Another Way of Looking at South Lake Tahoe Escrow… to determine possible change in buying habits.
We were in various discussions late yesterday about current South Lake Tahoe market conditions, which is certainly more common than not. What we were responding to is some of our colleagues are saying they have seen more buyers in the last few weeks purchasing homes that are not distressed, rather than buying bank owned homes or short sales.
It was their opinion that buyers are tired of the often labyrinthian, confounding difficulty of getting acceptance and closing a distressed property sale.
A manager from a different brokerage said he believes buyers are presently buying more homes that are not distressed… at reasonable prices (that is true, some homes are priced with exceptional reason).
While we certainly know that purchasing a distressed property is more difficult, and that buyers are put off by the tedious process, we have not seen any meaningful change in buyer preferences, not only in the last few weeks, but in the last 6 months.
Nevertheless, lets take a look at recent escrow and median sales to see if there is any evidence that buyers are doing anything new or different.
The charts below track South Lake Tahoe activity since September 1st of last year.
Homes in Escrow :
The number of homes in escrow has ranged from a high of 109 to a low of 81.
This is a difference of 28, or 25.7%.
The average number of homes in escrow in the last six months has been 98.75.
The number of distressed properties in escrow has ranged from a high of 75 to a low of 56.
This is a difference of 19, or 25.3%.
The average number of distressed properties in escrow has been 64.
The percentage of distress properties in escrow has ranged from a high of 74.1% to a low of 55.1%.
This is a difference of 19%.
The average has been 65.1%.
The number of homes in escrow that are not distressed properties has ranged from a high of 48 to a low of 21.
This is a difference of 27, or 56.3%.
The average number of homes in escrow that are not distressed has been 34.75.
The median price of homes in escrow has ranged from a high of $344,000 to a low of $319,000.
This is a difference of $25,000, or 7.3%.
The average has been $329,156.
Inventory : (active listings only)
The number of active listings has ranged from a high of 447 to a low of 295.
This is a difference of 152, or 34%.
The average number of listings on the market has been 342.1.
A decline in South Lake Tahoe housing inventory normally occurs after Labor Day each year. Inventory normally starts increasing in the first quarter of each year, and reaches its peak in late summer.
Median Sold Price : (180-days, Tahoe Keys not included)
The median sold price in South Lake Tahoe since last October has ranged from a high of $305,000 to a low of $300,000.
This is a difference of only $5,000, or 1.6%.
The Bottom Line :
What this study supports what we already knew: other than inventory being lower than normal for this time of year, there has been no change in buyer preferences recently.
The chart below indicates South Lake Tahoe, CA escrow, inventory and distressed sales in escrow since September 1, 2009.
The chart below indicates South Lake Tahoe, CA median sold prices since October, 2009. Note that the 180-day number, not including the Tahoe Keys is used for this study (we use a 180-day look at the market because it is consistent with the average number of days it takes to sell a South Lake Tahoe house, which is presently 154 days on average.)
The South Lake Tahoe Demand Trend is Better, so is Inventory, but with a qualifier!
Although the article before this one includes a comment in the Washington Post via the National Association of Realtors (NAR) about the national housing inventory, we thought we would take a separate look at it here.
The article says the inventory of US homes on the market is now at a 7.8-month supply, and that this is down more than 11 months since July 2008. The term "inventory" as it relates to housing means the number of months it will take to sell all active listings at current market demand.
We usually look at South Lake Tahoe, CA market demand by the monthly absorption rate (here). The monthly absorption rate is the average number of homes sold per month, and we normally look at such over home sales in the last 365-days and 180-days.
We look at the 180-day sales performance with a little more preference because it is more consistent with the average time it takes to sell a house, which is presently about 154 days.
Here's some things to note in the chart below:
The current South Lake Tahoe, CA home inventory is 7.3 months.
The national home inventory is 7.8 months, or .06% higher (as just reported by the NAR)
The South Lake Tahoe home inventory in July 2008 was 18.1 months.
This is 11 months lower than what it is now, and is consistent with that of the nation as reported by the NAR.
The current number of active homes listed, however, (not counting homes in escrow) is 180 homes lower at present than it was in July 2008.
This qualifies the current South Lake Tahoe, CA trend because less inventory naturally takes less time to sell.
The average number of homes sold per month in South Lake Tahoe, CA has increased steadily since October of last year. (This is better!)
Since last December, the average number of homes sold in South Lake Tahoe, CA per month has exceeded 40. (Better too!)
Other than February first of this year, we have not seen the monthly absorption rate this high since we have been reporting on this blog.
The chart below indicates South Lake Tahoe, CA home inventory and monthly absorption rates since January, 2008. (note annual absorption rates below this chart as well)
Monthly Absorption Rates
36 single family homes sold per month in South Lake Tahoe in 2009.
