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Wednesday, September 28, 2016

Eastside home shopper learns that low prices and mortgage rates don’t make it a buyer’s market

Photo by Ian Mutoo/Flickr

With mortgage rates at all time lows and home prices way below what they were a few yeas ago, Boyle Heights native Frank Gallegos decided it was finally time to jump int0 the real estate market. Last fall, after getting pre-approved for a loan, the 40-year-old, first-time buyer who rents in Hollywood started shopping for an older home within his budget – under $300,000 –  across Eagle Rock, Highland Park and Montecito Heights. It soon became clear, however, that buying an Eastside home in his price range would turn out to be a bigger challenge than he expected  Many of the agents representing foreclosure and short sales never bothered calling back; others wanted offers before he even stepped inside the property.

In early December, Gallegos finally made an offer on a $220,000 fixer-upper in Montecito Heights that had fallen into foreclosure.  Despite a full price offer, Gallegos lost the house to a flipper who offered less but paid in cash.  “It does not feel like a buyer’s market,” he said.

None of the advice he had hear from earlier home buyers  – as well as episodes of House Hunters – had prepared Gallegos for the cash-rich flippers as well  as the owners and agents who were unmoved by full-price offers.

Gallegos said his ideal home would be an older house with character – a porch would be nice – as well as two bedrooms and one bath.  He checked out homes from City Terrace  to Eagle Rock before deciding to make Highland Park his target zone. “Highland Park seemed like a nice mid-point,” said Gallegos, who works in business development and government contracts for a translation agency in Santa Monica.

But Highland Park and his price range is crowded with investors looking for run down and aging properties that could be fixed up and flipped for almost double the price. The flippers are out buying houses “for a profit – I am trying to do it because I want to live there.”

Shortly after losing the Montecito Heights house, Gallegos had his agent, Aldo Linares with Keller Williams, call up the agent of a Highland Park short sale that never bothered to call him back. The house, a Spanish-Colonial near Figueroa Street and York Boulevard, had the character he desired  and was also listed for under $300,000.  “It looks nicer than the other houses in that price range.  It just felt like my house.”

This time, the seller’s agent called back but there was a hitch. Not only was the home a short-sale, meaning the mortgage lender would have to approve the sale in what can be a lengthy process, but the owner was insisting on meeting with each prospective buyer before making a decision.  “I know that a lot of people went to see it and it got multiple offers, ” Gallegos said. “But the guy liked me.  I offered just under asking.”

The owner accepted the offer in early January, leaving Gallegos and his agent to wait for a reply from the bank. Gallegos was told it could take as long as three months for the bank to make a decision. He heard back a month later:  the bank had rejected the offer and would be foreclosing on the house. Gallegos remains  interested in making an offer on the Spanish-Colonial depending what price the bank sets. But he’s not going to wait.

“I’m looking at houses again and hoping to find a standard sale rather than a short sale”.

Gallego’s advice for fellow house hunters:

  • Get pre-approved from a bank “with a reputation for being hard-nosed”  that lets your buyer know you can follow up on your offer.
  • Get as much data as you can. Review sales prices and statistics on Zip Realty, Redfin or other online sources to keep up with comparable sales.
  • Be Patient

Related Links:

  • Homes sales inch up in California as prices fall. L.A. Times

Adventures in Eastside real estate are stories about the experiences of home buyers and sellers.



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43 comments

  1. I would add to Gallego’s advice: get a really good agent who knows the market and knows how to write offers for short sales. There are very specific strategies for getting short sales into escrow, and closing them, depending on the bank, and how experienced the listing agent is. He is not being called back by short sale agents because the properties are in escrow, where they can stay for months. And beating out flippers is easy – get a good agent.

  2. This article is sad because I know what it is like to be a first time buyer of a home, it is a huge deal!
    There are so many times people that go into a situation like this and try to
    “do the right thing” so to speak and then there are scams or “unethical business practices”.
    One would think because of the market and the amount of homes in “short sales” & “foreclosures” this would be an opportunity to reach the American Dream of owning a home.
    Just another example of another broken system.
    I remain forever optimistic for Frank and the real estate nightmare
    (as it stands now) and am sure its going to get better..
    Let’s hope so!
    Nikki S./Silver Lake

  3. @Frank – Hang in there buddy. I started looking in July 2008, submitted somewhere around 25 offers (all rejected) through January 2010, and closed on a short sale in April 2010 on my first home. The process had me so wound up it was like a messy breakup with a boyfriend 25 times, as lame as that sounds. It’s still the same market I experienced – all cash (both local and international money) and buyers with more money than I had.

