Sacramento Real Estate Blog

If you’re waiting for a happy new year in real estate, this might not be it. Well, then again, it might. But the numbers in Sacramento county are less than prolific. Usually, nothing changes much in December anyway as home owners and home buyers are smack dab in the middle of the holiday season. Their days are better spent visiting than home shopping. Nevertheless, here are the numbers.

Unit volume is up again over November and over last year by a whopping 105.6%. A total of 1914 homes sold in December over just 931 last December. Of these, 72.4% (1385) were foreclosure properties and 10.4% (200) were short sales. Compare that with just 329 non-distressed properties selling in Sacramento county and you will see why prices have fallen yet again. Non-distressed sales now make up 17.2% of the total sales, down 27% from last December. Not co-incidentally, foreclosure sales are up 217% and closed short sales are up 354%!

Sold price per square foot last month was at $122.69. This month, it is down slightly over last month at $120.64 - that is however a drop of 31.6% year over year. The average sales price is also down 36.3% for the same period. It is currently $192,773. Last month, the average home sold for $196,839. Median price also tells the same sad story: 38.3% drop over last year. We are currently at $170,000 down from last month’s $175,000 and December 2007’s $275,500.

The only silver lining here is that inventory has shrunk a little. Sacramento county is currently at 4.2 months of inventory based on the last year of sales and 3.6 months based on the last 6 months of sales. Foreclosure inventory is at 1.9 and 1.6 months respectively.

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I must be focusing on the home sellers quite a bit lately… and honestly, there aren’t a lot of them out there. Most homes on the market - the ones that catch a first time home buyer’s eye anyway - are bank-owned. (By the way, some of them are such a steal lately. I was in Roseville yesterday showing homes and came across some fantastic finds for under $200,000.)

Anyway, for the purpose of this post, I’m going to focus on how you as a home buyer (first time or not) can pick the right neighborhood and be happy with your purchase. The fact that home prices have fallen so much makes it hard to choose the area you really want to live in. Couple that with the fact that REOs have generally deferred maintenance and unkempt front lawns and picking the right home seems like quite a gamble. But not if you follow these simple tips:

Friends and Family

Sure, you might not be the person to want your mother-in-law over at your home for dinner every night, but having family and friends in the same area might be a good idea. For one, chances are you have already been to their homes a few times, so you know the neighborhood. And instead of checking the newspaper for crime statistics and other details your relatives probably have first-hand knowledge of most of what you care about.

A built-in social life means a lot to many people as well. You might think you don’t care about that now, but sometimes having the yellow book or google as your only friend when you want to head out to just pick up something from the nearest store or find that perfect burrito place in town is not such a great idea.

Distance from Work / Commute Time

Some home buyers like to focus on the time it would take them to get to work. I remember my daughter’s pediatrician saying that he was all but two minutes away from his place of work and he loved it. He almost fainted when I told him I lived in Pollock Pines. Well, to each his own. I like to clear my head before I head home, unlike some others that would rather just get home and then relax.

Whichever camp you belong to, make sure that your home choice matches it. A good way to do this is to drive around during your lunch hour. If you prefer to live close to work, get a drive-by look at the homes listed in the area. You can also just search the area on our MLS search right here, but driving around gives you a visual of the homes, so you are better prepared to judge them. If you are one who likes a commute, time yours and then drive around on the weekends. Don’t judge your commute by the weekend drive time though. Pollock Pines for example is just 45 minutes from Sacramento on the weekends, but during week days it can take almost an hours and a half!

Do your research. Get a look at homes, compare prices and styles. Take your time getting to know the area. Some places are notoriously only business areas. Be sure you can live there or far enough away that you can separate home from work and relax when you’re home. Well, I suppose I should qualify that with an “if that’s important to you.”

Other Ways to Pick

The best things - my husband and I have decided - about moving to Pollock Pines are the neighbors. I have never met nicer people anywhere. Because it is a smaller town than Sacramento, the sense of community is greater but it isn’t so small that everyone knows your name and where you are and what you’re doing. If neighbors are important to you, some footwork might be necessary. It isn’t so odd to knock on a few doors and ask what the area is like. People are quite friendly when you ask about anything that is important to them. And if they aren’t nice, well, move on. Why would you want to live next to a grouch?

Google can be your best friend when looking for a certain interest and then buying a home close to it. For example, if you have a dog and want a dog park close, just search for “dog park” and the place you’re looking at. Same for horses. Or maybe you want to live close to a vineyard or a small home brew club. Google can give you all the answers and then you can do your research from there.

Hopefully, I’ve helped point you in the right direction. It’s usually a good idea to take some time to figure out what is important to you before making the leap to buy a home. Then you come from a place of motivation and reason to buy. Just because home prices have fallen drastically in a certain area doesn’t make it the ideal place. Take some time to do your research and once you know the right place, feel free to pounce on the right home!

Picture this: You have to sell your home. Perhaps your company asks you to move to another city. Quickly. The real estate market is a buyer’s market, but you hope to recoup the costs in the place you relocate to. But you still want to make a good sale. Thankfully, you have been judicious in the purchase and the sale will not be short. You have some cash on hand to spruce up the place you currently live in before you put it on the open market. What do you do? Hopefully, you don’t make these three biggest errors when remodeling for a sale!

Painting Everything White

This seems to be a favorite mistake because it appeals to everyone’s sense of cleanliness. If it’s white, you can spot a speck of dust, we think. And so, if it’s white, it must be clean. While that seems like a good idea, usually painting the entire place white has just the opposite effect. For one thing, it looks like an attempt at sanitation. Like a hospital. People don’t like living in a hospital - it appears cold and unappealing to comfort and warmth - two things home buyers will pay a premium for. Why cold? Because it dulls all the little details. It hides the crown molding and it covers up the window design. It makes all the features of the home disappear! Why would you want to do that?

The only time whitewashing a house is a good idea is when the house is a short-term rental and one that is painted every 3 months or so. The landlord has chosen the cheapest paint available and one that requires the least amount of work and attention to detail. You want to create the opposite effect. So pick your paint with care and pay attention to detail. Use paint to accentuate the trim, the molding and the wainscoating. These are features. Don’t hide them!

Making Changes Based on Personal Preferences

I don’t know why it is that moving (or potential moving) brings out the finish-it-all-now monster out in all of us. Suddenly, we feel the desire to set everything right, become more organized, clean up our act, so to speak. This nesting instinct is a good thing - especially once we get to the new home - or we wouldn’t unpack and would live in boxes all our lives! But in the home that is going on the market, the nesting instinct is completely misplaced. While finishing projects is necessary, getting them to fit your personal preferences is not! Sometimes, it’s hard to draw the line, but you must!

Most home owners have projects. They have ideas of how the home should look and what it should feel like. Unfortunately, only a few homeowners ever get their home to look like that picture in their mind. And it’s a worthy endeavor, just not one to engage in while the home is on the market. Sometimes, this involves abandoning projects and finishing them in a way different than one imagined, getting the home to appeal to a taste that is different from your own. But remember, you will not be living in the home any more! Save your efforts for the new place and save yourself some money, too.

Getting the Latest and Greatest

Many home sellers think that the more they remodel, the more money they will make in the sale of a home. That is simply not true. According to most research, kitchens, bathrooms and siding gets the most return on investment. So watch for what remodeling efforts you want to put into the home before you list it. All of them are not created equal. Just because granite countertops are fashionable does not mean they immediately increase the value of the home - just look at the all the REOs on the market today. Believe me, a lot of them have granite counter tops.

