Sacramento Real Estate Blog

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Are Short Sales Fake Listings?  Part 1

Are Short Sales Fake Listings?  Part 2

Part 3 of our series “Are Short Sales Fake Listings” deals with the problems that buyers encounter because short sales are fake listings and the steps that buyers can take to find listings that are not short sales.

How This Works Out for Buyers

Buyers often feel like they should spend some time looking at Short Sales.  They’re often tempted by the low prices into ignoring the fact that these listings hardly ever close successfully.  Sometimes buyers hear about the long closing time (3 months and more to get the offer accepted in many cases, plus another month to close) and feel that they may not be in such a hurry so the long time frame may work.

What buyers often don’t realize, however, is that there’s a big difference between waiting three months for something good to happen that you know is coming, and waiting three months while having no earthly idea of what’s going on with your offer.

So what happens?

Rarely, the best case happens, and a buyer who was interested in a short sale gets their offer approved by the lender and is still interested in the property when it’s ready to close four months later.   Unfortunately this intermittent reinforcement leads more buyers and sellers to hope that maybe they’ll be the next American Idol winner.  (Intermittent reinforcement is also the principle behind the lottery and Russian roulette).

The most common case is one we see happen time and time and time again.  The buyers who were excited about their offer and thought that they’d be happy to wait end up frustrated as can be, while the unresponsive lender drags his feet for months and months.  Most people overestimate their own patience because they haven’t met loan workout managers, who are the undisputed masters at testing peoples’ patience.

In the worst case, as we point out above, the buyers wait patiently as detailed above.  Finally, their offer approved, they go through the inspection process and get their loan ready, but then the lender pulls the rug out at the last minute.  So these buyers - who’ve told their landlords they’re leaving — find their patience rewarded by being out of pocket by about $800 or $900 for inspections and appraisals.  All dressed up with no place to go.

How Can Buyers Get Listings That Don’t Have Short Sales?

Most real estate web sites are fed by the Multiple Listing Service, or MLS.  Unfortunately, web site providers don’t always give us the option of weeding out the short sales from the general listings.

Here, however, are three ways that you can filter out the short sales and only get the real listings, those that have a good chance of closing in the face of a reasonable offer.

1. Use our foreclosures only search page
   http://www.sacramento-home.com/foreclosures/
   The properties listed here include only bank owned foreclosures, and not short sales or non-distressed sales.  Bank owned foreclosures are enormously popular, because the low prices are just as real as they are on short sales, but bank foreclosures actually sell and close escrow!  (See the table on page
2. Checking if a listing is a short sale
   Our main search pages do not allow you to exclude Short Sales (unfortunately), but you can test to see if a given listing is a short sale by re-running your search and including only short sales.  The advanced options feature of the search page (see detail, below) allows you to do this.  To search only short sales, check the Short Sale box.  As you can see, you can also do a foreclosures only search here by checking the REO box only.
   
    
3. Ask your agent. 
   We’re always happy to do any custom search for you from the MLS, and we can set up you up for custom email updates excluding the short sales (and using almost any other search parameters you can think of).  Just give us a call at (877) 735-5657, and let your agent know that you want to get all the listings (for whatever area, size, etc. you’re interested in) except the short sales.

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Are Short Sales Fake Listings?  Part 1

Why Short Sales Don’t Sell

Imagine a banker foreclosing on people.  Did you picture in your mind a damsel tied to railroad tracks and a guy in a black hat twirling his moustache? 

That’s just about right.

The Lender’s Stake in a Short Sale

Frank Llosa brilliantly documents two games that lenders will play when asked to accept a short sale.

Game #1 - Drag Your Feet and Continue Making Money
Tell the owner that you’ll accept their short sale, as long as they keep making payments.  This way you continue to get paid whatever the mortgage was or whatever you allow the buyer to negotiate.  The longer you drag your feet, the longer you get paid.

Game #2 - Drag Your Feet, Continue Making Money, and Foreclose Anyway
Another reason the lender may not want to accept a short sale is that if there is Private Mortgage Insurance on the loan, they’ll be able to get the loan paid off if they foreclose.  Expecting the bank to “cut its losses” only works if it’s not the case that they can have the loss covered in full if they foreclose and have to cover the loss themselves if they don’t.

