The MLS has 14 SFR sales under $2,000,000 over the last 12 months in the 92014 – or about one per month. This flip is priced at $2,399,000 now after being on the market for a couple of weeks towards the end of last year for $1,999,999. They paid $1,665,000 in August.
This sold for $5,810,000 on April 28th of last year, which was the last peak of the market- mortgage rates were around 5% then and have risen to just under 8% today. It didn’t stop or slow down a buyer from paying a whopping $6,300,000 cash for it today:
Could there be trouble brewing under the surface?
Are there home sellers scrambling to get out with whatever money they can? Maybe get just enough net proceeds for the family to have a steak dinner at closing? It was like that last time…..but it’s different now.
It’s a lot different now!
Let’s check the home sellers who purchased during the pandemic days. Those who bought their home before 2020 are having no problem selling for substantially more than they paid, so we only need to check the recent purchasers. Is anyone losing their shirt?
This month’s NSDCC sales are up to 117 – here are the ones that were purchased since 2020, and comparing what they paid then to their sales price this month:
Observations:
Could there be trouble ahead for those who bought this year if prices declined substantially? Maybe, but rates have been rising for 18 months so they shouldn’t be surprised about future market shifts – if any.
For them to purchase a home in spite of market conditions must mean they are in it for the long haul.
P.S. The flip that made $8,000,000: Click here
Home flipping is all the rage, and it complicates the demand for old houses and fixers because there are more flippers than buyers pursuing them.
Agents get calls, texts, and emails every day from flippers begging to buy their listings. They offer to have the listing agent represent them on the purchase, and then be the listing agent when they sell it – boom, three commissions!
Long-time homeowners get inundated with mailers to sell their home for cash, with no commissions, no fees, no repairs, no banks, no nothing – and close any time.
Those who are the most susceptible are the out-of-town heirs who roll in with zestimate in hand and an urge to grab quick cash.
But how much do the flippers pay?
Our listing in downtown Carlsbad – a house built in 1958 and had not sold in nearly 50 years – was a perfect candidate. I started getting solicitations the day it hit the open market and they came by the open houses too. “Jim, Jim, come on you can represent me and we’ll buy it right now!”
We received six offers, and FOUR were from flippers.
The list price was $995,000, and their offers were $800,000, $800,000, $825,000, and $866,500.
Someone called the Carlsbad Police and reported a possible murder, and later a flipper called me and said they have access to the title records and an easement runs right through the middle of the house so nobody is going to buy it – except him.
Thankfully we had two offers over $1,000,000 from owner-occupiers that were more attractive, and we made the deal with one of them.
The worst part of selling to a flipper is that once they tie you up and get into escrow, then they really go to work on you. Even if you thought their price already reflected a proper discount for condition, they will want more concessions later.
But for those antsy homeowners who just want to rid themselves of a headache and get their hands on some fast cash, it is a viable alternative!
Get Good Help!
Thanks to Peter for sending in this sale that exemplifies how to get a good deal.
Someimes you can get lucky and the listing agent does the work for you – and you just need to be in the right place, at the right time. We already saw this one where an out-of-town agent listed way too low at $1,195,000 and the neighbor across the street jumped on it and paid full price – then did nothing to it and put it right back on the market for $1,595,000…..and sold it for $1,550,000 cash.
But the one above was even better.
It’s a 4br/3ba, 2,377sf house in Cardiff, and last summer there were comps that had the seller believing it might be worth $1,800,000. Here are things from this case that you can look for when lowballing:
The price reduction at the end of September put it on the range $1,549,900 to $1,699,900, and after three months on the market, all of the buyers were looking at the bottom number. Another month went by before they found the buyer, who by then had to be licking his chops. I don’t know how much the price was reduced after inspections (usually it’s a combination of low offer and more reduction after inspections), but however they got to $1,274,000 made it a great buy.
The buyer is a corporation and they financed their purchase with this fix-and-flip lender, so we should be seeing it on the market again soon!
Because Opendoor listed this home for $1,100,000 right after they bought it for $1,081,000 (and did no improvements), it must have meant that they thought they stole it. The market thought otherwise, and some might think they were lucky to get what they did.
Their MLS remarks are insightful though.
The sellers paid $1,680,000 in July. They sold for $2,075,000 on Nov 3rd:
It sold for $574,000 when new in 1998.
If you can’t make a profit flipping houses in this market, well then yeah, you should probably stop (hat tip G.A.!)
Real-estate firm Zillow Group is exiting the home-flipping business, saying on Tuesday that its algorithmic model to buy and sell homes rapidly doesn’t work as planned.
The firm’s termination of its tech-enabled home-flipping business, known as “iBuying,” follows Zillow’s Oct. 18 announcement that it was halting all new home purchases for the rest of the year. At the time, Zillow pointed to labor and supply shortages for its inability to renovate and flip houses fast enough.
