True Sales Or A Gimmick?
Readers suggested a topic on housing sales tactics. “I’ve noticed over the last few weeks that more housing sales on Redfin.com carry a pending sale (Monterey, Salinas, PG, etc). Are these true sales or is this a RE gimmick to scare fence setters to jump into the market? Certain neighborhoods have an appeal for some of the locals and pricing has come down, but some of the better houses in these neighborhoods are sitting idle while the poorer quality ones are pending.”
“We are still talking the range of $300K to $500K, built in 1930’s to the 50’s and not updated and need roofing. Perhaps it is the result of the lowering of mortgage rates and/or people tired of low bank CD rates jumping into RE hoping to score big. I’ve noticed a lot of grey haired types looking at housing in Monterey, PG and Carmel with no garage, flights of stairs, and high maintenance. Surely they are not planning to move into these properties!”
“The other type of property with pending is rural on 1 acre or more in brush/fire potential areas. Water rates are rising, maintenance costs are going to be high and most of the areas are gated with fees. Yet housing at $400K to $500K are listed as pending. These are not houses you could find renters for.”
A reply, “Redfin changed their default to ‘active/under contract/pending.’ It use to default to ‘active’ only. They discuss it in their forums, and most people didn’t fall for or appreciate the trick. In respect to short sales and REO’s (foreclosures), does anyone here know what the banks are targeting as a recovery rate? Recovery rate as in short sale sold price vs. loan (or REO extend and pretend) price. I was wondering how low the % is at this time?”
Another said, “One house we looked at our realtor told us had 3 offers already on it although all low. We went into the house and said to each other later we wouldn’t possibly buy it for anything more than what those numbers reportedly were. Sellers/realtors are still pretty unrealistic at recognizing just how much deterioration they’re insisting their new buyers should just take on while still paying the higher price. That was a few months ago and the house is still sitting despite a few minor reductions.”
One added, “I’m see more pendings than usual. I tend not to trust it because these usually disappear for X months and then get relisted as a new listing. Until the Housing Crime Syndicate is dealt a blow, I remain skeptical of any trend.”
One asked, “Mortgage Interest rates are the driver right now… Which, then, compels the question, what happens when interest rates rise significantly OR tax policy changes in a negative way for housing OR both..??”
We have been seriously looking in the Orlando area for about 2 months, having rented for 6 years. We looked mainly at foreclosures/FNMA properties as I realize there is more price-reduction to com. Short story: Prices are still unrealistically high and many realtors are still blatently incompetent. One came to unlock a house and wouldn’t provide info on the septic system until we decided whether he was going to get both sides of the commission. Another showed a house that needed a LOT of elbow grease and effort (still had tenants) but had all of the features we wanted. We made an offer and he submitted a contract for us to sign that was exactly $100,000 higher than the offer. No $hit. When I called him on it, he said “Oops”. Then he balked at asking for the shutters, major appliances and the water softener in the contract. Said they were not included in the price and asking might “queer the deal”. We declined to submit the offer.
These experiences caused me to (again) re-evaluate my reasoning and resolve to continue renting or buy. Having read this (http://finance.yahoo.com/news/Mortgage-default-warnings-apf-157937671.html?x=0) and done some more research I’m leaning back towards renting for a couple more years to see what shakes out. With 600,000 REO now, but 10x that many in the pipeline, the potential for a substantial decline or even a precipitous drop seems to be huge.
‘he balked at asking for the shutters, major appliances and the water softener in the contract. Said they were not included in the price’
Was this a foreclosure? If it was, I haven’t seen the lenders make repairs on request. What they do is get bids for the items and cut the price. Of course, that’s if they don’t think they can get more from someone else.
It’s important to be aware of who you are dealing with. The end of the road for REO ownership is usually (but not always!) Fannie, Freddie or HUD (rare exception: FDIC). If you are negotiating with BOA, for example, and they have an out with these other three, they can always pass the house off later and therefore aren’t as willing to deal. And they won’t put much into the house repair-wise for the same reason.
Kind of ironic that it is taxpayer-funded zombies who get to take possession of REO and try to sell it back to taxpayers, no?
Isn’t that the way it was planned?
