Sacramento Real Estate Blog

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!

The numbers are in for November.  As we get into what’s usually a slow time of year, unit volume is continuing to rise slowly from September and October, with 809 units selling as against October’s 803 and September’s rather bleak 709 units.  Buyers are beginning to take advantage of the bargains offered by short sales and REOs (bank foreclosures) in inventory, which collectively account for just over 50% of active listings (REOs make up 24%, while short sales comprise 26.5% of inventory).

The average home sold for $323,772 in November, down 15.2% from last November’s average of $381,666.  Average sold price per square foot is off 16.6% from a year ago, at 188.35% versus last year’s $225.97.  The median sale price in November was $293,000, down 15.1% from last November’s median of $345,000.  Unit volume is off 25.7% compared to last year, but as we mentioned earlier, is strong compared to recent months.

There are 11.21 months of unsold inventory at present in Sacramento County, down from last month’s figure of 11.61 months.

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).

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.

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.

Trick or treat.

As I prepare my report on Sacramento County’s real estate market for October, 2007, I recall  my happy youth watching The Flintstones.  You remember Fred and the gang.  From the town of bedrock, he’s a page right out of history.

One great cartoon gag from the the Flintstones — though surely it has roots all the way back to the Manichean cartoons of the third century — were the Fred Flintstone as devil / Fred Flintstone as angel that would sometimes perch on Fred’s shoulders, whispering instructions.

Sometimes Gazoo would whisper the instructions.

Bloggers, Find Your Voice (From Among Those You Hear in Your Head)

In my case it’s the eternal angelic optimist, Purva Brown, on one shoulder versus the pitchfork-armed bubblers on the other.

Bubbler pokes me with pitchfork:  In terms of unit volume, October was the second worst month in recorded MLS memory.   803 units sold in Sacramento County in October.

Purva flaps angel wings:   C’mon, John, that MLS data only goes back to October, 2004, so all you have to compare it to are good times.  Plus, October’s volume was an increase of  11.7% over September!  Look on the bright side, will you.

OK, you two.  Behave.  Fight it out between yourselves.  Let my shoulders be your last battleground.

The Rest of the Numbers

The median price of a home in Sacramento has fallen to $300,000 in October, down 14.3% from last October’s median of $349,900, and 24.9% from their peak of $399,499 of November, 2005.  Average sold price per square foot was approximately $189.32 in October, down 18.2% from last October’s $231.23, and down 25.5% from the peak of $254.10 (September, 2005).  (Purva:  That’s not fair, John — you keep making the houses lose 1/4 of the value by picking high peak values from different months.  What are you, some kind of bubble blogger now? ).  The average home sold for $327,719 in Sacramento County in October, down 14.9% from last year’s average of $385,233.

Recently we reported that about a quarter of the homes selling in Sacramento County were foreclosures (REOs).  The numbers have now risen to slightly more than one third.  More precisely, of the 803 units that sold in October, 285 (35.5%) were REOs.  Now you bubblers might think you could get an even 50% if you throw in the short sales, but you can’t, because only 31 short sales sold during this period, so the overall total ends up being about 39.4%.

Inventory is 11.61 months for Sacramento County overall.

For some time now, we’ve had a Sacramento Foreclosures section where you could browse for Bank Owned Properties or Short Sales by county in El Dorado, Placer, and Sacramento County.

We’ve now added a Foreclosure Search Form to make it a little easier to:

• Select only in the areas you’re interested in, across all three counties.
• Narrow your selections by price range.

We’ve kept it really simple, but hopefully this basic functionality makes things a bit easier.  Please give it a try and let me know if you run into any problems!

The real estate market for Sacramento for September, 2007 was the slowest we’ve seen since the MLS data begins in August, with 730 units (down 41.3% from last September’s volume of 1244 units).  By itself, this is fairly depressing, but fortunately we have somewhat better news in that 1314 units are pending sale, so it’s possible the unit volume will pick up some for October.

In terms of price, this year’s average home sold in Sacramento County for $342,640, 12.4% less than last September’s average of $391,165.  Sold price per square foot declined more, 14.2%, from $235.08 on average last year to $201.79 on average this year.  The median price fell 12.1%, from $353,750 last year to $311,000 this year.

The total number of expired listings was down slightly this September, but because of the sharp drop in unit volume, the expired to sold ratio stood at 153.6% in September, as opposed to 96.2% a year earlier.

Bank owned properties, making up just over 25% of sales in August, accounted for 26.2% of sales in September (i.e., 191 of the 730 units sold).

There are currently 11.4 months of unsold inventory in Sacramento County.

We’ve improved our Sacramento Foreclosures portion of the site this morning with two enhancements.  First, if you scroll past the foreclosure listings offer, you’ll be rewarded with a set of foreclosure “Frequently Asked Questions”.  Actually, to be perfectly frank, I think the best questions here are the ones that aren’t frequently asked — and that may keep some people from ignoring the real opportunity that buying a foreclosure represents.  We’ve tried to answer those as well.

The second improvement is that we’ve now added Placer County and El Dorado County to the areas where you can browse short sales and bank owned foreclosures.  Those links are all available from the main foreclosure page, but for your convenience, here they are again:

Bank Owned Properties:

El Dorado County

Placer County

Sacramento County

Short Sales:

El Dorado County

Placer County

Sacramento County

The table below shows the bank owned properties that are currently listed in the MLS for Sacramento County, sorted by the area with the most foreclosures first. All of these have already been foreclosed on by the bank and we can assist you with the purchase of any of these homes. The average price for these real estate owned properties is given in the last column.

We will have listings available on the web site soon!

Residential real estate sales in Sacramento County in August were sluggish compared to a year ago at the same time, with a noteworthy number of the sales being made up of bank owned properties. The average home that sold in Sacramento County in August was a 1717 square foot home that listed for $374,731 and sold for $364,256, or just over 97% of list price. The average sale price was down 11% from last year’s average sale price of $409,081. At $325,000, this August’s median sale price was down 12.2% from last August’s median of $370,000. Sold price per square foot was down 12.7%, from $242.92 last year to $212.15 this year.

Unit volume was down 30.4% from last year. Last August, 1216 units sold, while this August, the number had dropped to 846. The expired to sold ratio rose from 77.2% to 106.3% — i.e., more homes expired in August than sold.

All around, August wasn’t a great month.

In my opinion, the real story that stands out in August is the number of foreclosures. Last August less than one per cent of the homes that sold were REOs (”Real Estate Owned”, i.e., bank owned properties). This August that number has risen to 25.3%.

Bank owned properties are selling faster than non-bank-owned. Though REOs made up 25.3% of August’s sales, they comprise 16.2% of active inventory. So clearly they’re outselling non-REO properties, even though they’re often sold as is.

There’s a good reason for this, of course: price. Recall our average sold price per square foot in August: $212.15. If we break that down between REOs and non-REOs, we get $177.10 for the bank owned properties and $222.49 for the properties that are not bank owned.

The difference in price between REOs and non-REOs works out to something just over a 20% discount.

We have more of them.

Let’s go shopping.