Chapter 7: Kate gets outbid

Still house-hunting, our guest blogger Kate in the Valley is still confused: who are these people bidding way over the asking price for dumpy houses?

"Maybe I am a bit out of the loop, but I just discovered PropertyShark.com.  It is completely amazing.  The sale information is accessible so much more quickly than on Zillow and the level of detail is astonishing.  As I was exploring this fantastic site, I entered an address of the house that Mr. Kate and I last bid on.   

"The house was originally listed at $780k but when no offers came in, the home was re-listed $730k.  It was a small 2 bed/1.5 bath in Sherman Oaks that needed work.  A whole lot of work.  The back half of the house didn't even have a subfloor.  The kitchen was semi-gutted as were both of the baths and there was a huge dead tree in the backyard that would cost thousands to remove.  So we bid $715k even though we felt this was high for the property.  We really liked the neighborhood and we are so tired of the process, so we just bid.

"The counter came back with the multiple offer box checked (there was one offer in addition to ours) and the price was $745k.  We walked and the house went into escrow with the other bidder.   The sale closed on July 13 so I figured the information would not be available on Property Shark yet, but it was.  And it was shocking.   

"The sale price was $789,909.  First off, nine-hundred and NINE dollars?  Whiskey tango foxtrot? Seriously, did the nine dollars make a difference?  Second, this house sold for approximately sixty-thousand dollars over list?  When I could have bought it for a mere fifteen thousand over list?   I presume that this was one of those cash-back-at-close deals.  But I can't imagine that this house would honestly appraise at that level.   And finally, there are plenty of other houses (with three bedrooms, even!) for sale in this neighborhood for less.  At $720k, this house was almost a deal but, at $790k, this is absolutely the worst value in the neighborhood.  It just doesn't make any sense.  But I suppose this transaction offers some insight as to  why, even though sale volumes are way down, sale prices still appear to be going up."

Thanks, Kate
Comments? Thoughts?   
Read Kate's blog here.

Comments

[war]

There are all sorts of reasons why this could happen. It could be pure fraud, cash back, etc...

I would highly recommend this site because OC Renter does a good job of detailing a lot of suspicious activity in various markets.

http://bubbletracking.blogspot.com/

Or then again it could just be that the masses are asses. A bunch of BIG lenders came out yesterday and today and are severely tightening/eliminating Alt-A products. The ripple effects should start being felt over the next few months. Indymac came out and said there are "no bids" for their private AAA rated paper...if they can't sell it off anymore, they aren't going to fund stupid loans like this for much longer.

[Pioneer10]

Appraisers seem completely in the pocket of the realtors. The question with this market is why waste the appraisal fee when shady transactions like this go through. I recommend bubble market inventory blog which keeps track of plenty of these crackpot deals that got appraised for well over market value

[Pioneer10]

Come on with these shady type of deals you know the appraiser is in the hands of the realtors. check out the bubble market inventory blog to get plenty of deals which involved likely cash back, 100% financing deals with straw buyers and "appraisers" who conveniently peg the house always at least 10% higher then the comps

[Frustrated Shopper]

Kate...

I hear you. I have no idea who's overbidding for some of the homes I've seen. We've looked at boxes from hell in Burbank and learned the owners aren't planning to lower their prices -- and then they don't have to because someone pays over asking.

They are selling slower but there's always those couple that go and go fast. I wish I could stage a week-long boycott on for-sale homes. Maybe if buyers stop paying, sellers will stop feeling the right to overprice their properties.

Good luck ... and keep posting 'til you can't post no more. Your writing on this is stellar.

[Pugtv]

When these irresponsible buyers face foreclosure a few years from now, let's just remember - NO GOVERNMENT BAILOUT!

Irresponsible buyers like these penalize responsible homebuyers by keeping them out of the market. Responsible bidders shouldn't be penalized a second time in the form of tax dollar bailouts going towards these irresponsible buyers.

Any politician that talks of a bailout should be voted out of office immediately. These politicians help the irresponsible at the expense of everyone else. NO GOVERNMENT BAILOUT!

[Ragnar]

Let's just remember that some of these folks putting in crazy high bids may be using currency that is stronger than the US dollar right now. Still, overbidding is overbidding no matter which currency you use.

Thank you for including all of us on your house hunting journey, Kate. It's always a spiffy read and the ensuing blog conversations have been very interesting.

