Posts Tagged ‘appraisals’
Tuesday, May 16th, 2017
Appraisals are causing problems again for buyers and sellers for the first time in many years. Many appraisals are not coming in at value, despite comparables that support contract prices, leading to problems between buyers and sellers.
Prices have come up quite a bit in many areas in the last few years, San Diego County included. That means that when an agent goes to list a home there are usually comparables to support a higher price. But I keep hearing stories about homes that are not appraising, and it just happened to my buyers as well (even though the offer we wrote and had accepted had comps that supported our price).
So what is a buyer or seller to do if the appraisal does not come in at value?
1. Renegotiate. The first thing to do is to try and renegotiate the contract price. I had a home that appraised $8,000 under contract price (which was completely ridiculous given a smaller home had sold for more just months before). We tried to get the seller to drop the price to the appraised value, or at least meet us in the middle but he would not. He had received multiple offers and there were buyers waiting in the wings who would still move forward with the higher price.
2. Buyer contributes the cash difference. This means that the sales price will remain the same, and the buyer will have to put the difference between it and the appraised value on the table (come up with more money) in order to close. The bank will only lend on the appraised value, but this option allows the buyer to move forward and purchase the home.
3. Challenge the appraisal. This can be done only when there is information that the appraiser did not take into consideration that could alter the evaluation, such as comparable homes that were not reviewed, or maybe a comparable sale that closed immediately after the appraisal was issued which had a higher price, or a sale that closed which was not on the MLS. Or, there may be upgrades to the home of which the appraiser was not made aware. But a challenge needs validation, so the fact that parties do not agree with the appraisal is not a reason for a challenge.
4. Cancel the contract. This is the buyer’s right when an appraisal does not come in at contract value. However, it is important to take into consideration the status of the market – if inventory is low and there is a lot of competition it may be smart to stick with the sale, since getting another contract accepted could be difficult and the buyer could wind up paying even more money for the next opportunity.
In my buyers’ situation they decided to stick with the contract price (after the seller would not negotiate) and pay the cash difference. Since it was only an $8,000 difference this was the smart choice, as they ended up with a beautiful home that likely would have sold for even higher than their contract price had they canceled.
It is important to discuss options with your real estate agent and tax adviser or financial planner if needed. Every situation is different and buyers have to feel comfortable in their decision. But it is tough out there in certain price ranges for buyers right now, and inventory is low, so oftentimes it makes sense to stay the course.
Thursday, April 13th, 2017
If you are a listing agent or a seller who has hired an agent to sell your home, this is an important rule that is often ignored by agents – and it can cost home sellers a sale. It is not written down anywhere and is not required, but it is necessary in order to assure smooth closings. What is this rule? Listing agents must prepare reports for appraisers.
As long as I have been listing properties I have been preparing reports for appraisers. The appraiser, who is sent out by the buyer’s lender to evaluate a property that is in escrow, may not know the neighborhood well or even be from the immediate area. He or she also may not understand why a similar home sold for more or for less. Since the buyer’s agent is not allowed to communicate with the appraiser it is in the best interest of both parties that the listing agent take this advice to heart and come prepared.
I have had many appraisers tell me that they did not need me to meet them at the property or prepare anything, but I still do both and I have to say that almost all of them end up spending at least a few moments at the end going through my report with me.
Here is what I include in my appraiser reports:
1. A brief but concise analysis of all comparable sold properties – usually within the last 6 months, comparing and contrasting them to the subject property. I also let the appraiser know if there were multiple offers, as this can attest to the fact that many thought the property value was accurate.
2. A list of any upgrades or improvements in the subject property
3. Analysis of any pending sales, including prices I can usually obtain from the listing agents to help
4. A comparative market analysis sheet that lists all the comps and the pending subject property
5. All relevant listing sheets (for each property analyzed)
6. Any relevant sales statistics graphs for the area, and
7. A listing flyer
I have never had a listing that did not appraise.
Every listing agent should be sure to include this report as one of their duties. It is the duty of a listing agent to represent their sellers to the best of their abilities, and this simple step – which usually takes about an hour (more for tricky comparable listings) could make a difference in getting the buyer and seller to closing.
Monday, May 23rd, 2016
If you are a real estate agent or a home buyer you may notice that the market is obviously low on inventory right now. Being that it is the “selling season” of Spring/Summer, and since there are a lot of buyers out there looking at homes, there are many situations involving multiple counter offers and homes selling for well over asking price…all great if you are a seller. However, there are also some fishy things going on out there and it is frustrating to agents and their buyers.