A better idea is to look at how much you’re willing to spend and then take a good look at your home. If you can afford an interior designer, get one. The most important thing for a home to sell is not that it has the coolest, newest brand-name appliances or fixtures. It’s conformity. You want to stay within the style of your home and the houses around it. It’s called the principle of comformity. This is not to say that you cannot upgrade a 1940s kitchen. By all means, go ahead and do it. Home buyers love upgraded kitchens but be sure you retain a sense of the original style of the home. Then, when the home is on the market you could also play up the charm by staging it.

While I’m not absolutely sure these are the three biggest errors home sellers make, I’m pretty sure they rank pretty high on the list. So try and avoid these and hopefully you will hold on to enough of your money to be able to get the next home just as you like it!

This is the last part in a three part series. It seems like often home buyers who don’t have much experience purchasing or selling houses are not aware of how things really proceed in a real estate transaction. Sometimes even if they have been active in the market in the past, laws and rules change and keeping up with them as a consumer is hard. TV shows like the ones we see on HGTV don’t help either, because every state is different and sometimes there are different conventions within the same state across counties. All of this creates a sometimes confusing environment for home buyers.

Here I wanted to go over a few of the main issues that come up during and after escrows so you are more informed as a home buyer. So far, we have discussed the “as-is, where-is” clause, disclosures, inspections, flood insurance, keys and buyer’s remorse. Today, I want to go over some things that would occur after escrow closes or very close to the end of the escrow.

Buying a Home as an Individual when Married

This comes up about as often as once every three to four transactions. Sometimes the client is investing in a flip and does not want to include the marriage partner in the risk involved to his or her credit. Other times, a parent wants to buy a home for his or her children and does not want to include the other. Whatever the reason, it is important that you know that if you are married, the title company will want to get the spouse to either be on the title of the home or they will want the spouse to give up all claim to the house by signing an interspousal deed before the main purchaser signs the main document taking title.

Most home buyers are a little confused by this and are confused when asked if they are married. However, there is a reason for this. California is a community property state, which means all assets and liabilities are shared equally between spouses. Thus when one spouse acquires a house half of it belongs to the other unless expressly signed off. So, even if only one spouse will be buying a home as a sole and separate property, both signatures are required at the notary. It is a good idea for both spouses to make the time to be there. In the past, I’ve had the spouses sign at different notaries and it always creates confusion and leads to closing delays.

Home Warranties are not Perfect

Lately, home warranties are a good way for home sellers to attract buyers. The idea is that the seller pays for a home warranty and if something in the home needs repair, the dishwasher, for example, the warranty company sends someone to repair it for a low fee - currently around $50. You can also add roof coverage or air-conditioning coverage to the home warranty and it is typically paid for a year. You can also extend it after the first year by paying for it yourself.

A home warranty is a pretty good thing for home buyers to have, especially if the seller has paid for it. A home warranty covers unexpected expenses, especially at a time when new home buyers need them most - when they are dealing with a new mortgage and getting used to homeownership. However, there are certain exceptions to home warranties that you should be aware of. For one thing, you should know that they do not cover outside plumbing. Read the home warranty exclusions before relying on them completely to avoid unpleasant surprises.

Taxes

This one gets almost all new home buyers. Even if you have created a reserve in your impound account for all the year’s taxes, you will still get a supplemental tax bill for the year. This is because there is a gap between the taxes the earlier home owner paid (based on home prices when they bought the home) and the taxes you will owe (based on the price of the home when you bought it.) So don’t be surprised if it is a hefty one. Depending on when you buy the home, you can receive one or two supplementalt tax bills. It is a good idea to keep some cash in reserve for this supplemental bill.

However, be sure to check the year on the tax bill. Even if you are sure it is a supplemental bill, ensure the year. With the amount of foreclosures on the market, tax bills missed by the earlier home owners can mistakenly become part of your liability if you don’t check the date. The title company is your best friend regarding this, so hang on to the title company’s phone number and the title officer’s name.

As if that wasn’t enough, another thing that can go wrong with your property taxes is that the mortgage company might just return your reserves months before your annual (not supplemental) taxes come due. They might see it as an excess in their audit, but hold on to that money and do not spend it! You’ll be glad come tax time.

I think that about covers it. These are the most common pitfalls home buyers seem to run into on a regular basis. As the risk of using a cliche, forewarned is forearmed, so be aware of these when you decide to buy a home and ask your Realtor® questions! Questions don’t bother us. Believe me.

The way homes are selling in Natomas, one would imagine that the neighborhoods are undergoing a sea-change. Property is exchanging hands so quickly, the area is in a constant state of flux. Consider this: There are currently 766 homes on the market. But they only make up 4.8 months of inventory. Even more surprising are the 216 active foreclosures that make up 2 months of inventory. It’s really the 374 short sales that will make up the fate of Natomas.

119 foreclosures sold in November, 23 short sales and 25 non-distressed homes also sold. Thus 85% of all sales now are distress sales. Total unit volume for November was up 114%. That includes an increase of 358% for foreclosure sales, 475% for short sales and a drop of 48% for non-distressed sales!

Average price per square foot fell 27.4% over last November - from a high of $168.39 to $122.26. The average sale price also fell 27.7% from $313,023 to $226,207. The median sales price has dropped 23.8% year over year from $301,750 to rest at $230,000.

Inventory is at 4.8 months (based on the last year of sales) and 3.9 months (based on the last 6 months of sales).

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This is part two in a series. The last time, we covered things related more closely to REOs or bank-owned homes, since that seems to be what most buyers are picking up lately. While the “as-is, where is” clause, disclosures and inspections are not necessarily specific to bank-owned homes, it is usually in the purchase of one that a home buyer runs across the them. Today, I want to go over three more that most home buyers are not prepared for and are especially shocked at because they appear so late in the escrow transaction.

Flood Insurance

Usually flood insurance is optional. However, I have had escrows where the client gets a quote from his insurance agent and we send over the proof of insurance to escrow, but the net sheet on the day of the signing comes back with a quote for flood insurance as well. What happened? The client thinks there is a mistake and refuses to sign. The lender however believes that flood insurance is required and refuses to remove it from the net sheet, will not have loan documents out without the home getting flood insurance. Who’s right?

Sometimes there really can be an error. Maps of flood hazardous areas are constantly revised and no one can say with any guarantee that a certain area falls within a flood zone. A classic example is Colonial Village. Just five years ago, flood insurance was required in all homes in that neighborhood, but then maps were revised and flood insurance is optional. Home buyers are advised to read their Natural Hazard Disclosure Reports closely. That is where you will find out if the property is in a flood zone. If it does fall into one of the flood zones, the lender will require you to carry flood insurance, just as you are required to carry home insurance. But at the very least, you’ll know during the contingency period, so that there are no surprises the day of the signing, which is pretty nerve-racking already without added stressors.

Keys

If you’ve been watching movies or the property shows on HGTV, you’ve probably got the wrong idea. Almost always, the happy home buying couple signs the documents and the Realtor® or the title officer hands them their keys. The pens are barely capped and put away, the ink isn’t dry and the keys to the new home are exchanged. Well, I have news for you: that almost never happens. Signing documents really is as dreary as it sounds. There will be a stack waiting for you when you get to the title office. You will be warned about what happens if you default on a payment, the details of your loan will be explained to you along with other disclosures and then you get to sign and go home. You don’t receive keys on that day.

