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Asked by Arthur Davis, 95757 Mon Dec 3, 2007

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Jim Walker, Agent, Carmichael, CA
Wed Dec 5, 2007
Ah, the famous 20% solution!

It might be practical to try another famous percentage solution:
A 7% solution! I’ll get to that later.

When I run searches through the MLS I occasionally find listings that are priced at a premium of 20% to my opinion of today’s market value.

It would only be reasonable for me to have a buyer ask for a 20% discount on such a house.

The problem many sellers (including, perhaps especially, banks) have is adjusting to the reality of TODAY’S market. They want last years price.

You are willing to offer them next years price, which you expect will be lower than today’s value.

Here is my perception of today’s market value:

It is already lower than everyone thinks it is.

Here is why: The sold statistics that everyone is counting on are old news. Yet, most of the calculations that the statisticians input are from last months (or last quarters sales.)

Your observation that perceived values will go down is correct. That is partly because the values that are currently perceived have already gone down.

Think about lightning. You see it, then ten seconds later, you hear it. When you watch a sunrise, the light you see shining left the sun 8 minutes before dawn. Todays market value is calculated off of numbers that are two to three months old.

I also agree with the predictive portion of your opinion. There are still so many factors pulling against a recovery in values, that further deterioration does seem more likely than not.

That means that you will have to be a tough negotiator, and be willing to leave a lot of nice willing houses sitting on the shelf.

Now to explain the 7% solution. Average values have dropped between 20 to 30 % depending on zip code, since the peak: that works out to an average of a 1% decline per month for the past 30 months.

If you extrapolate that out to continue for another 20 months then you would see that full 20% dilution of current value.

No honest real estate agent is going to tell you that they can easily find a seller who is going to part with their house for 80% of its current value. The only way to obtain the full 20% discount is to wait it out.

- The main risk in that plan is that you might wait too long and not catch the absolute bottom of the market.

Sellers can be persuaded to capitulate and sell their properties for 7% discounts from current perceived value.
How do we buyers agents do that? Well, we explain to them that, sure the comps from 2 and 3 months ago show $380,000 but.... since prices have been dropping at 1% per month, the price has to be adjusted to only $370,000. Next we tell them that if they don’t take my buyer who is right here, right now, with an approved loan and 20% cash down. that they risk the very real danger of waiting another two or three months waiting for a buyer willing to pay “market”

I then pull out the 1% depreciation schedule again and show them that the house will only be worth $360K after two or more months. Then I remind them that they will have been paying mortgage payments, insurance, taxes, maintenance, and utilities on a vacant house, and frittered away another $6,600 over the 3 extra months, while they were continuing to lose value.

Then I commiserate with them, I let them know that I understand they perceive that my buyer is trying to take advantage of their unfortunate situation. - but that my buyer also is concerned that the market could continue to drop over the next year as it has for the past 3 and he does not want to lose a lot of equity on his purchase. It is not so much that he is taking unfair advantage as he is scared for his own financial health.

That is one scenario of how we might negotiate a 7% solution
( $26,600 ) on a $380,000 property.
0 votes
Jim Walker, Agent, Carmichael, CA
Mon Dec 3, 2007
There are 344 single family houses listed in the Metrolist for sale in Elk Grove as of this minute.

Over one half of them are foreclosures or pre-foreclosures. (176)

It is an all out buyers market, Arthur. You are the king. Arthur.

Of those 176 foreclosures/distress sales: 42 are 4 bedroom homes between 1900 sq feet and 2500 square feet. The lowest price in that group is $319,000 the average is $358,044 The median is $350,00 the highest priced listing in that description is $470,000.

In addition to the foreclosures and distress sales There are another 34 four bedroom listings (1900 to 2500 square feet) in that one zip code.

You have massive bargaining power today.

If you wait, you will still have bargaining power because it will take many months to sell off all that housing inventory. I would recommend acting now or within the next 18 months to take advantage of the depressed Elk Grove home prices.
1 vote
Jim Walker, Agent, Carmichael, CA
Wed Dec 5, 2007
I have had more showings in Elk Grove since I wrote that profile, I will update it. While EG is not my primary.. (I am up in Roseville,) I feel very comfortable down there; EG is a mix of the old and the new somewhat like my own Roseville. I'd be glad to help you.
0 votes
Sylvia Barry,…, Agent, Marin, CA
Wed Dec 5, 2007
Hi Arthur:

I am jumping in here how. I see Jim is giving you some great advise here and the fact that with all the inventory on the market in Elk Grove; you really need a good Realtor to help you sort out the inventories and find a great buy for you.

So, why don't you just give Jim a call (a great contributor on Trulia), I am sure he will be able to help you a lot more in person.

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Jim Walker, Agent, Carmichael, CA
Tue Dec 4, 2007
Mr. Davis,

it is gratifying to hear back frfom the consumer. I found an ommission in my 1st post, which I need to correct here: The 344 single family homes were in zip code 95757 ONLY. When you add the two bigger zip codes IN Elk Grove, CA , and add all the condos, the number of listings in all of Elk Grove is 2,000+ as Emily has correctly pointed out.

The stats I gave were strictly for 95757 Zip.

My answer to your questions about how to buy a foreclosure or a preforeclosure and the attendant risks should take up several chapters in a book. My one line qick responses are:

Pre-foreclosure sales are often referred to as short sales. There is more buyer risk than benefit to one of these deals. For example, you could be tied up needlessly for weeks awaiting the banks approval or counter offer to your offer. Most short sale listings fail to sell and close escrow, leaving would be buyers frustrated and feeling burnt and used. There are occasional exceptions, some short sales succeed.
Most go to foreclosure and post foreclosure.\

Foreclosure - at the courthouse steps auction. - These are generally for all cash, title insurance is not often available because the deed is a foreclosure "trustee's deed" not a full conveyance grant deed.
It can take months to obtain an owners title policy.

As you plan ot get pre-approved for a loan it appears that a courthouse steps deal is not your ticket.

The overwhelming majority of post foreclosures ARE listed in the MLS and we agents are the conduit to see those properties and to sell them. Occasionally bulk buyers will purchase portfolios of dozens or hundreds of foreclosed homes direct from a lender.

Consumers buying one house at a time almost always go through Realtors. At the post foreclosure stage, the REO homes are priced competitively with normal seller owned homes. Anecdotally, foreclosed homes are listed for less and sell for less than normal seller owned homes. Counter-intuitively, the greatest risk is in overpaying for a REO because the costs of cosmetic and even structural repairs to the new buyer may exceed the "repo discount"

I am glad to be part of your research toolkit. -

Only my daughter's teenage freinds call me Mr. Walker; Please call me Jim.
0 votes
Emily Erekuff, Home Owner, Menifee, CA
Mon Dec 3, 2007
Hi Arthur,

Check out the link below to Trulia's search results in Elk Grove. Including foreclosures we currently show over 2,000 homes for sale but you can use our filters on the left side of the page to refine the list to show homes that match your specifications and price range.

I hope this is helpful.

Best Wishes,

Emily Gibson
Customer Service Representative
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