Why doesn't 2+2 = 4? It doesn't. It's all screwed up.

By
Mortgage and Lending with Level 4 Funding

Something is going on.  I can't figure it out.  Maybe you can help.  

I use to buy home at the court room steps and flip them.  We would purchase them at a 70 - 80 % of comp value.  Put them on the market and make some cash.  

 

BUT THIS IS NOT WORKING ANY MORE.

 

Today the homes at the court room steps are selling for and even above the comp values.  People seem not to care what the price is.  It's getting crazy.  I've heard rumors that there are billions of dollars in the market scooping up all the homes and turning them into rentals.  

There are three price levels,  auction, wholesale and retail.   If flippers are buying at the court room steps are paying auction prices,  then what is the retail price?  30% more?  It seems that it is and our current method of determining value based on prior sales is wrong.  

So 2+2 really equals 6  in today's market.

If this continues I expect to see lines and lotteries at new home sales.   

 

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Rainmaker
1,247,878
Richie Alan Naggar Author PEARLS SERIES of books
People first then business! Ran Right Realty Riverside, Ca - Riverside, CA
on LIFE and LOVE plus Real Estate too!

It may be referred to as called pent-up demand and it says alot about what people are thinking. You cannot argue with historic interest rates and the fact that Real Estate cycles go up and  the current one is now down...People clearly are sensing that NOW IS THE TIME

May 01, 2012 06:59 AM #17
Rainmaker
313,710
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

And so it begins again...... We have not had that in this area and hopefully we will get some stability time before the crazy time settles in.

May 01, 2012 08:10 AM #18
Rainmaker
651,810
Evelyn Kennedy
Gallagher & Lindsey, Alameda, California - Alameda, CA
Alameda, Real Estate, Alameda, CA

Dennis:

This is scary.  I don't want to go through another market like the one we had in 2007.  Sellers should realize now is the time to sell their homes.

May 01, 2012 02:02 PM #19
Rainmaker
346,243
Karen Feltman
Cedar Rapids/Iowa City, IA Skogman Realty - Cedar Rapids, IA
Relocation Specialist
It is scary for both buyers and sellers. Sellers want to take advantage of the low interest rates and perceived value of a larger home for less. Buyers are still waiting for the market to drop further. It is time for people to be realistic and the great opportunities But to not get carried away by over paying for a home that is less than perfect thinking that it will always be worth more later. Been there, done that!
May 01, 2012 08:47 PM #20
Rainer
184,548
Bill Fields
Bill Fields Learning Systems - Treasure Island, FL

I don't know what is so scary about the market conditions, they change, we change. Opportunity is there for all to find.

May 02, 2012 05:35 AM #21
Rainer
83,887
Brad Baylor
ERA Coup Agency - Milton, PA

Dennis - Unfortunately, in this biz, things continue to change, sometimes almost daily, it seems.  We have to learn to adapt or we'll get buried!

May 02, 2012 06:40 AM #22
Rainmaker
814,561
Lyn Sims
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago - Schaumburg, IL
Schaumburg Homes

I have heard of this before but I guess you are confirming this. Can't make sense for paying more than the home is worth especially in this market.  Buy based on a future market?  That doesn't fly, possibly it's just the bidding frenzy that you are experiencing just like Ebay?

Not every foreclosure is a good deal as we all see in the MLS every day!

May 02, 2012 06:49 AM #23
Rainer
210,915
Akerly Real Estate Team Manhattan & Brooklyn Real Estate
Akerly Real Estate Team - Brooklyn, NY

We represent quite a few investors that are each flipping 5-20 properties per quarter.  For the last six months, their story has been exactly your point - sourcing product is becoming the biggest challenge.  There are too many people that don't know what they're doing lining up with cash to "get in the game."  

I get calls from "investors" at least twice a month who say "I want to buy foreclosed homes."  When you start asking them about their investment experience, expectation of returns, source of funds, partnerships, relationships with contractors, brokers, attorneys, expediters, etc., and market knowledge you realize they don't belong in the game.  They're the ones driving up prices because they don't have a clue how to price out the renovations, estimate the carrying and transaction costs, get the work done efficiently, and make a reasonable expectation of their profit.

In my experience, these investors' properties end up sitting on the market.  I got a call from one last week that gave me his lock box codes and asked me to see two resi properties and a large development site.  One of the homes had been in a fire, should currently be condemened by the DOB because of immenent threats to health and safety, and the neighbors came to talk to me to say they put a padlock on all the gates because homeless people were sleeping inside.  That evening I got a call from the investor who asked "does anyone in your office want to host an open house?"  That's the state of the flipper market.   

May 02, 2012 06:51 AM #24
Anonymous
Anonymous
Ron Aguilar

this is signs of a recovery but some areas have a long way to go.

May 02, 2012 07:06 AM #25
Rainer
27,563
Bridget Magnus
Prudential Americana Group, REALTORS - Las Vegas, NV

Would somebody be so kind as to inform Case and Shiller what we are seeing in the trenches?? I'm still seeing economists who are sure that The Sky Is Falling in real estate, and that's just not consistent with what I'm seeing in Vegas, what you're seeing in Phoenix, what many of you are seeing in California. So where are these areas that are "still overpriced"? Where are these Buyers Markets? What regions still have room to fall??