After you sign the loan documents, they are taken back to the lender. The lender ensures everything looks right and then the loan is funded. This usually happens the following day. When the loan is funded, the title company is notified and the transfer of title is sent for recording at the county clerk recorder’s office. It is only after the recording confirmation is received that the keys transfer hands. Chances are your Realtor® will meet you at the property and take the key from the lockbox and hand it to you.

Most buyers are surprised that so much has to occur between signing and receiving their keys. It all usually takes no longer than 48 hours. But those can be the longest 48 hours you experience!

Buyer’s Remorse

Yes, Virginia, there really is buyer’s remorse. When it hits, even the most excited first time home buyers have no idea what is wrong. The truth is, there really is nothing wrong. Maybe it’s that the excitement of buying a home is now over. After the hundreds of homes to choose from, there is the one that has been settled on. Maybe it’s that you have just got a huge loan and feel like you have spent a lot of money. Or maybe it’s just the adjustment into a new place. Whatever the reason, buyer’s remorse involves a feeling of sadness or disappointment home buyers often experience after the purchase of a home. Sometimes, it hits during signing, sometimes before signing. Other times, home buyers complain of feeling especially low right after they move into the new home.

One way to overcome buyer’s remorse is to get involved in decorating the home. It also helps to have a housewarming. And definitely cancel all those services where you had new listings emailed to you automatically. Stop looking at new listings around you. Yes, it is a commitment, a little like getting married. Make the most of your new home and stop looking at others.

Hopefully, this helps you the home buyer anticipate some potential problems that could arise if you didn’t know everything about the home buying process. Come back for the last and final part of this series!

There are parts of Sacramento county that seem to be recovering and Land Park is among them. The 12 short sales I mentioned last month still have not sold, so we’ll have to see if they end up causing this recovery to take longer to get here, but the numbers this month have been better than they have been in a long time. So Land Park residents, rejoice!

Sales slowed this November in Land Park. We have a unit volume drop of 50% over last November. In fact only 11 homes sold in the area: 2 foreclosures, 1 short sale and 8 non-distressed.

Sold price per square foot, while posting a drop of 19.2% over last year at the same time is still higher this month as compared with last month. Last November, it was $333.55. This November the sold price per suare foot averaged $269.44 - higher than October’s $250.87. This is not the only number that makes me happy this morning. The average price for a sold home has also recovered somewhat since last month: from $346,250 in October to $435,045 in November. It is still a drop of 12.3% year over year. Last November, the same home would have sold for $495,795. Median price, however has posted a year over year increase of 8.6% - no small number in this market. Last November’s median was $422,000 and this November, the best number is $458,500.

Inventory is also lower than last month, another sign of hope in Land Park. We are at 4.4 months based on the last year of sales and at 4.8 months based on the last six months of sales.

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For long I have said and believed the old real estate saying about sellers selling in a sellers’ market, but buyers not buying in a buyers’ market. The sales in Fruitridge-Elder Creek might just make me eat my words. When bargains abound, at some point, home buyers sit up and take notice. And then, (gasp!) they buy! They certainly have around Fruitridge and Elder Creek.

There has been a 242% increase in unit volume in Fruitridge year over year. Whereas a mere 33 homes sold last November, this November saw 113 houses sell - that’s almost 4 homes a day! 91 of these were foreclosures (80.5% of the total homes sold), 7 were short sales (6.2%) and the rest 15 (13.3%) were non-distressed sales. The foreclosures sales accounted for an increase of 355% over last November’s foreclosure sales.

What could lead to this kind of frenzied buying? Well, the prices might give us a clue. The average sold price per square foot has fallen 54% since last November: from a high of $169.35 to $77.35 today. And so has the average sales price. It has also tumbled from $195,629 to $89,135 for the same period. The median sales price has seen a 58.3% drop from $180,000. It is currently $75,000.

Inventory is at 5.1 months based on the last year of sales and 3.8 months based on the last six months of sales.

If you’re missing a white Christmas in Sacramento, maybe it’s time to head uphill. Here at 4000 feet, there is a lot of snow - and undiscovered real estate - to be found. Pollock Pines seems to be just now getting around to catching up with the rest of the foreclosure markets. It posted a unit volume increase of 57% but that was no thanks to the non-distressed sales. Only 1 non-distressed home sold in November in Pollock Pines. 90% of home sales were foreclosures and short sales.

But the inventory is far from gone: there are currently 29 foreclosures and 14 short sales on the market. With home sales averaging about 10 - 11 a month, we still have overall inventory at 12.6 months (based on the last 12 months of sales) and 11.8 months (based on the last 6 months of sales.) However, foreclosures only make up 6.2 months and 5.8 months of inventory for the same periods.

Of course, the reason foreclosures are such great sales is the price. Sold price per square foot has fallen 32.1% year over year. From its high of $203.87 last November, it now rests at $138.53. The average sales price has fallen 41.5% - from $383,271 to $224,273 for the same period. Median sales price has also fallen 43.2% from $370,000 last November. It is currently $210,000.

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There is little good news in the real estate market today in and around greater Sacramento, so homeowners should take it when it comes and consider themselves lucky. Fair Oaks is one such place. Sales have dropped since last year. We see a unit volume decrease in this area of 32%. The biggest difference is in the short sales - where only one had sold last November, this November saw 7 short sales sell in Fair Oaks. Non-distressed sales meanwhile have fallen sharply: from 20 to just 5 for the same period. Foreclosure sales remained unchanged at 7 sales.

Average sold price per square foot is bobbing around the same it was last month: $166.83 in October to $165.08 in November. This is however a 22.5% drop from last year’s $213.03. Average sales price has declined 26.7% from $446,032 to $326,816 for the same period. That is however an increase from last month’s average of $291,828. Like I said, accept the good news where you get it. Median sales price has fallen 32.4% from $403,750 to $273,000 year over year.

Inventory is lower than it was last month. And that inspite of the overall decline in sales. Fair Oaks is currently at 5.8 months based on the last 12 months of sales and 4.9 months based on the last six months of sales.

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Inventory is drying up rapidly in Antelope. Last month we reported inventory at 4.4 and 6.7 months (based on the last 12 months and 6 months of sales, respectively) and this month it has shrunk to 3.9 and 3.4 months respectively.

Which must mean that unit volume is up, right? It is. It is 103% over real estate sales of last November. That constitutes a 200% increase in foreclosure sales, a 300% increase in short sales and a 47% drop in non-distressed sales. 57 foreclosures sold this November in Antelope, along with 8 short sales and 8 non-distressed sales. Almost 90% of all homes sales in Antelope today are distress sales.

Sold price per square foot has fallen again. It is now 20.6% lower that last November, from its high of $157.47 to $125.07. Average sales price is also down 25.2% year over year. It is currently $199,432 from last November’s $266,552. Median sales price is also lower: 25.2% lower in fact. Currently at $205,000 from $266,000 for the same period.

There are currently 64 foreclosures on the market, but they only make up 1 month of inventory, which means about 2 foreclosures sell every day in Antelope. Unfortunately, there are also 196 short sales, which might drag out a real estate recovery in these parts. Short sales currently make up 19.3 and 14.5 months of inventory depending on how you look at them.

