Many home sales are failing due to
competing market pressures
How can buyers and sellers make sense of it?
Bidding wars. Moratoriums. Foreclosures. Short sales. Rising and falling median home prices. Over-reported home sales in May.
How are San Diego buyers and sellers supposed to interpret it all?
This much is certain. Something very strange is happening in the San Diego home market as a result of natural market dynamics and artificial government regulation.
On one hand, we hear about the diminishing number of foreclosures because of the government imposed moratorium on lending institutions. The government is saying to banks, “Since we've saved you with public money, we are going to make it harder for you to foreclose on peoples’ homes.”
We also hear about the difficulty of successfully navigating short sales. These deals seem to frustrate nearly all involved as they wait for lenders to agree to reasonable terms.
Meanwhile the banks have investors demanding that something be done with the non-producing home loan assets. The foreclosure inventory diminishes and bidding wars ensue on the relatively few available properties while pressure builds within the banks to get rid of the many (and growing) delinquent loans.
This conflict of market economics and government regulation has created some truly strange symptoms.
A case study of the confusion
This week I heard about a foreclosure (REO) “sale” to an enthusiastic buyer who needed FHA financing and who had excellent credit. The only problem for everyone involved in the deal was that the accepted offer was 20% higher than the appraisal. (Had the bidding war had gone amok?)
The reactions of various parties to the transaction became sort of a case study of frustration and of how bizarre the current real estate market is in San Diego.
After receiving the lower appraisal, the bank’s REO asset manager indirectly told the buyer to just “cancel” the purchase. The appraisal was simply “unacceptable” (even though a larger comparable had sold in the neighborhood for less).
Yet this is where things get really interesting.
The REO bank and the buyer’s lending bank were the exact same institution. In other words, the REO asset manager couldn’t possibly hope for a more balanced appraisal (Furthermore, FHA rules require that the appraisal stick with the property for six months after the appraisal so there was no way for the asset manager to "escape" the appraisal.)
The reaction of the buyer’s agent was quite peculiar (and a quite frankly embarrassing). The agent pled with the mortgage broker of the bank for a higher appraisal.
This is disturbing on at least two levels. First, the agent should have seen this as an opportunity to be the hero and negotiate a better deal for the buyer. Second, the agent clearly didn’t understand the futility of the request for a better appraisal. Who could possibly be more impartial than an appraiser representing both sides of the deal (i.e. the REO asset manager of the bank and the lending side of the same bank)? Also, FHA lending rules simply do not allow you to "shop" for an appraisal.
So what are we to learn from experiences like this?
Time will tell but in a market of increasing loan delinquencies and high unemployment, the reactions of some real estate players seem to be quite confused and contradictory at times. Patience and professionalism is needed on both the buying and selling side of any home sale in San Diego.
Meanwhile, the pressure of investors on their banks’ boards of directors increases daily to take decisive action on their non-producing loan assets.
For more info: Brian Flock may be contacted at brian@flockdreamhomes.com, phone (858) 779-4375, www.flockdreamhomes.com.
Comments
Great information. I have heard it takes a long time for a bank to accept an offer simply because they are waiting for someone else to make another higher offer. They want to make sure they are getting the most out of the house that they can, so they will sit on it as long as they want to. Bad news for naive, earnest new home buyers.
One of client recently submitted an offer on a property and the agent said we did not get the deal because our offer was too high and would not apprise.
I’ve been working with Indy-Mac on a Short-sale for the past 3 months and the Bank today said they were closing the file. They had no explanation but that we going to proceed with foreclosure.
I’ve been speaking with other agents in my area and they are saying the Banks have become very aggressive with not approving short-sales.
Clients have been calling me up saying, they thought they were in negation with the bank in getting a loan modification, but just been notified of trustee of sale on their properties.
Once these properties go into foreclosure the properties are being sold amongst banks at a discount or given to big REO offices who won’t work with other Realtors but who try to double ends the sale.
When I first got into this business my wise mentor said to me “the banks always win”.
Nice article and more prevelant then you are proabably aware.
There is no repsect for the appraisal profession from agents. We are deal killers!
Under the new HVCC appraisal ordering rules some respect has been injected into the industry with regard to third party participants contacting the appraiser for "questions" or "clarifications". But the wording of the bill has scared many smaller lenders into thinking that they need to place their orders through third party appraisal management companies which has devestated some appraisal businesses.
Your story is just one incident among millions. An honest appraisal is the ounce of prevention from the pounds of crooked deals that these agents will put together in a second if not policed.
I waited for my loan holder, too long. Today I leave my home with no forwarding address.
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