Good morning! It's time once again to take the pulse of our local real estate market while I let my third cup of coffee work on getting my pulse rate up a little:
Active Listings: 77
Contingent Listings: 64
Pending Listings: 47 (25.0% of the inventory)
New listings: 8
Months of inventory: 4.5
Click here for an updated price per square foot chart.
One number in this mix changed significantly this week - we dropped from 56 to 47 pending listings this week, and in terms of both raw numbers and in percentage of inventory, we're at a 5 month low in this category. What happened last week was that we saw a lot of closings. I use a three month sold number to calculate the months of inventory on the market, but I don't report on it directly. That number shot up to 95 this week - a high point for the year - which resulted in the 4.5 months of inventory that you see above. This is the lowest level of inventory that we've seen since probably some time in 2004.
I doubt that we can sustain the level of closings that we've seen for the past couple of weeks for very long with the inventory that we have. Not all of those contingent listings are going to go pending and eventually sell. And like I said a couple of weeks ago in my REO update, we aren't going to see a big influx of foreclosures in our inventory in the short to medium term.
There's one other thing looming that could have a dampening effect on sales. The $8000 first time buyer tax credit is set to expire soon. Buyers need to close by 11/30/09 to qualify for it, meaning that at this point, if they want this credit, they'd better get into escrow on something in the next week or two. And short sales are realistically out of the question for this timeline now (have been for a while). The National Association of Realtors is making a big political push to get this credit extended and/or expanded, but it's anybody's best guess what's going to happen with it. That credit has been a big part of stabilizing the housing market. Write your Senator & Representatives, folks. The declining housing market helped to get us in this mess, and it's going to have to play a key role in the recovery.
That was a longer than usual MMN post. Good coffee, what can I say? Come back later this week for an update on the condo market.
Monday, September 28, 2009
Friday, September 25, 2009
Focus On Short Sales
It's been a few months since I wrote about short sales, so I figure it's about time to check in on that segment of the market to see how things are changing.
Short sales are, in my opinion, here for the long haul. I expect to see some level of short sale activity in our market for 6-8 years. We had a lot of houses sold and refinanced during the boom years, so we have an incredible number of people who owe more on their house than it's worth. I've seen several different national numbers on how many homeowners are upside down, ranging from the 30% range up to around 60%. I suspect that a lot of those numbers are what I like to call "PFA" numbers - "Plucked From Air", or in less polite circles, "Pulled From... well, you know". I'd love to get my arms around what our local number is. I can come up with the number of homes sold in Lompoc from 2004 through 2006, and subtract the number of REO's. But I don't have a good source for refinances, and that's a big part of the picture. If I can come up with a good local number at some point, I'll report on it, and it could give us a clearer picture of how long we can expect this to go on. Bottom line, it's not going to end until we see some significant appreciation.
Anyway, since this is a large and likely long term segment of our market, it warrants watching. If you've been reading my Monday Morning Numbers posts, you'll know that the number of contingent listings has exploded in recent months. And no surprise, this is largely a result of short sale activity. Currently, 46% of our combined active & contingent listings are short sales. This is in about the same range that we've seen all year. What's changed is the mix. Short sales make up a whopping 70% of our current contingent listings, and only 26% of our active listings.
The percentage of pending listings is down from when I last reported on these back in May. Right now, short sales account for about 15% of our pending listings, down from 23%. I think that may be at least partially due to agents leaving them in a contingent status for longer. I can't track it, but it seems to me that I'm seeing shorter times between these listings changing from pending to sold.
We've seen a slight decrease in the percentage of short sales as sold units. Year to date, they account for 14% of our sales, but only 11% of the sales so far this quarter. That number was 17% in the the second quarter, and 15% in the first quarter. But the quarter isn't quite over yet, and it wouldn't take a huge swing late to move that number back in line, and I'd be surprised not to see it back in the 17-20% range in the fourth quarter, given the number of contingent short sales out there today.
