West Hollywood Single Family Market: September 2009

Five houses sold in the West Hollywood area in September 2009, with a median price of $775,000. What is selling? One trophy, newly renovated pool home tipped the scale at $1,950,000. The remaining properties: one"normal" sale, one probate fixer, and two foreclosures -- all of them selling for $815,000 for less.

As has been observed in many LA markets, there is price resistance to anything that needs to be financed by a jumbo loan (over $729,750 in Los Angeles County). Currently, there are 56 houses on the market in West Hollywood with a median asking price of $947,000. There is enough $1 million+ inventory for years.
First, the good news. 555 Westbourne Drive, an impressive project by the Sunset Team at Keller Wiliams Hollywood Hills, sold for its $1,950,000 asking price after three days on the market. This spectacular home with pool has 3 bedrooms, 2 baths, 1,998 of living area on a 4,796 lot. This sale in the desirable neighborhood of "West Hollywood West" amounts to $975/sq foot.
Another hasty sale was 9026 Elevado Street, which sold for its $775,000 asking price in nine days. Located near Doheny Drive and Beverly Hills, this fixer has 3 bedrooms, 2 baths, 1,134 sq ft of living area on a 4,500 sq ft lot.

Now, for signs of anemia in the market. 720 N Vista Street, a probate fixer, sold for $620,000. This home has 3 bedrooms, 1 bath, 1,436 sq ft of living area on a 6,300 sq ft lot.

There were two REO (bank-owned) sales. Last year, this spiffy 3 bedroom, 2 bath, 1,229 sq ft house at 8719 Bonner Drive near Cedars Sinai was marketed as a traditional sale for $1,150,000. It was then foreclosed upon and sold in September for $815,000, 29% below its original asking price. The home sold for $602,000 in March 2000, increasing 35% in price in nine and a half years -- approximately 3.7% annually, a figure very close to the annual increase in CPI (consumer price index.)

Finally, another foreclosure sold at 7220 Waring Avenue. This 3 bedroom, 2 bath, 1,422 sq ft house (with unpermitted additions) on a 2,514 sq ft lot had previously sold for $800,000 in July 2006. It closed last month for $565,000 -- 29% below its previous sale price of three years ago.

Short Sales: Equity Takes Its Toll

WSJ: "Are Distressed Homes Worth It?"

Distressed properties are leading to frayed nerves. Short sales – also called a “short payoff” – when owners are “underwater” and owe more on their houses than they’re worth – are proving to be the thorniest transactions these days, causing many buyers agita.

Foreclosures (bank-owned properties) have stolen the spotlight with mad auctions and whole tracts sold off in bulk making it seem that distressed properties trade with ease at lightning speed.

But short sales are often taking six months or longer. There is an epidemic of sellers who have no equity and no incentive to pay their mortgage or leave their home. Couple this with understaffed banks that are expending resources to write off bad loans. Throw in lenders that have underwriting requirements that are absurdly stringent and you have the challenging formula for a short sale.

No Pain, No Gain

Wealth is hard-earned and short sales are a testament to buyers’ ability to sustain what can often be a long and frustrating process.

Home buyers are finding that the battered real-estate market offers just as many opportunities for headaches as for bargains.

Bidding wars are erupting for the lowest-priced foreclosures. Experienced investors with cash are elbowing aside first-time buyers who need mortgages. And banks generally sell property "as is," without the defect disclosures required of other owners. Short-sale buyers, for their part, often face delays of weeks or months as they wait to hear back from lenders—and from the institutional investors who bought securities based on the mortgages.

Distressed-property buyers also often have to cope with the fallout from the ruined lives of previous owners, such as vandalized properties and liens from second mortgages, taxes, unpaid water bills, homeowner-association dues and court judgments. For all that, final sale prices often aren't significantly lower than average in some areas, because the foreclosure glut has also driven down prices for sellers who aren't in default.

Short sales … are particularly complicated. Lenders require detailed information about both buyers' and sellers' finances, and homeowners generally have to prove hardship. The entire package of documents is scrutinized not just by lenders but by the mortgage investors. Second- and third-lien holders frequently hold up transactions demanding a larger share of the settlement. The average transaction takes four to six months or more, agents say. [Wall Street Journal]

Buyers Make Trade-Offs

If the right constellation of bank-seller-financing-lender comes together, buyers can get a deal. However, some short sales will unravel, and a few will even flame out. Here are some advantages and disadvantages of short sales:

Advantages:

• Opportunity to buy a distressed property at an under-market value
• Strong offers with large cash component can command low prices
• Reduced pool of buyers, many sidelined by the short sale process
• Minimal earnest money deposit means low risk

Disadvantages

• Low pricing attracts multiple offers and bidding wars
• Purchase contract is non-binding, terms can change
• Non-cash buyers are edged out by capitalized investors
• Seller, lender, multi-party negotiation can delay process
• Seller may neglect property
• Lack of information and byzantine process can be time-consuming and frustrating
• Extended timeline forces buyer to forgo other opportunities

How can buyers prime themselves for a short sale? Have a solid relationship with a lender and a financial package that shows the selling bank you can close.

Also, it may be months before you get any news – practice the virtue of patience, and remember that every party to this transaction is feeling your frustration.

And while you keep your eyes on the prize, keep your eye on the market. Other opportunities may come up that are better than your short sale – without the grief.