A Buyer's Guide to Short Sales

If you've been even glancing in the general direction of this blog over the past year and a half, you know that I'm of the opinion that short sales are going to take a growing share of our market, and they're here for at least a few years. For instance, last month I had told you that something like 40% of all of the houses and condos in the Lompoc Valley have more debt than value.

Short sales have gained in the percentage of sold units in our market, and it wouldn't surprise me at some point over the next year to see them as the biggest share, more than REO's or non-distressed sales. So it's probably becoming more critical than ever that not only sellers and their agents get clued into the short sale process - we need buyers to understand this side of the market as well. So pull up a chair, kids. Uncle Dennis has some advice to share.

Tip #1 - Know Thyself

You need to know a couple of things about yourself before you make an offer on a short sale. Probably the most important two things that you need to clue in on are how patient you are, and how much you want to own that house. Because in almost all of these sales, your patience will be tested at some point. Probably at multiple points. If you know going in that patience isn't among your virtues, you might want to stick to other types of sales - and you might want to get after it now, before short sales make up a bigger share of what's available. Or if your interest in the house is lukewarm and it feels like you're settling for less than you really wanted, do yourself a favor: move along to the next target.

Tip #2 - Understand the process

Know as much as possible about the situation as you can going in. There are so many variables in this process that it's almost impossible to know how the deal is going to progress. For instance, does the seller have one loan or two (or more) against the property? Have the sellers and/or their agent opened up a line of communication with their lenders? Have they already completed their short sale package? Has it had an accepted offer previously? How active is the listing agent with follow-up? Your agent should be explaining as much as possible about the process to you. If they aren't, ask a lot of questions. Explaining the layout of this maze is one of the things that we're supposed to do for you.

Tip #3 - Don't expect to "steal" a house

There's this fantasy out there among buyers that they can take advantage of a distressed sale market and grab a short sale for 20% less than market value. Uh-uh. Don't get me wrong here. It's possible to get a very good deal on a short sale. But the banks are going to do some level of due diligence, and they are going to be getting an independent third party opinion of the value of the home, either from an agent uninvolved in the transaction or from a licensed appraiser. They are getting to be a little more reasonable, but if you're looking to score a $230K house for $180K, you probably aren't going to find it in a short sale. Stick to an REO that needs a little cosmetic work.

Tip #4 - Negotiate everything you want up front

The standard contract that we use in our transactions has an investigation period built into it that allows the buyer to do inspections, review disclosures, look at HOA documents where applicable, that sort of thing. Most of the time, that period starts after the lien holder has issued approval for the deal. In fact, you'll want to make sure that the short sale addendum to the contract that we use specifies that. And you have a contractual right to re-open negotiations with a repair request.

But here's the thing: If you find something that bothers you in that investigation period, don't count on getting repairs done. You can still do a repair request. But the seller probably has no money to do repairs. And the lien holder has based approval of the deal on a net proceeds estimate that didn't include those repairs. So if you do a repair request, the seller has to go back to the lien holder with a new net sheet and get a new approval. It might happen. And you might get a date with Angelina Jolie this weekend. So if you want a pest clearance, or a roof certification, or some repairs to obvious problem areas, ask for them in the original offer. If you find something else after you do your inspections, by all means ask for repairs. But you'll also want to take stock on whether or not you can live with the deal if you don't get them.

Tip #5 - Show a little compassion

Chances are pretty good that the sellers don't really want to sell this house. Increasingly, these are going to be people who are experiencing some very stressful personal trials, things like job loss and divorce. So act in good faith, and try to be reasonable about what you ask of them. Be as accommodating as possible with things like inspection schedules. Don't try to nickle and dime things for the sake of "winning". Be glad it's not you in their position, and try to treat them the way you'd hope to be treated if it were you.

Tip #6 - Be patient

I'm coming back to this to wrap it up, because it's the key. We've seen approvals in 2 weeks, and we've seen them take a year. There's no certainty going in as to how it's going to go. Sometimes it's like peeling an onion, you just keep finding one layer after another. But if this is the house that you want to be your home for the next 10, 20, or 30 years, what's a little bit of hassle in the long haul? Just strap yourself in and hang on tight. Think of all the great war stories you'll have for your friends.