One number that continues to change for the better is the success rate of short sales. When I first reported on these, I noted that back in early 2008, I calculated that about 9% of the short sales listed eventually sold, and that had improved greatly over about a year to around 25%. Right now it looks like we have a success rate at around 33% for short sales, compared to 70% for the market as a whole. I think that everybody is getting better at the process. Banks are making some slow progress in getting their acts together, and agents are getting better educated about the process and are doing a better job of managing these transactions.
There is a monkey wrench in the works these days, and I hope this isn't a permanent trend. Increasingly, lien holders are agreeing to release the lien on the property to get it sold, but they aren't releasing the borrower from the debt. If this continues, I think we'll start to see a decline in the numbers of these types of sales, and we'll have a prolonged REO cycle instead. When borrowers see this clause in their short sale approval letter, there are two typical reactions: They hit the wall and decide not to agree to the sale - why bother with it if I'm still going to owe $400,000? The other school of thought (maybe misguided) is to say "Go for it - you can't get blood from a stone". Either way, I hope this practice dies an early and quiet death.
Bottom line, like I said earlier, if you're looking for a home in Lompoc right now, you limit your already limited options by excluding short sale listings. There are legitimate reasons to avoid them, depending on what you are trying to accomplish. But even with the pitfalls, more buyers are going that route. It's not quite the hopeless mess that it was a couple of years ago.
Short sales are, in my opinion, here for the long haul. I expect to see some level of short sale activity in our market for 6-8 years. We had a lot of houses sold and refinanced during the boom years, so we have an incredible number of people who owe more on their house than it's worth. I've seen several different national numbers on how many homeowners are upside down, ranging from the 30% range up to around 60%. I suspect that a lot of those numbers are what I like to call "PFA" numbers - "Plucked From Air", or in less polite circles, "Pulled From... well, you know". I'd love to get my arms around what our local number is. I can come up with the number of homes sold in Lompoc from 2004 through 2006, and subtract the number of REO's. But I don't have a good source for refinances, and that's a big part of the picture. If I can come up with a good local number at some point, I'll report on it, and it could give us a clearer picture of how long we can expect this to go on. Bottom line, it's not going to end until we see some significant appreciation.
Anyway, since this is a large and likely long term segment of our market, it warrants watching. If you've been reading my Monday Morning Numbers posts, you'll know that the number of contingent listings has exploded in recent months. And no surprise, this is largely a result of short sale activity. Currently, 46% of our combined active & contingent listings are short sales. This is in about the same range that we've seen all year. What's changed is the mix. Short sales make up a whopping 70% of our current contingent listings, and only 26% of our active listings.
The percentage of pending listings is down from when I last reported on these back in May. Right now, short sales account for about 15% of our pending listings, down from 23%. I think that may be at least partially due to agents leaving them in a contingent status for longer. I can't track it, but it seems to me that I'm seeing shorter times between these listings changing from pending to sold.
We've seen a slight decrease in the percentage of short sales as sold units. Year to date, they account for 14% of our sales, but only 11% of the sales so far this quarter. That number was 17% in the the second quarter, and 15% in the first quarter. But the quarter isn't quite over yet, and it wouldn't take a huge swing late to move that number back in line, and I'd be surprised not to see it back in the 17-20% range in the fourth quarter, given the number of contingent short sales out there today.
One number that continues to change for the better is the success rate of short sales. When I first reported on these, I noted that back in early 2008, I calculated that about 9% of the short sales listed eventually sold, and that had improved greatly over about a year to around 25%. Right now it looks like we have a success rate at around 33% for short sales, compared to 70% for the market as a whole. I think that everybody is getting better at the process. Banks are making some slow progress in getting their acts together, and agents are getting better educated about the process and are doing a better job of managing these transactions.
