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Gekko

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About Me

One husband, seven children, ten chickens, three dogs, two rentals, one business, $700,000 in losses . . . and trying to find the time to write about it all without whining.


http://whinecountryrealestate.blogspot.com/2007/09/looks-nice-doesnt-it.html


Paul

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Reply with quote  #2 
That's a very entertaining blog. She writes very well. They live in Temecula. I bookmarked it. Thanks.
reisuccess

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Reply with quote  #3 
Good blog. Felt bad for her.

A few things we can learn or avoid:
1.  Verify all numbers, send out estoppel letters to tenants - will find out how pay and who don't
2.  don't use existing pm. hire new management. If PM were so good, why they are selling.
3.  don't lose control of your property..might have to manage it at first...
4. out-of-state apt is not always easy..isn't it?



Greg

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Reply with quote  #4 
Yes, I like it. Mostly because it looks real. Not a spoof.
Greg

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Reply with quote  #5 
Meh. I poked around the site. Mostly boring.

I think I prefer the spoofs, when they are very well written (like the Sally Heatherton Realtor blog), because they leave me grinning at the wit. It makes me think that there are some smart people out in the world (somewhere).

When I read one of these, I tend to get depressed because it reminds me how dumb people are. Like when you see a story that says more British kids think Sherlock Holmes was a real person than think Winston Churchill was a real person.

Being confessional about having been dumb is the new black. It's almost like we encourage people to be idiots so that they can later expose their own follies on Oprah. Confessional blogging leaves me, mostly, sad.

The exception, of course, was Casey Serin, because he was like a cartoon character come alive. Casey Serin, the real-life Daffy Duck from Uzbekistan.
RankBull

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Reply with quote  #6 

Yet another in an endless line of examples of why the merchants make more than the gold miners.

Paul

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Reply with quote  #7 
I just read today's entry on her blog and the writer (Carol) notes that she has joined the SDCIA message board but has had problems attempting to post. She mentioned that she has contacted the moderator by email but hasn't received a response. Perhaps Greg can help her out.
Greg

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Quote:
Originally Posted by Paul
I just read today's entry on her blog and the writer (Carol) notes that she has joined the SDCIA message board but has had problems attempting to post. She mentioned that she has contacted the moderator by email but hasn't received a response. Perhaps Greg can help her out.

approved!
Carol

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Reply with quote  #9 

I wish that my husband and I had found the SDCIA site before we decided to make the leap from SFRs to apartments. We were successful investors and managers of our California properties for years, but apartments were uncharted territory for us. We had convinced ourselves, at one time, that multi-family properties didn’t have a place in our portfolio, but we changed our minds when we started looking seriously for cash-flow investments. We had mentors, but none who owned apartments out of the area. The rest is history and outlined on my blog. My goal is to have someone else learn from our experiences.

 

I think that the biggest challenge we faced was that (we now believe) many of the due diligence documents (rent rolls, leases, personal taxes, and two years of operating statements) we requested on the $2.950M property were fraudulent. Even if we had required estoppels certificates, which we should have, they could be easily forged. For those of you who have forayed into commercial properties, how do you ensure the accuracy of the documents that you receive? This is a question to which I have never found a satisfactory answer. Our other mistakes have been more apparent.

 

I’ve been forming a list of the lessons that we learned from our very expensive education, and many of them mirror those from reisuccess. It’s obvious that you know what you’re talking about. I would assume that you have some hands-on experience with RE investing. I plan to use this forum in the future, especially when we’re financially ready to buy more properties, which I hope coincides with the current declining market.

 

Some choose to attack me rather than take the opportunity to analyze my mistakes so others don’t repeat them. I’m very proud of our accomplishments and I’m not embarrassed of our failures.

 

My favorite expression is, "You can't hit a home run if you never swing at the ball." And swing I do. Most of the time, I expect I'll strike out. But I need to get through the many strike outs in order to find the few homers. If I'm too afraid of missing the ball, then I’ll never get to home base, either.

 

I don't judge the educated decisions that other investors have made. I like to hear about different experiences so that we can support and learn from each other. (At this point, we hold hands and sing “Kumbaya”.)

 

The opinions that I find most valuable are from those who have invested and succeeded, or invested and failed. Either way, I can ensure that the advice is coming from someone in the trenches and not an armchair investor.

