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In his article/blog, Sellers Market, Buyers Market or. . . Lenders Market? Realtor William Johnson, asks, “Buyers rule? Not so fast. Certainly that's not quite true if the property falls under the category of distressed property.”
Williams agrees that distressed property usually needs a lot more than a paint job. But what exactly constitutes a distressed property? “Property is considered distressed if it has been foreclosed by the lender or the owner is seriously late in making payments or the property is ‘upside down.’ Upside down denotes the value of the property is less than the mortgage amount,” says Williams.
After all the fallout of the past few years, most of us are well versed in the meaning of a ubiquitous ‘sellers’ market (will it ever return?), and the Realtor community has been touting a buyers’ market for while now. We first have to loosely define that market, however, before we can explain a lender’s market, according to Williams.
According to Williams, a buyers' market means buyers have greater control of the time frames and also many of the terms, with a plethora of favorable contract conditions thrown into the picture. Buyers typically pay less than they might in an active sellers' market and quite often have a larger selection of properties to choose from. Purchasing normal listings, then (not distressed ones) these days can indeed mean that buyers are in the proverbial driver’s seat.
A lenders' market, however is one where the majority of the market is made up of distressed property sales. A property is also said to be distressed if the value of the property is less than the mortgage or trust deed amount and the owners are unable to keep the mortgage current, and therefore need to get out from under the payments. A foreclosed property is referred to as ‘real estate owned’ ( REO ). When a property owner wants to sell a property for less than is owed on the property, it is referred to as a ‘short sale’, as we have explained in previous columns.
“In contrast, a lenders' market can have a combination of these characteristics. Buyers benefits in a given offer to purchase are stripped away, including pest inspection and clearance, closing costs, home warranties and repair requests, with the lender opting to sell the property in its present physical condition,” says Williams. “Naturally there are exceptions to this, depending on the lender and whether the distressed property is a short sale or an REO.”
He goes on to explain that lenders look for the highest possible price with the fewest number of contingencies (conditions of sale). “Only buyers with pre-approved loans are considered, and in the case of REOs, lenders give greater priority to ‘all-cash’ offers over offers containing the use of financing, even if the offering amount is slightly less. He cites faster closing times for all cash, benefiting the lender by clearing the asset from their books more quickly. But this is true for nearly any transaction where no financing contingencies are stipulated.
Properties sold ‘as-is’ require buyers to be particularly diligent with property inspections, Williams points out, while lenders will tighten time lines and may even impose a penalty for delays in an effort to liquidate their albatrosses, so to speak.
“The essence of the lenders' market, then is ‘take it or leave it’” says Williams, citing the timeworn phrase, "He who has the gold makes the rules". Ask any Realtor and he or she will confirm that REOs and short sales can be good deals, but extra diligence and careful consideration on the parts of buyers and their agents is vital when purchasing them.
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We thank San Diego RE/Max Realtor John Williams for his timely consumer information for this article.
Contact the Housing Examiner at dena@communic8or.com with topic suggestions or reports on housing in your area.
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