Big Bear Bummers

Address: 40168 Highland Rd, Big Bear Lake, CA 92315

Redfin: https://www.redfin.com/CA/Big-Bear-Lake/40168-Highland-Rd-92315/home/3501226

Beds/Baths: 2 bed, 2 bath, 810 squares

Purchase Price (2/2022): $420,000

Asking Price: $325,000

Difference: -$95,000

Commission (5%): -$16,250

Total Gain/Loss: -$111,250

When was the last time you saw a short sale anywhere – let alone in Big Bear?

This is a big deal.

Incidentally, the first home I bought was a short sale. I submitted an insultingly low offer to the bank, but it was literally every dollar I had. Six months later I noticed the listing had changed to “Contingent.” I hadn’t heard anything from my agent so I assumed someone with an actual reasonable offer swooped in. Nope, turns out my lowball offer was accepted.

The previous owners of my house paid like $775,000 in 2007 (peak) and I swooped it up in 2012 (trough) for a bit over $500,000 (the initial asking price was a little over $600,000). Short sales can be great opportunities, but they are exceedingly rare these days. So you can see why this listing stood out.

Today’s seller purchased in February 2022 for $420,000 (20K over ask, OOPS) and just four months later tried to flip it for $499,900. That price would have provided a sweet little profit, but by summer 2022 rates were already on the rise and nobody was willing to bite.

In what I can only imagine is an overwhelming, dread-filled sense of regret they live with on a daily basis, they decided to slow-walk their price cuts rather than just ripping the Band-Aid off. Predictably, the market declines outpaced their chickenshit price reductions every step of the way.

Jul 15, 2022: $489,000

Jul 22, 2022: $475,000

Sep 16, 2022: $469,000

Nov 3, 2022: $450,000

Mar 29, 2023: $439,900

May 19, 2023: $399,900

Jul 13, 2023: $395,000

Sep 1, 2023: $390,000

Sep 14, 2023: $375,000

November 29, 2023: $349,900

January 4, 2024: $325,000

And here is the result:

Their stubborn reluctance to aggressively drop the price in 2022 meant that by January 2024 they were begging for just $325,000. And that still didn’t get the job done.

Anyway, now it’s a short sale and their $84,000 down payment is long gone. And rather than write a $27,000 check on top of that to get out of their bad investment the seller is asking the bank to eat the difference. If the bank agrees, our seller will likely get a 1099-B from the IRS meaning they’ll have to pay taxes on the roughly $30,000 in forgiven debt.

Assuming the bank will actually let it go for $325,000, here is what the payment looks like for a new buyer:

Purchase price: $325,000

Down Payment: $65,000

Approx. Payment: $2,225/mo (@7.4%)

It’s worth noting this place went Contingent and fell out three times since January. Hopefully the bank finds a buyer soon before values drop even further.

The more important question: is this an anomaly or will we see more short sales as the Big Bear market continues to correct?

My take: as it dawns on recent buyers that selling in today’s market will vaporize their down payments, they will be highly reluctant to throw even more money into the Bad Idea Furnace. And since most of these properties are vacation homes or short-term-rental “businesses” – not essential sources of shelter like a primary residence – there is no emotional tether.

In other words, sellers with no financial or emotional skin in the game will have no compunction about walking away and making it the bank’s problem. If that mentality catches on, look out below.