that works out to be 9 months of unsold inventory. 

    Now let’s look at how that inventory breaks down.  Good old, regular, non-distressed sales — where the seller has enough or more than enough equity to pay off their mortgage — make up 32% of the active inventory, or 391 units.  On balance these are the largest homes in Elk Grove, averaging 2,406 square feet.  They’re also the most expensive, even on a price per square foot basis, at an average list price of $212 per square foot.  Statistically, some thirty-one such homes should sell in April (extrapolating from the first quarter).  So the chance of one of these homes selling next month is 39 / 391, or about one in ten.

    Next on the hit parade, at a list price of $147 per square foot, short sales are almost as cheap as bank foreclosures, so you might naively expect a lot of them to sell.  Yet short sales don’t sell.  Blame the listing agent who took the listing on a short sale that will never get approved anyway because the buyer has the money to pay off the debt and the bank knows it.  Blame beaurocratic bean counters at the bank.  Or blame “fickle” buyers, who change their minds after a “mere” four months of waiting.  Whoever you want to point the finger at, short sales don’t sell well, which is why I make no secret of the fact that I hate short sales.   532 short sales are currently active in Elk Grove, and, extrapolating from first quarter sales, some eight of these homes will sell in April.  So the odds on a short sale selling are 8/532, or about one chance in 67.

    Bank foreclosures are cheaper than short sales at $143 per square foot, on average.  298 of the 1221 homes available in Elk Grove now are foreclosures — that’s 24.4%.  However, again extrapolating from last quarter sales, some ninety-six of these homes should sell in April.  So the odds of a bank foreclosure selling next month are about 96 / 298, or about one chance in three.

    I Still Hate Short Sales, And You Should, Too

    Based on the Elk Grove numbers, if you write up a short sale instead of writing up a bank foreclosure, this means:

    • You’re going to pay, on average, approximately $8,500 more for the same house, assuming you get it.
    • The “assuming you get it” part is really problematic here.  Even though short sales weigh in at $147 per square foot versus $212 per square foot for non-distressed sales, the fact that only 1 in 67 of them will close in a given month (versus 1 in 10 for non-distressed sales) should make you think twice about short sales.  I think they’re less of a plan than a pipe dream.

    Related Articles:

    Short Sales are Neither Short Nor Sales

    Elk Grove Real Estate Market Update, 1st Quarter, 2008

    Sacramento County Real Estate First Quarter Market Update

    It’s the fourth of the month, and that means that all good real estate brokers who don’t want to get fined $100 by the MLS have entered their sales data for the month of March into Metrolist.  This means we can start digging into the data for the first quarter in earnest now.

    In the first quarter of 2008, 3,011 homes sold through the MLS in Sacramento County, a 4.6% increase in unit volume from the first quarter of 2007′s 2,879 units.  No doubt this reflects buyers taking advantage of the bargains that have happened as more and more foreclosed homes come on the market. 

    Prices have fallen substantially over the last year.  Here’s a table that breaks the numbers down:

    Indicator Q1 2007 Q1 2008 Decline
    Average Sale Price $381,143 $268,867 29.5%
    Median Sale Price $345,000 $250,000 27.5%
    Average Sold Price Per Square Foot $224.86 $159.47 29.1%

    What’s Selling, And What’s Available

    I’ll be publishing an article shortly where we analyze the data from one community, Elk Grove, in terms of how many non-distressed homes are selling versus short sales and foreclosures.  If you want to see that when it comes out, please subscribe now.

    We’ll probably do a similar analysis for all of Sacramento County, but to whet your appetite and show the numbers a slightly different way, let’s show how many months of inventory there are for short sales, foreclosures, and non-distressed sales, based on the absorption rate for the last three months.