Thanks for the responses, all! Ben, it was an REO, a FNMA property that they’d had on the market for a year. Its discouraging to keep waiting and looking and waiting and… I know we’ll need to kiss a few toads first, but come on- at some point sanity has to reign! I don’t WANT to buy at these prices, but REOs have come down about 50% in this area and some even more. Still, in an area where the median family income is about $46k, prices are still too high according to the 3x rule of thumb. Does anyone have a link to a flow-chart or anything that will help me to understand the FNMA process and timeline for a sale? Realtors I’ve talked to are decidedly ignorant or unhelpful- the last thing they seem to want is an informed buyer. Our FICO is 798, our financing is all set and I would love to get into a 3/2 with about an acre here, but something (price and this ongoing process of price discovery) keeps telling me to keep my powder dry. I’m using my VA benefits for the loan and with FNMA’s Homepath Financing incentives, I’d pay no down payment, no PMI and FNMA would reimburse 3.5% of closing costs. It would only cost us about $6k to close. Enticing.
If it’s Homepath they’ll reimburse for some repairs/missing appliances. But if you are at 3.5% I think you’ve already maxed out what they will give up (beyond the purchase price). Good luck and get the plumbing checked before you sign.
“wouldn’t provide info on the septic system until we decided whether he was going to get both sides of the commission.”
Turn that sob into the Dept Of Real Estate as a complaint against him. If he was the listing agent (as you wrote it) I understand his fiduciary relationship to the seller, and if he wasn’t your agent, he had no fiduciary relationship to you, but you asked a direct question. I’m from the school, why wait for the Transfer Disclosure Statement to get an answer to a direct question (one of a costly nature, especially). Why get that far.
We get this cr*p all the time, and we tell them where our complaint will go, and it will be stat. They give in.
I think dual agency should be against the law in all states.
Awaiting, is there some source we can go to for some insider info on realtors? There is a lot of vocabulary that I don’t know, such as Transfer of Disclosure statement. I thought to look up a few sample Real Estate License exams, but it seems to be more simple math problems than vocabulary.
When I choose a realtor, I’m going to ask for a buyers’ agent who has been a realtor for at least 10 years.
Trouble is, they all want a sale, right?
oxide
“Transfer Disclosure Statement”
In Ca and many states, when you put in an offer, many times accompanied with your deposit, the seller gives you a list of what he is aware of is wrong with the house and the general condition information. This is where things can get kinda “I didn’t know about it” ish. I’ve been in the classes on how the agent can avoid liability, so I have no desire to wait for the TDS. If I don’t get an answer of satisfaction, I usually smell the dumb agent rule (another agent protection). I prefer to know what’s up before I piss away money on an inspection. I hope that helps, oxide, and all.
10 years of history as a real-turd takes you back to just barely a pre-bubble experience level. I would hire a Buyer’s Broker who is older, been around 30 years, and has enough rental income that they can really be pro-active and work for you.
Beware of comments like “I’ve been in the business XX years.” That could mean they worked in MLS software for most of that, licensed in fact. Another trick is if they are kind of inexperienced “It feels like forever.” (I took those script classes.)
Rule # 1 If they are they moving their lips…
I worked for a REIT as a FT career and residential moonlighted. I would have been fired if I acted scumy at the REIT.
oxide and all
The local boards usually have bookstores, and many don’t ask to see your membership card to buy there. Do your due diligence before going (pretending you’re a newly licensed Real-Turd, maybe).
Oh, and the public library might have some real estate agent books. Ours does.
Also, NOLO Press is another source.
Hope that helps. I just quickly brainstormed.
‘In respect to short sales and REO’s (foreclosures), does anyone here know what the banks are targeting as a recovery rate’
I track some areas and IMO there is no recovery rate. It’s top dollar they are looking for (that shouldn’t be a surprise). But within that, there are definitely patterns that suggest a formula. For instance, one lender almost always accepts a number at 90% of listing price on MLS sales. If it doesn’t sell and then is put up on one of those post-foreclosure auction systems, it can go as low as 50% of the listing price. If they don’t get a number they want there (these are reserve auctions), it can go back on the MLS, sit unlisted, all sorts of things can happen.
Where do they get the listing price? Broker price opinions, etc. And the BPOs are based on the market, not what was loaned against the house.
It’s important to note that this is a company by company deal. To see these patterns you have to track Fannie or Freddie by themselves, not mixed together. And I’m guessing that you can’t mix Phoenix, for example, with Flagstaff. A comparable house in the Phoenix area might sell for 3 times as much in Flagstaff. Throw in variables like required repairs and it can get complicated, but if you follow it over time you will see patterns.
Another thing about this; in some areas around Phoenix the ordinary resale MLS prices are actually lower than the foreclosures! I suppose these are people who have a low enough basis in the house and just want to sell, and aren’t fooling themselves. I kinda ignore short sales as these are sellers in between. They don’t have a low enough basis to make a cut and it isn’t a foreclosure yet. It really a lender sale, but with all the issues of second mortgages and trying to squeeze cash out of the FB.
