Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

85 responses to “Here’s why selection stinks right now around Seattle.”

  1. Real World Express

    Fantastic use of the Venn diagram and, by my own ciphering, accurate. People have to realize the average home price in America right now is $179,000. That’s for a good sized, 3-bedroom with a nice sized plot that was probably built within 30 years. Seattle homes can be as old as 75 years or more, on plots that are half the size of a typical plot.

    Unless you are a True Believer who thinks Seattle is some whimsical place that is nothing like any other area of the country (something that may have been true in 1990…but maybe not any more) so much so that you’re willing to pay at least twice and get half as much, you have expect the market to fall to trailer park prices in next few years.

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  2. Nic

    Wondering what the diagrams of price per square foot and Seattle Inventory would look like with Short sales also in them? Wondering how much of the non-distressed is actually short sales. The Venn Diagram is a nice visual for people and does well in what you’re using it for.

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  3. Kary L. Krismer

    By Real World Express @ 1:

    Fantastic use of the Venn diagram and, by my own ciphering, accurate. People have to realize the average home price in America right now is $179,000. That’s for a good sized, 3-bedroom with a nice sized plot that was probably built within 30 years. Seattle homes can be as old as 75 years or more, on plots that are half the size of a typical plot..

    First, Seattle homes can easily be 100+ years old. Second, as such they can be more valuable. Third, a small lot in Seattle proper is worth a lot more than a larger hypothetical average lot somewhere in the U.S.

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  4. Kary L. Krismer

    The thing about banks is that although most of them haven’t necessarily improved a lot in dealing with short sales, most of them have improved a lot in marketing of their REO properties. It’s been a long time since I’ve been in one and seen a bunch of the prior owners’ junk laying around. Many of them have been cosmetically fixed up (e.g. new carpet and paint) where necessary.

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  5. Ray Pepper

    RE: Kary L. Krismer @ 3 -” although most of them haven’t necessarily improved a lot in dealing with short sales “Kary, I disagree. We are WAY better then it was last year in/re to short sales.

    The banks are much quicker now and the listing agents are FAR more knowledgeable about the product they are selling..

    Last year was a nightmare. Now its just a bad dream. Unloading short sales cannot be made too easy or we will have everyone short selling to their friends and families….which………………….btw…………………is happening BIG TIME across America..

    Don’t believe me………….??

    Stay Tuned!

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  6. Lurker

    Thanks for the Seattle info, The Tim. Hope you had a nice birthday.

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  7. Kary L. Krismer

    RE: Ray Pepper @ 5 – I would agree “some” banks and agents are better. We had one close last year on the buyer’s side that went pretty smoothly.

    But I wouldn’t say that is typical. In King county I’m showing about 1,200 pending SFR short sales, about 1,500 active SFR short sales, but only about 150 that closed in April. That clearly indicates that any improvement is the exception rather than the rule.

    Numbers from NWMLS sources but not compiled or guaranteed by the NWMLS.

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  8. ARDELL

    RE: Ray Pepper @ 5

    Even outside of short sales, Ray, it has always been a traditional feeling of sellers that if they have to “give their house away at THAT price”…they might as well let someone they are related to or know have first crack at it.” Nothing new about that.

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  9. David Losh

    The subject of short sales came up again, and again a couple of weeks ago, so I asked my buddy in loss mitigation at Chase if policy, and procedures had changed. He said no.

    Short sales have certain criteria for financial hardship, many time medical conditions, or specific moves, such as military, for jobs. Loss Mitigation has to have some thing to justify the short.

    Second is that there is no difference between bank owned, or non distressed sellers. The product is the product. If you want to talk about paper work, or ease of closing fine.

    The market place is distressed. No matter what any one wants to think or believe bank owned is the market place. Everything is compared to how much you can buy a comparable property for.

    Kary is correct that the number of property preservation companies has greatly increased with bigger players, that have deeper pockets. Also the people who will pay cash for a greater return on investment than having Certificates of Deposit is increasing.

    All this means is that the market place for single family residences will stabilize with lower, and lower prices.

    Seattle is a long way off from being anywhere realistic in prices. We look at the Bill and Melinda Gates, or Paul Allen investments in our down town core as an indication of economic vitality that I have yet to see in real dollars.

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  10. Kary L. Krismer

    By ARDELL @ 8:

    RE: Ray Pepper @ 5

    Even outside of short sales, Ray, it has always been a traditional feeling of sellers that if they have to “give their house away at THAT price”…they might as well let someone they are related to or know have first crack at it.” Nothing new about that.

    Ray’s point is that on short sales it should not be happening, but he claims it is happening. It doesn’t matter what they might want to do. The bank won’t knowingly approve a short sale to a friend or relative.

