I have been tracking short sales and REOs (foreclosures) in the San Jose area since June 2007. I can tell you, consistently, short sales have represented about 30% of active listings and foreclosures have represented about 10-15% of the active listings. I show homes that are listed as short sales. I hear there are agents that won’t show short sales. Not sure how they do that. I started working on the numbers to find out how many short sales there are, how long they have been on the market, how many are pending, how long they have been pending, how many are vacant, and how those numbers are different between single family homes verses condos and town homes. Wow.
There is no doubt there are a lot of home owners in trouble. There is no doubt the banks have inventory that they have not sent back to the public consumer. There is no doubt you can complete a web search on shadow inventory and find a ton of articles about the reality of its existence and whether or not these homes will come to market. More importantly, when will they come to market? Who knows? Maybe some high paid executive of the in the asset manager kingdom knows. They aren’t telling. But in San Jose, foreclosures are the smaller part of the market. I am more interested in the 1/3 of the market called short sales. These are the challenges of real life sellers, buyers, and agents.
As of today, February 15, 2011, there are 777 active short sales in San Jose.
Of that 777 homes, 81 have been on and off the market for over 1 year (10%) and 17 have been on and off the market for over 2 years (2%). Of the total listings pending sale, 1635 are short sales. Of that 1635, 123 have been pending for over a year and 19 have been pending for over 2 years! 104 of these homes are vacant. Anyone think we have a problem moving short sales out of the hands of struggling borrowers and into the hands of new eager buyers? Why is this so difficult to do? Let me count the ways:
1.) Bank short sale process is non-standardized and the banks are overwhelmed by the process. This is improving and I applaud the efforts that I have witnessed with Bank of America – Equator system, and Wachovia/Wells Fargo Short Sale Fast Track. There is still a great deal of improvement needed. Automated systems are nice but standardization of short sale packets, approval process, assigned negotiators up front, contact information, and communication is critical.
2.) Many sellers are desperate, scared, and some are unwilling or unsure of what to do next. Most can’t afford their house because of hardship. Their credit is taking a monthly hit and in many cases they can not even find an apartment because of damaged credit. They try loan modifications and are stuck in a quagmire worse than the short sale approval process and are simply tired of the entire experience. Can you imagine having your house on the market with people coming in and out every day, 7 days a week for over a year? Ask any seller after the experience of selling a home and they will tell you how quickly they tired of keeping everything picked up and how stressful it is to constantly manipulate their home life around showings. No surprise that some short sales do not have access and even more make it nearly impossible to make an appointment.
3.) Short sale agents have less than 3 years experience. Even if an agent has been doing short sales full time, each one is different. Different circumstances, different lenders, different negotiators, and different levels of cooperation from all involved. Some agents hire “professional” negotiators to handle their files because they are tired of the daily phone calls and pleading with negotiators to make it happen. On top of the cost of the negotiator, the bank reduces commission on average by 1%. Can you imagine the motivation you would have to do your job for a year before you got paid and then your paycheck was cut 30-40%? Many short sale listing agents would be happy with a nickel for every time they answered an email or phone call that ask the questions: How many lenders? Any offers? Who are the lenders? Yet I believe if you are going to take a short sale listing, it is critical to provide the absolute best service possible. If the agent can’t, doesn’t want to, or gets tired of it, they should give the listing to another agent.
4.) Short sale buyers believe all short sales are going to be deals. But in fact, banks know the value of the home and expect a near market if not at market offer. Of the 87 short sale homes that sold the first 15 days of February, the average sales price to list ratio was 99.7%. More specifically, 16 sold for the same as list, 31 sold for higher than list, and 40 sold below list. If the home (mostly condos) were priced lower than $200,000 it was more likely to go under list price. I assume that is because they are more likely to be all cash deals.
The final information I want to share with you are the number of short sales for different price points. If you are a first time home buyer, excited that you can now afford a home in California, you will be competing with other buyers for homes that are mostly short sales. Make sure you understand the process of offering on a short sale and don’t assume because the days on the market are long, that they will take a discounted sales price or will not be snatched out from under you while you are trying to decide. It is a very competitive market. If you want to talk about your strategy to buy a home or in particular to buy a short sale or foreclosure, contact me.
San Jose Stats for Single Family Detached Homes
All data is collected from the multiple listings service on February 15th, 2011 and presented graphically by CJ Brasiel. The information is deemed reliable but not guaranteed. The graphs and content of the blog are property of the author CJ Brasiel and should not be used, duplicated, or distributed without express permission by CJ Brasiel.