Then there is the hot potato game, where a bank (and you can’t tell who actually owns the house, probably some MBS trust) takes a house, lists it too high. They wait the required time and it then goes to Fannie, Freddie or HUD. This is when the better pricing will occur.
I was at a house last week in a second home community 20 miles south of Flagstaff. It has been vacant for two years. Wells Fargo had it for a year, then it went to HUD, presumably because HUD guaranteed the loan. It was then priced at $170k. Marked down to 150, 130, and is in escrow now at $99k.
The original loan amount? $383K. And it’s not a very nice house, plus it was frozen solid for two winters!
“For instance, one lender almost always accepts a number at 90% of listing price on MLS sales. If it doesn’t sell and then is put up on one of those post-foreclosure auction systems, it can go as low as 50% of the listing price. If they don’t get a number they want there (these are reserve auctions), it can go back on the MLS, sit unlisted, all sorts of things can happen.”
This explanation reminds me of a favorite M.C. Escher lithograph.
Funny!
I love Escher.
Ben- Thank you for your insignt. I’m digesting it.
We just went through these formulas in class, and you confirmed my suspicion. Good brain exercises but they don’t apply anymore. Welcome to the wild west!
Jim the Realtor (he’s one of the good ones) has an interesting one here:
http://www.bubbleinfo.com/2011/09/17/joys-of-homeownership/
It’s listed over a million, with blue carpet, tile counters, oak cabinetry, knotty pine ceilings, leaky sky lights and many other “period” details.
In my own target zone (a ritzy early 20th century neighborhood near downtown in Central Texas), there’s a 2700 sq. ft. 1950s foreclosure that is killing the comps for all similar size and era houses. I’ve mentioned it before, but the price keeps getting updated downward. It started at $272k, eventually went into foreclosure. With successive price cuts, it is now listed at $140k, which puts it dangerously close to $50 per square foot. The going rate in the neighborhood had been $100 per square foot, and some people had tried to get a lot more. There are now a whole bunch of homes in the neighborhood between $135k and $170k, which is affordable for my family. Unfortunately, I still don’t see anything I like in that price range. The locations or the houses themselves are all pretty marginal and I’m also getting more and more picky.
‘a foreclosure that is killing the comps…the price keeps getting updated downward’
This is how the true price is established. As one REO broker friend of mine has always said, today’s lowball offer is next years fair price. The lenders know this, but it’s the asset managers job to seek top dollar.
It also explains why areas with big REO backlogs (like NY and NJ) haven’t seen the test yet.
Any predictions as to when NYC will “see the test”? and how might it go here in the boroughs, which are still wildly overpriced and sitting with extremely overpriced houses. Thanks, Ben.
I can’t predict only guess. I read that NY has the highest backlog, termed 60 + years. That’s only a measurement as it obviously won’t take that long. When this stuff comes to market you’ll find out what it’s worth. Eventually the pressure builds and they’ll let loose, but in places like these the long backlog has to do with state regs and such. In Florida they sped it up and in MA, NJ, NY and OR they slowed it down. The PTB will see the light and change the regs “in everybody’s interest”.
BTW, I’m not sure I know what the boroughs are.
Thanks, Ben. The boroughs are the Bronx, Brooklyn, Queens,
Staten Island, and Manhattan. They r all the boroughs but when referring to the boroughs most mean all but Manhattan;
Where the vast majority of families live.
NY is a housing mess right now. Upstate areas are experiencing a slow painful return to the post-industrial economy that was par before the bubble(told you so). There are sales but you’re still not getting much for your money. Uninformed/clueless buyers are out there but at the lower price points. $200k and up isn’t selling and its never going to sell as local wages don’t support it, thus all the newer(gaudy or nice) is sitting.
Oct 2010-Made $110k offer on $225k list. Owner accepted but was in bankruptcy. Owner is unknown.
Today: Unsold and they raised price to $250k.
Nov 2010-LyingRealtor suggested a house in default, owner fighting it. House is now empty and never been on MLS.
Dec 2010- Lying REaltor suggested another place. Owner history is unknown(certain REO) but it is empty and built in 2005. Place is in high rent district so to speak. On market since May 2010 @$240k.
Today: Unsold, removed from market.
There are many more REO’s, some we’re interested in that are empty and not marketed .
It is so different here. $200k to $300k is a very hot niche and sometimes includes much rehab costs to boot. I would say over $300k isn’t moving but that’s not absolutely true.
