Sally English Atlanta Real Estate: December 2010

Banks
Lenders
Short Sale Lenders
Bank Negotiators
Asset Managers

These are all terms seen in listings. Realtors® use them daily, but the consumer does not. Even buyers who have been out searching for a while can become confused about who they are actually negotiating with, and how that might affect the transaction.

I have a client that I've been working with for a few weeks. Last night I got an email with a few questions that made it clear he did not understand the difference between a Short Sale and a Bank-Owned (REO) when it came to negotiation.

Question One (about a Short Sale): "Do you know how many offers the bank has and when they are going to pick one?"

Question Two (about a Bank-Owned): "How long does it normally take before a bank decides how much they want for the home?"

First, I'd like to say that this is a cash buyer. This is also a man who is not trying to low-ball anything. He certainly would like to pay as little as possible (who wouldn't) but he is not a buyer who will go in 10-20% under asking and "see what happens." This is an investor I've worked with for several years and have even seen him go over asking price to make sure he gets a property that he wants. But even with all that experience, the current Short Sale/REO market still causes confusion at times.

Some Common Aspects:

Both a Short Sale and a REO property have Bank Negotiators or Asset Managers. These are bank employees who have the property file and it's their job to get the best possible deal for the lender. In a Short Sale there will be one Asset Manager for the first trust deed and one for the second (if there are two loans on the home). In both cases these negotiators will order comps and price opinions (similar to an appraisal called a BPO) to determine the value of the property they are handling. Bank Negotiators/Asset Managers are mainly looking at dollars and cents, they are responsible for loss mitigation on behalf of the lender and try and justify a offer price/sale.

At this point the differences between a Short Sale and REO come into play.

Short Sale:

In a Short Sale situation, the current owner is still the seller. We will still work with the sellers. Once we have determined what we want to offer.....price and terms....we submit that offer to the sellers in much the same way as we would an Equity-Seller. Then the seller/listing agent packages that offer together with documentation supporting the financial hardship of the seller and sends that to the Short Sale Lender(s) to approve.

The Short Sale Lender(s) are being asked to accept less than the amount owed on the mortgage in exchange for releasing the lien. Our offer includes the price and terms the seller is asking them to accept.

If the Short Sale Negotiator determines that our offer meets their guidelines, we will normally get an approval. If not, then they will come back to the seller and tell them what they are willing to accept. This process involves the research of comps and price opinions (as outlined above) and because of the amount of work involved, this approval process can take a long time....months at times. Because the Short Sale Lender can come back with different terms/price, this is often misunderstood as the lender "countering" the buyer. They are not.....they are simply defining what they are willing to accept to satisfy the lien.

Bank-owned:

When the property has been foreclosed upon it is now owned by the bank (REO=Real Estate Owned) and most of the work has already been done. Before listing the property, the Bank Asset Manager will have ordered the price opinion and seen comps. They normally price the home rather aggressively to generate quick offers. Often the offers will be over asking price if the home is particularly nice. Negotiations will be very similar to an equity seller.

Asset Managers will look at offers to see which have the best chance of closing quickly and easily. For this reason all-cash offers normally take precedence over financing....even if they are slightly less in price. Although some lenders do take a long time to respond, normally you can expect an answer within a day or so....again, similar to an equity seller. Banks are also looking for the shortest time frame for closing. So a 30 day escrow will be more desirable than a 60 day escrow.

Additional Points:

There are other aspects to the transaction where there are differences too. For instance, if we are working with a Short Sale, we are not going to incur any buyer costs until we know that our price and terms have been approved. There is no reason to pay for a home inspection nor order HOA documents if the lender is going to come back and ask for an unreasonable purchase price. For this reason, we often don't find out about problems until AFTER we get Short Sale Approval. At this point it's often difficult to go back to the lender(s) and ask for credits due to repairs or other problems.

With a REO property, the listing will always state "As-Is" but I often find a Bank Asset Manager is able to make repairs when a home inspection finds a significant problem. I've had mold remediated, electrical boxes rewired and roofs repaired. Certainly they are not going to be fixing loose hinges nor replacing screens, but if the case can be made that any future buyer will have the same issue....they can justify making certain concessions. Again, this is similar to an equity seller.

REO properties behave more like Equity Sellers. They are likely not to take longer than a standard sale. Short Sales (unless they have already been approved in terms and price) will require an approval process which can take a long time to complete.

 

 

Karen Fiddler
Broker/Associate
The Fiddler Realty Team/eVantage Real Estate
Lic # 01494165

www.searchfororangecounty.com

Serving all of Orange County, California Real Estate!
Buyer's Agents, Listing Agents, Short Sales, REOs, Equity Sales, Investors

SEARCH THE MLS HERE

Back in the olden days, say 2008 or 2009, if you mentioned Zillow or Trulia you'd often get a blank stare. Nowadays it's more common for clients to come to their agents asking questions about what they've seen on the popular real estate sites. Oh, how I long for the good old days.

Trulia, based in San Francisco California and Zillow, based in Seattle Washington are data aggregators who target buyers and sellers of residential real estate. The centerpiece of the sites is listing data but they also provide information on schools, neighborhoods, sales trends, and home values, and the latter is often where the trouble starts.

In many cases, at least here in Iowa, the data on the sites does not jive with the facts, facts such as whether or not a property is actually for sale, how much the last sale of a property was for and the derivatives of these facts, number of sales, average listing prices, historical trends and property values. The data is in many cases just plain wrong and it serves to unnerve and aggravate both buyers and sellers alike. There's nothing like sitting down with a buyer to make an offer on a property and having them bring up the fact that the "Zestimate" says the house is worth $40,000 less than it is listed for on a $130,000 property, and despite the fact that it was the best house among the 20 you looked at in the $120-$140,000 range, the buyer still thinks they're having the wool pulled over their eyes.

