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!