How not to sell a house: The story of 3 Magnolia Drive

An update tonight on 3 Magnolia Drive, a foreclosed house owned by a bankrupt lender that was put up for auction on March 15 ... and still hasn't sold.

It's a nice enough house: 4 bedrooms, 3 baths, 3,238 square feet, in the Ladera Ranch section of Orange County. Built in 2003, it sold for $1.2 million in 2005, and went into foreclosure last year.

I reported last week that, at the auction at the Fairplex in Pomona, George and Kim Sarantos were the high bidders for the house at $705,000. Trouble is, the company servicing the loan on the house -- American Home Mortgage -- didn't accept their bid, and countered with a higher price, asking $40,000 more, according to Kim Sarantos.  After some haggling, and some frustration, she and her husband walked away.

"We just said, 'forget it,' " Sarantos said tonight. "It's not worth it to us."

American Home Mortgage -- which is in bankruptcy -- has the house listed on its website for $885,000. Because auction buyers agree to pay a 5% premium to the auctioneer, the true cost of the Sarantoses' bid was about $740,000. Because they felt they would have to put up even more money for some repairs and maintenance, they didn't want to pay much more than that.

"The house needs work, and by the time we pay all the closing costs, it's over $800,000, and it's just not worth it," Sarantos said. "This isn't going to be the last house out there for us. We didn't lose any sleep over it."

Thoughts? Insights? E-mail story tips to peter.viles@latimes.com.

Comments

[campechano]

That house is not worth more than 615K (today that is)....For in the next few months, it might be worth even less. Lenders and sellers need to get off their HIGH horses already....

[DS]

I should not be too worried. I bet that in a couple of months the house is going to be on sale again. if they really want the house they should wait.

I bet they can get under 700k in a less than a year.

[Doug Frost]

This is exactly the kind of tough negotiation that is needed for this type of sale - an object lesson on how to conduct yourself with respect to auction property.

[Corntrollio]

Hmm, I wonder if AHM can get in trouble with the bankruptcy trustee for doing that. Or maybe the trustee is stupid and was the one who didn't accept the bid.

[Jim B]

Reminds me of bidding on a house the last time prices started declining in 1991. The seller and I were $500 apart on a $189k house that needed a lot of work-- through several rounds of offers I came up several thousand $$$, but that final $500 I wouldn't do. The deal fell through and the seller wound up sitting on the house for a few more years and getting $145k for it. No underestimating the greed in a lot of folks (and institutions).

[H]

They did the right thing. They'll be plenty more houses at lower prices soon.

[puckhead]

Mission Viejo has the same problem as all of South OC. Too far of a commute to jobs and too much developemnt the last few years.

[Dan]

Very smart couple to walk away.

[peter C]

Good for the Sarantoses, for walking away when the deal stopped making sense. Would love to know if the person at AHM who insisted on $40,000 more still has a job. That's like hooking a huge fish, landing it safely in the boat, and then throwing it back. Peter V - the greed in this market never stops, does it? Why would anyone off the street pay $885,000, when it fetched $700,000 at auction? They must be betting on someone not reading this story here on the LA Times RE blog. Nevermind. Look how the bank's last bet turned out. Freakin mornons

[bottom line]

Like Pa always said, "Treat a shoe clerk like a banker, & a banker like a shoe clerk."

[Winfield J. Abbe]

Thank you Peter Viles for the excellent series. The statement above by Doug Frost is also excellent. Another point is this: Everyone of these houses which is vacant, has no, zero, insurance unless a special and very expensive insurance policy, likely with very high deductibles, is purchased. It is very unlikely this has been done. Every insurance policy has an exclusion clause for unoccupied property. So, if the house is damaged by fire, wind, lightening, earthquake, vandalism, etc., the holder must suffer the loss. In fact, many of these properties are targets for copper theft. Even brand new homes have had the wiring torn out of the walls and air conditioners removed, by copper criminals, who then sell it to the recyclers who violate the law against receiving stolen property. Isn't it nice to have all this help from the police authorities with criminal activity? All these facts should put additional price pressure on the companies holding these properties.

[ajax3456]

I was hanging out with some folks earlier in the week, they buy forclosure products by the BILLIONS, they know, not think but know that the market still has a 80% drop left,folks like this couple are going to lose their shirts if they buy any house for close to 1MM, they need to offer 2000 prices or walk away.