There is a monkey wrench in the works these days, and I hope this isn't a permanent trend. Increasingly, lien holders are agreeing to release the lien on the property to get it sold, but they aren't releasing the borrower from the debt. If this continues, I think we'll start to see a decline in the numbers of these types of sales, and we'll have a prolonged REO cycle instead. When borrowers see this clause in their short sale approval letter, there are two typical reactions: They hit the wall and decide not to agree to the sale - why bother with it if I'm still going to owe $400,000? The other school of thought (maybe misguided) is to say "Go for it - you can't get blood from a stone". Either way, I hope this practice dies an early and quiet death.
Bottom line, like I said earlier, if you're looking for a home in Lompoc right now, you limit your already limited options by excluding short sale listings. There are legitimate reasons to avoid them, depending on what you are trying to accomplish. But even with the pitfalls, more buyers are going that route. It's not quite the hopeless mess that it was a couple of years ago.
Monday, September 21, 2009
Monday Morning Numbers 9/21/09
Good morning once again, and welcome to another exciting edition of Monday Morning Numbers. It occurs to me that our website is starting to get a little more traffic these days - a good thing for us - and I might have a few new folks looking at this blog. If you're new to the blog and you're having a hard time making sense of these numbers, check out my first MMN post for some explanations.
Ooohhh, I just coined myself a new TLA (Three Letter Acronym). How very self-indulgent... Enough of that, let's get to the numbers:
Active Listings: 78
Contingent Listings: 64
Pending Listings: 56 (28.3% of the inventory)
New listings: 12
Months of inventory: 5.1
Click here for an updated price per square foot chart.
In terms of raw numbers, we're at our lowest point in this cycle for active listings. Given what I wrote last week about upcoming REO inventory, I would expect that to drop even a bit more in coming weeks. But because our contingent listings grew by quite a bit this week, our months of inventory number went up a little bit. We crossed over an interesting threshold this week - we now have more contingent than pending listings. It's primarily due to the increasing role of short sales in our market, as those tend to move into contingent status once they have an accepted offer, and they stay there for quite a while in some cases.
And on that note, I suppose I should do another short sale update later this week. Come back for that on Thursday or Friday. Or maybe Saturday. It depends on what gets thrown at me this week.
Ooohhh, I just coined myself a new TLA (Three Letter Acronym). How very self-indulgent... Enough of that, let's get to the numbers:
Active Listings: 78
Contingent Listings: 64
Pending Listings: 56 (28.3% of the inventory)
New listings: 12
Months of inventory: 5.1
Click here for an updated price per square foot chart.
In terms of raw numbers, we're at our lowest point in this cycle for active listings. Given what I wrote last week about upcoming REO inventory, I would expect that to drop even a bit more in coming weeks. But because our contingent listings grew by quite a bit this week, our months of inventory number went up a little bit. We crossed over an interesting threshold this week - we now have more contingent than pending listings. It's primarily due to the increasing role of short sales in our market, as those tend to move into contingent status once they have an accepted offer, and they stay there for quite a while in some cases.
And on that note, I suppose I should do another short sale update later this week. Come back for that on Thursday or Friday. Or maybe Saturday. It depends on what gets thrown at me this week.
Thursday, September 17, 2009
Focus On REO Activity
It's been a couple of months since I updated you specifically on REO activity. I did a brief presentation on some numbers for our MLS marketing meeting last week, and I thought that I'd cover some of that here for the general public this week.
For today's post, I primarily want to cover what we have coming down the pipeline. But first, a little refresher. Unless you've been living in a cave without any media sources for the past couple of years (lucky you), you'll know that REO's are dominating the real estate markets in most of the country these days. That's certainly true in our area - about 61% of our sales so far this year have been REO properties. So having an idea of what's coming in that arena is one of the big keys to knowing what's in store for us in the coming months.
I made up this chart to illustrate the trends in our REO activity. It's a little confusing and a little busy, but it shows graphically what the various stages of the process have looked like over the past couple of years. The trend lines on all of these indicators has been up somewhat over the 32 months covered in this chart, but most notably, the active auction number (the red line) has been going up pretty dramatically in the past few months. Except for August - I don't know what's going on with that. We haven't seen a decrease in unresolved NTS filings (around 125 today), so I suspect that's just a fluke. We'll probably see that number go back up this month.
