Sorry, No Free Lunches Here

Address: 848 23rd - 90403

Details: 2 bed/2 bath teardown on an 8,000 st ft lot

Description:  BIG OPPORTUNITY! THIS SWEET COTTAGE SITS ON A FLAT 8000' LOT ON THE BEST BLOCK SOUTH OF MONTANA. AMAZING DEVELOPMENT OPPORTUNITY TO EXPAND ON OR REBUILD. GREAT WIDE STREET, FRANKLIN SCHOOLS. STEPS TO MONTANA SHOPS + RESTAURANTS. VERY QUIET AND PRIVATE.


Listing History: 12/14/10 - $989,000


OMG, a well located teardown in 90403 for less than a million!...Well, not so fast. Despite the fact that it is a pretty slow time of year for real estate, high quality lots get a lot of attention when listed for well below market value.


I actually think this listing strategy isn't crazy when trying to get a relatively quick sale done. Lots of excitement clearly got generated in this case with such a low list price and the ensuing bidding war is likely in its final stages as I post this right now. Somebody I talked to guessed this would sell for about $1.35mm when it is all said and done. I think that will turn out to be a pretty close guess. We'll see.


Finally, compare this listing strategy to that of 907 22nd which has been active on the market for almost a full year. Stale, no excitement, no buzz. I think the location of the house on 23rd is superior to that of the location of the house on 22nd so when this transaction closes, it will create a nice comp and reality check for the 22nd street house.

Mortgage Rates Are Rising, But Don't Freak Out

I've been watching longer term Treasury rates rise. To the left is the 10 year rate graph I picked up off of a Calafia Beach Pundit post.

Mortgage rates basically track the 10 year rate (+ a spread). Calculated risk has a post right now about the real time movements in the mortgage market. It looks like conforming rates are getting near 5% after being in the low 4% area. This makes sense as the 10 year Treasury rate has also moved up about 1% during the past little spike.

Now rates rising on their own would be a significant negative for home prices. But in case you haven't been paying attention, the economy doesn't look too bad right now. A more stable and now growing economy should in fact elicit higher interest rates. So you have to ask yourself how much higher interest rates should be given the better economy and better outlook for growth next year.

Overall, I think rates are still really low and I don't view the current rise as significant enough to cause a significant disruption in the housing market, especially because a big reason for most of the interest rate rise is due to an improving economic picture in my opinion.

Other than this story, I don't really have much to say about the housing market right now. It is the seasonally slow time of year. Not much going on, prices don't seem to be moving much from the limited data points I see coming in for our local market.

What Does Short Sale Fraud Look Like?

I can't ever come out and say something is fraud for sure. I almost never have all the details. I do the best I can in terms of putting the pieces together.

So I present the following hypothetical situation. Let's say that you built a large spec house and paid too much for the lot and then spent too much money on high end construction and materials. You then try to sell the monster but can't get a bid anywhere near what you need to break even. So then you rent it out for a while.

Now it gets interesting. You know some people who are happy to break the rules in order to make some money. You figure you are so underwater on the house that there is no hope of breaking even or making any type of profit. So you get your buddy who is a real estate agent to take your house and get it sold via a short sale. But rather than list it as a normal short sale at a reasonable price, you decide to find a buyer who would be happy to buy the house at well below fair market value and who will in exchange pay out some kickback money to both you and the agent.

So how would you go about doing this? Well, you line the whole transaction up and then put the house on the MLS but you immediately put it up as "pending" after 0 days on market. And the listing price is well below fair market value. You hope that you can somehow convince the lender/bank that it is a fair price and hope that they are not paying attention to all the red flags such as the fact that the listing went pending after 0 days on market and the fact that the agent isn't a local agent...his phone number isn't a westside area code. If the lender/bank is stupid and you can con them into approving the short sale, the buyer wins by getting a big, new house at well below market price despite the fact that they had to pay out some kickback money to the seller and agent. The seller and agent are happy with the kickback money. All parties extract benefits at the expense of the lender/bank...except all this would be illegal of course.

So could all of this happen right here in Santa Monica? Maybe. I will reiterate that all the text above is just a hypothetical situation. Now that we are done with hypothetical situations, let's look at a property that we have spent a good amount of time looking at in the past.

933 25th is a large spec house that was last featured on this blog in July 2010 when we learned that it was rented out for $16,000/month.

Listing History: 10/22/09 - $4,488,000
Reduced: 01/13/10 - to $4,250,000
Reduced: 03/06/10 - to $3,895,000
EXPIRED after 174 days on market


Rented: 7/9/10 - $16,000/month




So the last we had heard, this thing was rented.


I checked the MLS the other week and found an interesting surprise. The house has been re-listed as a short sale, but it went pending after 0 days on market at what I think is a price well below market level.


Re-Listed: 11/5/10 - $2,399,000


In my previous posts on this house I always said it was wildly overpriced. But $2.4mm? This house is worth well more than that. Hundreds and hundreds of thousands more. So why would a short sale listing come to market at such a low price? Well, maybe they are trying to attract multiple buyers to bid it up. But if that were the case, wouldn't they leave it active on the market for a few weeks at a minimum to make sure they get all potential bidders?


As I said before, I never have all the facts and appearances can be deceiving. I never can be certain of anything and I am not accusing anyone of anything. So readers, why don't you tell me what you think is going on here. I would love to know.