Your friendly local source for Sonoma County information

REO sales continue to drive the Sonoma County residential housing market. In June 175 REO properties were snapped up by eager investors and home buyers. That represents 37% of the Sonoma County real estate sales activity for the month. REO sale values ranged from $110,000 to $1,065,000 with an average price of $317,000.

The biggest question most new buyers have is whether they have to bid over the listing price (I also call it the asking price) in order to be the successful buyer. There are no hard and fast rules, but I like to show recent trends so people can see what is happening in the market right now. In my last post I showed a scatter chart with the most recent buyers all bidding over the asking price. This time I’ve got a chart of DOM (Days On the Market ) plotted against the percentage above or below the listing price for each transacation. This data covers Sonoma County Residential REO sales from June 1 to July 12, 2008.

To get oriented, find the 100 percent line along the left side. That’s where a new listing coming on the market today would show up. 100% represents full price. As you move to the right into the chart, dots above and below the 100 line represent transactions above and below the listing price. The first couple of weeks on the market is where the buying frenzy occurs as competing buyers work with their Sonoma County real estate agents to write a winning offer. You can see that there are dots both above and below the “listing price” line, so there is no magic formula for success. There are a few outlier dots where a property has been priced far from its value, but most dots cluster within 5-10 percent of the line.

To get a more accurate number for the bidding I reviewed all the homes that sold in the first 45 days they were on the market. 37 sold for over asking, 4 were at asking price, and 37 sold for less than the asking price. That’s about as balanced a market condition as you will find for freshly listed homes. Of the 37 homes that sold over the listing price, 6 closed at more than 10 % over the listing price. Except for the million dollar home you would have been the successful bidder on ANY home listed with a bid $55,101 over the listing price. There were three bidders working the other side of the over-under line. Three successful bidders came in at 10 percent less than the asking price and saved themselves about $30,000 per transaction.

As you read across the chart to the right, there is a very clear trend. Past 90 days on the market, there are zero offers over the listing price. The homes that have lingered on the market may need more work or might be in less desirable parts of the county, but it’s clear that an offer below the listing price is going to be successful. The longer it lingers, the lower the selling price will be. The chart shows that after six months, the successful bidders are at 80 percent or less of the listing price.

These charts are confusing, but they help show trends and they provide guidance for buyers who want to craft a successful strategy to buy a home in Sonoma County. Send me an email if you have any questions about these trends or would like help tracking and purchasing an REO listing in Sonoma County.

REO’s Rule!

How does three Sonoma County REO sales per day since January 1 sound? How about five per day since May 1?

I last wrote about Sonoma County REO properties in January of this year. At that point fewer than 60 REO properties had been sold in the prior six months, or an average of one every three days. Fast forward to today and we have averaged almost 100 Sonoma County REO sales per month. It’s even more heated than those numbers show, since the pace of sales has picked up to more than 5 per day in May and June. Real estate investors and renters with enough cash for a big down payment are jumping on the bandwagon and pushing hard to get into entry level homes.

Everyone wants to know what’s going on with this hot market. I hear stories of overbidding and multiple offers, but it’s usually “something I heard” or “it happened to my friend”. I figured we could all use a dose of Sonoma County REO Reality, so I pulled up the actual results of REO sales since January 1. The first thing to think about is volume. As of June 8, 460 Sonoma County REO homes have been purchased for a total of $160,000,000. That’s a lot of money. Right around $1,000,000 per day average. For May and June, two million bucks a day chasing the REO market in Sonoma County is a good estimate. We all are looking for great bargains for ourselves or our real estate clients, but there is serious money chasing these properties.

Okay, let’s get you some practical information you can use. There’s a lot of money sloshing around. How much of it is being spent above the listing price? There are a lot pieces to this overbid parcel, so let me start with general statements.

75% of the Sonoma County REO homes purchased this year have been bought for the listing price or less.

Out of the 460 homes sold so far, 346 were at or below list and 114 sold for over listing price. The range of overbids has been from a low of $50 over (lucky buyer) to the maximum overbid of $67,400 on May 2. The final selling price on that one was 21% above the listing price. Historically, only nine of the 460 properties have gone for more than 10% above asking, so that gives you some idea of your odds when you are writing an offer. During the course of this year, you had a 98% chance of being the winning bidder if you wrote an offer up to 10% over the asking price.

That was then; this is now

What do I mean by that. Well, we’ve been talking averages for the whole year and that’s not how this business works. What was successful in January (when you should have bought) is now ancient history. There were three overbids in January, and three people paid the listing price. The other 19 buyers got discounts that averaged $31,000. By contrast, today’s market is HOT!