Why anyone would pay 700k for a home that will be worth 200k or less in a year, that will then be worth 700k in 20 years is beyond me.

[ted]

A 2005 needing work and it is suppose to be worth 740k??? what kinda of trailer trash lives in ladera ranch. you CA fools deserve all that happens to you. 740k for that?? and 1 mil back in 2005??? are you kidding me.

[debrap]

Bravo for the Sarantos! American Home is as stupid out there as they are around the rest of the country. BK is a good place for those morons except their management won't miss any meals.

[AHM-BK]

Sure would be nice for AHM to actually get serious about liquidating their assets. If the local market truly determines the price, the top bidder should have received the house. Why in the world would a bidder pay more than what the top bidder (themselves) was going to pay? The house basically appraised itself during the auction. It was done according to demand. AHM laid off around 7000 employees last fall due to BK and has still yet to pay them vacation days due. With scenarios like this, it is no wonder this is the case.

[Keith - letitsink.blogspot.com]

Even before this crash hit, real estate agents who deal in foreclosures would confide that banks don't know what they're doing in foreclosures. That includes Freddie Mac, et al. Some witless bureaucrat comes up with a dance step that has to be followed to sell the house. No attention is paid to reality.

This is why there are so many get rich in foreclosure programs. What they don't tell you is that it is too early for these programs to work. The banks are like a magnified version of the clueless general public. Until very recently they have refused to budge on price, or have reluctantly dropped prices by pennies as values have been dropping by dollars. But once it hits them, no price will be too low.

The people who are trying to play this game now are just joining the list of suckers because they aren't patient enough to wait for the real deals. They are typical suckers because they have no idea how to value real estate, and consider any price lower than the last sales price to be a bargain. Here is a clue for the clueless - can you rent the house out and cover a 30 year mortgage payment? If you can't even come close, then you're paying too much. If, rather than learning something, you come up with reasons why this is wrong, then I hope you enjoy your rapidly depreciating new home. I'll give your lender 50 cents on the dollar for it in 2 years.

[Michael Snyder]

ted
This is a real estate blog. If you want to prove your ignorance, please log on to "Huffington Post" where disrespectful conversations you'd never have to a person's face are the norm.

I'm a bit surprised the BK trustee(s) allowed AHM to refuse that offer as it was the best they're going to see. It seems to my "untrained eye" that these "counter offers" after an auction defeat the purpose of having an auction in the first place. Call me a cowboy, but I've never seen a rancher run out into the arena looking for more money after the gavel drops. You can be sure it would be the last time he/she ever sold anything through that auctioneer. That is after all, what a reserve price is all about.

It seems as if these auctions are infected with the same fundamental lack of integrity that built the bubble to start with. In both of the auctions commented on in this blog, the sellers came back with counter offers attempting to raise the selling price. At that point why bother with an auction? Clearly these fools still need to see their chiropractor. Bending like that has got to be hard on their backs but it would explain their common view of the situation. I think they'll want a shampoo as well.

[sunsetbeachguy]

In a a market like this the first offer is the best offer.

The bank is still delusional.

[Giacomo]

I wonder how many sales are lost because institutions are too slow to process, or too ignorant of local conditions? I'm watching a REO house in my neighborhood sit and rot because no one at the Lenders' has noticed that it's been priced 100K over its competition -- for almost a year now.

But then, I don't suppose we should expect some new, higher level of competency from the same lenders that were passing out these bad loans 2 years ago.

[Rich]

Before we high-five this couple for their savvy, we should ask the question--weren't they about to make the same old mistake that got us here in the first place, overpaying for housing? The square footage and curb appeal are substantial, but even $740k is way above what a couple earning California's median $43k income ($86k couple) could afford. Would it appreciate later, or would they just join the ranks of the upside down mortgagees? Are they so well off that they don't need to care--and if so, why not buy a condo in Santa Monica? It seems like a big problem for California buyers is not knowing any more what "normal" home prices are in a market not driven by artificial financing; people can't make good choices because they can only see the "bad" choices as normal...

[Michael Snyder]

Call me crazy, (& you may be right) but aren't there legal ramifications attached to the seller's actions in these auctions? After a few cups of coffee it looks to be as if the seller is effectively bidding against the buyer. Where I come from that's called cheating. If it doesn't get you arrested it most certainly will earn you a whoopin'.

