Foreclosures (REO’s) and Short Sales: A Cautionary Tale

I frequently get an initial contact where someone is very emphatic about finding a foreclosure or maybe a short sale.  The assumption seems to be, a foreclosure or a short sales is by definition going to be the best deal out there.   This may be so, but it isn’t guaranteed to be so and in fact often a foreclosure or a short sale is worse for the Buyer than a well-priced sale by a regular Seller.

I just had a client cancel the escrow for the purchase of an REO property.   It’s only the third cancellation I’ve had in 19 years.    What went wrong?   You should understand that banks and other sellers of foreclosed properties are relieved of the burden that ordinary sellers have in making disclosures about the property.   Was there fire damage that was superficially repaired but left the building structurally weakened?   An indivdiual would have to disclose this.   A bank probably wouldn’t even know the repair history of a property but even if they did, they aren’t compelled to disclose what they know.

The entire burden of due diligence is upon the Buyer.    Has a leaking shower caused rot and let water seep into the walls?   Better have the best possible inspection because if the property is bank-owned, they won’t know anything.  Fire damage?  Ditto.   Termite damage?  Ditto.   Problems with electrical wiring or plumbing?  Ditto.    Furthermore, most banks are selling properties completely “As-Is” with no credits or repairs given once escrow is opened.  The result is that you can discover tens of thousands of dollars in repairs that need to be made to rectify conditions that weren’t obvious when you viewed the property prior to writing an offer.

As an alternative, you can have all your inspections up front before you negotiate a purchase price but you run the risk of paying hundreds of dollars, maybe more, in inspections without knowing if you and the bank can even agree upon a purchase price.    How many inspections are you willing to pay for before knowing whether or not you have a deal?

Short sales—where the Seller is selling the property for less than he owes his lenders—are another matter.   When you reach agreement on terms and conditions with the Seller, your journey has just begun.    The Seller’s lenders—banks in most cases—then have to agree to accept less than what they are owed in lieu of foreclosure.    Simply acknowledging that they have received your offer can take two weeks.   The total process can run months; one client told me that his recently completed short sale purchase was “nine months of horror.”    One might be encouraged to hang in for the duration if one was sure that one would get a good deal but statistics show that only about half of all attempts at short sales are completed.

Furthermore, the banks approving short sales can unilaterally impose changes to the terms and conditions prior to making a final acceptance.   Seller paying for termite work?  10 days before the close of escrow you might be told, “No, take it or leave it.”    You thought you had a sales price agreed to?  Six months after making your offer you might be told, “We’ll take your deal but you’ll have to come up with $25,000 more.”   The range of changes to a contract that a bank can impose as a condition is virtually without limit.   They can’t force you to accept but often the end result is a purchase that’s not nearly as attractive as what you contemplated when you wrote your offer.

The essence of making a good buy is still the same:  find a good property in a good location at a good price.  If it happens to be a foreclosure or a short sale, then go ahead and go into the transaction with your eyes wide open.   You may in fact make that golden purchase that many dream about.   But if the property is being sold by just an ordinary Seller, relax…you might have the better deal by the time escrow closes.

October 14, 2009 at 8:01 pm Leave a comment

2009 versus 2008 Westside Market Report

It’s interesting to track real estate sales in 2009 versus 2008.   Following is a chart comparing the number of sales and median sales prices  in several Westside areas.

The first thing to leap out is that not all areas are equal.  Compare the token increase in the price of Westwood single-family homes with the 42.8 percent drop in prices in Brentwood.

The other thing that strikes me is the overall decline in single-family home prices at 20.6 percent for the Westside as a whole versus only 9.0 percent for condos & townhouses.   To a large extent, these numbers reflect the relatively greater difficulty in securing loans in higher price ranges compared to lower and they are skewed accordingly.   However, the implication is that if you can sell your condo/townhouse and you can get the necessary loan, this is actually a *great* time to move up from a condo/townhouse to a single-family home as the gap in prices between them has narrowed overall.

