Tag Archives: residential property

Real Estate Auction Investigated — Homes Sold May Not Have Been Foreclosed. Angry High Bidders Still Waiting for Properties.

We’ve written about possible bid rigging in real estate auctions.

Now Massachusetts is investigating an auction of 300 foreclosed homes by California-based real estate auctioneer Real Estate Disposition Corp. to determine whether some homes were sold before the foreclosure process was completed.

According to the Boston Globe, about a quarter of the winning bidders at a November real estate auction held by Real Estate Disposition Corp. have yet to close on their homes.

“Frustrated bidders say they have spent thousands of dollars on deposits, fees, and financing only to find themselves mired in delays and legal complications that raise questions about the integrity of the auction.”

The Globe reports that “In several cases, bidders waited months for mortgage companies to take ownership of the homes that the companies had offered at the auction.”

The article also states that “In addition to those properties that the lenders had not yet foreclosed on, in other instances Real Estate Disposition failed to retain the lawyers necessary to conduct closings.”

Letters have been sent by the Massachusetts Division of Standards to several Real Estate Disposition Corp. employees warning them that they could lose their state licenses if they auction properties prematurely.

The Globe also reports that the company “has previously acknowledged the problems with the November auction, and said it has changed its policies to exclude any property from the auction until foreclosure is complete.”

We’re not big fans of real estate auctions. 

Certainly, there are deals out there.  But too often there is not enough time to conduct a proper inspection of the properties, and the opening bids are more opening gambits than real opening offers. 

We also think that the due diligence necessary to participate sensibly in real estate auctions requires the time and effort of a full time job. 

Unless you’re willing and able to make going to auctions your primary occupation, we think you’re more likely to waste your time and money than make a profitable deal.

What has your experience been with foreclosure auctions?  We’d be happy to post any insights you might have.
 

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California Real Estate Continues Free Fall in Sales and Prices. Realtors Blame Credit Market. KB Home Hit Hard.

California real estate continues to free fall. 

In the latest seismic shock to hit California’s real estate market, the California Association of Realtors (CAR) reported that home sales in the Golden State decreased 28.5 percent in February compared with the same period a year ago, while the median price of an existing home fell 26.2  percent. 

Median home prices fell 27.2 percent from last year’s levels in the Inland Empire east of Los Angeles, 30.9 percent in Sacramento, and 39.1 percent in Santa Barbara County.

The California home price meltdown is more than three times as severe as the national decline of 8.2 percent in median prices reported this week by the National Association of Realtors.  Nationally, prices fell over the past year at a rate of $338 per week, while in California, prices fell at a rate of $2,788 per week.

According to the CAR, “The median sales price of an existing, single-family detached home in California during February 2008 was $409,240, a 26.2 percent decrease from the revised $554,280 median for February 2007.”

The February 2008 median price fell 4.8  percent compared with January’s revised $429,790 median price.

CAR attributed the continuing servere declines to the tight credit market.

“Although sales rose for the fourth straight month in February by 9.5 percent compared to the previous month, they continue to be dragged down by the ongoing effects of both the credit/liquidity crunch and tighter underwriting standards that have reduced the pool of qualified buyers who can obtain a loan,” CAR President William E. Brown said. 

CAR also called for legislative action to increase FHA loan limits, reduce FHA downpayment requirements, and include condominiums.

According to Brown, “It is crucial that FHA reform legislation currently under consideration by congress include higher loan limits for high-cost states like California,” he said. “The proposed legislation also includes a reduction in the down payment requirement for FHA loans and will include condominiums in the FHA single-family program, which will make it easier for buyers in the condominium market to qualify for loans.”

CAR’s Vice President and Chief Economist Leslie Appleton-Young said that the Fed’s recent action to reduce the federal funds rate “will have little near-term direct effect on the housing market.”

Adding to California’s real estate woes, Los Angeles-based KB Home, one of the nation’s biggest residential homebuilders and a major player in the California real estate industry, announced today that it posted a loss of more than $268 million in its first quarter as weak home sales amid a worsening housing market forced the company to take a large write-down related to falling home prices.

Its shares fell almost 4 percent in midday trading.

The average selling price of KB’s homes dropped 7 percent to $248,200 during the quarter, with homes in the West Coast posting the sharpest drop, falling to $392,600 from $470,400 a year earlier. 

”Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand,” Jeffrey Mezger, KB Home’s president and CEO said. ”We do not anticipate meaningful improvement in these conditions in the near term, as it is likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve.”

Send Your Money Back to School: Real Estate Still Thrives in College Towns

Craig Hall, the founder of Hall Financial Group, often talks about how he started out investing in real estate in the late 1960s as a teen-aged college freshman at the University of Michigan by buying properties near campus that he rented out to fellow students.

It seems that Hall’s teen-ager investment strategy is still a very good one, even in the midst of the current real estate crisis and falling real estate values.

 

According to Business Week, property values in college towns are beating the trend and remain a good investment.

 

Looking at selected college towns with long-established, first-rate schools, a Business Week study found that 17 of 25 college towns outperformed their respective states in terms of home price appreciation last year; four towns performed as well, and only four towns underperformed.

