Author Archives: IrvineRenter

Flippers Are Back!

Our bear rally is bringing out the flippers. Will they turn a quick buck? or will they get stuck with overpriced properties due for another fall?

11 LAURELGLEN Irvine, CA 92614 kitchen

Asking Price: $875,000

Address: 11 LAURELGLEN Irvine, CA 92614

Remember when you were young, you shone like the sun.
Shine on you crazy diamond.
…
Come on you target for faraway laughter,
come on you stranger, you legend, you martyr, and shine!
You reached for the secret too soon, you cried for the moon.
…
Come on you raver, you seer of visions,
come on you painter, you piper, you prisoner, and shine!

Shine On You Crazy Diamond — Pink Floyd

Some people get worked up about property flippers and some do not. Some flippers improve properties and make money through creating value (I am talking about real improvements, not pergraniteel).

Personally, I think flippers who buy properties, do nothing to them, and offer them for sale at higher prices are leaches sucking the value from the housing market. Every penny of profit those flippers make comes at the expense of a normal family that might have save money buying a house. I have reserved a small measure of schadenfreude for these idiots as the market crushes the money out of them.

Yesterday, when I wrote about short sales, I talked about the flippers who are buying at auction. Those flippers are at least providing market liquidity, so there is some value in the service they provide. Flipping an auction property is a profit opportunity even in a declining market because the strategy obtains real estate for under current market value (like today’s featured property).

People who flip in the open market simply rely on increasing prices to make money. Now that our bear market rally is in full motion, flippers are trying their luck again….

It makes me all tingly inside to think about how much some of these flippers are going to lose. And this time, it will be their equity rather than funny-money from the bank.

Are you happy to see flippers active in our market again?

11 LAURELGLEN Irvine, CA 92614 kitchen

Asking Price: $875,000

Income Requirement: $218,750

Downpayment Needed: $175,000

Purchase Price: $690,000

Purchase Date: 7/27/2009

Address: 11 LAURELGLEN Irvine, CA 92614

Beds: 4
Baths: 3
Sq. Ft.: 2,334
$/Sq. Ft.: $375
Lot Size: 6,500

Sq. Ft.
Property Type: Single Family Residence
Style: Traditional
Stories: 2
Year Built: 1985
Community: Woodbridge
County: Orange
MLS#: S586791
Source: SoCalMLS
Status: Active
On Redfin: 4 days

TurnkeyEquity Seller. This is not a REO or short sale. Corporate Owned.
Turn-key home. Bring your pre-approved buyers and close fast. Great
oppurtunity to get into Landing II, which is one of the most sought
after neighborhoods in Woodbridge. Woodbridge has been named The best
place in America to Raise a Family by Parent’s Magazine and the #1
Planned Community in the Country. Private Cul de Sac location, great
for families. Recent upgrades include casement windows, travetine
flooring,distressed Spanish Hickory hardwood flooring,entertainment
center in family room,custom built child’s bedroom with bunkbed and
cabinets (must see!),plantation shutters,above ground spa (sold in ‘as
is’ condition) recessed lighting,new carpet throughout, new interior
paint. Exterior will be painted prior to close of Escrow.

Corporate Owned? Yes, the corporation you formed to flip properties….

oppurtunity?

Take a good look at this sales price history. This is a mid-range property in one of the most desirable neighborhoods in Irvine that declined in value during a 6 year period.

Date Event Price
Aug 24, 2009 Listed $875,000
Jul 27, 2009 Sold $690,000
Jul 14, 2003 Sold $722,500

If this property sells for its current asking price, the flipper stands to make $132,500 after a 6% commission. Not a bad deal if you can get it.

BTW, I have a major analysis post on Shadow Inventory coming out tomorrow. Here is a teaser statistic for you: 175,000 Orange County homes will go through foreclosure between 2007 and 2013. That is 40% of the housing stock with a mortgage. I will show you all the calculations tomorrow…

The Short Sale Gambit

Do very low short sale prices still have shock value? If too many sellers go this route, the shock wears off, and expectation of lower future prices becomes the norm.