Let’s take a look at what is happening:
1. Homes listed well over comparable value. Many, and I mean a LOT, of homes in North San Diego are being listed over market value – some slightly and some way over. Buyers, who normally would avoid such homes until the price drops, are flocking to them and making offers anyway. No one seems concerned that the home likely will not appraise, and if one buyer walks there are many more who will step right in. This is pricing out first time homeowners and bringing prices up…you may think the latter is good, but it is dangerous because such inflation could create problems for the market – especially when there are many buyers who have incomes that will price them out of neighborhoods they should have been able to afford had prices reflected comparable sold values.
2. Many sellers are taking a long time to respond to offers – even very strong ones. If a buyer makes a very strong offer over asking price, many listing agents are waiting for 4 or 5 days to even respond, during which time they collect more offers. Many then submit multiple counter offers to all bidders asking for the best and highest price. This prices many potential buyers out of the running, and most already submitted an offer slightly over their budget.
3. Sellers are refusing to make repairs or pay for reports. In a seller’s market the seller knows s/he is in the driver’s seat, and many sellers are countering back stating the home is sold as is, and that they will make no repairs and pay for no reports – like termite reports. They want the cleanest offers possible with the least amount of money out of pocket. This means the buyer can get stuck with multiple repairs, termite work, etc. If the buyer is already paying top dollar for the home, s/he has to make sure those things are affordable. No one wants to see a new foreclosure wave hit in a few years.
4. Appraisals are not coming in at contract value – but that is not deterring sales. I have not had problems with appraisals on listings (I don’t market properties in the “insane” price category), but have heard from many agents who have. Even if the home does not appraise at contract value, there are plenty of buyers who are willing to pay the difference in cash if sellers will not negotiate prices down to the appraised value. They feel that is the only way to secure a home purchase in these crazy times. Does this sound like 2003/2004 – “pre-crash” – to anyone else besides me?
5. Overly aggressive listing agents seem to be multiplying, and they are not being cooperative. There are many listing agents who are ruthless and even rude. They don’t care that your buyers love the home and have been looking in that neighborhood for a long time, or that they wrote a very strong offer and submitted it first. To these agents, it’s all about playing the game and finding the highest bidder. Some agents do not return calls and emails, and some violate the Realtor code of ethics – a few may even commit fraud. It is extremely frustrating for buyer’s agents, who are trying to find a home for their well-qualified buyers.
6. Pocket listings and homes listed “off the MLS” are increasing. Many agents are marketing their listings on third party sites like Zillow, and not placing them on the MLS – the cooperative tool used by Realtors to benefit all parties looking in particular areas/price ranges. While it is their right to do so, it makes a problem for buyer’s agents whose clients may see these listings and want to visit them – but when their agent calls the listing agent to make an appointment she is often told that the seller is not paying a commission to buyers’ agents. Imagine you have been helping your buyers for months to find a home and now you cannot show them this one home because the broker will not cooperate with your broker. It puts buyer’s agents – who play an imperative role in protecting buyer’s rights – in a very sticky situation. You may ask why listing agents do this: the answer is so they can find buyers who will work with them, thus saving the seller from paying out a commission to the buyer’s agent. Hopefully the California Supreme Court will soon put an end to double ending sales and this will no longer be a problem.
I am a bit concerned and hope that we are not heading into trouble in the real estate market. I hope that agents keep in mind the spirit of cooperation that is inherent in our business – we all need to work together and be fair. If we do not then buyers and sellers will not be protected from future lawsuits, and many people will be priced out of the housing market – which could cause a domino effect with local economies and eventually the US economy.
Saturday, January 17th, 2015
Appraisals are getting “tighter” and soon even more deals could begin crashing as buyers and sellers haggle the run up in asking prices. UnderstandingÂ ( to an appraiser) yourÂ listing isÂ simplyÂ a $500 appraisal fee, to you itâ€™s a 3-6% commission; so by being proactive you will minimize the risks of losing large commission checks ! Â Â
Quick Background on Appraisals
Dodd-Frank created a standardized federal licensing process for loan officers (â€œL/Oâ€™s) and appraisers. All appraisals must be performed by an independent third party (â€œarmâ€™s lengthâ€) appraisal service.
The appraiserâ€™s job is to inspect the property, compare it to similar (sold) properties, in closest proximity (up to one mile) and in the most recent time frame (up 6 months). The appraiser uses mathematical formulas (primarily price per sq. ft.) to derive a market value.Â Pretty straight forward, until we get to amenities -then it becomes very subjective. One appraiser can value a fireplace at $8,000 and another at $15,000 or a view at $35,000 and another at $100,000.
There is no effective way to determine which appraiser is most accurate.