One $425k place just sold. It needs A LOT of work. It was a huge place w/an incredible lot that I really wanted to figure out how to pull off like maybe have another family member move in and help pay for. The house was certainly big enough. A single gentleman bought it.
I met someone this week that knew the people that put in a bid against us a while back. They took the contingency clause of selling their house off to get it from us. But they did need to sell it. This was the year things were slow around here and in fact the house we bid on had sat for over a year. They were able however to get their home sold w/in the month. They wanted the house we wanted so bad though that they took quite a risk.
LOL - I have tile very similar to the video in about 1/2 my house.
So normally “dated” is realtor-speak for worn out, but I think this guy really means out of style.
I have looked at about 20 houses in the past month(REO, MLS listed, FSBO) and there is only 1 that I can remember that did not have the original appliances.
There was one house about 40 years old that I was convinced was shag carpeting from the 70’s that had been worn down to a barber.
The tile itself isn’t that bad, it’s just really bad in this particular house.
“We are still talking the range of $300K to $500K, built in 1930’s to the 50’s and not updated and need roofing. Perhaps it is the result of the lowering of mortgage rates and/or people tired of low bank CD rates jumping into RE hoping to score big. I’ve noticed a lot of grey haired types looking at housing in Monterey, PG and Carmel with no garage, flights of stairs, and high maintenance. Surely they are not planning to move into these properties!”
Desperate straits foster desperate acts.
Interesting video from “Jim the Realtor”, but what does it really say anyhow? Ice and snow in the driveway? C’mom, in coastal San Diego County? Not really. And as far as the whole idea of “having to update everything”…What about the notion of buying a house as a space to live in as opposed to making a fashion statement? Much of what he says reflects many of the stupid ideas seen in “housing porn” shows during the bubble’s peak. Now I’m willing to accept that a million dollars is a lot to pay for a place to live, but for its size that house doesn’t seem such a bad bargain, and a sight better than many other higher priced places.
Many granite countertops will have a second life as outdoor landscape paving once people get tired of their busy color patterns, their coldness, their susceptibility to chipping&staining, their miraculous ability to break any glass unfortunate enough to tip over, etc. If anything at all screams : OUTDATED, that would be the granite countertop.
Of course he does sort of underscore the point of how silly many sellers are in holding on to aspirational pricing while pointing to all the “custom upgrades” they’ve done which make their offering so much better than the other thousands otherwise just like it…
I was dubious about the snow and ice comment myself, but if the driveway slopes down toward the house, just heavy rain could be a problem.
From following JtR’s blog, I suspect that there are a lot of more attractive homes in this price range. The special awfulness of this home is that it obviously was quite a trendy showplace in its day, that day being probably around 30 years ago. I would personally not mind a lot of the dated stuff in a smaller, more modest home (JtR has shown some cute 1970s houses that I wouldn’t mind moving straight into and I’m a big fan of 1950s pink bathrooms). But when you have a big, showy ostentatious home with ugly, dated finishes, what’s the point? It seems like the trendier a home is, the worse it ages.
Toward the end of the video, I believe JtR talks about this house as a cautionary tale for people buying new homes. A buyer who gets a trendy new house now could easily wind up in a similar position 10 years ago, when today’s trends are no longer so trendy, which is your point.
I thought San Diego was pretty much a desert? How often does it rain?
I think the issue today with buying a trendy house is that the trends are much quicker today with cable/internet and don’t last near as long as in the past.
For example, I would never buy a toilet in any color other than white.
“For example, I would never buy a toilet in any color other than white.”
Very wise.
It’s quite an exercise to train oneself to realize, I only like this look because I’ve seen it in the last five home decor magazines I’ve looked at. You have to figure out what you actually like, rather than what you are being conditioned to like. Also, as with the granite, you have to ask yourself, does this product make any sense? From what I’ve read, quartz/resin countertops are also pretty expensive, but they are much more practical than natural stone.
My grandparents finished their home in 1959 after probably about five years of work. Due to a massive failure of their built-in 1959 Thermador appliances, they recently had to update their kitchen and redo appliances, countertop, etc. Anyway, a couple years on, my grandma is still lamenting her gold flecked yellow Formica that had to be replaced. She loved her Formica, but they had spent several years going to 1950s Seattle home shows and very diligently studying available products, so the house was exactly the way they wanted it to be. With such an expensive item that you have to live with every day, why not be slow and picky?
“I thought San Diego was pretty much a desert? How often does it rain?”
I don’t know San Diego, but I lived in LA for college, and when it did rain (once in a blue moon), it was pretty powerful. PB/GS/CIBT would know more than me, though.
