Source: Shannon B. Jones, Esq. | Shannon B. Jones Law Group, Inc. | [email protected]

In 2007, like a national bolt of financial lightning, the Great Recession hit the real estate market. What ensued were unprecedented increases in foreclosures and short sales due to job losses and depreciation in the value of homes. The meltdown was compounded by loans secured by real estate, for which borrowers did not qualify. The mortgage market was awash in questionable loan products with adjustable rates, creating a situation where, like a timed pressure cooker, borrowers could no longer afford their properties. A national housing crisis was born and from 2007 to approximately 2011, the real estate industry dealt with short sales and the REO resale market.

Housing Crisis Timeline

Housing Crisis Timeline

The Flippers Market of 2010

In approximately 2010, the “flipper market” was created as entrepreneurs and investors discovered a way to make money by purchasing low priced homes in the wake of the foreclosure crisis. Those investors renovated and improved abandoned and short sale properties, and quickly placed them on the market. While the flippers assisted in the recovery of the real estate market by driving prices up, they also created a soon-to-burst To earn a profit by “flipping” homes emboldened investors took shortcuts in the renovation process and did not always utilize the highest quality materials. During this time, real estate investors flooded the market looking for ways to make money on “cheap” homes and knew very little about the properties they purchased. Therefore, disclosures were not as complete as those prepared by long time homeowners who normally are familiar with their homes and possible red-flags. Many times, investors failed to obtain necessary permits for their improvements and repairs. When buyers viewed flipped properties, what they saw was generally aesthetically pleasing and nicely renovated homes. Therefore, buyers were lulled into a sense that the property was in good condition, even if it was only cosmetic. Buyers moved into these homes and quickly realized that the repairs were either insignificant, improper or lacking in quality, at times with no permits or suffering serious property problems that were never disclosed. From 2012, when these properties started closing through the first part of 2016, lawsuits against flippers constituted approximately forty to fifty percent (40% – 50%) of the non-disclosure litigation in California.

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The Ballooning Rental Market

The Great Recession had many victims and these included the displaced homeowner, who could no longer qualify to purchase a property, and who became part of a soaring renter market. These homeowners started competing with the Millennials, who naturally would have been the renters who left college or their parent’s homes to seek affordable housing. With the displaced homeowners and the Millennials competing against one another for available housing, rental housing became scarce and prices started to climb. Nature abhors a vacuum and homes that had once been foreclosures turned into rental housing and real estate professionals found themselves in the role of property managers unleashing a new wave of  problems upon the housing industry.

The real estate market started seeing its first signs of recovery in 2012 and by 2014, there were many areas where the market had experienced a complete reversal. In fact, some areas such as the San Francisco Bay Area, became a seller’s market and experienced multiple offer situations.

When multiple offers started becoming the norm, buyers started writing non-contingent (as-is) offers to be competitive. A new legal issue reared its ugly head. Non-contingent offers led to a wave of litigation by buyers claiming that they were not properly advised on the risks of not having inspections.

2016 -The Normalized Market

As we now head towards the end of 2016, we can look back on the roller coaster ride the housing market has been on for almost a decade.

Currently, in the East Bay, there are very few short sales or REO sales. Other regions of the country where the economy has not recovered and loan modification agreements are not being renewed are still seeing the residual effect of the recession. The flip market has now become a risky venture and investor re-sales are becoming more limited.

“Boomerang buyers,” who were displaced during the short sale/REO market, are now recovering financially and purchasing homes, which is decreasing the rental market. In fact, recent statistics show in Oakland and Berkeley that the cost of rentals is going down and availability is on the rise.  The market seems to be more normalized with more equality between buyers and sellers, which is creating more stability and less litigation, which is good news for all!

Due to this normalized market, there appears to be an equal bargaining power between buyers and sellers where both parties are negotiating inspections, repairs, extensions to escrow and other terms. Proper property inspections are being done by buyers and they are finding they have the ability to ask for credits and repairs from sellers which is decreasing the headaches of litigation and also improving the home buying and selling experience for all.