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This downturn in real estate is so much different than the one we ‘older than dirt’ agents experienced in 1980’s. Then, with inflation over 12% and interest rates over 20%, we knew why we were in so much trouble and saw only long term effects since it was a problem with our national economy. We were using rubies, horses, businesses, anything we could use for exchange for a down payment and doing ‘mushroom closings’ where the sale wasn’t recorded to avoid paragraph 17 of the note to kick in. (before you judge, let me mention that this was with attorney guidance!)
This time, it’s been very very confusing since our national economy is healthier, inflation appears under control and here in the Puget Sound area, there is low unemployment and signing bonuses are again being offered for qualified high tech employees.
So, the big question here in the northwest (I’m only referring to the NW, specifically King, Pierce and Snohomish County and of course, there’s Wenatchee), is, is this a short term or a long term correction.
And, is the effect of the short sale inventory going to be a drag on our home prices. There are phenomonal discounts right now in short sale properties. However, are they really affecting the price of normally marketed properties? Do buyers see these short sale properties as good homes for them to purchase, or are we only attracting fix and flippers and other investors to these properties.
The nwmls statistics show that in King County, there are 71 short sales, trustee, or foreclosures in the entire county. Of these, 27 are active, with an average price of $397,000 and average days on the market of 134.
21 are under contract either sti or pending and only 1 is sold in the last 6 months. So, with 27 active, and 22 sold or under contract in all of King County, compared to 8355 active, 1731 sti or pending and 10126 sold in the last 6 months, is there really a measurable effect? or is this just a temporary hiccup?
Underwriters are calling for more appraisal reviews these days, thus delaying approvals by 7 to 10 days. I had a very clean Jumbo purchase transaction in July get knocked down $90K by the appraisal review.
Fortunately, I was able to lock at another lender BEFORE the house of cards came crashing down, and got my borrower a better loan as a result.
What made this most unusual was that it was a purchase transaction, on the MLS. Presumably, the intent of an appraisal on a purchase is not so much to determine the market value (since the market has been allowed to do that), but to ensure that there is no fraud and the property is in decent shape.
This is NOT something that an LO has control over: the only thing to help prevent surprises is to get the loan package in early, and be prepared to be nimble!
Are Short Sales Affecting Value? Yes and No. From the bank perspective it is one more cost of doing business that is changing the risk possibilities when approving a home loan. The effects of this hit all parties in the market. The lender programs have higher requirements to secure that fewer loans will actually got to REO. But the part where I say no is this simply does not have a high of volume of loans closing through this nitch for it to have taken a measurable hit in the Washington Market at this time. This is cash in hand purchase contract and not many people have the cash and training and professional negotiating tactics it takes to work these deals. But more and more people are looking it into and things will change, but for now at this point the buyers are not driving down the prices because they are looking for REO’s.
Roger,
I guess since the national situation is far worse than local and lenders are for the most part national, I guess from the lenders perspective price is being influenced by short sales. I know of a situation in Falls City where a house sold in days for 1050000 and closed at 910,000 because of the appraisal which greatly affected the market in the area. Maybe it doesn’t take many to influence alot.
But shouldn’t appraisals be local? How are the banks influencing appraisals that much?
Jasset:
why do you say cash in hand? The deals I’m involved in the buyers get purchase financing and the banks love them because the appriasals come in so well. I’m thinking that few owner occupied will limit their inventory to just those homes in short sale situations.
Now, let’s go play! It’s neew Year’s Eve! Happy 2008!
I wouldn’t rely on the NWMLS stats on short sales. I frequently find a number of undisclosed short sale situations. And you also have situations where the list price isn’t a short sale, but a realistic price (including only a small reduction) results in a short sale.
But I really don’t think they’re having an impact on the market. Part of that is due to my not thinking a short sale is necessarily a bargain. Foreclosures would have more of an impact.
I think the lenders are all being more cautious these days, and underwriters are responding to orders from on high. to be more conservative. Nobody wants the press that WAMU got.
It is a logical reaction, and I only suggest that all parties should be learn to expect the unexpected, and allow their LO to work out contingency plans.
It’s time to party! Dinner, then Waterhorse! In bed by 12:15.
Whoo-hoo, at least I’ll wake up without the headache!
Okay, I have some input for everyone.
First of all, the “71” was only run for King County, and only run using one search term. You’re missing Snohomish, Pierce, Thurston, Skagit, and other outerlying counties, but Sno and Pierce will do for starters.
I think Galen did a post on this awhile back and he came up with a bunch of various search terms besides just “short sale.”