The alternative title for this post series was going to be “Nine Things that Knock Home Buyers Off their Feet” but I thought that was rather dramatic and I’ve decided to put drama in my life away for a while. Just for a little while. So there. Anyway, I’m writing this series because some of my clients had no idea about what to expect when it came to the home buying process. Recently, I read in a book and mentioned elsewhere that the real estate market at any time is filled with people that are inexperienced buyers and sellers. The reason I repeated it is because it struck me as so true. This post is designed to make you, home buyer, a little more aware of what to expect. Today I’m talking about the as-is clause, disclosures and inspections. Today’s post is more related to the REOs, if you’re considering buying one.

The “as-is, where-is” Clause

Banks don’t like real estate. It ties up their money so that there’s less to lend and reduces their profits. So when a bank (read lender, mortgage company, etc.) acquires a piece of real estate, either through foreclosure or a short sale, something I like to refer to as an “almost-foreclosure,” (Note: A bank doesn’t come into direct possession of a home when a short sale occurs. Rather, the owners have let the bank know they cannot make any more mortgage payments and the bank forgives the loan and sells the home short. It’s an alternative to the traditional, otherwise eventual, foreclosure.) the bank wants to get it sold.

Chances are, the lender has already lost money on the home. Add to that the fact that none of the lender’s representatives have ever been inside the property and have no idea what is wrong with it. Thus, most banks will have an “as-is, where-is” clause in the contract. As such, the bank will make no repairs to the home. What you see is what you get. (And sometimes, you get more than what you see.) In fact, the “as-is, where-is” clause is so common that if the lender does want to make repairs, it will be advertised prominently in the listing to draw buyers!

As a home buyer though, you should know that just because the contract says “as-is” does not relieve the banks of giving you time to get your inspections. And get your inspections you must! If something does come up as a deal-breaker for you, you can always get out of the contract, and provided you do it during the contingency period, you will get your good faith deposit back.

Disclosures

Okay, so you have found the ideal home. You think it’s perfect! Your Realtor® shows you the CMA and you decide it’s a fantastic deal! Now, what could be wrong with it? In a “normal” sale, a non-distressed sale, the seller would have to fill out a Transfer Disclosure Statement in which he would tell you anything he saw as a potential problem. This time, the seller is a bank. And the problem, of course, is that chances are the bank - or any of the representatives of the bank - has never set foot in the home that is now on the market. So they have no idea what’s wrong with it, so how can they disclose anything to you, the buyer?

What you will receive however from the two Realtors® involved is an agent’s visual inspection. This should name all the potential red flags the agents note. Be sure to read these two disclosures along with all the others you receive during escrow and go over them with your property inspector. Don’t be afraid to pick on every little thing if it bothers you. In the absence of any “real” disclosures, you have to depend on your own inspections and your Realtor®.

Don’t expect any help from the lender. Most home buyers don’t expect this and think that the bank will tell them if there is anything wrong with the home. Disclosures are important, but even in a non-distressed sale, real estate brokers will always insist you get your property inspections.

Inspections

Inspections, as I have covered elsewhere on this blog, are paramount to making a good real estate purchase. Which inspections should you get? A termite, roof and property inspection are the main three. If you live in the country, a septic inspection is also important. If there are any specific concerns you have - like mold - it’s not a bad idea to get that, too. Be sure to get these inspections during the contingency period. That way, if you do discover something that you do not like about the home, you can always back out of the escrow and get your good faith deposit back. If the inspections are scheduled after contingencies are removed and you discover something which makes you back out, you will lose your good faith deposit.

That being said, home buyers should be aware that certain things might still go unnoticed during a property inspection. This one happened to me: my friends bought a bank-owned home when the power was turned off. As such, the home inspection was not as thorough as it could have been. (REOs often do not have power. You should try and get the power turned on before you get your inspections. Sometimes, the timelines don’t work, however, and that’s what happened to us.) After escrow had closed, they discovered the home had no hot water. Further plumbing inspections revealed that the plumbing in the home needed work. When we asked the home inspector why he didn’t catch it, he said that such an in-depth plumbing inspection was not required of a home inspector. Thankfully, the repair cost a few hundred, not a few thousand. So, get all your inspections and then some. It might seem overly cautious, but it’s not.

I thought I should do this series because many of the homebuyers out there in the market today are first time buyers. While I love that the recent real estate downturn is inspiring many people to buy homes - something that was out of their reach in Sacramento for a long time - the market is unfortunately filled with REOs and thus also full of risks. Most of the time, the purchase works out just fine and many homeowners today are so thrilled that they bought a bank-owned home because they got such a fantastic price, but sometimes things don’t quite work out. Either way, I like to inform my home buyers what to watch for.

In the next two parts, I’ll be going over other concerns home buyers have regarding a purchase that are common to both REOs and non-distressed sales. Come back for that, and Happy House Hunting!

If homes are selling in Florin like hot cakes, they’re selling in Freeport like… um… Christmas cookies! Here are the mind-boggling numbers: unit volume up by 404%, foreclosure sales up by 614.3%, and short sales even up by 600%! 92.2% of all home sales in the Franklin - Freeport area are now distress sales. Only 18 of the homes sold in November were non-distressed sales. Compare that with 214 distress sales! And that is only in one month!

So the 890 homes for sale one sees as active listings might seem like a large number. But they only make up 5.2 months of inventory based on the last 12 months of sales and 3.8 months of inventory based on the last six months of sales.

The reason for all this activity is obvious. Prices have fallen 44.3%. The average sold price per square foot has gone from a high of $162.04 to 90.24. Yes, double digits! Believe it or not. The average sales price has dropped 44% as well - from $224,616 to $125,600 year over year. Median sales price has dropped 47.3% for the same period - from $212,950 to $112,148.50.

If you’re looking in the Franklin - Freeport area and thinking about snagging a foreclosure for yourself, you might want to get busy. There’s a lot to look at, but the 410 REOs make up a mere 2 months of inventory! Cookies, anyone?

If you want to see a hot sales market for real estate, look no further than Florin. We have a 364.5% unit volume increase year over year, the famous “Florin Maul” John referred to a while ago. Well, it doesn’t seem like the maul is over yet. Someone buying Florin homes as Christmas gifts? There has been a 521% increase in foreclosures sold over last November. Yes, you read that right. It isn’t a typo. 118 foreclosures and 14 short sales sold in Florin over the month of November. Compare that with just 12 non-distressed homes sold - the same number by the way - as last November.

Any surprise that prices are lower? Sold price per square foot has fallen 30.1% from $153.68 last November to $107.36. Average sales price has fallen 32.4% - from $269,932 to $182,420 for the same period. Median sales price has also fallen 37.3% from $255,000 to $159,975 year over year.

To get another idea of how fast homes are selling in Florin, here’s another nugget: there are 190 foreclosures on the market and they only make up 1.4 months of inventory! As for the rest, we are currently at 4.8 months of inventory (based on the last 12 months of sales) and 3.6 months based on the last 6 months of real estate sales.

The face of real estate in Arden-Arcade may be changing, or this month may have just seen a more normal month than October. There’s nothing “normal” about this market of course when 97 foreclosures make up just 2 months of inventory. Last month, I was surprised when one foreclosure was selling every day; needless to say, now I’m just speechless.

