Good blog buddy, Dave Blockhus, of Coldwell Banker in Los Altos, recently shot this video overview of a home sale on the courthouse steps in San Jose. It is about 4 minutes long and provides a example of auction action occurring all over the US, including Sonoma County.
There were so many home auctions in Sonoma County during the past year that Sonoma county is asking auctioneers to move their business elsewhere as they are clogging up the hallways of the county buildings. Cash investors with certified funds are the only ones welcome at these sales and they are out in force. Fully 18% of homes sold under $500,000 in Sonoma County were cash sales. I am guessing most of those went to investors.
Many of the new listings since Christmas have been bought at auction (and some off the multiple listings) and are being remodelled and flipped by investors. I am seeing homes purchased for $250,000 to $350,000 (cash and as is) for example, which are brought back on the market in 60 to 90 days.
In a typical scenario one of these homes closed in November or December. A construction crew moves in to put in new flooring, baths and kitchens, paint inside and out, lay some sod and voila-the house is back on the market in 60-90 days, staged and price from $400,000 and up. Some investors are doing a really nice job with quality work, employing crews that might otherwise be working on new home construction. Others are doing the bare minimum beyond minimal cosmetics.
There are restrictions on the sales of these homes to FHA buyers, who comprise the bulk of the first time buyer market here in the county. These restrictions were just loosened January 15, 2010, effective February 1, so that a 90 day sale moratorium has been suspended for a year. Previously, an FHA buyer was not eligible to purchase a distressed property less than 90 days after it was previously sold.
More restrictive appraisal and valuation methods will continue to apply for FHA buyers interested in these homes. If the home is priced more than 20% over the previous sales price, the FHA lender will require either a secondary appraisal or an itemized list of improvements to justify the new higher price.
One property I saw recently in Sebastopol on a half acre was purchased at auction for $350,000. The investor put in $60,000 dollars worth of work, staged the home and it went on the market 60 days later. Went into escrow day 1 on the market, listed at $535,000. Clearly there is money to be made in these short term flips, and also a market for quality remodels smartly done. You must closely evaluate and inspect the improvements yourself as a buyer to make sure the new price is justified.
Meanwhile thanks to Dave for his informative video. I don’t think he got an Oscar nod yesterday but he does provide a nice show and tell about home auctions. (FYI: I did a post a couple of years ago about a different type of auction on a grander scale. You can find it here.)
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