[GuineaPigZed]

In this case , the auctioneer became an unlicensed real estate agent.
There was a contract?
The seller pays for the sale, not the buyer!
Every day offer less.
Pay no more than 5% for a mortgage!
Sue them all, the bankers will not have a clue what to do.
Losing three thousand a month, was yesterdays news.
Make them work for every cent.
Have a lawyer write the offer.
I like the line about treat your banker like a shoe-salesman.

[MyLessThanPrimeBeef]

It was smart for the Sarantos to walk away, but I am curious why they would pay $700,000 plus the 5% premium in the first place.

Why are people buying today? It'd be interesting to read what they, not you lefty, have to say.

[Stan French]

ajax3456 said

"I was hanging out with some folks earlier in the week, they buy forclosure products by the BILLIONS, they know, not think but know that the market still has a 80% drop left,"

I agree prices still have room to drop, but 80% more, let's stay in reality. So your telling me houses in the Palisades are going to be $350K, yeah right.

[robert laughing]

One can see why American Home Mortgage is in bankruptcy! SMART move on the prospectives buyer's part!!! LOTS of REAL DEALS ahead...don't need to be a Frump Trump to KNOW about cycles, like after 4-6 years of UP!, you get DOWN!

[gary]

to ajax3456
Confused... the people you know buy billions of foreclosed properties and already know the market will go down another 80%???? Why on earth are they buying billions when they believe their own purchases will decrease. Did I read you right?

[Jonathan]

"Mission Viejo has the same problem as all of South OC. Too far of a commute to jobs and too much developemnt the last few years."

Yeah, I used to live next door in Lake Forest and it took me > 40 minutes a day to drive about 7 miles down the road. I hated that drive so much! Every day I dreaded going to work.

[Laker]

This lender is not only bankrupt, they are completely stupid.
Trust me that the person in charge was fired or will be very soon.
If they are lucky, they would get $650,000 at next auction...maybe...
The true value of this house is $300,000.

I have true life example on bank's greed and it goes back to 1994 (the last bust). My family placed a bid (offer) on a foreclosure house in Woodland Hills south of the bl for $270,000. The lender countered with $290,000. We walked away. After 4-5 months the lender called back and was asking $250,000...We countered with $215,000 and the bank accepted.....

Conclusion: Smart bank would have gotten $270,000 from us, Stupid bank indeed got $215,000 from us.....

[Santa Barbara Real Estate Voice]

I think it is smart of the couple to walk away...we are seeing banks trying to act like Realtors and they do not know the market of each town, neighborhood and street of where each individual house is.

To many factors go into a sale and why for example 2 identical homes can sell for $40,000 difference.

I unfortunately see more stories like this for the coming 2 years.

[RE Watcher]

A quick correction to our blogger - Ladera Ranch is not part of Mission Viejo. It's an unincorporated part of Orange County.

The commute to Irvine from Ladera isn't horrible, about 35 minutes. Commute home is usually less.

[RE Investor]

I understand what everyone is saying, but as someone who works in real estate, has seen this actual house in person, and has bought more than a few homes in my day, they made a bad decision by walking away, but the bank made a worse decision to haggle over an extra $40k. The neighborhood where the house is located is all homes in the $1mm range, with many homes selling for over $1mm in the last 3 months. This particular home needs about $50-75k of work to bring it up to the same level as the homes around it, but in 3 years it will be worth $1.2 or more with ease. That would be a nice return on an $800k investment, but if that was a financial stretch for this family, and if job security and finances are a concern, I can see not wanting to take the plunge. The bank was foolish to not take the offer based on a $40k difference however. There is a very good chance that this lace will sell for north of $800k in the end, but meanwhile instead of having money in the bank earning interest and/or paying off creditors, this property sits on their books languishing. Foolishness all around.

[IToldu2CashOut]

Man, I look at the house and even 300k seems a lot. It's in Mission Viejo? Come on man.

These people are still NUTS. INSANE! That house will see an 80% drop. Those people are SOOOO lucky they didn't get that house. So much better properties out there with ocean views in places like Dana Point and San Clemente for 700k. Welcome to reality, its going to hit you in the face.

