California Once Again Leads the Nation...
This quarter brought a mixed bag of results, with some slightly disappointing numbers on a national basis, but some bright spots in several large California markets.

I am an REO Broker here in the San Francisco Bay Area. Inventory in our market is pretty low so whenever I list an REO I receive multiple offers. I listed one in San Jose recently; priced at $472,900. I got 8 offers for it, the highest of which was $551,000. One of my agents suggested to me to compel the buyer's agent and his client to sign an addendum that if the home did not appraise then they'd have to come up with the difference. I made that clear to them.

A few weeks later, I received an email from the buyer's agent, with it was attached the appraisal report. Apparently, the agent was dumbfounded by the appraisal. I was furious, to say the least. The guy had appraised the property at $459,000. That's a whopping $92,000 below the offer price. My BPO had the price range of between $525,000 and $550,000.

At first, I presumed -- wrongfully so -- that the buyer's agent had connived with the appraiser to cheat. I called the agent and expressed my fury. He said he had nothing to do with it. The appraiser wrote back to me and stated that a new law prohibits any contact between agents and the appraiser.

I had spent 2-3 hours studying and rebutting his appraisal. The guy had pulled comps from a new subdivision which was being dumped by a developer. All the sold comps as well as the active comps were from that hopeless subdivision. They were all short sales. The homes had tiny lots and HOA fees. Mine had a 5000 sq. ft. lot, no HOA fees, it's just across the street from a park and walking distance from a school. One buyer, a Registered Nurse, had made an offer to buy the home for $553,000 and begged me to let her have it. She made excellent money ($16K a month) and had been approved by BoA for up to $715,000. She worked in the area and her son went to school there. We had accepted the $551,000 because it preceded her offer and we'd verbally agreed to accept the one we went for.

Moments after I received the appraisal from the buyer's agent, my reaction was to cut out this buyer and go with the RN instead. I emailed the agent to that effect and warned that if he was not forthcoming then I would have no choice but to do so.

In my opinion, the appraiser was dumb, pardon my French. There were properties listed in the neighborhood where my subject was located, one on the same street was pending. A good appraiser would have contacted the listing agent to find out how much the home was pending for. That home sold for $555,000 and closed escrow on 7/2/09, 7 days after the appraisal report was done. A good appraiser would have made an effort and inquired about the pending sales. Another home came on the market on 7/4/09, just 2 doors down from mine and was listed for $599,000. This was a regular sale, not an REO, and it also received multiple offers. It had the same specs as mine.

We all know that a house is worth what buyers are willing to pay for it. Period. If buyers are willing to pay $551,000 and up then that's what the home is worth. After all, we live in a free market. Values have fallen partly because buyers are no longer willing to pay 2005 prices for these homes. This particular home was bought back in 2005 for $750,000. Buyers feel they are getting a bargain if they get it for only $551,000 or so.

How Did I Resolve This Issue?

Remember I mentioned that I had compelled the agent to agree to come up with the difference if the home had appraised for less? That's exactly how the issue is being resolved. I had advised for the appraiser to review his report and include the property that had sold on 7/2/09 for $555,000 and the new listing going for $599,000. Apparently, he would not do it. The buyer wanted to stick with the same lender, and that being the case, he had to come up with more than the 25% he'd initially indicated.

Bottomline: Ensure that you have the buyer and his agent sign that should the appraisal come in lower than the offer price, the buyer will have to make up the difference. This is imperative especially in multiple offer situations. This is not the first experience I have had with appraisals coming below offer price, so to be on the safe side, have the buyer sign the addendum.

I showed some properties yesterday. When we got to one of the properties in Newark, we saw a lot of cards on the kitchen countertop. The kitchen appeared to be newly rehabbed and showed well.  The front yard was also in good shape. What made this 4 bedroom, 2 bathroom home was such a draw, in my opinion, appeared mostly to be the price. Whenever a single family residence of this caliber gets listed for under $400,000 in Newark or Fremont you can rest assured that it will receive an avalanche of traffic and a ton of offers. This particular property, attached herewith, was no exception. The REO (i.e. bank-owned) property has been on the market for only 11 days.

My client seemed to be interested in the property so I told her I’d find out more information regarding the apparent termite damage. I called the listing agent (LA) and left a message. I followed up with an email. I received an email from the LA soon after and not much to my surprise she said that they have received 24 offers on the property and the seller, in this case the bank, has made a decision to accept one of them.

The other day, I did a Broker Price Opinion (BPO) on a new listing I received from one of my lender accounts. I did my analysis based on a 1-mile radius, 6 months period. I came up with 14 sold listings, 13 of which were REOs.

To make a long story short, the real estate market may be suffering right now, but sales are reported to be up from last year, 75% of which are bank-owned properties. First-time home buyers and investors are seeing the value in these types of properties and are picking them up by the truckload because the price is right.