Year over year the numbers do not look good at all. Sold price per square foot has dropped 30.4% over last November - from $233.50 to $162.58, almost the same as last month’s $162.19. Average sales price has dropped 30% over last year from $350,724 to rest at $245,436. Median sale price is also down 38.2% from $275,000 to $170,000. Not great numbers, but a little heartening when compared with last month’s average of $218,954 and median of $166,000.

Of course, the majority of sales remain distress sales. 47.8% of inventory sold was foreclosed property and 16.4% were short sales. Non-distressed sales were down by 45.5% and made up just over a third of all sales: 36% to be exact. Overall unit volume is up by 13.6%.

Inventory is at 5.6 months based on the last 12 months of sales and 4.5 months based on the last 6 months of sales.

This is part of an ongoing series of pitfalls most homeowners make when their house becomes a listing on the open market. So far, we have covered in the last post dealing with clutter, using a lockbox and having curb appeal. In the post before that, we went over pricing, competition and trusting your Realtor®.

As I have said before, it is imperative in this real estate market especially to be extremely careful when putting your home on the market. Studies into human behavior have repeatedly shown that the more options there are for a person to choose from, the less likely the person is to actually pick something. and today, there are so many homes to look at that a potential homebuyer can easily become overwhelmed. So, what can you do to stick out in the home buyer’s mind? Read on!

Not Leaving the Home during a Viewing

This is a pet peeve of mine, so bear with me here. You’ll see why it’s important. There have been times when I have come by as a buyer’s agent to a listing that is not my own with some potential clients and the sellers have killed the sale. Of course you know that Realtors® don’t get paid unless the potential buyers close escrow, so for the sale to be killed during the showing itself is pretty upsetting. But it’s not just that - it’s that the way the sale is usually killed just shows a lack of manners.

Let me explain. From the moment my clients walked into the home until the minute we crossed the threshold out of it, we were constantly scrutinized by an angry old lady who didn’t say a word. Now I don’t know that she was angry but she definitely seemed that way and she never took her eyes off my clients as they walked around the house trying very hard to ignore her.

This is a mistake, sellers! And it will ensure your home never sells. You don’t need to let home buyers run free in your home but putting them under a microscope and making them feel unwelcome will only force them our in less than 30 seconds. And decisions to make offers don’t get made in 30 seconds. Get a business card from the buyer’s agent and leave the home for about 15 minutes. Give the clients room to picture their belongings - and themselves - in that property. And please, please don’t stare at them! They’re not under scrutiny; your home is! There are many REOs out there that are vacant. The last thing you want them to do is go look at those because they don’t want to be made an object of when they’re shopping for a house!

Being Hard Headed when you Receive an Offer

Some homeowners still remember the good not-so-old days when they received a full asking price offer and then could counter asking for more money because the real estate market was headed up. And are chagrined when their home stays on the market much longer than expected and then they receive an offer way below asking price. What’s a seller to do?

For one thing, I would recommend a home seller determine if the offer is serious. If the person making the offer has taken the time to write it down with a Realtor®, has a good faith deposit and a letter of preapproval, chances are the offer is serious regardless of the amount offered. A home buyer who does all of the above definitely has an intent to buy and is not - the bane of home sellers everywhere - a tire-kicker. So, with that being established, the worst thing a home seller could do is get angry, get emotional, feel insulted and not respond to the offer or otherwise reject it outright.

Many home buyers today are confused. The real estate market is at any time made up of inexperienced buyers and sellers anyway. And with all the information coming at first time buyers today it is not surprising that they don’t have a clue what they are doing sometimes. So the fact that they made a lowball offer has nothing to do with your home or you and everything to do with what information they have received. The fact that they made an offer means they liked your home, now the next step is to work with it. Send a counter with your rock bottom price. Better yet, get your Realtor® to call theirs and see if he can guage anything about price. Or give them a verbal counter offer. Sometimes the buyers are just trying to get an idea of exactly what you want, so tell them. Getting offended and not working with an offer only leaves your home longer on the market and lowers the price at which it will eventually sell.

Well, that about sums it up for today’s rant. But I’m hoping the potential home sellers out there are learning something about this very tough market. Remember the old real estate adage: sellers sell in a sellers’ market, but buyers don’t buy in a buyers’ market. It’s true. And I hope these home seller tips help you bring in a buyer and get your home sold for a price you want. As always, we at Elite are here to help! Just give us a call. Happy Home Selling!

A curious thing is happening all over Sacramento county - homes that are selling are smaller, much smaller and Orangevale is no exception. Homes sold in this November in Orangevale were almost 16% smaller than the houses sold last November. Is this because they are mostly owned by investors? Or are we just beginning to see the culture of downsizing? We’ll have to see.

Meanwhile, non-distressed homes have dropped in sales. 50% less sold this November over the last, while foreclosure sales were up 183%. 76.9% of all home sales in Orangevale are now distress sales. Overall sales are up by 36.8% - no surprise there.

Another statistic which is not a surprise is the decline in prices. While price per square foot has remained almost the same as last month’s $162.84 to rest at $165.97 this month, the average sales price of a home has dropped 34.3% since last November. The number however is still higher than last month’s average sale price of $258,607. It is currently $260,706. The median sale price has dropped 31.8% over last November’s $340,000 to rest at $232,000.

Inventory is at 5.6 months based on the last year of sales and 4.7 months based on the last 6 months of sales.

Related links:

As part of an ongoing series, I am dealing with common mistakes home sellers make when they put their home on the market. As you already know, getting a house sold can be hard work. The current real estate market is making it even harder. So it is more important than ever to price the home right from the beginning, get a good Realtor® and take her advice, and learn to study your competition. We covered each of these in detail in the last post. Today we’ll go over a few more.

Not taking down Personal Items and Getting Rid of Clutter

There seems to be some disagreement between people when it comes to taking down personal items when the home goes on the market. The reason is this: some tastefully done artwork or photographs can actually enchance the look of the house. My personal take on it remains, “Yes, but…” Yes, but no one knows what constitutes tasteful when the house is on the market and we’re referring to personal items. Yes, but home sellers - especially if they have lived in the home - usually can’t distinguish their lives from it. They must take it all down, because they will inevitably leave something. And to be honest a wall of pictures never sold a home. Yes, you can quote me on that.

On the topic of clutter, it’s almost the same. You want to bring your house down to the bare essentials and box everything else up. This is what makes selling a home so hard - you have to live in it, but barely. I always recommend getting a storage place and storing most of your furniture, pots and pans, personal items, whatever you are not using and whatever is not essential to make your home look complete to the homebuyer in it. It’s amazing how much we leave in our home which we never use and when the home becomes a listing impedes the sale. Homebuyers get caught up in your stuff and get distracted from what they should be looking at, the house. They also want to see their own things in the home and cannot do so if you have too many things. They are trying to use their imagination - you just have to help them out.

Not Having a Lockbox

I mention this next because this point ties in very well with the previous one. Many clients do not want to use a lockbox because they have too many things in the home. Unfortunately, they have not mentally moved out of the listed home. Hence the recommendation for getting a storage box.

Lockboxes only allow access to a Realtor® with an e-key. They are coded with the time the access occured as well as the name, phone number and real estate brokerage the Realtor® was associated with. As such, there is an added level of security. If you have ever seen a lockbox you can tell that no one can get into one or get a key without using the electronic key used by Realtors®. Lockboxes also have a default time during which they do not open - I’m pretty sure it is between 9 p.m. and 8 a.m. so you can be assured that no one is going to be lurking around in your home when you are asleep.

