Real Estate Reckoning...on the ground from a Broker's viewpoint
LOST IN TRANSACTIONS
I've been missing from Hubpages for months. Not because there's nothing going on in the world of real estate brokering, as you might guess. It's because my job, my clients and customers have been demanding my focused attention. One way or another, real estate is changing hands and that means... I work. Buyers are looking for bargains and sellers are looking to move up to a better property at a bargain price. Or to get out from under an impossible house payment. Or transferred for work. Needing to be closer to work and/or mass transit (wouldn't you prefer to put your dollars toward your real estate investment, rather than into your gas tank?) Or retiring and downsizing. Or getting a divorce. Or the family is settling an estate in probate. Some things are timeless; there are always lots of reasons people want to sell.
The home sales climate is changing so fast, just when I think the dust has settled a bit and I can write something with conviction, the Houdini wind sweeps through the industry and nothing I could state really qualifies, or becomes simplistic in a complex market. But there are a few things I know, things I've learned here on the ground where I am so far from Wall Street and Washington DC they could drop a foreclosed home from a crane onto the Capitol Building and I wouldn't hear it.
Not all the news is bad....but
FORECLOSURES & SHORTSALES: Yep, they are up. It wouldn't be so bad if this mess had not been so callous and calculated on the part of the lenders. Really, I cannot believe that it is otherwise. Remember all the ads for equity loans and refinances, and desirable ARM interest rates, get your credit cards and you can have everything you want right now? Madison Ave. ad agencies got rich too....just advertising all those bogus booby-trap credit products. Way too many Americans just don't understand their own finances, and they've been hit hard. But a lot of folks who were normally prudent with their budgets got caught when the lenders and credit card companies simply changed the terms and requirements midstream. Which they had the loophole rights to do, and which they wrote, in legalese, somewhere in the 18 pages of fine print the borrower signed off on.
So what are the Banks doing with those foreclosures? They are often dumping them at a loss which they will gladly write off at the end of their fiscal year. Remember they have profited some monies on some of their foreclosures. Not all foreclosures are sold at a loss. Believe it or not some folks with plenty of equity, who get behind and ignore official notices, never try to sell their homes to get out from under the financial weight. It's emotional; they just can't bring themselves to do it. They freeze in panic. It's painful. Eventually the Bank takes the property through legal means that vary from state to state. I know of an older couple on fixed income, with chronic health problems that did affect their judgment, who have lived in a sweet little home on their two acres for over 30 years. Through suspicious re-fi and equity loan products they got to a point where their monthly house payments were over $3,000. They were absolutely scammed; or at the very least no one bothered to explain or counsel them regarding the risks of the programs they agreed to. Despite the intervention of attorneys and advocates, the couple lost their home.
Of course by selling foreclosed and negative equity homes at a discount, and these discounts are getting deeper every day, the Banks are effectively lowering property values across the board. These sold homes are the very ones the appraisers will use to compare against any properties involved in a loan.
Short Sales can be Shaky!
Short sales are very common these days....where the seller still holds title and places their property on the market, most often with a broker who can blanket market the listing. The home may be offered for less than the borrower owes, or any given offer may be less, as well. We brokers & sellers have to work with their lenders' 3rd party approval on any offers that come in under the value of what the borrower owes. The bank would prefer to avoid the expense of foreclosing, and paying the expenses and taxes of a home they will ultimately have to take a loss on. The borrower manages to walk away without a foreclosure on their record. But the Bank divisions which handle the short sales are over-worked and understaffed; the offer a buyer makes may not get a response for weeks....and there's no guarantee that answer will be Yes. The risk to buyers is that their loan terms might expire, or in many cases they live in a home they've sold that needs to close....the buyer wants possession and the seller is still waiting to find out if the bank will accept a short sale on the property they want to move to. Many buyers back out of short sales....they just can't wait for the Bank to respond; they move on to a property that's easier to get into. And when they do, most likely their Realtor breathes a sigh of relief, with mixed emotions. Not only is the short sale and foreclosure paperwork horrendous (on top of the reams we normally create), the bank and the seller will not do any repairs...even if they are needed to make the home qualify for a new loan. And worst of all, when the Bank starts chipping away at the bottom line, they often want to negate or drastically decrease the amount of commission the brokers involved receive. We work and negotiate, dispatch volumes of information and pounds of paperwork..... and achieve the equivalent of shoving a piano down a laundry chute, and ......we might not get paid. This is bad, because this is how we feed our families. I know of some Brokers who refuse to work short sales unless someone, often the buyer, will guarantee their fees for the large workload they take on. At least with a foreclosure sale listed within our multiple listing service, Broker's commission structures are stated up front and guaranteed by contract. Short sale = unknown!