26 E Midsummer Irvine, CA 92620 kitchen

Asking Price: $568,000

Address: 26 E Midsummer Irvine, CA 92620

{book1}

When I was a child
I caught a fleeting glimpse
Out of the corner of my eye.
I turned to look but it was gone
I cannot put my finger on it now
The child is grown,
The dream is gone.
I have become comfortably numb.

Comfortably Numb — Pink Floyd

Recently, an astute observer noted that my being less angry about the Great Housing Bubble may be a sign of Stockholm Syndrome. Have I become comfortably numb to my subjugation to the will of my Wall Street masters that I no longer feel the rage over the injustice? Have I become numb through exposure to this issue every day?

Psychologists know that repeated exposure to any anxiety-producing stimulus will lead to a reduced response over time through gradual desensitization. Perhaps me and many readers have become desensitized to the outrageous behavior of our Government and their Wall Street Overlords.

Kool aid intoxication will wear off through gradual desensitization, and the short sale gambit is at the heart of this phenomenon.

Short Sale Gambit

The short sale gambit is the ploy used by sellers and realtors where a property is listed for sale significantly below recent comps to generate buyer interest and hopefully ignite a bidding war. In our market this year with its limited inventory, this gambit has worked quite well. This ploy relies on kool aid intoxication for its effectiveness. People think the good deal is real, and there will not be other deals like it in the future — they still fear being priced out forever.

To give you an idea of how widespread this phenomenon is, consider the following listings:

What do all these listings have in common? They are all priced well below comps to solicit bids in the short sale process. So what do you think happens when sellers do this too much?

Over time, buyers come to realize that sellers are playing a game. The property is listed to attract offers, then the bank takes months to process the offer price, and by the time the bank approves a short sale price, the bidders have long since moved on to other properties. When this practice becomes common — which it is now — buyers become cynical and they stop putting in offers.

What would be the natural reaction of sellers when buyers stop putting in offers? They make the discounts even more extreme. If 5% below comps fails to generate interest, perhaps 20% below comps will (see 22_Rockwren_Woodbridge_Irvine.pdf for an example). Do you see where this is going?

As short sellers increase their discounts to attract offers, it actually serves to make buyers more skittish. Why would you bid on a property with a 5% discount when waiting will prompt a 20% discount? Ultimately, the short sale gambit is self defeating, and it becomes the primary mechanism for lowing prices in the market. Low inventory is the only thing keeping prices high right now. What happens when more inventory hits the market and the properties start competing with each other to attract buyer attention? Lower prices happen.

The Private Mortgage Insurance Problem

The short sale gambit does create a unique opportunity for property flippers. There are many properties where the listing agent has obtained a dozen or more bids on a short sale, but the bank refuses to take one of these offers and instead opts to foreclose, even when the short sale bid brings in more money. Many property flippers are buying properties at auction for 20% less than existing short sale offers on the property — it is practically a no-risk transaction for the flipper. Why are lenders doing this?

If the mortgage is covered by private mortgage insurance (PMI), the lender actually makes more money by foreclosing than by accepting the short sale. If they foreclose, the shortfall at the auction is covered by the PMI company. If they accept a short sale, PMI does not pay out. Basically, the flippers at the auction are making a profit at the expense of the PMI company.

I wonder how many PMI policies AIG has issued? and how many of these losses we are going to pay through our taxpayer bailout?

26 E Midsummer Irvine, CA 92620 kitchen

Asking Price: $568,000

Income Requirement: $142,000

Downpayment Needed: $113,600

Purchase Price: $960,000

Purchase Date: 5/19/2006

Address: 26 E Midsummer Irvine, CA 92620

Beds: 4
Baths: 4
Sq. Ft.: 2,386
$/Sq. Ft.: $238
Lot Size: –
Property Type: Condominium
Style: Contemporary/Modern
Stories: 2
Floor: 2
View: Mountain
Year Built: 2005
Community: Northwood
County: Orange
MLS#: P700613
Source: SoCalMLS
Status: Active
On Redfin: 3 days

A Bella Rosa Home in the exclusive gated community of Northwood II. It
contains many upgraded features, hardwood floors, plantation shutters,
french doors, custom paint, epoxy floor in garage, stainless steel
appliances with double oven, granite countertops, central air, cozy
fireplace, 4 large room plus loft. Association has Jr Olympic Pool, Spa
and Clubhouse. Conveniently located near Irvine Spectrum, shopping and
Dining. Within Irvine Unified School District.