The market shows signs of bottoming on the Westside, particularly in the lower price ranges, as prices begin to firm and multiple offers pop up on well-priced properties.   As one important marker, there are only 7 single-family homes that are foreclosures in these Westside areas combined.   In places where there are many foreclosures, there is still downward pressure on the market.  Buyers expecting to find the same kind of deals on the Westside are going to be disappointed.

I will post another market update in a couple of weeks when comparisons of the first half of both years can be made.

Q 1 2009 vs. Q1 2008
Real Estate Activity for the Westside

2008 2009
# of sales
median price
# of sales
% change
median price
% change
Single Family
Santa Monica
West LA




Palms/Mar Vista
Culver City


Marina del Rey
Bel Air
Total Single Family
Condo/ Townhouse
Santa Monica
West LA


Palms/Mar Vista
Culver City
Marina del Rey
Bel Air
Total Condo/ Townhouse

June 22, 2009 at 9:02 pm Leave a comment

The Santa Monica Market: 2008 vs. 2007

Market Report—January, 2009

It has long been my contention that prices in Santa Monica go up more in an “up” market, down less in a “down” market. The pattern of prices over the last two years would seem to validate that conclusion.

As of January 8, there were 150 condos and 98 single-family homes on the market in Santa Monica.

Median Asking Prices
Single family homes

# bedrooms # on market Median Asking Price
2 BR 23 $1,099,000
3 BR 28 $1,199,000
4 BR 21 $2,375,000
5+ BR 24 $3,922,000


# bedrooms # on market Median Asking Price
Studio 5 $399,000
1 BR 32 $458,000
2 BR 85 $764,900
3+ BR 33 $1,349,000

Some interesting numbers are the year to year comparisons for 2007 vs. 2008, both of numbers of units sold and median selling prices.

Single Family homes

Area # sold 2007 Median Selling Price # sold 2008 Median Selling Price
Santa Monica 280 $1,681,750 192 $1,900,000
Brentwood 223 $2,075,000 154 $2,100,000
Westwood 179 $1,351,000 146 $1,338,000
West LA 78 $762,000 45 $745,000
Mar Vista/Palms 310 $861,250 238 $770,000
Culver City 145 $779,000 129 $695,000
Venice 173 $1,170,000 130 $1,150,000


Area # sold 2007 Median Selling Price # sold 2008 Median Selling Price
Santa Monica 439 $780,000 339 $680,000
Brentwood 250 $714,500 131 $690,000
Westwood 718 $670,000 365 $680,000
West LA 176 $629,500 149 $595,000
Mar Vista/Palms 141 $485,000 107 $419,000
Culver City 202 $440,000 180 $399,500
Venice 38 $925,500 18 $1,112,500

Note that price declines were modest in comparison to what one might expect from reading the newspaper headlines and that for single-family homes prices in Santa Monica and Brentwood actually increased.

Why are prices in the Westside so relatively inelastic in comparison to other areas? In a word, foreclosures. Or, more precisely, the relative lack of them.

Foreclosure sales pattern
Data as of 1/15/09

Single Family homes

Area # sold 2008 # on market now # in escrow now
Santa Monica 0 0 0
Brentwood 4 0 1
Westwood 2 0 1
West LA 2 2 0
Mar Vista/Palms 13 5 0
Culver City 10 2 4
Venice 2 0 2
Bel Air 6 0 1
Topanga 5 2 0


Area # sold 2008 # on market now # in escrow now
Santa Monica 8 9 6
Brentwood 4 1 2
Westwood 14 4 5
West LA 9 2 1
Mar Vista/Palms 5 0 0
Culver City 15 3 6

More than half of all home sales in December in Southern California were foreclosures and yet very few were in communities on the Westside. One doesn’t have to travel far to find a completely different picture.

Area # sold 2008 # on market now # in escrow now
Sherman Oaks 45 20 8

And this data from Sherman Oaks is incomplete due to overlapping MLS services. The actual foreclosure activity is even higher, I just can’t quickly document it. And as dramatic a contrast is this is from the Westside, areas other than Sherman Oaks are even worse.

Unless the foreclosure pattern changes radically, prices on the Westside in general and Santa Monica in particular will continue to be relatively inelastic compared to prices elsewhere in Southern California.