I pulled the number for properties that closed in June and more than half of them, 24 out of 46, sold for over the asking price. In June, the highest overbid so far has only been 11%, but in pure dollar terms, more than 10% of the winning buyers have paid more than $20,000 over the listing price. Some of those were on properties that had already been marked down, but many were at their original listing price. The lowest successful overbids were three people who got lucky with $100 over asking. Those three Sonoma County REO listings had already taken a markdown from their original listing price. There were five buyers between $100 and $9,999 over listing price who got their homes. At the top of the heap were the ten buyers (out of 46) who paid $10,000 to $26,500 for the privilege of buying a home above listing price. Please remember, 22 people paid less than listing price to get their homes during this same time frame.

Putting all the buyers into three rough groups, you have half the successful buyers who didn’t overbid, a quarter of the winning buyers bid over, but less than $10,000, and the big spending quarter of the buyers who spent serious money to get the house they wanted.

The purpose of a post like this is a combination of advice and history. If you don’t know what other buyers are doing, you can’t form a rational approach to acquiring an REO property. This post is intentionally general to be useful as an overall guideline. When you have identified the neighborhoods and budgets that you want to work with you can do an analysis like this with your agent to see what strategies for bid price might be effective for you.

I can set up a free automated REO search for you if you aren’t already working with a real estate agent. Just send me an email with your name, phone number, email address, price range, and city where you want to find an REO home. Your custom search will notify you whenever properties come on the market or have price or status changes.

Rolling hills, ancient oaks, and great views define the eastern slopes of the Alexander Valley which runs from Cloverdale in the north to Healdsburg in the south. This long stretch of land follows the Russian River which has blessed the valley floor with rich, alluvial soils that produce wonderful grapes. Cabernet Sauvignon and Chardonnay predominate, but you can plant most varietals here with good results.

We have just listed two estate site properties near the north end of the valley close to Asti. The two separate, but contiguous parcels would be great for small vineyards or horses.

The land is rolling hills with the front of the bigger property beginning right on River Road near the summer crossing of the Russian River at Asti. The land rises gradually through terrain of trees and meadows. There is a knoll crossed by the invisible line that divided two land grant Ranchos.

That knoll is where the natural home sites area and where the two properties are separated. The smaller property dips down the back of the knoll and then climbs again to a high point at the back of the property. I took a screen shot with Google Earth to show the approximate property lines superimposed on the land.

This would be a wonderful estate site for someone who wants to build a family compound. There are two separate parcels, each of which could have an additional guest unit.

Serendipidy can be your friend. In my case, a maps.google.com search for the fastest route to Dillon Beach told me part of my drive should be on Roblar Road. It’s been a while since I drove that stretch of Sonoma County between Petaluma and Sebastopol, so this morning I went for a drive.

Man, it was beautiful.

Part of it was the light, but the magic was part green, part quiet, part animal, and a big dollop of pace. I was lucky that I left an hour early for my appointment. I had hoped to get some pictures on the drive, but the final results were much better than I had hoped for. It wasn’t just that I got some fun pictures, but that my mood got a chance to get mellow by sharing some space and time with a very special place.

The critters that get to hang out all day munching luscious Sonoma County grass may not notice that they live in a great area, but I think the California Cheese commercials on TV actually capture something when they talk about California cows. I haven’t seen any TV for sheep, but they seem to be in on the action as well.

The one bee buzzing around the picnic was an issue that I hadn’t been aware of until my drive today. There are efforts to open a quarry on Roblar Road. I don’t know enough to take sides on this, but I feel strongly that a neighborhood as peaceful and rural as Roblar Road deserves a chance to opt out of the path of progress if they choose to. You can read more details of the issues in this Sonoma West Times and News article

This was a stellar day. You know how sometimes the light is just right and the temperature mellow warm, but not hot. Add to that the wonderful smells filling the air as the growing season kicks into high gear with the warming and lengthening days. I stopped along Old Redwood Highway near Wikiup to grab some pictures of early flowering cherries and plums. The air under these trees was dense with scent…almost intoxicating in its power. The masses of flowers on the trees almost defy description. These are the street trees rather than the great fruit bearing cherries, so the whole breeding goal has been for intense color and density of the flowers. These mature specimens illustrate their success.

A close up of a random branch shows flowers packed as tightly as they will fit. The effect of massed flowers which is apparent at a distance becomes even more intense close up when each flower’s fragrance is added to the next.

The pink blossoms surround darker centers with pistils and stamens colorfully projecting an inch or more from the center.

The whole effect is magically powerful as the eye is grabbed, the nose is sweetly invaded, and the air itself seems to vibrate with the intensity of the display. It’s no wonder bees, hummingbirds, and humans all flock to these trees in this season. Absolutely irresistible.

It’s easy to forget how blessed we are in Sonoma County. I was previewing a Healdsburg listing for some snow-bound clients who wanted to know what was blooming right now. The property owners obviously loved camellias and had planted some wonderful specimens to go with the quince and daffodils that bracket the floral show below. These photos are all from the middle of February.
Renowned horiculturist Luther Burbank considered Sonoma County “the chosen spot of all earth as far as nature is concerned.”