The short sale gambit does make for interesting loss calculations — despite the realistic inaccuracy of the results. If this property sells for its current asking price, and if a 6% commission is paid, the total loss on the property will be $426,080. It is being offered for 41% off its peak purchase price.

8 New Market Irvine, CA 92602 front 8 New Market Irvine, CA 92602 kitchen

Asking Price: $368,000

Income Requirement: $92,000

Downpayment Needed: $73,600

Purchase Price: $500,000

Purchase Date: 4/8/2005

Address: 8 New Market Irvine, CA 92602

Beds: 2
Baths: 3
Sq. Ft.: 1,200
$/Sq. Ft.: $307
Lot Size: –
Property Type: Single Family Residence
Style: Other
Stories: Split-Level
View: Courtyard
Year Built: 2001
Community: West Irvine
County: Orange
MLS#: S587056
Source: SoCalMLS
Status: Active
On Redfin: 2 days

THIS IS A SMOKING DEAL!!! The LOWEST PRICED home in the very desirable
community of West Irvine. ***BEAT THE BANK*** This is an investors
dream. Dual Master Suites, Dual Vanities, & HUGE walk-in closets
plus additional powder room for guests. Loads of storage throughout.
Durable laminate flooring & newer carpet, high ceilings and many
windows that bring in a lot of natural light. Recessed lighting in
every room. Custom Built DUAL Computer Niche, with more storage and
shelving, offers the perfect work space. Separate laundry room. 2 car
garage with direct access and more storage. Custom stamped concrete
throughout the private and enclosed courtyard. Situated in a quiet and
desirable location within the community, which offers a tot lot, pool,
spa, kiddie pool, and tennis courts. Easy access to both 5 & 55
fwys. Near the Tustin Market Place, Farmers Market, Tustin Sports Park,
Award Winning schools, hiking & biking trails and many more
ammenities + LOW Mello Roos roughly $44/mo.

ammenities? At least the words “throughout” and “Separate” were spelled correctly.

This is an investors
dream. Really, why?

{Adsense-ir}

This second property is borderline on being priced to market. It is a bit below, but perhaps not far enough to generate bidding-war interest. If it sells for its current asking price, and if a 6% commission is paid, the total loss will be $154,080. It is being offered for 26% below its 2005 purchase price.

Open Thread 8-29-2009

The properties in Rosegate are beautiful, but the prices are still borderline WTF.

35 New Dawn Irvine, CA 92620 kitchen

Asking Price: $1,849,900

Address: 35 New Dawn Irvine, CA 92620

Another sunny day in Californ-i-a
I’m sure back home they’d love to see it
But they don’t know that what you love is ripped away
Before you get a chance, before you get a chance to feel it

Everybody here is living life in fear of falling out of line
Tearing lives apart and breaking lots of hearts just to pass the time
And the eyes get red in the back of your head, this place will make you blind
Put it all behind me and I’ll be just fine

Another sunny day beneath this cloudless sky
Sometimes I wish that it would rain here
And wash away the west coast dreaming from my eyes
There’s nothing real for them to see here

Back Home — Yellowcard (thank you, badcandy, for the song suggestion)

Prices like this tell me we are NOT at the bottom.