 

The reasons are that college enrollments are increasing, college students believe that they need to live close to campus, and college domitories are not being built fast enough to keep up with the demand for student housing.

 

College students, partiularly at more prestigious (and more expensive) schools also tend to be more affluent than the general population, so they (or their parents) are more willing, and more able, to pay premium rents.

 

It may be time to send your money back to school — and buy that multi-family unit next to the Ivory Tower.

Go Ahead, Foreclose Me, I’ve Already Bought a New House!

Here’s a new twist on surviving the foreclosure crisis. 

We’ve already heard about thousands of homeowners facing foreclosure who simply walk away from their properties and their mortgages, letting the lenders deal with the financial fallout.

Since they owe more than their houses are worth, their decisions to abandon their homes and their mortgages often make financial sense, especially if they are not too concerned about the hit to their credit scores.

Now some homeowners are combining that strategy with a new one. 

They are buying new homes before their old homes go into foreclosure, and then walking away from the old homes and the old mortgages.

What these homeowners hope to achieve is getting out of their current untenable mortgage situations with a new home and a new mortgage. 

And it appears that so long as the homeowners don’t mind seeing their credit scores tumble, this strategy will work.

The homeowners will need to come up with a  new lender and sizable down payment for the new home, but once they’re in, there is nothing that the old lender can do.

Since the new home, with the new mortgage, has no connection to the old home and the old lender, the old lender can not come after the new home to collect any debt owed on the old home.

What is also a sign of the times is that there are now realtors who specialize in helping homeowners pursue this strategy and lenders who also specialize in these situations.

Real estate is getting stranger and stranger. . .

When the House Buyers Come Back to Capistrano…

We live in Southern California, not too far from the Mission San Juan Capistrano.

According to tradition, the swallows that live in the area leave the mission every year on October 23 and return on March 19 to the ringing of the church bells on St. Joseph’s Day.

This is the week that the swallows are supposed to return. 

There is a beautiful old song written by Leon René based on the swallows legend — When the Swallows Come Back to Capistrano:

All the mission bells will ring
The chapel choir will sing
The happiness you’ll bring
Will live in my memory
When the swallows come back to Capistrano
That’s the day I pray that you’ll come back to me

Like the lover in the song, many of us in real estate are feeling a sense of longing for happier days.

This weekend, it looked like those days could come back again.

It seemed that the both swallows and the house buyers had returned to Southern California.

For the past several months, the “Open House” signs in our area looked as forlorn as Joshua trees standing alone in the Mojave Desert, surrounded by miles of desolation.  And few sights were as dismal as watching the dejected realtors taking down their signs at sunset after hosting open houses that had attracted no one.

But this weekend, suddenly, inexplicably, everything changed. 

People were packing the open houses.  Outside the houses, cars were double parked.  Realtors looked perky, annimated, and happy.

Illusion?

Wishful thinking?

Or can we really hear the mission bells ringing in the distance? 

Have the house buyers come back to Capistrano?

Are Real Estate Auctions Rigged?

We recently came across a study by the University of Melbourne in Australia that questioned whether real estate auctions were “rigged” against potential buyers of the auctioned property.

With the tremendous rise in foreclosures and the auctioning of financially distressed property in this county, we thought we would post the conclusions of the Melbourne report and ask for your comments.

Here is what the professors at the University of Melbourne had to say:

Auctions have always been promoted as a tried and proven method of achieving the highest sale price for a property. It gathers together prospective purchasers in one place at one point in time and sells the property to the highest bidder.

It has been proven in empirical research that auctions generally achieve a higher final transfer price than an open market sale.

Even though both approaches are applied in the same marketplace within the definition of ‘market value’, there have been no valid reasons to explain this difference.

One practice that has been openly acknowledged is the practice of ‘dummy’ bidders, which may partly explain this premium. The use of ‘dummy’ bidders by the vendor and/or auctioneer could have the effect of distorting the true market value, designed to deceive the purchasing public into competing at an inflated price in the auction process.

It appears that the genuine popularity and reputation of the auction process is seriously threatened by the deceitful use of ‘dummy’ bidders. Steps must be taken to eradicate the tactic before the entire residential auction industry is discredited, and the ‘level playing field’ must be returned for the vendor, auctioneer and the bidders alike.

Potential improvements to the auction industry to discourage this practice could include strong fines to both the individual auctioneer and their employer, with endorsement of the fines by the relevant industry body.

Not until after the successful eradication of the ‘dummy’ bid and associated deceitful practices (e.g. ‘two tier’ marketing) will purchasers and vendors be able to confidently trade in a fair and equitable marketplace. Only then will valuers be able to rely on true market value sales with a higher level of confidence.

Does this reflect your experience with real estate auctions? What advice would you give to those who are thinking about buying property today at an auction? Your comments are welcome!

UPDATE:

For our post on the investigation of an auction of foreclosed homes by California-based real estate auctioneer Real Estate Disposition Corp. to determine whether some homes were sold before the foreclosure process was completed, click here.