But Chief Executive Rich Barton said Tuesday that Zillow had failed to accurately predict the pace of home-price appreciation, marking an end to a venture the company once said could generate $20 billion a year.
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Mr. Barton said in a statement.
Zillow’s share price was down about 12% in late trading on Tuesday, but before it announced the decision to end home flipping.
The move represents a big hit to Zillow’s top line. Home-flipping was the company’s largest source of revenue, but it has never turned a profit.
Zillow, which will release earnings later on Tuesday, said it would report that its home-flipping business, Zillow Offers, lost $381 million last quarter, resulting in a combined loss of $169 million across all of Zillow. The company said it also plans to cut 25% of its workforce.
Zillow has an inventory of more than 9,800 homes across the U.S. that it is currently shopping to investors. There are another 8,200 homes in contract it has agreed to buy. The company expects to lose somewhere between 5% and 7% on these homes, the company said.
Starting in the summer, competitors such as OpenDoor and Offerpad began to pull back from home purchases in one of the biggest home-flipping markets, Phoenix, as the red-hot pandemic market began to cool.
But Zillow accelerated, according to an analysis of sales records by real estate tech researcher Mike DelPrete, scholar-in-residence at the University of Colorado Boulder. Zillow also paid significantly more than those competitors for each home it purchased, buying homes priced $65,000 above the median on average, according to Mr. DelPrete’s analysis.
By October, the company had listed 250 Phoenix homes at an average price discount of 6.2% below what it had paid for them. Mr. DelPrete called Zillow’s price blunder “a catastrophic failure.”
A wider look at Zillow’s national performance by analysts at KeyBanc Capital Markets found it had listed 66% of homes at prices below what it had paid for them, with an average discount of 4.5%.
Zillow said it expects that the wind-down of its home-flipping outfit will take several quarters.
Here is who is providing the floor to the residential real estate market:
Wall Street has made a mountain of money available to house flippers, and selling move-in-ready rehabs has rarely been easier. The challenge is finding beat-up and out-of-date properties that can be renovated and resold for a profit.
“Investors like me, we’re like ants on a sugar hill all fighting for the same projects,” said Ed Stock, who started fixing and flipping houses on New York’s Long Island after the 2008 mortgage meltdown. “It’s the greatest time to be in this market; it’s just hard to find the inventory.”
The ibuyers are borrowing money like crazy to build their inventory of homes to flip. Opendoor doesn’t have the brand-name awareness of Zillow, so they are advertising a lot and buying homes directly off the MLS. Zillow has everyone’s email address so they are able to reach their users directly. Both have been fairly well-compensated during the 12-month frenzy – will it continue? From this article:
Opendoor Technologies Inc., which buys homes from consumers and lists them for resale, is in talks with lenders for a new revolving credit facility of roughly $2 billion, according to people familiar with the effort.
The company, which is rapidly accelerating the number of homes it purchases, plans to use the proceeds to help increase acquisitions, said one of the people, who asked not to be named because the matter is private.
A representative for Opendoor declined to comment.
Opendoor, led by Chief Executive Officer Eric Wu, pioneered a data-driven spin on home-flipping known as iBuying. After the company buys a home, it makes light repairs and seeks to resell it, profiting by charging sellers a 5% fee for the convenience of an easy sale.
The company acquired 8,500 homes in the second quarter, more than double the number it bought in the first three months of the year, according to an statement Wednesday. It also had roughly 8,100 additional houses under contract at the end of June.
Opendoor uses debt to fund acquisitions, and had just under $4 billion in borrowing capacity under existing revolving credit facilities as of the end of June. The company had drawn $1.8 billion on those facilities, according to a filing.
Zillow Group Inc., Opendoor’s main competitor, has also moved to increase its firepower for home purchases. The company borrowed $450 million through a first-of-its-kind bond offering earlier this month.
Zillow’s recent activity has been more consistent than Opendoor’s, so let’s look at the Zillow numbers to see if the convenience they offer sellers is paying off. Zillow currently owns 138 homes in San Diego County, and of those, 72 are active listings and 38 are pending. They have sold 48 homes this year – here are the 13 they have closed since July 1st:
| Zip Code | |||
| 92021 | |||
| 92025 | |||
| 92027 | |||
| 92054 | |||
| 92057 | |||
| 92057 | |||
| 92058 | |||
| 92069 | |||
| 92102 | |||
| 92111 | |||
| 92129 | |||
| 92130 | |||
| 92130 | |||
| Totals |
They have a consistent 2-month turnover between the day of purchase, and the day of sale, so it’s a quick $553,600 profit, or an average of $42,585 per sale – though they had to pay out close to half of that in buyer-agent commissions (all fix-ups are included in their purchase prices). It’s a good thing that sellers aren’t in a hurry – Zillow is currently six weeks behind in responding to purchase requests.
Sellers are leaving some money on the table, but as long as Zillow is flipping every home, buyers will still have the same amount of inventory to consider – it’ll just be at a higher price.
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
CA DRE #01527365, CA DRE #00873197
