San Diego's Best Home Deals
The stumbling economy is producing bad news in many sectors, but for homebuyers there’s good news out there, too. The recession is producing some bargains. Where and how do you find them?
IT’S A BUYER’S MARKET, but finding the best home deal in San Diego still means kissing a lot of frogs before finding your prince. Contrary to popular belief, the market is full of activity, though it’s a market fraught with hurdles that include frenzied short sales, damaged homes and, sometimes, overly aggressive real estate agents.
While median prices in some neighborhoods in Chula Vista and Southeastern San Diego have dropped by more than 40 percent since their 2005 peak, more-affluent markets, like Solana Beach and Kensington, are holding up better. The fact is, good deals vary widely with ZIP codes.
“If San Diego home values have fallen 29 percent, that means some markets are off by 50 percent and some are off 10 percent,” says Norm Miller, a real estate economist at the University of San Diego. “You won’t know that until you look at ZIP codes and neighborhoods.”
With the national recession and rising unemployment, there’s no telling when the turnaround will come. But buyers can leverage that uncertainty.
“What better time is there to be negotiating with a seller than when they fear that if they don’t take the deal today, the next offer will be lower?” says Mark Goldman, a broker with Windsor Capital Mortgage Corporation and lecturer at San Diego State University. “You’re better off negotiating the purchase before the bottom.”
Today, most home sales are in the $500,000-or-below range. They are typically foreclosures or short sales, where the bank agrees to sell at a price below the loan balance. This range is a tough market for buyers, who find themselves in bidding wars with investors paying cash —as banks deliberately underprice listings to generate a buzz.
“Cash trumps everybody,” says Janis Libuse, a broker associate with RE/Max in Encinitas. “It’s really kind of sad, because the people I’m representing are people who can use housing. It will change their lives, but my sad stories don’t matter.”
Realtors recommend buyers searching among foreclosures and short sales keep shopping after they make an offer.
“Even before I show [a house], I contact the agent to find out the status,” says Gordon Kane, a Poway-based agent. “If he’s got four offers on it already, and they’re over the list price, we’ll move on. There’s no point in adding another offer.”
In more-affluent neighborhoods, there are fewer cash buyers but also fewer financing options. The days of the piggyback second mortgage are over. Federal loan programs requiring low down payments are limited to the Jumbo Conforming Loan limit of $625,500. Anything higher requires at least 20 percent down and mortgage insurance.
Short Sales, Long Wait
Saad and Dunia Dehays waited six months before hearing back about a short sale on Mount Helix, only to be turned down again. “They finally said, ‘Sorry, someone came along with a cash offer,’ ” says Saad. “A lot of people who got good deals put cash down. We put two offers down, and at the last minute, someone came up with a cash offer, and we lost.”
He spent more than a year house-hunting on his own and contacting listing agents directly on properties. “Like everyone else, we were searching for a bargain, but it didn’t show up easily. It’s hard work,” he says. “It’s not as simple as people think. The good deal takes longer and is a lot more complicated.”
Dehays, who wanted to stay near his jewelry business in La Mesa, ended up buying a 2,500-square-foot, five-bedroom house on a quarter-acre lot in Spring Valley. He offered $425,000 —above the $410,000 asking price. It was a short sale but took only two months for approval. He put down 20 percent and closed in November on a 30-year, fixed-rate loan (at 5.75 percent interest). The owner had purchased the house for $600,000 just two years ago, he says.
“It’s a beautiful house,” Saad says. “A couple of years ago, we wouldn’t have dreamt of buying a house because the prices were so high. We were paying $1,700 a month in rent. Now we’re paying $1,900.” (And they’re getting a tax break on loan interest and property taxes.)
Penelope Chase, a single mother who went back to school and now works for the city of Encinitas, was paying $1,800 rent in Cardiff. She plugged her rent figure into a mortgage calculator one day and realized she could afford some of the prices being bandied about on the news. So she started contacting agents. Her early experiences were not positive.
“I could not believe the damage the people had done [to one house]. I didn’t want any part of this,” she says. “All the walls had been kicked in. The tiles were broken. The toilets were broken. There was stuff in the bathroom you don’t want to see.”