Monday Morning Numbers 7/26/10

Good morning! I'm in good spirits today because I pulled in my first cherry tomatoes of the year yesterday. A whopping harvest of 4 round, red little pieces of nirvana. All of my plants are very late producing this year for whatever reason, but my cherry plants at least are getting huge and appear to be ready to produce big time. But you aren't here to read about my tomatoes - let's take a look at some numbers:

Active Listings: 115

Contingent Listings: 36

Pending Listings: 43 (22.2% of the inventory)

New listings: 11

Months of inventory: 4.8
Click here for the updated price per square foot chart.

No big changes this week. I stopped reporting on price changes every week quite some time ago, but it's worth mentioning that we are seeing an increase in price changes this year. Year to date, we have seen an average of about 6.2% of our active inventory with a price change every week, compared to about 5.2% last year. I suspect that has more to do with the increase in non-distressed listings than anything else.

Later this week I'll have some words of advice for buyers looking at short sales. Make sure you check back in for that.

Focus On Newer Construction

This week it's time to take a look at activity on newer homes in our market. These are houses that were built in 2004 or later, resale only (not including homes sold by the builders).

We have a pretty good inventory of these homes at the moment, with 12 active listings. Keeping with the current trend of decreased REO activity, only one of those is an REO listing. The bulk of them - 8 - are short sales, with 3 traditional sellers in the mix.

Sales activity has been pretty steady, but not as robust as the market as a whole. Given that the price points on these tend to be a little higher than average, that's not surprising. We have 8 contingent listings (0 REO/7 SS/1 Trad) on the market, and 4 pending units (2 REO/0 SS/2 Trad). We've had 4 sales in the past three months (2 REO/2 SS/ 0 Trad). From that very small number, it looks like prices might have edged up a little over the past few months, but it's a very small data set to use to draw any conclusions.

Next week I'm going to approach the short sale segment of the market from a buyer's perspective, so make sure you come back for that.

Monday Morning Numbers 7/19/2010

Here we are again on another early Monday morning. Hope everybody had a better weekend than I did. I've been having some computer problems for a while now, so I finally bit the bullet and wiped and reloaded my computer. Boy, do I know how to have fun... On to the numbers:

Active Listings: 115

Contingent Listings: 39

Pending Listings: 41 (21.0% of the inventory)

New listings: 12

Months of inventory: 4.6
Click here for the updated price per square foot chart.

The trend towards increasing inventory continues this week. Over the past couple of months listing activity has increased slightly, and the number of pending listings has been dropping. We're still lighter on inventory than we'd like for most buyers, but if the current trend holds for a little while longer we'll likely start to see a lot fewer multiple offer situations on properties.

Later this week I'll take a look at activity on newer homes in our market.

2010 Second Quarter Update

As I've gotten a little older, I've noticed that the years tend to go by in rapid fire succession, each one shorter than the last. Case in point, I'm still adjusting to writing 2010 on my checks, and we've blown through half the year already.

Cue a schmaltzy Harry Chapin tune...

What that means for us today is that it's time for our second quarter wrap-up extravaganza. As I've done for the past few quarters, the first set of numbers here are combined numbers from the Lompoc Valley and Central Coast Regional MLS's.

We had very robust sales activity in the quarter, with 132 sold units. That is a 48.3% increase over the second quarter of last year, and it was the biggest quarter since the third quarter of 2005. A big part of that activity was probably attributable to the tail end of that first time buyers' tax credit. The average price per square foot ticked up this quarter for the first time in quite a while. It's been almost 5 years since we've had a measurable increase from one quarter to the next. That's encouraging.

Another potentially positive sign is that we had a much lower percentage of distressed property sales for the quarter. 34.8% of our sales were REO's, 23.5% were short sales, and 41.7% were traditional sellers. Some part of that is due to something that I haven't really been reporting on that we've started seeing - the flip is back in vogue. We have a handful of investors around town who are buying, rehabbing, and reselling properties. I'd have to manually go through to figure out how many, but that's one of the sources we've been seeing for non-distressed sales. In any case, I think that the increase in prices and the decrease in REO percentage is not a coincidence.