What Agents Can Do
If the appraisal is going to be â€œtightâ€ there are actions you can take:
1.Â When the appraisal is ordered make sure the loan officer lists you as the only â€œproperty accessâ€ contact. If the home is vacant, take off the lock box (and enter that notation into the MLS).Â This guarantees the appraiser will call you for access to the property. Meeting the appraiser at the property is an opportunity to present the most up to date comps.
2.Â If it feels appropriate, walk the appraiser thru the highlights of the property.
3.Â Be friendly and helpful but NOT pushy!!! Appraisers are very sensitive about pressure to â€œhit the valueâ€.
4.Â Are there listings currently closing? Call the other listing agents and get info on when they are due to close. Better to delay the appraisersâ€™ appt. until another home (with a higher value) closes a day or two later.
5.Â Don’t rely on the MLS,Â call your title service (daily if necessary) to check on a pending recording. As you know: Itâ€™s not unusual for MLS data â€œto lagâ€ several days!
6.Â FHA and VA appraisals often focus on more on â€œminutiaeâ€ than conventional Fannie/Freddie appraisals. Minor repairs ( i.e. leaky faucets – missing lite bulbs-etc)Â can require an appraiser to come out for a 2nd time to “sign off” on the completed repairs) and delay your escrow’s closing by days/weeks and add several hundred dollars to the buyer’s costs. So be prepared to (pre) employ a handyman to fix small items (In reality, buyers will want many items repaired anyway).
This helpful article was written and reprinted with permission by Dan Dobbs. You can visit his website at http://danieldobbs.org/ I felt this was a great article to share it because it provides great information to agents and sellers alike, which can help make sure all is done to assure a successful appraisal.
Friday, October 4th, 2013
We all know that the housing market has been in recovery, and in most areas like here in San Diego, things are looking pretty positive. However, there are some challenges that face buyers and sellers in any market. Let’s take a look at some of those that should be considered now if you are a buyer or seller.
The Government Shutdown: This is definitely having an affect on the market. As mentioned in my last post on this topic (click here to read the post)Â , if this nonsense is resolved quickly there should not be much to worry about. However, if it goes on for some time there could be problems surrounding loans, loan verification, interest rates and other issues. Let’s keep our fingers crossed that the nincompoops creating this mess can sort it out.
Buyer and Seller Apprehension: Aside from the shutdown, this can be a time of apprehension for many buyers and sellers. That is because the market is “in recovery.” Many people still many not feel comfortable with this fact, and may choose to “wait and see” what happens down the road. The problem with this logic is that people may miss the proverbial boat. When the market is strong and interest rates are still low, and if you are a buyer this is the time to get serious. No one knows what will happen as we head into the new year, but I and many other agents, as well as other industry experts, expect that rates will rise. This could possibly price some buyers out of the market and lower inventory levels.
As for sellers, prices have increased substantially in most areas. Those buyers out there are serious, as we head out of the summer “buying season.” So if you are thinking of holding on until prices rise higher, you may be out of luck heading into the new year, since rates could rise, causing many buyers to have to reconsider the types of homes they can comfortably afford. Also, as I and many others have predicted, moving forward I do not believe that we will see price increases such as those we have seen in the past months; rather, prices will likely level out and “normal” market increases will prevail over the next few years. The grass always seems greener on the other side, but when things are strong that is the time to act if you are thinking of selling.
Low Inventory Levels: Inventory still remains low in many areas. Even though we here in San Diego did see a slight spike in the summer months, the pickings out there on the market are still slim. As we head into the holiday season it is doubtful we will see jumps in inventory. As for the Spring “selling season,” so much is unknown and there are many factors that could affect the market – interest rates, the economy, the debt ceiling, jobs… If you are a buyer and you find a home you love and can afford, now is the time to jump on it in my opinion. Similarly, if you are a potential seller now is a great time to sell, while it is technically a “seller’s market;” that could change if rates go up.
Financing Difficulties: It is still tough out there for many buyers to obtain loans. The big lenders have been cracking down on requirements for qualifications, and there is news that it may get even tougher to qualify. From personal experience many loans seem to be taking longer on the approval and funding ends, and it is not uncommon for escrows to close later than expected. If lenders do start to scrutinize potential borrowers even more heavily, this will obviously have an affect on the market and the numbers of sales. If you are qualified now and ready to purchase, my suggestion is to get out there and find the right home before it gets harder to borrow money. Of course it will also affect sellers exponentially if there is a smaller pool of qualified buyers out there.
