Still seeing good activity

We're still seeing good market activity here in Santa Barbara, especially in the REO and foreclosure segments of the market. There has been limited inventory in the $300-600k price range where so many first time home buyers are hoping to purchase this year to capitalize on the different tax credits offered in 2009.

For those of you who haven't heard, there is a $8000 Federal Tax credit (different than a deduction in that if you don't need all $8000, they send you a check for the remainder) for first time home buyers. In addition, there is a less talked about, but equally exciting $10,000 California Tax credit for any home buyer purchasing new construction, with the credit being divided equally over a three year period. Those two tax credits can be combined for a total of $18,000 for buying a home this year. That's a huge incentive for many buyers to take advantage of the bottom of the barrel prices, combined with incredibly low interest rates. It truly appears to be the "perfect storm" for qualified buyers that can afford to get into the market this year. There are some nice options, like the Willow Creek complex in Old Town Goleta, that offer beautiful new construction for the $450-575k range that would allow a local buyer to enjoy both of these tax credits, plus some pretty incredible buyer incentives from the Developers themselves. If you haven't seen this complex, they are gorgeous 2 and 3 story Craftsman style condos ranging from 2-3 bedrooms and 900-1400 SF. There is nothing like them in this price range and I haven't had a single client not fall in fall with the units.

The Luxury market is a bit slow right now, especially the mid-luxury market of $5-7million, where there hasn't been a single closed sale since the first of the year. There have been some larger estate sales above that price range and some decent activity in the $2-4 million range, but over-all, the buyers in this luxury market are looking, but still waiting on the side-lines to see what will happen to home prices as well as their portfolios.

Are sellers negotiating in the $250-650k price range?

I had a client ask me this today, and I figured I'd share the response with my other clients and viewers:

"As far as prices are considered and flexibility through negotiation, the price range you are looking in is by far where we have been and are still seeing the most activity. Low inventory levels and high buyer demand for that price range are making negotiation options limited. Sample scenario: 3/2 tract home in Goleta, REO for $500-550k, probably a 75% chance it will sell within 72 hours with multiple offers and at least asking price, if not more. Best case scenario if you want movement on the price through negotiation is to find a property that has been on the market for a while (like Juana Maria) and then negotiation can really come into play. For the few REO's that stay on the market longer that 2-3 weeks, the banks will move some on their prices, but best case scenario is often to negotiate less aggressively (ask for less of a discount) and they are more likely to just accept offer, rather than counter back and forth. With traditional sellers I am a strong advocate of firmer negotiation and countering back and forth to really get the best deal, that strategy just doesn't seem to work as well with the REO's. They want good clean offers, strong financial qualifications, buyers who will take property "As-is" and not ask for repairs, and shorter escrows. We can talk more about this if we find you a property you'd like to move forward on. Each negotiation is case specific so I can only give you general answers at this point.

If any of you want to discuss this further, feel free to give me a call at 805-637-7148.

Pursuing Foreclosure Properties

Foreclosure properties, which is a non-technical term used by today's home buyers, are a very hot topic. As such, I wanted to address the two classifications and technical terms for foreclosure homes, and what each process entails if you were to pursue them as a home buyer.

There are two classifications of "foreclosure homes". The first is labeled "short sales". These are homes that are currently going through the foreclosure process, but have not become banked-owned yet. In this process, the homeowner has to classify for being in financial duress and can no longer make their mortgage payments. They approach their bank and a real estate agent and all three parties work to sell the home before it goes through foreclosure process and bank to the bank. These homes are sold for less that what is owed on the property, so not only is the homeowner losing all their equity, but the bank is also taking a major loss. Sometimes the bank is willing to do this though if they consider it the "lesser of two evils". Often times, if they take a property back in foreclosure, they have repair/maintenance costs, legal fees, marketing costs, etc. They also are severely limited in the amount of money they can lend out based on the dollar amount of real estate they are holding in their portfolio.

Short sales can be extremely frustrating for buyers, so I also caution my clients against moving forward on one of these properties. While the seller may approve the offer right away, the bank or banks may not give final approval until 8-10 weeks, or more! I had one recent client who waited 100 days for the Bank's final approval until they told us "no". It was an extremely frustrating process for all parties involved.

As to the owner foreclosure situation, these are classified as REO's or Real estate owned properties (Bank-owned properties). These are properties that have gone all the way through the foreclosure process and are currently owned by the bank and all their books. The banks are very motivated to sell them and as a homebuyer, the process of buying one of these homes is very similar to working with a typical seller. REO's are some of the best deals on the market in the under $1 million sector and if you contact me, I can put you on a list to receive all of the weekly REO's.

There are some caveats to working with a bank when buying an REO. One of these is that they will counter your offer with a standard, typically 8-page, counteroffer/addendum that basically states that they know nothing about the property and that they don't have to fill out the same disclosures as a typical seller. In addition, banks can be less flexible as far as creative offers and prefer "As-is" offers where items like repairs, pest work, etc. are already incorporated into a lower offered price by the buyers. They can also be less flexible during escrow if issues arise, you need to extend escrow, etc. All-in-all I highly recommend not pursuing short sales, but definitely pursuing bank-owned properties as well as properties listed by conventional motivated sellers.