Mix heavy rain and narrow river channels and you’re bound to get floods. I’ve had one home and one business flood, so high ground looks good to me, even in dry times. When floods are rumored, it helps to have good information about projected river levels. Even the best estimates are often wrong, but it’s smart to keep your eye on accurate information.
This web page from the California Department of Water Resources combines both rainfall and flood stage information for Guerneville, the most likely flood area in Sonoma County. Here’s an example.

The left side of the chart is five days of historical information, with rainfall on top and flood stage on the bottom. The right side of the chart contains five days of predictions for both rainfall and flood stage. The nearer in time the more accurate the predictions. Those are shown in green. The state also attempts to look deeper into the future, but they call it guidance rather than predictions, since they don’t have enough information to make a strong prediction. That information is in magenta and is worth watching, particularly when rains are heavy and flood rumors start to spread. The image is a link to the actual state information that is updated frequently.

The best advice I can give potential flood victims is to keep your pictures and important documents where you can grab them fast and keep them safe. Furnitures, clothes, applicances, etc. can be replaced, but your wedding pictures, birth certificates, etc. can be impossible to recover. Next best advice…get a motel room in Santa Rosa and wait the flood out with electricity, working toilets, showers, and hot food.

Not too far from the energy of the Airport Business Park and Shiloh’s Wal Mart and Home Depot is Faught Road. It’s only a couple of miles long, but it’s miles away in space and time from the urbanizing 101 corridor. This classic farm house on six acres is architecturally pleasing on many levels. The three dormer roof lines echo the larger gable and break up the roof plane. The wrap around porch makes a symmetrical division of the house height and creates blocks of space that comes close to fitting into the “golden ratio” that has always been a pleasing shape. The house itself from the peak of the gable to the width of the entire structure is also close to the golden ratio.

The photograph to the right uses color masks to show the way the house’s design is a series of golden ratios. The use of these proportions is probably an unconscious element on the architect’s part; just good design that pleases the eye.

REO is the acronym for Real Estate Owned. Owned by banks, insurance companies, mortgage companies, and anyone else who ends up holding the deed when foreclosures are finished and there were no bidders (holders of ten or more of these properties are listed in the box on the left). These are the reluctant owners who thought they were buying guaranteed cash flow, but instead ended up with real property that most likely is worth less than the original loan amount. How we as a community of buyers, sellers, and brokers end up valuing and moving these homes into the hands of resident buyers and rent-minded investors is likely to be one of the most interesting stories in real estate this year.

First, the number of REO properties is small in absolute terms, but as of the end of the year, nearly 400 homes in Sonoma County fell into that category. Less than half of that number were actively on the market, so there is a growing reserve of over hundreds of REO homes that aren’t listed on the MLS yet. The sellers are motivated to get these properties off the books, but they don’t want to flood the market and depress prices any further. Still, the need to dispose of the homes will be a strong incentive for the REO holders to accept qualified offers and to avoid piling up even more inventory as the foreclosure boom continues.

Some properties are on the market now that I would classify as excellent values. Some are inexpensive enough to create a positive cash flow for investors; others are estate type properties at prices that will look like great deals in a few years. I can produce a list of the MLS-listed, REO single family homes available for download if you would like to see what’s on the market. I would also be happy to produce a list about REO properties in specific areas.

In the last six months 60 REO single family homeshave been sold. Selling prices ranged from $195,000 to over $1,000,000. Depending on location, the prices they are selling for are anywhere from 15% to 30% below the market peak prices of 2005. Almost nowhere in the county is immune from foreclosures, so these sales happened in south west Santa Rosa and the Russian River, but also in Healdsburg, Sonoma, Sebastopol, and Fountaingrove.

The other factor to consider along with REO’s in Sonoma County is short sales. These are sales for less than is owed on the property and the banks and other mortgage holders end up negotiating how much money they are willing to lose. Their alternative, of course, is to foreclose on the property and take their chances that either wiping out a second mortgage or a HELOC (Home Equity Line of Credit) might leave them in a position to recover their investment. There are more than 500 short sale listings right now, and it’s fair to say that all of them are highly motivated sellers. Add to this the even more motivated sellers of the 41 homes listed on the MLS that are in foreclosure or have a notice of default filed, and it makes this is an interesting time to be a buyer.

The last few days have been cool enough to make jackets and sweaters seem like a good idea. The rain has been warm enough to still feel like a California winter, but the higher hills have been dusted with a beautiful snow cover. I spend some time hiking around a new listing in the Alexander valley, and was surprised by the amount of snow I could see. Eric Drew is a great photographer and I assumed he would have some pictures of the snow. Instead, in a classic example of the way the world works, when he saw the perfect picture to take, he was without his best camera, and the memory card for his backup camera was in the office. He left me with a poetic vision that will serve until pixels arrive:

Sun on snow
Mt. St Helena
black and white wispy clouds