Comical indeed.

We have 6% of inventory selling.

We have years and years of inventory in the market, stretching to infinite inventory in the higher priced segments.

We have the lowest number of monthly sales since the 1980s.

Diane describes every deal that closes as a minor miracle.

And I hear there is a fairly ugly recession that may be upon us.

And now Mike the Super Sleuth suggests that the banks, desiring not to own more inventory than the builders, may be getting real and dumping REO at 40% off peak prices.

For those who suggest that the bottom may be near based upon nothing more than the “how much worse can it get” theory, I suggest you think again.

Interesting.

We’ve talked about this subject before on this blog - how REO resales on former 80/20 first mortgages appear to be selling for 20% below what was owed to the beneficiary at the time of trustee’s sale.

Yet there are a number on this blog who feel we’ve only begun to scratch the surface on what they perceive will be further price drops of 20% or more.

I disagree. It seems to me that a drop in prices of 40% from the height of the bubble is substantial. Is another 20% drop, on average, likely? Maybe. But I would guess 5%-10% is more realistic.

So that’s the benchmark to me. If you can pick-up a quality property at 45%-50% off its bubble high, then maybe it’s time to pull the trigger. Or let me put it in Montreux terms - a $2.495M Stonehaven model for $1.25M.

The fact we’re no where even close to this type of price drop [at least at Montreux] tells me we have a long way to go. Not because a drop of 45%-50% isn’t enough but rather, because it’s going to take that much time for sellers to overcome denial and get in line with what has been happening in the sea around them.

Smarten:

When you mention $2.495 million for a Stonehaven model, are you referring to the asking price? Because, as you know, asking prices mean nothing, and I’m still seeing many which are so delusional that they are above and beyond even the highest sold prices of 2005. In fact, these properties asking prices need to come down 60-70% from where they are today. Perhaps you show Stonehaven models selling for that amount?

As far as 40-50% off the bubble high, that’s not necessarily a good deal. It depends upon the property. There are many homes which tripled during the bubble (fraud?), in which case 50% off isn’t anything to get excited about. The current 40% reductions on the aforementioned REO’s are a sign of where we’re going, and should light a fire under the resellers collective a$$e$ if they have half a brain.

On an aside, I think people are underestimating the severity of the recession in store for this country. There isn’t much, if any, good news coming out these days. The job losses are much more prolific than is being reported. Donations to thrift stores etc. are way down, as well as sales, while sky high gas and grocery prices are really cutting into budgets, in turn, hurting sales for non essentials. The standard of living is eroding at an alarming rate. Rough times ahead.

Smarten, most offers are written with some sort of contingency that allows most sellers to reject a full price offer. Such contingencies include language such as; subject to financing, appraisal, or inspections. I suspect that unless your are offering all cash, close in 3 days, it would be really hard to sue for specific performance. During the peak of our market in 2005, I received a full price offer on a spec house I built in Gardnerville 2 days after I listed it for sale. My realtor said I couldn’t reject it because it was full price, and I informed her that I could since it was subject to financing. She checked with her broker, and determined that I was correct. I then raised the price $40K and sold it a month later…..oh the good old days……

I believe that there is substantial case law for the proposition that a listing price is not considered an offer, but rather than invitation for an offer. In other words, it is the buyer who makes the offer, not the seller. So even a “full price offer” need not be accepted by the seller. It constitues the orginal offer, and the seller is free to accpet, reject, or counter.

Doesn’t money also have to change hands to have a binding contract?

No, we’re not all on the same page RI and Allen.

If I go to a no reserve auction; I am the high bidder; and the seller doesn’t like the high bid; he has entered into a contract to sell to me even though he hasn’t formally “accepted” my offer. Why? Because he/she/it publicized ahead of time his offer which once unilaterally accepted by me the buyer, becomes a contract.

If I’m a car dealer; I advertise a particular vehicle for $X.00; and someone offers me $X.00; I’ve entered into a contract to sell this vehicle even though I haven’t formally “accepted” the someone’s offer. Why? Because I’ve publicized ahead of time my offer which once unilaterally accepted by me the buyer, becomes a contract.

The reason in both instances is because these are NOT bilateral contracts [ones that require consent from both the buyer and seller]. The seller offers the item for sale on specified terms and conditions and once a buyer communicates his consent to those terms and conditions, the contract has been created.

Nor need cash actually pass in order for the contract to be in existence. If the seller doesn’t specify a particular down payment and I as the buyer offer to tender a reasonable down payment, that’s adequate consideration. Even if the seller does specify a particular down payment yet refuses to accept my tender of that amount, that’s adequate too because a tender of an offer extinguishes the obligation to actually pay!

Now correct me if I’m wrong Diane and Guy, but I’m certain that MLS forms incorporate certain terms and conditions which specifies all the “p’s” and “q’s” of listings. Therefore once an agent takes advantage of a MLS listing, he/she has agreed ahead of time to all those terms and conditions. Furthermore, there are places on the MLS form for agents to fill in those terms, to the extent they’re not already incorporated by reference.