I understand there are divergent opinions on this matter. We all know the root cause of this crisis and some of us played one role or the other. 2004-2006 was the ONE era whereby no one was thinking smart. We all thought real estate was the savior of the human race. We bought homes on stated incomes. No one thought the market was going to go down.

The damage has been done and everyone's becoming a victim. The entire country, if not the entire universe. When one makes a mistake, one seeks to make corrections. Howbeit, we should not be stuck on the corrective analysis. We should take action to correct the mistake and have safeguards in place to prevent the recurrence of our stupidity.

Now is the time for Congress to act and renew its efforts to craft legislation -- amenable to both political parties -- that will calm the financial markets, address liquidity issues and begin to restore confidence in our financial system. Americans deserve nothing less.

If you've read history, then you know how the world was in the 30's. And what happened in 1939? There was the second world war, the result of which was the loss of millions of lives. I'm in favor of the Stimulus Package, the Mortgage Relief Act and this recent $700,000,000,000 (yes, 9 zeros) Bailout.

We live in perilous times. The 100+ year-old Wamu was taken over overnight by Chase, Merill Lynch by BoA and just yesterday Citi (America's # 1 banking conglomerate) swallowed up Wachovia, the nation's 4th largest financial institution. What's going on? Can you imagine if Wamu collapsed totally? What would happen to its 43K workforce?

This is exactly one of the reasons I support Obama, even though we have divergent views on issues like abortion and gay rights. I support him on BIG issues such as regulation, foreign policy, universal health care. We can't just give the Markets full rein without some sort of regulation. Life is to be regulated. If we do not regulate, we live room for chaos and mayhem. That's why we have legislatures, the police force, traffic lights, etc. Even the seasons are regulated. For McCain to want to leave the markets to sort itself out is total nonsense to me, to say the least.

In sum, we need the Bailout, but this time the institutions should be well regulated to handle whatever is given to them and the benefits should trickle down to those who need the help most and not to the fat cats up the financial echelons.

---The End---
This has been a Paul LeJoy contribution

Here’s are a few pointers that help homes retain  their value even in times of recessions

Location. Location. Location.

You may have heard this before, that location is everything in real estate. And this is true. Very true, indeed. Where a home is located truly determines its price. Even its position to the rising and setting sun. This is true for residential as it is the case for commercial real estate, but most especially so for residential real estate.

The village, town or city your home is located in also very much determines its value. For example, in the San Francisco Bay Area, generally speaking (with a few exceptions), the closer a city is to San Francisco the more expensive it is. For example, you can buy spanking new homes with massive square footage and numerous bedrooms/bathrooms in Contra Costa cities of Brentwood, Oakley, Antioch and Pittsburg for less than $500,000. Those same homes will fetch upwards of $1,300,000 in San Francisco and $1,000,000+ in Pleasanton and Pietmont, $900,000+ in Fremont and some parts of San Jose, $1,200,000+ in Cupertino .

Schools. Schools. Schools.

Speaking of places like Cupertino , good schools play a HUGE role in determining the price of homes as well. For example, just recently I listed a 1664 sq. ft. home for $1,015,000 in Sunnyvale . Now, Sunnyvale is much more affordable than Cupertino . However, this particular home happened to be located in the Cupertino school district, with Stockmeir being the elementary school and Cupertino Middle being the junior high school. This particular home was built in 1962 and boasts no bells and whistles. It just happens to be in one of the best school districts in the entire state of California , and that’s what I used as my selling point, and that’s why I received 3 offers on the property and sold it in less than a week at my asking price. Amazing! A similar property would have virtually no foot traffic in San Joaquin county or in places with schools lacking stellar performance. You’d have to price than home for less than $100,000 to generate any tangible traffic whatsoever.

Demographics. Demographics. Demographics

Closely related to location and schools is demographics. The composition of a neighborhood clearly determines the values held dear. If a neighborhood is populated by highly educated professionals you can rest assured that these residents treasure education and want their children to go to the best schools. If, on the other hand, residents of a neighborhood don’t care a thing or 2 about education, then you can rest assured that the schools will be in bad shape and the API’s will be low. This has a spiral effect in that such schools will inevitably produce graduates who are not considered the cream of the crop and who may end up doing jobs that do not generate the high incomes commanded by professionals in affluent communities. By this token, you can rest assured that the homes in places like Mission San Jose in Fremont, homes in Cupertino and homes in Ruby Hill, Pleasanton , will always receive the best care and ultimately retain the best values even in times of economic recessions. These homes sell for their asking price and even more.

Bio

Paul LeJoy is a real estate consultant based in the San Francisco Bay Area. Paul founded and is the CEO of Pacific Realty Partners, a company that shows people how to create wealth using real estate. A native of , Paul holds a Master’s degree in International Relations and Economics from the University of Kent , Canterbury, , and a California Broker’s License. A true cosmopolitan and globalist, Paul has lived in Africa, Europe, Asia and speaks English, French and Mandarin Chinese. An avid writer, Paul has authored and published 3 books and numerous articles on various topics. Lately, he expends all his energy in building his real estate brokerage firm. Paul’s office is located at

PS: Please feel free to email this article to your friends.

