Selling your house.....Can you compete with foreclosures and short sales?
Short term ememory loss? Inflation isn't new!
First of all let’s remember the past few years. Inflation shouldn’t be a new term to anyone who has bought or sold property during the so-called hot-hot housing market of the mid 2000’s. Everyone knew the market was appreciating at a false and unsustainable pace. Inflation. When loans should have been vetted and based on debt to income and the borrower’s ability to pay, anyone with a pulse could be underwritten for a mortgage. Everyone wanted a piece of the action before home prices rose completely out of their reach. This drove up demand for housing, and thus prices. But even without sub-prime loans, predatory lending, and the fact that uninformed borrowers took on even more risky debt after moving into their homes, there had to be a saturation point. When two people working full time jobs, without a lot of additional debt, cannot afford the mortgage payments for a solid and livable home, the housing market was bound to sputter and stall. Market turmoil would have happened anyway. But it might not have imploded.
Livable Wages Please!
Financial stability in America is tied to the wages of everyday working citizens; and our president-elect is absolutely right in believing that trickle down economics do not work. Especially when the entities at the top are not putting profits back into American ventures, but into factories and enterprises overseas. All the credit crisis cures in the world will not help U.S. financial bases if Americans have incomes that do not meet their living expenses, are buried in un-payable debt, or have no jobs at all. A thriving economy starts at the bottom, with ordinary workers like you and me. We don’t want hand-outs, we want livable wage jobs. And anti-usury laws.
We didn't need to have this many foreclosures!
Let me say that I could never figure out, once repossessed properties began to glut the market, why the lenders chose to continue foreclosing instead of trying to re-work terms with the borrowers, and continuing to earn interest from them. It’s the old ‘bird in the hand’ parable. Rather than trying to salvage some ongoing profit, the lenders chose to take on the expense and uncertainty of trying to market and sell a foreclosed home in a flooded market. I believe at the beginning of the housing market train wreck there was actually still a percentage of profit for the lenders in repo-ed housing. After all, those funky ARM and subprime loans were STILL being approved. The first borrowers to default were still living in an appreciating market, and the bank took back a property that could be sold for a desirable amount. But once the snowball got closer to hell, values began to sink; demand was dwindling, partly due to new stiffer loan qualifying guidelines put in place by the lenders. Profits disappeared, and in the end the lenders were instrumental in devaluing their own holdings! If they’d been willing to ‘work-out’ loans borrowers could afford, much of this financial debacle could have been much less painful and widespread.
Making offers on foreclosures....can you afford to wait weeks for an answer?
At this moment in time, to avoid having to take on a hard-to-sell home, the lenders are often choosing to allow the defaulting borrower to retain title to the property, if the homeowner agrees to allow the lender to become a third party who must agree to a sales price on the home that is less than the borrower owes on it. The borrower walks away with no foreclosure on their record. (By the way, NEVER move out of a home to which that you still hold title!). This third-party approval practice is called a short-sale, and it often takes weeks or months for a buyer to get an answer to the offer they made. And they almost always take a longer time to close. We Realtors are very wary of short sales, as the thrid-party approval entities tend to chip away at the bottom line by chipping away at our commission….we never know going in if we will get paid an adequate fee for our labor-intensive efforts, our time, and the reams of paperwork we processed. And we don’t like being the target of the buyers’ frustrations and anger when no agreement to purchase can be made, after weeks of waiting. We much prefer an out and out bank owned property, where the commission paid us is clearly stated. It's how we feed our families. If you insist on trying to buy a short-sale property, don't be surprised if your agent asks you to guarantee their commission..... you make up the shorted difference of a standard percentage fee.
The same extended timelines can apply for a property that the bank owns outright. The lenders are simply overwhelmed, and they are understaffed with undertrained personnel. So this lengthy, frustrating approval process creates real problems for buyers of foreclosed and short-sale homes, especially if they have sold a home in order to move to a new one. They might have to sell their existing home, only to find out after weeks of waiting that the bank will not agree to the price they offered. Or even if they do agree, there is a lag time and the buyers have to move from their old home before they can close on the new one. It’s messy.
Solid Sellers like you have so much more to offer buyers!
But there are still a lot of buyers and sellers on solid financial ground, who quality for a new loan…..and yes there is plenty of funding available at very good interest rates and terms, for solvent borrowers. Many would like to take advantage of the bargain prices for their move-up home…..which are often homes they’d never dreamed of being able to afford several years ago. It’s a smart and savvy move.
But if they have to sell a home to move up, how can a not-in-trouble seller (we’ll call them “Solid Sellers”) compete with the glut of foreclosed and short-sale properties on the market?
You can negotiate in a timely manner, and your house is in good condition
Well, Solid Sellers do have several important edges over the bank-owned and third-party listings. Unless a buyer is putting over 30% down on a purchase, the home they buy will have to meet certain standards of condition. No dry rot, a good roof, good drainage, solid foundation, and all systems in good working order…..heating, plumbing, sewer lines, electricity…all have to be in tip-top order. No Fixers need apply. When the banks sell a foreclosed property or agree to a short sale they stipulate “as-is”….they refuse to do any work or repairs at all to bring a property up to lendable standards. Don’t even bother to ask for repairs, and be reluctant to even pay for a full home inspection….it may mean just several hundred dollars out of your pocket that you will not recoup. This takes many buyers completely out of the running. Mortgage companies simply will not approve the property for a new loan. And so many foreclosed properties have too many nicks and dings….deferred maintenance; since the previous owner probably struggled with finances and ignored a lot of fix-up projects.
A seller who is on firm financial ground, and has kept their property in good order, has a home buyers will be able to get a loan on. A home in good condition has more value. Realtors know this and should discuss the implications of shopping for a foreclosure versus a well-kept owner-occupied home.
A real plus is that the Solid Seller is in a position to negotiate with a buyer. You just won’t get much give and take when you offer on a bank-owned property. You’ll be dealing with an overworked, stressed ‘decider’ at a desk far, far away. The Solid Seller will be able to negotiate a fair price in a timely manner, address any necessary repairs, and work with the buyer as to both time needed to close, and to take possession.
And don’t underestimate the appeal to buyers of an easy timeline! Solid Sellers offer the convenience of being able to have the buyers lock in their loan interest rate and move in within a workable timeline. Foreclosure bargains are less glowing when stacked against a list of repairs, and if they mean the buyer has to store possessions, find interim housing and move everything twice…..all at additional expense to the buyer. If a two-income family has school age children, this short term housing need can be a disruptive nightmare. If you buy from a Solid Seller you can avoid a lot of headaches!
So all you Solid Sellers out there….don’t hesitate to sell your home if you have a reason to move, such as more space, downsizing, a job change or wanting to be closer to work or family. It is true that you cannot sell at an inflated value, and your property may take longer to market and sell than in those sizzling years of mortgage madness. Consider that this will also give you time to make plans, and shop for replacement housing in a wide range of locations and styles. You’ll be able to weigh your net proceeds on the home you sell, against the good value you get in your next home.
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