    Sacramento County Real Estate Inventory By Type

    Here’s a table that breaks it down, but you can read the text below to see how we got the numbers:

    Type of Home Unsold Inventory
    Bank Foreclosures 4.4 months
    Overall Inventory 9.6 months
    Non-distressed
    (Neither short sale nor foreclosures)    		 10.5 months
    Short Sales 52.8 months

    There are 9,661 homes in inventory (for sale) right now, and 1,004 homes sold per month for the last three months.  Overall, then, there are 9.6 months worth of inventory (i.e., 9,661 divided by 1,004).

    Of course, how much inventory there is varies widely by type of sale.

    3,494 non-distressed homes are currently available in Sacramento County.  (I use “non-distressed” to mean sales that are neither short sales nor bank owned foreclosures).  333 non-distressed homes per month sold in Sacramento County over the last three months.  Inventory for non-distressed sales, then, is 3,494 / 333, or 10.5 months. 

    For foreclosures, which are selling like foreclosed hot cakes, the inventory numbers are much lower.  Some 605 foreclosures sold each month during the last quarter, so the 2,633 foreclosures currently available represents 4.4 months of inventory.

    Short sales are just the opposite of foreclosures, because they sell like crusty old hot cakes that nobody wants to eat, because the bank may or may not approve your syrup.  Currently there are 3,535 short sales in inventory, and a whopping sixty-seven of such homes sell each month in Sacramento County.  Dividing again, we get 52.8 months of inventory.  Yes, short sale fans, that’s about 4.4 years.

    Short Sales Are Neither Short Nor Sales

    I hate short sales.   I hate them as individuals, and I hate them as a group.  Were short sales a people, genocide would be a virtue.

    Maybe this is the wrong opinion for a Realtor® to have under these market conditions.  Maybe some of the eighty-four subscribers to this blog are anxious short sale sellers on the verge of hiring Elite Properties, who will now think me a thoughtless slob.  Maybe my family will be out on the street because I’m such a poor businessman, saying what I think about short sales out loud on the Internets and all.

    It’s not that I don’t care about all that bad stuff happening.  But I still hate short sales.

    A Short Sale Tale

    This is a true short sale story.

    A buyer finds us through our web site, works with an agent of mine, and writes up an offer on a short sale home.  The seller accepts the offer, but we don’t have short sale approval from the bank yet.  This is back in November or so.  The house is a great buy compared to everything else on the market.

    For the next several months, my agent plays a phone game with the listing agent, a game familiar to any agent who’s ever worked a short sale. 

    Stripped of the pleasantries and extra details, the game goes like this:

    Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

    Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

    Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

    Agent 1:  “Has the bank accepted our offer yet?”           Agent 2:  “No.”

    This goes on for three or four months, until one day, miracle of miracles, Agent 2 says “Yes”, the bank has accepted our offer.  Only now, guess what?  The house isn’t a great buy any more because the bank waited so long.  Yesterday’s bargain is today’s overpriced turkey, so now the buyer wants to cancel the transaction and go look at other houses!  (Which the buyer is within her rights to do, by the way, since the bank has a “short sale contingency” period that expired months ago).

    Circle The Winner, a Multiple Choice Question

    The winner on the above scenario was:

    A) The seller.

    B) The seller’s real estate agent.

    C) The buyer.

    D) The buyer’s real estate agent.

    E) The bank.

    The Answer Revealed:

    Did you guess “F) None of the above?”

    Right you are!

    Sacramento’s Two Real Estate Markets

    This is a tale of two real estate markets. 

    It was the best of times.  It was the worst of times.

    In one of these markets, the average home sold for $374,928 in February.  In the other, the average home sold for 36.5% less, or $238,132, in February.  The sold price per square foot was 31.2% in the second market than the first).

    The first “market” we’re talking about here is the Sacramento County real estate market — the one that consists of all the homes that sold that we’re not short sales or bank foreclosures.  I like to call this one the Sacramento non-distressed market. 

    The second “market” is also the Sacramento County real estate market, but consists only of the foreclosures.  I call this one the Sacramento foreclosure market.

