Going for the short sale in Laguna

It's no secret that the Laguna Beach real estate market has hit some bumps in the road - there is nearly a year-and-a-half's worth of inventory backlog (and rising).

Laguna has always played by its own rules a bit, and considering the very small percentage of people who can actually afford to buy there with the prices the way they are, the buyer pool is significantly smaller than in many other areas. Remember, a significant chunk of the "demand" for real estate right now is in the $500,000 and below category.

Here's an illustration of how buying at the peak of a real estate bubble can be disastrous, no matter what the ZIP code, or even the view.

1420 Del Mar Ave, 92651
Asking price: $1,089,000
Asking price/ sq ft: $412
Income requirement: $272,250
Purchase price: $1,364,500
Purchase date: 8/16/06
Size: 5 beds, 4 baths, 2,640 sq ft (built in 1997)
MLS: L26348 (29 days on Redfin)
ZipRealty price tracker: Price Increased: 5/13/08 -- $1,470,000 to $1,595,000
Price Reduced: 5/23/08 -- $1,595,000 to $1,089,000
Zillow Zestimate: $1,444,500
2007 property tax: $15,603
Type: Single Family Residence
Style: Modern/Hi-Tech
Stories: 2 Levels
Lot size: 2,867 sq ft
From listing: HUGE PRICE REDUCTION FOR SHORT SALE! MOST SQFT FOR THE PRICE IN LB! BUILT IN 97 WITH BIG OCEAN VIEWS.FEATURES INCLUDE HEVAULTED RYRCEILINGS ,SKYLIGHTS,2 FIREPLACES,SLATE FLOORS, WOOD CABNETS IN KITCHEN,WETBAR,2 OUTDOOR TERRACES. SHORT WALK TO MOULTON MEADOWS TO SHOW CALL RAY AT ....


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Interesting that the owner inserted their own name and phone number on the listing as the one to call. Why hire a real estate broker, then, if you're not going to let them do most of the work?

Look closely at the sales history, and you will see the property changed hands for $832,500 in 2003, $1,000,100 in 2005 and again for $1,364,500 in 2006. What happened to allow the home to jump in value by 39% in three years?

Yes, the bubble, for one, plus what appears to be a successful flip (the 2005 buyer's "name," Del Mar Avenue Trust #1420 - as in the address of the property, is a dead giveaway). It also looks like the investor(s) picked up the home as the previous owner was facing foreclosure. Then, they turned it around for a solid gain.

Assuming 6% in sales costs, the profit before renovation costs was $282,530. Not too shabby for 10 months' work.

Our unfortunate buyer and current owner not only purchased a flip, but they took possession of the home at the peak of the market. He secured a $1 million first loan from Indymac and was apparently able to open a $227,500 HELOC, also from Indymac, the same day. Less than three months later, the owner took out a $500,000 stand-alone second from Coast to Coast Funding Group.

How bad were the lenders' judgment? The homedebtor fell behind on his first loan and his stand-alone second at the same time, and received two notices of default in February - one for each loan. The NOD amount on the $1 million loan was $26,285, and it was $23,394 for the stand-alone second.

As the listing description seems to happily proclaim, this is now a short sale! (It's also a preforeclosure!) The owner originally put the property for sale for the quasi-bailout price of $1,470,000, but no dice. Now, it's already been reduced by about $380,000 to attract a buyer.

Assuming the home can be sold at the current price, it would mean a depreciation of $275,500 or 20% off the peak price, not including any sales costs.