Well, after GoDaddy destroyed my content I am now left to rebuild the castle without my foundation. I guess I should start off fresh, but that is a great deal of work now down the drain.

What a difference a couple of years can make? I remember selling real estate in San Francisco back in 2003. Everything was selling. If the property had a parcel number it would sell. The fundamentals were just thrown out the door. Times have changed.

When I moved to Chula Vista in July of 2007, we were very close to buying a home. So much in fact that we viewed at least 20 homes, after some discussion we decided that we would not buy a home here because we were not sure how long we would be in San Diego. I wasn’t sure how long I would be with Redfin after I came here. Well here I am, 14 months later and I am sure glad that I didn’t buy. So many things have occurred, the Southern California Wildfires, the Mortgage Crisis, rising gas prices, and just an overall lull in the economy. After 202 real estate transactions you think you have seen it all, but even today I am still learning new ways to skin that elusive cat my aunt would call real estate.

Today, I re-visited a home that I sold last week. My client had purchased this REO from IndyMac. According to the county’s tax records this is the transaction history of the home:

June of 2003 – $381,000

September of 2005 – $584,000

June of 2008 – $287,000

September of 2008 – $340,000

Negotiating with a REO listing agent has become a specialty of mine, I have found that there are similarities amongst what they are willing to accept. REO properties in the 300-500k points are always listed below market, where the banks are hoping that the property would stir enough interest in the buyer community to drive the sales price higher. This tactic has shown to be very effective. In the case of this property, it was listed at $329,600 and hit the market on July 27, 2008. I showed the property on the 8^th of August, had the property in contract on the 14^th. It was a multiple bid situation – two other offers were involved in the process. Every offer is different but here price and strength of buyer were my tools to winning this one. My client had over 20% in the bank and we had been looking at properties for more than a month. She was pre-approved with Bank of America, which I thought we could use to our advantage. I made it very clear to the listing agent that we had done our homework. Specifically, we knew that the property was listed below market, and were very familiar with all the comps in the locale.  A home across the street for less square footage sold for $370,000 only about a month prior. It was an REO and was owned by Downey Savings. Our property had some nice upgrades and was much larger, so I knew that if we did not go above the list price then my client would probably lose out.

I always make it a habit to know who I am dealing with; I verify how long the agent has had their license. What type of license they have? I also Google them and check them up on LinkedIn. If I can gather any information at all, I will always put my findings into my discussion with them.  People tend not to not think straight if you put them on tilt. I found out that he had in office in La Jolla, been in business about 9 years, and was a salesperson. Just from that, I am able to gauge my approach. Based on those fact, I can determine that he will want a quick escrow, he probably does not do a great deal of work in the property area so he may let go of the property to someone he has confidence in working with. He also may be willing to give up the price out of convenience. I was right on all fronts.

REOs are always trying to get their money fast. My thinking is if they can get this off their book faster, then they move on to the next property.

So we went 11k above list, 21 day close, 12 day contingencies. I also negotiated for 2k in repairs and a home warranty. There were some problems with this home, just like any previously foreclosed homes. Broken windows, a leftover portable spa and no appliances were all evidence to substantiate a credit. I have found that REOs are more willing to credit money than deal with any replacements or repairs. Again I was right. I was pretty happy with that deal. More importantly, my client was even more impressed with the style and efficiency of the process. 

Overall she had seen about 36 or more homes so I think she had a good feel of what the market was. We had written 4 offers, all were short sales except for this one. Three months later all of those properties are still on the market. My client was frustrated and was starting to think that she would not be able to find a home in today’s market. I also learned a little trick about motivation, buyer who are frustrate with short sales often become more motivated to buy REOs. Buyers find that although the market is filled with short sale opportunities, REOs properties are the ones that are actually selling. Therefore, creating two types of buyer for 2008:

1. Buyers that can wait for a short sale and are not necessarily looking to move right away.
2. Buyers that need to move in finite amount of time.

Converting 1s into 2s is the name of this game. If you can learn to identify what will motivate buyers to become 2s rather than 1s then there is a likelier chance that you will consummate a deal.

So will I buy a place any time soon, well I am not sure. We still have our place in Burlingame and a few property investments here and there. I guess only time will tell, after all time is on my side. The market will recover it is just a question of when.

With all of the fall out that has already occurred with the sub prime mortgage debacle. I wanted to address an old addition that home buyers over the last 7 years typically avoided but had to deal with. Private Mortgage Insurance (PMI) is a premium that can be paid upfront or built into the loan. PMI is an insurance that offsets losses in the case where a mortgagor (borrower) is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. In 2007, PMI became tax-deductible.

In everyday practice, PMI is necessary when a buyer makes a down payment that is less than 20% of the sales price or appraised value (in other words, if the loan-to-value ratio (LTV) is 80% or more). (Hence the rise of the piggy back loans and 100% financing the thorn in today’s mortgage society.) Once the principal is reduced to 80% of value, the PMI is often no longer required. It can happen as a result of a mortgage pay down or through appreciation of the subject property

The nation’s larges provider is the PMI group (PMI, NYSE) based in Walnut Creek, CA. which services its product for residential mortgages, public finance obligations and our favorite ‘asset backed securities’. In the fourth quarter of 2006 they recorded a net income of $100.5 million or $1.19/share; during the same period in 2007 they recorded a loss of $1 billion or $12.51/share. Here is a snap shot of their stock chart over the last 3 years. The stock was as high as $50/share in May of 2007; the stock is trading at $5.97/share as of May 09, 2008.

According to the PMI Group, they expect to pay mortgage insurance claims for its US operations in an amount of $825 – 975 million; this can only mean that the weather is not going to be changing any time soon. Buyers are going to traverse even more obstacles to procure what once was ‘easy money’ and practitioners like me are going to see a real need for seller financing.