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  11. ARDELL

    RE: Kary L. Krismer @ 11

    Really…are you sure about that? How do they legally define a “friend” for that purpose? As long as the seller has no plans to regain ownership or “remain in the property”…but we don’t want to go there again.

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  12. softwarengineer

    Old Homes located on high priced real estate lots in Seattle Better????

    Ask the old baby Boomer Construction Contractor with experience and he says:

    “…One strong possibility is locating a modular home builder in your area. You may discover that you can have a brand new home that is ready for occupancy in as little as eight weeks. The newer modular homes look just like a site-built home and many are very well constructed. If you decide to do this, be sure you look at plenty of plans that afford expansive views on the side of the home that faces the lake. A great plan on a superb lot will help you build even more equity into the future.

    The ever-rising energy costs also factor into these decisions. An older home may have countless air leak locations, inefficient insulation, old windows and doors, etc. These functionally obsolescent components can force you to spend hundreds if not thousands of extra dollars per year to keep your house reasonably comfortable. A newer energy-efficient home with state-of-the-art windows, heating and cooling equipment, etc. allows a homeowner to redirect those same dollars to a mortgage payment on a newer home.

    Quality of life issues also should be considered. Repairs, things that breakdown, growing honey-do lists add to the stress of daily life. Arguments between spouses about repairs that go undone can lead to all sorts of problems. A problem-free new home can make people feel better about themselves and help build strong relationships. If you can afford to build the new home, you will never regret it….”

    http://www.askthebuilder.com/592_Remodel_or_Rebuild.shtml

    Trouble is, King County bans affordable/quality modular homes [they lower the neighbors' home values...LOL] on our high priced view lots [have you noticed in the Seattle area, every lot is a view lot?....LOL]…time to vote in better King County politicians for affordable/quality housing IMO.

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  13. Hugh Dominic

    I toured an REO last weekend. The water had been shut off, and some previous visitor had dropped a deuce in the main floor toilet, where it had been left to age.

    A $900k house. Do the listing agents just not care about their REOs?

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  14. Lurker

    RE: Hugh Dominic @ 14 -Hey, at least it wasn’t left sitting on a sock on the floor (from another poster’s story) but clientele might be slightly more upscale around those 900K properties.

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  15. Kary L. Krismer

    By ARDELL @ 12:

    RE: Kary L. Krismer @ 11

    Really…are you sure about that? How do they legally define a “friend” for that purpose? As long as the seller has no plans to regain ownership or “remain in the property”…but we don’t want to go there again.

    However the bank chooses to define it in their terms.

    The difference in this scenario though is that the price would be affected by the friendship or being a relative at the start, where in the other case that you mention the price was not affected because the tenancy was not contemplated at the time of the offer to buy.

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  16. Kary L. Krismer

    By Hugh Dominic @ 14:

    I toured an REO last weekend. The water had been shut off, and some previous visitor had dropped a deuce in the main floor toilet, where it had been left to age.

    A $900k house. Do the listing agents just not care about their REOs?

    First, they might not know about it, although typically some agent will call and mention something like that. Second, the bank agents tend to have a lot of listings. It would take them quite a bit of time to visit them all regularly.

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  17. Lurker

    You know, this feels like a great time to drop my Poo Location Offset Pricing formula. Listing agents may use it freely.

    A turd in the toilet shows asking price is likely within an acceptable 5% range.

    A turd in a sink or closet indicates that property could expect 10% of asking.

    A turd elsewhere (covered/or curteously done on something like a sock) may likely require more than a 10% drop from asking.

    A turd (non covered) on floor shows that up to a 20% reduction in price could be needed to move.

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  18. Kary L. Krismer

    RE: The Tim @ 9 – I’ve been thinking about this further, and part of the difference between Ray’s experience and the data might be that a buyer’s agent can check out the listing agent and see their short sale experience. Thus it’s possible to avoid bad agents to some extent, unless the house is particularly special or unique. So Ray’s experience could be much better than what the numbers would suggest, assuming he’s dealing with the type of buyer that would be interested in a short sale.

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  19. HappyRenter

    By Kary L. Krismer @ 3:

    First, Seattle homes can easily be 100+ years old. Second, as such they can be more valuable. Third, a small lot in Seattle proper is worth a lot more than a larger hypothetical average lot somewhere in the U.S.

    How much is the cost of maintenance for a 100+ years old home versus a 10-20 years old home (i.e., built in the 90’s)?

    Another question: what is the value of land in the Seattle area? I think that the price of land (without a house on it) is a more indicative factor of value than how old the house is. For example, I expect land to be more expensive in Seattle than somewhere in the countryside in Arizona ;)

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  20. Kary L. Krismer

    RE: HappyRenter @ 20 – How much the maintenance is on an old house would depend on what has been done on it already, and when that was done. A house that old is not likely to have it’s original roof, plumbing, electrical, heat system, foundation, etc.