As of right now, I can account for about 51 unlisted bank owned properties in the Lompoc Valley. That number has fluctuated a little between 50 and 65 over the past several months, as you may know if you've been following this blog. It's on the low side right now, and because the last couple of months have been relatively slow in the numbers of properties going back to the bank, I'm thinking that we'll see that drop a bit more. As I mentioned above, we're at 125 unresolved NTS filings. This is a high point since I've been tracking it. What's been happening with most of these sales is postponements, usually several times. I don't know if that's because banks are working on avenues with more borrowers to prevent the foreclosure, doing things like loan modifications or short sales, or if it's because they're overwhelmed on a national level and they just can't process things in a timely manner. It's probably a little of both. We have seen more cancelled sales in the past month or two, and a lot of the ones I see are properties that went through the short sale route.
A couple of months ago, I said that I thought that we'd see a bit of an increase in our inventory after we had a couple of active months of REO sales. As it turns out, not so much. We got a small bump for a while in June & July, but we're back down in the 80-90 range again. We did get some additional listings, but our demand is still very strong. Properties, especially houses under $200,000, don't tend to hang around on the market these days.
At some point, most of those unresolved NTS filings are going to turn into REO's. Not all of them will, and they won't all come on at once. I've been saying this for months now - we aren't going to see a "flood" of REO inventory in our market. If you're waiting for that before you decide to jump on a purchase opportunity, you might well miss out on one of the best bargain markets in recent memory. You're waiting for the bottom? I think we're here.
For today's post, I primarily want to cover what we have coming down the pipeline. But first, a little refresher. Unless you've been living in a cave without any media sources for the past couple of years (lucky you), you'll know that REO's are dominating the real estate markets in most of the country these days. That's certainly true in our area - about 61% of our sales so far this year have been REO properties. So having an idea of what's coming in that arena is one of the big keys to knowing what's in store for us in the coming months.
I made up this chart to illustrate the trends in our REO activity. It's a little confusing and a little busy, but it shows graphically what the various stages of the process have looked like over the past couple of years. The trend lines on all of these indicators has been up somewhat over the 32 months covered in this chart, but most notably, the active auction number (the red line) has been going up pretty dramatically in the past few months. Except for August - I don't know what's going on with that. We haven't seen a decrease in unresolved NTS filings (around 125 today), so I suspect that's just a fluke. We'll probably see that number go back up this month.
As of right now, I can account for about 51 unlisted bank owned properties in the Lompoc Valley. That number has fluctuated a little between 50 and 65 over the past several months, as you may know if you've been following this blog. It's on the low side right now, and because the last couple of months have been relatively slow in the numbers of properties going back to the bank, I'm thinking that we'll see that drop a bit more. As I mentioned above, we're at 125 unresolved NTS filings. This is a high point since I've been tracking it. What's been happening with most of these sales is postponements, usually several times. I don't know if that's because banks are working on avenues with more borrowers to prevent the foreclosure, doing things like loan modifications or short sales, or if it's because they're overwhelmed on a national level and they just can't process things in a timely manner. It's probably a little of both. We have seen more cancelled sales in the past month or two, and a lot of the ones I see are properties that went through the short sale route.
A couple of months ago, I said that I thought that we'd see a bit of an increase in our inventory after we had a couple of active months of REO sales. As it turns out, not so much. We got a small bump for a while in June & July, but we're back down in the 80-90 range again. We did get some additional listings, but our demand is still very strong. Properties, especially houses under $200,000, don't tend to hang around on the market these days.
At some point, most of those unresolved NTS filings are going to turn into REO's. Not all of them will, and they won't all come on at once. I've been saying this for months now - we aren't going to see a "flood" of REO inventory in our market. If you're waiting for that before you decide to jump on a purchase opportunity, you might well miss out on one of the best bargain markets in recent memory. You're waiting for the bottom? I think we're here.