South Lake Tahoe, and other resort markets, are different when compared to the nation.
This Washington Post article came out Friday, and was basis for discussion on cable news outlets as part of their weekend programming.
Lets review some points in the article, then we'll look at South Lake Tahoe real estate market details.
About 5 million to 7 million US properties are potentially eligible for foreclosure.
It could take up to three years before all these homes have been sold.
Homeowners who are in trouble now are people who have better credit, safer loans and have become delinquent because of job loss or other economic setbacks (healthcare costs being one of those).
Some lenders are giving distressed borrowers more time to see whether they can modify the terms of their loans.
Effect of this could be muted if eager buyers quickly purchase these properties, or efforts to enroll borrowers in mortgage relief programs improve.
The impact of the coming foreclosure wave will vary by region.
The article also states via the National Association of Realtors (NAR) that over last calendar year, the number of foreclosed homes has declined across the country. Distressed properties made up just 38 percent of US home purchases in January, compared with a peak of 49 percent in March 2009.
The article states that these factors have reduced the inventory of US homes on the market to a 7.8-month supply, which is down more than 11 months since July 2008. As prices continue to stabilize, the article further states that lenders may tent to take advantage of the situation by putting more of distressed properties on the market.
Of the 34 total single family homes sold in South Lake Tahoe, CA this January, 11, 32%, were foreclosures (bank owned sales).
This is 6% less than the national average of 38% as found in the Washington Post article via the NAR .
Now lets look at the incidence of foreclosure sales in March 2009:
Of the 28 total single family homes sold in South Lake Tahoe, CA last March, 9, also 32%, were foreclosures (bank owned sales).
This is 17% less than the national average of 49% as found in the Washington Post article via the NAR.
We will track South Lake Tahoe inventory in our next post and compare that to the 7.8 months of national supply as stated above.
The Bottom Line :
We are expecting more foreclosures to hit our South Lake Tahoe real estate market, though to be certain nobody knows, and we're not certain either, if we're going to see a greater percentage of foreclosure activity than we have already seen.
Here's a few things that give us cause to question that national predictions of more foreclosures may not appear as significantly here:
At present there is less incidence of foreclosure here in South Lake Tahoe than the national averages, both so far this year and last.
We're seeing more short sales than foreclosues (here), primarily due to lending banks realizing that they make more money from a short sale than they do for a foreclosure.
A new government program that will help some homeowners with short sales is due to start on April 5th (here).
An Unexpected Report comes with Two of Temperament.
We thought this New York Times article interesting. The report states that US retail sales, rather than an expected decline, increased surprisingly.
What we like is reports like this indicates that the public is gaining confidence in the US economy. One economist, Alan Levenson at T. Rowe Price, says "the consumer continues to come out of its shell after the shell-shock of the recession." He cites the following:
employment is falling slower
wages are growing
the number of hours being worked is expanding
incomes are up slightly
Whatever enthusiasm this brings is somewhat tempered by two other reports: one showed business inventories remained flat in January. Another report recorded a dip in consumer sentiment in March due to continuing unease in the US unemployment rate.
Nevertheless, the surprise gain in retail sales is a sense that Americans are beginning to spend again. While economists do not expect consumer spending alone to pick up at a sufficient pace to lead the economy out of its downturn, it will probably continue to add modestly to growth.
Well, maybe they aren't as much friends as they are archetypes.
"What are you doing here?", the Energizer Bunny said excitedly to Doubting Thomas from across the room. "I was hoping nobody would recognize me", Doubting Thomas said dolefully.
"You of all people, I can't believe you're at an open house," replied the eager Bunny. "I musta got here by mistake," Thomas said shaking his head with as little enthusiasm as possible.
"Now Thomas, you're not thinking of buying this house are you?", the Bunny said through a mischievous grin. "Absolutely not", Thomas said resolutely while wishing he had never met such an obnoxiously effusive creature.
"Prices are down, opportunity is up", the Bunny said energetically. "You oughta put that on a t-shirt and sell it", Thomas said eyes darting, looking for the closest door to make his escape.
"Interest rates are fantastic", the Bunny continued without missing a beat. "You missed your calling, you shoulda been a used car salesman instead of a battrey schill", Doubting Thomas said less than half jokingly.
"The median sold price hasn't changed by more than $5,000 in the last 6 months", the Bunny drummed on. "Its going down by another 10 to 15%", Thomas allowed wishing he hadn't been baited into a real conversation.
"Says who?", the Bunny retorted with a stiffening spine. "Lots of people", Thomas allowed trying to remember one of them with credibility that mattered.
"That has little to do with a resort market", the Bunny affirmed.