Appraisal Problems: Luckily I have not had appraisal issues this year on my sales or listings, but I have heard of many agents who have. For a while it seemed that appraisers started “catching on” to the price increases, and they seemed to be a tad more lenient in blessing prices that were higher than comparables. But now that price increases are starting to slow and there are still sellers out there putting their homes on the market for prices above comparables, we could start to see appraisal issues creep up once again. To read more on how to deal with appraisals that do not come in at value, click here.
The real estate market will always ebb and flow, and no one has a crystal ball. The best advice when considering whether to buy or sell property is to hire an experienced local area agent and learn as much as you can about the market. I also recommend speaking with your accountant and financial planner as well. As with any important decision, the best thing you can do to assure you make smart choices is to get educated.
Monday, June 3rd, 2013
Many real estate markets across the country, including here in San Diego County, are currently experiencing seller’s markets, due to low inventory levels and increased demand for homes. Many homes receive multiple offers and are priced over neighborhood comparable sales values, and there are also many situations reported where buyers will remove appraisal contingencies in their offer (meaning they are willing to pay any value over the appraised value so that their offer has a higher chance of getting accepted).
With higher sales prices in many neighborhoods it is hard to make sense of the comparable sold properties, which may show values that are lower than the asking price of a home that buyers want to purchase. It is often difficult even for agents to counsel buyers on how to handle some situations, because no one wantsÂ to see her buyer overpay for a home, but at the same time we do not want to see our buyers lose out on home they love. What should buyers and their agents make of all this, and how do they know what to offer in order to get their offers accepted?
1. Comparable sold properties. Obviously the first place to start is with the comparable sold properties. If there have been recent sales in a neighborhood the task of coming to the right sales price is easier, because one usually will see an upwards trend in prices over the last several months or since the start of the year. As agents we really have to compare the recent solds to the subject property to see what similarities and differences the properties possess, then we need to balance them out and add on for price increases. Sometimes this is not as easy as it seems though, and we really need to dig in and do our homework.
For example, on a recent listing we asked for a price over comparable sold value in the neighborhood, but we knew there were a few homes pending in there for prices higher than what showed on the MLS, and those homes were never placed on the MLS, so the appraiser would not have seen them pending. We had to explain this to both the buyer and the appraiser. So sometimes you have to go beyond what is listed in the MLS and have a title representative pull listings that are being sold by owner or by out-of-area agents who might not have put the home on your local MLS.
2. Area Increases.Â If there are no recent sales in the immediate area, and no recently sold similar properties nearby, then the focus should be on older sales, taking into consideration price gains in the area or in the county. If you can show that prices have increased substantially in the area, say 10%, yet cannot find comparable sales in the immediate neighborhood, you can still apply the increased percentage in value to the home that you are trying to purchase.
Here in San Diego many areas have increased abut 10% since prices started rising, but there are specific neighborhoods where prices have increased more that that…it is important to get a good understanding of what values are doing in the neighborhood in which you wish to purchase a home.
3. Appraisals. Appraisers seem to be “with the program” lately. At the beginning of the year when prices were just starting to climb, many appraisers were not appraising homes with increased sales prices, or they were making it more difficult for buyers to move forward with the purchase because appraisals were not coming in at value. Now however, there generally are enough recent sales within or surrounding a community that allow the appraisers more room to see the growing values.
If an appraisal does not come in at value there are obviously choices – the buyer and seller can either renegotiate the sales price, or the buyer can choose to pay the difference between the sales price and the appraised value.
It is definitely not an easy task to find value in a home where there are no significant recent sales comparables, but it can be done and you can get your appraisal to come in if you do your homework.
Sunday, March 3rd, 2013
There are many people who feel we are headed toward another real estate bubble. With scare inventory, increasing prices, bidding wars, multiple offer situations, governmental programs falsely inflating prices, and buyers willing to pay over appraised value to purchase a home, it is easy to see why many feel this way.
Today’s market is very different from that of the early 2000s. Let’s look at the differences to determine if a crash is likely:
1. Scarce inventory. The lack of inventory is problematic, and it is the biggest issue amongst buyers’ agents. It has led to some desperate measures on behalf of many borrowers in order to get their offers accepted in multiple offer situations, which are common (see below). Back in the early 2000s we did not have inventory issues. People were selling homes right and left, moving up. The ease at getting loans made it simple for almost anyone with a job to jump into the game and purchase a home. Today’s scarce inventory is definitely driving demand, but there are other factors that prevent the frenzy we witnessed years ago.
2. Tighter lending standards Back in the early 2000s, lenders were heavy players in handing out loans to anyone, even those who were not really qualified. Inventory was not scarce like it is today, and loans were very easy to obtain, with no-doc loans that bypassed employment and income verification – types of loans that are pretty much impossible to get today (unless one wants to go through a private lender and pay a very high interest rate). Today it is not easy to get a loan; even with strong employment history and good credit would-be borrowersÂ have to jump through hoops.
