L.A. auction discounts: Up to 67% off peak pricing

Read this one carefully, there is news and then there is an explanation. Business Week, reporting on a March 16 foreclosure auction in Los Angeles, reports that several homes sold at huge discounts:

"A four-bedroom house in Palm Springs that had previously sold for $1.2 million went for $625,000. A two-bedroom cottage in Los Angeles' trendy Silver Lake neighborhood that had traded hands two years ago for $887,000 got picked up for $285,000. ... Edwin Beeks, retired from the U.S. Navy after being wounded in Iraq, picked up a four-bedroom ranch house in Lancaster, Calif., with a bid of $95,000. The previous owner paid $255,000 in 2005..."

Let's run those discounts from peak pricing quickly: That's 47.9% off of peak pricing in Palm Springs, 67% in Silver Lake, and 63% in Lancaster.

Explanation: Be careful -- we don't know that these three houses actually sold. We know there was an auction and there was bidding. But we don't know whether the banks that own the houses accepted the winning bids. I'm hearing more and more stories about winning auction bids being rejected by banks as too low. I reported recently about a house in Ladera Ranch that went to auction, was the subject of a bidding war, and "sold at auction," but then went back on the market because the bank didn't accept the winning bid.

Remember how these auctions work: If you bid and win, you agree to pay the total of the bid, plus 5%, and you agree to pay it quickly. But the bank does not necessarily agree to sell you the house. Banks can, and often do, reject winning bids as too low.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Hat tip: Peter M, in comments
Photo Credit: AP

Comments

[yourkillingmelarry]

Some of these banks are in desperate need of cash. Many of the bids that were rejected yesterday will seem reasonable moving forward.

[save your ammo]

Good to hear "trendy Silver Lake" made the cut.
More evidence that this is...
COMING SOON TO A NEIGHBORHOOD NEAR YOU !!!

[lefty]

you know what guys, i ran numbers averaging all scenarios including value drops) on that ladera ranch auction: if they do pay the required 800K including fixing, their 'average' expected savings will be 6%. so you have 2 ways to see it: 1 "i did not go to an auction just to save 6%!"; or 2 "well i'm saving $50K so let's do it!"

so how does that glass look to you :) well here's one glass that is looking really good: matchless metro L.A.!! you guys who moved and miss so-cal, now is your chance, don't wait any longer! have fun!

[Winfield J. Abbe]

Time is on the side of all consumers, be they consumers of houses, cars or anything else. "All things come to those who wait". This is just the beginning of a long, protracted, downward spiral, similar to that following initial stock market crash in 1929. Don't buy anything yet other than bare necessities. Bank any money received from the government for the "stimulus". Perhaps one day, most of us can have million dollar homes for 10 cents on the dollar or even less, perhaps even in Beverly Hills. Hey, don't buy a new car either. If you must have one, buy a used one of which there are no shortages.

[Brian]

I have a feeling that some of the banks rejecting auction bids may be coming back to those bidders in six months begging them to agree to buy for their original bid.

[Doug in Toronto]

Seems a little strange to me that a bank wouldn't have a reserve price publicized so bidders wouldn't be put thru this. Why bother going to all the trouble of attending the auction, etc., if the bank is just going to refuse an offer made in good faith? Wait a minute: I just used the terms "bank" and "good faith" in the same sentence. How silly of me...

[Aldo]

Can you guys help me with this.

I would like to refi my current loan (5% @15 yrs fix with 12 yrs remaining $160,000) I have a line of credit (6% variable $63,000) My lender gives me a rate of 5.625 -15 yrs fix with no closing cost (They are my existing lenders) My house even in this market is value at $500k.

He says not to pay points because I would have to pay closing costs and I won't break even in a long time. I wanted 2 points in the loan.

Any recommendations?

[Teresa]

-----Banks can, and often do, reject winning bids as too low.-----------

How true. A lot of banks are being just as unreasonable as individual sellers.

But as others have already pointed out, the banks cannot hold onto these houses forever. Six months to a year down the road, the banks will have to face reality and sell the house for what it's actually worth, not for what the bank wants to get for it.

[Too Bad -Pay Me]

These folks may have gotten real lucky - in a few months they will be able to get anyone of these house at 80% off their peak if they have CASH in hand. By the time the banks are crushed by the run up in their holding costs coupled with the lack of mortagage underwriters (rates will be great if you can only find them) Cash will rule.

[peter m]

"Edwin Beeks, retired from the U.S. Navy after being wounded in Iraq, picked up a four-bedroom ranch house in Lancaster, Calif., with a bid of $95,000. The previous owner paid $255,000 in 2005..."

That is actually what a property should be going for in lancaster, victorville and other hi-desert areas of S CA. These places are often located way out in sparsely populated, windblasted, scorchingly hot 100% summer heat & dry, scrub-brush, rocky, barren , moonscape areas. The homestead properties and homes might be large 1-10 acres 3000-4000 sq ft ranch homes but city services/ utilities night be lacking or minimal . Plus they would be 2.5 to 3.5 hrs from LA/OC coastal job centers at normal commute drive. Fridays and pre-holidays multiply 1.5 times for above commute time. Just the monthly cost of gas to commute from lancaster to LA would likely exceed the monthly mortgage pmt at current gas prices.

