Notes from a foreclosure auction

I buzzed out to the Fairplex in Pomona on Saturday for the DoveBid/CataList Homes auction of 75 foreclosed homes.  It was my first foreclosure auction and it was an interesting scene. It is the making of a market.

Many of the houses up for auction had sat on the market for months. Now we know what they're worth.

We shot some video that I hope you will see next week on the LATimes website. I know many of you are curious about selling prices, so I took careful notes on the first 10 houses.

1) 12233 Mountain Ash Court, Rancho Cucamonga. Last listed for $693K, opening bid was $346K. Sold for $565K.

2) 25341 Bani Ave., Lomita.[[note: corrected from Bain Ave.]] Last listed for $529K, opening bid was $349K. Sold for $505K.

3) 43958 Moonlighting Drive, Hemet. Last listed for $199K, opening bid was $99K. Did not sell.

4) 1865 Kingsford Drive, Corona. Last listed at $393K, opening bid was $196K. Sold for $240K. I ran the numbers on this one last week; it sold for $490,000 in 2005, so the decline from peak pricing on this house is 51%. That's a lot.

5) 8856 Gentle Wind Drive, Corona. Last listed at $608K, opening bid was $304K. Sold for $425K.

6) 4350 Duskywing Road, Hemet (pictured). Last listed at $339K, opening bid was $169K. Sold for $220K. (I also ran the numbers on this one last week; it sold for $382,000 in 2005, so the decline from peak pricing on this house is 42%.

Click below to see more sales results from the auction.

7) 9646 53rd St., Riverside. Last listed at $329K, opening bid was $175K. Highest bid was $205K, which failed to meet the reserve; the house did not sell.

8) 31225 Felecita Road, Temecula. Last listed at $598K, opening bid was $299K. Sold for $370K.

9) 624 Mariposa Drive, Rialto. Last listed at $209K, opening bid was $100K. Sold for $100K.

10) 3 Magnolia Drive, Ladera Ranch. Last listed at $915K. Opening bid was $429K. Sold for $705K.

Two very important notes: Buyers agree to pay an extra 5% as a "buyer's premium" to the auction companies. Also, the high bidder does not necessarily get the house. The owners of the homes -- the banks -- reserve the right to reject the winning auction bid as too low.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com

Comments

[peter m]

I can provide general area locational advise on pretty much any property for LA, OC and IE.. One can be fooled by Auction trickery such as reserve pricing but no auction company can fool me on location .

Hemet, perris,Menifee, Romoland- in that entire area of SW Riverside county recently built 4-3 3000+ sq ft REO fixers can be had for between $100,000-$200,000. Problem is this entire area is a barren scorched mongolian bone dry steppe 3-4 hs from LA /OC .

Lomita has southern areas adjacent to Palos Verde so prices would reflect that. It also has a poorer northern area of trailer tracts . Entire Sbay, like the westside , is still drinking the koolaid and is still curently overpriced by 30-40%.

Had several long posts on ben's blog about Corona, and no property there, no matter how palatial, is worth $300,000 tops. Lots of newly-built SFH's which are now fixer reos are available in nearby areas like Norco and Lake elsinore for under $200,000, for same size and type of-properties ,as the ones being sold at auction for $400,000-$500,000 in Corona.

Rancho Cucamonga is one of the better more established parts of the IE, which is not saying much, but no home there is worth $350,000 for the pricest mansion in the poshist area. Why?
There was a tremendous amt of new home tracts going up in the Northwest parts of RC and adjacent N. fontana areas. These are substantial 4-3, 3000+ sq ft mcmansions which are now flooding the foreclosure/REO market and which will eventually lower values of all homes in San berdoo county by 50-70% when the smoke clears.

Rialito is a wasted craphole IE ghetto.
.

[Terence]

Hey Tim,

Enjoy that $2M home you bought in the valley. Two years from now, it will be worth $1.5M.

Nice job trying to catch the falling knife.

[tew]

Don't worry, the problems are "contained" to the less desirable areas. Just ask Bear Stearns about how "contained" things are.

How many banker, hedgy, private equity guys are going to see bonuses well below expectations in the coming years (if they don't get laid off)? Where do those folks live? Various "hills"? Manhattan Beach?

