Supply And Demand Effecting The Short Sale Market
July 8th, 2010
Yesterday we spoke about current market data and how we believe that the market will continue going down. So, we would like to speak about what occurs when there is a sharp increase in active inventory and a sharp decrease in sold houses.
Having been in the short sale business for 3 years, we have seen modest rises with tax credit extensions and other programs. What we have watched is when inventory goes up and sales go down, lenders do not respond to that information promptly. In general, they pull their numbers for BPO’s and appraisals from as much as six months ago. The trouble with this technique is that the BPO is heavily weighted on sold costs. So when you pull sales from contracts that were written in January, February and March, the tax credits impacted the market. Those comps are not taking into account that sales are going down and quantity of active listings are going up. When you see this transpire, you will have to start pricing your houses more aggresively. The market is falling again but the bank is very slow to respond to that information. They do not want to be the first to act on the lower price. You can assume that they will counteroffer with other prices of houses sold months ago when the market was not the same.
For instance, we had a listing with an offer price of $245,000. We felt it was a stout offer because the market was going down. We got a counteroffer with the BPO value at $265,000. We were given 24 hours to recreate the offer or the file would be closed.
Kevin disagreed and had to show to the negotiator that the BPO price was off. He found a comp that was the duplicate floor plan listed at $235,000. This was sent to the negotiator and along with a memo that explained the position. The alternative to the bank counter offer was to foreclose on the house and relist it in ninety days at a lesser price than the offer.
Be conscious that there will be BPO disputes in your future. With listings growing and sold houses declining, you will have more disputes on your hands to conquer.
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Fred Weaver is a founding co-owner of Group 46:10. He has been working in the financing/real estate business for over 7 years. Fred began his real estate career by working for a large wholesale bank as a processor and rate/lock specialist for home mortgages. After 2 years in the business, Fred transferred from the banking side of home loans to the mortgage side. While on the mortgage side of financing, Fred gained experience originating mortgages and processing files for Morgan Capital of Arizona, Inc.
Kevin is a founding co-owner of Group 46:10. He began working in the real estate business in 2007 after spending 8 years working in the finance industry for companies such as Bank One, Green Tree Financial, & GE Capital.