So You Thought The Real Estate Market Was Going Down South. Think Again

Oftentimes these days, people ask me this question, even perfect strangers: “So, Paul, where do you think the market is heading?”

“Well, it depends on where you’re looking,” I tell them. And this is quite true.

New Homes Are Selling Like Hot Cakes

It’s amazing! If you go to a new home site, then you may agree with me. The other day in May, I visited a KB Home new home site in Fremont and there were droves upon droves of hip yuppies at the Sales Center . These young professionals, mostly Indians and Chinese, are scooping up brand new properties, especially in locations with great schools. KB Home kicked off its marketing campaign offering spanking new single family homes starting at $609,000. At the time of my visit the price for such homes was jacked up to $679,900. “Why’s that so?” I asked one of the sales agents at the site. “These things are selling so briskly we had to increase prices,” he answered me.

The same is true for a Regis Homes new home site in Mountain View. Back on May 10, 2008, I saw their newspaper ad tagging their townhome prices at $599,000. When I visited them at the beginning of June, just 4 weeks after that first publication, they’d increased their prices to $639,000. Now, these are townhomes, not single family residences. The developer had kicked off this development with a phase 1 release of 30 homes. The project started in February this year. At the time of my visit, only 4 of these townhomes were remaining. This is a site that’s next door to i-85, yet it’s also selling so well in GoogleLand.

And it’s not just in google city that prices for new homes are steady or on the upside. On Sunday, June 15 2008, I visited a KB Home new site in Hayward. This part of Hayward is not as sexy as Hayward Hills, yet the sales lady told me, when asked, that the developer was fixed on his price offering. “These things are selling so quickly that there’s absolutely no need to bargain,” she said. These properties have not even been built yet. People are simply viewing the models and putting their names on the Interest List.

If you thought the market in what I call the immediate Bay Area was softening, think again. New homes are flying in the face of the trends. True, the market is not a crazy as it was back in 2004-2005 but it isn’t down and out either. The KO that a lot of spectators are expecting ain’t happening, people, at least not as far as new builds are concerned.

REOs Are Another Hot Ticket

Another set of hot babies are the REOs (i.e. bank-owned properties). California, like Florida, Nevada and Arizona , has been heavily hit by foreclosures. In fact, only a few people saw this coming. Those affected are mainly people who bought homes in 2005 and 2006 banking on the hopes that their homes would continue to appreciate in value the way they did in the 2002-2005 era. Many of these people also bought homes on stated income (i.e. they used their good credit and inflated their incomes) oftentimes getting jumbo loans with absolutely no money down. That was a very dangerous premise to start with.

I have seen many foreclosed homes and most of them fall within this category. Homes bought for $600,000+ being foreclosed and now being sold at 60% of their purchased value. Of all trustee sales (i.e. homes auctioned by banks) only 4% get bought by all-cash investors. 96% of these homes go back to the beneficiaries (i.e. the banks). It’s very bad news for these banks and that’s why a lot of them have gone down under and many more are to follow as foreclosures continue to flood the market.

On the flip side, REOs are a great haven for investors and that’s why markets that have been badly hit like Stockton, Antioch and Lathrop, to name but a few cities in Northern California, have become hot beds for investors, who are scooping up properties in droves, putting them up for rent oftentimes to those who are losing homes. In the past, these investors could not cashflow in California . Now they can. The other day, a friend of mine told me that one investor, a doctor from Texas, sold his clinic in Texas , used the proceeds and bought 15 single family REO homes in Lathrop. That’s how sexy California homes have become. In places like Antioch , it’s not uncommon to see homes that in 2005 were selling for over $500,000 now being bought by investors in the $200K range. Street after street, these types of properties abound. People are walking away from their homes and unsustainable mortgages while investors are coming in and raking up these fine deals, renting them to Section 8 tenants and getting steady checks from the government month after month without fail. No wonder these types of properties are among the hottest.

Bio

Paul LeJoy is a real estate consultant based in the San Francisco Bay Area. Paul founded and is the CEO of Pacific Realty Partners, a company that shows people how to create wealth using real estate. A native of , Paul holds a Master’s degree in International Relations and Economics from the University of Kent , Canterbury, , and a California Broker’s License. A true cosmopolitan and globalist, Paul has lived in Africa, Europe, Asia and speaks English, French and Mandarin Chinese. An avid writer, Paul has authored and published 3 books and numerous articles on various topics. Lately, he expends all his energy in building his real estate brokerage firm. Paul’s office is located at

PS

To search for REO’s and other foreclosures in your backyard or any neighborhood in the , visit one of Paul’s websites: BayAreaForeclosuremart.com. Feel free to send this article to your friends and newsgroups.