Given the current real estate climate, bank owned or REO (real estate owned by banks) properties have become highly sought after by today’s buyers.  Whether or not they ultimately end up purchasing one, most buyers are starting off with this thought in mind. 

Naturally, these buyers are looking for a deal and most bank owned properties fit this category perfectly.  It is not uncommon to see Big Bear REO properties selling from 75 to 90 cents on the dollar as compared to similar homes on the market. 

While buying a bank owned property can save you some money, there can be some major  contractual differences when buying a property from a bank as compared to a typical and the standard C.A.R. purchase contract. 

It is very common for a bank to have their own contract and/or addenda that they will require the buyer to sign and agree to.  Most of the differences in these contracts include potentially unfavorable terms that buyers should consider and discuss with their real estate agent or attorney prior to signing a contract to purchase a bank owned property.  To do otherwise is taking a big risk.

These are some of the most common types of terms banks like to add to the standard purchase contract (as provided by California Association of Realtors legal services):

·  Requiring a substantial amount for good faith deposit.  This can become even more important should the buyer be in default and risk losing their deposit.

·  Requiring a buyer to prequalify with the REO lender.  Getting prequalified is always a good idea.  But, assuming the buyer has already been prequalified with their own lender, this is just another step that a buyer will have to take, not to mention that they will probably push you to use that lender as well.

·  Requiring an “as is” clause.  This is pretty typical and is included in the standard C.A.R. contract as well.  The key item to discern is what, exactly, they are referring to by “as is”.  Is the buyer still able to have a home inspection and back out of the contract with the deposit returned to them should they not approve of the inspections?  Or, are they tied into the property once they sign the contract?

·  Disallowing buyer contingencies, especially a contingency for sale of buyer’s property.  Most sellers don’t like a contingency on the sale of buyer’s property either.  But, there are many other buyer contingencies, like the loan, appraisal, and home inspection.  It is very important to figure out what contingencies they do not want to allow for.

·  Allowing contingencies, but deeming them passively waived through the passage of time.  The standard C.A.R. contract requires that the buyer actively remove their contingencies in writing.  Until the buyer does that, or the deal closes, the contingencies are deemed to have not been removed.  Passive removal means that once the time frame passes, 10 days for example, and the buyer has not said anything about, then the contingency is deemed to have been removed.  This is a very important distinction.

·  Refusing to do repairs (although an REO may be more willing to give credit in lieu of repairs).  Most sellers these days are willing to do some repairs or credit for them to be done in order to keep the buyer on board with the purchase.

·  Refusing to pay closing costs.  Some sellers are this way as well.

·  Refusing to provide a home warranty plan.  Nearly every seller is willing to do this.  The cost for such a warranty runs from $300 to $500 for the upgraded plan.  While I am not a huge fan of home warranty companies (some are more difficult to deal with than it is worth), it is nice to have this extra insurance policy.

·  Refusing to provide disclosures.  Most notably, the TDS or transfer disclosure statement.  This is a the statutorily required document in CA that the seller must give to the buyer disclosing what they know about the property that may materially effect the value of the property.  Banks, however, are not required to provide this form.  Because banks typically do not have any knowledge about the properties they own, they do not fill out these type of disclosure forms.  Accordingly, the buyer should really step up their due diligence efforts on their inspections to make sure they find out as much as possible on the property.

·  Charging a per diem or daily charge for any delays in closing escrow.  Some of these clauses say that the buyer must pay up to $100.00 per day for every day that the escrow is late (assuming the delay is not caused by the seller/bank).  Given that the majority of escrows do not close on time as a result of the buyer, this could be a real cost the buyer.  And given that they would have removed their contingencies by that time, they could stuck in a bad position.

·  Requiring hold-harmless agreements. I am not too familiar with these type of clauses but there are some in the standard contracts as well.

