Sonoma County REO – To Overbid or not to Overbid…2008

REO’s Rule!

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

2008 Sonoma County REO Sales TrendsI 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!

Recent Sonoma County REO Sales Showing Underbids and OverbidsI 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.

*The chart heading the post is for Windsor REO sales for 2009, more recent data than this post…Please visit the site for the most current stats on REO sales

3 thoughts on “Sonoma County REO – To Overbid or not to Overbid…2008”

  1. Dave–this is truly an excellent post, and kudos to you for all your hard work pulling together the data. According to my broker at Coldwell Banker, fully 50% of our monthly sales currently are distressed properties, either REO’s or short sales. On average, only 10% of short sales in Sonoma County close escrow as such. I have been extensively touring REO’s all year with clients, and in most cases, we have ended up buying non-distressed properties–just the luck of the draw–but smart and motivated sellers seem to know what they have to do to get their properties sold. Great work, Dave!

  2. Richard Van Cleave

    Dave. Wow you really know how to do your homework.
    I am looking forward to working with you because of your knowledge and great service. You will be my edge in this market..
    Thanks for the excellent information.

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