While we’re on the subject of foreclosing anyway, don’t think the fact that you (as the buyer of the home) are in contract with the seller will deter the bank from foreclosing.  We even had one buyer who got to the end and had a loan ready to fund, (and yes, this buyer had paid for home inspections and an appraisal out of pocket) when at the last minute the bank decided they’d foreclose anyway.

Buying a Fake Listing?  Then You’ll Need A Fake Agreement.

Do you feel uncomfortable with short sales yet?  Take a look at the following language from the California Association of Realtors® Short Sale Addendum:

“Buyer, Seller, and Brokers do not have any control over whether Short-Sale Lenders will consent to a short sale, or any act, omission, or decision by any Short-Sale Lender in the short-sale process.”  In the next paragraph on buyer and seller costs, this addendum goes on:  “Such costs will be the sole responsibility of the party incurring them, if Short-Sale Lenders do not consent to the transaction or either party cancels pursuant to this agreement.”  [My emphasis both times].

Nice, huh?  You are on the hook for your costs if either party cancels “pursuant to this agreement”, but you just got done “agreeing” that nobody who has anything to do with the agreement can control what the bank’s going to do.

More About Lenders

Even if they don’t play the games we talked about above, think about the position the lender is in, and you’ll realize that lenders are not chomping at the bit to make your short sale work.

In the long run, the threat of foreclosure is the main stick that lenders wield.  It keeps everyone from doing a short sale when they get in trouble or just want to move and can’t afford it.  (It’s not called a MORT-gage for nothing).  Making the short sale process easy and convenient flies directly in the face of the lender’s overall financial interest.

In the short term, if they have short sales and foreclosures on the books, the bank is paying the taxes and other carrying costs on the foreclosures, while the seller is still paying those costs on short sales. To be sure, maybe in many cases the seller isn’t keeping up on these payments either - but at least in this case the costs are deferred to the future.  Foreclosures are bleeding bank funds now, so it stands to reason the bank will spend most if its resources on those.

Not only is a foreclosure a present liability and a short sale a future liability, but there’s still a chance that the lender won’t end up owning the home on a short sale.  The only reason a bank will accept a short sale is that the bank is convinced that the buyer will go through the whole foreclosure process if they don’t and the bank will lose.  Documenting this means spending further resources, but there’s a cheaper way to find out who’ll cure the default and who won’t.  Send everything to foreclosure and only take a bath on the sellers who don’t cure the default.   No wonder that we met with one major lender who told us that their policy was simply not to do short sales and go forward with the foreclosure process.

If Short Sales Are This Bad, Why Do Agents List Them?

There are several reasons that listing agents accept short sales, even though the success rate for such listings is dismal at best.

• Altruism
  Listing agents naturally want to help sellers if they can.  Even though the number of short sales that get approved and close escrow is dismally low, sellers who need to do a short sale may in some cases receive some benefit from the sale in the unlikely event that they’re successful.   It’s hard to say no when a seller is in trouble and asks you for help.
• Business Benefit to the Listing Agent
  Most agents meet buyers primarily through their own listings. (Elite Properties is a bit of an exception, since so many buyers find us through our web sites).  The traditional approach to a successful real estate career is to have well priced listings, because such listings attract buyers.  Having a sign in front of an attractively priced short sale will bring many calls, and there’s a benefit to meeting those buyers even if they end up buying another property from you down the street.  In other words, from a listing agent’s perspective, whether a given listing sells is less important than whether a given listing can generate other business.

To add insult to injury, listing agents know that other buyers and other agents are familiar with how bad short sales are.  So in order to tease buyers into viewing their listings, prices are often dropped below anything that’s at all reasonable for the area, to a point where there’s no chance at all the lender will accept the offer.  We know of one case where a Broker Price Opinion (essentially an appraisal on the basis of which the lender will accept or reject the short sale) was done and the home was worth $350,000.   Nevertheless, it was listed at $330,000, and the agent told us that it was listed that way because she wasn’t getting any showings at $350,000.

Welcome to the world of short sale logic!

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(Please note that I hope this information is intended to be used before you’re in contract, and should not be taken as any sort of inducement to cancel an existing purchase agreement, listing agreement, or other contract you may have.)