 

If you’ve been on my blog Overcoming Real Estate Losses at http://WhineCountryRealEstate.blogspot.com/ and have some questions for me on this thread, please let me know and I’ll do the best that I can to fill in the blanks.

haggis

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Reply with quote  #10 
"You can't hit a home run if you never swing at the ball."

There's been a lot of that sentiment recently. Sadly, that sentiment isn't really of much use in business. Though it may hold some truth in baseball.

Due diligence is all that has ever returned a profit. And part of DD is a healthy disregard for packaged 'facts'. Do not trust anything you cannot verify independently. It is quite frankly, that simple. Metaphors are not a valid nor applicable business philosophy.

It is commendable that you're sharing your experience. It takes real integrity and strength of character to put your failures out there for everyone to examine.

Best wishes!
kaihacker

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Reply with quote  #11 
Quote:
Originally Posted by haggis
"You can't hit a home run if you never swing at the ball."

There's been a lot of that sentiment recently. Sadly, that sentiment isn't really of much use in business. Though it may hold some truth in baseball.

Due diligence is all that has ever returned a profit. And part of DD is a healthy disregard for packaged 'facts'. Do not trust anything you cannot verify independently. It is quite frankly, that simple. Metaphors are not a valid nor applicable business philosophy.

It is commendable that you're sharing your experience. It takes real integrity and strength of character to put your failures out there for everyone to examine.

Best wishes!


This was my thoughts exactly when reading the post. 

To take the metaphor farther...Baseball Pros practice very often and work hard to make sure that they are swinging at a strike pitch.  Getting out and swinging wildly at anything and everything...is rarely going to land you a "home run".

Education and practice are very important and widely ignored in real estate investing....but there is no shortage of one liners that "investors" fall back on:
"they ain't making any more land" 
"real estate always goes up" - not hearing this so much anymore
"location, location, location"

The only one liner that really makes sense to me is: 
"Buy low and sell high"
of course it harder to do than say.



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Carol

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Reply with quote  #12 
Marcello, you bring up a good point. When we were selling our apartments, one buyer did talk to each and every tenant. Although we hired our own forensic inspector to enter all the units, he didn't speak to the tenants. That's what we should have done ourselves. Also, it's best to visit most of the apartment complexes in the same vicinity to compare rents, amenities, and vacancy rates. So, if some on the rent roll are paying $500, but other buildings are getting $400 and offering more amenities and nicer units, then you can tell that the owner may have "stacked" the rent roll or offered discounts to new tenants.

I didn't think that the focus of my reply would be the metaphor about swinging at the ball. I was referring to the people who research, analyze, and ask for advice for many years without ever entering the market. No, I didn't mean that you should swing wildly and hope to hit something. That would be stupid. I didn't do that and nor do I advocate that type of strategy. When a property has been investigated and proven to be a solid investment, then it's time to "swing" at it. With all that, you still have no guarantees that you haven't made a mistake.

Even though "Baseball Pros practice very often and work hard to make sure that they are swinging at a strike pitch," they still miss the ball at times, no? I think you all know what I meant.

We spent months performing due diligence, working out every scenario that we could think of at the time, and my husband visited the properties that we bought. However, in hindsight, we could have done more, but didn't realize it until it was too late. Plus, we trusted the documents that were given to us. We were dealing in good faith and thought that other owners would, too, given their liability (not that we were blind to the fact that there's a lot of dishonesty in commercial real estate). Next time, I will continue to deal honestly with others, but I won't expect the same in return.
Smithosity

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Reply with quote  #13 
The baseball analogy.  Interesting, and irrelevant.

There are many who study the game, know the particulars of the swing, and practice until their knuckles bleed.  And most of them will still not be good enough.  They will try out and be cut ... many of them blaming it on "getting screwed by the coach" or other nonsense.  The real reason will be because no matter how much you study or practice baseball, you either have it or you don't. 

Don't be fooled by the Disney stories of no-talent players who worked hard and overcame their inabilities.  Those stories are rubbish.  Everyone of those players had the gift and were made better through practice.  The great, however, were born great. 

Sports are the best reality show because 9/10 the strong survive.

