Foreclosures – Short Sales – REOs – Bank Owned Properties – Home Prices Still Falling – Home Sales Tanking – New Home Construction in the Tank

With all the doom and gloom and continued focus on the negative, it’s easy to understand why buyers want to float lowball offers. There’s nothing like submitting an offer 30% below asking price to endear one to the seller and the seller’s agent. In the current market, it’s not unusual to see offers come in 10 to 20% below asking price, more if the home is over priced to begin with.

But what about the home that is priced right? Should sellers that are attuned to reality have to face the “out of reality” lowball offer. Real estate agents are responsible for submitting all offers to their clients. It’s the client that makes the final decision.

The New York Times had a good article the other day –Negotiating for a House? Start With ‘Dear Seller’ (free subscription required to read full article)

In the article, Ron Lieber suggest that if you are submitting a lowball offer, you might want to send along a letter of explanation:

Dear Seller:

I’m writing to let you know that I would like to make a bid on your property. I love the area and am committed to buying a house nearby. And your home fits my needs.

But given that my offer is well below your asking price, I also feel I owe you an explanation.

First, consider the big picture. Nationwide, home prices in the first quarter of 2008 fell 14.1 percent compared with the same period a year earlier, according to the Standard & Poor’s/Case-Shiller U.S. National Home Price Index.

That’s the biggest decline in the 20-year history of the data. And just in case you’re wondering, during the housing downturn of the early 1990s, the decline was never worse than 2.8 percent.

Not only that, earlier this month, the National Association of Realtors pointed to the huge number of existing homes on the market. As of the end of April, the total number was 4.55 million. At the rate people are buying right now, that represents an 11.2-month supply.

So buyers have options right now. A lot of them. I’m no different. Your home is great, but it isn’t unique. Few homes are. I know this may be hard to hear, since you’ve spent years creating memories here. But you may be waiting a long time if you hope to find a buyer with the same emotional connection that you have.

My mindset is hardly unique. We’ve all been reading the headlines. The accompanying articles appear prominently in major newspapers and sit on the Web pages where people check their e-mail every day. Everyone sees them, and the psychological impact is real.

Has your real estate agent laid any of this out for you? Maybe so, and you didn’t want to believe it. But it’s also possible that your agent, afraid of offending you and losing the listing, simply doesn’t want to initiate that sort of discussion. It may be worth sitting down for a candid reassessment.

It will be tempting to view my low bid as an insult. Please don’t make that mistake. Your home is genuinely appealing, and I wouldn’t have written this note unless I was serious about buying it. Getting a firm offer in this market is an accomplishment. So congratulations!

Oh, and one more thing. You presumably need someplace to move. My guess is that you’ll find these same points compelling when it’s your turn to buy. You just might succeed in buying for a better price, too.

I look forward to hearing from you soon.

Yours Truly,

The Realist

Ron’s reply from the seller is just as good and the entire article has a lot to say about the art of negotiation. In this example the buyer is using market data and mass mindset to support the lower price argument. The seller responds with emotional connection, value, and near-future changes that may effect financial assumptions.

It doesn’t matter which side of the real estate transaction you are on, this article is worth a read.

One of the huge advantages of a team is the incredible blend of skills, knowledge and experience each member brings to the team and our clients. One area of expertise that more and more clients need from their real estate agent concerns real estate as an investment.

We are fortunate that Craig has experience as a financial advisor and has a personal love of the stock market to fuel his continued interest. We recently received an inquiry about whether the time is right and ripe for investing in real estate versus the stock market. Here is Craig’s response:

Thanks for your inquiry and we would be happy to help you evaluate the market to determine if now or later is a good time for you to get into the real estate market as an investor.  As an investor myself in both securities and real estate, I appreciate the process of evaluating what type of investments make the most sense at any particular point of time.  Then, the challenge is to do enough homework to determine what specific investments to add to one’s portfolio and last but not least come up with the criteria to determine the right time to actually pull the trigger to buy and then subsequently to sell.  In my own investments I have applied both a technical analysis and a fundamental analysis to this process.  I won’t bore you with all the details, but suffice it to say that there are a lot of variables in this process and no crystal ball.  So, sometimes it’s a matter of either developing a system you set up to make the buy & sell decision, or taking all the data into consideration and going with a gut feel.  In my case I have used both. 

At the current time in the real estate market there are a number of variables that indicate that this is a good time to buy properties.  First, we had several years of phenomenal growth in real estate followed by the last couple of years of heavy declines.  The question is whether this decline (pullback) is sufficient, or is there more to come.  But here’s the kicker from my view point, if you look at the heavy decline in home prices, it appears that the rate of decline is slowing or even bottoming in certain locations.  Plus, interest rates are still at a relatively all time low.  So, even if the market does continue to gradually decline a bit more, the chances for a significant drop from here is getting lower.  Conversely, the chances for interest rate hikes are increasing as the market begins to turn around.  So even if prices continue to decline a bit, if interest rates increase it basically cancels out the net profit you would realize from waiting.  I believe that now is a good time to buy based on these factors.

