Taking a Pulse of the Silicon Valley Short Sale Situation

July 19, 2008

What’s happening with the number of short sales in Silicon Valley? Are they rising or falling? How does this impact the real estate market in various parts of Santa Clara County?

Let’s have a look at the numbers over the last few months in selected areas of Silicon Valley. Below, please find the number of active (for sale) short sale listings of single family homes and condominiums or townhomes in Los Gatos, Monte Sereno, Saratoga, and other parts of the San Jose area.

 

3/26/2008 5/18/2008 7/19/2008
Los Gatos 5 8 7
Monte Sereno 1 0 0
Saratoga 0 1 4
Los Gatos Mtns 3 2 3
Cambrian Park 59 63 68
Santa Clara 56 63 69
Campbell 13 19 23
Cupertino 1 1 0
Los Altos 0 2 1
Sunnyvale 50 58 51
Blossom Valley 196 217 190
San Jose (all) 1534 1777 1708

While there’s a noticeable rise from late March to late May, the numbers are backing down a bit now.

Can we infer anything from this? Yes and no.

Buying a distressed property can be an adventure.First of all, we do not see a worsening of the market overall – the doom and gloomers would like us to think that the sky is falling on the local real estate market, but looking through this lens, it doesn’t appear to be the case. If the numbers of short sales were swelling, it would portend lower prices because short sales themselves tend to sell for less, and most short sales eventually turn into foreclosures – and they also sell for far less than homes which are lived in and loved.

On the other hand, we are not done seeing loans reset. That is, a lot of folks took out mortgages a few years ago with adjustable rate loans that would be level for 3, 5, 7, or 10 years. As some of these get reset, there may well be more people in trouble who scramble to sell with a short payoff to the bank or who otherwise cannot make the new, higher payments. So we may be getting new waves of homes in the short sale pool.

Whenever I do a post on foreclosures, short sales, and bank auctioned homes, I get emails and calls about how to buy one of these homes at a steal of a price. So I’m going to quickly recap my input on what to do if you are a bargain hunting buyer

  1. The biggest problem with short sales is that although the seller wants to sell, the buyer wants to buy, and the agents want to help their respective clients, the success of the transaction depends on the lending institution approving the sale. In my experience, this is where the problem is – most often, the banks either do not respond (at all, ever), or they take so long to respond that the home’s no longer worth what the buyer inititally offered. Worse, some lenders use a servicing company to handle payments, and some of them would rather service a loan through foreclosure than facilitate a short sale. I spent a lot of time in early 2008 putting short sale transactions together, only to have the bank ignore the offers. My advice: save yourself time and effort and buy a home that you can actually close on. (I am not working on short sales any more in this market.)
  2. When short sales fail to produce a closed transaction, the property continues through the foreclosure process. The next step is the auction by the bank. There is no role for the real estate agent here, so we Realtors can’t help you with this stage. With the auction, you’ll need a large percentage of cash on hand and you have NO right of recission – no ability to investigate the property and later change your mind. No congingencies – which I think is very, very dangerous.
  3. Bank owned properties have gone all the way through the foreclosure process. They are usually vacant (in some cases, the bank allows the former owner to stay on as a tenant so that the house is not vacant and vandalized). The bank wants to sell and will permit you to do inspections and to have a reasonable contingency period. The main risk here is that the house may have been beat up by the former owners on their way out. That doesn’t always happen, but it’s certainly a possibility. Bank owned homes are usually offered on the MLS, and a Realtor or other real estate licensee can assist you in purchasing one of these. Agents are not afraid of “working these” because they know that the bank needs and wants to close escrow – so there’s a chance for a happy ending here (unlike with most short sales).

Whether you want to buy a distressed property in Silicon Valley or just want to know how these sales impact your home buying, home selling, or home value, the data is important for understanding how the real estate market is faring here. I’ll continue to keep you updated in the coming weeks and months.

Best regards,

Mary

Mary Pope-Handy, Realtor, CRS, ABR, e-PRO, SRES, ASP, RECS, CNHS, ACRE
Helping Nice Folks to Buy & Sell Homes Since 1993
Co-Author: “Get The Best Deal When Selling Your Home In Silicon Valley”
408 204-7673 (Cell)
www.DelightHomes.com (PopeHandy.com)
emailto:
Mary@PopeHandy.com
Blog:
www.LiveInLosGatos.com & www.ValleyOfHeartsDelight.com

For more posts on short sales and bank owned properties in Los Gatos (and nearby) please see:
http://www.realtown.com/LiveInLosGatos/blog/short-sales-and-bank-owned-homes

Are there many short sale listingsin the Los Gatos, Monte Sereno, Saratoga area?

March 26, 2008


Short sale signIn some parts of Santa Clara County, a high percentage of homes on the market in the lower price ranges especially are offered as “short sale” listings. For example, recently I’ve been assisting buyers of single family homes in the $500,000 price range in parts of San Jose (such as Evergreen, Blossom Valley, Santa Teresa and South San Jose). The vast majority of those listings, perhaps 95% or more, are “short sales”.

But that’s not happening in Los Gatos, Monte Sereno or Saratoga. Short sales pull values down, so if you live in this lovely foothill area, be glad that the real estate market here is healthier!

Here are the numbers of local short sale listings as of today, March 26, 2008:

  • Los Gatos – 5 total, 2 single family houses and 3 condos or townhomes which are listed as being short sales as of today (95032 and 95030 areas)
  • Monte Sereno – 1 single family house listed as a short sale.
  • Saratoga – 0 single family houses, 0 condos or townhomes which are presented as short sales.
  • Los Gatos Mountains – 3 single family homes

How does this compare to nearby areas in Silicon Valley?

For comparison, I’ll combine houses and condos/townhouses. The number after each area reflects the total number of short sale listings for that city or district

    • Cambrian Park – 59
    • Santa Clara – 56
    • Campbell – 13
    • Cupertino – 1
    • Los Altos – 0
    • Sunnyvale – 50
    • Blossom Valley – 193
    • San Jose (all areas) – 1534

A high number of short sales creates increased risk on home values. Short sales usually sell for lower than market value because (1) they take longer to sell, (2) they take much longer to close escrow, (3) they have a high rate of never closing at all (most short sales become foreclosures), even if the seller, the buyer, and agents representing buyer and seller are doing their best to get it closed. Often the slowdown is with the lender, or a servicing company representing the lender. They are overwhelmed with files.

It can be a vicious cycle on home values once it starts. A short sale listing finally gets a good buyer and contract to purchase the home. The bank “sits” on it for 30 or 45 days or more. Meanwhile, in areas with a lot of short sale listings, prices get pushed down. Buyers realize after a month or more that the house is no longer what they originally offered on it. They don’t want to be tied to yesterday’s price in a declining market. So after a period of time, the buyer is very likely to stop waiting and either ask for a lower price or go on to a more attractive property. If that first home goes back on the market again, it will need to be at a lower price to keep up with market conditions.

It is easy to find a short sale listing in many parts of Silicon Valley, but it is much more difficult to find them in the pricier areas. We are continuing to see a split or “bifurcated” market in which the higher priced areas are more insulated from the recent asault on home values.

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