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.
|Los Gatos Mtns||3||2||3|
|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.
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
- 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 initially 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.)
- 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 recession – no ability to investigate the property and later change your mind. No contingencies – which I think is very, very dangerous.
- 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.
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)
Blog: www.LiveInLosGatos.com & www.ValleyOfHeartsDelight.com