There are still a lot of foreclosure properties (REO’s, short sales, pre-foreclosures) on the market applying pressure, but as this inventory is reduced prices will get back to a fair market value based on supply and demand.  In our area (Danville, Alamo and the 680 corridor from Pleasanton to Walnut Creek) it continues to be a highly attractive area to live in, with a localized economy that remains strong.  However, even in some of the outlying areas such as Brentwood which has seen a 33% drop in median home prices compared to our 10-14% drop, we are seeing more buying activity and even multiple offers on properties that are priced right.

There are currently 3,692 properties on the East Bay MLS system that reference REO’s, Short Sales and pre-foreclosures.  When I look in the 680 corridor from Martinez to the north and Pleasanton/Livermore to the south, there are currently 401 listings referencing REO’s, Short Sales and pre-foreclosures.

If are interested in investment properties, REOs, or foreclosures, contact Craig – (925) 984–4910

REOs – bank owned properties – are on the rise nationwide and California is leading the way. According to reports, California has led the nation in foreclosure filings for 15 straight months.

Real Estate Owned properties are houses which do not sell at foreclosure auctions. When houses are returned to the bank, the mortgage is eliminated and the bank negotiates with creditors to remove or reduce liens.

The 680 corridor from Walnut Creek to Pleasanton is one of the most stable real estate markets in the country, but that doesn’t mean that communities like Alamo, Danville and San Ramon are immune to the foreclosure problems.

The big lenders like Bank of America, Countrywide, IndyMac and others are ramping up their foreclosure and REO efforts to help homeowners in trouble and expedite the process.

Three perspectives to the foreclosure/REO situation:

• Homeowners in trouble – need help with restructuring to save their homes or expedited processes that help them move quickly through the difficulties and challenges with as little damage to their financial future as possible.
• Investors – individuals looking to invest in REOs and foreclosures will benefit from expedited procedures.
• Communities – neighborhoods like Danville and San Ramon will benefit by reducing vacant homes in the area and the quicker the inventory is moved, the sooner property values can be freed from the negative impact of REOs in the area.

Countrywide Mortgages Foreclosure Blog  indicates that they currently have over 14,000 properties available representing almost $3 billion of property – $1.3 Billion in California.

Financing REO properties in Danville and San Ramon is the same as any other investment property. Plan to contribute at least 10% or more toward the down payment. Do your due diligence to properly cash flow your investment; with this you will be able to weather any market volatility in the future.

The whole team is at Countrywide in Danville, CA listening to Lito Gonzales and Gene Mackey.

Gene and Lito are sharing their insight on what is happening with REO (bank owned) properties and explaining Countrywide’s involvement in the FHA loan market.

All of us are in agreement that the industry is going to see a lot more of these type of transactions over the next two years.

What are real estate agents in Danville, San Ramon and the 680 Corridor noticing with respect to the local real estate market and activity? Here’s what a group of local real estate agents had to say at a recent brainstorming session

• There were some surprises in the market regarding investors showing up and bargain hunters that are finally purchasing properties they feel are real values.  The price point that this group is active in is the $300,000 to $400,000 range, with much of it in the East County, and east of the Altamont Pass.
• Many current sellers are still in market-price denial.  The advice for them is to price their home as to what the market price will be in three months and price it that way NOW.
• Short Sales are a time robber. Contrary to all the media spin, lenders are not helping to smooth the way for those in trouble.
• REOs are selling.  These are worth the time to have buyers consider as real bargains.
• Buyers seem to be noticing that the “bottom” of the market may have arrived. 
• There are more opened and closed escrows happening right now than in the first four to six weeks of 2008.
• There has been a significant increase in open house traffic.
• There was some discussion as to the actual impact of the “stimulus package” that the current Administration and Congress have passed;  checks sent to consumers, higher limits with Fannie Mae, etc.  Part of the discussion was that it still may be “smoke and mirrors”.
• Get a Buyers Letter Of Understanding as often as possible.  Only work with actual Buyers who are prepared and positioned to purchase a home. Too, many cases of buyers exploiting agents’ time with no sense of loyalty to a business relationship.
• Help to educate clients on what’s really going on locally.  Study, read, and provide current market information to them on a regular basis.  Do not use the Wall Street Journal, The New York Times or national data as your resources.

Not real exciting stuff, but maybe a little insight for you on what a group of 12 people active in the industry have on their minds.

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