"Predictions of more foreclosures are all over the internet", Thomas defended now realizing he had sunk into a real conversation abyss.
"Come on Tom, you know that most foreclosures in South Lake Tahoe are smaller, market entry homes in iffy condition", the Bunny interjected, "that's not what you want!"
"That's true, I do want a nicer house", Thomas replied thinking the first real mistake he made today was getting out of bed.
"And besides that, South Lake Tahoe is made up of nonconforming neighborhoods", the Energizer Bunny said rapid fire, "which means there is little effect if any of a foreclosure on a nearby house that isn't…"
"Did you get a real estate license while I wasn't looking?", Thomas interjected.
"And besides that, there are more short sales than foreclosures these days, and short sales on average sell for only $10,000 less than non-distressed homes…"
He's lost his mind, Thomas thought as the Bunny rattled on.
"And when the interest rates go up by one point, it'll cost you more than whatever you think you're going to save…"
Shaking his head in overwhelmed bewilderment Thomas wished that Energizer batteries had never been invented.
"So, what are you thinking about?", the Bunny concluded. "Huh?", Thomas uttered caught off guard at the sudden end of yet another Bunny monologue.
"Are you more interested in being smart, or buying a house?", the Bunny asked interrogatingly.
For some reason Doubting Thomas was remembering the song lyric "we gotta get outta this place, if it's the last thing we ever do"…
"Living in Lake Tahoe is about lifestyle, it's not about trying to out smart a real estate condition", the Bunny said as if ordained (yet he knew what he said was true anyway).
Thomas inched toward an open door, suddenly remembering his was a right to breathe.
"So, trying to outsmart the market is actually keeping you from having a house in Lake Tahoe, which isn't very smart at all", the Bunny concluded while noticing that Thomas was almost out the front door.
"Where are you going?" the Bunny asked hurt that another diatribe opportunity was abating.
"To meet with my real estate agent", Thomas said sheepishly, "and buy the house I saw before this one!"
"Where is it?", beamed the Bunny.
"Not on your life", Thomas said completely relieved.
We found this interesting, a new approach to the US foreclosure crisis. Rather than focusing on trying to keep defaulting owners in their homes, here's a new approach: paying some of them to leave.
This latest government program will allow owners to sell for less than they owe and will give them a little cash to speed them on their way.
The New York Times article states this is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
Yes, what this means is some government subsidy… of short sales.
To take effect on April 5th, the program is set up to somewhat incentivize the various parties in a short sale: the homeowner, the lender, the investor that owns the loan, and the bank that owns the second mortgage on the property if there is one.
Under the new program, the servicing bank will get $1,000. Another $1,000 can go toward a second loan. For the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
Our first thought in reading this is the "incentives" certainly aren't much, and we wonder just how persuasive an additional $1,000 is to an upside down lender facing significant loss. We of course understand that lenders have been slow to embrace the financial benefits of a short sale vs. a foreclosure, but increasingly these days banks are getting somewhat smarter (see short sale article citing the financial difference between the two here).
The Foreclosure Devil appeared in full in South Lake Tahoe, that was it.
In our last article we cite a particular time, May '09, where South Lake Tahoe, CA really began to feel the effect of distressed property sales on our real estate market.
Our market was in decline prior to last May to be sure, but it was a gradual decline that spanned some three plus years.
The South Lake Tahoe, CA median sold price for 2006 was $460,000. Again, this does not include the Tahoe Keys. Were the Keys to be included that number is $475,000.
The median sold price declined 7.6% in 2007 (see chart below).
It declined another 8.2% in 2008, and…
It declined 21.8% in 2009, about half of which happened last May.
A Closer Look at 2006 ?
In terms of house value, our market high was in 2006, though the decline in value started in that year as well. For the first six months of 2006, the median sold price was $475,000, which did include the Tahoe Keys.
The last six months of '06, the median sold price, also including the Keys, was $449,000. In other words, in the last half of the year of our market high, South Lake Tahoe home values declined 5.4% ($26,000).
Mayday in May ?
It wasn't exactly the personification of the international distress signal, but last May came with a 10% decline in the South Lake Tahoe, CA median sold price. That decline was over 180-days, of course, but this is where significance was added to the opportunity of reduced property values for home buyers.
We already know that our market was in decline for the last 6 months of 2006, and from then to April, '09, the South Lake Tahoe, CA median sold price declined from $460,000 to $361,000. Over that 34-month interval, the average decline was 2.9% a month.
Prior to May, '09, the largest decline that appeared in any one month was in June, 2008, where the median sold price dropped 4.2%.
"Pleased to meet you, I hope you guess my name!'
A lyric from "Sympathy for the Devil" aside, that name is foreclosure, the wolfsbane of real estate value woe that showed up in full, uninvited, in May of last year.
