Redfin to Zip Diaries: When Years Equate to Thousands

I remember selling real estate in San Francisco back in 2003. Everything was selling. If the property had a parcel number it would sell. The fundamentals were just thrown out the door. Times have changed.

When I moved to Chula Vista in July of 2007, we were very close to buying a home. So much in fact that we viewed at least 20 homes, after some discussion we decided that we would not buy a home here because we were not sure how long we would be in San Diego. Plus, I wasn’t sure how long I would be with Redfin considering my abrupt move to So Cal. Well here I am, 14 months later and I am sure glad that I didn’t buy. So many things have occurred, the Southern California Wildfires, the Mortgage Crisis, rising gas prices, and just an overall lull in the economy. After 202 real estate transactions you think you have seen it all, but even today I am still learning new ways to skin that elusive cat my aunt would call real estate.

Today, I re-visited a home that I sold last week. My client had purchased this REO from IndyMac. According to the county’s tax records this is the transaction history of the home:

June of 2003 - $381,000

September of 2005 - $584,000

June of 2008 - $287,000

September of 2008 - $340,000

Negotiating with a REO listing agent has become a specialty of mine, I have found that there are similarities amongst what they are willing to accept. REO properties in the 300-500k price points are always listed below market, where the banks are hoping that the property would stir enough interest in the buyer community to drive the sales price higher. This tactic has shown to be very effective. In the case of this property, it was listed at $329,600 and hit the market on July 27, 2008. I showed the property on the 8^th of August, had the property in contract on the 14^th. It was a multiple bid situation - two other offers were involved in the process. Every offer is different but here price and strength of buyer were my tools to winning this one. My client had over 20% in the bank and we had been looking at properties for more than a month. She was pre-approved with Bank of America, which I thought we could use to our advantage. I made it very clear to the listing agent that we had done our homework. Specifically, we knew that the property was listed below market, and were very familiar with all the comps in the locale.  A home across the street for less square footage sold for $370,000 only about a month prior. It was an REO and was owned by Downey Savings. Our property had some nice upgrades and was much larger, so I knew that if we did not go above the list price then my client would probably lose out.

I always make it a habit to know who I am dealing with; I verify how long the agent has had their license. What type of license they have? I also Google them and check them up on LinkedIn. If I can gather any information at all, I will always put my findings into my discussion with them.  People tend not to not think straight if you put them on tilt. I found out that he had in office in La Jolla, been in business about 9 years, and was a salesperson. Just from that, I am able to gauge my approach. Based on those facts, I can determine that he will want a quick escrow, he probably does not do a great deal of work in the property area so he may let go of the property to someone he has confidence in working with. He also may be willing to give up the price out of convenience. I was right on all fronts.

REOs are always trying to get their money fast. My thinking is if they can get this off their book faster, then they move on to the next property.

So we went 11k above list price, 21 day close, 12 day contingencies. I also negotiated for 2k in repairs and a home warranty. There were some problems with this home, just like any previously foreclosed homes. Broken windows, a leftover portable spa and no appliances were all evidence to substantiate a credit. I have found that REOs are more willing to credit money than deal with any replacements or repairs. Again I was right. I was pretty happy with that deal. More importantly, my client was even more impressed with the style and efficiency of the process. 

Overall she had seen about 36 or more homes so I think she had a good feel of where the market was. We had written 4 offers, all were short sales except for this one. Three months later all of those properties are still on the market. My client was frustrated and was starting to think that she would not be able to find a home in today’s market. I also learned a little trick about motivation, buyers who are frustrated with short sales often become very interested in REOs. Dare I say it, but REOs almost have a certain sex appeal when compared to their non-performing short sale competition.. Buyers find that although the market is filled with short sale opportunities, REOs properties are the ones that are actually selling. Therefore, creating two types of buyers for 2008:

1. Buyers that can wait for a short sale and are not necessarily looking to move right away.
2. Buyers that need to move in finite amount of time.

Converting 1s into 2s is the name of this game. If you can learn to identify what will motivate buyers to become 2s rather than 1s then there is a likelier chance that you will consummate a deal.

So will I buy a place any time soon, well I am not sure. We still have our place in Burlingame and a few property investments here and there. I guess only time will tell, after all time is on my side. The market will recover it is just a question of when.

REO or Short Sale Which one is Better for You? REO Please

Over the last 6 months, Redfin has seen the number of bank owned and short sale properties go from 15% to 60% of our total offer submissions in Southern California.

First off let’s define what a real estate owned (REO) or a lender owned property really is. It is really simple. REO is a class of property owned by a lender, generally a bank, but it could be an investor as well. This occurs after an unsuccessful attempt at a sale at a foreclosure auction. This happens more often than not because most properties at these auctions are worth much less than what is owed to the bank. If there isn’t equity in the home, most speculators or investors at these auctions won’t even touch them. The minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any costs associated with the foreclosure sale including attorney’s fees.

Secondly let’s define what constitutes a short sale. In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. However, there are times when the bank will take the proceeds and issue a 1099 to the seller to be reported as income. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

Comparing the two types of property types, I prefer REOs to Short sales. When making an offer on an REO, the offer is presented to the lender or asset manager. Realize that the lender and an asset manager are not synonymous. If it is lender owned the lender has nominated an asset manager. For the interest of this discussion they are the same. Generally, responses from the lender are within 48-72 hours. If the bank decides counter to your offer, they will do two things. For starters they will alter the minor terms, i.e. by change the duration of the contract, designate escrow companies and or assign who pays for what fee. Secondly, they will ask you to make your highest and best offer. The rational behind this request is that the REOs must show to their shareholders that they are doing every thing in their power to get the most out of this property. The lenders by this time have a general idea of what they are going to accept as a sale for this property. But even if they seem price sensitive, negotiate. REOs do not do repairs and they do not credit money. Once the price is set at the beginning of negotiations there is no going lower. It is easier to start low than to negotiate lower so start at a comfortable low price.

Finally, buyers will have the opportunity to do any and all inspections. However, some asset managers are now requiring that you make non-refundable earnest money deposits. If that is the case, be very careful banks can be sneaky. Make sure that you pay attention to the special addendums they are requiring you to sign. Read them very carefully. Six times if you have to. Banks are exempt from making certain disclosures so be prepared to buy a REO home in its current state without a warranty from the lender seller.

The rest of the transaction moves pretty normally, from underwriting to funding. All in all, do your homework and REOs can be a great place to find a deal but keep in mind once you buy it there is very little recourse against the bank.

Buying Homes Sight Unseen….Encinitas Ranch - San Diego

Today was a perfect example of how our Redfin model and a seller’s need to sell work hand in hand. I rarely see the house that I am selling in person and it is even more rare for me to meet a client face to face. Usually, our field agents are the faces of Redfin. They get a chance to spend time with the clients and they are there to perform Redfin’s due diligence by inspecting the home and accompanying the client during the home visits. They are specifically trained to know what things to look for when they are at an inspection. When you work with Redfin, you work with a team of professionals that work harmoniously to close your transaction with a 2/3rds rebate..

I received a call today from a client inquiring a about a home in Encitas Ranch, San Diego. The home was built in 2003 and it has been sold twice since it was built. The last time it was sold was in January of 2007. The home sold for $1.2M it is currently on the market to sell within the range of $750k to 850k.

I called the agent to get the scoop ~ short sale ~

The remarks state that this home will need be bought sight unseen because of the uncooperative tenants in the home. Redfin is a perfect match.