    But if you don’t think that old things in good condition are worth much, and you happen to own a 1964 1/4 Mustang convertible, give me a call! ;-)

    As to how valuable such a house would be, it would depend on the condition of the finished wood inside (e.g. the fir floors and whether the trim has been painted over), as well as how few of the houses in the neighborhood were build within the past 20 years, and how far away multi-family housing is located.

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  21. Bryan

    The title of this post offers a reason WHY selection stinks. But your post doesn’t offer that. It does offer several nice charts and graphs bearing out the fact that, indeed, inventory does stink.
    My observation has been that quality inventory is selling at asking price relatively quickly. That to me means that lack of inventory is based on one of two things:

    1. Owners continue to be underwater with leverage, so can’t sell
    2. Owners perceive that prices are lower than they will be long-term trend…and are hollding out for a more normal market

    Most non-distressed properties I’ve seen seem to be owned by folks who are relocating and have to sell.

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  22. ChrisM

    Was I the only one surprised to see how cheap houses in Atlanta are? REOs selling for $30/sq ft – that’s cheaper than Phoenix!!!

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  23. Ira Sacharoff

    “The size-adjusted median price of non-distressed sales has picked up just a bit in the last few months while bank owned prices have basically flattened. It will be interesting to see if this is the start of a trend (due to the increasing rarity of non-distressed listings) or just a spring blip.”

    Could it also possibly be that the non distressed homes sold since January of this year are a little smaller? Or am I nuts? If the houses sold since January are smaller, then those houses would command a higher per square foot cost. So might we be seeing a trend of buyers buying smaller homes, or that it’s a spring blip, the start of a trend, or merely reflecting that with so much crap on the market, the prices for the small number of nice, non distressed homes that are on the market is hot because there’s so little of it?

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  24. Jo-Pete Nelson

    By David Losh @ 10:

    Second is that there is no difference between bank owned, or non distressed sellers. The product is the product. If you want to talk about paper work, or ease of closing fine.

    I think the point that is being made is that non distressed sellers tend to take better care of the home. A lot of foreclosed properties have major damage for a variety of reasons:
    *the former owner was unhappy and intentionally damaged the property (e.g. poured cement into the toilets)
    *the former owner got half-way through stupid remodels and quit when they ran out of money (e.g. started gutting the house but realized that they weren’t going to make any money off it and split)
    *the property may have been sitting empty for some time

    There is always uncertainty when you’re buying a house, but buying from a bank adds an extra layer of obscurity for potential problems.

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  25. WestSideBilly

    By ChrisM @ 23:

    Was I the only one surprised to see how cheap houses in Atlanta are? REOs selling for $30/sq ft – that’s cheaper than Phoenix!!!

    Atlanta has been remarkably inexpensive (for such a large city) for a long time. I recall a friend moving from Chicago to Atlanta and his $600k townhouse comped at around $200k in Atlanta.

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  26. Snigliastic

    The selection does stink. After about a year looking at homes, fairly aggressively, we finally found a house we liked. It had been on the market two days and got a full price offer. we saw it the day the offer came in.

    Then, about two weeks later, same thing except four days on market.

    “Good priced,” nice houses in good areas sell very fast. The rest seems to languish, either due to poor pricing, poor maintenance, are near major roads, or are butt ugly.

    Anecdotally.

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  27. ARDELL

    RE: Snigliastic @ 29

    May I ask why you didn’t buy either of them?

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  28. ;

    What data is used to create “What Buyers Want” for the Venn diagram?

    How does one know what buyers in aggregate want?

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  29. Jonness

    By Kary L. Krismer @ 4:

    The thing about banks is that although most of them haven’t necessarily improved a lot in dealing with short sales, most of them have improved a lot in marketing of their REO properties. It’s been a long time since I’ve been in one and seen a bunch of the prior owners’ junk laying around. Many of them have been cosmetically fixed up (e.g. new carpet and paint) where necessary.

    Sometimes I see REO’s that are initially priced a little below a comparable non-distressed sale. Then perhaps 8 or 10% is knocked off the price each passing month until the house sells. It seems to me to be as good a strategy as any. Is this a part of a policy for the GSE’s?

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  30. David North

    By Ira Sacharoff @ 24:

    Could it also possibly be that the non distressed homes sold since January of this year are a little smaller? Or am I nuts? If the houses sold since January are smaller, then those houses would command a higher per square foot cost.

    Bingo. Any conclusions regarding residential real estate drawn from data that’s been divided by square feet are suspect at best.

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  31. David North

    The absorption chart has a significant inherent bias. Even if there is identical demand as a percentage of inventory for Bank Owned, Short Sale and Non-Distressed properties, the chart will look something like this one.