[manraygun]

"But hey, what does Phyllis know, she's only a real estate agent. Obviously she has an agenda and is part of the "Lefty" conspiracy of disinformation being spread to prop up the RE business."

La guy,
You just bought a 2 million dollar house in the valley? Let me guess. You own lots of Bear Sterns stock. If you're not already bankrupt, by all means continue to take investment advice from the likes of David Lereah, Lawrence Yun, Leslie Appelton Young and "Phyllis". Disinformation is NAR/CAR's first, last and middle name. But I'm no expert, so go ahead Mr Contrarian Investor Man. Seize the day, and buy another 2 million dollar house in your good neighborhood. Housing serfdom beckons and you're just the guy to heed its call.

[toby]

I see to that sold for what they're worth (4 & 6), the rest will be upside down in a year or two.

And these people will be all thinking the same thing "Where did I go wrong? I bought it at a foreclosure action..."

Where did they go wrong? They bought.

[GeekSeek]

New law: anyone who is considering purchasing a home at auction must read the blog for 1 month before being allowed to attend auction.

[Laker]

l.a.guy: (I myself just bought a home for $2M in the Valley)...
Well, you do not share details on the home, but if it was sold in 2006 for $10M then you made a deal, and i solute you!
If it was sold for $3M in 2006, you are probably going to be upside down for 5 years or so...
Anything lower, and you are headed to foreclosure my friend....

[liv]

I just spent this sunday afternoon driving around corona. There is 353k really great ( really really great house) in a cul de sac area. The couple (owners) were so nice to us and they are selling it so they can move to oregon and fish. I felt so bad because I can only afford a 280k house for my paycheck and I was looking for my brother who managed to crash his credit. Well the point is im earning 60k a year and I will never buy a house in corona because driving 1 hour to work for me is just insane. We have become idiots working endlessly and some greedy people just keep making money on us. We should just stop giving in to this greed. DO not buy anything for two years, lets see now.

[puckhead]

Teresa,

A high school cropout can make $30K working at a Footlocker. They're called "renters".

[l.a.guy]

"Enjoy that $2M home you bought in the valley. Two years from now, it will be worth $1.5"

Thanks, I will enjoy the house, that's why we bought it.

I think there's too much focus on thinking of your house as an investment. Without knowing the house or the terms of the purchase there's no way for you evaluate whether it was a smart purchase. With property taxes it will cost about $9,000 per month. Due to income tax deduction we'll save minimally $36,000 per year on income taxes (about $3,000 per month), our current cost to rent a one bedroom apartment and store furniture is about $3,000 per month. (And that's for a one bedroom in a nice but not spacious building) So the net difference for us is about $3K a month. Yes it's possible, even likely that the house will be worth less in a year or two, but we intend to live in it for 10 years, so I don't care and I guarantee (barring the collapse of Los Angeles in a massive disaster) the house will sale for more than what we bought it for in 10 years.

And if I could get in on buying Bears Sterns at $2 a share you bet I'd snap some up.

[bob]

Phyllis Pollini Realtor

when is the last time you sold a home anywhere in LA, nothing has sold in months to the public at these prices anywhere even in the nice areas except to the banks, the banks keep buying them in trying to keep the market up.and hoping it will restabilize itself.

I use to be a realtor, and trust me most of us are out of a job there are simply no BUYERS !!!

[JW]

L.A. Guy: If you really bought a 2 million dollar home recently, you are the king of knife catchers. That value of that home will fall at least another 35% from what you paid for it (at a minimum) by 2012 and then you're not likely to see any upward movement in price until 2017 or later. Frankly, I don't believe anybody who is smart enough to earn enough to earn the money to afford a $2million dollar house in the lending climate that we're in today is stupid enough to buy right now (unless you inherited the money). I smell a real estate agent trying to throw a pile of BS on the marketplace.

[LeavinLA]

liz: that would be pretty hard to fake. As soon as escrow opens and escrow gets the demands, you'd know it wasn't a short sale. And any investor with half a brain would already know the mortgage balances on the home before making an offer.

If you're a consumer and you're too stupid to check, then you're on your own.

