Category Archives: Pricing

Orange County Market Update

The market continues to be busy in the lower end of the price range, and bank-owned and short sales are making up about 61% of all closed sales in Orange County. 

Today, there are a total of 11,577 homes for sale in Orange County.   Of those, 4783 (42%) are labeled as either bank owned or short sales.  Of the 4363 that are currently in escrow, 2925 (68%) are distressed.  In the last 30 days, 1018 (61%), of the 1653 closings were distressed.

Buyers are looking for the best values that they can find, and the best priced homes are usually bank owned.  Short sales are closing more often than in the past, but it is still frustrating for a buyer to make an offer, then have to wait weeks or months to get an answer from the lender.  It will be interesting to see what effect, if any, the President’s new stimulus plan will have.  

The latest foreclosure listings are now posted for selected cities or areas in South Orange County.  If you are looking in an area that I haven’t included, please let me know and I’ll run the list just for you!

Other posts like this:

2008 End of Year Report 
2008 Orange County Mid-Year Report
2007 Orange County Sales Report

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Vicki Lloyd


Lake Forest Market Update – November Sales Report

November 2008 sales in Lake Forest are up 233% from last year’s dismal numbers, but sale price per square foot is off by almost 26%.  Prices ranged from a low of $110,000 up to $724,900.

First time buyers were the driving force behind the improved sales volume, since they didn’t have to unload a previous property in order to buy.  FHA loans with 3.5% down payment were the favorite financing method used in the majority of these sales.  Condos accounted for 61% of the sales.

The “average” condo sold for $231,587, after 59 days on the market with the range running from $110,000 up to $385,000.  Of the 38 condos sold, 12 went for more than the list price.  Most of those were bank-owned and were aggressively  priced well below average @ $185/sqft versus the overall average of $206/sqft. 

Single family homes ranged from a low of $335,000 up to $724,900, and averaged $268/sqft after 61 days on the market.   Of the 7 homes that sold for over list price, 5 of them were bank-owned and sold quickly for an average of $272/sqft and spent only 28 days on the market!

There are currently 218 properties in the “active” status on the MLS, split exactly down the middle with 109 condos starting at $114,000 and 109 single family homes ranging from $335,000 up to $1.650 million.   With single family pricing starting at $335,000, it’s very difficult to get any attention for the townhomes above the $390,000 mark, no matter how large or nice they are! 

The good news at this time is that gas prices are affordable again, interest rates are approaching historic lows, and pricing is getting much closer to “fundamentals” where the cost of owning is only slightly higher than the cost of renting a similar property.  I expect after the first of the year, and particularly after the new administration takes office, that volume will pick up substantially in the lower end of the price range and a lot of renters will become buyers!

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Lake Forest Market Conditions

Lake Forest prices now start at $95,000 for a one-bedroom bank-owned condo. It previously sold in 2005 for $260,000 using 100% financing (probably using a “liar loan” without any income documentation!) I seriously question the wisdom of anyone paying that much for a property this size, as you could have rented it for less than $1000/month at that time, instead of taking on a mortgage, taxes, and HOA dues which probably came to a total of close to $2000/month.  This unit has been on the market now for 9 days so far, and I expect it will take a little while longer to find a buyer who wants it and can also afford it using today’s more traditional standards to qualifying for a loan.

The total number of bank-owned homes in Lake Forest today is 45, and they have an average price of $326,000 at $232/square foot.   

Total active homes on the MLS in Lake Forest is currently 287, with only 97 of them available as traditional “non-distressed” sales with a seller who can answer an offer without having to wait for a bank to approve the price.  Of those, there are 30 condos and 67 single family homes.  Prices of the single family homes begin at $459,000 and go up to $1,695,000.  

For buyers who are hoping to pick up a “deal” on a foreclosure property, it is critical to be fully pre-approved in advance and to be educated about the values.  Many of the foreclosure listings are coming on the market priced very low compared to other properties.  They may be in almost any condition, ranging from totally dirty and damaged to pretty nice “move-in” condition.  Alert agents and buyers are finding them and making offers almost immediately.  I have had several experiences where my buyer submitted an offer the first day on the market, then, after waiting for 3 or more days, the bank’s agent asked all the buyers to re-write their offers at their “highest and best” price.  This strategy has created an “auction-fever” environment that leads to the home selling for substantially more than the original list price.  If you plan to make an offer on one of these undervalued properties, you need to carefully review the comps, and make your best offer based on your perception of what it will really cost you to make the home comfortable for you!

Lake Forest Condo Breaks the $100K price barrier!

Bank owned condo in Lake Forest listed at $95,000

Bank owned condo in Lake Forest listed at $95,000

The condo pictured above just came on the MLS this morning with a list price of $95,000.  It is a bank-owned foreclosure, with one bedroom, approximately 685 square feet and described as “needs work.”   For an owner-occupant, with a 3% down payment and an FHA loan, the payments on this could be under $1000 per month, including the mortgage, taxes and current HOA dues of $260/month.  This is priced $20,000 less than the next cheapest unit in the city, which is also bank-owned in the same development.   This may be another example of a lender pricing agressively to generate quick activity and multiple offers, so it may end up selling for more than the asking price. 

This condo was previously purchased in August 2005 for $260,000 using 100% financing.  According to the records in the tax database (not totally up-to-date, but all I have to go on), there are 392 units total in this condo association, and at this time 32 of them are in some stage of foreclosure.  There are also 17 foreclosed units that have sold this year, 4 that are in escrow, and 14 others available today on the MLS.   

Potential buyers need to know that when the level of foreclosure activity is this high in an association, there is a very real probability of HOA dues increasing to the maximum allowable (20%) limit, and possibly additional “special assessments” to make up for all the dues that went un-paid while the property was in the foreclosure process. 