    Bank Owned properties close faster than Short Sale or Non-Distressed properties, so naturally if you take a sample of listings from one period, and test for closings by a deadline, more Bank Owned properties will likely have closed. Likewise, Short Sale properties take far more time to close than the others, and therefore there isn’t an equal opportunity for them to close by the test deadline, even if they go under contract at the same pace as the others.

    What would be interesting, and make a better comparison, would be the deadline adjusted for each property type based on its respective average closing time. For example, if the average Bank Owned property closes 15 days faster (arbitrary example) than the average Non-Distressed property, then the test deadline should be 15 days earlier for Bank Owned properties. And if the average Short Sale closes 45 days slower (arbitrary example) than the average Non-Distressed property, then the test deadline for Short Sales should be 45 days later.

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  32. David North

    By ; @ 31:

    What data is used to create “What Buyers Want” for the Venn diagram?

    How does one know what buyers in aggregate want?

    That is my question, too. The illustrative clarity of the Venn diagram is exceptional, and at least conceptually does show exactly what is going on in the market that is causing all of the multiple offer situations at the same time that overall prices continue to decline (with pockets of exception here and there from time to time). But is the difference between last year and this year a rationally accurate (or at least close) comparison, and if so, based on what factors?

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  33. Voight-kampff

    I only follow downtown condos as I am a devout pedestrian.
    I made offers on 2 different properties this month, both properties were on the market for over 300 days, so naturally I lowball, and in both cases I lose out as someone swoops in last minute, one (bank owned) person paid about 5k over 112k listing price, and the other is still pending, but also full price cash 329k.
    WTF? it’s almost like the listing agents had buyers up there sleeves.

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  34. Kary L. Krismer

    RE: David North @ 34 – I would agree that’s not a fair analysis of absorption rate for short sales, and it’s not even a proper method of doing an absorption rate (to restrict the numbers to active listings that came on the market in a certain period). Still, the numbers I posted above in post 7 would indicate that the absorption rate on short sales isn’t good at all when it would take them 8 months just to get through the currently pending transactions (assuming none drop out, but probably upwards of 75% of them will simply because the bank takes too long to decide).

    I’m not sure the time to close difference between non-distressed and REO is that significant or that consistent that it really matters. There the number is probably affected more by the initial price picked, and in the case of some REOs, the initial condition (My impression is more REOs will fix up mid listing than non-distressed).

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  35. Kary L. Krismer

    RE: Voight-kampff @ 36 – That’s just the market–you never know when a buyer is going to bite. Conversely, you don’t know how close a house came to selling that ends up on the market for a long time and doesn’t get a single offer. That’s why I like to compare selling to fishing.

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  36. Bryan

    RE: The Tim @ 26 – Thanks for pointing that out….it was a bit buried.

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  37. corncob

    By Snigliastic @ 29:

    “Good priced,” nice houses in good areas sell very fast. The rest seems to languish, either due to poor pricing, poor maintenance, are near major roads, or are butt ugly.Anecdotally.

    I have experienced the exact same thing (Eastside SFH, $450-500) and we have given up doing the touring-every-golly-weeking thing for the time being. I don’t have the time to jump on touring houses the day they list and making an offer that night to compete with the lunatics who I can only assume are unemployed with a briefcase of cash, so I will wait for things to settle out more.

    Anecdotally.

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  38. David North

    RE: Kary L. Krismer @ 37 – Kary, I agree that the time to close delta between Bank-Owned and Non-Distresed isn’t nearly as dramatic as the delta between either of those and short sales. But that said, though I haven’t done any sampling to measure it, I’ll bet it is a meaningful difference.

    I also agree it’s not really a proper absorption measure, though it is interesting if the bias can be reasonably adjusted out without adding a bunch of new subjectivity in the process.

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  39. Jillayne Schlicke

    Ardell and Ray,

    Banks and lenders have addenda now that specifically states….”this is an arm’s length transaction and the buyer and seller do not have a close personal or business relationship with each other.” Everyone signs: buyer, seller, Realtors.

    Seriously. If the opposite were true, let’s just mark down all the short sales to $1,000 and sell them to our friends and family and then buy the house back from them.

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  40. David Losh

    RE: Mr. Ed @ 42

    Sell it before it starts costing you money.

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  41. turf

    the tim @28. i only looked at the first house (windsor). you might stay 12 hours if you moved in after dark. seriously dangerous neighborhood. atlanta is very neighborhood specific.

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  42. ARDELL

    RE: Jillayne Schlicke @ 43

    “Buy it back from them” is the key point. If it is arm’s length to someone you know…well, there are places where everyone knows everyone. Hard to legally define “close personal relationship”.

