Losing Buyers to the Banks? Time to Work On Your Bolo Punch.

You’ve been punched.  You’ve been cajoled.  You’ve been dismissed out of hand as a serious contender.  Your corner wants to throw in the towel, but it’s time to look deep inside yourself for that fighting spirit.  This is your Rocky moment, and I’m your Mick.

Tempting as it may be to utter “No mas,” in the face of a younger, stronger foe, you as a home seller have your own strengths.  Yes, the bank properties have been hammering your rib cage and battering you with low blow after low blow for the last eleven rounds.  Every time you regain your composure, another steel-fisted uppercut in the form of a new REO listing shatters the ineffective “pride of ownership” cup upon which you have been so dependant.  The referee and the fight doctor are scrutinizing that nasty gash above your eye to determine if you are still able to intelligently defend yourself.

You’re seeing triple, you say?  Buck up, Rock, and hit the guy in the middle.

Now that the free-fall in property values has seemingly arrested (much like the hearts of many homeowners this year) across several segments of the local Scottsdale Real Estate market, would-be sellers can take a deep breath and catch their second wind.  Even if they are still leery of making the price jump from distressed properties to resale properties, buyers are back in the market.  Several straight months of increasing home sales, decreasing inventory and even modest median price increases (really?) indicate this.  That’s the good news.  The bad news is that most of these buyers are still purchasing the goods on the ground floor (sporting goods, evening wear and foreclosed Real Estate) while the typical mom & pop seller continue to be priced on level four.

Before resale homes start selling at a higher rate, their prices still need to drift a little further South.  This is not news.  You’ve been pummeled with this unwelcome assertion for the past year.  My intent is not to rabbit punch you with the obvious on this day.  I’m offering a momentary reprieve from the infernal pessimism (which I have admittedly dispensed with impunity).  No more defeatism from your corner, it’s time to talk strategy.

Yes, the bank-owned property on the far side of the ring is a fearsome opponent, but skill and guile can slay the relentless beast.  You’ve been getting drubbed over the course of this bout because you are not offering your bigger foe any angles.  You’re simply turtling up with that ridiculous price of yours and accepting a merciless beating.  To change the tide in this lopsided affair, yes, you do need to get a bit more competitive with your price.  Until you get inside the freakish reach advantage of the banks, you’re rope-a-dope tactics will just get you roped and doped.

This is not to imply that you need to match the price of the distressed properties, you simply need to vie for the same buyers.  If the banks are on the ground floor, you need to get down to level two.  If you can at least mitigate a portion of the huge price disadvantage you face, you have a puncher’s chance to sell your home.  Here’s why:

  • The bank property across the street will convey to the buyer in “as is” condition.  You have maintained your home over the years and will make any necessary repairs, within reason, to appease a buyer.
  • The bank property across the street will come with a grand total of zero disclosures.  You will provide a potential buyer with a Seller Property Disclosure Statement, Insurance Loss History Report and any other appropriate documentation to give a certain level of comfort to the new owner.
  • The bank property across the street may not be able to be financed by a buyer due to its condition.  Because you have listened to your Realtor and whipped your home into tip-top shape, you will face no such problem.  Right?
  • The bank property across the street may require a buyer to order utilities turned on in their name (and pay any applicable deposits for said service) in order to inspect the working components of the home.
  • The bank property across the street may ultimately attract multiple offers at its supremely low price.  This can benefit you in several ways.  For starters, the ultimate sales price is often driven higher than the list price in such scenarios, thus making your case for higher neighborhood values.  Secondly, there will be despondent losing bidders for that property that will look, perhaps to you, for alternatives.  Lastly, some buyers will become disenfranchised with bank properties after having gone through this multiple offer scenario several times.  Eager for less competition and an honest negotiation, some just might set their sights on the slightly higher priced property that can be negotiated downwards instead of upwards.

So there you go, champ.  You are far from a hapless tomato can against the oversized Palooka who has been doing the Ali Shuffle all over your face.  He’s a one-trick pony.  Take away the huge price haymaker and the kid is a regular Glass Joe.  If you have the moxie and the wherewithal to get your price just a bit closer to the bank’s, you have the arsenal to pull off a stunning upset and walk out of the joint with the title.  The title of “former homeowner,” that is.

Now put your mouthpiece back in, get off that damn stool and get in there and fight!

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Short Sales, Foreclosures, Resales … Huh?

Times were you looked at a few houses, found one you liked and made an offer to the current owner.  After a bit of haggling, you settled on a price that both parties could live with and away you went.  Easy as pie.

In the current landscape, however, buying a home is not always that simple.  Due to the prevalence of foreclosure properties and upside down sellers in today’s market, a buyer is often in the dark as to the nuances that may vary from one property to the next.  To that end, there are certain rules of thumb that a buyer should keep in mind as he or she navigates the 2009 Scottsdale Real Estate market.