    The best advice I can give is to have an open mind and know that sometimes, in order to get what you want, you have to play hardball and be your own free agent. The only way I got the short sale was to hassle the listing agent (name stolen off Redfin) and arrive for my viewing appointment without representation. I never signed any documentation with a real estate agent, binding me to them, which was great since I managed to find the worst ones. I just searched Redfin for what I wanted, then went after it, and by the time I bought, I could recite the standard contract agreement by heart.

  4. My (now) husband and I bought a home in Highland Park last May. Afterwards I did a personal “study” of homes that had been listed on Redfin when we were shopping. 18 of 77 homes had been flipped in about 6 months! More than 20%! 5 of those homes we had seen personally, a few more we didn’t even get a chance to see before they were purchased. The home we are living in had another offer on it that beat us out at first, but for some reason didn’t go through, and that’s when we had our chance.
    I wish you luck! I think timing is a big part of it.

  5. As an agent in Northeast LA, I can attest to the fact that investors with cash are making it very hard for buyers who want to plant roots in the area. But, it’s definitely not impossible. Two most important tips: Get a great agent who knows the area and has relationships and a good reputation with other top agents in NELA – can’t emphasize this enough. You can get first crack at new or upcoming listings and your offer will be strengthened by the reputation of your agent. This agent will fight for you and structure your offer to make you more desirable than an investor’s. And 2, if you love a house, so will others – step on it.

  6. This guy is me a couple of years ago when prices were higher. I have excellent credit and could only afford a home around 300K. I got outbid in Eagle Rock, Glassell Park, Highland Park, and Cypress Park (border line Mt Washington). Super frustrating! Next up was El Sereno (University Hills). It wasn’t an area that I was too crazy about but I found a nice little hillside house on Redfin with a view right next to the CSLA campus. It was a short sale so I was hesitant but so many were I decided to take a shot at it. It actually did not turn out to be nightmare scenario that so many had described. I guess I got lucky. In any case it was a decent deal for $280K.

    So….Those of you who aren’t having any luck in the NE area might want to give the “32” a try.

  7. My wife and I were looking for something in low 400s in an area where we wouldn’t need a car (Silver Lake, Echo Park, East Hollywood, etc.), found the perfect house in a short sale, and waited more than six months for the bank to get everything together to finally approve it. But we got it. Sometimes it’s as simple as being able to wait (and wait and wait and wait) and agitate a little with the bank.

  8. Bottom line is Banks are greedy, high prices only favor the banks and buyers are dealing with amateur agents

  9. Sorry Gallegos, sounds like the house right down the street from us this the house that is currently being flipped, corner of sinova and latrobe?

    Anyhow, my suggestion to Gallegos is NOT TO BUY, seriously! at least not in Metro L.A. it’s not worth it right now. I’d much rather see interest rates RAISE way higher so that home prices have to come down…and despite our ability to purchase a $500k home, we will NOT buy anytime soon in Metro LA. Renting is the way to go. Much more value for the price.

  10. This is why house flippers are evil. They are grabbing the only houses many people can afford and then in very short time doubling or tripling the price — and not necessarily after having done a lot of work.

    The house next door to me just sold two months ago for $271,500. As of last week, it is back on the market for $649,000! And all they did was clean up the back yard and paint inside! Somebody could have lived there who now will have to pay $649,000 for a $271,500 house! This is bad for the economy, it is bad for the citizens.

    House flippers should be shamed and shunned. They are evil. I wish I knew of some way they could be regulated and stopped.

    • No one HAS to pay for anything, it’s a free market dude, the house will sell for what it’s worth. I am in the same situation, getting underbid by all cash offers, but the market doesn’t lie.. I think the best way to put it is that “zestimates” and even appraisers in NELA are almost useless… what a house sells for in the end is the ultimate indicator of market forces.