Monday, September 14, 2009
Monday Morning Numbers 9/14/09
Good morning once again, and Happy Football Season! I love that first weekend of NFL action. It's like Christmas for me. Except that after watching that Bears game last night, I felt like that shiny package that I thought was going to be something really cool turned out to be a pair of socks...
Anyway, let's get after some numbers:
Active Listings: 83
Contingent Listings: 57
Pending Listings: 57 (28.9% of the inventory)
New listings: 10
Months of inventory: 4.8
Click here for an updated price per square foot chart.
You know, I basically just go in and copy and paste these from the previous week's post every Monday and just change the actual numbers. This week, I didn't even have to change many of the numbers. We have a few more active listings, and not a lot of new listings this week. Note that I've pulled the price changes out of this report this week. It's not a good indication of activity on a weekly level. I am still tracking it, and I'll report on it periodically.
Later this week I'll update REO activity, with an eye toward what might be in our future.
Anyway, let's get after some numbers:
Active Listings: 83
Contingent Listings: 57
Pending Listings: 57 (28.9% of the inventory)
New listings: 10
Months of inventory: 4.8
Click here for an updated price per square foot chart.
You know, I basically just go in and copy and paste these from the previous week's post every Monday and just change the actual numbers. This week, I didn't even have to change many of the numbers. We have a few more active listings, and not a lot of new listings this week. Note that I've pulled the price changes out of this report this week. It's not a good indication of activity on a weekly level. I am still tracking it, and I'll report on it periodically.
Later this week I'll update REO activity, with an eye toward what might be in our future.
Saturday, September 12, 2009
Focus On Mesa Oaks & Country Club
Crazy week - I almost didn't get one of these done this week between travel, working for clients, and working on the new rental property. Let's go back and take a freshened up look at our "executive" communities in Mesa Oaks & the Country Club. I covered these a few months ago, so go check out that post for some background and community descriptions.
We have 13 units on the market in these areas this evening, a slightly lower level of inventory that we had when I reported on them in May. As was the case then, there aren't a lot of distressed properties here - only one short sale and two REO's. In addition, there is one contingent unit here, a short sale that is awaiting lien holder approval.
We only have 3 pending units here at the moment, one short sale, one REO, and one new construction unit. We've seen 7 sold units up there over the past three months, which is very robust activity for the area. Of the sold units, 2 were REO's and 2 were short sales. That's a bit more distressed property than we've been seeing up there, and that might account for some of that increase in sales activity.
At this point, it looks like prices are pretty stable in this area, and we may possibly be seeing some appreciation - but as I've said before, this is working with a very small set of data points. I expect that this area will do pretty well when we start seeing things bounce back.
Next week should be a little calmer (as I tempt fate), so hopefully I can get a focus piece done a little earlier in the week. I might go back and hit REO's again - I have some charts and data that I put together for a presentation to our real estate community last week that might shed some light on what's coming down the pipeline.
We have 13 units on the market in these areas this evening, a slightly lower level of inventory that we had when I reported on them in May. As was the case then, there aren't a lot of distressed properties here - only one short sale and two REO's. In addition, there is one contingent unit here, a short sale that is awaiting lien holder approval.
We only have 3 pending units here at the moment, one short sale, one REO, and one new construction unit. We've seen 7 sold units up there over the past three months, which is very robust activity for the area. Of the sold units, 2 were REO's and 2 were short sales. That's a bit more distressed property than we've been seeing up there, and that might account for some of that increase in sales activity.
At this point, it looks like prices are pretty stable in this area, and we may possibly be seeing some appreciation - but as I've said before, this is working with a very small set of data points. I expect that this area will do pretty well when we start seeing things bounce back.
Next week should be a little calmer (as I tempt fate), so hopefully I can get a focus piece done a little earlier in the week. I might go back and hit REO's again - I have some charts and data that I put together for a presentation to our real estate community last week that might shed some light on what's coming down the pipeline.