[Gene J]

I have found realtors not making very big efforts to sell the forclosed houses for the bank. Around here they only have 1 picture instead of the usual 9, no details on room sizes or features and unless the house is in a bad area the price is too high.

Don't they realize they must compete with private sellers?

[IToldu2CashOut]

Don't these sellers realize that the rates are not going to stay down forever? Eventually inflation will go crazy in the next few years because we'll have the rate at zero. Rates will have to go up!!! As soon as rates start to go up again home prices will have to go down even further! and those drops are all going to be losses absorbed by the seller!

Sellers are crazy not to sell now when rates are low. I just can't comprehend how stupid some people are with real estate. Its like a whole industry with people with no common sense at all.

[Ace]

Ok, not to stand up for the banks here but saying a bank is greedy in this case is dumb. Of course they are trying to get every penny then can. They are losing HUNDREDS OF THOUSANDS OF DOLLARS on this transaction.

Of course the bank is stupid for not accepting the highest bid... but stupid is not greedy.

[GregoryZephyr]

A lot of the questions around why the bank won't sell at pennies on the dollar assumes there is some urgency to sell. Keep in mind this is not a situation like some small time flipper that has huge monthly mortgage costs and needs to get out from under that. The bank has likely already written off the loan balance or at least put it into a charge-off account. Without having to pay a mortgage, the vacant house itself doesn't cost the bank much to maintain--maybe $10K a year in taxes and let's say another $10K in minimal maintenance (lawn care & utilities). That means that the bank's decision was either accept another 40K less or hold on to it. From their point view that 40K could buy them another 2 years of holding on to it as a non-earning asset. They could also theoretically rent it out (maybe) and recover some of their carrying cost. Unless their bankruptcy proceeding requires liquidation, there's not much incentive to just dump the property at any cost. I'm sure they are betting that real estate values will recover in the next year or two and so dumping it now doesn't seem very attractive. In some ways, this is similar to airlines that own planes just parking them in the desert awaiting future use rather than just selling them at a loss.

[IToldu2CashOut]

Don't these sellers realize that the rates are not going to stay down forever? Eventually inflation will go crazy in the next few years because we'll have the rate at zero. Rates will have to go up!!! As soon as rates start to go up again home prices will have to go down even further! and those drops are all going to be losses absorbed by the seller!

Sellers are crazy not to sell now when rates are low. I just can't comprehend how stupid some people are with real estate. Its like a whole industry with people with no common sense at all.

[Long time listener . . .]

RE Investor, really? You think this house will appreciate from $800k to $1.2m in 3 years? Have you looked at the number of default notices/foreclosures/short sales in Ladera Ranch? The place is imploding. A quick search on Trulia for foreclosures alone pulls up 147 properties with a Ladera Ranch address, and there are over 330 listings all together there. Properties are selling for much less than what they previously sold for. To believe any property in South OC (or SoCal in general) will appreciate over the next couple of years is simply delusional. Ladera Ranch in particular was a community born during the height of the lending boom, and many of the houses were purchased by speculators and flippers. Prices have fallen steeply there.

[puckhead]

Itoldyoutocashout.com

Dude, chill out!!!! Rates are not at zero. We’re not going to re-visit the 1970’s with double digit inflation. The marco economics today is no where near what we have in the 70’s. Rates will stay low until we see growth in the economy. You sound like one of wackos hording food and gold during Y2K. There’s so much hysteria polluting the web it’s pathetic.

[anonymous]

puckhead,
low rates do not turn around credit contraction. credit contraction is turned around by the dissolution of debt. that means deflation. all the outstanding debt, and inventory has to disappear before the turnaround begins. and as you can see on the news feeds, the fed cutting rates to zero does not stop wells fargo from raising jumbo to 8%. lending institutions are now fearful of lending. the pool of potential homeowners has shrunk, one, because of the 'forward selling' the low rates and creative loan packages facilitated, depleting the future pool of applicants, and two, because credit will continue to become much tougher to get. Wells Fargo said they want 25% or 30% down on loans in 'high risk' areas, and guess what, LA is the highest risk area on the planet.

[formerlahomeowner]

GregoryZephyr,

"They could also theoretically rent it out (maybe) and recover some of their carrying cost."

