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The Markets Within the Market

By Pete in Downtown San Diego Real Estate with 0 Comments


A lot is being said of the distressed property market. Of course there is, it is national news. San Diego County is considered a distressed market according to a number of lending guidelines now as well. But what are the “markets within the market”?

There are a few categories here:

(a)New construction-directly from the builder

(b)Resale market-individual seller/homeowner

(c)Distressed market with subcategory of Short Sale and Foreclosure

The new home market, or buying directly from the developer, is a great way to go. They tend to have deeper pockets and there are ways to negotiate with them that will greatly benefit you. Having worked in the field of new home sales for a number of years, I am quite familiar with the process and have a good understanding of how the developers mind works. Translation, succesful negotiations that get you a great deal.

The resale market or buying from an individual seller/homeowner is a different market all together. Here, you are typically negotiating on price only. Most individual sellers in our current downtown San Diego market are backed up against their equity. There are a few that aren’t but the majority are and don’t have a lot of negotiating room. It could ultimately come down to them bringing thousands of dollars into escrow to close a deal or just going the way of the short sale or cancelling the listing. Most of the time it is not a distress situation, comps form short sale/foreclosure transactions aren’t viable to the seller. That is something important to keep in mind. Dealing with an individual seller is dealing with emotion. Take those words to heart.

The distressed market I have in two sub categories. It could always grow to more but for now I have two. Short Sale and Foreclosure.

The Short Sale, it does not mean it is going to happen in a short amount of time. It does not mean negotiations will be short. It means the property is being sold short of what is owed on it. For example, a home that has a $400K loan out on it being sold for $375K is being sold short of what is owed on it. At this point, you are no longer dealing with the owner of the home, who still owns the home but has got the bank to agree to a short sale at a price that the BANK will approve. Not the seller of the home. You begin to take the emotion out of it here. You are going purely for a below market price on a home. A lot of them are still in decent condition as well. The time it takes for these transactions is much longer than normal. You can submit an offer- even at or above the asing price- and you may not get a response for a month or more. How much time do yo have?

The foreclosure is different. The former owner no longer has it. It had gone into default and the bank excersized their right to take foreclosure upon the property. As banks can’t hold title property, it will be held in title under a trust. Again, you will see multiple offers and it can take a little longer. A lot of foreclosed homes look like a tornado went through them. Appliances wil have been removed and sold, and the transaction will be done “as is” meaning they don’t give a rip about an inspection or any request for repairs. They will laugh at it while they deplete the ozone layer with an aerosol can and wear coats made out of really cute animals. A weird visual, probably not that accurate. Most of the things in the home may have been stripped out and sold to recoop any monies being lost.

As for the tax implications on Short Sales or Foreclosures… consult your tax person. I won’t and can’t give tax advise.