    Obviously the non-distressed market is quite a bit more expensive than the foreclosure market.  Part of this is a real discounting over non-REO sales, and part of it is due to the fact that, as a general rule, the cheaper neighborhoods have more foreclosures.  (There are at least two or three chicken-egg problems inherent in that, which we won’t go into now).

    Fun Facts About the Two Markets

    Fun Fact #1:
    Most buyers think that banks who have foreclosure are “more willing to negotiate” on price than non-distressed sellers.  In fact, just the opposite is true.  The average foreclosure sold in February at a 4.1% discount off of the list price, while the average non-distressed property sold for a 4.8% discount off of list.  (Those poor foreclosure buyers had to be consent with a measly 31.2% discount in sold price per square foot).

    Fun Fact #2:
    The difference in price between the two markets seems to be “growing”, if the current batch of active listings is any indication.  In February, the difference in sold price between the non-distressed homes and the foreclosures was 31.2%.  In active inventory, on the other hand, the difference in list price per square foot for the two markets is 38.1%.

    Fun Fact #3
    Foreclosures and non-distressed properties that sold spent about the same amount of time on the market — 65 days for foreclosures versus 69 days for non-distressed sales.  Average days on market for active listings show a bigger discrepancy, at 72 days on market for the foreclosures versus 96 for the non-foreclosures.  (This is related to fun fact #2 if you think about it — banks are more willing to cut list prices if the homes just sit there).

    Sacramento Area Foreclosures, Short Sales, Condos, etc. etc.

    We’ve updated our listings database.  It was getting pretty long in the tooth there.

    Most people who are users of our web site(s) probably don’t know it, but many of our web sites including this one, our Roseville real estate site and our Elite Properties company site actually rely on two different databases of listings.  When you use our search page, for example, you’re using a listings database that’s our IDX company gets from our Metrolist database.  These listings are updated daily, so when you do a search, you’re looking at listings that are within twenty-four hours of being as current as the ones that we as Realtors® can look at..

    In addition to the search tools that our IDX company provides, however, we also wanted to allow you to browse for certain types of listings.  One thing our IDX system doesn’t do, for example, is show you short sales and foreclosures.  Because we don’t have direct access to the database our IDX company uses, we’ve created a second database that we can use in various ways.

    For example, our foreclosure search page lets you search for foreclosures and short sales, or browse them by county.  Similarly our new homes section let’s you see homes that have just been built that are listed in the MLS, and our condo pages contain links to condos grouped by price and county.

    As we mentioned above, we’ve also used this database on some of our other sites.  Many clients find us through our the maps of listings by zip code that we maintain on our company site.  These maps include zip codes in El Dorado County, Placer County, and Sacramento County.  Within each zip code you can find active listings and get recent market data.  We publish similar data for Placer County only on our Roseville site.

    Unlike our IDX system, which is updated automatically on a daily basis, these other resources are updated manually as time permits.

    We realize that from a software perspective, that’s not the brightest way to do it.  But if you’ve ever tried to get someone from Metrolist to call you back about a data feed, you probably have a good idea that it’s not half-dumb from an organizational perspective.

    The good news is, it’s up to date now.  So as my wife is fond of saying, “Get your red hot houses here!”

    Enjoy.

    How Much are Sacramento County Short Sales / Bank Foreclosures Discounted?

    I took a few minutes today to look at the discounts for short sales and foreclosures based simply on list prices.  In other words — how much are they discounted before you negotiate with the seller? 

    Foreclosures may have a little more negotiating room between list price and sale price, but not as much as you may think.  The reason is that homes that are priced well to begin with tend to get more competition, so even in the case of bank owned foreclosures, buyers typically only negotiate something between 5-6% off the list price for foreclosures, as compared to about 4% for all sales.

    The real bulk of the discounts for foreclosures and short sales already appears in the MLS.

    So with that, let’s look at the results.  How much are foreclosures and short sales discounted in Sacramento County?