May 02, 2012 08:55 AM #27
Rainer
119,223
Ann Wilkins
East Bay Sotheby's International Realty - Oakland, CA
Oakland, Berkeley, Piedmont CA

I work with a local contractor to find foreclosures in some of the cool hip transition neighborhoods.  It is tough!!!  He doesn't want to go to the courthouse steps so is trying to find something off the MLS.  Very competitive right now and several people trying to get in on the "flipping" business.  They end up paying too much and then their so so fip sits on the market because they have to price it high to make any profit.

May 02, 2012 10:05 AM #28
Rainer
20,118
Sharon Vest
Century 21 JC Jones American Dream - Grants Pass, OR

I don't see this as scary at all Evelyn and Karen.  It is a matter of supply and demand and sellers who are not pressured to sell will hold off until they feel we are really in a recovery mode.  Uneducated buyers, be they investors or otherwise will continue to bid, which makes the sellers happy:)

It takes time to educate and re-educate buyers and sellers as market conditions change.   In my market area of the Rogue Valley in Oregon we are experincing a shortage of inventory.  But the media reports continue regarding "shadow inventory".  Agents who specialize in REO listings keep warning us of the back log that is ready to hit the market.  All of this supports the pessimistic outlook of buyers and sellers. 

The good news is if this boat load of foreclosures does hit the market there will be a line of buyers waiting and maybe the inventory will move through the market quickly and get us back to "normal", whatever that may be! 

May 02, 2012 10:07 AM #29
Rainer
297,300
Gina Lemos
North Orange County CA Real Estate Specialists - Yorba Linda, CA
Orange County CA Real Estate Agent

Hi Big Daddy D ; )

I flipped property for about 9 years and found that buying homes at the So Cal courthouses was nearly impossible and not a "deal" at all. We have waaaay too much competition here, and there were a group of 4 guys that went to 4 different courthouses at once & communicated on multiple cell phones. They would always outbid everyone else, leaving very little room for profit after rehab & costs. After a while, I'm sure that they were the only ones that ever showed up because the other investors were tired of wasting their time. I can only imagine how crazy it is now at the courthouses, with such low inventory levels and multiple offers on most properties here in Orange County : O

Congratulations on the featured post & I hope you're having a great week!

Gina

May 02, 2012 10:25 AM #30
Rainmaker
217,265
Patricia Beck
RE/MAX Properties, Inc., GRI, CDPE - Colorado Springs, CO
Colorado Springs Realty

Things are definitely changing and with so many hungry investors here in our city and multiple offer situations, many of these types of properties are really not a good deal anymore.

May 02, 2012 12:27 PM #31
Rainer
22,149
Alan Mackenthun
Bridge Realty - Shakopee, MN

Some commenters are voicing opinions regarding what is and isn't a good deal.  If you don't think houses today are a good deal are you advising your clients not to buy?  You do have a fiduciary responsibility to them and you must advise this if it is how you feel.  A fair price is what someone is willing to pay.  Demand is high now relative to supply.  If you're an investor, you need to be ready to compete.  If one is looking for a home, getting a deal may be less important.  Things may slow down or more inventory may come on the market later, but interest rates are at all time low rates right now and they may rise.  Our job is to market properties we list as best we can and to find homes that fit their needs for people looking to buy.  We can show clients comparables, but it has to be their decision to buy. 

Personally, I bought 4 for invesetment purposes at the end of last year and then took a break.  Things are much more competitve now so we're widening our search parameters to find new deals that make sense.  We'll buy when we think it makes sense for us.  We advise others to determine their criteria and do the same.

May 02, 2012 01:42 PM #32
Rainmaker
1,259,059
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

The margins at the court house steps have been getting thinner and some have been loosing big. 

May 02, 2012 08:44 PM #33
Rainmaker
814,741
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

I'm glad to read about recovery in the housing market - but would hate to see prices go insane again. We don't need a re-run of the past few years.

May 03, 2012 11:33 AM #34
Rainmaker
634,106
Stephanie/Bob The Ruiz/Miller Team
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Dennis, I assume you are being facetious.  I am so glad the AZ market is doing so well.

May 03, 2012 05:21 PM #35
Rainer
15,438
Brian Park
Danville, CA

The auction effect in action. I often used to follow up on these new level sales and there were many mistakes being met. On some there were economic factors in play and the buyers were not stupid but could have done better elsewhere. Some bid on junior liens unaware they were bidding on a home and the loan wasn't the most senior. Some were investors willing to do a deal at a level equal to earning a commission rather then sit and do nothing.

May 05, 2012 03:56 PM #36
Rainmaker
280,101
Marnie Matarese
J Wood Realty - Sarasota, FL
Showing you the best of Sarasota!

I am finding that buyers can get a much better deal on homes that are listed at a fair price by the owner.  Time after time I see moldy, run down homes selling at auction and short sale for much more than homes in better shape that are really for sale just by their owners.  It is kind of funny how much people will pay to get "a deal".

May 09, 2012 01:07 PM #37
Anonymous
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Rainmaker
104,270

Dennis Dahlberg

Do you do Hard Money Loans
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