It’s no secret that I hate short sales.  As I wrote in Short Sales are Neither Short Nor Sales, I think they’re bad news from a buyer’s perspective.  Furthermore, in Three Things Your Agent Should Tell You About a Short Sale, I shared my belief that they’re often oversold to sellers as false hope as a “way out” of foreclosure.  Though there may be some advantages for the seller, in terms of credit damage most sources I’ve consulted with feel they’re just as bad a foreclosure.

To further point out some of the problems with short sales, I recently write a white paper that I’m making available as a PDF file, The Short Sale Fake Listing Fiasco (How to Avoid a Colossal Waste of Your Time and Money).

Since I think this is important information for buyers to have, I’m also republishing a version of this article beginning today as a blog series.

Buyer Beware — Not Everything That’s Listed Is Really For Sale

With the rising number of foreclosures in recent years, we’ve started to have a real problem with a type of listing that Virginia Real Estate Broker Frank Llosa calls a “Fake Listing” - the Short Sale.  I agree with Frank that that’s just what they are. 

Why do we say short sales are fake listings?  Quite simply, a real listing is one where a qualified buyer can expect that if they made a full priced offer with no other buyers bidding, they would be able to close escrow and own the home. 

Reasonable as it is, this expectation simply doesn’t hold water on a Short Sale.  In Arlington, Virginia, for example, Frank Llosa documented that only 5% of short sale listings successfully sold.  As we’ll see below for one local market, traditional sales outsell short sales by four to one even though they’re much, much more expensive.  (But the good news is that bank foreclosures are listed cheaper than both and sell like crazy!)

If you can’t write a full priced offer on a listing and get your offer accepted with no competition, that’s a fake listing.

What Is A Short Sale?

A short sale is a listing where 1) the proceeds from the sale is less than the value of the loans on the property, and 2) the seller can’t bring in the difference to close, so they’re asking one or more lenders to approve the sale and accept a reduced payoff. 

For example:

$350,000 Amount seller owes to lender(s)
$279,000 Proceeds from sale
________________________________

$71,000 Amount lender is asked to write off.

Why would the lender agree to such a write-off?  Well, in principle the idea is that the lender will lose less by taking a reduced payoff now compared to how much it will cost them to foreclose on the property and sell it that way.

That Sounds Great - A Lot Of Them Should Sell, Right?

Wrong.

To give you an idea about how poorly short sales sell, let’s take one of our local areas that has a lot of listings, Elk Grove, and do a quick case study based on active homes available in early May of 2008 versus those that sold in April.  

Active Listings as of May 7, 2008

As you can see, bank owned properties (also known as foreclosures, REOs, or “bank repos”) listed for slightly less than short sales, but both fell in the range of 62%-65% of the price that non-distressed homes were selling for.  (By non-distressed, we mean a regular sale where the owner owns the home outright or owes little enough so they can pay off the loans). 

Based on the numbers above, for example, a 2000 square foot home might list for $438,840 as a non-distressed sale,  $276,180 as a bank owned property, or $284,740 as a short sale.  Short sales are discounted almost as much as foreclosures, and there are almost twice as many short sales available as bank owned properties.

Based on price and availability, we would expect the number one seller the month before to have been either short sales or bank owned properties, and the number three seller to be non-distressed sales, right?

Let’s look at what we actually find for April.

Listings that Sold in April, 2008 

In Part’s 2 and 3 of this series we’ll discuss why short sales don’t sell and what you can do as a buyer to find listings that aren’t short sales.

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(Please note that I hope this information is intended to be used before you’re in contract, and should not be taken as any sort of inducement to cancel an existing purchase agreement.)

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.

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.

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).

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.

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.

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

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:

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:

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.

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!

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).

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.

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!

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).

Our recent Sacramento Real Estate Year in Review article covered condos as well as other residential types like single family homes and halfplexes.  Today we turn to our attention to condos only, to see how they compare to the general category. 

When I looked at the numbers, the results were surprising given the traditional wisdom that condos are the first to fall in a down market and the last to rise in an up market.