[sheila]

you are bidding against people who have a ridiculous amount of unearned money because their own house tripled in value in 3 years, so it's all monopoly money to them. $60K here or there means nothing when you just made $600K by sitting around letting your house deteriorate...

also, if they made all that money in a crappy school district and are moving to an excellent school district, this $60K amounts to 18 months of private school fees for their 2 kids they no longer will have to pay - pretty quick payback. this is a major factor for a lot of people, so if you don't have kids, you might get more house for your money in a crappy school district...

[Kate]

I can't help but believe we've just barely scratched the surface of what's really going on in the market. This morning I came across the strangest REO on Bluebell in Valley Village. I've posted about it on my personal blog.

You'll see the property changed hands repeatedly, and every other sale fails to include any money changing hands, at least according to Property Shark. It'll be very interesting to see whether the parties to this transaction show up on other property records around town.

[Martin]

C'mon already! Why do people begrudge those who make money in real estate? Because they didn't get into the housing market sooner themselves? Making money takes risk. Some people -- like, er, millions in Los Angeles -- made the risk. Others sat in disbelief assuming the market had peaked.

I'm shocked the two bedroom, one bath Sherman Oaks "fixer" went for $789,090. But somehow it made sense for the buyer and was good fortune for the seller. That's all there is about this. There isn't any more.

Perhaps the psychological influence of the media and bloggers will influence real estate market price drops. In some areas, it's clear it already has. But please be human and applaud your neighbors' successes. Don't resent it because you didn't get a proverbial piece of the pie. .

[Pat]

Just check out the Beverly Hills agents indicted story....

[pugtv]

Martin,

I don't resent people who make money in any market. What bothers me are two things:

1. These people "made" money artificially / irresponsibly which negatively affected others (responsible homebuyers).

2. These people who "made" money will ask for government handouts soon when they face foreclosure / bankruptcy.

[Steve]

Kate it appears you are committed to owing a home in the Valley. A recommendation that worked for me is make more offers. You can look until you drop and the reality is the house will never be perfect, you need to just get in the market now. It is all volume and nothing will happen until you make an offer. It is this simple, make 2 offers a week on your dream home, each offer should be for 20% to 30% less then asking price, have a contingency in the offer to walk if need be. I use the web/E-mail only and do not even visit the house until the offer is accepted. You are wasting too much time looking/analyzing, make low offers. You do this I guarantee you will have a house within 3 months at a good price. You must find the motivated seller and until you place an offer in front of them nothing will happen.

[Inland Empire]

1. These people "made" money artificially / irresponsibly which negatively affected others (responsible homebuyers).

This sounds very sour grapes to me. "Responsible" homebuyers make their own way in the world and don't depend on the actions of others to provide them a home.

[Martin]

That's right, Inland Empire! We are homeowners who worked hard to own our properties. Many of us did without that new car, those expensive vacations, that flat panel television we really do want to buy and even better cuts of meat at the market. We built careers ... worked hard ... invested in remodelling ... believed in sweat equity ... and almost always watched our budgets. But it was worth it. We own our homes and watched our equity grow (often beyond our imagination).

Have we made money (sic: equity) artificially? No, we did it the old fashioned way. We earned it. Why do people begrudge our homeownership in a real estate market that has had heady days? We're not jumping ship even when prices go down. We'll just wait it out.

Kate, I like the advice of just staying true to your search and submitting offers. You'll find your home. In terms of your house story with half of a structure having no sub-floors, that simply sounds surreal. I can't believe that's the norm.

[pugtv]

Foreclosure ... Foreclosure ... Foreclosure ...

I have nothing to be sour grapes about. I got out of the real estate market in time, am making more money from the equity that I pulled, and will buy a home that people are bidding near a million for currently at a huge discount a few years from now.

You guys sound like people who are stuck in a bad decision and rationalizing it. Just don't come crying for government money when your mortgage resets.

Foreclosure ... Foreclosure ... Foreclosure ...

[Sarah]

Dear Martin,

Thanks for explaining that for us all. I can infer several things from your arguement:

1. I strongly suspect you are either a real estate agent that hasn't sold anything in 3 months or you are the proud owner of a property purchased in Q4 '06.

2. Now I know that I too can afford to pay 50% more than what a property is really worth (in other words, what it will be worth in two to three years) if I just avoid eating meat and wearing cut off jeans.

3. Apparently, those of us who can't afford $600k for an entry-level house are just not working hard enough!

4. The thought of jumping ship must have at least crossed your mind, as you mention it. I love your strategy of holding onto your property to ride the market out. That's fabulous. You ride that wave all the way to the bottom, buddy. I'll see ya at the bottom in a few years. You'll know me because I'll be the one holding the keys to your property!