    As long as the owner leaves for good and never looks back, that they “knew” the person who bought it is not likely an issue.

    Let’s say the next door neighbor wants to buy it for their child? Happens all the time in real estate, short sale or not. “Arms Length” doesn’t mean the seller never met the person who buys it.

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  43. DeeDee

    RE: Lurker @ 18 – I can’t stop laughing

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  44. Kary L. Krismer

    RE: Jillayne Schlicke @ 43 – Ardell is well aware of those clauses, she just isn’t capable of interpreting them.

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  45. Kary L. Krismer

    RE: Mr. Ed @ 42 – Do you really want to be a landlord? There are risks to that including the risk someone will be injured on your property and the risk that you might rent to someone who starts a meth lab.

    Also, please confirm with your tax consultant but I would point out that currently your sale should be free from any income tax liability assuming you lived there for the requisite time (and also assuming your gain isn’t over 250,000 single/500,000 married). If you wait that might no longer be the case, either because you wait too long or the law changes. And if you don’t have good records of the cost of your updating of the property, and do have to pay income tax on the sale later, proving your basis could be problematic and a PITA.

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  46. David Losh

    For the number of real estate professionals, or very smart home buyers, it seems very strange that no one is addressing the fact you have demonstrated the banks have control of the market place.

    Short sales don’t just happen. There has to be a cause, a seller has to show cause. REO properties come onto the market after sever analysis that goes into a file. REOs are professional sellers who are given guide lines.

    It amazes me that people think that Mortgage Backed Securities were sold by stupid people who just didn’t know, or that Bank Owned Properties are managed by stupid people.

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  47. Kary L. Krismer

    By David Losh @ 49:

    It amazes me that people think that Mortgage Backed Securities were sold by stupid people who just didn’t know, or that Bank Owned Properties are managed by stupid people.

    I think MBS were bought by stupid people who didn’t know. How could you possibly think there there would be no default risk to buying multiple mortgages? Each mortgage that is part of the package you buy increases the risk of a single default. That’s pretty basic.

    As to the banks, clearly there were a lot of stupid people managing them or else they wouldn’t have been in such risky situations that they either failed or were at great risk of failing. But as to managing foreclosures my thought is that many of them are still in the mindset where they think they control the shots and can do what they want because they’re the bank. That’s true if they don’t care about maximizing their recovery, but otherwise it is completely false.

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  48. Conor MacEvilly

    Excellently presented data Tim. Those Venn diagrams say it all!

    The pathetic absorption rate for short sales makes me glad that I decided way back that I didn’t want to touch them and happy to refer them out. Something’s gotta change with the highly inefficient short sale purchase process.

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  49. David Losh

    RE: Mr. Ed @ 42

    Tim Kane made a comment that he was seeing more all cash sales for Real Estate in his office. It is true that some people who have cash are investing in single family homes to get a better return on investment than a Certificate of Deposit at the bank, or in a safe investment account. I talk to people every week who have great renters who are no trouble.

    The return, in general, as I see it, is about 6%. Cash money is sitting in an illiquid property, getting rental income at about that rate of return. Then the other things happen, like maintaining a property, the good renter has a job loss, or the water heater breaks, ruins the renters belongings, and your insurance company refuses to pay.

    Real Estate is a brutal business, that can be great, as long as you are willing to manage it. The return, however, I have found to be low.

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  50. softwarengineer

    RE: David Losh @ 50 -Qualifying for even a $119,000 Home in the Seattle Area is Hard too

    A house down the road from me was selling for about $160K, but the bubble kicked it in the rump. Its a newly remodeled rambler style, built in 1991, small lot and double car garage.

    I talked to the owner and he told me got one interested offer so far [its been on the market 6 months], problem is, the buyer didn’t qualify…..Hades, $119K is about 1999’s price….LOL

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  51. Kary L. Krismer

    RE: Conor MacEvilly @ 52 – The short sale system benefits investor types, because they can get lower prices, but it hurts everyone else including banks and the entities that own the mortgages.

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  52. Kary L. Krismer

    RE: softwarengineer @ 54 – Qualifying for a loan is not that tough, notwithstanding the fact that it’s possible to come up with stories indicating some unknown person didn’t qualify for some unknown reason.

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  53. Ray Pepper

    RE: Jillayne Schlicke @ 43RE: Mr. Ed @ 42

    we all know what the addenda states…

    “Seriously. If the opposite were true, let’s just mark down all the short sales to $1,000 and sell them to our friends and family and then buy the house back from them.”

    Jillayne…………………Its happening all around you…….Start digging and you will see the next 60 Minutes or Dateline report of what happening across America.

    I personally know of so many short sales that have sold to friends/family and funneled through different LLC’s to shed hundreds of thousands in debt and simply quit claimed back to the original entity (the original owner)…….