Comparing 2006 to 2007 overall for all of Sacramento County, we find that the average condo sold in 2007 for $236,914, down 6.9% from 2006’s average of $254,370.  2007’s median price for a condo was $218,000, down 7.2% from last year’s median of $235,000.  On a sold price per square foot basis, the average condo’s value fell 10.8% during the same period, from $218.16 in 2006 to $194.51 in 2007.

As we saw for residential units overall, the numbers from December to December were more dramatic than the year to year numbers.  Sacramento County Condo values fell some 18.7% on a sold price per square foot basis from 2006 to 2007.  Though of course that’s a non-trivial drop, it’s somewhat smaller than the sold price per square foot drop of 21.8% from December to December for the residential category generally.

I suspect the traditional wisdom that condos are the big losers in a down market fails to take into effect the slight but real differences in the number of foreclosures on condos.  Among all residential categories, the number of bank owned foreclosures (REOs) sold in December was 47.2% of all sales — for condos that number was 28.1%.  Similarly in active inventory, short sales and REOs make up 55.7% of inventory for all residential units, but 46.4% for condos. 

There are two possible reasons for this.  The more obvious one is that condos are cheaper, so buyers were less overextended and therefore slightly less likely to default.  Another possibility — but I haven’t researched it so I only raise it as a conjecture — is that it’s possible more condos were owner occupied and fewer were purchased as investments. 

Whatever the reason, a slightly lower default rate has helped condos retain their value somewhat better than residential properties generally.

Depending on where you focus your attention, there’s news, there’s good news, and there’s bad news.

We began our look back on Sacramento County real estate in 2007 with a look at the overall “big picture” for the Sacramento County Real Estate Market for the entire year. Later last week, we reported on one area in the county market that’s consistently held it’s value better than others and enjoy’s low inventory and brisk sales, East Sacramento.

This week we turn our attention to an area that may well be the “worst case” in terms of rising inventory and price declines for Sacramento County, Sacramento’s Franklin / Freeport area (95823). I should probably point out before we begin that I have not sampled all the MLS areas, so my sense that Franklin / Freeport may be the worst case comes from the foreclosure numbers. There may be other areas that have fewer foreclosures but more inventory or lower prices, for example.

Franklin’s decline in 2007 has been rapid. Comparing full year numbers first, the average price lost 19.2% of its value from year to year, and dropped 21.1% in terms of sold price per square foot. The median sale price in 2006 was $314,850, in 2007 it fell 20.6% to $250,000. In 2006 one per cent of sales in Franklin were foreclosures. In 2007, that number was 41.6%.

Comparing December of 2007 to December of 2006, we find that by December, the trend of selling more and more foreclosures and deep price drops had continued apace. By the end of 2006 the average sale price was $282,327. A year later the average had fallen 34.9% to $183,914. Another way to say this is that the average home in Franklin lost slightly more than 1/3 of its value in a year. On a sold price per square foot basis, Franklin closed out 2006 at $200.21 per square foot, and had fallen to $126.61 a year later, a decline of 35.8%.

The percentages of short sales and foreclosures available in Franklin / Freeport are staggering. Almost three fourths (73.9%) of inventory in Franklin / Freeport is either a short sale (35.9%) or foreclosure (38.1%). At the same time, if you needed a case study of REOs outselling short sales, Franklin / Freeport is it. Last month no short sales closed, but twenty-five of the twenty-nine closed sales in the area were bank owned properties. That works out to 86.2%, or close to 7/8 of all sales.

The contrast between East Sacramento on the one hand and Franklin / Freeport on the other shows how local real estate markets are. East Sac enjoys less than three months of inventory and a brisk seller’s market where the prices have remained flat while nationwide prices are falling, while Franklin / Freeport currently has almost two years (23.6 months) of inventory, and homes there have lost two thirds of it’s value in a year.

If you’re a buyer or seller, the right question to ask is not “How’s the Market” overall, but “How’s the Market” for your particular area. Is there an area you’re interested in particularly? If so please contact us and we’d be happy to get you specific market data or comparable sales.

One of the best things about selling real estate is that it’s constantly changing and it forces me to keep up with everything that is different about it.

So much so that I’m going to have to eat my words.