And she wasn’t happy with her first real estate agent, or her second, or third. “In this market, I was still getting the hard sell—agents trying to get me to buy more than I could afford,” she says. “That’s what got us into all this trouble.”
Then a friend referred her to Libuse, who specializes in foreclosures and helping first-time homeowners.
“When I talked to Janis, I wasn’t sure I could afford a home,” Chase says. “She said, ‘Wait a minute—you’ve been okayed for a higher-priced home, but what do you feel comfortable with?’ ”
Libuse showed her six places in a month. They found a condo in Oceanside that was $140,000—which had previously sold for $292,000.
“It was in really good shape,” Chase says. “I was ready to move in. I painted it. It’s very cozy, a sweet little thing.”
For her, finding the right agent was key to finding the right home. “You need someone you trust, because you’re going into a situation you know nothing about,” says Chase. “You need someone who is really looking out for your best interests, someone who knows the pitfalls. I got really lucky with Janice.”
The mortgage, with taxes, is $1,000, and $300 association fees. “I feel comfortable with what I can afford,” Chase says. “If this market hadn’t happened, I never would have had a chance at a place like this.”
Often, when buyers say they want a deal, what they really want is a home they can picture themselves in, says Rex Downing, of Rex Downing & Associates. “I spend a lot of time getting very clear with clients about what their objective is,” he says. “If it turns out they want a good deal—irrespective of whether they like the house —then we go out and get a good deal. It may be anywhere.”
But more often, people want to live in a particular neighborhood in a particular home, he says. “They want to feel warm and fuzzy about it,” Downing says. “It’s almost always a spiritual decision.”
A good deal to him means paying 80 percent of what the home is worth today—not what it was worth in 2005. That eliminates short sales and foreclosures, because banks get current value.
“Banks are not going to approve a short sale on an amount less than what that house is actually worth today,” Downing says. “They are going to be counting every penny. And believe me, they do count every penny when doing short sales.”
The good deal requires finding someone who owns the home outright and selling not because they are in financial straits but for other reasons.
“You can’t find that out by asking them,” says Downing. “They won’t tell you. All you can do is make offers on properties that are in that situation and try them. And be ready to be kicked out of a fair number of living rooms. You have to dig for good deals like a pig digging for truffles.”
The Frog Prince
Nicole and Kahl Goldfarb are buoyant about their new home in Kensington. Self-described obsessive-compulsives, the Goldfarbs spent two and a half years visiting open houses, searching online and occasionally having their hopes dashed. They played the foreclosure game, putting in offers on homes that were in default, but in the end bought a home the old-fashioned way.
“We visited more than 100 homes,” says Nicole, a speech therapist in the Solana Beach School District who also owns a private practice. “There would be days when we saw 10—really, 10 in one day.
“The hype of a short sale turns out to be not as easy as it sounds. We weren’t looking in Chula Vista, where everything is a foreclosure and they want to get rid of them. These were in Carmel Valley and Mission Hills,” she says. “There are very few available.”
Newer inland communities in Rancho Bernardo, Del Sur and Rancho Peñasquitos offered more square footage for less money but, for them, lacked the old-neighborhood character of a place like Kensington, with its street life and nearby cafés.
They ended up buying a 2,100-square-foot, Spanish-style hacienda circa 1930s on North Talmadge Drive, with a 550-square-foot covered back patio, an outdoor bar and an attached barbecue and fireplace. It was listed at $899,000. They offered $850,000 and settled on $879,000. Their agent gave up half the commission, and they managed to get the Jacuzzi and plasma TV over the bar thrown in.
During their search, they put down offers on three other houses before finding the right one.
“When they didn’t work out, it was upsetting,” Nicole says. “For two weeks you’re depressed. You feel like you broke up with your boyfriend.”
Meanwhile, prices were dropping. The $1 million homes they had seen the year before were listed at $800,000. Their friends told them to keep waiting.
“When we found this house, we had to accept the fact that prices will go down,” says Nicole. “Will we be upset a year from now if the bigger house down the street with the canyon view sells for less?”
The Goldfarbs say they’re not looking back.
“This is our dream house,” says Kahl. “Every day I wake up amazed. It’s the best feeling. No matter what housing prices go down to, we can afford [this house], and we love it. Everyone said wait for prices to drop. But this is not business; this is an emotional decision.”