    When the game changed and millions lost everything countless educated numbers of former homeowners are returning to prosperity with the lead weight of an upside down mortgage GONE.

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  54. Conor MacEvilly

    RE: Kary L. Krismer @ 55 – True Kary..and investors have lots of patience and no emotional commitment to the property. Every cloud has a silver lining for someone!

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  55. Seattle Bubble • Reader Question: Sell Now, or Rent it for a Few Years?

    [...] May 25, 2011 | Leave a responseGood question from a reader going by the name “Mr. Ed” in the comments on yesterday’s post:Here’s a real-life question for you all. My wife and I are closing on a house soon. [...]

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  56. Kary L. Krismer

    By Ray Pepper @ 57:

    I personally know of so many short sales that have sold to friends/family and funneled through different LLC’s to shed hundreds of thousands in debt and simply quit claimed back to the original entity (the original owner)…….

    Well you’re clearly not dealing with the brightest bulbs if they are then quit claiming the property back to the original owner. Instead of doing that they should just send the bank a notice saying: “We defrauded you!” ;-)

    Also I’d note that the new bank is probably able to foreclose under the due on sale clause that the deed of trust almost certainly has.

    Other than that, sounds like a really well thought out plan.

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  57. Ray Pepper

    RE: Kary L. Krismer @ 60 -The homeowner is just completing the final piece to the puzzle. Kary, your head is gonna spin when you find out what is truly going on out there in/re to short sales. It will all come out!

    BTW when the property is quit claimed back to the original owner its NEVER the original name…..You know better then that..Thousands upon thousands will not be left bag holders and they will ACT (like they are doing everyday now) and unload their debt….Its just a matter of time Kary……………..its all coming out.

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  58. Kary L. Krismer

    RE: Ray Pepper @ 61 – Then you possibly have the same possible criminal exposure I mentioned related to the business that helps people strategically default and then gets them a new loan after the foreclosure.

    Given the public recording of real estate transactions, doing the types of things you mention is not really smart. If you want to do that, buy another house! Assuming the loan application is legit, that way there will be no questions of crimes, bank fraud, etc.

    Connecting up to Tim’s sale thread, back when we bought our new house my wife wanted to rent our old house. I resisted that largely due to the tax consequences mentioned, but I did say if we were going to do that we could simply buy another house after selling our old house and then rent it out. There’s no reason to get so attached to owning a particular house, especially when doing so arguably involves bank fraud.

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  59. 2kt

    RE: Ray Pepper @ 61

    Sounds like you have seen your share of fraud, Mr. Ray.

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  60. Lo Ball Jones

    Ohio has steepest discounts on foreclosed-house prices

    In 10 states, average foreclosure discounts in the first quarter ran more than 35% below the average prices of non-distressed homes, says market researcher RealtyTrac in a report out today.

    “There is massive discounting going on,” says Rick Sharga, RealtyTrac senior vice president.

    Foreclosed homes in Ohio and Illinois drew the largest discounts, averaging 41%, followed by Kentucky at 39%. Other states with discounts of more than 35% were Maryland, Wisconsin, Tennessee, Delaware, Pennsylvania, Oklahoma and Louisiana.

    http://www.usatoday.com/money/economy/housing/2011-05-26-foreclosure-discounts_n.htm

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  61. Macro Investor

    By 2kt @ 63:

    RE: Ray Pepper @ 61

    Sounds like you have seen your share of fraud, Mr. Ray.

    Cheating a bank shouldn’t be fraud. It is more like a civic duty.

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  62. Ray Pepper

    RE: Macro Investor @ 65

    Kary and Macro I’m an advocate for families. I do NOT want families carrying the bag for fraud performed by the Street on this nation.

    We are in a VERY long period of deleverage and it will continue to wreak havoc on familes.

    I never advocate “cheating” anyone. Our nation was cheated by WallStreet and continue to be LIED to by so many “professionals” based on their perception of morals.

    I will be the lone voice here on the Bubble advising people to stop crying and get educated or their financial misery will continue for years to come hoping for a recovery that is nonexistent in the near term.

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  63. Kary L. Krismer

    By Ray Pepper @ 66:

    I never advocate “cheating” anyone. Our nation was cheated by WallStreet and continue to be LIED to by so many “professionals” based on their perception of morals.

    I will be the lone voice here on the Bubble advising people to stop crying and get educated or their financial misery will continue for years to come hoping for a recovery that is nonexistent in the near term.

    So in other words, you don’t advocate any personal responsibility at all, as is typical with some Americans.

    If someone has a loan they can’t pay, or made a “bad” purchase decision, it’s not their fault, the blame is on someone else. Very convenient.