I’ve always maintained that bank-owned homes are the cheapest priced houses in any area. However, I was out in Antelope the other day and was surprised to see that the brokers listing short sales are catching the pricing bug.

Short sales in the Antelope area are now priced more competitively than bank-owned homes. Of course, as always happens with short sales (unless they are already approved by the bank, which is rare), they have to go through the process of getting approved by the seller’s lender, so the listing price is not by any means the selling price, which is more the case with REOs.

Also read Can You Actually Buy a Short Sale?

So much of the heat (and not light) that’s shed on real estate market writing contains the implicit assumption that falling prices are bad.

Are falling prices bad? Well, they are if you have no choice but to sell now, and you owe more than you own.

Falling prices are also bad if you’re buying and your position is such that you’ll have to sell while prices are still falling.

For everyone else, falling prices are much less of a catastrophe than melting ice caps, because we’re likely to see the situation turn around in a relatively short term.

Falling prices are actually good if you want an investment 1) that you can afford and 2) that provides positive cash flow.

For the longest time, I didn’t see too many properties that penciled out positive in Sacramento County. Today I stubbed my toe on a condo that seemed offhand to pencil out so well that I threw some conservative numbers such as a 25% vacancy rate at it, and I still ended up $5 per month in the black.

There’s probably an improvement of $100 per month that one could make in the vacancy rate, and you can take out the $85 per month in management fees if you want to rent it out yourself. The other thing that’s conservative about this analysis is that this is based on the list price of the home. On the flip side one should inquire about utilities and factor in an estimate for maintenance.

Granted, five bucks is not a lot of money. But lots of folks who bought when it was “a good time” because prices were going up were happy enough to be upside down by hundreds of dollars. (Like the seller of this condo — which is now bank owned? Could be!)

In movies, 2007 was the year of the threequel.  Sensibly enough, Beyonce Knowles was the year’s most desirable woman (I’ve been saying that since 2006, at least).  Al Gore won the Nobel Peace Prize, while the arctic ice cap melted at an alarming rate.

In Sacramento real estate, I’ll remember 2007 as the year when those of us who entered the business early in the decade learned the mechanics of selling short sales and foreclosures. 2007 was the year of the foreclosure in Sacramento County. 

This chart shows the number of foreclosures sold month by month through November of 2007 in blue.  The short sales are shown in pink.

Short Sale “Time Lag”?

About a month ago, a reader responded to my post about the dismally low closing rate for short sales by remarking that my analysis failed to account for the fact that short sales take longer than foreclosures to sell.

The chart above does not show short sales lagging behind foreclosures by the 1-3 months it takes to sell them.  It shows a steady increase in the number of REOs sold.  REOs broke the 10% barrier in April, and short sales have yet to rise above 6%.  The longest short sale I’ve done took four months — sometimes we can close them in 30-60 days.  If short sales were lagging four months behind, not just failing to close, there should be at least 18% of them closing every month by now.

Another problem with this argument is this.  Yes, short sales take longer, but the short sale step also happens before the bank owns the property.  So these sales take longer, but they also start earlier, so the longer sale should be a wash, and clearly the numbers above show that it isn’t.

The one and only Sacramento Real Estate Gal, Purva Brown, recently called my attention to some really important information for buyers about short sales — their abysmal closing rate.

Many readers of the blog will no doubt already know that a short sale is a sale where the seller has insufficient funds to pay off the loan(s) on the property, and has asked the lender to allow the sale to continue but approve a reduced pay-off instead of going through foreclosure.  Like homes that are already owned by the bank (REOs), short sales are often discounted compared to other homes.

Unlike REO’s — however — there’s a problem.  It’s harder to tell exactly where the problem is than it is to tell you the numbers.  In Sacramento County, for example, as of late November, 2007 short sales accounted for 2,890 of the 11,053 active listings — 26.1%.  At the same time, 16.8% of all listings marked pending sale (in escrow but not yet closed) were short sales.  The pending sales data, moreover, may tend to underreport short sales, since many listing agents will continue to list the home as active until the lender has approved the sale — or even beyond this point.  (Indeed, this practice is common enough that it’s become the subject of an MLS rule prohibiting the practice).

