HERE WE GO AGAIN?
We have been successfully processing short sales for over 5 years. In the vast majority of cases the lenders have been willing to accept what the properties are worth, or in most cases 10 to 15% less than what they are worth, in exchange for a relatively quick sale. I often tell sellers that the lenders don’t do this out of the goodness of their hearts, it is a business decision for them. Studies have shown that lenders lose at least 30% less on a short sale than they would in a foreclosure. In most cases the lenders pay a local Realtor $50 to drive buy and tell them what the property is worth and they base what they will accept on this BPO (Brokers Price Opinion). Occasionally we have seen cases where the property may be in very poor condition on the inside and the BPO based on a drive by comes back very high and the lender wants more than the property is worth. Although this has always occurred it was the exception rather than the rule.
In late December of last year, we noticed an unusually large number of short sale offers being counter-offered at $50,000+ ABOVE the highest offer from buyers. The Realtors told us “they are crazy, it will never sell for anywhere near that”. We had one case where the buyer offered $110,000, the lender verbally countered at $125,000 which the buyer accepted and the lender then said make it $140,000. After weeks of agents being frustrated with us for being unable to make the lenders see the logical value, we believe we have found the root cause of the problem.
Apparently, FNMAE has recently started to counter offers based on what is owed, rather than on what the property is currently worth. Can you imagine buying a stock for $1,000 and when it falls to $500 calling the stock broker and saying: “I don’t care what it’s worth! I paid $1,000 and I want $1,000 for it and include your commission in the sales price!” How can FNMAE possibly hope that the properties will sell?
Here’s where the plot thickens. FNMAE’s apparently wants to foreclose on properties so they can re-list them on their Home Path website at very inflated prices, waive the appraisal, and generate new loans above market value. So they will offer a new buyer a great incentive of saving $400 on an appraisal so they will not find out that they are paying $50,000 more than the house is worth.
This is what made us say HERE WE GO AGAIN. Isn’t this the same kind of thinking that caused the melt down in the first place?
What can you do? Go to our website and click the articles tab. There are articles about this situation as well as a petition to put a stop to it. One thing you can do is to advise buyers to avoid Homepath properties. We recently attended a real estate convention and we were pleased to see that agents who did not necessarily know why the prices were so high made comment like I would never let one of my buyers go there to buy. The prices are ridiculous.
If the properties don’t sell for inflated prices and the lenders get stuck holding more REO’s they will be motivated to go back to a system of selling them before foreclosure which is more honest and makes sense for all parties including buyers, sellers, and agents.
Until this situation passes there is some good news. Not all loans are FNMAE and not all FNMAE loans are ending up on Homepath. Selling and processing short sales has always been and will probably always be like hitting a moving target. Let’s not let any temporary speed bump dissuade us from reaching out to homeowners that need our help as much as ever!