Try:
Subject to lender approval
short payoff
preforeclosure
bank approval needed
Subject to third party approval
Third party consent required
Here is Galen’s article:
http://www.raincityguide.com/2007/09/07/short-sales-and-foreclosures-in-the-mls/#comments
I taught the Short Sale class at the Seattle King Co Assoc of Realtors office in Bellevue in early December. That class was filled with the most anxiety-ridden group of Realtors I have ever met during the last 15 years of teaching Realtors. Every single agent had a short sale going on and none of them knew much of what to do (with the exception of one agent who had MEGA experience negotiating short sales.) Although the room was filled with mostly Puget Sound area agents, one had travelled from as far away as Anacortes to take the class and another as far south as Thurston County. That agent said one of every 4 listings in her market area is a short sale.
And like Kary pointed out in comment 5, not every NWMLS member knows about the rule where agents must disclose short sale terms in the agent comment section. For reference, here it is:
Legal Bulletin No. 169
“Short Sales…”
July 13, 2004
Rule 10(f)
“A member must make sure that the listing is complete and accurate when it is input into Locator. A listing is not complete and accurate if it fails to disclose that the listing is a short sale or the third party whose consent is required. Again, if this rule is violated, the listing member may be responsible to a selling member for lost commissions.”
The rule was put into place when the selling agent was asked to cut her commission. The selling broker asked the listing broker for the full commission as advertised in the NWMLS and won.
Some agents think it is not in the seller’s best interest to disclose short sale terms so they don’t, OR they play this little game with themselves: “If it sells for X, then it won’t be a short sale so I don’t have to disclose.” Yikes! That means we could have potentially WAY MORE short sales out there than what we’re seeing on the surface.
If you go to foreclosure dot com and take a look at how they’ve broken down their stats, they’re showing 1400+ preforeclosures for King County. Now not every short sale is preforeclosure, and not every preforeclosure will show up as a NWMLS listing, but this number is double from the end of summer.
LB 169 is scary if you actually take time to read it. IMHO it needs to be modified to clearly provide an out for liability if the short sale is disclosed.
Hi Kary,
I’m going from memory now, but I believe that “short sale conditions” were considered a material fact, and those must be disclosed to all parties.
The VERY gray area of behavior comes when a real estate agent plays this game: “well, IF the home sells for X then it won’t be a short sale.”
However, we are now in a flat and declining market. Agents are suppose to be knowledgeable in what homes will sell for, that’s why they’re called “licensed real estate agents.”
Having a homebuyer fall in love with a home only later to be told, “well, if we accept this offer at this price, then we’re going to have to go through the short sale process” is a very gray issue when it comes to timing.
Sure sellers want to be able to attract buyers but buyers also need to know facts such as “this sale may take a LONG time to go through, especially if the agent has not done ANY WORK AT ALL on the short sale approval.”
To reduce liability, disclose, and explain why to the seller.
Am I oversimplifying?
When you read LB 169, it isn’t clear that disclosure is enough to prevent liability. It should be, but that isn’t clear from the bulletin. That was what my comment was about.
Kary,Jillayne
I used the words suggested by Jillayne and Galen. I checked also on how many agents used any type of language infering pre-foreclosure, short sale in the marketing remarks.
And Jillayne, I wasn’t saying that other counties didn’t have foreclosures, I was just comparing King county non foreclosure to King County foreclosures. It would be interesting to see if that ratio increases in the outlying areas.
Here’s what I found:
1. I reran the ‘short sale’ term and this time I came up with 243 active, pending and closed listings. The first time I did it I also put the language in the marketing remarks, so it must have only pulled the listings where the word short sale was in both the agent remarks and the marketing remarks.
2. Using only Lender Approval, there were 46 listings of which 10 DID NOT also say short sale. 9 of these used some language in the marketing remarks.
3. Unsing 3rd party approval yielded only 1. It wasn’t necessarily a short sale or pre-foreclosure. Could be an ex spouse, etc.
4. PreForclosure without also saying ‘short sale’ or lender approval yielded only 1
5. Bank approval yielded 0
Clearly, only 25% of the time do agents remark about a short sale or lender approval needed in the marketing remarks.
Searching by short sale yields most of the homes, but there were about 16% that used ONLY lender approval required.
Under what circumstances would the lender approval be needed when it’s not a short sale?
1. using the term ‘subject to lender approval’
Lender approval would be needed when the house was in foreclosure with a foreclosure sale scheduled before a sale would be likely to close. Most likely they’d agree to continue the foreclosure if there were a pending sale where they wouldn’t have to take a cut, but you’d still want to disclose that.
That is absolutely true what Kary said about needing the leaders approval beofre the house being able to go into foreclosure. Many of these problems are currently effecting Country Wide at this very moment. Too many homes are becoming foreclosed in the market and they lent out way to many mortgages.
A great resource site that deals directly with information about foreclosures and short sales can be visited at
http://www.realestateinvestor.com