Even a cheap $100,000 outer desert boonie plot with a cheap trailer plunked on it would have monthly PITI of $600-1000 + per month(very rough guess, correct me if i am wrong), depending on dwnpmt & interest rate, and there are absolutely no hi-paying jobs out in the hi-desert to even support those min monthly pmts. Plus there was a ton of overbuilding out in the desert which lead to vast oversupply.

I have experienced the wind when it blows hard out in these hi-desert areas at 60-70 mph gusts and it creates quite a bit of havoc.

Lancaster has no investment possibilities in the foreseable future and prices will be rock bottom at below $100,000 for 6 -10 years

[MyLessThanPrimeBeef]

It looks like LA is making its share of contribution to IMF's new estimate for losses stemming from the US mortgage crisis that may approach $1 trillion. Dat is right, folks, trillion with a 't.' That $200+ billion writedowns so far by the banks are not even the end of the beginning. Of course, like in a good horror movie, more sinister monsters, like derivatives for example and with no hint of ever being tamed by our heroes, lurk in the background.

Current IMF Managing Director Strauss-Kahn conceded that the fund wasn't as vocal as it could have been about the risks that a subprime collapse posed for the global financial system.

But unlike an honorable samurai, much less than a Chinese toy factory manager, the fund won't seppuku itself, or in its case, terminate its miserable existence.

[MyLessThanPrimeBeef]

If I may, I would like to add to what Winfield Abbe just said, and that is, try to shop in non-chain stores, unless you have no choice, then, not chain greater than 5 stores.

Let's face it, the only benefit of patronizing a chain store, versus a mom-and-pop store, is the possibility of helping yourself to their $ gazillion deep pocket through a good lawyer. But the chains have gotten too smart. No more scolding hot coffee. You can only get the lukewarm insipid kind these days.

[JohnnyB]

These are just a few of the surface level canaries in the coal mine.

Time will lead us to the depths of the mine, where entire flocks of said canaries will be on their death beds begging for relief. Then you will have real choices and can pick and chose between all the wonderful varieties like yellow, green, blue, red, pastel, opal, onyx... you name it.

Hang tight... and allow time to expose the depths of the greatest debt scam of our lifetimes.

[mike]

i make about 60k per year to make good and resonable descisions and some a-hole banker gets paid $$$$$ching kaching kaching to make stupid descisions. the banks must not need money as badly as they say if they can turn down bids...

by the way shut up lefty

[Jonathan]

Yeah right. Silver Lake for $285K. Wishful thinking, people. I like how Viles puts that figure in bold, before adding that it's just a bid and might not have been accepted. GEE, YOU THINK?!? An EMPTY LOT in Silver Lake is worth more than that. Deal with it. A lot of people want to live there.

I think someone might be confusing metro LA with the boonies of Riverside.

[Waco Wally]

Hey, Jonathan.

I'll see you at $285,000. for Silver Lake and
lower you another 50Gs.

That's right, buddy.

Popular prices. Coming soon to a neighborhood near you
.... or this house is freeeeeeeeee!

[tealeaf]

"I think someone might be confusing metro LA with the boonies of Riverside."

Jonathan, no market is an island, pal. Mr. Riverside can't move up to Ms. Corona's place, who can't move up to Mr. Anaheim Hills house, who can't move up to...

You know the rest.

Folks in the IE work and play in LA / OC. Don't forget the markets are connected, genius.

Sure, there's a pecking order and some areas are more desirable than others. But if you look at pricing compared to the local median income and equivalent property rents, pricing is waaay out of whack.

Example? We're renting a 1 story, remodeled, 4br/3ba, 2300sf place with a pool in Sherman Oaks for ~$3500. Landlord couldn't sell it at $920k. Far as I can tell it's worth $550k, which is about even money with traditional financing to our rent (PITI + tax incentive).

Yep, we have a long way to go. And the IE cratering will only ripple to the coast as the supply of buyers just keeps dwindling.

[Inland Empire]

Jonathan, no market is an island, pal. Mr. Riverside can't move up to Ms. Corona's place, who can't move up to Mr. Anaheim Hills house, who can't move up to...

Not to burst your bubble but there are more upscale neighborhoods in Riverside than Corona (Such as Hawarden Hills, Victoria, Canyon Crest, Mission Grove and others). As for Anahiem Hills, you can have it and enjoy the distance from anything and the earthquake faults.

[IToldu2CashOut]

He who can afford to walk away controls the deal.

Its pretty affordable to rent right now.

[Sean]

Minor point, but despite these brokers advertising these as such, these are NOT foreclosure auctions. The foreclosure process is mandated by state law and ends up with a sale on the steps of the courthouse.... not these three ring bank marketing circuses for their REO inventory.

[tealeaf]

Not to burst your bubble but there are more upscale neighborhoods in Riverside than Corona (Such as Hawarden Hills, Victoria, Canyon Crest, Mission Grove and others). As for Anahiem Hills, you can have it and enjoy the distance from anything and the earthquake faults.

Hey Inland Empire- checked housing values lately? Minor point: areas closer to jobs and the coast are more attractive and cost more than those in Rrrrrriverside.

Upscale? Maybe. But a crappy condo on the coast is worth 3x a place in Rrrrriverside.

It's the dirt, stupid. And in IE, they're giving it away.