Monday, September 7, 2009
Monday Morning Numbers 9/7/09
Hope everybody out there is having a great holiday weekend and sending summer out in style. It's chili day at our house. I make chili about once a year anymore, because I'm kinda hardcore about it. No cans are opened when I make chili. Everything from scratch. It's an all-day event. But it's worth it, and we freeze a bunch.
Anyway, let's look at some numbers:
Active Listings: 79
Contingent Listings: 57
Pending Listings: 57 (29.5% of the inventory)
Price changes for the past week: 5 (3.7%)
New listings: 11
Months of inventory: 4.7
Click here for an updated price per square foot chart.
The numbers are still pretty much in line with what we've been seeing. I should note that our months of inventory is at the lowest point that I've seen since I started tracking this stat.
I'll figure out the topic for later this week when I get there. I have a lot of chopping to do today.
Anyway, let's look at some numbers:
Active Listings: 79
Contingent Listings: 57
Pending Listings: 57 (29.5% of the inventory)
Price changes for the past week: 5 (3.7%)
New listings: 11
Months of inventory: 4.7
Click here for an updated price per square foot chart.
The numbers are still pretty much in line with what we've been seeing. I should note that our months of inventory is at the lowest point that I've seen since I started tracking this stat.
I'll figure out the topic for later this week when I get there. I have a lot of chopping to do today.
Friday, September 4, 2009
Adventures In Home Buying
If you've been checking in on this blog over the past few weeks, you know that Diane & I just bought an investment property for ourselves. What a long, strange trip it's been...
This all started for us early this year when we decided that we needed to re-align our investments. Like a lot of folks, we had seen our portfolio take a nasty beating late last year, and while we aren't exactly risk averse - I mean come on, we're Realtors - we did think it was time to re-think where we had our nest egg. And in talking about it, we thought that we were at or near the bottom of the housing market, and we really didn't want to miss out on a prime opportunity.
The problem was, everybody else out there is trying to buy real estate too. I guess that's not really a problem - we benefit from that. But now we found ourselves in a position where we would have to compete for a good property. You'd think that it would be easier with the inside track, and it probably was to some extent. But we had some pretty limiting factors in what we were willing to buy. It had to be something in a decent area. It had to be something that could bring us somewhere in the neighborhood of $1300 a month in rent. And it had to fit our investment budget, after any repairs that needed to be done. Easier said than done.
Down To the Courthouse
After looking at what we had on the market at the time (February) and realizing that this was going to take some time and patience, we decided that we'd expand the search to trustees' sales down at the courthouse steps. This took a lot of research, and a lot of trips down to the courthouse in Santa Barbara. In a nutshell, this approach is not for the faint of heart. Here's how it goes:
First and foremost - it's cash or cashiers checks, right then and there if you buy a property. No loan, no inspections, no title insurance, no cooling off period, nothing of the sort. As is, where is, you pays your money and you takes your chances.
You have to do a lot of your own research on the property ahead of time (unless you feel really brave). We targeted a whole bunch of properties. We didn't count, but I'd be surprised if it was under 100 over a period of time. We would drive by them, make notes on the exterior condition, see if it looked occupied, and decide if we wanted to do further research. If they were occupied, we tried to steer clear of them as much as possible. There were a couple that seemed to have enough potential to deal with that situation, but it would factor in to the bid we were willing to make.
If it made the cut, we'd go to the county recorder's office and check out the history on the property liens. This could sometimes be a time consuming process, but sometimes it was pretty clean and straightforward. Basically, what we were trying to do was figure out if the trust deed that was foreclosing was in first position. If it's not, you're buying the property subject to any senior liens. This could be a huge problem. And while we got to be pretty comfortable with the data we found, there was always the potential of title problems that we couldn't identify with our search.