OK, so how many of these short sale transactions are closing?  In October, the number was only 3.8% of sales — so far in November, that number has only risen to only 5.3%.

5.3% of sales, versus 16.8% of pending sales.  In other words, two out of every three short sales transactions (or more) fail to close escrow.

Why the low numbers?

• First of all, understand that the lender doesn’t have to approve the transaction.  They can always foreclose.
• Sometimes buyers find out in the process that short sales are not for them.  When it takes a month or two or longer to get a short sale buyer, many’s the buyer (we’ve worked with some) who’ve simply lost patience or couldn’t wait because of their situation.
• I’ve seen cases where short sales were listed where the buyer was not even behind in their payments.  As a buyer, have your agent ask about the status of the seller.  If they’re not behind in payments, and if there’s not an adequate hardship, the chances of the lender approving the transaction trail off to something pretty close to zero.  Chances are that a large percentage of short sales shouldn’t even be listed.

Can you avoid the short sales and still get a bargain property?  Absolutely!  If you focus on the REOs — bank owned foreclosures — you’ll find homes that are typically priced below the short sales and are much easier to own.  When you look at REOs, the number of homes that close compared to the number that are for sale is actually higher, not lower.  For example, it’s not uncommon to see 12% REOs in inventory, but 25% in the sold statistics (about twice as many).

Traditionally, home shopping falls flat during the holidays. We slow down during Halloween and then Thanksgiving comes around and we hit a dead spot. This year however, I think business is going to continue, albeit at a slower pace.

If you’re considering buying a home this winter, count yourself among the lucky ones. Why?

1. Inventory is high - The number of foreclosures make for scary news for sellers because they have to compete with bank-owned homes and you, lucky buyer, have lots of homes to look at to find the perfect one! You can find a complete list of foreclosures in Sacramento county here.

2. There are no recreational sellers out there - During the big real estate boom, a lot of sellers wanted a certain amount for their home before they would sell their home. Today, if a home is on the market, chances are they want to sell and will do whatever it takes to negotiate a sale with you.

3. There are huge discounts in price - There was a time when homes had trouble appraising and hence getting a loan for the home was hard. Today, if you find a great deal, the appraisal might just come in 10% over the price you’re in escrow for. Congratulations - you just “made” 10% of the sales price by just buying the home!

So head out there and let the shopping begin. Remember, you don’t have to restrict yourself to just retail gifts this winter. Housing is selling at wholesale prices!

Sometimes when I read the material on my colleagues’ web sites, I almost get the impression that the idea of doing a short sale — a sale where the lender approves a payoff amount less than the value of the loan — is being promoted to sellers almost as a normal sale.

It’s not.  To be sure, if you simply can’t pay off your mortgage and are facing foreclosure anyway, a short sale may offer some advantages, the most important of which is that it may prevent non-purchase money lenders from getting a deficiency judgement against you (refinance or home equity lines of credit are typically non-purchase money and hence the lender has a deficiency judgement as one option in a foreclosure situation).  But you should also be aware of these facts about a short sale.

You Will Be Asked to Show Hardship, and You Have to Tell the Truth
In order to approve a short sale, a lender has to believe that they’re not going to get their money any other way unless they do, and this typically means that you have to show that you can’t pay for some important reason — sickness, death of a spouse, loss of a job, or the like.  Also, if you’re paying off a $100,000 loan and you have a six figure income and good credit, don’t expect the bank to welcome your request that they take a loss.  So you’re going to have to show a hardship, and be aware:  if you lie, that’s loan fraud.

Short sales will not “Save Your Credit” (At Least Not All of It)
If a Realtor® suggests that you can save your credit with a short sale, run, don’t walk.  There is some debate over how much impact a short sale will have on your credit, and it also depends on how the bank reports it, some of which may be negotiable.  However, in general you should only go through the short sale process as a last resort.   Although a short sale may not impact your credit quite as much as a foreclosure, you should still expect to it to have a strong negative impact on your credit.  Whether it’s “as bad” as a foreclosure or bankruptcy or “almost as bad” depends on who you ask.

Once the Short Sale is Over, You May Owe Taxes
There are two possible tax liabilities to a short sale.  First, if the sale results in a gain in value of the property, you may need to pay capital gains tax, regardless of the value of the notes involved.  Secondly, if the lender accepts less than full payment, the difference may be reported to the IRS as taxable income to you.

