San Diego Real Estate: Value vs. Cost

A lot of things have CHANGED in the last few years in Real Estate.  Prices have dropped, short sales have become commonplace, and we all have a new word to add to our vocabulary - shadow inventory.  In every shifting market there is opportunity for some, while others are effected in a negative way with homes worth much less than when purchased.

For those that brave the current market please consider VALUE over COST.  We are in an amazing time of opportunity for those with steady jobs to get into real estate for the long run – something that 10 years from now you’ll be saying to the neighbors, “I remember back in 2009 when I bought this home for a song with a mortgage of  5% fixed interest for 30 years!  Can you believe it?”

Here are two examples of COST versus VALUE:

COST: Bank owned single family home, 3 bedrooms, 2 bathrooms, 1,450 square feet with plenty of deferred maintenance and missing appliances for $450,000 in subdivision full of upside down owners.

• Aggressive asking prices designed to generate multiple offers.  Very difficult to compete if you are an FHA/VA Buyer.
• Unknown condition of systems and structure and an “as is” sale – Seller unlikely to fix/replace anything.
• May be located in a neighborhood of more potential “short sales” and possible foreclosure actions which will continue to drive down prices in that neighborhood.  Market value is set by recent comparable sales.
• Location may not be ideal, for instance located in a neighborhood of declining value and care, close to freeway or noise, or poor performing school district.  The location being less desirable will keep the home from appreciating as much in a normal real estate market versus a home in a more desirable location.
• Lots of addendums changing the standard California Association of Realtors – Standard Contracts.

VALUE: Equity Seller (A seller that is not distressed and can sell & pay commissions), 3 bedrooms, 2 bathrooms, 1,475 square feet, in good condition with some normal wear and tear.  Home is priced at $488,500 and has been on the market for 24 days.  Located in stable neighborhood, good school districts, and well cared for homes surrounding.  Equity sellers usually exist when the seller has owned the home for 10 years plus – meaning they are in a more established/stable neighborhood.

• Asking price may be somewhat high when compared to REO inventory.  It is important to consider that most REO homes sell at or above asking prices, thus asking prices are usually below market prices.
• Seller will provide a Transfer Disclosure Statement and you can ask for the optional Seller Property Questionnaire.
• Seller may entertain repair requests, particularly if they are health and safety issues.
• Property may be in a more stable established neighborhood with less potential of future foreclosure and short sale activity which pulls down value.
• Transaction is traditional with no strange addendums changing things to the advantage of the Seller, unlike most REO sales.
• Seller will disclose any insurance claims within the last 5 years or death on the property.

While this example has been over simplified you see where I am going.  If you are going to consider buying in this market please consider looking not just at a “perceived” lower cost of an REO sale but also at normal equity seller’s and homes that have been on the market for some time.

Opportunities exist for those that take the time and effort to make a good real estate investment, which sometimes does not mean the lowest price.

Photo: Flicker