1.  The Short Sale Property

Upside Down Seller

"Upside down, boy you turn me, inside out ..."

You’ve read about them in the paper, heard about them on the news and know somebody who attempted one, but still may not know exactly what a short sale is.  First off, I would be remiss if I didn’t make the requisite quip that short sales are anything but short.  By and large, they are loooooooooooooooooooooong.

The term “short sale” is derived from the seller’s lack of equity in the property.  In fact, the seller is upside down to the point that the market value of the home is less than what is owed on the mortgage(s).  With a short sale, the seller must convince the bank to take a loss by agreeing to the sale.  There are numerous pitfalls, including waiting for weeks or months for the lienholder’s response and low success rates (less than 10% of short sales are successful).  One particular difficulty lies in ascertaining whether a seller even qualifies for a short sale at any price.  Each institution has its own unique standards, but sellers must adequately demonstrate hardship (job loss, etc), provide up to date financial statements and pay stubs, document where all funds for a line of credit have gone (the lender in 2nd position will disallow a short sale if the funds went anywhere except back into the house (kitchen remodel, pool, etc).  The biggest saboteur of a short sale, other than an incompetent listing agent, is the presence of a second loan.  Multiply the difficulty exponentially if the loans are held by different institutions.

If it sounds like a lengthy, treacherous process, that is because it often is.  Short sales, in this agent’s humble opinion, only make sense for the buyer with no real time table.  Investors, specifically, are primed to take a stab at one if the purported price (the price listed in the MLS is really just a moving target when you don’t know what the bank will ultimately deem acceptable) is attractive enough.  If you don’t plan to live in it, and won’t be devastated if it doesn’t pan out, have at it.

2. The Foreclosure Property

I'll take a single-family home and $20 cash back, please

I'll take a single-family home and $20 cash back, please

If 2009 could be summed up by initials, they would be “REO.”  Real Estate Owned properties, or foreclosures, are all the rage this season, and for good reason.  Banks are awash in foreclosed homes at present and have effectively set the market.  Eager to rid themselves of bloated inventories, the various institutions have well-earned reputations for bargain basement pricing.  By the time a bank takes a property back from an owner in default via a Trustee’s Sale, I find they are often ready to deal.  If the short sale process can feel like a rudderless vessel as your offer drifts from file to file in the bank’s loss mitigation department, there is actually a captain at the helm by the time the bank ultimately rejects the offer(s) and opts to foreclose instead.  Now an asset manager is responsible for offloading the acquired property.  Just the titles alone speak volumes as to the motivational forces at play:

loss mitigation VS asset management

More often than not, a property that is taken back by the bank will reemerge as an REO property at an even lower price than the listed price of the failed short sale attempt.  Does it make sense?  Not really, but that’s what often happens.  And the price is no longer a moving target.  With the bank now the principal, they set the list price and will negotiate more like a typical seller (albeit at a slightly slower and more aloof pace).  Expect to wait up to a week for a response and the possibility of fighting off multiple offers due to the low pricing, but it sure beats waiting months for an all too often unreasonable response.

The negatives of dealing in bank-owned property are primarily rooted in lack of disclosure about the home and the penchant for selling property “as is.”  You can be sure that something will be missing from the home.  Either vandals have cannibalized the A/C for copper or the former owner yanked all of the appliances and the hall bath towel rack out of the home on the way out, but rest assured, some component of the house is FUBAR.  Complete with heavy handed addenda that favors the seller, the trade off for the great price on a bank property is an often uncared for home with no disclosed history of damage/repair and no one to repair the defects you find during the course of your due diligence period.

Yes, you do get the opportunity to inspect even though the bank will require an “as is” addendum.  If you ever see language in a contract or addendum disallowing your right to inspect the property … run!

3.  The Resale Home

Quick, Marge, get the camera ... real people!

Quick, Marge, get the camera ... real people!

Ah, a home actually owned and sold by a real, unencumbered person.  I must confess, finding such a specimen in the modern Real Estate jungle has been a rarity.  At least finding one that can compete with the pricing of bank-owned homes, that is.  As more and more sellers become realistic about the erosion that has taken place in Valley home values, though, I am starting to see the gap close ever so slightly.  Obviously, anyone who bought a home in 2005 or later is not in a position to competitively price it for today’s market without attempting a short sale due to the subsequent swan dive in prices, but those who have been in their homes for a decade or longer are finally getting the memo and positioning themselves to compete with the banks.  With prices still trending downwards, the smart seller is getting out in front of the curve and pricing his/her home to sell before any further price degradation can occur.  When you find such a home with a seller still capable of maintaining, disclosing and repairing the property’s condition, and priced in line with the foreclosure market … buy it!

So there is a (not so) brief synopsis.  Don’t limit yourselves unnecessarily when shopping for a home.  Allow your agent to explore all available avenues, just be aware of what you might be signing up for with the entanglements that come with each option.

Most importantly, remember this:   A low price in the absence of value is meaningless.

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