As the national media have finally suggested, available homes for sale are at record lows in many markets in the United States. Today in Santa Clarita we still have just over 300 homes for sale, a number so low that prices should be skyrocketing as I write this. But they aren’t and it will take some time for “good comps” to replace “bad comps” and the market to really start to appreciate. I am convinced it will happen and if you want to know when, it will likely be when the percentage of distressed sales is under 25%. We have gone from over 80% distressed sales 4 years ago to just under 40% today, so it is coming. In the mean time we have an opportunity that we have never really seen before. Specifically, we have many “standard” sales selling at top dollar, while in the same neighborhood, ‘short sales” are selling for 10-20% less. This has led to many would be sellers putting their home on the market at “retail’ pricing and attempting to buy at a “wholesale” price. For those willing to put up with the aggravation of how that can work, the result can be a better home, at a lower interest rate and a very attractive price. This is not something we have ever really seen before and I believe it will continue for the next few years as we get the balance of the short sales through the system and return to a market that is more “traditional’. In the mean time, the following is happening….
Up until this year buyer confidence was not high enough to absorb the foreclosures and short sales on the market. That changed this year when many realized that foreclosures were not coming back en mass, investors were buying everything they could and inventory was plunging. We all thought this would happen, just not for another year or two. Well, it happened this year. This has led to the return of the buyer that has always been a dominant player in Santa Clarita Real Estate. This buyer has been largely missing for more than 6 years-the ‘seller/buyer”.
The seller/buyer is selling one home and buying another. Sometimes smaller, but usually larger. They are confident that the market isn’t declining anymore and look at interest rates around 3% that make affordability better than ever. They have a home to sell-and they can likely get top dollar for it. This never happened a few years ago, when potential sellers were discouraged that their home would just sit. Now, if priced reasonably, they can expect immediate buyer interest. The challenge though, is often what do they buy? Foreclosures are rare, especially desirable ones, and banks will not take offers unless the home you are selling has closed escrow. Standard sellers also can often demand that your home be a closed transaction, though savvy realtors can usually coordinate the sale of the one into the purchase of the next. Many sellers though don’t want to pay the ‘standard sale” price-they want a deal. Enter the short sale purchase. This is where the seller/buyer has the greatest aggravation, and potentially the greatest reward, and it is happening all over our valley. The problem is that short sale purchases are almost impossible to time. it could take 45 days to get an answer, it could take 5 months. The stress and aggravation of waiting for short sales to get approved make selling your home and moving right into a short sale purchase almost impossible. For this reason, I advise such seller/buyers to prepare for a double move up front and trade money for convenience. Many are doing so. Here is what I mean…..
The reasons a potential seller/buyer has to do a double move are threefold. First, in bidding on a home in a multiple offer situation, being totally non contingent makes you a stronger buyer. Next, you dont have the stress of wondering every single day when the purchse will be approved. Approvals on short sales can take 45 days-they can take 6 months. Last, when your short sale offer is finally approved, the bank typically wants the closing within 30 days-and you need to be able to do exactly that. Short sales are often moving targets and in order to buy one you have to be sold and ready to move when the bank says so. You put up with this because of the lower price that you get for the hassle.
I can give many recent examples of people in Santa Clarita doing this but two favorites illustrate how it can work. I represented a growing family in Newhall that had a nice home and simply needed larger. We made an offer on a short sale for 430000 that would likely have gone for about 480000 if it was a regular sale. The seller accepted that price and off it went to the bank for approval. Banks will typically accept 12% under their appraised value, and the bank did accept after about 50 days. In this case, my buyer had a seller that was willing to let them offer first and sell second because I sold them on the fact that we could sell theirs quickly. This doesn’t often happen but is always worth exploring. We also had to show the bank that we could buy without selling, but that was never our intention. We knew that we could sell ours before the bank approved our purchase offer. I then put their home on the market for $415000 as a standard sale. It had offers immediately from buyers that didnt want the hassle of a short sale, they wanted a clean, easy to buy home. We opened escrow, closed escrow and did a short double move while waiting for the purchase to get wrapped up. In this case it was a hotel for about 5 days, and we almost avoided that. Key to the whole process was the clients willingness up front to do this. Stressful? Yes. However, the new payment on a larger home is slightly lower than the old home.
Even better is the client that sold a Saugus home for $330,000 that had about 1400 square feet. They sold, moved into an apartment and made offers. By the 5th one we got a newer, better built home with a pool, more than double the size, for $480,000. It is scheduled to close next week and they are thrilled. These are homes that easily sold for over $700,000 just a few years ago and they are set until the kids graduate. Their interest rate went from 5.25 to 3.25 and at the end of the day their real cost in doubling their size is just a few hundred dollars more. This opportunity won’t last forever, as short sale pricing and ridiculously low rates will be gone soon. In the mean time, people are taking advantage.