One of the principles we’ve stressed over and over again here is that real estate is a very local phenomenon.  For example, we’ve written several articles on East Sacramento, showing that while the rest of the county has suffered from falling prices and high inventory, East Sacramento has continued to enjoy a prosperous seller’s market.

Of course, if real estate is largely local, and there are communities that are “winners”, at the other end of the spectrum there are also communities that have suffered the most during the market downturn.  The Franklin / Freeport area in South Sacramento (95832) is the area in Sacramento County that’s been hardest hit by foreclosures, so it’s no surprise that this area has also suffered greatly from rapidly declining prices and huge inventory surpluses.

The extent of the foreclosure problem in Franklin / Freeport is staggering.  In October, five of the six homes that sold were bank foreclosures — 83.3%.  In active inventory, the numbers are not much better.  REOs account for 41.8% of active inventory, and short sales account for another 26.8% — add them up and you get just over two thirds of all homes currently for sale in this area are either owned by a bank or about to be.

With that many foreclosures flooding the market, the rest of the numbers are none-too-friendly if you’re a seller in this area.  The sold price per square foot ratio has fallen 39% from October to October.  The median price has fallen from $356,000 last October to $200,000 this October, a sobering 43.8%. 

Admittedly, some of this is a trick of an extremely small sample size.  When we look at sales for the first ten months of the year in 2006 versus 2007 we get what’s probably a more accurate picture.   Still, even there we find a median drop of 19.1%, from $312,000 last year to $252,500 this year.

We’ve just updated the listing database that feed the specialized areas of our web site for foreclosures, new homes, and condos.

For some time now we’ve made available the number of active foreclosures by area in Sacramento County, but one thing I didn’t like about that list is that it only gives you raw numbers of foreclosures available, so naturally this is going to tend to show more foreclosures for areas where there are just more homes. 

To give you a better idea of what the actual percentages are, I’ve put together the following table, which shows the percentages of bank-owned foreclosures in active inventory for different areas in Sacramento County.  In other words, barring any possible data import errors, this is a rough guide to the number of unsold foreclosures as a percentage of all unsold homes for these areas in Sacramento County.

Every time I get asked how business is this year, I have to add that I have actually turned away quite a bit of it. This surprises people. The fact is, there are so many houses in foreclosure, sometimes you really have to talk to clients and tell them that if you don’t have to sell your home right now, do not put in on the market. Hang on to it for a little while longer, if you can.

The sad part is some of them cannot. So what should you do if your home is in foreclosure or headed there?

For the first part, call the mortgage company. Don’t ignore the late notices - that is worst thing you can do. If there is no communication between them and you, the mortgage company has no choice but to foreclose. At the first sign that you sense financial distress, call the mortgage company and ask them if they would be willing to rewrite your loan, or restructure your loan.

They just might. Banks don’t really want your home unless you leave them no choice.

If that doesn’t work, call a Realtor for a potential short sale. More on that tomorrow. Today, call the mortgage company.

Purva recently wrote some excellent advice for home sellers in Natomas, and nearby Antelope home sellers.  Based on October’s real estate statistics, I would suggest that nearby Antelope sellers also need to seriously consider how competitive their home is compared to the many foreclosures that are on the market.

In October, bank owned foreclosures (also called REOs for “real estate owned”) accounted for fully 47.5% of sales in Antelope (95843).   In October of 2006, none of the forty-six homes that sold were REOs.  In October of 2007, forty units sold and nineteen of them were REOs (hence 47.5%).  As in other areas, foreclosures outsold non-foreclosed properties by almost two to one.  Even though they accounted for just under half of sales, REOs constitute just over one quarter (25.7%) of the inventory.

Moreover, Antelope is no exception to the general rule we’ve that the more foreclosures there are in an area, the more prices tend to plummet.  The median sale price in Antelope dropped 20.6% in October from the previous year, from $350,750 last year to $278,350 this year.  The average sale price dropped 23.6% during this time, from $360,437 last October to $275,350 this October.  Average sold price per square foot dropped off somewhat less, since this year’s average home was somewhat smaller.   The decline in price per square foot was 18.8%, from $206.44 last year to $167.69 last year.