We did have foreclosure sales in South Lake Tahoe before last May, some 20% of all 2008 sales were bank owned properties, but the median sold price in May came with more of it… and at significantly less value.
The Details:
The charts below tell the tale, here's what they summarize:
The median sold price in May '09 came with a 34% increase in the number of distressed property sales.
In the 180-days of home sales before that May, there were 63 distressed properties sold.
In the 180-days before that, only 47 distressed properties sold.
In the 180-days after May '9, the number distressed properties sold was 100.
The average number of distressed sales per month changed meaningfully:
In the 180-days prior to May '09, the average number of distressed homes sold per month was 10.5.
In the 180-days before that, that same average was 7.8.
Since May '09, the average number of distressed homes sold per month is 17.2.
The Value of distressed homes sold changed by 15% as well:
In the 180-days prior to May, '09, the median sold price of distressed homes sold was $271,000.
180-days before that, that same number was $320,000.
The two charts below indicate the median sold price of distressed sales in that 6 months leading up to May '09, and the six months before that.
The chart below tracks South Lake Tahoe, CA distressed sales by month since January 1, 2008. It should be noted that the number of 2008 distressed sales is what we could find from a detailed look at every 2008 sale on the South Lake Tahoe MLS. Automatic reporting of distressed sales did not appear in earnest until 2009.
You know, the South Lake Tahoe median sold price actually increased last month… for the first time since Oct. 2008!
Yes, we know the chart below is a prodigious one, but it contains a full accounting of the South Lake Tahoe, CA median sold home prices since we started this blog.
If you are one of our prior readers, then you know we believe the median sold price is the best known indicator of market trends and conditions as it relates to home value.
We always look at the median sold price in four intervals, over 365, 180, 90 and 30 days (here). Its important to us to see where we've been, so we can best be helpful about where we are now.
We've been studying the median sold price since 2002. In doing that, we have crunched the numbers in exactly the same method every time since then. This gives us an apples to apples comparison, so to speak, a continuum which is essential we think to accurate real estate reporting.
Since the South Lake Tahoe real estate market changed from a strong sellers market to an equally strong buyers market, a timely descent, if you will, which started around labor day of 2005 (Katina), it has taken about 6 months on average to sell a house. At present that number is 152 days, and as such we feel that a focus on a six months market, which is 180 days, gives the truest reflection of market trend and condition.
When considering the South Lake Tahoe, CA median sold price, we may take one of our neighborhoods, The Tahoe Keys, out of the mix. If so, that is always disclosed, and we do that because it is a singularly unique neighborhood, the only one in South Lake Tahoe that has waterfront access through backyard canals. When The Tahoe Keys is included in the median sold price mix, it normally skews the number higher between 3% to 5.5% (see second chart below).
Current Median Sold Price Summary : (what's new, if anything, and we're looking at 180-day results… excluding the Tahoe Keys)
The current South Lake Tahoe, CA median sold price is $303,750.
It was that same number a month ago.
The median sold price has not varied by more than $5,000 in the last 6 months (since October).
With the exception of last month, which saw an increase in the median sold price of 1.3% ($3,750), we have not seen an increase in the median sold price since October, 2008
In other words, the South Lake Tahoe, CA median sold price has declined, or stayed the same, every month in the last 17 months… except last month.
A Special Note : (if we had to point a finger at just one thing)
Note the red outline around two cells in the chart below. This we think is when and where things changed most dramatically.
This, in May of '09, is when South Lake Tahoe, CA really began to feel the effect of distressed property sales on our real estate market.
We're working on a separate report on this and details will follow shortly.
The chart below indicates median sold price results as reported on this blog since April, 2007.
The chart below indicates South Lake Tahoe, Ca median sold prices by year since 2000. Note the differences in home values when the Tahoe Keys is included, and then not.
South Lake Tahoe is just that kind of place… where we might be careful about what we wish for!
In thinking about real estate market growth, just to refresh our memory, what one is really talking about is two things: (1) an increase in demand, which begets (2) an increase in price.
Housing recovery, which means industry growth, is certainly one of the key concepts we're involved with as a country these days. Needless to say, there is opinion aplenty to be found from all angles, and it comes to all of us in overladen bushels, it seems, from just about anywhere.
One of the things we're noticing, oh I we all love human nature, is most of the folks who have opinion about housing recovery are pretty much sure their position is the one that is paramount above all others.
There is no dearth of housing industry experts; self acclaimed mostly, they are everywhere. Yes, Delphi would be crowded with all of the real estate oracles we have these days.
Thankfully, our job here is to report, though we too have an opinion from time to time. One of those that we have now has much to do with the idea of being careful what you wish for… especially if one is on the buyer side of the equation.