·  Requiring a buyer to waive other rights.  Such as the right to a home inspection or appraisal contingency.  It is not uncommon for them to shorten the buyer’s inspection time frame down to 5-7 days, if any time frame at all.  The standard time frame for the C.A.R. contract is 17 days.  Inspections can be done in a 5-7 time frame but everyone (buyer, agent, home inspector) need to be on the same page.

There are many great real estate opportunities in Big Bear on the market today.  Keeping these things in mind when buying a bank owned property should help save you time, money, and potential frustration down the road.  All banks are different so be sure to read the fine print on their contracts!

The time it will take to sell a house in Big Bear dropped by 10 months in April 2008.  With the pick up in home sales that we saw in March, the absorption rate for the Big Bear real estate market dropped from 32.72 months to sell to 22.80 months to sell. 

This is encouraging news for home sellers though the market is still very heavily favored toward buyers.  The market will need to get closer to a 1-3 month absorption rate in order to get back to a sellers market.

Now that we are heading into the spring and summer season for Big Bear, sales will pick up even more.  But, so will the properties coming on the market.  The total inventory of houses on the market is currently at 1094.  This number could easily be 1500 by July 4th of this year.  So, even if the number of sales pick up to 100 home sales per month, the number of homes on the market will still far outweigh the demand. 

The number of sales per month needs to be closer to 200 for the market to see any kind of significant pick up.

                                                            Absorption Rate By Price Range

                                                                   Absorption Rates By Area

Properties priced under $500,000 are selling the quickest while those between $500,000 and $1,000,000 are not faring as well.

Properties in Fox Farm, Sugarloaf, & Erwin Lake sold better as compared to Big Bear Lake Central, Lake Williams, Baldwin Lake,  & Big Bear City.

These numbers change from month to month.  Some of the price ranges and areas that are not doing well now have performed better in previous months. 

If you are interested in how the real estate market in Big Bear is performing, be sure to sign up for my RSS feed or email newsletter.

The National Association of Realtors recently released a report on second home sales that was reported on by The Dallas Morning News.

The article states that second home sales nationwide dropped by more than 30% in 2007 when compared to 2006. This is pretty consistent with what we saw in the Big Bear real estate market in 2007. There were 1172 residential sales in 2006 as compared to 796 sales in 2007, a difference of 34%.

I noticed a few important points to take from the article as it relates to the Big Bear real estate market:

Second homes are discretionary purchases, and there is a natural tendency to pull back from big-ticket items in periods of uncertainty.

This seems relatively straight forward though we are still seeing some big ticket sales.

There were 45 sales in Big Bear over $1,000,000 in 2006 and 39 sales in 2007. That is only a drop of 13%. There have been 6 sales so far in 2008 over $1,000,000 and 4 properties in escrow right now.

There were 186 houses sold in 2006 priced between $500,000 and $1,000,000 while there was 135 sales in the same price range for 2007. This a drop of 27%.

Houses sold under $500,000 in 2006 totaled 945, with 2007 numbers for this price range coming in at 623 homes sold. This is where the biggest drop was noticed, almost a 34% drop in sales.

Buyers simply adopted a wait-and-see attitude

We definitely noticed this mentality in Big Bear’s prospective buyers over the past year. Buyers would come up and look at properties, find the perfect place, and then say,”we are going wait and see what happens with things.” In a time of uncertainty, most people want to wait and see what is going to happen with the prices of homes, which is completely understandable.

But, it is during these times that good opportunities will present themselves so you have to be aware of this fact. By the time you realize we have hit the bottom of this market, it will be too late. The top of the market was late 2005 and no one knew until until mid 2006 and later. Once you find we’ve hit bottom, everyone knows. This changes all the dynamics of a buyer’s market. Prices and buyer competition will again rise. Does this sound familiar?

Even with the slowdowns, a significant number of residential properties purchased in 2007 – almost one third of total sales – were acquired as second homes.

