The San Diego housing market is once again hot! Selling quickly and at above listed prices are the bank-owned foreclosure properties, both detached homes and condominiums. Alan Greenspan's term "irrational exuberance" is once again characteristic of the San Diego home buyer's behavior. Any property description using "bank-owned," "lender repossession," "foreclosure sale," etc., is drawing a crowd to see the property. If the property is in decent condition, there will be offers and multiple offers, at that.

Sounds like déjà-vu? Not quite. Adding my observation to the above facts, a number of lenders have hit on a marketing ploy to create a buying frenzy which guarantees an almost instant sale. In the majority of cases the offer(s) exceed what may have been realistically expected if the property was marketed the traditional way.

Here are some actual examples of this technique for San Diego home sales.

Example 1: On 4-8-09, a bank owned home in east Carlsbad was listed at $499,900. Based on the location, age and size of the home, I estimated the current value at $575,000 to just over $600,000. Within one day of the listing, the listing agent had multiple offers. According to the agent, the lender required it to be on the market one week before they would look at any offers. The agent speculated that based on the number of inquires, she would have 40 to 50 offers in the one week period. This home sold for $597,000. The sales price was almost 20% over the listed price. Doesn't a sale of $97,100 over the listed price suggest that it was listed way under the market?

Example 2: A bank-owned Little Italy one bedroom condominium was listed in March for $234,900. The estimated fair current value for this condo was approximately $275,000 to $280,000. The listing agent stated that within 3 hours of the MLS listing being submitted, he had an offer. Again, the lender would not look at any offer until the condo was on the market one week. This San Diego property generated 21 offers within the 1st. week, of these, 11 were at or above the $234,900, listed price. This Little Italy condo sold at $295,600, or $60,700, approximately 26% above the listed price! I was told the accepted price was $15,000 above the next highest offer.

Example 3: A San Carlos planned-unit-development, bank-owned 4 bedroom was listed at $344,900. The estimated fair value for this condo was approximately $410,000 to $425,000. Inside of one week, this San Carlos property had an accepted offer at $410,000. This was approximately 19%, or $65,100, above the listed price! Banks are purposely under listing property with the strategy of creating a buying frenzy to result not only in a very quick sale, but, a sale at or above the fair market value. Is this practice fair or even legal? It is on both counts. If the bank does not list it properly, they could end up with a sale way below the current fair market value.

On the other hand, it isn't fair to neophyte buyers/agents. Buyers and/or their agent who do not recognize the ploy, may be wasting quite a bit of time writing offers that in some cases, will not even be considered or countered. Also, what about shattered expectations? A number of buyers/agents may honestly believe that their full price offer has a chance of being accepted. In reality, they not only have zero chance of getting their offer accepted, but in the majority of cases, they will not even get a counter-offer.

This is not the time for buyers to be represented by neophyte agents. Bargains are available and buyers can position themselves to be one of the lucky ones by selecting an experienced agent familiar with the areas in which they are interested. A good agent will have reasonable advice about structuring offers and which properties are worth the work and wait. Follow that advice!

Published: October 19, 2009

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Bob Schwartz is a Certified Residential Specialist, San Diego real estate broker & co-owner of an Internet search engine optimization firm, specializing in domain name registration and Internet domain website hosting. Bob received his BBA majoring in real estate & computer programming. Bob is an expert witness for major San Diego law firms, has served on the Consumer Affairs Community of the San Diego Association of Realtors, is past president of a local HOA and co-owner of a condominium management Co., and directs a multi-state high traffic network of legal directory sites. Visit Bob's San Diego real estate blog.