Just a week and a half ago, Chris asked “In other words, I am curious to know if the starting values are inflated to make it seem like a better deal, or are the starting values real current values for the homes?” I would like to answer that question and analyze the validity of the previously valuation price in the REDC booklet/ushomeauction site with respect to actual present day value. First off, the starting values of the auctions are not the current values of the homes. I consider the starting bid irrelevant because the auctions are bid up so far beyond the starting bid that REDC could start each auction at $1 and it wouldn’t make a difference. This is not like an Ebay auction where you might not have people looking at your items during your auction lifetime which means you need an adequate starting bid to protect against giving away the auction. In the REDC auction process, all bidders who want to bid are present at the auction.
As I said in part 2 of my ushomeauction review, the average single family home price in San Diego was $314,000 while the average condominium price in San Diego was $204,000. Therefore I’ll analyze a single family home and condo that auctioned in line with the average price.
Case 1 (Single Family Home) – 8712 Glenhaven St. , San Diego, 92126
Previously Valued To (according to ushomeauction): $580,000
Final Auction Price: $300,000
Auction Discount with respect to previous Valuation: 48.3%
5 year Zillow housing valuation chart of 8712 Glenhaven St:
10 year Zillow housing valuation chart of 8712 Glenhaven St:
Zillow.com current estimate: $492,000
Last Sale Price (according to Zillow): $515,861 on 11/8/2007
Analysis: As you can see, the foreclosed single family home auctioned for $300,000 which was well below both the ushomeauction valuation and Zillow estimate. Matter of fact, according to Zillow, the home auctioned for the same amount that it was valued over seven years ago in January of 2001. If the last sale price was indeed $515,861 in November of 2007, some home owner foreclosed on the home only 3-months after purchase and would have lost over $210,000 based on the final auction price! That is a terrible three month investment and that is why many individuals are very hesitant to get into the housing market. During the peak of the boom, this house was worth about $613,000 which is very close to the valuation of $580,000 that ushomeauction stated. It seems from this property that they are using a valuation of three years ago. That is somewhat deceiving even though it is true. It’s telling people that “hey, this home was worth $580,000…what a great deal!!!” and thinking “but it isn’t going back to that price in a very long time.”
Case 2 (Condominium) – 9362 Twin Trails Dr. #102, San Diego, 92129
Previously Valued To (according to ushomeauction): $279,900
Final Auction Price: $210,000
Auction Discount with respect to Previous Valuation: 25.0%
Zillow.com current estimate: $290,500
Last Sale Price (according to Zillow): $246,500 on 8/3/2007
Analysis: Again based from the Zillow charts and final auction price, you can see that the foreclosed condo auctioned well below both the ushomeauction valuation and Zillow estimate of $290,500 and $279,900 respectively. In this case, the Zillow and ushomeauction valuations were only separated by $10,000 compared to the larger spread for the single family home. The ushomeauction valuation of $279,900 was far from the peak of the value of this condo during the housing boom which (according to the 5 year chart above) totaled around $381,000. And according to the previous sale price on Zillow’s site, it seems that this condo sold for $246,500 in August of 2007. Just three quarters of a year produced a foreclosed condo and a depreciation of 14.8%. This condo fell right in line with the 17% year over year decline San Diego properties experienced just within the last year.
Conclusion: In this time of rising foreclosures and when dealing with the REDC foreclosure home auctions, you should really disregard the previously valuations that they state in their booklets and website. When doing research to find out how much to bid for a particular house (or even when buying directly from a home owner), you may want to use Zillow as a housing data tool, but don’t trust them entirely either. Crunch the numbers to find out how much of a mortgage you can afford and go visit the home and surrounding area to get an idea of the health of the housing prices whether we’re in a housing downturn, bottom, or have already begun to ascend higher. As of now, we can use a general rule of thumb that San Diego properties are fetching roughly 40% below REDC previous valuation prices while silicon says that Oakland auctions for 75% below, San Jose 25% below, and Salinas at 50% below. Different areas of the country will fetch different prices depending on the health of the market and how much speculation there was during the housing boom so make sure to do your homework as I did with these foreclosure properties.