Actual info from recently closed short sales:
1) The owner bought it in September of 2005. They did so many cashout refinances since time of purchase, that I can’t see what the downpayment was at time of purchase. They tried to sell it for 30% more than they paid for it exactly two years after they bought it (likely due to a 2 year pre-payment penalty) just a month or so into the weak market of late 2007. They moved out and rented it in December of 07. Then, while it was tenant occupied, they relisted it for sale in February for $50,000 less than their original attempt of 30% more than they paid for it. They dropped the price an additional $50,000 two weeks later. They dropped the price an additional $50,000 three weeks after that. They dropped the price an additional $50,000 five weeks later. They dropped the price an additional $50,000 three weeks later and dropped another $50,000 five weeks after that.
So $300,000 in price reductions from 30% more than they paid to an asking price that was 13% less than they paid. BUT then it bid UP to 7% less than they paid for it 2.5 years before. It either bid up, OR since by this time it was a short sale, the bank may have held out for $50,000 more than the original offer. At any rate it closed at 7% less than the owners paid for it at 1.12 X assessed value, BUT that was the highest price ever paid in the neighborhood. The original asking price was 1.5 times assessed value.
The escrow period was 128 days from the time the seller accepted the offer until it closed.
The kicker? A couple of days after this one closed, the neighbor listed their home at 1.08 times assessed value and $50,000 less than the short sale closed at, and it still hasn’t sold. So the short sale was not necessarily a good buy. It might have been if it had closed at or less than the final asking price. But when it closed for $50,000 more than the final asking price it moved from bargain to not a bargain during negotiations and escrow.
Warning: Sometimes seeing $300,000 in price reductions and “short sale” or “foreclosure” at the end, causes buyers to bid UP a property to where it is no longer a bargain. While I chose this example at random and worked through the history while doing the post and not in advance, it turned out the way many do. Buyers bid it up or don’t hold their ground when the bank responds to the offer, and 128 days later…not a bargain.
Let’s do another one:
2) Bought in the summer of 2006 with 100% financing for 1.3 times the 2008 assessed value and for double the price the previous owner paid for it in 2004. Clue. This person overpaid for it in 2006 and it had the magic words “granite counters”. Yesterday someone said to me they were going to buy a granite countertop and stick it out on the grass of a vacant lot and sell it for half a million dollars 🙂
Looks like the person who bought it barely (if ever) lived in it, as it was listed for rent within 3 months of closing in 2006. Apparently someone in 2006 thought paying double what the previous owner paid in 2004 was “an investment”. After renting it out for a year, the owner tried to sell it in the summer of 2007 (before the market turned) for 11% to 12% more than he paid for it. No takers and it was re-rented. They dropped the price $15,000 after 125 days on market. Three months later…still no takers.
They rented it out again and five months later listed it for 20% less than they paid for it. (Interesting that they listed it for 12% more than they paid for it and then 20% less than they paid for it, without trying anything in between. An agent (not the agent who had it listed and not the same office) bought it immediately as soon as it was listed for 20% less than the current owners paid for it. The short sale escrow lasted 75 days and it closed at the full asking price of 20% less than the owner paid for it in 2006. The sold price from the short sale was 1.03 times assessed value.
The kicker? The agent who bought it at the bargain price now has it on market for sale or for rent. Rent price is $1.58 per square foot. Sale price is 1.17 times assessed value. Would have been a nicer story if the person who got it for 1.03 times assessed value was going to live in it. Insider gets the bargain and flips it back out on market for a decent price, but not such a bargain. At least they’re not asking 1.5 times assessed value, but if a nice young family bought it for the bargain price of 1.03 times assessed value, I would have been happier.
I think I’ll go see it this weekend with one of my clients who is in that price range. Maybe it will sell for less than 1.10 times assessed value. Not a screaming deal, but worth taking a peek at it.
Moral of the story? Don’t go to an agent and say “I want to buy a foreclosure property” or “I want to buy a short sale”. We always shake our heads when people do that. Instead look at properties you like that are in your price range, and if one of them is a bargain, we’ll know it. Sometimes it’s the foreclosure or short sale, sometimes it isn’t.
I know of another home that was listed for $1.3 million, sold at foreclosure for $800,000 and went back on market at $1.1 million. No one’s buying it. So the question remains on this one and the second example above, was it a bargain? We won’t know until the people who got the bargain and immediately relisted the homes for sale at a higher price, get an offer that sticks. What we do know is the bargain on those two gets less every day, since both properties are vacant and the owner is paying the carrying costs.
