Mammoth Foreclosures 5.0––New Woolys and Cash Bullies

The Mammoth REO rodeo continues to ebb and flow. Sometimes we feel on top of things and other times we feel a little buried. My mantra of “expect the unexpected” is worth repeating for buyers, brokers, and casual observers too. The foremost wild card in the mix remains the asset managers who are handling the bank’s portfolios. Not only are they running the show but they are also mired in “policy” that is sometimes arbitrary or unexplainable and may or may not be followed. They’re watching their own performance levels, especially close to the end of the month. And don’t think they aren’t focused on where they plan to cocktail and chill for the weekend. Meanwhile, buyers are chasing these bank owned properties, and they too, based on their behavior, are a cast of characters.

The national media is full of stories about banks delaying the foreclosure process on delinquent borrowers. Some of that may be true and beneficial to the stabilizing some markets, but the beginning-to-end process for just one property is labor intensive and involves all sorts of “specialists.” And even in this electronic age the pile of paperwork is enormous. All the digital files including time and date stamped photos of everything and the scanned multiple offers (and their addendums) have got to be clogging up the web somewhere. And there is no consistency whatsoever. Nobody does anything the same way. Some properties can be turned over from foreclosure to on-the-market in just a few days, while others take months and months. (Some of that is due to bitter and belligerent previous owners.)

“How long is this going to last?” is becoming a question I hear daily. Serious buyers are weighing the deals of today against the possibility of lower prices tomorrow driven by additional foreclosures. I can only respond, “Who knows?” But the facts are this: First, there will be more foreclosures. The pipeline is continually moving properties of all sorts, from 70’s built dumpy one-bedroom condos to new or near new luxury homes and condos. There is no indication of any slowing of properties entering the pipeline. An equal number of properties are exiting the pipeline (via sale). It ebbs and flows, but it all remains fairly consistent. The second fact: We’re finding price support in almost all segments of the market. And much of the price support is at 50 to 60% off of the peak of the market. Now, buyers shouldn’t try to apply any strict rules here because every segment is a little different. And every property scenario is different. Some segments are actually seeing multiple offers and prices bid up.

So at what price levels is this support? The most impressive price support is in the condo market between $250K and $350K. Typically the classic early 80’s built townhomes––properties with more than one sleeping area, most of the projects and Associations are in respectable financial and physical shape, units usable by families in all seasons and rentable for some modest returns. But the non bank-owned inventory in this segment is thin too. The other impressive segment is the $2M home. Most of these were $4-5M in the heyday. The buyers for these have cash, and currently there are more of these potential buyers coming out of the woodwork and availability is scarce. The bank owned properties have also helped the local market find the bottom of the single-family home market––about $470K and up. Absent of any serious defects, this is a consistent price support level. And as for those 70’s built one-bedroom condos, about $100K, give or take.

The condo-hotel properties remain a challenging segment of the market. The buyers are predominantly cash buyers with a few of the big down/high interest rate types getting loans. But there are buyers. Most of these are selling at 60% off of the peak. And the pipeline is seeing more of these units coming. There are Westin Monache units that closed less than two years ago in the pipeline. Today, it is not unusual for owners to go 12 months or more without making payments before anybody even notices. So how many of these will end up in default is anybody’s guesstimate. The developer continues to try to unload units before it gets any worse. Meanwhile, the coming foreclosures in the balance of the Village and Juniper Springs will probably be good buying opportunities.

The buyers for these bank-owned properties are coming in all flavors. Many are new season pass MVP holders (New Woolys?). Many are cash buyers and their all-cash offers are looked upon more favorably by the asset managers. After all, there is no loan contingency or appraisal contingency (usually not an issue) and most all-cash buyers can close more quickly. And we’re seeing an increasing amount of “cash bullies” in the market. The cash bully typically lets you (and everybody else) know he has cash. They also expect their cash to get them really huge discounts, but it doesn’t. We see many low cash offers beaten out by qualified buyers with higher offers. Typically banks and investors aren’t ready to jump on low offers in the first 30-60 days. So cash bullies get lots of disappointment, but most like attention more than the buying.

Other buyers looking to low-ball bank owned properties are experiencing what is known as “the market educating them.” After losing out two or three times on popular properties they learn that making offers at 20-30% less than asking isn’t going to cut it. For a while we had an out-of-town broker who made the same $100K all-cash offer on every REO that came to the market. I’m still not sure if he was just a bully or became educated. Ultimately, the time to consider making a lowball offer is after a property has sat on the market for 90 days or more, but in this market these aren’t the properties most buyers are looking for.

Many negotiations are ending up in a “give us your highest and best” response from the asset manager. Potential buyers respond in many ways. Some just stay with their original offer, some go a thousand more, others go ten thousand more. And then there’s always the “I would have gone higher” response from a buyer who lost out. We’ve even had mad buyers who lost out insist that we give them the name and phone number of the asset manager so they can re-enter negotiations. (Not going to happen, it violates the confidentiality agreement we have with them and it is a sure way we will never to do business with them again.)

The buyer, and his strategy, who “wins” the negotiation is not always the same. This is where the asset manager wildcard plays out. Sometimes it is a horse race––the first one in with a reasonable offer. Sometimes it is a simple bidding war, but the clock still ticks. Sometimes the buyer and buyer’s agent who are the nicest (and follow the instructions) get the deal. Lately, we are seeing more properties priced aggressively but with “cooling off periods” of five to ten days, meaning the seller won’t respond until the property has had significant exposure to the market. But buyers can’t assume they should wait, we’ve seen asset managers accept an offer during the cooling off period. (Again, expect the unexpected.)

