And we’re not in a buyer’s market in San Diego Real Estate.  We’re also not in a seller’s market.  We’re in a bank-ruled market.  Now, the banks aren’t the winners here. Don’t get me wrong.  Even if a bank forecloses, they will be out thousands and thousands of dollars due to the overly inflated prices of 2004-2006.  In fact, most banks have adopted a moratorium (fancy word for “suspension of activity”) on foreclosures because it typically costs them $50,000+ to hire a trustee and foreclose.  So, that means banks will be working harder to get short sales negotiated favorably.  But still, short sale negotiators are ordering BPOs (Broker Price Opinion = Appraisal) and demanding they bring in the appraisal price and often require someone (buyer, seller, agents) to throw in additional monies towards back HOA dues and other expenses.  So, people, we are in a BANK-RULED market where terms and pricing is being brought outside the negotiating power of agents.    As agents, we need to be aggressive and fight for our clients irregardless of whether we’re representing buyer or seller. 

As I always say, the good news is that pricing is so much lower in today’s market.  BUT, there are price points where we are seeing some appreciating (take a look at the $400k and lower markets in any desireable location) and in those markets its because of multiple offers and buyers fighting to get into escrow on a property.  We’ve seen and passed bottom folks.  Its go time.

Tara

Those of us that own San Diego real estate, and those that are looking to buy their first home, have all heard the multitude of opinions out there regarding where our local market is at right now, most notably asking “Are we at bottom???”  “Is not the time?”   We can speculate all day long as to when the bottom of the market will (or if we are seeing it now).  But the best way to gage what might possibly be ahead is to look at the numbers.

Three years ago we were looking at 23,000 homes and condominiums on the market for sale.  Today that number has seen pretty much a 50% reduction with only about 13,000 units on the market in May.   And three years ago many of those units for sale were being sold by speculating investors looking to turn a quick buck.  Today over half of the units sold are either foreclosures or short sales.  Those people who don’t have to sell are waiting it out until they see some normalcy return to the market. 

In addition, the foreclosure / short sale market is gradually running out of product and the availability gets picked over very quickly.  It is now common place for “decent” properties to draw 15 - 20 full price offers quickly after being placed in the MLS with frenzied bidding very often going over the asking price.  One year ago, the average monthly resales ranged from about 1200-1500 units.  Today it is more than double that!  So the inventory is getting eaten up with much lower pricing in some localized markets.  Case-Schiller reports state that our residential real estate values have dropped more than 40% in the last two years. But that is only factoring in detached homes that have sold twice in a short period of time… which are very likely foreclosures and give a skewed snapshot of the market.  For most homes, the decline is significantly less than that and in some cases values have declined less than 10%.  It just depends where you live. 

As the San Diego County population continues to grow (by some 40,000+ people a year) and the job market gradually strengthens, eventually we will see a significant supply shortage without enough housing to meet the needs of the populace (when you take into account that building has decreased to a point that will now allow enough supply by the time things do catch up).  This may occur as soon as three years from now.  If you are thinking of jumping in…  jump now.

This is a question that agents get asked A LOT by our buyers, especially first-time buyers.

There are several “challenges” you need to be aware of when buying bank owned real estate (aka REOs & Foreclosures):

1. The seller acquired the property via foreclosure and therefore has no prior knowledge as to the property history or its current conditon (the asset manager doesn’t ever even see the property). And because of this, the selling bank is exempt from providing the typical seller disclosures and the burden of proof (inspections!) lies solely with the buyer.
2. The seller RARELY will entertain any repairs, especially major repairs. This can really become an issue for FHA or VA buyers because those programs have strict underwriting guidelines that may prevent the buyer from being able to pay for certain repairs. Although, there are creative ways to work through those.
3. Short contingency periods. The “contingency period” is the approved amount of time inside of which you must complete all inspections and obtain full loan approval. After removing contingencies you are essentially saying you will complete the transaction or forfeit your security deposit.
4. PASSIVE (or automatic) removal of contingencies. Most bank addendums call for contincies to be removed automatically at the lapse of the stated/agreed to contingency periods WITHOUT written removal unless you’ve submitted a request for repair or backed out. After that time the bank can AND WILL retain your good faith deposit if you back out.
5. Most REO listings receive multiple offers. Best bet is to, be informed as to the comps and approximate current market value of the property, and go in at your highest and best right off the bat.

Have an aggressive agent. This is your assurance that all bases are being covered and you have a strong advocate out there negotiating on your behalf!   Having closed many REO transactions this is based on my experience in the San Diego Real Estate market but it is applicable across the country.

-Tara

This is a great question, and it would depend on the selling bank you are dealing with. I have represeted buyers in REO purchases recently and have found the banks willing to cover a basic home warranty plan from reputable company. Your agent does need to write that into the purchase offer. I would like to clarify that the bank is not extending a warranty on the property. They are simply purchasing a warranty service provided by a 3rd party company. This does not extend any liability regarding the condition of the property to the selling bank.

Be sure to read the policy guidelines from the chosen home warranty provider to be clear what level of coverage you are receiving. Have your agent help you understand them clearly.

I hope that helps clarify somewhat.
Best of luck!

Tara

Tara Steinke
San Diego Real Estate Professional
Residential Sales and Appraisal
619-384-6014
mysandiegoagent@gmail.com