35 New Dawn Irvine, CA 92620 kitchen

Asking Price: $1,849,900

Income Requirement: $462,475

Downpayment Needed: $369,980

Purchase Price: $1,360,000

Purchase Date: 10/30/2003

Address: 35 New Dawn Irvine, CA 92620

Beds: 4
Baths: 5
Sq. Ft.: 4,557
$/Sq. Ft.: $406
Lot Size: 9,700

Sq. Ft.
Property Type: Single Family Residence
Style: English
Stories: 2
View: Has View
Year Built: 1998
Community: Northwood
County: Orange
MLS#: S586001
Source: SoCalMLS
Status: Active
On Redfin: 3 days

Executive home in the prestigious gated community of
ROSEGATE.4BD+BONUS+DEN+LOFT,wrought-iron gate dome leads to a secluded
passageway to front entrance. W/a spectacularly gorgeous vaulted
ceiling on the main level,imported italy Rossaila marble flooring leads
the way to the spacious formal living room with fireplace featuring
dining room walls w/ french doors, which opens up to a romantic
courtyard.*Guest room w/bthroom include glass shower stall and
independent guest bthroom.*Office room(features entertaining surround
system for theater)w/closet.Family room w/ built in fireplace and
BAHAMAS light ceiling fan.Kitchen has centered huge granite island with
viking 6 grill and bright breakfast nook space with new mahogany
blinded lovely windows. Roman arch master bedroom w/ surrounded pecan
blinded windows and Crema Marfil marble floors serene master bthroom
along w/marble wall frameless glass shower stall and perfectly fits for
dual mirror doors,sunset View Master.

bthroom? Why would someone consistently misspell a word by omitting a vowel? It isn’t any shorter, so it doesn’t function as an abbreviation. Does a realtor description require random, senseless misspellings?

italy Rossaila marble… Crema Marfil marble… Somebody knows way too much about marble.

Ice Queen

The housing bubble enriched some and wiped out others. In our ongoing deflation, some are taking advantage of our bear rally to start flipping again. Will they hit the jackpot?

14811 Groveview Ln Irvine, CA 92604 front 2

Asking Price: $550,000

Address: 14811 Groveview Ln Irvine, CA 92604

{book2}

You never take advice, someday youll pay the price, I know

Ive seen it before, it happens all the time
Youre closing the door, you leave the world behind
Youre digging for gold, youre throwing away
A fortune in feelings, but someday youll pay

Cold As Ice — Foreigner

People are flipping properties again. They won’t take my advice, and someday they’ll pay the price, I know. I’ve see it before, it used to happen all the time. They’re closing the deal, they leave reality behind. Digging for gold, they’re throwing away a fortune in equity, but someday they’ll pay.

The low inventory and low interest rates are serving to keep the bubble inflated here in Irvine. The conditions are ripe for flippers to come back to the market. Today’s featured property was purchased for $417,500 on 8/12/2009. It didn’t take her long to turn it around for resale.

IMO, it takes ice water in your veins to attempt a flip in this environment — or ignorance laced with kool aid.

Mirror, mirror on the wall, who’s the greatest flipper of all?

14811 Groveview Ln Irvine, CA 92604 front 2

Address: 14811 Groveview Ln Irvine, CA 92604

Asking Price: $539,900

Income Requirement: $99,370
Downpayment Needed: $107,980

Purchase Price: $417,500
Purchase Date: 8/12/2009

Net Gain (Loss): $90,006
Percent Change: 29.3%
Annual Appreciation: 210.0%

Monthly Payment $2,797
Monthly Cash Outlays $3,527
Monthly Cost of Ownership $2,395

Property Details for 14811 Groveview Ln Irvine, CA 92604

Beds 3
Baths 1 full 1 part baths
Size 1,112 sq ft
($486 / sq ft)
Lot Size 4,966 sq ft
Year Built 1971
Days on Market 1
Listing Updated 10/1/2009
MLS Number S591169
Property Type Single Family, Residential
Community El Camino Real
Tract Wl

lite-brite

LOVELY SINGLE STORY FAMILY HOME IN GOOD IRVINE COMMUNITY. NO MELLO ROOS, NO HOMEOWNER’S ASSOCIATION DUES. WALK TO A DISTINGUISHED ELEMENTARY SCHOOL, BLUE RIBBON MIDDLE SCHOOL, IRVINE HIGH SCHOOL AND NEARBY COMMUNITY PARK WITH BASKETBALL COURT. UPGRADED KITCHEN WITH STAINLESS STEEL APPLIANCES. PARQUET/PERGO FLOORING THROUGHOUT. CENTRAL AIR-CONDITIONING AND HEATING. FENCED FRONT & BACKYARD, LIGHT AND BRIGHT. THIS HOME HAS BEEN UPGRADED, A MUST SEE.