So what I’m getting at is if an agent lists a property on the MLS for $X.00; I write an offer agreeing to pay the seller his/her $X.00; and my only conditions are things like specifying an escrowholder, inspecting, etc., the seller is bound to go through with the transaction. And if he/she/it balks, my remedy becomes a suit for specific performance.

What many agents were doing at the height of the bubble [which is why I referred to the practice as “garbage”], was intentionally listing a property at something less than fmv with the intent ahead of time of creating a bidding war. A buyer’s agent would come in with an offer at full listing price and would be told by the listing agent that the seller wasn’t available to field presentations until a week from next Friday. By then, the listing agent hoped there would be multiple offers and at that point in time he/she would be free to accept the highest offer.

Let me give another example. When does a buyer’s agent earn a selling commission? All he need do is present a ready, willing and able purchaser who agrees to purchase a property at the advertised listing price and terms. If the seller doesn’t go through with the transaction or recognize the buyer’s offer, that DOESN’T change the fact the buyer’s agent’s commission has been earned. Why, because the seller publicized, through his/her/its agent and the terms and conditions of the MLS, an offer to pay a commission upon the buyer’s agent presenting a ready, willing and able purchaser.

Allen is correct that if an offer adds any material conditions not specified in the listing, it does not represent acceptance on the buyer’s part but rather, a counter offer which can be accepted or rejected by the seller. That’s why I said that if you the buyer know a property is priced under market, communicate literal acceptance of the seller’s offer before the seller has an opportunity to wiggle out of his/her/its offer.

Now am I wrong Tom?

I again disagree with you Allen.

“how [do I] explain the bidding wars that were happening in all the hot markets?”

As I explained to you before. Agents manipulated the presentation process to ensure there would be multiple offers presented at the same time [my seller is considering all offers on such and such a date]. Since the seller had an obligation to consider all offers and if one were better than another, he/she had the option to pick and choose.

This is a different situation than being presented with a single offer that satisfies the terms and conditions of your initial offer. According to you, the seller can simply say thanks but no thanks. Or more pointedly, counter offer at 120% of his/her/its listing price. I don’t think so!

You ask if I “think [I] w[as] the only one that has thought about suing for specific performance?” My answer is yes and no. Have others thought? Possibly. Would others sue? Probably not. In fact more than probably, because if it meant enough to them, they would have sued.

I guarantee you that if a Bank pulled a stunt like this on a homebuilder on a 1,000 acre parcel that had subdvision approval and had reverted after trustee’s sale; the rejection being so the Bank could extract even more than its listing price; it would be sued and a lis pendens would be thrown on the property to prevent the Bank from selling to anyone else.

You state “the only way [I] a[m] correct [is] if there are no contingencies whatsoever.”

Again I disagree. Think about it Allen. The seller MUST deliver title in a condition that satisfies marketable title. This can only take place through the condition of title VERIFICATION - typically through a preliminary title report. If the seller designates a title company in his/her/its listing, then I as the buyer don’t need to designate another. But I still have the right to examine and approve the title the seller purports conveying [especially where there has been a non-judicial foreclosure (trustee’s) sale]. And if the seller hasn’t designated a title company in his/her/its listing, I can and the seller can’t reject my offer simply because it represents a counter-offer.

Don’t believe me Allen? Go ask your bankruptcy-attorney friend. And as I suggested beforehand, find one of these under market offerings and I’ll go in with you on the purchase just to prove the point!

Folks, this is not something subject to reasonable argument. There sre probably hundreds of reported decisions throughout the many jurisdictions that say, clearly, that a seller’s asking price in a MLS listing is NOT BINDING. And, I can assure that there is at least one District Judge here in Washoe County that has so ruled.

As I said above, an MLS lisitng is regarded as a solicitation of an offer from a purchaser. But it is the BUYER who is the offeror, not the seller. The seller is absolutely free to reject even a full price offer. Even one with no contingencies.

Now, in such a case the seller may become contractually liable to his realtor for the amount of the commission. But that is a separate issue.

The bank, as is any seller, is not legally obliged to accept any offer, full price or not. The bank can say “we want more money”, just as can any seller. The bank can say “we changed our mind, but thanks for your offer.” The bank can say whatever the hell it wants. It owns the property and it can accept or reject ANY offer as it desires.

But it is true that a strategy is developing, it appears, wherein banks are lowballing the listing price. The strategy seems to be to attract several interested potential buyers with the low asking price, and then attempt to engender something of a bidding war. There is nothing new about this strategy. In fact, it is the same strategy that was employed by the RTC many years ago after the savings and loan blowup.

It would, therefore, seem to be rather obvious that the bank is under no legal obligation to accept ANY offer, even full price. If a buyer could tie up the property with a full price offer, then it would be stupid, and legally fatal, for the bank to announce a low listing price. But because the listing price is not an offer to sell, the bank can effectively employ this strategy.