If you want to minimize your risk on one of these, you should have a title report run on the property up front. But the problem is, this is a numbers game, and those reports aren't cheap (around $300-500). If you only have one or two properties that you're going to chase, that's one thing. But your chances of getting one of those is very slim. First of all, in most cases, you don't even know what the opening bid is going to be, or even if the property is actually going to be sold, until the actual auction. This was especially true early on in our adventure. Over a period of a few months, it seemed like we started seeing more data on auctions, usually on the morning of the auction. But even then, it's not like you can get the details on something in the morning and get a title search done by 1:00. So there's that risk factor again.
Most of the time, auctions get postponed. On a few occasions, we actually got to the point of bidding on a property. A couple of times, the bank actually bid against us (sort of a reserve bid) and they went higher than we were willing to go. Another time, we were outbid by another bidder. A few other times, we went down hoping to bid on a property, but they were postponed at the last minute. The whole thing was an exercise in patience, to say the least.
The Payoff
If things hadn't worked out the way they did, we'd probably still be parked at the recorder's office looking at trust deeds. But as it turns out, the property that we wound up with was listed as an REO. It was actually a property that we had looked at as a potential pickup at auction, but because it was occupied at the time and there were a couple of questionable things in our research, we decided not to pursue it. It reverted back to the bank, and came on the market in pretty short order. We saw it come on the MLS on the Friday morning before we left on vacation. We went over to see it at lunch, and decided to go ahead and throw an offer at it.
One advantage that we do have from being in the business is flexibility of schedule, and it takes us almost no time to crank out an offer. So we got it off to the listing agent that afternoon, and she promptly got back to us and let us know that she had a couple of other offers already. So much for that advantage... But at least we figured we could leave town on vacation and not worry about this while we were on the road.
So we leave for our vacation on Sunday, a nice leisurely drive up the coast for the first few days, and on Sunday afternoon, after a long stretch of road where there was no cell service, both of our phones start beeping at us with messages. Turns out, it was the listing agent. Kind of a surprise, being a Sunday, but she had heard back from the bank that afternoon, and they wanted to counter our offer, but only on escrow length and inspection period. We told her to let them know that we were OK with that. So Monday rolls around, and we get a call that the contract is in our email. So we track down a Kinko's and print it out, review it, sign it, and fax it back. Then over the next couple of days, we get a few more details here and there dealt with in between sightseeing. It all came together pretty smoothly, thanks to the miracles of modern technology, and we came home, did an inspection, ironed out a couple of minor things on the title report, and closed it.
The house need some love. It looks pretty good from the street, but once you open that front door, it's a different story. We're in the process of getting some work quoted and done, and we're hoping to have it rental ready by October 1.
Oh - added bonus: It came with a few mature tomato plants. They hadn't been watered much for a while, and a couple of them aren't coming back, but I've been nursing them along, and we'll probably double our tomato harvest this year.
That's some expensive salsa...
This all started for us early this year when we decided that we needed to re-align our investments. Like a lot of folks, we had seen our portfolio take a nasty beating late last year, and while we aren't exactly risk averse - I mean come on, we're Realtors - we did think it was time to re-think where we had our nest egg. And in talking about it, we thought that we were at or near the bottom of the housing market, and we really didn't want to miss out on a prime opportunity.
The problem was, everybody else out there is trying to buy real estate too. I guess that's not really a problem - we benefit from that. But now we found ourselves in a position where we would have to compete for a good property. You'd think that it would be easier with the inside track, and it probably was to some extent. But we had some pretty limiting factors in what we were willing to buy. It had to be something in a decent area. It had to be something that could bring us somewhere in the neighborhood of $1300 a month in rent. And it had to fit our investment budget, after any repairs that needed to be done. Easier said than done.
Down To the Courthouse
After looking at what we had on the market at the time (February) and realizing that this was going to take some time and patience, we decided that we'd expand the search to trustees' sales down at the courthouse steps. This took a lot of research, and a lot of trips down to the courthouse in Santa Barbara. In a nutshell, this approach is not for the faint of heart. Here's how it goes:
First and foremost - it's cash or cashiers checks, right then and there if you buy a property. No loan, no inspections, no title insurance, no cooling off period, nothing of the sort. As is, where is, you pays your money and you takes your chances.