That's a pie-in-the-sky theory. Banks are not and will never be landlords. They are not in the real estate/property management business. They are banks. The rest of your post seem plausible but haggling over $40K in a crashing market is foolish. That's why banks should never be involved in real estate transaction, just at the financing end.

[RE Investor]

This place has well over 3000sf with a decent yard, is on a cul-de-sac in a quiet part of Ladera near a great park for kids, and is surrounded by homes that are currently selling in the $1mm range. The only difference between this house and those around it is the fact that it was not finished with the same level of luxury (i.e. hardwood floors, granite, etc.) When I looked at this place before the auction I also looked at 3 other houses in Ladera in the same price range. Those other 3 were significantly smaller, but move in ready, without the need to do improvement work. All 3 are now in escrow for around their asking price. Simple truth is that Ladera, like a Coto de Caza, Nellie Gail, or Monarch Beach, will always have strong demand for homes in the $1mm+ range due to the settings and amenities that other communities cannot offer. As a result, while the homes that are 4br/2ba with 2000sf sit empty, those on the upper end of the spectrum sell. Maybe for a little less than asking, but they sell. The crisis will turn around in less than 1 year, as long s people keep moving to CA and OC in droves, the demand will always be there.

FYI, do not always believe the foreclosure listings on many websites. usually they are just a listing of homes where a Notice of Default was sent. That is the first formal step in a foreclosure, but is a long way from an actual foreclosure proceeding, and even longer from a bank owned sale or auction. Also, the vast majority of those listed in Ladera and elsewhere in South County are homes not in the size and price range of this particular listing. I may be wrong, and this place may not be worth $1.2mm in 3-4 years, but I may be willing to take a $745k gamble on it.

[firesale]

Fate stepped in to save the Sarantos about a
quarter million dollars. I hope they realize they've
been given a second chance to avoid such gross stupidity.
What would this have been worth in 2002?
Anything more and they're paying too much.

[pathetic]

ajax3456 - Come on, 80% decline? Put the pipe down.
And guys who buy billions of foreclosed properties?
While we all know the market is still coming down everything you said is just not credible by any measure.

RE Investor - Puleeze, you're guaranteeing a 50% increase in 3 years in a declining market? Your statements are even less credible than ajax.

And ted - We are the ones who didn't buy into the hype. So here's a big F you to you from CA.

[let it burn]

puckhead,

itoldyu2cashout's rhetoric might be a little overheated, but his basic point is right: prices are still very high (especially here in socal) and interest rates are incredibly low... there's nowhere for things to go except for interest rates to start going up again, sooner or later, and this will exert downward pressure on prices.

itoldyu2cashout is right, if you're a seller (like American Home Mortgage) who really wants to sell then NOW is the best time to sell. Time is of the essence - cut those prices NOW, otherwise you'll be cutting them even more tomorrow.

[That Hideous Strength]

Folks posting here keep writing about "stupidity" and "greed". Those are just judgemental words that banks and entites like AHM take with a grain of sand. This issue needs to be addressed with Laws....like Sarbanes-Oxley Title VIII.

[P J Evans]

What I've seen before is that the bank is figuring in the cost of the cosmetic work (painting and cleaning) to make the house look good to buyers, especially if it's been empty for a while. If you tell the bank you'll do that at your expense, they can, at least sometimes, be talked into taking that money off the sale price. It can save you ten or twenty thousand dollars right there, if you're willing to go that route.

[Jet]

The answer to this solution is simple:

Let the lender be bankcrupt so this house goes really cheap. Probably like 300K(even less since this is LR and there's a lot of foreclosures close to this area). Let it be a foreclosure ghost town. That will make it even cheaper.

That's how home prices will go down and this misery about houses being overpriced will be balanced.

[wha]

RE Investor, can I ask how old you are? How long have you been in RE?

I'll assume that you haven't been in the business long enough and have only known the rising prices of real estate during this bubble, and that's why you think it'll appreciate another 50% in three years. Absolutely ridiculous. What do you suppose is going to drive all that appreciation??? The bubble days are over, if you haven't noticed.

Foolishness all around indeed, including you.

[SoCalRealEstateNews.com]

Hmm--just this morning we put up a post about buying foreclosures in general and one foreclosure auction experience we had back during the 1990s crash.