There is a reason why I like Simon Cowell from American Idol.  He is the only one on that show who is honest and the only one who is willing to tell a no-talent hack that they should stop wasting money on singing lessons and go get a job that suits them.

Regarding real estate and other business risks, there are many who have the gift of investment.  There are also those with little books smarts who get ahead through hard work.  But hard work is a talent as well!!  Those we see who are successful through hard work are also successful because their brains allow them to see successful opportunities and their hearts and guts let them take risks and weather defeats. 

You can't teach someone how to be a great baseball hitter.  They are born with it and can be made better through practice.  But in baseball, if you suck, you never get a chance to really try and fail.  You fail quickly and it is over.

You can't teach someone how to have guts, persistence, and tenacity.  They are born with it and then can pair it with street smarts and hard core research into becoming a great RE investor.  But, in RE, almost anyone, no matter how little intelligence, street smarts, book smarts, or guts, can buy a house, risk it all, and crash and burn ...... too many days into the tryout to bow out gracefully.

Paul

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Reply with quote  #14 
Luck is a factor that is usually under estimated as to the success or failure of many deals.

In this case, Carol may have been just plain unlucky. Had she encountered someone honorable and not out to scam her, she might just be looking back on her investment(s) as successful transactions.

However, many times we just don't recognize luck for what it is. Frequently, when we fail, we're quick to blame it on bad luck. But, when we win, we attribute our success to hard work, talent, etc.

HungryBear

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Reply with quote  #15 
Quote:
Originally Posted by Carol

 

I think that the biggest challenge we faced was that (we now believe) many of the due diligence documents (rent rolls, leases, personal taxes, and two years of operating statements) we requested on the $2.950M property were fraudulent. Even if we had required estoppels certificates, which we should have, they could be easily forged. For those of you who have forayed into commercial properties, how do you ensure the accuracy of the documents that you receive? This is a question to which I have never found a satisfactory answer.

 

First and foremost, do due diligence on the market.  Second do due diligence on the property.  Maybe you skipped over or did not spend enough time on the first step?

 

If you had a better understanding of ther market, you could have offered a price at which the accuracy of the documents would have been irrelevent.

 

Furthermore, the documents could have been completely accurate but nonetheless misleading.  The relevent question is not how much income the previous owner made from the property, but how much YOU as an out of state owner with third party management could make.  It will almost always be less than a local operator (unless the property is a foreclosure).

davidoosnk

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Reply with quote  #16 

The people I have advised on this out-of-state issue I have told: live there for a few months and get to really know the market. Don't trust anyone, and remember as a Californian you will be viewed as a prime mark.

corkhorner

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Reply with quote  #17 
To me, I view the many varying comments herein as being both opposite in nature but also misleading from anologies intended.

I read into this thread a lot of distress incurred by some or most.....Yes, i have been there  and done that , myself.  Big Time , starting in 1963 until now and the next 100 years to boot.  Name a mistake that can be made, and i found the way to participate over the last 45 years.  Yeah, that means I have been around the block.

I don't agree with the anology that we are either born with 'talent' or not.  History has many examples of that not being the case.

Everything can change including attitudes and behavior....if and when we choose to.

As to due diligence,.....wellllll---YAH!  Much like pro forma horse pucky and buying into the dream that is intended to 'make you rich' but largely serves the seller getting there.

The topics herein will bear a lot of introspection and reaching out to find like souls, I believe.

Of course, regarding due diligence that means exactly what it says and to perform it in ways that are reliable and useful.....To gather useful info that verifiable , act on it, research some more, act on it, get opinions of other professionals and again verify it....and the beat goes on.

i came up with a new formula for success:

1]Hold your own seminar
2] Trust your intuition
3] Trust your thinking
4] VERIFY IT
5] Then start over to higher levels


OK, lay it on me.

Cork Horner
Out-of-the-box and intend to stay that way

ps
Incidentally, i first joined this club in 1984 back when it was teetering and AD Kessler was called upon to 'save it'.

Recently, at the creonline.com 10th annual convention I
had the good fortune to be with AD's lawyer/son who carries the flag for the AD principles and techniques.
If one simply remembers cre and its concepts, does Due Diligence and Follow Up everything will come up Roses.

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RankBull

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Reply with quote  #18 
I've owned purt neer just about every type of investment property, and I say that apartments with mom and pop sellers are THE most risky of them all.  Everything they say and every DD document you receive is likely a lie.

