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.)

A few weeks ago an agent friend and I were visiting as I fed the horses one early spring evening. She was telling me of the difficulties she was having successfully securing a home for first time buyers. This a great agent with many years of experience who was working with entry level low income buyers in Sonoma County. They were looking for a home priced under $200,000 in the Santa Rosa city limits. They were pre-approved for FHA financing with the reputable lender who had referred them to my client. They are eligible for a $10,000 down payment assistance from the city of Santa Rosa which will subsidize their down payment. Their income and credit qualified them for an FHA (Federal Housing Administration) loan. Although they qualify for the federal government first time buyer $8,000 tax credit, that cash won’t reach their pockets until after the sale has closed.

This couple was competing in many multiple offer situations with all cash investor buyers or other first time buyers such as themselves. Many properties in their price range were in such poor condition that they would not meet the strict FHA property condition guidelines, and the repairs needed would have put them beyond the couple’s limited budget. I don’t know how many offers they wrote but they were not having luck.

As my friend detailed the many days and hours she spent with this couple, she said it was seeming increasingly unlikely that they would make it into the market. I paused as I asked her, “Do you think we have hit the bottom here in Sonoma County?”. She said yes–good properties are selling extremely fast and sometimes at over asking price. I had to agree. What had seemed a consistently active but still laid back market this winter was falling into high gear as the days got longer. As some of my buyer clients and I surmised in January and February, we felt that things would be much more competitive as spring arrived, and that seems to be true. In fact, the southern part of Sonoma County, in Petaluma was already scorching hot at Christmas and New Year’s time. And that same scorch-ability (sp?) seemed to be tracking north along the 101 corridor.

The sheer activity level, the vast number of first time buyers and investor clients looking for rental property, and the declining number of new listings have all been detailed here over the previous months. In December, new sales exceeded new listings for the first time in many months, and, beginning in February it seems to us that the bottom was reached and had passed some entry level buyers by.

That said, with only 3-5 homes selling over $1 Million dollars in Sonoma County between December and February, and the mid-ranges still sluggish and all over the map, it seems that properties priced above $350,000 (+-) are still seeking equilibrium. It is a real challenge in these price ranges in communities from Healdsburg to Santa Rosa to Sebastopol to know exactly where new listings this spring and summer should be priced to attract a buyer sooner than later. Clearly there have been a number of sales in all three communities this early spring that give some hope at these price points that buyers and sellers will come to terms. It seems that the properties that are successfully selling in the mid-ranges are price 10 to 20% or so below the prices of the last couple of years. Only time will tell this spring what the market has in store for mid-tier properties and upper-end properties. But the fact that the bottom seems to have been touched on the low end, bodes well for eventual market stability.

Under contract       227              604                        377                      166%

Sold                       227              488                         261                     115%

New listings            530               551                           28                       5%

The biggest takeaway here is that this is the first time in over two years that the number of newly opened escrows has exceeded the number of new listings.   Despite everything that happened in the financial markets in October, the number of newly opened escrows was up 166% and hit its highest point year over year.  In addition, the number of closed escrows reached a new high for the year.  We all know that not every opened escrow will close-but the number of newly ratified sales continues its upward trend, and bucks the national trend.

The tail wagging the dog in this market continues to be the REO (bank-owned) home at the low end with an increasingly high volume of sales under $500,000 for both single family homes and condos.  Sales through October seem to be driven (this is anecdotal) equally by first time buyers or owner occupants and  real estate investors.