Grateful_D -

I’ve been through the Saddlebow listing with a friend who was interested in it. The inside of the house is destroyed. The previous owner ripped out drywall from parts of the ceiling, let his pets piss on everything, destroyed most of the finish carpentry (base board have been removed, and then strangely put back on - other finish trim is just missing), the appliances are all gone (including the oven), there is significant pet chewing damage, the wood floors are all stained and warped, the landscaping sprinkler system looks like someone took a hammer and crowbar to it, the walls in which there we home theater speakers have big holes where the speakers were just ripped out, etc., etc., etc.

Saddlebow will sell, and someone will probably get a deal. But, you can’t use it for a comp for the neighborhood and the condition is why it hasn’t sold.

Well, I’ll be darned. I mentioned many properties tripling in price during the run-up, and here’s one right in front of our face. It’s 729 S. Arlington!

Prior to the $425k sale, on 6/01, the property sold for $141k, which is right before the rapid price ascent. The $425k price is a little more than 3x that 2001 price. While the current $249k is a lot more realistic, I’d say $179k is much more fitting. For this particular house, the $179k represents the 2001 price in inflation adjusted dollars (that’s a little more than 4% per year). Considering there has been little wage inflation since that time, that’s quite a generous price, IMO. That would be a nearly 60% haircut in nominal dollars. It sounds perfectly plausible, if not probable, to me. If an overcorrection occurs, we could see something more frightening. I don’t want to go there.

Very interesting comments above by some people obviously with knowledge and experience.

Our office has litigated this `offer’ and `acceptance’ issue on real estate listings, and if you’re interested, here are such contract litigation results in a nutshell:

There are TWO contractual potentialities with which to be concerned. One is When does seller’s obligation to pay his listing agent arise; the other is Has seller entered into a contract with buyer capable of enforcement by specific performance by buyer, when buyer says I Accept or submits an offer on substantially similar terms.

1. Once the listing agent has produced a willing buyer on terms that FULLY MEET the conditions of the listing, the agent has earned his right to his compensation by Seller. But that would typically mean full list price, all cash, no contingencies, nothing other than a pure match with the provisions of the listing agreement, not even a walk through condition. If Seller then elects to decline, seller has exposure to his listing agent for the compensation under the listing agreement… but beware of inevitable cross complaints, alleging lack of market exposure which might have produced an overprice offer, side agreement allegations, and loss of community goodwill– usually not worth the agent suing the seller. Liquidated damages clauses also limit seller’s exposure.

2. As to exposure to buyer, even if the “acceptance” substantially matches the listing’s terms, the devil is in the details. For example, a part credit offer even if in response to a listing calling for “cash to buyer’s new loan” leaves discretion in the seller to accept the buyer’s credit worthiness or not. Even a walk-through inspection, contractor’s home inspection, termite clearance, length of escrow etc, change or add to the terms of the contract.
Also, most listing agreements characterize the listing and marketing as a willingness to entertain offers, thus disclosing that the acceptance is by the Seller.

Generally the buyer will not be able to obtain specific performance. This is the proverbial first year law school Socratic problem created when buyer sends off that email, “I Accept.” The result is less clear in For Sale By Owner situations as the Seller generally does not have the acumen to phrase the exposure as a solicitation of offers, nor to properly word the terms of the availability of the property for sale.

At least, the above is the outcome in Los Angeles County.

Smarten,
The cases I have had experience with are at the trial court level and turn on (a) the language in the listing agreement which makes the listing an exposure of the property for sale, in the nature of an invitation to submit offers, thus for contract law purposes, it becomes a statement of owner’s willingness to entertain purchase offers; and (b) differences in the terms of the listing and the terms of the offer, almost impossible to make them exactly the same as most offers will contain the safeguards of inspection, termite clearance, approval of preliminary title report, etc, escrow length provisions.

But the enforcement by a listing agent against seller for compensation earned is different, since a written contract already exists between those two parties, and the issue to be proven is agent’s performance under the contract. In the case of buyer vs. recalcitrant seller, buyer must first prove a meeting of the minds to create a contract, then seller’s breach–and seller generally will say I am not repudiating my terms, just the buyer’s, which are different. Also, seeking specific performance is viewed by our courts as a more draconian remedy than a suit for money damages measured by a lost commission, so the courts want a better showing in a specific performance case. The preponderance of evidence is still the standard of proof but it is harder to meet that bar when seeking specific performance than money damages and especially so when you also have to prove the existence of a contract in the same suit.
I have spent more time than planned on this, and cannot pull cases to cite. But there are ALR annotations on specific performance in contract cases, and Cal Jur has some hornbook type discussion on this. Again, the devil is in the details– mainly the fine print of most listing agreements making the listing owner the final “accepting” party.

BB, be careful when analyzing previous sales prices, 729 S. Arlington may be an anomaly. If similar houses in that area sold for similar prices, then I would say you have a valid point, but sometimes when you see a previous sales price, it could be a refinance or a sale to a relative that doesn’t reflect true market value at that time. I’m not saying that this is the case here, but I haven’t heard of any properties tripling in value since 2001. I have some property that I purchased for a great price in 1996 that has almost tripled, but that’s pretty rare.