However, THE most important document is their tax returns for the last three years - obtained from either their CPA or taxing authorities (POA required).

Part timers buying apartments from mom and poppers is a recipe for disaster, but then to go out of state is pure insanity.  
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Reply with quote  #19 

Carol,  given what you know now and if prices declined enough for it to make sense, would you consider buying a multi-family again in your local area?
 
In my observation, the problem with these kinds of properties isn't only the misleading information sellers provide but the difficulty managing them once acquired. Anything under maybe 60 units isn't going to much cash flow using a prop. mgmt firm. The great deals usually involve taking over someone's pain in the a** problem, which unfortunately becomes the new buyers problem unless the buyer has the know-how to turnaround troubled properties. Removing the bad tenants and the science and art of selecting better ones is, of course, key. Still, you never know.
 
In the 1960s, my brother-in-law owned a 28 unit motel style multi in Los Angeles and never had much trouble . Then the 60s socio-cultural revolution entered its 18 month climax phase around fall '67. All of a sudden, what had been maybe 2 or 3 tenants occasionally experimenting with marijuana turned into a quarter of them with serious heroin and meth addictions causing all kinds of problems.
 
Twenty five years later, same brother in law, different building; one of his tenants hasn't paid the rent. Landlord calls deadbeat tenant, tenant tells landlord, "you bother me again I'll kill your kids". For God's sake what do you do in that kind of situation? Obviously contact the police and press charges but it isn't as if the cops will drop everything and protect your family 24 hrs a day.
 
Then of course it's wonderful when the police call at 3am informing you someone's been "knifed" in your parking lot. It turned out the stabber was the boyfriend of a tenant- flash-boyfriends of low-income tenants cause all kinds of problems.

So I think you not only need to know how to buy these properties for as little as possible and have the management expertise to turn them around and operate effectively, but you need to be willing to put up with a heck of a lot more than single family house landlords do.  

It can very, very lucrative, but you gotta have the know-how and the will.


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Carol

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Reply with quote  #20 
Erik, I haven't talked to my husband about buying more apartments. We have agreed to pick up more SFRs when we're able. We had a good system for purchasing and managing those. In Riverside County right now, there's ample opportunity for cash flow, or break even, at the very least. San Diego still has a way to go before it makes sense to me.

The situations you mention were not unusual to our experiences in KY and OH, unfortunately. I would never buy another property that I couldn't drive to. We were told by a commercial agent in San Diego that you could forget about cash flow if you want an apartment that's nice enough to take your friends to. He said that the money is in the class C properties. From what we analyzed, it seemed accurate. However, there are certain challenges with many of the C and D complexes, as you point out.

An advantage with large apartments is that one vacancy won't kill you, especially if you have enough units to absorb it. If you have 10 SFRs, with expenses ranging from $1500 to $2000/mo each, then you really feel it when a vacancy arises. However, if you buy the right properties, then you can charge lower than market rents and keep them occupied most of the time. I'm in favor of our initial plan of buying a few houses (we only have two rentals right now) and having them paid off in time for retirement. It's basic and boring (and the houses age quite a bit), but stable and secure, for the most part. I'm sure that, as our financial situation and the market change, so will our plan.

In California, with negative CAP rates for multi-families in the not-so-distant past, I'm afraid prices would have to be catastrophic before I would consider anything that's driving distance from my house.

RankBull, I'd like to reiterate what you said about the taxes. This is key for those who are new to commercial properties. I learned this lesson too late, but I would never accept tax records from the agent or seller again. For those who haven't done it before, taxes should be ordered directly from the IRS and not requested from anyone who has anything to do with the transaction. This is accomplished by the seller signing a release, as you do when obtaining a loan. You need a Form 4506, which you can copy from the http://www.irs.gov site, and pay $39 for each one requested. The instruction form says that the IRS can take up to 60 days to process, so make sure that you send it in immediately after the sales contract is signed.  
 
Corkhorner, I respect your experience and agree with your excellent advice. Newbies should take note when you post. And I don't think you'll have to worry about anyone "laying it on you" in this thread, when they've got me for a punching bag.  
kaihacker

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Reply with quote  #21 
Quote:
Originally Posted by Carol
In Riverside County right now, there's ample opportunity for cash flow, or break even, at the very least.