Lockboxes make showing your home convenient. Remember your home will not be shown by your Realtor® alone. You can ask for a courtesy phone call before the buyers come by (called “Call first lockbox) but asking to make an appointment with you only when you are available severely limits the pool of buyers.

Not Pursuing Curb Appeal

If clutter is important to get rid of to encourage home buyers that walk through your home to make an offer, curb appeal is important to get the potentials walking by your home to come inside. “Curb appeal,” now a common term thanks to HGTV, literally means the appeal your home has from the curb. This includes landscaping, siding, windows and everything else that entices the homebuyer to come inside the home because he or she thinks it will be prettier or just as nice as what it promises on the outside.

Some sellers focus on the inside of the home so much they forget about the outside. Remember that most homebuyers first do a drive by properties they have shortlisted from the MLS. You want to then encourage those buyers to call their Realtor® and come see your home. It’s the only way it will sell! This is not to say that you should spend thousands on landscaping your property; just ensure that the lawn in mowed, plants are trimmed and the front door looks like it is in good shape. Dust the entryway and remove dead flowers and plants. If it is fall and your are lucky to have a centerpiece like a maple tree, draw attention to its color by removing distractions. Remove peeling paint and fix anything broken that can be seen from the outside. Repaint if you have to. You will see your return on investment by just the number of buyers who make appointments to see your home!

This series is of course by no means over. Come back for more! There are thousands of errors I see home sellers make and in this real estate market some of those errors can be fatal. So watch out for these pitfalls!

Prices have slipped again over last month and last year in Greenhaven, or “Pocket Area” as it is called by most people. This 95831 area which has been relatively stable through the real estate downturn affecting most of Sacramento county seems to be facing some problems now. It could be just the holidays, or something more serious and foreboding - I guess we won’t find out until next year.

Home sales are down over last November by 13% - foreclosure sales up by 225% and non-distressed sales down by 72% over last year. The majority of sales in November were distress sales, which is rare for this part of Sacramento: two-thirds of the homes sold were distressed and only a third were non-distressed.

Of course, this means prices fell. The price of an average home is 29.8% lower this November than it was last year at the same time. Prices have gone for $390,719 to $274,220. The “average home” however is also 14% smaller than last year. A more accurate measure, the sold price per square foot, is 18.8% lower than last year to rest at $161.88. Median price for a house in Greenhaven has fallen 25.2% from its high of $365,000 last year to rest at $273,200 this November.

Inventory is at 3.7 months (based on the last 12 months of sales) and 3.4 months (based on the last 6 months of sales.)

Downtown Sacramento always surprises and this November is no exception. While real estate sales everywhere have slowed, but to a much lesser degree than expected, sales in downtown Sacramento have all but ground to a halt. 62.5% less homes sold in this area year over year this November. Non-distressed sales have fallen even further - 71.4% less sold this November as compared with last year.

The reason? Who knows? But get this: Sold price per square foot actually shows a gain year over year: from $291.91 to $310.10. This is, incidentally, higher than last month’s price per square foot as well. Remember that price per square foot is a more accurate measure of prices than average and median sales price which almost everyone loves to quote. Here’s why: the average sales price in downtown Sacramento is down 21.4% over last November from $407,091 to $319,917 but the average sold home is also 26% smaller!

Is this the beginning of a recovery? It’s too soon to tell, of course, but it’s nice to report some good news here. Inventory is at 5 months.

Related links:

Average sales price is El Dorado Hills has fallen under the half million mark for the first time this year! And what we saw of the influx of buyers in October might be just the tip of the iceberg if prices continue their drop. November saw slightly fewer home buyers, but that seems to be the historical curve for this time of year. And from the news and real estate statistics posted here and elsewhere we can tell that the drop in home sales is not as severe as we had thought it would be for this time of year.

In El Dorado Hills, sales were up by 36.4% with foreclosures and short sales making up the bulk of home sales. 44.4% of all sales were non-distressed. 20 foreclosures sold in the month of November, which might not seem like a large number until you compare it with a mere 4 foreclosures which sold last November.

Price per square foot has tumbled 20.4% over last November to rest at $172.74. Average sale price is down to $498,025. That’s a drop of 24.2% over last November’s $665,917. Median price has also dropped by 26% from $620,000 to $460,000 for the same period.

Based on the last year of sales, inventory is at 7.4 months and based on the last 6 months of sales, inventory is at 6.4 months.

Related links:

A friend of mine asked me yesterday about giving her tips for home sellers. Okay, technically the tips were not for her - she hosts an HD radio show and I was called in as the real estate expert but you’re not interested in shameless plugs right now, are you? Suffice it to know that I was left thinking about common home seller pitfalls that occur which essentially hurt the sale of a home very often. The unfortunate thing is that sellers sometimes have no idea they have actually caused the home buyers not make an offer. And some of these pitfalls are so easily avoided and / or fixed. So I want to dedicate a series to them. Home sellers, listen up!

Not Listening to your Realtor®

Maybe this should have come in last. I don’t like making a plea that requires you to trust someone right at the outset, but I think in this troubled housing market it is necessary. Many sellers desperate to sell in this real estate market won’t be able to. Unfortunately, that’s just the truth. The number of bank-owned homes out there are mind-boggling. Not to mention the fact that they are priced at outrageously rock-bottom pricing. Even if the intent is to get multiple offers and hence drive up the actual selling price on these homes, they are nonetheless your competition. So listen to your Realtor®. Ask him to use all the tools at his disposal: first, to give you an idea of the absolute truth about the real estate market today and then, to market your home in the best way possible to get a home buyer who will not just make an offer, but actually follow through and buy the home - YOUR home.

Realtors® are professionals who have to sell homes for a living. If there is a Realtor® in business today, chances are she is good at it. Since we don’t get paid unless and until a home sells, it is impossible for Realtors® to stay in business unless they are aware of the current market and are able to guide buyers and sellers through real estate transactions and to a successful close. So listen to your Realtor®. Chances are she has been there before.

Not Pricing a Home Right from the Outset

In a better real estate market the strategy of let’s-price-it-high-and-see used to work. Today, you couldn’t come up with a worse idea to sell your house. When a new listing comes on the market, it shows up with a “new” tag in the MLS and immediately gets emailed to anyone who is looking in the area in that price range. If it isn’t priced right, you’ve missed your buyer base completely! Sure, when the price drops it will still remain under current listings that match the prospect’s criteria, but then it isn’t a new listing any more. And, believe it or not, I still get asked the question, What’s wrong with it that it’s been on the market so long?

Why not price the home right from the beginning? It creates excitement - even a sense of urgency in the mind of the buyer that they might be competing against other buyers. And a sense of urgency leads to sales, as any Christmas shopper today will tell you. Much better than letting the home languish on the market and then just be grateful to receive an offer, any offer. One caveat, however: the price you think your home is worth might not be its market value in today’s market. Be prepared for the truth.

Ignoring your Competition

This seems like a repetition of the previous point, but it’s not. That’s because I’m giving you specific advice here: when you look at the CMA (Competitive Market Analysis) that your Realtor® hands you, be sure to look at not just the sold properties, but the active listings as well. When the market is going down, it makes little sense to look at the sold comps and base your price on them.