[Mike]

Just felt impeld to mention a couple of things. California R.E. commands the prices they do because California is the 8th leading and most diverse economy in the WORLD! California leads in more industries than any other state in the union, so when one industry is down we're still able to find work.
The national average for R.O.I for housing is about 6.74%, but if you take California out if that mix it drops to about 2%. For this reason Californians have become spoiled. In most states where the return is 1% or less per year they buy homes not investments. The result is that they stay in their homes longer and down turns are unnoticed or not given much attention.
Finally, people today are buying more home than they can afford (that show place). The mortgage industry provided products to give the public what they wanted and most paid not attention to the cost of those products. Now after buying that home they couldn't afford, they run out and lease a big car that they can't afford and purchase christmas gifts on credit. Now interest rates increase on the home, they have overextened themselves living beyond their means and want to blame Realtors, Lenders and the cost of Californian housing. Additionally, most realized that housing prices had to fall at some point and yet they continued to (madly) buy. The smart person would have realized that after a 8 year climbing R.E. market it was time to wait it out for awhile.

That said, consider buying a home, not an investment.

[Inland Empire]

Let's face it, a '69 Camaro is a very cool car, but would you pay well over twelve times the original price for one?

For ones in absolutely pristine condition, a few people have paid that much. However, Z28s, copos and a few others of that year in similar condition sell for over $100K.
Like real estate, what's it worth to the buyer.

[Red Rob Reb]

This is a great market for some of us. I've been in real estate in Missouri for about 20 years. During the boom I was selling off my rentals at very nice profits. Now I'm buying houses at bargain prices. Plus there are more renters due to foreclosers and lack of credit. And contractors are hungry for work.
I'm currently negotiating with a bank to buy two houses that I sold a couple of years ago. The plumbing and central air have been ripped out of them. And every day someone calls the City Neighborhood Stabliziation Officer to complain about trash in the yard. ... :)

[TrojanDLA]

"Reducing the rate of preventable foreclosures would promote economic stability..."

The key word is "preventable foreclosures". How many of those loans were even remotely affordable? So a family making $50,000 borrows $500,000. Sadly, at $50,000 they can only afford a $150,000 loan, so, how likely are banks willing to write down 70% of their principle? The banks KNOW the reality and would rather sell the property as an REO because the write-down is theoretically whatever market value is which is still better than a 70% write down.

[Laker]

l.a.guy,
getting a $2M loan with 6.5% fixed 30 year is about $12,500 per month. Property taxes will run you $2100 a month, insurance probably about $500 per month.
So your monthly cost is $15,000.
How did you get $9,000 ???
Now, if you put about $800,000 as down payment then you might get $9,000 payment.
But i hope you know that the $800,000 siting in the equity of the house is a huge loss. Investing it in a conservative way (5%) should give you about $3,300 a month... add that to your LOSS comment.

Anyways, it does smell RE agent crap...RE agents have a tendency to understate a mortgage payment from sale price...

[manraygun]

"but we intend to live in it for 10 years, so I don't care and I guarantee (barring the collapse of Los Angeles in a massive disaster) the house will sale for more than what we bought it for in 10 years."

Good strategy direct from the robo-mouth of NAR -- massively overpay for an asset based on the belief that it will be worth more in ten years. Since you apparently haven't heard: Easy lending that fueled this bubble is gone for good. Imagine the mirth in your house when someone buys the shack next door for half what you paid. Oh, and if you get sick, divorced, fired or want to move someplace else, be prepared to lose your down payment or bring a sack o cash to the table. But hey you're getting a tax deduction. If you're not a realtor troll, then you've swallowed lawrence yun whole. Nauseating.

[Flaaash]

Peter,

When I was in college, I was duped into believing that an auction way to go to get a cheap car. When I was bidding, it got to a point where only one person was bidding against me. I finally stopped bidding and gave up. Surprisingly, the auctioneer anouced that the last bidder had withdrew his bid, so I was the winner. So I was sort of happy I won, paying more than I expected to. Worst part was, you can't test drive those cars, only visually inspect them. So when I drove the car home, it had some serious unhealthy sound coming from the engine.