It was the opposite problem then--people overpaying, but then falling out during the closing process. There's nothing like those worked-up crowds & those dudes flown in from
Texas in tuxedos to get them going, but every home we tracked went for more than comparable homes were listed for in the same neighborhood.

That could mean this crash is going to get a lot worse, but based on reports I've seen from other, packed-out auctions, I think it's just a case of this band doesn't have it's act together yet. We saw the same problem when short sales were just coming back, and plenty of banks negotiated themselves right out of millions of dollars 12 months ago.

[puckhead]

Anonymous,

It’s the whole chicken and egg argument? What comes first? A leveling of RE prices so that banks will start lending or an increase in lending activity which will level off RE prices? The FED is betting that increase liquidity will loosen the credit market. I don’t think this alone will achieve this. Eventually, I think the govt will begin buying back mortgage back securities or exchanging mortgage back securities for T-bills from banks AND THAT along with low rates and will ease the credit crunch and help level off RE prices.

[damian]

I have bought auction properties three times recently at R.E.D.C. auctions and was turned down all three times by the bank. The properties that I bought were all in the Riverside area and Fontana. Areas for which I am well aware of having one of the highest foreclosure rate in the nation, not to mention declines in the double digits percentage wise. I just wasted my time! Let me explain the folly: the house(s) are priced in the fair (current) market price and then a starting price of say $199,000. I won the bid at $245,000. +5% comm. about a $125,000. savings. Not a really spectacular, buy all things considered. U R better off finding property on your own. stay clear of auctions, they get you into a hype and you end up over bidding, I really should have paid $240,000. for those properties, they are still going down in prices. Plus you WILL make a rash judgement on your property, there are unforseen problems in almost every house, that only a home inspector can see. As the saying goes "Buyer Beware" . ...R.E.D.C. auc. is a joke!

[Sara]

Kudos to the Sarantos for walking away from what would have been an unfavorable deal on an auction house. Shame on the bank for being greedy- if they dont want to sit on a property then they should take whatever reasonable number is offered, instead of demanding more. Keep looking Sarantos, you will find something wonderful for a fraction of the cost.

[ted]

hi pathetic,

thanks for those kind words. BTW most of you actually did buy into it. No home in the burbs sitting only a few feet from your neighbors bathroom is worth 700k. I was from OC and hit the road when it was time to hit the road. Thanks for my cash out. Owing nothing and living in CO is very very nice. and my neigbors bathroom is around 100 feet away. Trees are whats in my back yard. ta ta

[E]

REinvestor...

If you viewed the house in person...plus you viewed the comps and think that this particular home is currently a good deal at 700-750k (especially with your "wet dream" 3 year appreciation estimate)...my question to you is...

Why didn't you buy it?

Oh...yeah...it's because you are full of $hit!

[IToldu2CashOut]

Hey RE Investor

You Say:
"The crisis will turn around in less than 1 year, as long s people keep moving to CA and OC in droves, the demand will always be there."

You say people are moving to CA in droves? This is actually not the case. During the real estate boom CA actually started losing population. Not a lot but about 100,000 people a year net loss. There may be more immigrants but I think we all know most of the people jumping the border are not in a great position to buy. Maybe their kids will be though in 20 years. I'd expect that if you are investing in real estate you are about to lose a lot of money. Good luck though, maybe history won't repeat itself, maybe all the economists are wrong and all the speculators and brokers are right. But if the only basis for your investing is that people are moving here in droves, you might want to double check that assumption because its wrong.

[NoWayinLA]

Unfortunately, the current climate actually favors the bank holding onto the property long-term. The longer they hold the property, the longer they can deny it lost any money and keep their books in the black. And over time, inflation is the glove around the hand that catches the falling knife.

[RE Investor]

Wha and others,

I am 52, work for myself, live in Laguna, and own commercial and residential properties throughout CA. Been doing this for just a little bit of my life, and happen to be bored this afternoon and looking to waste some time before the basketball games start. I venture to guess that I may be the only person posting who has (1) actually walked through the property, (2) actually walked through and viewed the comparable properties in Ladera, and (3) understands the difference between a property in a community in Ladera, and a similar home in other areas of South County, such as Mission Viejo, San Clemente, Laguna Niguel, etc., let alone other areas of CA.