The frustration is rivaled only perhaps by the buyer who has serious concerns about the neighborhood you showed them homes in because Trulia says prices there are down this year and it is overrun with foreclosures, even though your MLS data shows they've appreciated and there are only a handful of distressed sales. Or how about the buyer who wants to look at the home on Grand Ave which you did not send to them, but which they found for sale online, the same buyer who is demanding to know why you aren't sending them all the homes available for sale. The home in question? Oh, it's not for sale and hasn't been for months.(Client: Could you check again please? It's there online) And oh there is also the buyer who wonders "why does this house on Zillow say it has no garage when I can drive by and see it has a two car garage!?" And while we're on the subject please tell me why the website only shows one photo of the front of this other house? (a house which is not even for sale by the way!)

I feel for them all. These are people making a major purchase or sale and who might be basing their decisions upon data that is not consistently reliable. It also causes a breech of trust of sorts with real estate agents who are trying to provide accurate data which the client might view as suspect because it does not match the unmonitored aggregated data on an internet website! It's coming down to agents squaring off against an algorithym and having to defend impirical facts against blatant inaccuracies.

This weekend I entertained an out of town buyer looking at homes in the Des Moines area. I found myself spending a lot of time explaining why the reality of the market or home values did not match what was being presented on sites such as these. It was unnerving and I didn't like being in the position of explaining why the data was misleading and inaccurate. I found myself often saying that it was not a good idea to rely solely upon the data they presented to make purchase or sale decisions. Eventually I was able to show through MLS data, public records and plain common sense how the information presented was patently inaccurate and misleading. It was a Pyrrhic victory however as I faced the reality that even having done so the incongruity of facts created dissonance in the mind of the buyer, dissonance which could only be relieved by further research on, of all places, the internet.

It seems this is a new hat we agents get to wear, quantifying conflicting data from various Internet sites and putting it all in perspective in the mind of a buyer or seller. The Internet has created a treasure trove of data, all available at the click of a mouse. Problem is that the proverbial wheat needs to be separated from the proverbial chaff, and I suspect in the future this will command larger and larger blocks of our most precious commodity, time. I guess in that respect we in real estate probably have a lot in common with doctors and lawyers!

 

   

Contact Matt Grohe Realtor® RE/MAX Real Estate Concepts - 3125 Douglas Ave #205 Douglas Ave. Des Moines, IA , or call 515-988-3726 to list your property for sale or to purchase a property in Des Moines, West Des Moines, Windsor Heights, Clive, Johnston, Urbandale, Ankeny, Waukee, Norwalk, Carlisle or surrounding areas.

Online at: http://www.MyIowaHome.com

I’m still surprised by the number of people who believe that home values will magically return to those of 5 years ago; and if you are one of those looking to recoup your home’s lost value, it’s not happening—ever.  How can I be so certain?  It’s pretty easy once you look at the facts.

 

Home values have historically appreciated at a rate near the rate of inflation—once you adjust for the differences in size and discount for geographic anomalies.  However, that trend changed when we began the recovery from the “tech-bubble” of the last decade.  As the Fed encouraged easy credit (an understatement) and the mortgage industry discovered they could package and market sub-prime loans at premium prices, we saw a housing boom unlike any we’ve ever experienced.  Driven by increased demand, home prices skyrocketed, rising 10% or more per year in some of the hottest areas. 

 

And now that prices have fallen by 30% or more (60% in the worst areas), owners want to know when they’ll recoup the value lost during the crash.  Many, nearing retirement, had viewed their accumulated equity as a cushion to supplement their retirement income; others saw it as a fast track to “easy street,” and have already spent their “windfall.”  However, all want to know when values are coming back, but unfortunately they are not—not next year or the year after—not ever. 

 

To understand why I would say “not ever,” we must look at what drives home prices up.  It’s not that homes somehow become more valuable over time or that ownership rates historically trend upwards.  Disregarding the growth in the average home’s size over the past few decades and ignoring the geographic appeal of a few specific areas, home prices have increased because of inflation.  As the dollar became worth less—some would say worthless—it was necessary for home prices, along with the prices of other goods and services to follow.  When we look at the trend-line for home prices over the past fifty years, it has closely followed the rate of inflation. 

 

What that means is that home prices WILL increase in the future, but the majority of that increase will be consumed by the corresponding increase in the rate of inflation.  If we sell that home, those dollars received will have less value than those of today—given the likelihood that the U.S. will continue to experience some degree of inflation. 

 

The home prices experienced during the housing bubble we’re artificially high—the GRAPH below from Calculated Risk demonstrates just how far out of line they were—and their fall was to be expected.  The bubble prices were not based in an inherent increase in a home’s value, but were artificially driven by forces not directly related to housing; and, barring a direct attempt by the government to create another bubble, they cannot return. 

 

What we’re left with is the natural progression of housing following inflation.  Home prices will not equal those of the bubble for many years unless we experience—as some have predicted—a significant increase in the rate of inflation.  But once again, such an increase will serve only to compensate for a loss in the value of the dollar; it cannot return the losses suffered following the crash, for those dollars have been lost forever.      

 

A “recovery” in housing won’t feel like recovery at all.  The best we can hope for is stabilization and a return to the natural trend of home prices following the rate of inflation.  To anticipate a sudden and dramatic upwards movement is only wishful thinking, and it is wishing for a return to the very conditions that caused the collapse.  

 

 

 

 

 

 

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