January 22, 2009 at 6:06 pm Leave a comment

Update on Market Conditions—October, 2008

I’ve recently been working with Buyers who are frustrated with home prices in Santa Monica. “Why aren’t they lower?” they ask. They read the headlines filled with dire financial news and then go out to look at homes and are dismayed that prices aren’t lower.

The answer is location, location, location. Compare the number of sales in Santa Monica from the third quarter of 2007 to the third quarter of 2008.

Q3 2007
Q3 2008
Single Family Home – Number Sold
Single Family Home – Median Price
Condo/Townhouse – Number Sold
Condo/Townhouse – Median Price

That’s right…the number of sales went up year over year.

Well, what about median prices?

Prices for single-family homes went up, due in part to higher priced homes making up a higher percentage of sales. Prices of condos edged down, year over year, a little over three percent.

As of October 8, there are 94 single-family homes and 176 condos on the market in Santa Monica. What the immediate future holds with all the financial turmoil and the elections I can’t say. If I could, I’d be in the forecasting business. But based on the 2007/2008 numbers, Santa Monica continues to be an area where property values go up more in an “up” market and down less in a “down” market.

Back in February, I wrote about Market Conditions: “For Buyers, you can get a good deal compared to a year ago or even six months ago. But I sincerely doubt that we’re going to see prices go 20 percent or more below current levels. If you say that you want to pay what prices are going to be in six months, then you need to wait those six months and see what those prices are…and those prices may not be dramatically different from what they are today.” So far, that prediction has held true

If you have a question about how a particular market niche is doing, then drop me an e-mail at or give me a call at (310) 508-6878.

October 10, 2008 at 1:32 pm 1 comment

Traditional vs. On-line home hunting

I’ve heard several presentations over the past couple of years on the differences between “traditional” and “on-line” clients searching for homes.   The on-line world is increasingly important; the most recent study I’ve seen says that 84 percent of all Buyers start their home hunting by searching on-line, even before they contact a realtor to work with.

But I’ve noticed a trend lately and I want to direct some comments to on-line home Buyers.

With a “traditional” Buyer, at some point we meet, we review their criteria—such as price, desired location, number of bedrooms, and other factors—and then I make suggestions of properties to see.   Often I’ll e-mail property descriptions and my clients will see the ones that interest them at Open Houses.  Others will give me feedback and I’ll set up appointments at their convenience.   Eventually, we find a property that they like the best, I give them my view of the pros and cons, an offer is written and then accepted or not.

Many clients that I’ve met “cold” via my on-line presence, whether it be this blog, my website, or on-line ads, wind up going down the same path.

But some don’t.  There are some Buyers who will contact me about a specific property and then, if that property doesn’t meet their needs, vanish.  Presumably they then contact the next realtor about another specific property and repeat the process.

I think there is a value in working with a realtor, whether it’s me or someone else, who gets to know you and your preferences over time.   Once I’ve seen 6-8  potential homes with someone, I can pretty much internalize their values and “play” them when I see a property that is newly listed in the market, noting what they’ll like and dislike and, from their point of view, whether or not the property is something “hot” that they should see right away.

I’d like to suggest to the “on-line” Buyers who are reading this that they keep searching for specific properties on-line but that when you find a realtor who seems to click with you, for whatever reasons, you think about making that realtor a partner in your search.   Having a professional who understands your values and preferences will make your search much more efficient.   And who knows, as your realtor comes to understand what constitutes and ideal property for you, he or she may make suggestions that would have never occurred to you, thereby broadening the choices from which you will ultimately make a suggestion.   It happens.

August 19, 2008 at 11:41 am Leave a comment

Santa Monica rates among lowest for foreclosures

Today’s LA TIMES (June 5) had an article about foreclosures and a feature that allows you to enter a Zip Code in the five-county area  (Los Angeles, Orange, Ventura, San Bernadino, Riverside) and see where your Zip Code stands with respect to foreclosures.,0,7122944.htmlstory

Note:  this link will expire in seven days due to how the LA TIMES manages their site.

The survey used a metric of how many households per foreclosure.  The higher the number of households, the better.   One of the Zip Codes in the Palmdale/Lancaster area was absolutely appalling with one foreclosure for every 59 households.