I do not think the property will appreciate (in the truest sense of the word) by 50% in the next 4 years. I think it is going to be sold at less than market value due to the amount of work that needs to be done and the paucity of buyers willing to buy a house that needs work when there are others on the market that are move in ready. I admit that $1.2mm is an aggressive and optimistic view, but honestly expect that in 2-4 years from now certain areas of CA, in particular unique communities like a Ladera Ranch or Coto de Caza or Nellie Gail, will again start to see prices returning to 2004 and 2005 levels, in particular when a property is unique for such areas.

It's simple supply and demand. Ladera is very unique, and there are maybe only 1-2 neighborhoods like it in all of OC. If you do not know what I mean Google "Ladera Lifestyle" and read a bit. Thsi is not a run of the mill development. There are only a limited number of homes in Ladera in the 3000+ sf realm that are not in Covenant Hills (the gated portion of Ladera that has even higher priced homes and much larger HOA dues). And even less homes in a quiet area like this that is walking distance to the schools, major parks and commercial areas of Ladera. For buyers looking for a home this size and the "Ladera Lifestyle", there is only so much available. When you add the fact that the credit market problems have put a freeze on new home development almost everywhere, but in particular in South County, there aren't going to be many options for buyers looking for a community like Ladera with "new" homes. Add it all up from where I sit, you have an extremely undervalued property.

I probably won't put my money where my mouth is, but that is because there is a potential for the downturn to last longer, and there are much better "risky" investments out there these days, especially when you can buy commercial paper for pennies on the dollar if you know what you are doing and have the capital to invest.

I suspect from the tone of this blog that the majority of posters are people who are either frustrated at their own mortgage situation or are gleeful at the perceived "bursting" of the bubble that has priced them out of many markets. I feel for both groups, because you are so caught up in emotion you do not see the opportunity all around you. There is an old adage, "when there is blood on the streets... buy" . Well folks, the streets are crimson, and if you have money to spend you would be foolish to keep it under the mattress.

Time for some basketball.

[gary]

TO E:
You hit the nail on the head. Once again all the RE folks are pumping things up but unfortunatly we, the public, can see that they are the king with no clothes. Your comment to RE investor is perfect.

TO REinvestor:
Why dont you go put your money where your mouth is and follow Es advise and go buy it. At a 50% increase in 3 years you'll be able to laugh all the way to the bank.

[puckhead]

NoWayinLA

Ah no, it doesn’t do the banks any good to keep a diminishing asset on their books. In accounting you have “mark to market” reporting guidelines in which you have to write down your assets to reflect the market value instead of book value. That’s why banks are currently taking billions of write offs on their balance sheets which are leading them to raise capital to maintain liquidity ratios which forces them to sell assets, further driving down the value of their investments. It’s basically a greasy slide and the FED is trying to sprinkle some sand on it to slow it down instead of putting down a big rock in the middle of the slide. But we’re all in favor of “letting the market” do its work so the FED won’t do that.

[puckhead]

RE Investor,

Thanks for the insite. I worked for a hedge fund during the dot.com heyday and crash. I knew the party was ending when everyone and their mother became an expert on stocks. I saw the same phenomenon with the gold rush mentality during the RE rise. And now I see it on the flip side with the crash. I see soooooooooooooooo many blogs and websites dedicated to the RE “crash”. Everyone is an expert that prices will crash and that we’ll see +50% haircuts across the board. Everyone is claiming that they were an expert and saw it coming. I don’t now about RE prices, but I made almost as much money buying stocks when the S&P was below 800 than when the dot.coms were going full bore. I don’t know enough about RE to call a bottom. But I do know that when a bottom does hit, the majority of people will be too blinded by what they feel is “right” to take adavantage of it.

[E]

Blood's not on the streets yet.

Give it time.

And why are we talking about OC anyways?

Isn't this blog about L.A.?

Ask any long time Angeleno what he/she thinks about OC.

I guess if matching jogging suits and Keds are your thing...have at it.

[Long time listener . . .]

