Simon says:"How exciting, properties are being foreclosed on-- Yippeee! :)"

Simon says:"How exciting, properties are being foreclosed on-- Yippeee! :)"

The other day, I overheard a conversation between two junior real estate speculators about how excited they were that there were finally some foreclosures in Santa Monica. When I say " junior", I mean novice. The truth is, they were talking about properties in Westwood and Brentwood-- not that it matters a whole lot. There is a lot of loose talk among uninformed, non-objective people out there waiting for foreclosures to come and make them feel like heroes. Finally, yes FINALLY, these people think they will have their day in the sun, picking off poor distressed homeowners and banks that are going bust.

I'm of the opinion, contrary to the national news media and many others, that the day in the sun for buying real estate has come and passed. It was when you could get a 100% financing, no money down, interest only on a stated income loan. In 2003, that is exactly what I did. It was the right time and I was riding the rising curve in property appreciation. Sure, there was a degree of luck and good timing involved. And yes, a lot of people got themselves into trouble with this sort of freedom. At the same time, a lot of disciplined and savvy people took this opportunity and made a small fortune with it.

I don't have wealthy parents who helped me buy my first home. At the age of 28, I put my first home purchase together with all my own resources. I bought a 2 bedroom condo East of Sepulveda on a busy street for $366,000, put $15,000 into remodelling and sold it for $490,000 a year later. I then moved back to Santa Monica immediately (I couldn't wait) and did the same thing with another property. This was the amazing opportunity on the Westside. To have the ability to leverage hundreds of thousands of someone else's dollars into an appreciating asset was the greatest opportunity of all. Living in hope that a ton of people are going to be in dire straights is just not the type of attitude that is going to get you a great home.

Yes, there are a lot of foreclosures in Southern California. I am currently a participant in the sales of portfolios of banked repossessed properties. These properties are selling for 60-65% of their appraised value. Guess what? They aren't in Santa Monica and they aren't in Brentwood! So, yes, there is opportunity in these tragedies, but they are generally better for investors with deep pockets. Not the average home buyer. This is particularly the case because banks will generally only sell these types of multi-million dollar portfolios to all cash buyers-- you can't finance these purchases.

Banks aren't stupid. Banks aren't selling their REO (foreclosure) properties on the Westside at any great discount. They usually ignore the more subtle qualities that define a property's value and go straight for square footage and number of bedrooms. They then price the property according to an unemotional appraised value. In Santa Monica and Brentwood, personality, style and the zen of a property have a good deal of influence on a home's sale price. From my personal experience, foreclosed and non-foreclosed properties are each under priced with the same frequency. Just because a property is in foreclosure doesn't mean it's a great buy.

What generally characterizes a foreclosure property in a highly desirable neighborhood is that they are usually of a lower quality than the other properties on the market. I attribute this to a couple of things. First, the people who owned these homes, for whatever reason, and I say this with all due compassion, didn't have their lives together in recent times. They also knew, during the last months in their home , that the property was going to be repossessed by the bank. Oftentimes REO properties are stripped of everything the previous owners could take with them. They tend to have some kind of negative energy to them. This may sound a little "hippy dippy," but that's what I have found during my experience.

Once again, the value of real estate is linked to supply and demand. If a large enough number of homes go into foreclosure on the Westside, this will increase inventory, and that is the only way foreclosures are going to influence sales values. Just because a house is in foreclosure, it doesn't mean it's a great buy. It also makes me sad to see people seem so pleased to see others in such distress. Particularly because these people don't really understand that foreclosures aren't good news, for them or anyone else.


Simon Salloom is a local Santa Monica and Brentwood based Realtor with Coldwell Banker. Go to www.SantaMonicaSimon.com for more information.

Simon says: "How Much Pain is the Real Estate Market Really In?"

Article I just wrote for the Santa Monica Daily Press:



Simon says: "How Much Pain is the Real Estate Market Really In?"

It's been a while since I wrote a piece for this paper. The primary reason is that I have wanted to produce an article that had some insight into our changing market—this hasn't been easy. So many people on the street have a story about what is happening, and me, who lives and breathes the real estate business here on the Westside, is still not sure what is going on.

Inventory is not bloated by any means. It is difficult to find quality properties in almost every category. Historically, prices rarely drop without a glut of real estate for sale. We don't have that right now.

A reduced, but decent number of buyers are more or less actively looking for properties, with a heavy dose of hesitation. This seems to be inspired by the expectation that prices will fall, even though they are holding pretty steady right now. The local Multiple Listing Service shows properties selling for an average of 96.3% YTD below asking in Brentwood and 94.45% YTD in Santa Monica. This hesitation is evident in all but the most affluent reaches of our already very expensive location.

My sophisticated buyer clients aren't worried about the market. They expect a drop in values in the Southland, but nothing over 15%. In the better areas like Santa Monica, closer to 5-8%, and this only in certain types of property, for a limited period of time. They are buying and entering into escrow on fine quality properties at decent prices, knowing that if they get something they like now, the future risk is negligible enough to move forward.

Real estate isn't like Copper or Milk. Copper from India and from Indiana is basically the same stuff. Real Estate is different. If you are looking for something special, it's good to look for it when there is less competition. For example, if you are looking for a deal, you can get a condo on a mediocre street, with lots of traffic noise right now for about 10-15% less than you would have paid for it before. If you want something special, you'll pay 3% less than you would have had to eight months prior. If you want a 5 million dollar house North of Montana, you're paying the same price it's been all year. If you wait, maybe and only maybe, a similar property will be 10% less at it's most extreme dip, but maybe you won't be there to buy it.

An accomplished Real Estate Developer client of mine reminded me this weekend that our industry is a bottom up business. People typically purchase more expensive properties as they progress through their lifetimes. Meaning, if the people at the bottom price ranges aren't buying, the upward price mobility of our industry is threatened. The liberal lending practices of years past produced an excellent opportunity for people to get into the market. Now, the banks are tempering their risk, and making it a little harder for people to get loans. This threatens entry-level properties more than any other type, real estate that is under $700,000. How much, no one knows, no matter how brilliant they think they are.

From my experiences at open houses, I have seen a lot of buyers who think Sellers are in this state of desperation and financial hardship. They believe the dramatic national news stories and apply them directly to their locality. None of my five sellers are in any sort of drastic financial situation. They are selling for the reasons people have always wanted to sell. This is the same for my associates, no one has a notable sum of people on the brink of bankruptcy.

If I was to say everything is going to be good in the coming months, I'd be as bad as the people in the media saying the market is in a tsunami. My best advice is to get your own independent view on things, a view that serves your needs best. Look at data, listen to what is happening on the street, not the television, and make decisions that are going to be right for you.