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  64. David Losh

    RE: Ray Pepper @ 66

    You’ve been hanging around Vestus too much talking to the really, really smart guys who are only there to make a quick buck. You are buying inot a vaiation of the “we buy for cash, then you buy it from us.” Some of those guys can do four, or five of those per month at what appears to be very low margins.

    For those who don’t know the system, Vestus is a hard money lender who provides the cash to buy at foreclosure. The victim, I mean the foreclosure buyer, puts in a per cent, a down payment, then pays a fee, a commission on the sale, and like a 14% interest on the Note. The trick is the loan is only good for six months, up to two years before it needs to be cashed out.

    I wouldn’t be surprised if banks didn’t fund the group.

    Anyway, Ray, I don’t think it’s a good idea. I know it goes on, but if the property was a losing proposition it’s not an asset, especially if you are talking Carson City, or Henderson Nevada

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  65. David Losh

    RE: Kary L. Krismer @ 67

    Ah yeah, the responsibility argument, again. In many cases people bought thinking they were doing a good thing. I see the same thing today with people who are buying properties at these ridiculously high prices.

    The problem to me is Real Estate professionals who can rationalize the most obsurd pricing on property. They claim no one knows what a property is worth, which is the same as saying a property is worth whatever a person can be talked into paying.

    The public was swindled by a well orchestrated scheme to sell debt instruments. It’s still going on, nothing has changed.

    I’m much more interested in hearing about solutions. Ray has presented one that is just another problem. I think every one needs to stop paying debt, and Bankruptcy is a right provided for in the Constitution. Every one should employ that right.

    If banks were to take a loss, even a tiny loss, I think they would think twice before trying this again.

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  66. Kary L. Krismer

    By David Losh @ 69:

    If banks were to take a loss, even a tiny loss, I think they would think twice before trying this again.

    I think you’re grossly underestimating the ability of banks to come up with new ways to suck money out of people, and their willingness to do so.

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  67. David Losh

    RE: Kary L. Krismer @ 70

    No, I’m not under estimating banks at all. It’s the idea that some one defaulting on a mortgage would be anything but business as usual. Banks will never take a loss, at this point, by an individual defaulting, walking away, or stop paying a mortgage. It’s a part of the scheme. You don’t want to call it fraud.

    We do need to stop the consumer credit mill. That is the prize in all of this. That 28% interest every one has forgotten about is the problem. Student loans are a problem, consumers paying interest on every thing is the problem.

    Walking away from a mortgage is probably a pure profit to the bank on many levels, tax, insurance, and cash on hand by sale at the foreclosure auction.

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  68. 2kt

    RE: Ray Pepper @ 66

    Sure you are. Some people, however, would find you business ethics questionable, if legal at all.

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  69. Ray Pepper

    RE: 2kt @ 72

    2kt…We run everything by the book. It has nothing to do with business ethics it has EVERYTHING to do with whats best for the individual homeowner and their FAMILY.

    Dave..Never bought through Vestus and Never bought through Data Snap. Why would I ? I do all the work on my own or let the partners do it. Why pay the fees?

    Kary, I advocate personal responsibility UNLESS it brings stress, hardship, and pain to the family unit. ” Pinning ” a family to a home, after what was orchestrated, should be a crime.

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  70. Kary L. Krismer

    By Ray Pepper @ 73:

    RE: 2kt @ 72 – 2kt…We run everything by the book. It has nothing to do with business ethics it has EVERYTHING to do with whats best for the individual homeowner and their FAMILY.

    . . .

    Kary, I advocate personal responsibility UNLESS it brings stress, hardship, and pain to the family unit. ” Pinning ” a family to a home, after what was orchestrated, should be a crime.

    As to the first paragraph, your narrow focus and certainty the narrow focus is correct is starting to remind me of Ardell.

    As to the last paragraph, I call BS. Are you saying that none of your homeowners are in any way responsible for having had a single solitary thought at some point in the process that the value of their house might possibly do something other than go up? They made the decision of when to buy and how much to pay. Being naive does not equal being defrauded.

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  71. Ray Pepper

    RE: Kary L. Krismer @ 74

    Kary, you will see as the years go by that I will never change my belief and faith in the family unit.

    Being from Nevada and seeing what this MANIPULATION by Wall Street has done to so many people that I learned long ago to not throw stones. Yes, so many bought because it was their particular time in life to buy. There is penalties for not paying and its foreclosure. Its spelled out on each and every contract.

    Life goes on after foreclosure but the hardship of being trapped in an upside down property can go on for years/decades.

    Keep telling people to do whats right (in your view). I will continue to advise on a case by case… because Kary they are all coming back one way or another…short sale, foreclosure, deed in lieu, etc….The economy going forward over the next decade will remain very weak and the ability for a homeowner to UNLOAD will be stark. The homeowner will not be able to pay down the Mtg enough to sell and the unyielding amounts of properties coming back will halt appreciation. They are STUCK! So is there families and so are their children.