  11. Dealing with the same issue right now, been searching the 32 and 63 with my budget of 240k and getting outbid by cash buyers as well. : (

    • Woodstream, have you considered Sunland-Tujunga? I know it’s further away from Downtown L.A., but there’s a lot less crime in Sunland-Tujunga than 90063 (and parts of 90032), it’s in the foothills and very close to the San Gabriels and the Verdugos, prices are quite reasonable, and Back Door Bakery moved to Sunland from Silver Lake. I lived in Silver Lake for years, but I recently moved to the foothills and though it’s a bit far from the action, I think there are great deals to be found out here.

  12. Yeah i feel your pain. I agree with the person who said it’s like a messy breakup each time. It’s awful. I was in that mode for like a year and a half and gave up up almost a year ago. We were looking in Jefferson Park/West Adams which we thought “Oh it will be way less competitive over here than the east side.” Um we were wrong. We had an even lower price range. $200k and under. Also wanted a small historic home that needed work. Lost out to flippers within the first 48 hours of the property being listed. I have a credit score in the 800’s, could do conventional loan and still lost out to cash buyers offering less. I felt that same horrible way of like “I DON’T WANT TO MAKE A PROFIT. I WANT TO LIVE THERE! AND FIX IT UP WITH LOVE FOR MANY MANY YEARS TO COME!” It’s hard not to feel so passionate when what you want has so much more emotional meaning then why flippers want it. Of course they had the same keen eye for an old 1915 craftsman with good original bones and in our price range it’s too hard to compete. . . IN SOUTH LA EVEN!

    I find that people who can pay $300k and higher have more luck. Someone above mentioned they were looking in the low $400k’s, well this makes sense. Anyone I know that could afford like $350k and higher practically got the first house they wanted. Flippers are rarely looking to buy for that much and try to increase it’s value. I really feel your pain. I had to stop looking because it was really causing me a lot of unhappiness.

    • That was me. I feel ya. The international all-cash buyers really killed me. The houses I lost would remain vacant for six months after closing and then pop up on Craigslist as rentals. I can’t really say I hated flippers or international buyers, I just hated the game.

  13. Oh and by the way, one of the houses that I lost to a flipper, they painted the inside, and put in some stainless steel appliances. That’s it. The house actually needed a lot more work than that too.

  14. I totally understand what Frank is going through. I searched for homes in Eagle Rock, Mt Washington, Glassell Park and Highland Park for a few years. You are forced to be patient. After being rejected on about 15 offers, I finally got one accepted–standard sale for a fixer upper in Highland Park.

  15. You’re not alone buddy. We looked for 13 months. Bid on probably 50-60 places. After about the first 3 months of new homebuyer delusion, we were biding on at least one house a week usually 3 or 4. Be persistent and don’t get discouraged.

  16. I like house flippers. They take low end crap and turn it around in a short amount of time. They houses are still being sold to families/buyers at the end of the day, so what’s the problem? Just because you can’t afford to buy a house, doesn’t mean other people can’t.

  17. EASY SOLUTION my friend. Let the listing agent double end it. Especially when the listing agent doesn’t do much biz in NELA, they usually get overwhelmed with phone calls when a well price listing hits the market. 9/10 times an out-of-area agent will just accept the 1st client they get to represent and avoid all the hassle of 20 offers and counters. Sounds unethical, but. If you want results, that it your quickest direction toward your goal.

    All that “get a good agent” talk isn’t going to get you a house. Why? Because even a superstar agent won’t make you a “cash buyer”, which is your competition. And a cash buyer with zero contingencies is always more appealing because of the many elements that could cause an escrow to fall with a normal buyer obtaining financing.

    Hope this helps. And BTW, I hate all of you.

    • HP HOBO you are wise AND funny. Too much hating when there is little to control. Most of the angry comments on here result from frustration which I can totally understand since I hev represented buyers, sellers, cash flippers, shortsales, and all of them are different, need something, and in the end agents can either be amazing or not but it’s a strategic negotiation that makes a deal. Much like Cristi above said- she doesn’t hate anyone, she just hates the game. But at least she isn’t renting anymore! PS I hate you too ; -)
      PINKY, KWLF
      PS- Gallegos- you are in great hands with Aldo!