This is a significant number when you look at it. For every 3 home sales in the U.S last year, 1 was a second home. This should only increase as more and more Boomers start thinking about retirement. Also, as the world population continues to grow everyday, many people are going to want the cabin in the woods to get away from it (and them) all.

Big Bear is uniquely situated to capitalize on both of these aspects. With over 20+ million people in the Southern CA area, Big Bear and Lake Arrowhead are really the only two options within a few hours drive. And given that we are surrounded by the National Forest, there are only so many options that will be available.

The median price of vacation homes purchased nationwide in 2007 was $195,000, down 2.5 percent from 2006.

The median price for homes purchased in Big Bear in 2007 was $309,950, down 3% from the median price of $319,400 in 2006.

Vacation home buyers appear to be more bullish about the housing market. About 80 percent second-home buyers surveyed last year said they considered it a good time to invest in real estate. That compares with about 60 percent of primary home buyers who had that view of the market.

Interesting point given that most of them have been waiting to see what happens with this market. The current rumblings out there that were are hitting bottom now is bringing some of the fence sitters out to buy. It is still too earlier to tell but I expect things to start getting better in the next 12-24 months.

A peak of population is moving through the prime years for buying recreational property.

The Baby Boomer generation should continue to drive second home and vacation homes sales for years to come. Boomers are the biggest generation from a population standpoint. This, coupled with the fact that many Boomers are now getting the money from their parents passing away, a good amount of this money will be spent on discretionary items like second homes.

Though it may be slow now, pent up demand will catch up and sales are certain to follow.

Knowledge and information are key components of making any smart decision. While all real estate values, customs, and trends are determined by local standards and economic forces, there are still some similarities shared by all second home markets.

These are all good points to keep in mind if you are planning on investing in, or selling, a home in the Big Bear area in the near future.

The Big Bear real estate market saw an increase in homes sold in the month of March with a total of 46 48 homes sold.  Historically speaking, this is still considered very slow sales activity, though it is nearly 60% 65%higher than January and 50% 54%higher than February of this year. 

The median sales price for homes sold in the month of March also increased, going up nearly 8% ($282,000) 10% ($2865,00) as compared to the previous month ($260,000).   The median sales price is still down 2% only down $1000 from the January median sales price ($287,500).

While there were more homes sold this past month, they are still far off the sales numbers from 2006 & 2007.  March 2008 home sales were down 54% 52% as compared to March 2006 and down 44% 42 % to that of March 2007. 

In addition, the median sales price for homes in Big Bear for March 2008 was down 13% 11%and 10% 8% for 2006 and 2007 respectively.

We are heading into our summer selling season so these monthly sales numbers should increase.  It will be interesting to see how they compare to 2007 sales numbers.  Be sure to check back monthly to keep tabs or sign up here to get Big Bear real estate market updates sent to you via email.

* Note: The chart above will be updated on a monthly basis. It represents single family home sales in the Big Bear area, including Big Bear Lake, Big Bear City, Moonridge, Fox Farm, Sugarloaf, Erwin Lake, & Fawnskin. Data courtesy of the Big Bear MLS. These numbers do not include raw land or condos nor does not include homes in the Big Bear MLS that are located out of the Big Bear area.

The absorption rate provides a clear picture of what is happening in the real estate market and is good to share with buyers and sellers.

I determine the absorption rate for Big Bear by taking the previous month’s sales in a particular price range or area (you can use others like bedrooms, square footage and such), and divide that into the total number of available properties in that same criteria set.  This will give you the amount of months it will take for the market to absorb the properties for sale, assuming no other properties come on the market.

I prefer to use the previous month’s numbers rather than going back a full year or 6 months because the last month is more representative of the current market conditions. 

Determining the absorption rate by going back 12 months can be done, though I feel it is outdated.  Sales that happen 12 months ago really don’t show how the market is currently performing.

