Thursday, March 11, 2010
Feb pending sales on the Eastside up 20% from 2009
[Required disclosure out of the way: although these data come entirely from Northwest MLS, "Statistics not compiled or published by the Northwest Multiple Listing Service"]
Wednesday, March 10, 2010
Why and How the Short Sale Process is Broken
I enjoy helping my clients find a home they'll love in a great area, and am prepared to put in as much effort as necessary. For reasons I will outline below, pursuing short sales is highly unlikely to yield success. I'll tell you first how I approach short sales, and then why the process is broken:
What's a short sale: When a homeowner needs to sell a home worth less than the mortgage balance, he must convince his bank to accept a "short sale" and forgive the loan amount over and above the sale price. Even if banks are inclined to accept short sales (which they aren't), they lack the resources to evaluate proposed short sales and approve/disapprove in a reasonable timeframe.
My (and most agents') approach to short sales: We use an addendum to the standard contract that specifies nothing is binding until the lender has approved the sale price. No earnest money is deposited, the buyer is free (and encouraged) to pursue other properties, and the sellers are free to accept other offers. In reality, a short sale that's been on the market for awhile usually has several offers on the table, waiting for the lender to choose/approve one. I research the property as much as possible prior to writing an offer. Occasionally we'll find a property listed by an agent who specializes in short sales, and has managed to pre-negotiate a price the lender has indicated they'll accept. We're seeing less of this now, but these are the ones likely to sell. If an agent has gotten a prenegotiated price, he'll likely shout it from the rooftop (or put it in the comments on the MLS). In either case, I consult with my clients to craft a competitive offer they're happy with, present the offer, and move on, for the following reasons:
Short Sales can be difficult to finance: Short sales and foreclosures are usually in a state of disrepair. The seller will have deferred maintenance and repairs long before missing the first mortgage payment. An FHA-insured loan (the most common type of loan in this area for purchases below $400,000) requires the home be habitable and in a state of good repair. In the case of a short sale, the lender will not perform the repairs, nor will the seller, so the loan can not be done as FHA. [Aside: Have you discussed financing options with a lender?]
List price is meaningless: The common tactic right now for agents listing short sales is to price them extremely low in order to generate multiple offers (above list price). The sellers' agent takes the offers to the seller's lender, along with documentation to build a case that the seller can no longer afford to live in the house. The hope is that the flurry of offers will attract the bank's attention, leading the bank to approve the best offer, accept the "short pay" amount, forgive the unpaid balance of the loan, and release the seller to go on his merry way. Unfortunately...
Lenders do not respond: Lenders are currently overwhelmed with foreclosure activity, of which short sales are a part. The people and resources are simply not available to evaluate every case. Their 2 highest priorities are: 1) the accounts far enough behind to actually foreclose, and 2) The new laws in some states (NOT WA) requiring lenders to respond to a short sale request within 30 days or face a penalty. Big banks diverting its resources to MA and the other states enforcing these laws at the expense of WA and the majority of states who don't. A newly listed short sale, in which the seller may yet to have missed his first payment, is the equivalent of going to the emergency room with a slight fever--be prepared to wait. Consequently...
Short Sales almost never sell: Most attempts at short sales fail, because the seller declares bankruptcy or the bank forecloses before getting around to approving the sale. The process takes 9+ months, and often the buyer who wrote the "approved" offer has already bought something else.
What's a short sale: When a homeowner needs to sell a home worth less than the mortgage balance, he must convince his bank to accept a "short sale" and forgive the loan amount over and above the sale price. Even if banks are inclined to accept short sales (which they aren't), they lack the resources to evaluate proposed short sales and approve/disapprove in a reasonable timeframe.