Buyers are ready and willing....
It's not as though there are no buyers wanting to buy homes. Smart buyers with decent credit and a good history are jumping into the market. Not everyone is broke. Not everyone sees media-driven horror stories as indication the sky is falling. Some are waiting for prices to sink lower, and some are simply afraid to make loan application. Which is silly.....it's a buyers' market! Investors are calling daily....because I advertise for them. It is an ideal time to pick up a fixer....lots of thrashed real estate out there, needing fixing. And cheap, because it will not qualify for financing without a very large downpayment. But expect to hold it for a while, it is not a flipper's market!
And there are those clever first time buyers who've saved for a down-payment, or are willing to sell off other assets to get into a home. They kept their credit clean; waited out the frenzy. They thought they'd been priced out of the market and all of a sudden homes are again within their reach. It's what every parent wants for their newly out in the world children....so folks, help your kids if you can. You may never see a better chance for them to become homeowners.
Some buyers need to sell a home to move up, which is harder these days with more homes on the market and competition from short sale and foreclosure properties. Patience is required. Some buyers have been holding back, waiting to see the bottom.... and there is plenty of competition. It's just harder to get a home shown these days. In the mean time buyers see rich incentive to save for a downpayment and clean up credit as the months tick on. In other words things are getting back to normal. You have to make some sacrifices to buy a home, just like generations before you did.
Be prepared to answer questions from the lender! Your loan officer will help you with letters of explanation on late pays....as long as the instances are few and not chronic.
I'm not an economist, but it seems to me there would be more merit and profit in taking a calculated risk on some borrowers than there is in taking a loss by underselling foreclosed properties. I am seeing pretty stable and strong looking borrowers scrutinized to within an inch of walking away from the whole idea of buying a home....in a buyers market! It also seems that there could be better ways for Banks to communicate and negotiate with borrowers who are in default, other than failing to come to terms by offering a reasonable program the borrowers could work within, instead of taking back a home they, the Bank, will have to sell at a loss.
HOW ABOUT SELLING A HOME…WHAT CAN A SELLER EXPECT?
First of all remember all real estate market conditions are local. Sure they are affected by national and global economic trends....to a point. All values are effected when Banks are actively selling properties for less than they have invested in them. But desirability of a city, location, urban growth boundaries, job market and pay scales, and the condition and appeal of your home....plus pricing wisely will all have an effect on whether or not your home sells in a competitive market.
If you have a reason to move, and there are many, now is as good a time as any. It makes no sense to wait till a market bottoms out....not from the sellers point of view.
Since the bailout of Freddie Mac and Fannie Mae by the US government, just the past few days!, mortgage rates are down under 6% again and as one loan officer put it to me: "phones started ringing off the hook with previous customers who now perceive conditions are perfect to make a move." It's clear that some of the reluctance of borrowers waiting to jump in and make loan application has been about perception and consumer confidence....that illusive much-polled emotional response to what they hear on the news and from their neighbors.
So if you are selling, or would like to....you need to make your home more desirable than your competition. That could be condition and location, but it also has to be about pricing. Your property will be more desirable because unlike a bank owned property you will be there on site to negotiate without taking weeks to respond, and you are in a position to negotiate with the buyer over repairs that might be needed in order for the buyers to get their loan. Remember the banks won't do that these days....they take a long time to respond to an offer and they are willing to fix almost nothing. (I've seen listing photos where the agent took a picture of the dog poop on the carpet! The bank/owner wouldn't even pay to clean up the property.) So you ARE in a good spot to compete successfully against foreclosures and short sales!
I recommend you have a Realtor do a Comparative Market Analysis, study recently sold properties, and your 'for sale' competition..... and price your home at or below the middle of the price range. Clean it up, de-clutter, and start looking at the bargains out there in replacement property...the home you want to move up to. Make sure you're going to clear enough profit on your sale to put down at least 20% on your dream home, and talk to a lender to make sure you know what the terms of your new mortgage will be. Expect to have slower showing on your home than a few years ago....your home probably won't sell in a matter of days or weeks. Buyers have a surplus of homes to go look at and they DO. It takes time. Make yours look the best against all those other homes. And don't take offense if you get a little bit of gentle tire-kicking....it's what buyers do. You may do the same thing when you're shopping for your replacement home.
If you've been in your home at least 4 to 6 years and have not over extended your credit, you should be in good financial condition and though you won't get the sky high speculative prices you might have 3 years ago....you've still got strong equity, and you will be able to negotiate a great deal on your next home. Give a little....get a lot. And don't wait for a better time to sell....you won't be in such a good bargaining position for your next home!