I am surprised by this.  I haven't really been paying attention to riverside County (I mostly work the Southern Central valley/sierras).

I would be interested to hear the numbers on what you are seeing (price vs rent).


Quote:
Originally Posted by Carol

For those who haven't done it before, taxes should be ordered directly from the IRS and not requested from anyone who has anything to do with the transaction. This is accomplished by the seller signing a release, as you do when obtaining a loan. You need a Form 4506, which you can copy from the http://www.irs.gov site, and pay $39 for each one requested. The instruction form says that the IRS can take up to 60 days to process, so make sure that you send it in immediately after the sales contract is signed.


Good tip.  This is why I frequent this site...I learn little things here and there that I know I will use someday...THANKS.


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Carol

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Reply with quote  #22 
Here you go:

http://whinecountryrealestate.blogspot.com/2008/04/smokin-deals.html


steveM

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Reply with quote  #23 
Be wary of low prices in Riverside Co. 

Right now on the MLS there is a 3000+ Sq' house in Murrieta listed for $159k.
http://www.realtor.com/search/listingdetail.aspx?source=a1se7h1t472&ctid=1800&ml=3&mxp=21&typ=1&sqft=8&sid=e740a5fc550a4022add2f27683788ca7&lid=1089913461&lsn=1&srcnt=3#Detail

What they don't say is that it's actually the starting bid on an auction to be held.  It seems really shady for a Realtor to list a home in the MLS that way, but there it is.   I bet there are lots of Realtors showing the house not aware of the deception in the listing price.  Probably lots of buyers getting excited to go see it.

I called on another low price home in Temecula and the agent explained it was a short sale and his low price was there to attract bids to present to the bank.  The bids had already gone over the MLS listed price and even then he did not know if the bank would accept it, and suspected they would not.  So there again the price listed in the MLS is not accurate.  Shouldn't the price start at a number the bank has already approved and not some low price leader, used car lot scam?

I would guess the examples on Carol's site involve some sort of Tom foolery as well. 

It used to be that the price in the MLS was the price the seller wanted.  Heck you could even offer $10k-$20k less than the asking price and often get an escrow.   Today creative agents are listing houses at LESS than the price the seller/bank wants.  You could walk up to the agent with a full price offer and proof of funds and get a song and dance, but no house.  All you get is a place on a wish-list.  I thought the MLS was more reputable than that?    Agents who resort to this deception are going to demoralize more potential buyers and discourage people from even looking. 

BTW, my experience to date has been that there are still people willing to pay what I view as suicidal prices, considering the glut of homes in Riverside Co. (and builders are still building) and the mountain of REOs that continues to grow like a snowball.  The last housing crash in CA took years to unwind, this bubble was much bigger.  We are less than a year into the unwinding and people are already jumping off the fence to go knife catching?

I guess I'll have to keep waiting until the folks who see today's prices as good deals, run out of money  

PS: I like your site Carol.
"At this price, it will go quickly"  LOL

steveM

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Reply with quote  #24 
Just one more quality Murrieta listing:
http://www.realtor.com/search/listingdetail.aspx?source=a1se7h1t472&ctid=1800&ml=3&mxp=21&typ=1&sqft=8&sid=e740a5fc550a4022add2f27683788ca7&lid=1095307145&lsn=2&srcnt=3#Detail

1976 Sq' single family home for $216,600.00
Sounds a little interesting huh?

2 Bedroom, 4 bath?
3 Story?
  • Exterior features: Sewer service connected, Barbecue area, Attached parking, Level lot, Gated community, 1 unit(s) in complex.