Now we're moving on to the numbers that come from the LVAOR MLS only:

We had 166 new listings for the quarter, up 21.2% from 2Q 2009. The trend to more traditional sellers continued, with 42.8% of new listings not in distress. 28.9% of our new listings were REO's and 28.3% were short sales.

Government loans continue to dominate our financing, with 44% of transactions being funded with an FHA loan, 17.4% VA loans, 17.4% conventional, and 20.2% cash. That cash number is down a bit from the last quarter, but it's still pretty astounding.

Things haven't changed much with the time it takes to get a property sold. The median days on market for our sold units was 21, and the median escrow period was 43 days. Both of those are very close to the numbers of the past couple of quarters.

We are still very much in a competitive market for buyers, with multiple offers driving prices up in many cases. 60% of our sales closed at or above the list price, down a little bit from last quarter but still a very telling number.

Looking forward, I'd be surprised if the transaction volume that we saw last quarter holds for much longer. Our pending sales have been dropping somewhat over the past couple of months, and the tax credit is a thing of the past. On the other side of the coin, interest rates are still beyond incredible and prices are still very much in the affordable range for a lot of buyers, so I don't see activity dropping hard. I don't know if the price appreciation that we saw this quarter will continue. That's going to depend on a lot of factors, not the least of which is the local employment picture. I wouldn't be surprised to see a period of a year or two where we see some minor amount of up and down on that price chart. Time will tell.

Monday Morning Numbers 7/12/10

Good morning! Let's take a look at this week's numbers for the Lompoc Valley real estate market:

Active Listings: 106

Contingent Listings: 43

Pending Listings: 46 (23.6% of the inventory)

New listings: 14

Months of inventory: 4.5

Click here for the updated price per square foot chart.

No big changes this week. New listing activity was a little better than I would have anticipated with the holiday last week, but I guess everybody was celebrating early.

Not a lot to talk about this morning, so I'll save all the typing for the 2nd quarter update later this week. Check back in later this week - should be interesting.

Focus On South Vandenberg Village

We're back around to South Vandenberg Village this week on our neighborhood reports. For some background on the area and a description of the homes in the area, go to my first post on the topic from last year. As a quick refresher, we're talking about houses only - not condos - and we're excluding Providence Landing, which is covered when I report on newer construction activity.

The last couple of times I've covered the area there hasn't been a lot of activity. Some things never change. We actually have a few more listings there now than we had earlier this year when I last reported on the area. We're up to a whopping 5 active listings (1 REO, 2 short sales, and 2 traditional listings). Woo hoo. We have no contingent sales showing here at the moment.

Sales activity has been slow there with the lack of inventory recently. We only have one pending unit on the market, a traditional seller. We've seen two sales there in the past 3 months, one REO and one short sale. It might be that we're starting to see a little more activity there, but we're going to need quite a bit more to be able to pinpoint any kind of trend.

Next week I'll have the 2nd quarter wrap-up extravaganza. Lots of good stuff to report, so make sure you check back in for it. I'm aiming for a Thursday afternoon post.

Monday Morning Numbers 7/5/10

Hope you all are enjoying a great holiday weekend. We are taking a couple of days off in a row for the first time in a while, which is a treat for us. Stayed up late, slept in, and I'm late getting this post out this morning. If you were looking for it at 7:00 this morning, sorry. I was still in bed... Let's look at this week's market stats:

Active Listings: 111

Contingent Listings: 43

Pending Listings: 43 (21.8% of the inventory)

New listings: 6

Months of inventory: 4.6

Click here for the updated price per square foot chart.

Nothing too big to report here this week. Last week was a slow activity week, and this week might be as well with most people taking today off. We had a very slow week for new listings last week after having some relatively robust activity there for the past several weeks.

I'm not sure what the topic is going to be for later this week, but I can tell you that next week we have the 2nd quarter wrap-up on tap. I'm looking forward to compiling the numbers and seeing how the quarter went for us.