The question is simply this, who will benefit most when the housing market comes back around? Again.
South Lake Tahoe, like most places, is very much a buyers market right now. It won't stay that way forever; it never does. This is yet another way of saying that all real estate markets eventually recover. They always do. A buyer's market then becomes a seller's market. The real question is when.
According to some Delphi regulars, lets group them as market optimists, the bulls of the pantheon, it is their fervent belief that recovery has already started. Then there is of course the roar of the delphic bears that we haven't even begun to see the real down market yet.
Our take is the market still has time before we can point to a decided shift in the force, if you will. The two most telltale things we're looking at is the US jobs market (here and here, recently), and interest rates.
Obviously the home buyer who is currently thinking of becoming a resort homeowner in South Lake Tahoe wants to buy while it is still a buyers market, that's just good common sense. The key for that buyer, we think, is to buy anytime before interest rates go up. That could be anytime between right now and when they eventually do.
A fun example to consider :
We've written about this before, but lets review what happens when interest rates rise compared to a further decline in the price of a house. Some bears say that the market will further correct by another 10% -15% decline in house prices. Lets use this as our exercise.
A house would sell for $300,000 today.
It may or may not sell for $270,000 in 3 months (10% less).
It may or may not sell for $255,000 in 6 months (15% less).
It is possible to get a 30-yr fixed loan with 20% down and zero points for a buyer with good credit today for 4.75%.
This means a buyer of a $300,000 house in South Lake Tahoe today could have a monthly mortgage payment of $1,251. (Calculator we used here, remember to account for 20% down, so the loan amount reflects that.)
The monthly payment on this same house would be $1,288 if the interest rate were 5%.
If the house sold for 10% less ($270,000), but the interest rate were 6% (which was a very low interest rate the last time the market was up), the monthly mortgage payment would be $1,295.
If the interest rate were 6.5%, which was a rather normal interest rate throughout much of the housing ramp up between 2003 and 2005, the monthly mortgage payment would be $1,365.
If the house sold for 15% less ($255,000), but the interest rate were 6% (which was a very low interest rate the last time the market was up), the monthly mortgage payment would be $1,223.
If the interest rate were 6.5%, which was a rather normal interest rate throughout much of the housing ramp up between 2003 and 2005, the monthly mortgage payment would be $1,289.
What this example means : (deductions to conclude)
If there is a 1 point rise in interest rates, which will eventually come, saving 10%, or $30,000 off of a $300,000 house will cost a buyer $44 more each month over 30 years ($15,840).
This example certainly becomes more significant with the inevitable increase in home prices that comes from a sellers market (this is the careful what you wish for part).
And it becomes even more significant when interest rates become 6.5% or higher, and we all know there is historic precedence for that.
If we were intending on buying in South Lake Tahoe anytime in the near future, we'd be thinking about these things. (Sometimes saving money off the cost of a house costs you more in the long run!)
The Key to South Lake Tahoe housing recovery lies in the US jobs market.
We've written about this a lot, and it's kinda worth repeating. The return of a stronger real estate market is tied to the US jobs market. We think pretty much the country knows that.
Consequently, it makes sense that housing industry prognosticators, and particularly those who would benefit by a more robust real estate market are searching high and low for any spark that might indicate a return to a hot market.
We certainly would like to see more South Lake Tahoe real estate activity; that's how we make a living. But we have to be careful here, like all of us, not to be overly enthusiastic with predictions of market growth. It's not the prediction of market growth, though, that can be tricky, it's taking premature action based on those predictions, whatever that action might be.
For us in particular, the idea of market growth is seductive; it simply means more, which in an economic / family support sense is always more attractive than less.
The cornerstone of our professional real estate practice, taking this discussion into context, is this blog. Our tag line, "information you can trust about Lake Tahoe and us" means something to us.
So much so, we're constantly aware that what we do here is tied to that trust, and we realize that being overly enthusiastic about anything has the potential of toying with that sacred trust.
As seductive as spark hunting might be, and we've certainly succumbed to enthusiasm before (we all have), we have become comfortable with adding caution into the mix when reporting about sparks, whether they be real, hoped for or imagined.
Now, we guess, we feel more comfortable with calling your attention to two CNNMoney.com articles. "First Spark of a Jobs Recovery" appeared yesterday, and we all want to see that, we realize, because it has to start somewhere, but we're not willing to bet the farm so to speak that this is necessarily it.
There are signs that the worst of US job loss is over.
Joel Prakken, chairman of ADP researcher Macroeconomic Advisers, sees a turnaround on the horizon. "If the recent trend continues, private employment could rise next month for the first time in two years."
A separate employment survey released earlier in the week concluded that the nation's tiniest businesses are already adding workers.
Firms with less than 20 employees added nearly 40,000 net new jobs in February.