    In active inventory, the list price for non-distressed sales are currently averaging $228.62 per square foot.  Short sales are discounted, on average, 27.8%, with the average list price for short sales being $165.00 per square foot.  Foreclosures are discounted even more — 36% compared to non-distressed sales — with the average REO in Sacramento County currently listed at $146.19 per square foot.

    One caveat, however.  If you look at short sales and foreclosures on a neighborhood by neighborhood basis, you generally see foreclosures still having better discounts than short sales — but the overall magnitude of the discounts are somewhat less than they are when you look at the entire county.  This is because part of the 27.8% and 36% numbers reported above reflects the fact that in many cases more expensive areas also have fewer foreclosures. 

    In Antelope, for example, Short Sales are currently listed at a discount of 26.3%, and foreclosures are currently discounted 30%, from their non-distressed counterparts.

    “Only” 30% off?  That’s still not bad!

    How To Ruin Your Credit And End Up In Foreclosure in Ten Easy Steps

    I’ve been thinking about all the news about foreclosures.  I work here in the greater Sacramento area.  Though I live in El Dorado County, which (along with Placer County) has experienced relatively few foreclosures, Sacramento County currently has more than fifty per-cent short sales and foreclosures in inventory.  Now granted, that’s not necessarily a huge number compared to all the homes in the area, since obviously being in financial trouble triggers a sale — most folks who own homes aren’t in foreclosure, and aren’t selling at any given time.  Still, it’s enough to get my attention.

    A caricature of Realtors® is that we’re always pushing home ownership on unsuspecting victims.  I think the general consensus lies somewhere between the idea that we have hypnotic powers of persuasion to lure our victims into contracts they don’t want (much like the famous Hypnotoad, shown at right) or — less charitably — that we hit people over the head with shovels to get them into our cars, then take it from there.

    Those Educated Internet Buyers – What’s a Poor Hypnotoad to Do?

    Unfortunately, your standard Jedi / Hypnotoad mind tricks only work on the weak minded.  Most people I meet here on the Internet have too many information resources at their disposal to be an easy mark for these unscrupulous amphibians.  That’s probably why none of my buyers has (to my knowledge) ended up in foreclosure yet. 

    Still, there may be some of you out there who are just itching to do it, so for those of you with a real hankering to financially self destruct, here are . . .