  • I'm guessing creative listing for a condo?
    Carol

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    Reply with quote  #25 
    Yes, I saw that one, too. It explains that it's under "auction terms", so I didn't include it. One phone call with that question to a listing agent will determine if it's just a starting bid. I couldn't get your link to work. Here's another one for the same listing:

    http://www.immobel.com/personal/1_3_1/listingDetails.do?c_garage=&rpp=15&c_city=&searchId=0&xml=1&c_year-built=&maxprice=200000&cu=USD&featured_int=0&c_zipcode=92563&c_type=SFR&per=mrmls&c_mtype=res&la=EN&minprice=150000&ssid=0&serverId=0&st=0&back1=%2Fpersonal%2F1_3_1%2FsearchResults.do&of=22153604

    Unfortunately, dealing with the banks makes the process very time consuming. While you wait to hear from one offer, you may hesitate to place others (just in the off chance that two or more lenders accept your low balls), delaying any transaction that you hope to complete by spring or early summer. I compare it to that over-used cliche of slinging mud against the wall (something's gotta stick), but you need time and an experienced agent. If you have someone willing to place offers on many homes, searching the new listings for you every morning, or even approaching defaulting owners whose lenders already have agreed to a short sale, then it's less work for you and more of a chance of finding something that pencils out. If anyone would like contact info for the best agent that I've ever worked with up here, let me know. I've used him in over a dozen transactions, and I get absolutely nothing for referring you to him.

    One clarification for today's blog post: in my calculations, I didn't include the payment for an equity line or other borrowed money used for the down payment.
    Carol

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    Reply with quote  #26 
    Here is the same listing on the MRMLS. It only comes up as a condo and not an SFR. 

    http://www.immobel.com/personal/1_3_1/listingDetails.do?c_garage=&rpp=5&c_city=&searchId=0&xml=1&c_year-built=&maxprice=216600&cu=USD&featured_int=0&c_zipcode=92563&c_type=CONDO&per=mrmls&c_mtype=res&la=EN&minprice=216600&ssid=0&serverId=0&st=0&back1=%2Fpersonal%2F1_3_1%2FsearchResults.do&of=23078156

    This is the link I use for listings in So. Cal. (although I prefer Realtor.com for San Diego):

    http://www.imrmls.com:8080/servlet/lDisplayListings
    javipa

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    Reply with quote  #27 
    SteveM,
    Quote:
    "
    ...people are already jumping off the fence to go knife catching.."


    That's hilarious!
    ----------------------

    I'm advising a friend of mine who's looking for deal on a house. She's come
    across several deceptive advertising schemes on houses. After looking at a
    couple of these dead ends, we couldn't even negotiate a cash offer at
    the advertised prices because the price was a come-on for a short sale
    each time.


    Notwithstanding, we're discovering that the prices are dropping so
    dramatically month over month, that anyone would be stupid buying for
    anything near "retail" at this point. Meanwhile, according to an article
    I picked up last week, retail pricing is statistically dropping an average of
    $3,000 a WEEK in California, or a 26% drop since March '07. That's a
    serious "correction", and we're not seeing an appreciable change in the
    number of NOD's.


    Right now in the Inland Empire, if you can't buy at about a $90.00 a square
    foot, we wouldn't recommend buying --- even less per sq ft for larger
    homes. That's not a hard rule, but if one HAS to buy a house, then under
    $100.00 per sq.ft. is prudent.


    We've got our eyes on several newly built homes that are now becoming
    REO's. We think they'll finally go for roughly $80-85 a sqft. These are 3,000
    sqft-ish in size. If we can buy at $85.00 per sq.ft. we'll feel good about
    buying.


    Wow, Honey! It's "only" *$199, 000!
    [Honey, what's the asterisk about?]

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    steveM

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    Reply with quote  #28 
    "Yes, I saw that one, too. It explains that it's under "auction terms", so I didn't include it. One phone call with that question to a listing agent will determine if it's just a starting bid. I couldn't get your link to work. Here's another one for the same listing: "

    The link still works for me and no mention of an Auction anywhere on the page.  On Realtor.com search Murrieta if the link does not work.  I did talk to the agent and told him I thought it was deceptive.  Still you should not have to call agents to see if their listed price is accurate and truthful.

    The second listing is listed as "Single Family Residence" on Realtor.com when a Single Family Residence search is performed and there is no photo (I wonder if that's a coincidence?).   3 stories?  What's that all about?
    RankBull

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    Reply with quote  #29 

    The best interest of individual market participants was no more of a concern to realtors on the way up than it is now, on the way down.

    kaihacker

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    Reply with quote  #30 
    Quote:
    Originally Posted by RankBull

    The best interest of individual market participants was no more of a concern to realtors on the way up than it is now, on the way down.



    Common...that cannot be true...haven't you seen the NAR commercials? 
    /Sarcasm off/


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    Gene Hacker

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