Tiny companies tend to be the first to cut staff when the economy weakens — and the first to hire again when it improves.
The second CNNMoney.com article"Job Cuts Slow" also came out yesterday. Here are a few of its bullet points:
The pace of U.S. job cuts continued to slow last month.
Private-sector employers cut 20,000 jobs in February, the fewest since February 2008 when employment first began to decline.
February was the 11th straight month that job losses narrowed from the previous month.
The service sector reported job growth for a third consecutive month after a 21-month decline.
National Existing home sales averages… and South Lake Tahoe, CA real estate reality!
First lets take a look at the most recent report on US existing home sales, then we'll use that as a basis to reflect on what's happening with home sales here in South Lake Tahoe, CA for the first two months of 2010.
The CNNMoney.com article (here) has this headline: "Existing Home Sales Drop." The report comes via The National Association of Realtors (NAR) and it leads with a suggestion that the housing market may be weaker than previously thought.
Here are some key bullet points:
Home resales fell 7.2% last month.
On a year-over-year basis, sales were up 11.4%.
The January sales rate was the lowest since June.
Lets see how this relates to South Lake Tahoe, CA home sales: (see chart below)
There were 34 single family home sales in January.
This is the most homes that have been sold in the first month of the year since 2005.
Instead of the national average of 11.4%, January sales in South Lake Tahoe, CA are up 52% (eighteen 2009 sales v. thirty-four 2010 sales)
Closing the Short Sale… the end of a sometimes epic journey.
This is the seventh in an eight-part series on short sales. Think of it as coming from the point of view of the home buyer / investor, although the short sale process is the same for the South Lake Tahoe seller as well.
The definition of a short sale is simply this: it is the sale of real property at a price that is below the amount owned on the property.
It should be noted to all potential South Lake Tahoe buyers that the short sale process varies somewhat from lender to lender, sometimes substantially; that a successful short sale purchase can be a tedious, uncertain, time consuming process. Not all offers on short sale properties meet with success, to be certain, and it is not uncommon here in South Lake Tahoe to find multiple offers on attractive, reasonably priced short sale homes.
(current South Lake Tahoe, CA short sale summary and statistics here)
Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Six: The Lenders Decision (here)
Step Seven: The Negotiation (here)
Part Eight : The Closing
The end result of a successful negotiation with the short sale lender is acceptance of the offer. From that to closing is not conceptually much different than closing the sale of a non-distressed property, though there can be a few out-of-the-box things to encounter.
Title Company and Escrow :
Escrow is normally set up with a title company of a buyer's choosing, though some short sale lenders may insist on using a specific title company that is "approved" by them as a condition in their accepted contract.
Fortunately, not all short sale lenders elect to use a title company of their choice, but for those that do, the primary basis for that decision, so it seems, is the lender gets a break in the escrow fee. In other words some lenders insist on using a particular title company because it makes them more money.
When this occurs, our experience has noted a few realities in doing business with a lenders title company of choice: (1) they are usually out of area, (2) they can be exceptionally busy handling many of the lenders transactions, (3) they may not perform as fast, or as efficiently as we are accustomed, and (4) we have little leverage to do much about it.
What this means is the possibility that the buyer will have to once again exercise more patience than normal.
Due Diligence and Home Inspections :
While in escrow, the normal due diligence period is 17 days. That is the default language in most of the real estate contracts we use, though a buyer can ask for a longer period of time for home inspections and other research on a property if they so choose. This is the same for a short sale property as well.
Some short sale contracts may contain that states that the lender is selling the property "as-is." What this means is the lender is selling the house in its present condition and that the buyer is responsible for the cost of any and all repairs, whether the are discovered in the home inspections or not.
"As-is" language can appear in the accepted contract for the sale of any property, short sale or not. But it is never binding, which means it does not preclude the buyer from asking for relief for anything he so chooses, which can certainly include repairs.
One of three outcomes will occur if a buyer asks a lender for repair relief on a home, whether as-is language is found in the contract or not: (1) the lender will pay for the repairs (usually in the form of a credit), (2) the lender will negotiate for partial payment, or (3) the lender will refuse.
If the lender's position on any requests for repairs is not acceptable to the buyer, the buyer can choose to terminate the sale.
We have not had one of our buyers walk away from a sale over the cost of repairs that we can remember, though it can and does happen. Our counsel in general is there is almost always a way to work things out, though the particulars of which are usually specific to the unique situation at hand, rather than a general rule.
Speed (close it quickly):
Though lenders of foreclosed and short sale properties can be slow in getting up to speed, it's our experience that they wish to move as quickly as possible once they are.
Conversely, we counsel our buyers to be patient with the lender to begin with, and to be prepared and plan on moving as quickly as possible to close the sale once it is approved and goes into escrow.
Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Six: The Lenders Decision (here)
Step Seven: The Negotiation (here)
Negotiating with the Short Sale Lender… the heart and soul of much real estate business today.
This is the seventh in an eight-part series on short sales. Think of it as coming from the point of view of the home buyer / investor, although the short sale process is the same for the South Lake Tahoe seller as well.
The definition of a short sale is simply this: it is the sale of real property at a price that is below the amount owned on the property.
It should be noted to all potential South Lake Tahoe buyers that the short sale process varies somewhat from lender to lender, sometimes substantially; that a successful short sale purchase can be a tedious, uncertain, time consuming process. Not all offers on short sale properties meet with success, to be certain, and it is not uncommon here in South Lake Tahoe to find multiple offers on attractive, reasonably priced short sale homes.
(current South Lake Tahoe, CA short sale summary and statistics here)
Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Six: The Lenders Decision (here)
Step Eight: The Closing (here)
Part Seven : The Negotiation
Negotiating a short sale with the lender sets up an interesting scenario as it relates to our professional standard of care. When representing a seller we owe a duty of always representing their best interests, which normally means sell at the highest price possible.
The best interests of a short sale owner may, however, be somewhat different. The short sale owner often has an interest in getting away from their loan as soon as possible. Unlike a foreclosure, where the interest of most lenders is to convert the property back into a cash asset as quickly as possible, the lender in a short sale, rather than necessarily quick, wants to get as much as possible. We however have no contractual duty to them, though the short sale lender has to approve the short sale price, and as such their best interest is our de facto obligation.
Our standard of care in a short sale therefore becomes twofold: we have a duty to get the seller out of their house, and therefore their loan as quickly as possible, and to do that we must demonstrate to the short sale lender that we are getting them the highest price possible. The trick is of course selling quickly is almost always at the expense of getting the most.
Like walking a tightrope between two seemingly mutually exclusive realities, handling and negotiating a short sale is a balancing act that requires focus and concentration, and as we have discussed throughout this series, it all comes down to a compelling, persuasive short sale package.
By the time it gets to the actual negotiation with a lender, the buyer investor, homeowner and usually two professional real estate agents have spent considerable time in preparing and presenting it for consideration.
The negotiation will likely be with someone in the short sale lender's the "loss mitigation" department. The name of the department explains its goal – mitigating how much money they will lose on the loan. It's not about how much money the homeowner is going to lose, its about how much the lender is going to "not lose."
Contact with the lender need be courteous, but professional. The homeowner will have provided written authorization for us to work with the lender on their behalf. We like to have the homeowner present on our first phone contact with the lender, though that is rarely possible. In any event we certainly like to have the owner speak to the lender to set up our first contact.
We have a short sale at present, one we may get an offer on tomorrow. We mention this because it is a good example of how some short sales are administered today. We have not spoken to the lender yet, as they are not interested in talking yet… until there is an offer. This could also well mean the lender has not yet assigned an asset manager to handle the property in question, which means there is nobody to talk to yet… even if we had an offer in hand.
Some lenders do not assign someone to handle a short sale negotiation until an offer is made, and this assignment can take some time. We've seen that time range from rather quickly… to months.
In other words, it is the offer that starts the short sale approval process with some lenders, and the buyer who made the offer must be patient as the lender gets up to speed.
Again, not every lender operates the same, but we counsel our buyers to be prepared for the process to take some time. Unfortunately, those lenders whose process seems to move at turtle speed, there is rarely anything any of us can do to make them run like a hare.
That first phone call that we have with an asset manager in charge usually sets the tone for the transaction. We want to make a good first impression, and to do that we we want to make sure of a few things: (1) that the lender understands we see things from his point of view too, and that we are always available to answer questions and provide additional information going forward, and (2) that we know our stuff.
Most discussion at this point will have to do with the assumptions and conclusions in the short sale package, and how we got to them. It is not unusual for a lender to have a difference of opinion as to price, and anticipating just that, we are always prepared to defend our position. One of the things that best helps us fortify such is this blog. Our continually updated statistics herein make a solid foundation for a lender to become comfortable that we know what we are talking about.
Rarely have we ever had a lender think that a BPO from an agent who has never been inside the house, or an appraisal from an out-of-area appraiser who does not know the unique considerations of our market are paramount to our market evaluations. Truth be known we get calls from appraisers all the time. Many of them actually use our statistical data to help them with their appraisals.
Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Six: The Lenders Decision (here)
Step Eight: The Closing (here)
Which is More? What the Lender does to make a Short Sale decision.
This is the sixth of an eight-part series on short sales. Think of it as coming from the point of view of the home buyer / investor, although the short sale process is the same for the South Lake Tahoe seller as well.
