REO Holds Short Sale Hostage – Feeling Foreclosure First Hand
We all hear about how the rash of foreclosures has put downward pressure on the value of homes, but it doesn’t always hit me so directly. I’m not talking about my personal home situation, but my personal business. The following series of events in one condominium complex provides a perfect microcosmic way for understanding what’s happening at large.
There’s this condo community in Hermosa Beach where I happen to have a couple of listings (I tend to get listings all over the place even though I’m based out of Pasadena).
The first listing was a short sale. It was upside down to the tune of $100,000 by the time you figure in delinquencies. I listed it at what I thought was a fair price, $450,000 and got 3 offers at or above asking price. I begged the seller to complete the short sale package so I could submit it to the first lien holder, Litton Loan (I like working with Litton . . . they’re one of the most progressive and organized loan servicing companies out there).
So, by the time the seller finished getting me all the paperwork (that I had been asking for for weeks) and Litton finished their due diligence, two months had gone by. By then, not one of the original offers was still on the table. Two months seems to be an unbearably long time for buyers to wait these days.
But that’s OK, I sort of expect it to happen that way. It’s easier to get a buyer when you can advertise that a short sale has been approved anyway. And that’s what did happen. Three days after I had the approval letter for a $440,000 purchase price from Litton in hand, I had an offer from a buyer that opened escrow and put in a nice deposit right away.
About the same time, another seller (not a short sale) from the complex asked me to take their listing, as they knew I already had a long list of potential buyers interested in those condos.
Because it was a much nicer unit and had a much better view, we felt that we were well justified in listing at $469,000. And I had a lot of interest right away.
Then, a day later, a bank-owned (REO) property hit the market at $449,900, and it’s on the 3rd floor with one of the best views of the entire complex . . . right out towards the sunsets over the beach.
Now, of course it’s good for banks to price property well, and I applaud them for actually being smart for a change. It’s just that in this situation, it really fouled things up for me and my clients, so I’m not feeling so happy about this REO. Why couldn’t they do what they normally do and overprice it and let it sit on the market for a few months?
Once that REO hit the market, 2 things happened:
1) The buyer for my short sale pulled out of escrow. Why should she pay $440,000 for a unit that needed some work and had an astonishing view of a cinder block wall? No, she’s just gonna wait and see. Perhaps she thinks she’s going to make an offer on that REO instead, and good luck to her if she does. That REO is priced in a way that it will probably generate multiple offers and sell above asking price fairly quickly.
2) I had to call my other sellers and tell them that a price reduction was in order, even though I personally like their unit a lot better. They have a view of the pool and plantar areas and several upgrades to the kitchen and bathrooms. That REO basically forced us to drop the listing price down to $450,000, just to avoid getting stuck hanging out to dry. The chance of them selling for $460,000 – $470,000 (which is what I expected originally) is now very slim.
So that’s my most recent personal story of how foreclosures are affecting the market at large as more and more properties are being taken back by the banks.
So, what can we learn from this?
- First of all, time is of the essence. If you need to do a short sale, get your agent all the paperwork before she actually needs it. Delays in short sale approval can spell death for a successful short sale.
- Price your property well out of the starting gate. You want to get momentum going right away. You never know when the REO next door will hit the market forcing you to drop your price even further.
- And lastly, stop eating cinnamon bears . . . they get stuck in your teeth.
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- Short Sales: The Buck Stops With the Lenders, by Jay Thompson
- Just a Question (short sales, REOs, help for distressed homeowners) by Teresa Boardman