  18. why are you letting these crooked and shriveled idiots flip all these houses?

    can anyone stop this scum who caused the foreclosure meltdown?

    seriously, get a soul.

    • Flippers caused the the foreclosure meltdown? Seriously…get a clue.

      • MrMorris,you should get a soul, saying that flippers caused the foreclosure meltdown is not understanding anything. Flippers take advantage of business opportunities because 80% of home buyers would rather pay more for a move in ready house than buying a fixer upper.

        • HighlandPark REagent

          Bob Morris, In Highland Park, there are at least 40 properties listed for foreclosure on a weekly basis. These homes (mostly in very poor condition) are owned by the tradition working class citizens you have seen in Highland Park for the past 25 years. They were NEVER flipped to the buyer in foreclosure. Most if not all purchased these homes for way too much money and could not afford their payments once their interest only mortgage reset to principle and interest.

          What eventually caused the entire system to melt down was when all these people, who could not afford their expensive house and boats and cars, simply stopped paying and let the bank take over. This resulted in banks taking massive losses…not because the bank or greedy home flippers asked these people to buy the house, but because these greedy pigs had to live beyond their means and drive a BMW and purchase a home in Highland Park for $600,000 when they only made $40k/year and should have been buying a home for $200k/year.

    • It’s simpler than that… a lot of flips are really just people with money leveraging their cash to convert a house into an FHA lendable property… most of these foreclosure houses are not in condition where you could even buy it with FHA money, if anything, these flippers are making home purchase a reality for people with 5% down… Even at higher market prices. I’d prefer to do my own work on the home personally… but not everyone does.

      • Excellent point! Once a home reaches a certain state of decrepitude, FHA won’t finance, most banks won’t lend, and it ends up an all-cash offer because no financial institutions want to take the risk. Why? Because you can see a boatload of the foreclosure listings were half-remodeled or gutted. Buyers took a home equity loan out for all the things HP REagent stated included remodeling and went belly up in between.

  19. If I had my way, listing agents wouldn’t be allowed to “double end” deals (i.e., dual agency). It’s simply unethical. Nobody would ever consider allowing attorneys to represent both parties in a lawsuit; it would be unthinkable. One reason (we) real-estate agents are held in such low regard is because so many brokerages encourage their agents to represent both sides of the transaction. It’s unfair to buyers who are making offers, and it’s ultimately unfair to sellers, because listing agents give special attention to offers written by buyers whom they’re representing. The real-estate business is shot through with corruption, and in my opinion, dual-agency is one cause.

  20. Yes there are lots of flippers – ways were. Yes, cash is king – always was. Get a solid local agent and, as John Wooden said, “Be quick but don’t hurry.”

  21. Flippers aren’t evil. They’re turning rundown shit into something worth living in. And people are obviously willing to pay for that, or the flippers would stop doing it.

  22. HighlandPark REagent

    I hardly believe someone would have sold their house for less to an “all-cash” buyer. The problem with articles that are written by uninformed people is they stir up negative feels for no reason. The bottom line is this; the home flipper probably made a full price or above asking offer and after inspecting the property, asked for a price reduction pushing the final sale price below asking.

    Unless the gentlemen in the article was planning on buying the home without an inspection and was not going to ask the owner to pay for any repairs, it is simply comparing apples to oranges.

  23. HighlandPark REagent

    Why is it that just because you want to live in the home, you feel entitled to own it over someone who is willing to pay more? Try this, GO TO ANOTHER NEIGHBORHOOD!!! There are dozens of neighborhoods in Los Angeles; not just Highland Park. If you venture outside the hottest neighborhood in Los Angeles, you will find lots of property; some even getting reduced because the owner is not getting any offers. My personal favorite is El Soreno. If not, then you will just have to compete with at least a dozen flippers and first time home buyers. Oh, and make sure you make a ridiculously high offer because that is probably the only way you care going to the the sellers attention.

  24. Good Luck to you Montecito Hieghts is Very Pricey I hear many get out Bid Quickly
    it is a great area and the houses end up going for way more than listing due to the fact that people who can’t do Silver lake are guided there so the area is changing quickly with people who are putting money into their property keep trying perseverance gets the Prize

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