ALL CAPS

Do you like the icicle holiday lights? I guess taking down the decorations is a low priority task when you go into default.

With the purchase price, the flipper has room to negotiate.

If this property sells for its current asking price, and if a 6%
commission is paid, the flipper stands to make $99,500. Do you think
she bought it 32% under market?

Of course, the story for the lender is a bit different. When this
property sold for $417,500, the lender lost $262,500 after a 6%
commission. It looks as if this was a short sale, so a full commission
was likely paid.

22 Rockwren is having another open house this weekend. It was the focus of last weekend’s open thread. We performed an IHB analysis on the property this week (22_Rockwren_Woodbridge_Irvine.pdf). We are of the opinion that this property will sell for significantly over its current asking price.

And so concludes another week at the Irvine Housing Blog, chronicling the Irvine home market since September of 2006.

Have a great weekend.

🙂

$300,000 Gift from Bank of America

Bank of America underwrote a $300,000 HELOC that was a complete loss in less than 1 year.

8 Sunstream Irvine, CA 92603 kitchen

Asking Price: $429,000

Address: 8 Sunstream Irvine, CA 92603

Sunshine on my shoulders makes me happy
Sunshine in my eyes can make me cry
Sunshine on the water looks so lovely
Sunshine almost always makes me high

Sunshine On My Shoulders — John Denver

Sometimes, I see property records that look proper, but something is very wrong. I don’t know what happened, but we can all speculate on this one.

Today’s featured property was purchased on 3/2/2007 for $600,000. The owner used a $480,000 first mortgage and a $120,000 downpayment. For historical reference, March of 2007 was the month subprime imploded.

On 5/1/2008, Bank of America authorized a $300,000 HELOC on the property. WTF?

Did the owner pay down the first enough to have $300,000 in equity on 5/1/2008?

Did an appraisal come back at $780,000 after a year of property declines?

Unless the owner paid down the first mortgage a great deal, the $300,000 Bank of America loan was wiped out in foreclosure 12 months later. Yikes!

Foreclosure Record
Recording Date: 04/22/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2009000196117

Foreclosure Record
Recording Date: 01/12/2009
Document Type: Notice of Default
Document #: 2009000009612

The borrower stopped paying the first mortgage by September of 2008 which was three months after the HELOC was opened. It doesn’t look like the HELOC money was needed to make payments. The quick timing of the default does look like a strange coincidence.

This property went to auction on 7/6/2009 for $351,158. That is 41.5% off the 3/2/2007 purchase price.

The recovery amount does not satisfy the first mortgage, and the $300,000 HELOC is gone. Perhaps Bank of America got lucky, and the owner did not max out the HELOC.

LOL!

Yeah, that happened….

8 Sunstream Irvine, CA 92603 kitchen

Asking Price: $429,000

Income Requirement: $107,250

Downpayment Needed: $85,800

Purchase Price: $600,000

Purchase Date: 3/2/2007

Address: 8 Sunstream Irvine, CA 92603

Beds: 2
Baths: 2
Sq. Ft.: 1,100
$/Sq. Ft.: $390
Lot Size: –
Property Type: Condominium
Style: Other
Stories: Split-Level
Floor: 1
Year Built: 1981
Community: Turtle Rock
County: Orange
MLS#: S586198
Source: SoCalMLS
Status: Active
On Redfin: 3 days

lite-brite

Bank Owned. Sold AS IS. A Beautiful Avalon Floor plan in the community
of Ridge Townehomes in Turtle Rock. Light and Bright 2 bedrooms in a
quiet and peaceful location. This home offers two bedrooms with a
vaulted ceiling family room that is open to a formal dining room. An
attached 2 car garage. Sunny patio off the family room with a marble
fireplace in family room. Close to award winning schools, and a five
minute drive to UCI.

Light and Bright? Not judging by the pictures.

What do you think was going on here?