Once a lender forecloses on a property, they become responsible for paying the HOA dues and fees until it is re-sold, but the many months of dues payments that the prior owner didn’t pay, were wiped out in the foreclosure sale, and the HOA simply lost that revenue.  The budget of a condo HOA usually includes all the maintenance and taxes for the common areas, trash service, as well as funding the reserves to replace roofs, resurface the streets, the insurance and maintenance of all the buildings.  These costs aren’t expected to decline, and most aren’t optional that could be eliminated.   

Before buying a unit in an HOA where there has been a lot of foreclosure activity, take a good look at the HOA budget along with the latest financial statements so that you know what you are taking on!

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2008 Predictions for Orange County Real Estate

Disclosure –  I am not an economist, not a psychic, and not a fortuneteller.   My crystal ball is foggy (or cracked!), and any predictions I make are based on my own experience, insight, feelings, observations, wants, hopes and superstitions.  I will tell you what I think will happen to the real estate market in Orange County and Southern California, but if you rely on any of my predictions, and they turn out to be wrong, I will refund all that you paid me to share my valuable secrets ($0.00!)

Predictions for 2008

The volume of sales will increase above the 2007 levels.

  • This is based on my observation that it can’t get much lower without coming to a complete stop!  In 2007, total sales for Orange County will be only around 20,000 (19,900 as of 12/30/07) compared to 27,700 in 2006 and 40,000 in 2005.  I think we will see somewhere between 25,000 and 30,000 closings through the MLS in 2008.   There is a base rate of transactions that needs to happen regardless of market conditions.  Some people get job transfers, some people lose or quit their jobs, we all get older, some people retire and leave the area, or get too old to go upstairs anymore, new families are formed or expanded, some families split up, some people die. These sales will be completed one way or another because they have to.
  • There are a lot of “wanna be” home owners who have been sitting on the fence waiting to buy.  They have been told by their parents, friends, co-workers, neighbors, Uncle Herman, and their hair dresser that now is not the time to buy, and if they wait they can time the market to hit the very bottom.  BUT they are getting impatient! The battle cry of this group is going to be “Close enough is good enough!”  As prices continue to decrease, their temptation will overcome them and they will jump in.
  • Distressed sales will continue.  There will be more foreclosures due to the toxic loans that are coming up for adjustment in the next year.  Some lenders will do everything they can to work it out, but many will still be foreclosed.  The presence of vacant and neglected homes will not be good for any neighborhood, so my hope is that the lenders will price them accordingly to find a new owner who will take good care of them.  (Based on my own experience selling foreclosed homes, they rarely list them realisticly to start, but will listen to reasonable offers after they have been on the market over 30 days.)

Prices will decrease – both listing price and sale price.  This will be because more sellers will finally give up and realize that they are not going to get the same windfall price that their neighbor got in 2005, and if they want to sell and move on they have to face reality.  This will be a good thing because it will cause buyers (see above) to buy these homes!  These realistic sellers will benefit by making up for it on their new purchase, which will be at a similar lower price.

The mortgage market will settle down and find it’s equilibrium, and we will all learn what to expect and how to play by the new rules (possibly based on verified earnings and proof of the ability to repay a loan that still leaves money each month to buy food, gas and utilities!) We will learn what needs to be done to get a buyer properly qualified for a mortgage, and it won’t be done by lying about income, teaser interest rates, or any other shady “do-it-quick” then “do-it-over” type financing.

A lot of real estate agents will leave the business.   The National Association of Realtors is predicting about 15%, but I think it will be higher.  When homes are selling quickly, prices are rising, and everyone qualifies for a loan, selling homes looks like an easy way to make a living.  When the market turns and it requires actual work, knowledge, experience, intelligence, patience and caring about the client’s best interests, there are many who won’t want to stick around, or just don’t have the reserves to make it between closings.  It’s lots easier and safer to be on someone else’s payroll and collect a check each month than to actually learn how the market works, how to react to change, how to solve the problems that you can, and let go of the ones you can’t.

The real estate industry will continue to become more “transparent”with more information being shared openly and honestly with consumers, and much of the hype disappearing.  More agents will be blogging; some will provide good insight and information, and others will post a few ads about themselves and then give up when they are ignored.  The main feature that separates a blog from a standard website, is that it is meant for 2 – way communication.  If you want to get more details about a real estate subject, question my reasons for saying something, suggest an improvement, challenge a theory or anything else, you can ask it right here in the comments.   Someone else may have the same question or thought, so it will be answered publicly for anyone who stops by to see it.

What do you think about my predictions:  optimistic, pessimistic, or about right?  Your comments or opinions are welcome and appreciated!


History of an Over-Priced Listing

Is your home priced too high for the current market?  Many times, sellers insist on testing the market to make sure they are not leaving money on the table.  Some times, the listing agent is selected based on recommending the highest list price.  Other times, sellers simply have an inflated opinion of the value of their home.  Whatever the reason is, or was, usually ends up backfiring in the end. 

This is an illustration of the pricing of an actual home that was first put on the market in October 2006, but due to being out-of-synch with the market, didn’t close until 13 months later . 

Graph of Price History of Sold Home

Sellers need to learn to be more careful than ever about pricing, because in the current market, the carrying costs of mortgage, taxes, insurance, property taxes and homeowner association dues can put a substantial dent in the final net proceeds.  This particular listing had a very low tax basis, and a low interest rate on a small mortgage, but taking over a year to sell this property ultimately cost the seller an extra $10,000 in lost proceeds! 

My guess (it was not my listing) is that if it had been originally listed at $549,900, it would have had multiple offers almost immediately and closed in 45 to 60 days at a higher price!