Of the 498 Zip Codes with data, Santa Monica did very well:

90402 (north of Montana)  was ranked 485.

90403 (north of Wilshire) ranked even better…489.

90404 (central Santa Monica) was a still outstanding 475.

90405 (Sunset Park/Ocean Park) was 481.

90401 (downtown area)… one of the top 10!  No foreclosures at all first quarter.

All real estate is local.  As I’ve said before, there is no such thing as the real estate market, there are hundreds of markets defined by narrow geography, property type, and price range.   For all the gloomy newspaper headlines, Santa Monica is holding up very well, supporting my contention that Santa Monica goes up more in an up market, down less in a down market.

Places like Palmdale, Lancaster, parts of the San Fernando Valley, San Bernadino, etc. may be experiencing severe difficulties but the downturn in Santa Monica is very mild.

June 5, 2008 at 9:33 pm 1 comment

How much under asking price should I offer?

“How much under asking price should I offer?” is a question that I’m asked in any market and much more frequently in the current market.

I’ve been told by a student of economics these days that most questions about economics can be answered with one of two answers:  either  a)  China  or  b) it depends.   In this case, the answer is “it depends.”

There is no set rule because Sellers (and their agents) vary widely in how aggressively they price a property.  Some properties are worth–and are receiving offers–of full asking price, or even over in multiple offers, in this market.    Other properties are priced clearly too high…and you see them languishing on the market for months.

One thing I do when preparing to write an offer for Buyers is to print out all the recent sales of comparable properties and compare various factors such as location, square footage, amenities, etc., of the sold properties to the property they’re going to write an offer on.   In so doing, I print out a report that shows both the asking price and the selling price of these “comp” properties.

No matter what the market, you will find that the majority of sales occur within 3-5 percent of the asking price.   I’ve concluded there are two reasons for this happening.

First, if the “true” market value of a property is 10 percent or more below its asking price, the Seller usually isn’t ready to hear the truth and will reject the offer.   Otherwise, he would have lowered his price to a more defensible level to attract a quicker sale.

Secondly, and as a Santa Monica real estate agent this sometimes drives me nuts, many Buyers won’t write an offer much more than 5 percent below the asking price.   “It’s too embarrassing” and other variations on that theme I’ve heard over and over again.

So, while the answer to how much under asking price you should offer is “It depends” and may vary from property to property, the overall pattern is such that most sales will occur within 3-5 percent of listing price, even in the current market.

May 7, 2008 at 10:06 pm Leave a comment

When is a Loan Approval not a Loan Approval?

In most real estate transactions, the purchase of the property is contingent upon the Buyer getting a loan at terms specified within the contract and within a specified time, often 17 days per the boilerplate language of the standard contract, though many realtors in the current market with its lending challenges are extending that period to 25 or 28 days. Exceptions are when the Buyer is making an all-cash offer or in a hot market where a Buyer may remove contingencies in their offer up front in order to make their offer more attractive.

In the course of the transaction, the Buyer is expected to remove the loan contingency upon getting loan approval. If the Buyer doesn’t remove the loan contingency, the Seller may require the Buyer to cancel the transaction or Buyer and Seller may negotiate an extension of the loan contingency, sometimes accompanied by the release of a portion of the Buyer’s deposit from escrow as a gesture of good faith.

But what constitutes “Approval”? Loan representatives who take an application enter the data from the application into an automated system and receive an automated Approval (or not). So when that approval comes back, the Buyer can remove their loan contingency, right?

Not so fast. After that automated loan approval, the lender’s rep submits the loan package—application, credit report, pay stubs, copies of bank account statements, and all the myriad other bits of paper comprising an application—to the lender’s underwriting department for review. The underwriter orders the appraisal and reviews all the documents. And here’s where some of the fun can begin. The Buyers’ income may be fine but the underwriter may be concerned about the solidity of an applicant’s job history. Or there may be an item on any of all those pieces of paperwork that cause the underwriter concern. The appraisal, especially in the current market, may come in at a value below the purchase price or the lender may even arbitrarily slash an appraisal by 5-10 percent as a hedge against a declining market. An loan application isn’t approved until the underwriter—and, often, the underwriter’s supervisor—signs off on the application. But at that point, we have approval and the Buyer can remove the loan contingency, right?