Anyways, to make my point short, when I picked up my car, I heard one of the workers chuckle and said, I got him to bid that high. I felt like a fool. In my opinion, I believe some of the current auctions are taking place in the same fashion, "Shill bidding". It's hard to prove, but like one writer noted, we'll see if that house really sold to bidder "1039". I wouldn't trust another auction unless there was some auditing was done to ensure buyers aren't getting duped. I would advise that for anyone going to an auction, bid only what you really are willing to pay for that property. Don't get in a bidding war, cuz that other person may somehow have a vested in terest in the final price.

[sfvrealestate]

Here's some support for Phyllis and L.A. Guy.
My client bought a house last week in a multiple-offer situation. Details are on my blog. My client is a very seasoned buyer and has bought in all sorts of markets. In many neighborhoods, while the sky has blackened, it has NOT fallen.
And, re L.A. Guy, it's only been very recently that the words "house" and "investment" were used in the same sentence. Houses are primarily places to live. Always have been, always will be. If you make money when you go to sell it, great. If you don't, you still had a place to live all those years. Althought that's intangible, it's definitely "worth" a lot. Those folks that buy into the house-as-investment scenario are participants in the same mentality that gave rise to the bubble in the first place.

[TrojanDLA]

One can not buy a home if one can not afford it. With the new lending standards, there is no way a home even at $300,000 is affordable to the $80K per year household.

So those worthless shacks in Santa Ana and Lawndale need to drop to under $200,000 before the rest of the market can return to normal.

[l.a.guy]

"getting a $2M loan with 6.5% fixed 30 year is about $12,500 per month. Property taxes will run you $2100 a month, insurance probably about $500 per month.
So your monthly cost is $15,000.
How did you get $9,000 ???"

Since you asked:
- 1st mortgage is for $1,347,500, 10 year fixed interest only at 5.78 for a payment of $6,490 per month

- 2nd Mortgage is an interest only HELOC for $192,500, currently around 5.6% for a payment of about $900.

Add them together and you $7,390.

- Property Taxes are about $24,000 a year, so add $2,000.
- Inusrance is $1,500 per year (it's new construction in a relatively safe zone (ie. earthquake and fire), so add another $125.

So to be more accurate our monthly cost is about $9,500 per month.

We work very long hours and are lucky to make a good living, so the payment is well within the 30% of gross that smart lenders insist on.

And I wasn't posting this to brag (I actually meant to do it anonymously but the browser saves my settings) I only did it so that people could see the market from a different perspective.

Is it possible the house will be worth less in ten years? Yes, but if so it will be the first time in the history of Los Angeles. But that misses the point, we're buying it because we need a place to live, the house fits our needs and we can comfortably afford it. In my view that's the only time anyone should by a house.

[Jet]

They are bidding these homes so they can still get profit and loose inventory. It doesn't solve the problem. These houses are still overpriced even if it's thru bidding.

I saw some auction on the news lately. If i was making money in real estate even thru bidding 'coz it's still overpriced, what will I do? Make sure the media tells it to people thinking that the prices are now cheap so they can jump on the bandwagon.

If the prices are still overpriced we will just be in a cycle of coming back to the same bubble that we're in right now. Only difference is...Realtors are still making money...and the people in bad situations will stay that way.

Prices will be cheap once the materials in building a house is the same as the price + labor. $600K houses should be selling $200K-$300. That's how it should be.

If the interest rate continues to go down and becomes so low it will just be like Japan...it'll take a few years to get out of this recession...

[puckhead]

Svrealestate,

How dare you put a good spin on a situation!!!! That’s not what this blog is for. You’re going to kill the dreams of so many who want or feel that they deserve a house in a great neighborhood with safe schools while making $50K a year.

Regarding median income and how people with median incomes can live in houses worth so much. I know it’s hard for many people to realize, but people in older more established neighborhoods in SoCal do not change houses like underwear. I moved into my house 10 years ago and I’ve had the same neighbors since I’ve moved in. There’s been some years where not one house on our street was sold for the entire year. There are currently no houses on our street for sale. The neighbor on one side is a retired couple on a fixed income. The neighbor on the other side is a widow in her 50’s. Their houses are in the $750-$800K range and their household incomes are at or below median for SoCal. They’re in no danger in losing their home because it’s either paid off or they purchased the house so long ago that the mortgage is ridiculously low. THAT is the flip side of SoCal real estate that many people ignore because it does not lend credence to the doom and gloom scenario.