[Inland Empire]

You guys sound like people who are stuck in a bad decision and rationalizing it. Just don't come crying for government money when your mortgage resets.

Not hardly. I have been buying and selling real estate for more than 30 years. I have made a profit on everything every single time. I have never had a bad loan due to stellar credit.
These bad loans remind me of people who lease cars. Some people will do anything to keep up with the Joneses.

[Kate]

IE:

Actually, some people lease cars because it's a depreciable asset and they don't exceed the allotted mileage. Personally, I drive way to much for a lease to make sense, but I believe in the old adage: "If it floats, flies, or freeway drives... lease it!"

And I couldn't agree with you more on the bailout. What a disaster that would be.

Martin:

I don't think people begrudge home owners who "enjoyed heady days." We begrudge a market rife with fraud that has thrown a wrench into our own hard work and planning.

Steve:

I'm sure that your plan would work. But I do not want to own a house for the sake of owning one -- I want a very particular house. I don't mind the work and, with the market showing subtle signs of change, my patience has returned.

[J White]

Kate,
I love property shark, thanks.
Even if prices don't go down too much, they won't be appreciating much. Why not wait for a few months to a year and let the market settle.
Good Luck.

[Martin]

Sarah,

Your attitude represents the exact contempt that I am referring to. I'm sorry, but the politics of the French Revolution are a thing of the past. It's as if lines of battle are being drawn between people who own homes and those who can't afford to enter the market. This is a ridiculous state of mind.

For your information, Sarah, I purchased my current property 20 years ago. This property is in a good neighborhood. It also features five lovely apartments including one that I live in. Based on current, lower estimates, it is worth five times what I paid in 1987. Four of the units together generate about four times the current mortgage (and I live for free).

I planned for this after financial challenges my parents faced over 35 years ago forced them to sell the home I grew up in. This fiasco molded my own priority -- to have a sound and financially secure home that no external influence can threaten.

I use my extra financial income for the continued well-being of other people close to my life.

Yeah ... you'll get the keys of my property. Good attitude. You showed your true colors. And it spells i-n-h-u-m-a-n-e.

You'll have your chance to buy, Sarah, because there is a real estate market drop that will occur due to market psychology and the influence of the mortgage market meltdown. Strike while the iron is hot. I wish you good fortune. But, instead of making a public spectacle of your woe-is-me attitude, just dig in and keep searching. You also might consider searching for your "starter home" in a neighborhood that is less desirable than gentrified and desirable Sherman Oaks.

It took me a solid year of searching every weekend to find my first house in 1979 (three zany, inflation-filled markets ago). It was in a neighborhood that most of us would not choose to live in. And guess what happened! I sold it for 50% more nine months after I took title (quadrupling my 20% down payment). I then put the profit into a single family home in a still-marginal neighborhood that I suspect you would never consider living in, Kate. That house doubled in value in eight years.

Then I did the big move to a better neigborhood, keeping my eye on building more financial security and safety.

My story is not unique. You simply can't appreciate that many of us purchased our homes years and decades before the second quarter of 2006. Some of us have loans we created with 20% (and more) down, foresight, patience and some intelligence.

I assure you we did all of this with ethics and good intent. We don't sit in our secret counting rooms,having phone dialogues with our dishonest realtors and mortgage brokers while greedily playing with gold coins that are generated at the expense of the "have-nots."

I applaud any friend, business associate or one of my tenants when they save enough to buy their first home.

I suggest you look for your house without laying blame on others for higher prices today or an obvious agenda of picking the bones of some poor fool who purchased a home he/she simply couldn't afford.

[Martin]

And, excuse me Kate for referring to you as Sarah. I guess my mind was distracted while thinking about the mess that the banks created by offering easy credit to unworthy borrowers.

[Kate]

Martin:

I believe that, for a while, you were actually responding to Sarah (who left a comment above) and not me.

Indeed, I applaud your efforts to build equity over time. And you are not the kind of homeowner that I complain about -- I am talking about very short term purchasers who got in way over their heads and are expecting to get away with committing a fraud (in the worst case) or to be rewarded for being very bad at math (in the best case).

And, for the record, I don't think there's anything wrong with living in Van Nuys (or other parts of the Valley that are North of the 101). I lived there myself once upon a time and can say first hand that my neighbors were fine citizens that I am proud to have called "neighbors." I've selected a different neighborhood for this phase of my life for a whole lot of reasons including commute convenience and "walkability" -- that is, I like to be able to walk to a lot of restaurants, shops, and services that I frequent.

Thanks for sharing your own story, Martin. I think it is really important for people to see how it's done right.