You have to do a lot of your own research on the property ahead of time (unless you feel really brave). We targeted a whole bunch of properties. We didn't count, but I'd be surprised if it was under 100 over a period of time. We would drive by them, make notes on the exterior condition, see if it looked occupied, and decide if we wanted to do further research. If they were occupied, we tried to steer clear of them as much as possible. There were a couple that seemed to have enough potential to deal with that situation, but it would factor in to the bid we were willing to make.
If it made the cut, we'd go to the county recorder's office and check out the history on the property liens. This could sometimes be a time consuming process, but sometimes it was pretty clean and straightforward. Basically, what we were trying to do was figure out if the trust deed that was foreclosing was in first position. If it's not, you're buying the property subject to any senior liens. This could be a huge problem. And while we got to be pretty comfortable with the data we found, there was always the potential of title problems that we couldn't identify with our search.
If you want to minimize your risk on one of these, you should have a title report run on the property up front. But the problem is, this is a numbers game, and those reports aren't cheap (around $300-500). If you only have one or two properties that you're going to chase, that's one thing. But your chances of getting one of those is very slim. First of all, in most cases, you don't even know what the opening bid is going to be, or even if the property is actually going to be sold, until the actual auction. This was especially true early on in our adventure. Over a period of a few months, it seemed like we started seeing more data on auctions, usually on the morning of the auction. But even then, it's not like you can get the details on something in the morning and get a title search done by 1:00. So there's that risk factor again.
Most of the time, auctions get postponed. On a few occasions, we actually got to the point of bidding on a property. A couple of times, the bank actually bid against us (sort of a reserve bid) and they went higher than we were willing to go. Another time, we were outbid by another bidder. A few other times, we went down hoping to bid on a property, but they were postponed at the last minute. The whole thing was an exercise in patience, to say the least.
The Payoff
If things hadn't worked out the way they did, we'd probably still be parked at the recorder's office looking at trust deeds. But as it turns out, the property that we wound up with was listed as an REO. It was actually a property that we had looked at as a potential pickup at auction, but because it was occupied at the time and there were a couple of questionable things in our research, we decided not to pursue it. It reverted back to the bank, and came on the market in pretty short order. We saw it come on the MLS on the Friday morning before we left on vacation. We went over to see it at lunch, and decided to go ahead and throw an offer at it.
One advantage that we do have from being in the business is flexibility of schedule, and it takes us almost no time to crank out an offer. So we got it off to the listing agent that afternoon, and she promptly got back to us and let us know that she had a couple of other offers already. So much for that advantage... But at least we figured we could leave town on vacation and not worry about this while we were on the road.
So we leave for our vacation on Sunday, a nice leisurely drive up the coast for the first few days, and on Sunday afternoon, after a long stretch of road where there was no cell service, both of our phones start beeping at us with messages. Turns out, it was the listing agent. Kind of a surprise, being a Sunday, but she had heard back from the bank that afternoon, and they wanted to counter our offer, but only on escrow length and inspection period. We told her to let them know that we were OK with that. So Monday rolls around, and we get a call that the contract is in our email. So we track down a Kinko's and print it out, review it, sign it, and fax it back. Then over the next couple of days, we get a few more details here and there dealt with in between sightseeing. It all came together pretty smoothly, thanks to the miracles of modern technology, and we came home, did an inspection, ironed out a couple of minor things on the title report, and closed it.
The house need some love. It looks pretty good from the street, but once you open that front door, it's a different story. We're in the process of getting some work quoted and done, and we're hoping to have it rental ready by October 1.
Oh - added bonus: It came with a few mature tomato plants. They hadn't been watered much for a while, and a couple of them aren't coming back, but I've been nursing them along, and we'll probably double our tomato harvest this year.
That's some expensive salsa...
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