When the market was headed up, sellers considered the sold homes, then priced their houses 3% - 5% higher than the latest sold comp and got the price they wanted. Unfortunately for you we must do the opposite today. Keep an eye on the sold prices of homes and then take a look at the active listings. Chances are your home will sell somewhere in line with the sold comps, but your competition when your listing is on the market are the active listings. Most buyers don’t look at the CMA until they want to make an offer. What they consider first is the relative price of the listing with regard to the others on the market. If you price your home like the solds, you will miss out on the pool of buyers looking for a bargain home and your listing may stay on the market longer, until it’s time for a price reduction. In reality, you will be following the market down.

That’s it for today. This is part of an ongoing series, so do come back to read more common home seller pitfalls. Sellers in this market need all the help they can get! And with the holidays approaching people walking through your home are quickly dwindling into shrewd bargain hunters or simply tire-kickers. So make every day your home is on the market count. Avoid these pitfalls. Get your home sold. And if you need to sell fast, give us at Elite a call. Our professionals will be glad to help!

Rosemont continues to be a favorite amongst real estate buyers this November as well. This area close to the river and conveniently located close to highway 50 encompasses the 95826 and 95827 zip codes.

For Rosemont, unit sales are up 147.8% higher than they were last year for the same period, with foreclosure sales up 300%. 86% of all homes sold are now distress sales - that is 40 foreclosures and 9 short sales sold in the month of November. Compare that with only 8 non-distressed properties selling this last month.

Sold price per square foot has fallen 27.2% for the same period. The decline has been sharp, from $176.10 to $128.16. Average sales price has also fallen in tandem with the price per square foot: from $241,713 for a home in Rosemont last November to $177,780 this last month. Median sales price also tumbled 30% - from $244,000 to $170,000.

Inventory remains the same as last month: 4 months based on the last year of sales and 3.1 months based on the last six months of real estate sales.

Related links:

Change comes slow to El Dorado county and it usually isn’t as severe as Sacramento county. Let’s hope it remains that way for the El Dorado county real estate market as well. While we saw non-distressed sales making up the majority of homes sold in the area, things seem to have changed this November. For the first time in a long time distress sales overtook non-distressed with 52 foreclosures (that’s 42.6% of the market) and 15 short sales (that’s 12.3% of the total market) exchanging hands. Only 55 non-distressed properties sold, a decline of 37.5% over last November.

Unit volume is up, but not by much. 10.9% more homes sold this November as compared with last November.

Non-distressed sales taking over has of course affected price. Foreclosures put downward pressure on prices and El Dorado is no exception. Average sold price per square foot fell 17.9% year over year - from $208.83 to $171.42 this month. Average sale price is also down 18.2% for the same period. We are currently at $373,892 from last November’s high of $457,326. Median sale price has fallen 8.8% from $383,750 to $350,000.

This is so depressing, I think I’ll have an extra cup of coffee to get through this. The only good news is that inventory is lower than last month. We’ll see if this trend continues into the next year. Currently, El Dorado county is at 10.7 months based on the last year of sales and 9.4 months based on the last six months of real estate sales.

Related links:

Either foreclosures are not looking as interesting to home buyers in Folsom or they are taking a break to buy things other than homes. With all the shopping around there, I wouldn’t doubt it.

In stark contrast to other areas in Sacramento county, we have seen non-distressed sales make up the majority of home sales in Folsom for a while now. 57% of all home sales in Folsom were non-distressed and the rest were foreclosures (24.5%) and short sales (18.4%). However, with non-distressed sales still suffering a decline of 47.2% over last November, overall unit volume is down 23.4% year over year.

Inventory is also down, although not sharply enough to make any predictions. Based on the last year of sales, it is at 5 months and based on the last 6 months of sales, inventory is at 4.6 months.

Sold price per square foot has fallen 10% over last November - from $215.32 to $193.34. Average sale price has fallen 18.6% for the same period. From its high of $474,148 last year to $386,010 this November.

Distress sales dominate the Elk Grove real estate market and that is a reality in November as well. This is a steady foreclosure market, if there can be such a thing. 71% of all sales are foreclosures and 13.1% of all sales are short sales this November in Elk Grove. Non-distressed sales have declined by 35% over last year, an indication that some home sellers have decided just to wait out the real estate market.

But they might be waiting a while. One almost never sees price increases when the holidays are so close and this November is no exception either. Average price per square foot has fallen 23.6% over last year: from $163.45 to $124.86. Average sale price and median sale price have both fallen 22% year over year: from $347,121 to $270,743 and from $324,200 to $252,000 respectively.

The good news remains that at least someone is buying. Unit volume is up 70% over last November and the average home sold this November was about 45 square feet bigger than last year, although with most homes in Elk Grove being above 2000 square feet, that’s not saying much.

Inventory is at 4.1 months based on the last year of sales and 3.4 months based on the last six months of sales. Keep an eye on this number: it’s lower than it was last month and it will be the first to indicate a recovery.

Related links:

It’s the most wonderful time of the year… well, maybe not so much for real estate sellers. Bargain hunters have been out again, but maybe some have been taking a break with the holidays coming. Unit volume is up 99% over last year, down slightly from the last few months.

Foreclosure sales continue to dominate the real estate scene. 72.5% of all sales were foreclosures and 10.8% short sales. With distress sales making up the major chunk of the Sacramento real estate market, non-distressed home sales have fallen sharply - by about 39.5% over last November. Only 16.7% of the total Sacramento county real estate market is now made up of non-distressed home sales.

Prices have fallen yet again. Average price per square foot recovered slightly last month and this month took another fall. Sacramento county is now at $122.69 a square foot, a drop of 34.3% over last November. The average sale price has fallen 38.9% over last year as well, resting at $196,839 from last year’s high of $322,239. Median price has also fallen for the same period - here we see a fall of 40.3% year over year. Median price last November was $293,000 and is currently $175,000.

Interestingly enough, home buyers also bought homes about 7% smaller than last year. On average the sold homes’ square footage was 1604 as compared with 1725 last November.

Inventory in Sacramento county is at 4.8 months based on the last year of sales and 3.8 months based on the last 6 months of sales.

Related links:

This is part two of the series REOs vs. Short Sales and today I want to discuss what benefits and disadvantages REOs and short sales offer the home buyer.

It’s all about Price… Or is it?

I mentioned in the earlier post that most home buyers mistakenly believe a short sale is a better deal and more deeply discounted than an REO simply because the word “short” appears in the term. This is a mistake. The truth is that home prices are determined by comps - comparable properties around the home and then adjusted for price. Ideally, the way you should determine if a home on the market is a bargain is by getting your Realtor® to get you a comparative market analysis. This will show you the sold prices of homes in the neighborhood that are similar to the one you are considering buying. It will also show you the asking prices on all other homes that are currently active listings.

Most REOs are priced on the low end. In fact, I have seen many that are grossly underpriced to encourage multiple offers and as such command a higher than asking price. So be sure to ask your Realtor® for a CMA.

As compared with an REO where the home buyer knows the bank’s rock bottom price, with a short sale one can never be sure. This is because the listing agent who is advertising the property and has put it up for sale has done so at the request of the home seller. Since short sales require the bank’s approval (to forgive the mortgage principal) the appraisal or Broker Price Opinion has not been done yet. It is only after the bank receives an offer do they sound out a real estate agent of their choosing to give them an idea of what the house would sell for. The price you see on the tag is not what ultimately the selling price, which leads nicely into the next topic.