RE Investor, I don't mean to make any ad hominem attacks because I tire of blogs when they devolve into personal attacks. But, like you, I have been through the homes in Ladera Ranch, and watched the market there for a few years now. I know the people who live there, and I know most of them can't afford $1mm+ homes on their incomes without exotic mortgages. Well, those are gone now, so we are back to fundamental underwriting principles that require income documentation. What percentage of people in Newport Beach can really afford a 1mm+ mortgage? Less then you think. I believe the median income in Newport is less than $150,000, very high compared to the rest of the world, but still no where near high enough to afford a million bucks. Bottom line, it doesn't matter where your house is, its not going to appreciate in the next few years, and most likely will depreciate, by a bunch. Affordability is the fundamental that drives demand.

I look at this house and I see that it was originally sold by the builder for $534k in 2002. By your logic, apparently based on increased demand due to the masses of people flocking to OC (something which is not actually happening, unless you count foreign immigration), this house will be work 1.2mm in 2010. More than doubling in value in less then 10 years. While this was the norm in bubble years, it is unlikely now that we are returning to market norms, something you should be able to recognize given your purported history in the market. I would bet that the odds are actually in favor of this house returning to its 2002 value, if not undershooting that on the way down.

[Enlightenment]

Any fool can make money in an up market...but those same fools get burned in a down market. Ha Ha.

[sunsetbeachguy]

RE Investor is another one of the mythical rich RE investors handing out advice on a blog.

There is no way to check his assertions, so his advice is worth what you paid for it. Possibly less.

But mythical RE investor knows one thing that he isn't admitting, he won't buy this house despite being a sure thing with the "ladera lifesstyle" amenities.

Watch what the real estate industrial complex hypocrites do, not what they say!

[gary]

nobody will ever know why what happened from 1998 to 2007 happened. none of it made sense. up until 2001, real and actual adjustable's existed and I always used the. I loved em and I knew what would happen. Since my first home in 1982 my adjustables never went up or down by a point or 2 per year. Now if I would have kept them god knows the results. but there was no such thing as neg am or 2/28 given to the general public. they were for a select few who the bank KNEW THEY COULD PAY IF ALL WENT BAD. Its sad because something other than just greed or desparate buyers or speculators etc..etc..really screwed up a good thing. And a good thing was making under 100k per year as an individual or family and being able to buy a home to stay in and live in that was available to about 70% of the placess to buy and live in orange county. It dosen't matter whether 700k or 800k is a good deal. ITS NOT. Nobody should have to pay that much for a home to raise a family in. My parents home is worth around 650k in buena park and they laugh their a$$ off thinking someone can or would pay that price for their home and at the same time they are sad knowing that some young family, like they were, cannot afford to live in a nice neighborhood and raise their kids like they did. Except for a few, we are all going to loose on this one.

[Steve]

What a scam and a huge waste of time which is repeated in the hell hole daily. If this is not a sign to get out of the hell hole, I do not know what is. You could not get $200K for this over priced dump in CO. Instead of putting with this abuse to get a house, move. I was a CA native and left 14 years ago thank God and believe me you are complete chump to stay, and it goes beyond just the cost of housing. Get out while you can.

[Robbie Fields]

The next leg of corruption will be the mortgage holders selling the REO's are on a no bid sweetheart basis.

I was in Bangkok during the late 1990's and saw the very limited liquidation of the condo overhang. The few condos that were sold off cheaply, all but the worst units went to friends and family.

[joey c]

The bank doesn't want to sell because they don't want the loss on their books. They would rather inflate the price in order to increase their apparent assets.

[tarbubble]

i live in south OC, not terribly far from Ladera. I still stand by what i said last time this house was discussed - Ladera is going to have long-term difficulties. its location is somewhat remote, the only adjacent freeway is a toll road (whose southern extension was just defeated by the Coastal Commission) and it was heavily overbuilt during the bubble. huge houses (high electric bills), tiny yards, high HOA fees. no thank you, i like having money left over to invest every month.

there's a lot of money in south OC, but in the last month or two i have been smelling some fear in the air. some acquaintances are starting to lose their jobs. retail sales are slowing. small businesses are closing. it's not all ominous, there's even good news in some sectors - but there's been a shift.

[Laker]

MyLessThanPrimeBeef, you know better.
People are buying today since they see that house x cost 20-30% less than it did in 2006 and they are afraid to miss the train and be once again priced out forever...
However, most of them are guaranteed to be upside down, and i also see many of them walking away from these houses in 1-2 years.... a fact that will guarantee a long time of no house price appreciation.