My (and most agents') approach to short sales: We use an addendum to the standard contract that specifies nothing is binding until the lender has approved the sale price. No earnest money is deposited, the buyer is free (and encouraged) to pursue other properties, and the sellers are free to accept other offers. In reality, a short sale that's been on the market for awhile usually has several offers on the table, waiting for the lender to choose/approve one. I research the property as much as possible prior to writing an offer. Occasionally we'll find a property listed by an agent who specializes in short sales, and has managed to pre-negotiate a price the lender has indicated they'll accept. We're seeing less of this now, but these are the ones likely to sell. If an agent has gotten a prenegotiated price, he'll likely shout it from the rooftop (or put it in the comments on the MLS). In either case, I consult with my clients to craft a competitive offer they're happy with, present the offer, and move on, for the following reasons:
Short Sales can be difficult to finance: Short sales and foreclosures are usually in a state of disrepair. The seller will have deferred maintenance and repairs long before missing the first mortgage payment. An FHA-insured loan (the most common type of loan in this area for purchases below $400,000) requires the home be habitable and in a state of good repair. In the case of a short sale, the lender will not perform the repairs, nor will the seller, so the loan can not be done as FHA. [Aside: Have you discussed financing options with a lender?]
List price is meaningless: The common tactic right now for agents listing short sales is to price them extremely low in order to generate multiple offers (above list price). The sellers' agent takes the offers to the seller's lender, along with documentation to build a case that the seller can no longer afford to live in the house. The hope is that the flurry of offers will attract the bank's attention, leading the bank to approve the best offer, accept the "short pay" amount, forgive the unpaid balance of the loan, and release the seller to go on his merry way. Unfortunately...
Lenders do not respond: Lenders are currently overwhelmed with foreclosure activity, of which short sales are a part. The people and resources are simply not available to evaluate every case. Their 2 highest priorities are: 1) the accounts far enough behind to actually foreclose, and 2) The new laws in some states (NOT WA) requiring lenders to respond to a short sale request within 30 days or face a penalty. Big banks diverting its resources to MA and the other states enforcing these laws at the expense of WA and the majority of states who don't. A newly listed short sale, in which the seller may yet to have missed his first payment, is the equivalent of going to the emergency room with a slight fever--be prepared to wait. Consequently...
Short Sales almost never sell: Most attempts at short sales fail, because the seller declares bankruptcy or the bank forecloses before getting around to approving the sale. The process takes 9+ months, and often the buyer who wrote the "approved" offer has already bought something else.
Wednesday, February 24, 2010
Thursday, December 31, 2009
Friday, December 11, 2009
Eastside Housing Market, Post-Nov 30 Tax Credit
Inventory Down, but for how long? We're experiencing an exaggerated, temporary inventory squeeze due to 3 factors--great year/year comparisons, sales driven by the tax credit expiration, and inventory pulled in November for the holidays.
Feeling a Buyer Smorgasbord in the New Year New listings are exceeding deals in the pipeline, with a lot coming on in January, due to renewed foreclosure activity and as homeowners selling to take advantage of the new credit. I forecast inventory building steadily into April, affording buyers newfound strength and choices.
When is Kirkland going to wake up?
Feeling a Buyer Smorgasbord in the New Year New listings are exceeding deals in the pipeline, with a lot coming on in January, due to renewed foreclosure activity and as homeowners selling to take advantage of the new credit. I forecast inventory building steadily into April, affording buyers newfound strength and choices.
When is Kirkland going to wake up?
"let us be cheerful and brave in the face of everything, reflecting that it is nothing of our own that perishes." [Seneca]Kirkland and other affluent Eastside enclaves embody a disturbing, Stepford-y stoicism in the face of bleak market data. 111 homes in Kirkland are currently offered over $1 million. 95 of the 111 have been on the market 60+ days. 7 sold in the month of November. Spotting a trend? Without a slew of foreclosures as competition, too many Eastside sellers are able to delude themselves as to their home's value. The reality check will arrive early in 2010, as foreclosures move up-market driven by unemployment and strategic default.
Thursday, October 29, 2009
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