Currently Antelope has 12.03 months of inventory.

But Aren’t Foreclosed Properties Sold “As-Is?”  Why Are They So Popular?

That one’s easy.  Looking at what’s currently on the market in Antelope, here’s how the sold prices per square feet break down:

REO’s are listed on average for $163.19 per square foot.

Non-REOs are listed on average for $183.49 per square foot.

On a 1650 square foot home (which is about average), the difference in price works out, rounding off a bit, to $269,000 versus $303,000.  $34,000.  Ten per cent.

Buyers aren’t stupid.  $34,000 buys a lot of paint and carpet.

If you are a private individual seller anywhere in the 95835 (Natomas) area, my heart goes out to you. I’ve been working with a client looking for homes in the area and in spite of having gone out to look at homes over three times this month, all we’ve seen are bank foreclosures and new home builders. There was a total of one home that fit the client’s criteria which was being sold by a private party, that is, not a bank or a home builder. It was not, however, on the client’s short list.

It’s not that I cherry-picked the bank-owned homes, it’s just that the prices are so much more competitive. These are well-maintained, upgraded homes with granite counters, hardwood floors and wonderful landscaping - 3 bedrooms, 2 baths and two stories priced at around $300,000. They don’t discount the fees of the co-operating broker and are easy to show because they are vacant. The buyer can look at the home without feeling like he is invading someone’s space. Compare that with the private sellers’ homes where you almost always have to call and make an appointment, the seller’s things are lying around, personal tastes get in the way of a buying experience and to add to that, the homes are priced higher than the bank-owned homes.

So if you’re a seller, keep in mind the stiff competition. Do everything you can to make sure the home is easy to show and looks fabulous at all times. This might include staging the home, lighting candles to make sure it smells divine (candles that smell like cookies are best!) and, of course, PRICE IT RIGHT. You have competition from banks and builders, so make sure your Realtor shows you those prices as well. A premium fee to the co-operating broker also does not hurt.

If your competition is doing it, you should try and overreach to get your home sold.

A colleague of mine recently published an article critical of foreclosure auctions, saying that the tendency of buyers is to overpay at them, and banks know this.  I don’t have any data on that to report one way or another, but whether you love them or hate them, Hudson and Marshall are holding another Sacramento Foreclosure Auction on Sunday, November 18th at 1:00 PM at the Radisson Hotel at 500 Leisure Lane in Sacramento.

You can also bid on properties online before the auction.  (Legal disclaimer:  I’m not advising you to do that or saying you’re going to get a “good deal” or anything of the kind  — right now I’m wearing my blogger hat, and I’m not your agent.)

On the other hand, if you’d like to secure an agent to help you identify which of these properties are good ones, preview them, and assist you with the bidding process so 1) you don’t overpay and 2) you have your own agent rather than the bank’s agent to help you with the inspections and paperwork, give me a call at (530) 672-9160 and I’d be happy to help you with it as a buyer’s agent.

Even if you don’t hire us to work on it, I’m thinking I might go to the auction and report back.  Maybe I can get Purva to go as well, but she may have family coming to town.

Foreclosure auction party?

Some people will take any excuse to throw  a party.

Let’s hope there will be dip.  I like dip.

I’ve made some improvements and bug fixes to the Sacramento Foreclosure Search Page, and moved the search tool to the main page of the foreclosure section.

I want to thank Daniel Kenna for his excellent suggestions, and I’ve implemented some of those.  Along the way I found a lot of bugs, too, which I’ve tried to fix.  If you see any others, please let me know!

In making the change to the main foreclosure page I did something that my colleagues would probably find counter-intuitive:  I took a lead generating form down and replaced it with a free search tool.  

However, if my experience on the rest of the site is any guide, free search is the way to go.  In the first place, over and over again buyers have told me that they called me because they liked the registration free search tools.  In the second place, I’ve noticed that when I do put up a lead generation form for email updates of foreclosure listings or the like, I get to spend a lot of time working with folks who haven’t yet used the search tool enough to be ready to do anything.

Anyway, give it a whirl and let me know if you see any problems.