    Ten Easy Steps to Foreclosure

    1. State your income. 
      You may have heard that stated income loans are for the self-employed.  Don’t you believe it!  Full doc loans are harder to do so your lender doesn’t like them, and I know you want things to go smoothly for your lender out of gratitude for the wonderful loan he’s getting you, right?  And you don’t mind paying the extra half point or so to go stated, do you?  While you’re at it, forget about the fact that overstating your income is loan fraud, a federal crime.  A smart buyer like you isn’t afraid of some wimps at the FBI, are you?  The more you say you make, the nicer house you can get.  That’s why they call them “liars’ loans”, after all.
    2. Don’t Pay To Run Your Own Credit – Your Lender Will Do It FREE!
      Here’s the thing.  If you run your own credit, you might conceivably talk one or more loan officers into checking into different loan programs for you.  That’s not good.  This might educate you as a consumer, and you might find eventually bump into a lender who’ll explain things to you.  Learning is the first step on the road to making stupid loan payments on a conservative loan package.  How are you going to get foreclosed on if you make loan payments?  Huh?  Plus, running your own credit doesn’t count as an inquiry, and your loan officer is counting on you worrying about making multiple inquiries, so letting them do it free for you locks you in quite nicely, doesn’t it?  So stay away from sites like MyFico.com.  I’m not even going to link to them because you’ll only end up running your credit and getting confused.
    3. If your lender tells you you can afford the house, you can afford the house.
      Although most knowledgeable foreclosure-philes generally frown on talking to more than one lender because one or more of them might turn out to be ethical, one thing you should do is get as many opinions as you can about how much house you can afford, and go with the highest amount.  You’ll get a much nicer house that way.  If someone in your family has a calculator or spreadsheet or other budgeting tool and suggests a lower amount, you should argue with her until you get the most house that that nice lender said you could.  In fact, you should probably be looking at homes that cost more than that, because you can always talk the seller down.   And maybe you’ll see something you like even better that way.
    4. Always remember:  your lender can refinance you later.
      Remember, the market’s going up! Up!  Up!  Sure, it’s going down now, but it’s going up in a few minutes.  (I think I heard it’ll be fine by Wednesday.)  The reason you don’t need to figure out a conservative loan that you can live with is that the market’s going up, and if you refinance later you can buy more house now!  Wasn’t it nice of that nice lender to tell you that you could refinance later?  He must really be trying to help you by offering to do that extra loan for you.  That stupid lender who said you could afford less house was only going to do one loan, and didn’t even offer to refinance you later.  He must just be lazy.
    5. Refinance early, refinance often.
      Now that you have a really killer house, do you really still want to be seen driving that old broken down car of yours?  You have this great big garage, and all you’ve got to show for it is a five year old import.  You have some equity now.  Don’t you deserve a Hummer?  Besides, your equity’s not doing you any good unless you put it to use.  You’ve already by now picked out a hard working lender who generously doesn’t mind refinancing you, so go for the gusto!  You only live once.
    6. Remember, the market will go UP!
      And of course, it’ll go up just in time!  So you don’t need a conservative loan.  In fact, come to think of it, hopefully you bought when the market was going up.  You don’t want to buy when prices are low, because good heavens, they may get lower (and what would your friends say to that).  Plus, if the market’s going down, the best way to pay for your house is with some kind of boring loan, and you won’t be able to refinance or get yourself a Hummer.  If you learn how to get foreclosed on, you can buy high when homes are popular, and then you won’t have to sell low, because the nice people at the bank will sell it for you.
    7. If you can afford the lowest payment, you can afford the house.
      One of the great financial instruments of the twentieth century was the Option Arm, or “Pick-a-Pay” loan.  You may have heard that they’re appropriate for the self employed too, or for people whose cash flow varies.  But you’re not going to believe that either, are you?  (See “State Your Income”).  With a pick-a-pay loan, you get to pay either a lot of money on the loan, or just a little bit of money on the loan.  You’re not going to be a chump and pick the fully amortized 15 or 30-year fixed payment, are you?  That payment will be huge!  You won’t be able to buy as much house that way!  You might have to settle for a lousy older home or condo or rent for a few more years while you save.  Through the miracle of Negative Amortization, you can own the big brand new mansion you really want now!
    8. Never mind what negative amortization means.
      You don’t need to know what negative amortization means.  “Negative” and “mort” — anything that sounds THAT depressing isn’t something an upbeat mansion-owner like you should spend time on.  You shouldn’t worry about it anyway, because the amount of negative amortization on the loan is limited, and you’ll still have the loan when you hit the limit.  I want you all to stop worrying about negative amortization right now, and never, ever, ever, look it up.  Also while you’re not looking things up, don’t look up what happens when you hit the limit.
    9. The best thing to do with a document you don’t understand is sign it.
      The quicker you sign, the quicker you’ll get the keys to your new house!  Do you want to move in and throw a party for your friends, or do you want to waste your life reading and asking philosophical questions?
    10. While we’re on the subject of reading…
      There are books on Amazon.com and lots of great consumer web sites that talk about loan programs, managing money, etc., but hopefully by now you’ve learned enough about ruining your credit to avoid all that highbrow academic stuff and get down to the real fun of shopping for the absolute most house you can afford, with a big garage for your new SUV!  Besides, reading makes you sleepy.

    (This shouldn’t be necessary, but here it is:  You should be afraid of the FBI, and loan fraud is a serious crime.  This article is meant to be humorous and tongue in cheek only, and instructive only in a reverse-psychology sort of way).