Why is this important?  Knowing the absorption rate will tell you what the real estate conditions are like in a particular price range and area.  If you are selling your property, this will help when determining your asking price.  When getting ready to buy, this will help you become more informed on what segments of the market might provide you with more leverage.

                                                                  Absorption Rate By Price Range

                                                                        Absorption Rates By Area

By price range, the properties for sale in the price ranges of $300,000 and below, and $500,001 to $1,000,000 did the best last month.  The properties priced between $300,001 to $500,000 and $1,000,001 and over did the worst in February.

By location or area, Big Bear Lake West & Central, along with Fox Farm and Sugarloaf had the best sales activity rates while Lake Williams, Baldwin Lake, Erwin Lake, Big Bear City, Fawnskin, Whispering Forest, Moonridge, and Big Bear Lake East did not perform as well last month.

The key to both of these is the amount of homes for sale.  There are 361 homes for sale in the $300,001 to $500,000 price range and only 5 sales last ast month.  Likewise, there were 204 homes for sale in Moonridge with only 4 sales last month.

If you are considering selling or buying in the Big Bear, make sure you know these numbers.

Big Bear Absorption Rates For January 2008

Big Bear Absorption Rates For February 2008

I provide Big Bear real estate updates all the time.  Absorption rates are updated on a monthly basis, market updates on a weekly and monthly basis, and neighborhood updates for areas like Castle Glen, Meadowbrook Estates, and Big Bear lakefront properties from time to time.

Be sure to check back or sign up for my real estate newsletter feed and make it easier on yourself.

I posted earlier this week on the new, higher conforming loan limits for Freddie Mac & Fannie Mae as well as FHA loan limits for the Big Bear, San Bernardino area.

After a few more days of consideration, I think it is safe to say that these new limits will have no immediate benefit to the real estate sales in our area.

I come to this conclusion based on couple key factors:

Most of the homes in Big Bear are second homes.

Given that approximately 70% of the homes in Big Bear are second/vacations homes for people who live in San Diego, Orange County, Los Angeles, and Las Vegas (plus a few others), the recent FHA loan limit increase to $500,000 won’t help. FHA loans are for a primary home purchase, thus the majority of buyers in the Big Bear area will not be helped.

Like FHA loans, the new conforming loan limits of $500,000 (the old limit was $417,000) also will apply to Big Bear. Unfortunately, it appears that a second home purchaser may have to put 40% down in order to use this product. That, coupled with the fact that the interest rate may be 1% higher, makes these loans a bit ineffective.

So, on a $600,000 purchase price, a second home buyer cannot come in with 20% down ($120,000) because that would put that loan at $480,000, which would not qualify. They would then have to come in with another 20% to make it the 40% ($340,000) down.

Sounds like the better way to go is getting the loan amount to $417,000 (a total of $183,000 / 30% down ), or putting 25% / $150,000 and get a second trust deed for the remainder amount above $417,000 (which would be $33,000). This way you can stay with the “old” conforming loan limit and avoid having to put more down and pay a higher interest rate.

Declining real estate market conditions.

With the lack of sales activity in the County, Fannie Mae has declared the San Bernardino area to be a “declining real estate market.” What does that mean? Basically, the maximum amount for a conforming loan one can get will go down 5%, from 95% to 90% of the home’s value.

While that does not sound like a bad idea to me (isn’t that how we got here in the first place?), it certainly won’t help the sales.

The median sales price in Big Bear is well below the new loan limits.

$306,500 is the median sales price for homes in the Big Bear area over the past year.

There were 713 homes sales in the past 12 months, of which 495 (or 70%) were homes sold under the $417,000 price mark. With the majority of home sales under these new loan limits, I can see no new benefits to the property buyers in this price range.

This continues to be an ongoing, ever-changing story. Sign up to stayed updated on this story and other important real estate news in the Big Bear area.

Note: Not all lenders are the same, some of their guidelines and standards may differ from the items mentioned above. Make sure to check with your mortgage consultant about your loan options.