Then there is the buyer (or their agent) who actually does get to escrow and doesn’t under the concept of “as-is, where-is” in an REO transaction. Asset managers don’t like nit-picking buyers. They like buyers who move towards closing. Oh, there are rare instances when they will approve some repairs, but again it can really depend on arbitrary variables. And most times buyers just acquiesce anyway.

The latest scam in the REO industry (not Mammoth) are crooks taking the photos and details from a bank-owned listing on the Internet and posting them on Craigslist as an available rental. Potential tenants are forwarding fees and deposits only to find out they’ve been scammed. I wonder how long before this starts happening in Mammoth. Think about it, anybody could take the photos and descriptions off any listing and rent the property to unsuspecting vacationers. Talk about expecting the unexpected. So much for happy holidays.

Okay, so what is the current take-away from the present Mammoth real estate market and foreclosed properties? Buyers are buying and getting great deals relative to just a few years ago. The bank-owned properties are some of the best deals and are definitely setting the pace of the market, especially in the sub-$400K condo market and a handful of high-end homes. Buyers looking to buy will be rewarded with patience and persistence. Right now the demand is solid and consistent. But we need to move through the holiday and post-holiday (decompression) period. That is historically a slower sales periods in this market. Somewhere in spring we’ll have a better idea of how firm the market is. I’m thinking this interim period will be a good time to pay attention. A little luck and good timing never hurt a real estate transaction. And coming to look at a few new listings is the perfect excuse to get in a couple of days of skiing. Who knows, you might even get the unexpected perfect ski day.

9 thoughts on “Mammoth Foreclosures 5.0––New Woolys and Cash Bullies”

  1. Hey, we bought one of those "70’s built dumpy one-bedroom condos" this summer. Someone had to! With a little TLC, we now have our little Mammoth hide-away that was out of our reach just a few years ago.

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  2. "First, there will be more foreclosures…There is no indication of any slowing of properties entering the pipeline. An equal number of properties are exiting the pipeline (via sale)." "Right now the demand is solid and consistent. But we need to move through the holiday and post-holiday (decompression) period. That is historically a slower sales periods in this market."

    So the pace of foreclosures will remain the same or go up, but sales (currently propped up due to a seasonal uptick) will go down. The smart money still says "Wait" because we still haven’t hit bottom, and won't until spring or summer at the earliest. But I will be paying very close attention. Thanks for the post Paul!

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  3. figured it out.TRY 11 CENTS ON THE DOLLA….That means 11% of the peak value will be the new value. wont wont. I am crazy right!!what if I told you 50% haircut three years ago, and that is where we are TODAY….LETS COMPARE TODAY with 1998. In 1998 wages were the SAME as today. Inventory of available properties was 1/FIFTH atleast. and the ever unimportant UNEMPLOYMENT RATE WAS 4%, now there is five times atleast the available empty properties, salaries have stayed the same for the non 15% unemployed in Cali…wont wont wont…..DON'T CALL FOR A COMBACK, WE HAVEN'T BEEN HERE BEFORE. it Wasn't this bad for housing during the depression. So basically if you are underwater on your property and that is all you got, and you had to be given 60k from your step dad and mom or whoever to get in this really bad investment…wow, you are in way worse shape than being broke in south central. Economically speaking. Basically, you aren't going to want to own 80% of the property out there even at 11 cents on the dollar, why so you can be taxed and have money bleed out for it…You are going to want to own one property on the plannet as nice as you can, if you can't afford to buy a top 5% property, don't bother it will only have negative value. Keep your money as a cushion, and be able to dictate where it goes, rather than have it constantly being drained from you.

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  4. Anonymous,

    not sure about 11% off the peak, but your points are on the mark. Very well said! Most fail to take into account the yearly taxes, maint. cost, etc. and that is what got the people before them into trouble.

    Hang on tight, it is about to get much worse. A $3.5M home on Greyhawk just came on the market for $1.5M.

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  5. That's 11% of the peak, meaning if it was a 300k condo with 500 in maintenance a month plus taxes, plus up keep, plus heat, due to the oversuply, you will see this 300k condo to sell for between 33k and 50k…over the next 7 years. ITS A SKI TOWN, not a necessity. And it was over built and over priced to the EXTREME. Most with a second home in Mammoth will be lucky to hold onto their first home that they live in because it is close to their JOB.

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  6. True, but that smart money isn't jumping out of the window anytime soon… I've been talking about the smart money for over a year now (http://mammoth-real-estate.blogspot.com/2008/08/i-want-my-screaming-deal.html) and there's still no doubt, real estate is still a depreciating asset today. This is seasonally the strongest time of year for real estate values to stay the same (in some segments) or depreciate at slower pace, but that's only temporary. Fact is, is that real estate values have nowhere to go but down. I hear of "price support", but I don't hear of values going UP, because that "price support" overall is going DOWN over time. If I was a betting man, my bet is that spring will see even lower overall values than today (yes I know I'm stating the obvious). Whether or not that will be the true bottom is not entirely known because it will really depend on the pace of foreclosures, how the economy is doing, and how banks set their lending standards, if they are even willing to make loans (it's been said that a return to traditional lending standards means a return to traditional home prices, but it seems that banks have standards even stricter than those, especially for a second home… if anything, values could overshoot on the way down, just as they overshot on the way up)… Oh, lets not forget, the Fed will raise interest rates when the economy does rebound, and that doesn't bode well for real estate values then. All things considered, the prospects now for a bottom to occur next spring or summer are slim at best. Simply put, there's NO HURRY… it took years for the boom to occur, it will take years to correct itself; we're just somewhere in the middle of the bust process…

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