To me granite is boring. Especially when it doesn’t go with the cabinets, wall color, etc. and was put in just because it was granite.
I have no doubt in a few years redecorating shows will be ripping out granite countertops and replacing them with what ever is in at the moment.
There are architectural features and finish systems that are timeless. You can’t tell if they’re a year old or 50 years old. Case in point: Red brick, slate roof, copper roof, hardwood floors, epoxy resin counters, gypboard walls covered in eggshell white, etc. For us, these are important considerations. They’re not deal breakers but if we run across a brick rancher or maybe even a colonial that presents value in the right location, we’re on it.
Earlier this year I saw a home magazine article where a lady built a house and then 8 (?) years later was tired of the dark cabinets and granite, so she redid her kitchen (the one she chose herself 8 years ago) with $10k marble as part of a $33k kitchen remodel.
I blogged the article April 3, 2011:
“My other purchase at the bookstore was the Spring 2011 issue of Better Homes and Gardens’ Kitchen + Bath Makeovers. It’s a very good issue (I particularly like the kitchen with aqua island and black and white checkerboard floor), but I have to single out one homeowner for some tsk-tsking. This homeowner built a house in 2000 with brown wood cabinets and granite countertops. By 2008, she realized that she didn’t like her kitchen. “The original maple cabinets and dark granite countertops made Kim Plant’s kitchen look dark and dated.” Plant had her granite countertops ripped out and replaced with $10k of white marble as part of a $33k remodel. I’m still getting used to reading renovation stories in which homeowners rip out 1990s kitchens, but this takes the cake. I suppose there will be many more similar stories in the years to come, as people slowly realize that they don’t actually like their $100-per-square foot-dog’s breakfast granite.”
We’re probably one of the few homeowners in our 10 year old subdivision who’ve kept the original white tile counters in our kitchen. Everyone else has granite-ified. I’m quite happy with the tile, especially having previously lived in a 20s bungalow with tile. Looks good with all my Bauer, McCoy, Shawnee and Hall ceramics. So, ya’ll have made my day!
I have a friend w/a custom bathroom in a home she had built for her that didn’t like how that master bath came out so she immediately started pulling stuff out and redecorating. As you can imagine it’s very difficult to for me to discuss my fundamental based housing search with people who are in this mental approach to their housing.
“Until the Housing Crime Syndicate is dealt a blow, I remain skeptical of any trend.”
A better government would shut down the NAR monopoly and prosecute the stuffing out of the Housing Crime Syndicate until it ceased and desisted.
Exactly.
Here’s a simple question(s) for the decision makers which has gone unanswered.
Why has NAR gone untouched even though they operate as a monopoly does? Their members knowingly and deliberately misrepresent the value of housing. This is fraud by definition.
Why are they not held accountable?
Money is the mother’s milk of politics.
I’m seeing gimmicks and true sales, and the true sales are split: well above and well below average sq. ft.
The gimmick listings must truly be chitty homes.
Redfin is also showing huge amounts of pending in the O.C.
Sales are up y.o.y. but prices are down. As far as I can tell it is just the few that believe the bottom is close if not here.
According to the O.C. Register O.C. homes are now only 3.12 times as expensive as the medium price in the rest of the country. They also indicated that the historical average is in the 2.4 range.
No amount of effort by the Gov. will spur prices beyond the mean average for the region.
I wish them luck. (Not).
Interesting that you guys are all noticing an uptick in pending sales.
In our ‘hood (North County Coastal San Diego), the market seems to have fallen off a cliff. Very little is pending, and there are quite a few BOMs, and listings removed from the market. Some homes that had multiple offers in the spring have been relisted, and they are now sitting without any offers at all.
If you’re seeing more activity in your areas, I’m quite sure it has to do with mortgage rates being near 60-year lows. From what I’ve seen, this is the first time in over 10 years of closely watching local markets that a drop in interest rates like this hasn’t spurred sales. As a matter of fact, it seems like the low rates and drop in sales happened about the same time.
Again, this is the first time I’ve seen this in over 10 years — there is a definite change this year. Even during the financial “crisis,” people were still out there trying to outbid one another in our area. Only in the second half of 2007 did we see a slowdown. Once the govt got involved in 2008, it was off to the races, once again.
IMHO, the second leg of the downturn has begun, and I think the political climate has changed enough that they won’t be allowed to throw money at housing in an attempt to keep prices artificially inflated. The risks have largely been shifted from the private market to the public, which means they can now allow prices to drop.