Escrow and Other Timelines

To really find out what the bank wants for the home takes time. The biggest difference between an REO and a short sale really is that a short sale can take much, much longer. The reason behind this is obvious - with an REO the lender has already requested an appraisal and knows what the property should sell for in its current condition and has priced it as such. With a short sale, that entire process of getting an appraisal is yet to be done. Also, with a short sale, there has to be a reason for the lender to approve it. Since the lender would be forgiving the principal on the mortgage with little repurcussion for the homeowner, the home owner is required to provide bank statements, tax returns and so forth to prove genuine financial hardship. The simple fact that the house has lost value is not enough. This takes time as well.

Perhaps the best thing homebuyers can do is decide how long they are willing to wait and start the home search as soon as that period is up. There is even a short sale addendum that limits the time home buyers wait for a response. Although response times seem to have become shorter, it is still in the home buyers’ best interests to decide a timeline for themselves and stick to it to find a good discounted house.

Escrow timelines for short sales begin the day approval is sent over by the bank. This is usually when the home buyer has to start the loan process with his bank. REO escrow timelines start with the acceptance of the offer by the bank. Be forewarned, though: banks are notorious for taking all the time in the world to get back to you regarding your offer, but they take the timelines they give you - the home buyer - very seriously. They are known to include heavy fines in their offers for delayed closing of escrow, so be sure you can close before you remove contingencies!

Inspections & Disclosures

As every real estate investor knows, homes that smell cost less. The idea really is to find out what causes the smell. Of course, I’m using figurative speech here, but the truth is that with both short sales and REOs one might never know what exactly is wrong with them. Inspections thus become imperative. The reason is that the bank has never set foot in the house it has listed as an REO. With a short sale, you have a slight chance that the home sellers will be honest about what needs repair, but they are trying to get out from under the house and I wouldn’t count on any huge disclosures. The problem is that with both thes situations, the sellers have been under financial duress and so have not maintained the property. There are probably many issues of deferred maintenance which you as the home buyer should at least know about, so hire a good home inspector and leave nothing to chance.

So there you have it. Ultimately, I think it really comes down to a choice for the home buyers to decide how they can acquire a home which needs little work, in a good location that will appreciate as fast or faster than other homes in the area for the least money today. But remember that Realtors® are your biggest allies in this regard. Happy home shopping!

This question seems to come up a lot with home buyers, so I would like to deal with it in detail. I will be covering this topic in a two part series. Today we’ll discuss how REOs and short sales come to the real estate market. Since most homes on the market currently that are bargains are REOs and short sales, (sorry, non distressed sellers, but it’s true!) it is important that home buyers, especially first-time home buyers understand the difference between these two options.

What is an REO?

REO stands for Real Estate Owned. It usually means real estate owned by a bank or a lender. It is also referred to as a bank foreclosure, a bank-owned home, a bank repo (a word I detest, by the way), a repossessed house or simply a foreclosure. REOs find their way on to the open market when a home buyer who has bought the home with a mortgage does not make payments. The lender has given him the loan secured by the value of the home. In other words, the home buyer has said to the lender, “Give me the money to buy this home worth so much and I will pay you back with interest every month for the next 30 years while I live there. If I don’t pay you, you can take the house back,” and then has defaulted on his payments.

In this case, the lender has to “take the house back” through a legal process called foreclosure. First, the homeowner is given a notice of default. This is also recorded in the county clerk’s recorder’s office and is public record. The homeowner is given enough notice to be able to “cure” the loan by paying the back interest and principal. If he does not cure the loan the house is then open for auction. If no one buys it at the auction, the home then becomes real estate owned by the bank. Most banks are not interested in owning real estate.

Then What?

Two things happen. When a bank owns real estate, it stays on its books as a bad loan. A bank can only have a certain percentage of bad loans, so they are motivated to get rid of the house as soon as they can. Also, they understand that now their cash flow which should have been coming from the mortgage payments is stagnated, so they have less money to lend. Remember that a bank can only make money by lending money. So they hire a real estate agent.

The process by which they hire a real estate agent to sell the home can get a little complicated, but in the most direct way they ask for a broker price opinion (also called BPO or a rough appraisal) of the property and then list the home. That is how an REO ends up on the open market. Usually, until the house sells, it is up to the listing agent to maintain utilities, keep the home clean and get rid of debris inside the house. The agent can then bill the bank for it at close of escrow.

What is a short sale?

A short sale attracts many home buyers simply because of the term. They are erroneously led to the assumption that because a house is selling “short” it must be at a discount. Nothing could be further from the truth. While it is possible that the house is selling at a much lower price than its competition, a short sale could also be grossly overpriced. A “short sale” simply means that the sellers of the property are asking the lender to accept the current market value of the home as a sale price, which is less than the value on the note (loan) which secured the home. Thus, they are asking the lender to forgive the principal on the loan instead of foreclosing on the house. The assumption is that forclosures cost the lender money and hurt the seller’s credit score far worse than a short sale does. This is arguable and best discussed with an attorney. In my experience, clients have had the same damage to their credit.

How does a Short Sale get on the Market?

In most cases, the homeowners realize they are in financial trouble and cannot make their payments. In a better real estate market, this is not a problem. If they have paid down most of the principal on their total mortgage, they can sell the home. In other words, if the market value of the house is higher now than when they bought it, they can usually sell it without a short sale. The problem now of course is that the real estate market is trending down. So most homeowners who bought their homes in the upturn cannot sell them without a substantial loss.

At this point, the homeowners call a Realtor® and ask that the Realtor® speak with the bank and try and negotiate a short sale. The Realtor® becomes the listing agent and the seller’s real estate representative and works with the lender to approve the short sale of the property.

Most lenders currently are considering short sales seriously. We are definitely seeing the tide turn. But home buyers should be aware that just because a house is placed on the market as a short sale at a certain price that the lender will approve of the sale at that price. That, in my opinion, is the essential difference between REOs and short sales. With an REO, you know the sale price. With a short sale, the lenders don’t give out the information before the home is placed on the market and buyers are left playing the guessing game.

So now you know how REOs and short sales make it to the market. In the next part, I will discuss what some of the pitfalls are with both these options and also what, if any, are the benefits of buying either a short sale or an REO. Yes, that would be besides just the discounted price.

If there is one place foreclosures have forgotten it’s downtown Sacramento and while the area is not completely immune to the real estate downturn, home buyers are swooping down on foreclosures here as soon as they hit the market. The majority (82.4%) of home sales in downtown Sacramento are still solidly non-distressed sales. However, two foreclosures and one short sale did sell in the area this October, a slight change from 1 REO and no short sales last year. Sales are up by 41.7% indicating that even the slightest dip in prices brings buyers.

The slight dip is 6.8%. The average home sold for $412,199 last October and today sells for $384,235. Median sale price is down 9.9% for the same period, from last October’s high of $440,705.50 to $397,000. A more accurate measure is of course the price per square foot, which is down a mere 5.6% over last year - from $306.07 to $228.94 year over year.

There are currently 3 foreclosures and 9 short sales on the market in the area, so bargain hunters, head out to downtown Sacramento! Inventory is at 5.3 months (based on the last 12 months of sales) and 4.7 months (based on the last 6 months.)

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