The definition of a short sale is simply this: it is the sale of real property at a price that is below the amount owned on the property.
It should be noted to all potential South Lake Tahoe buyers that the short sale process varies somewhat from lender to lender, sometimes substantially; that a successful short sale purchase can be a tedious, uncertain, time consuming process. Not all offers on short sale properties meet with success, to be certain, and it is not uncommon here in South Lake Tahoe to find multiple offers on attractive, reasonably priced short sale homes.
(current South Lake Tahoe, CA short sale summary and statistics here)
Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Seven: Negotiating with the Lender (here)
Step Eight: The Closing (here)
Part Six : The Lender's Short Sale Decision
If the short sale package adequately documents the owner can not pay their mortgage, the lender should believe that the owner is heading toward foreclosure and/or bankruptcy.
To come to a short sale decision, the Lender will verify the documentation in the short sale package. Upon satisfaction that the situation is what it is, the lender twill ascertain a value for the property, which will then be juxtaposed to the amount due on the delinquent loan.
The national average costs to a lender for a foreclosure is about $50,000. In South Lake Tahoe in the last 180 days, the median sold price for a short sale is $93,788 higher than that of a foreclosure. Each of these facts alone are the basis for a favorable short sale decision, and both are exceptionally compelling.
Most lenders use both an AVM (Automated Valuation Model) and a BPO (Broker Price Opinion) to look at they might be able to get for the property in a foreclosure. Some will add an appraisal into the mix as well. What's unique about South Lake Tahoe is AVM value aggregators are characteristically so inaccurate in this market (non conforming neighborhoods is the key reason).
If the lender thinks they will get more money from the short sale, they will approve it.
So again, the importance of the short sale package can not be overstated for a seller.
Lenders pay a real estate broker to do a "drive-by" BPO. But they rarely ever enter the home, and BPO's can be, and often are, less than accurate.
Computer AVMs are unreliable in the South Lake Tahoe market, nor do they ever have the means to show the current condition of a home either.
Repairs can be a necessary part of foreclosure, short sale consideration, and the seller must disclose that to the lender as well.
Step One: The Property Evaluation (here)
Step Two: The Short Sale Application (here)
Step Three: The Hardship Letter (here)
Step Four: The Short Sale Package (here)
Step Five: The Offer and Purchase Agreement (here)
Step Eight: The Closing (here)
South Lake Tahoe, CA. Real Estate Trends, Conditions and Median Sold Price
We’ve updated home sales summaries and Market Performance for South Lake Tahoe, CA.
The median sold price is $298,500. ( It was $301,875on February 2nd, and $305,000 two months ago.) This is based on all single family sales in South Lake Tahoe, CA in the last 180 calendar days (Tahoe Keys homes not included).
The median sold price for the last 365 days is now $305,000. (that same number was $314,000 on February 2nd, and $319,000 two months ago.)
The key contributing factor to South Lake Tahoe decline in home prices is the effect of foreclosed home sales on the real estate market.
Since the first of this year, we have seen an increase in the percentage of both foreclosed homes sold and those in escrow. Of all homes sold in South Lake Tahoe in 2008, about 20% of them were in foreclosure. That same number was 39% in 2009.
At present 46.6% of South Lake Tahoe home sales in the last 180 days are distressed properties.
Of the 97 homes currently in escrow, 71 (73.2%) of these are also distressed sales (Either foreclosures or short sales. This same number was 57.7% two months ago.)
All South Lake Tahoe home sales in the last 365 days, here.
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To take effect on April 5th, the program is set up to somewhat incentivize the various parties in a short sale: the homeowner, the lender, the investor that owns the loan, and the bank that owns the second mortgage on the property if there is one.
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We have not had one of our buyers walk away from a sale over the cost of repairs that we can remember, though it can and does happen. Our counsel in general is there is almost always a way to work things out, though the particulars of which are usually specific to the unique situation at hand, rather than a general rule.
Our standard of care in a short sale therefore becomes twofold: we have a duty to get the seller out of their house, and therefore their loan as quickly as possible, and to do that we must demonstrate to the short sale lender that we are getting them the highest price possible. The trick is of course selling quickly is almost always at the expense of getting the most.
We have a short sale at present, one we may get an offer on tomorrow. We mention this because it is a good example of how some short sales are administered today. We have not spoken to the lender yet, as they are not interested in talking yet… until there is an offer. This could also well mean the lender has not yet assigned an asset manager to handle the property in question, which means there is nobody to talk to yet… even if we had an offer in hand.
The national average costs to a lender for a foreclosure is about $50,000. In South Lake Tahoe in the last 180 days, the median sold price for a short sale is $93,788 
South Lake Tahoe, CA. Real Estate Trends, Conditions and Median Sold Price