    They just need to know it IS and WAS not their fault. They will pay for their mistake with their credit and ALL of us homeowners will pay for the actions of Wall Street for a countless # of years.

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  72. Kary L. Krismer

    RE: Ray Pepper @ 75 – To be clear I’m not saying no one should make the decision to default. I’m just saying that they shouldn’t make that decision based solely on the value of the property having gone down. If it’s causing extreme family hardship . . ..

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  73. James McNelis

    RE: Kary L. Krismer @ 49 – It is, however, possible to defer capital gains even when one has converted a primary residence to a rental: the trick is to sell it, then buy a comparable property under certain conditions, including a time limitation, and transfer the proceeds of the first sale via a specialist legal/accounting firm without constructive receipt of the funds. This kind of transaction is a 1031, and should work so long as one has competent expert advice and follows the conditions to the letter.

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  74. Kary L. Krismer

    RE: James McNelis @ 77 – I mentioned 1031 exchanges in the thread this one developed into:

    http://seattlebubble.com/blog/2011/05/25/reader-question-sell-now-or-rent-it-for-a-few-years/comment-page-1/#comment-132618

    The thing is, that’s only a deferral, kicking the can down the road so to speak, and in the meantime you’ll be going forward with lower depreciation expenses and worrying about higher future tax rates. Not being taxed now is much better, IMHO.

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  75. Kary L. Krismer

    RE: James McNelis @ 77 – Also, there are problems with losing everything you had with a 1031 exchange. Usually that is due to a small time player running off with funds, but sometimes it’s a big one that takes you down.

    http://blog.seattlepi.com/realestate/2008/11/25/landamerica-problems-1031-related/

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  76. S-Crow

    RE: Kary L. Krismer @ 62RE: Ray Pepper @ 57 – are you certain Ray?

    They are Quit Claiming back to the original owner who might happen to be in an LLC or Trust? They can Deed it to whomever they want except for some small details in this “arms-length” transaction.These foreclosed/short sale people are going to have BIG problems if they try to refi or sell the property.

    Who is financing this? Is the friend or family getting a loan on the purchase of the short-sale or foreclosure? Obviously (except for cash deals but then only a fool would just Deed the property back without security) they financed it. You can Quit Claim the interest but the loan is still in the name of the friend/family member as you describe. Pretty STUPID on the part of the “friend”. The Title Insurer would probably reject the validity of the Quit Claim and have the property vested back to the person or entity (LLC or Trust) that acquired the property via short sale or foreclosure.

    Furthermore, when the original owner (the foreclosed owner) gets the property back from the “friend” and tries to sell the property in the future Title Insurers will see the chain of title and most likely they will not insure it due to obvious fraud. Title Insurers will not insure because they could potentially open themselves up to claims for the very Fraud you claim is rampant.

    Tread carefully Ray and make sure no one can follow the bread crumbs back to you or your investor colleagues for showing them how to pull this off. There are a lot of potential problems with what you describe.

    S-Crow

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  77. Kary L. Krismer

    RE: S-Crow @ 80 – On the bright side, given that everything in real estate is public record, there won’t be a lot spent on attorney fees when they come after you! ;-)

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  78. 2kt

    RE: Ray Pepper @ 73 -If your entity participating in such transactions in any way (knowingly), it’s just a matter of time before things like this unravel.For instance, if you unscrupulous friends happen to quit-claim to relative’s LLC and think they fooled the bank, it may be so. However, if the property was insured by MBIA or other mortgage insurer, the bank would then submit the claim for loss to insurer. The insurer will send a loss adjustor who will investigate the original loan documents, and then review subsequent sale, which parties were involved, who owns LLC, etc., etc. They will not pay the bank until they know all was fair and square.This may take months, if not years, but it will come back to those crooks in the end. Further more, when next resale takes place, the financing bank and a new title company would review all the docs again. It’s a matter of when, not IF.

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  79. Kary L. Krismer

    RE: 2kt @ 82 – It can go beyond doing it knowingly.

    Real estate people tend to deal repeatedly with the same people because they discover which ones do a good job and which ones don’t. The problem is, if you’re dealing repeatedly with someone who is doing something shady, you may end up getting investigated too!

    In this business associating yourself with entities that are doing something shady is very risky.

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  80. 2kt

    RE: Kary L. Krismer @ 83

    Agreed. As a plus, trying to prove what one did know or did not know is something else.

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  81. corndogs

    RE: Kary L. Krismer @ 16
    My Cousin and his wife live in a house she previously owned which was bought by her own parents in a short sale…. So, I’m quite sure a friend can buy your house on a short sale…

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