Not so fast. When an underwriting department approves a loan, it does so with a number of conditions. Many of them are trivial and many are completely transparent to the Buyer or their agent, information to be furnished by the lender’s rep. Other items are things like the lender being provided with copies of the Buyer’s driver’s license. But then there may be more problematic conditions, such as an appraiser being asked to come up with two or three additional properties, either sold or currently on the market, to validate the appraisal. In some cases, an entirely independent second appraisal is called for. Only when all these conditions, called “pre-document conditions,” are met can the Buyer more or less safely remove the loan contingency.

And, actually, the pre-document conditions are not the end of the line. After loan documents have been issued and signed by the Buyer(s), there are additional pre-funding conditions that have to be met prior to the loan funding. These usually are really trivial, and include such things as the lender calling the Buyer’s place of employment to re-confirm employment status before the loan is funded. For what it’s worth, a Buyer client of mine once changed jobs during escrow just before the loan was due to fund; that provided way too much excitement in the process.

The consequences of removing a loan contingency without prudent diligence can put the Buyer’s entire deposit at risk should the loan fail to be funded. The problems, especially with possibilities such as second appraisals, are even more acute into today’s lending environment. The bottom line is, Buyers and their agents need to be very careful about removing loan contingencies.

April 9, 2008 at 7:20 pm Leave a comment

Finding Value—the tip of the iceberg

The current soft market is illustrating one of my long held principles as a realtor:   value, as indicated by a property that goes up the most in an “up” market and down the least in a “down” market, is not purely a matter of location.

While prices on the Westside in general and Santa Monica in particular are holding up better than other parts of Los Angeles County and the rest of California, it’s instructive to pay attention to details.   The very best properties, the tip of the real estate iceberg, assuming they have credible listing prices, are still selling quickly, some even with multiple offers.

But if that three-bedroom house is on a busy street it will take longer to sell, and at a disproportionately lower price, than its uncompromised neighbor two blocks over.   That two-bedroom condo with less than 900 square feet of living space will be a much more difficult sell than the one in the same neighborhood with more than 1,200 square feet, even though the latter has a higher asking price.

There’s a line of conventional wisdom about real estate that says one should buy the worst property in the best location one can afford.   I disagree.    If you put all the properties in an area on a 1-100 scale, I recommend not buying any home at 25 or below.   Don’t buy on the busy street, don’t buy the excessively small, don’t buy the house across the street from a fire station.   Instead, if building and sustaining value is among your top priorities, find a home that doesn’t have any of these incurable defects.

Contrariwise, if you really need “bang for the buck,” getting some combination of larger/newer/nicer, then these homes with the incurable defects are exactly the properties you should look at.  But remember, the “deal” you get on the front end when you buy is the same deal you will have to give on the back end when you eventually sell.   You’ll be able to meet your daily needs at the cost of reduced appreciation.

As your realtor, I can help you understand and weigh these trade-offs.

March 30, 2008 at 3:44 pm Leave a comment

UCLA Anderson School Forecast & Santa Monica Real Estate

The most recent (March 11) UCLA Anderson School economic forecast suggests that the California economy will remain weak but not slide into recession. Full report here: UCLA Anderson School Report

There is a chicken-and-egg relationship between the state of the economy and the real estate market: a weak real estate market is a drag on the economy and concerns about the economy lead to a weak real estate market. I have long been of the belief that consumer confidence is no less than second to interest rates as a gauge of activity in the real estate market and right now that confidence seems shaky.

As a Santa Monica realtor, I’m seeing the number of transactions in the first three months of the year drop roughly 50 percent compared to each of the past four years.

For buyers, at any rate, the situation is not bleak: I just represented Buyers getting an accepted offer on a 2-bedroom condo within walking distance of Main Street for less than $500K…a year ago, that couldn’t have happened.

For more on the Santa Monica real estate market, click on the Santa Monica Homes link on the Blogroll at the right of this screen.

March 19, 2008 at 8:31 pm Leave a comment

Older Posts Newer Posts


  • Blogroll

  • Feeds