3. Stricter appraisal standards. In the early 2000s appraisal standards were very loose – we saw drive by appraisals, and basically many appraisers were just gold stamping contract prices without deep scrutiny. Today appraisers will not do so, and must adhere to strict guidelines. Prices have increased in most areas, and appraisers do take this into consideration, but it is no longer a free for all when it comes to appraisals. The appraisers with whom I have spoken say they are not 100% caught up with what is happening in the market, and guidelines prohibit them from looking at only the last sale, which may be tens of thousands of dollars higher than other sales in the neighborhood in the last 6 months…thus they have to look at both in order to assess value.
For example, let’s say in your neighborhood 4 similar homes sold in the last 6 months at close to $450,000. A fifth home, also similar to the other four, then closes escrow at $500,000 (there could be many reasons for this – bidding wars, cash buyers, buyers paid over appraisal value, or a government agency could have falsely inflated the price – click here for more information on this.) You decide to listÂ your home now, based on the $500,000 sale, and you do so. A buyer comes along who offers that price, but the home appraises lower. This is because the appraiser will look at all five sold properties, not just the last sale.
4. Buyers paying over appraised value. Many buyers don’t care what the appraised value is, and they are willing to pay the cash difference between it and their loan amount. This has been common in many areas, and is a factor in increasing comparable value. This tactic puts those buyers in the most expensive homes in their neighborhoods (which is never a goal, but what many feel they have to do to get their contracts accepted today). Back in the heyday of the early 2000s we didn’t really see this issue because we didn’t have appraisal issues. So this time around it is the buyers who are driving the prices higher due to the lack of inventory and the high demand.
I believe that we will not see another housing crash, based on the above factors. What I think will happen is that we will see the higher prices and lower inventory for a while, possibly until the end of this year, and then at some point things will level off. Many homeowners who have been underwater (their home is worth less than their mortgage balances) will find themselves no longer so due to rising prices. This will allow them to sell their homes, creating more inventory and less distressed property. At that point prices will simmer and stop escalating, and we will finally see a return to “normal” market trends.
Thursday, May 24th, 2012
There has been a lot of talk lately in the real estate industry about inaccurate appraisals resulting in cancelled home sales. Appraisals have definitely been more challenging, as lenders and their underwriters place strict requirements on the use of comparable properties and of what exactly that can include. Both sellers and buyers have a few ways of helping to assure that appraisals come in at contract value.
Buyer Options: Buyers do not have much say in the outcome of their appraisals, and cannot communicate with the appraiser, but they do have some options when appraisals do not come in at contract value.
1. Renegotiate the contract price. The buyer and seller can renegotiate the purchase price to reflect the appraisal value. Sometimes the seller may not be willing to do so.
2. Pay the difference in cash. If renegotiating is not an option, the buyer can choose to pay the difference between the contract price and appraised value.
3. Negotiate a compromise with the seller. Sometimes the parties can reach an agreement that will allow the sale to move forward. This can include anything from meeting in the middle of the contract and appraisal value, with the buyer laying down some cash to close, to the seller accepting the appraisal value and not contributing to any repairs that were agreed upon, and many other creative options.
4. Challenge the appraisal and request a second appraisal. The buyer can always challenge the appraisal with pertinent additional facts and/or comparable properties that were not considered in the report. It may also be possible to request a second appraisal, which the buyer may have to pay for. Speak with your real estate agent and your mortgage professional to decide how to best accomplish this method, as you must have information that that you feel should have been but was not contained in the report.
5.Â Cancel the contract. If none of the above options work or are desired you can always elect to cancel the contract. Take into consideration that you have likely spent money on a home inspection and of course, on the appraisal.
1.Â Educate the appraiser. The most important way a seller can help an appraisal come in at value is to ask the listing agent to prepare a report for the appraiser. In it, the agent needs to review the comparable properties and compare and contrast them to the subject property. It is also important to point out any upgrades or special features the home possesses, like a view or large yard, the fact that it’s on a cul de sac, or even things that may not be obvious, like green features and energy efficient appliances. Include photos of the comparable homes and the subject house, and a list of costs spent on any improvements.
2.Â Challenge the appraisal. Like the buyer, the seller can always challenge the appraisal with pertinent additional facts and/or comparable properties that were not considered in the report. See above.
3.Â Renegotiate or compromise: (see above).
4.Â Cancel the contract. This is always an option, but make sure that you have a plan moving forward. If you are planning on re-listing the property in the hopes of finding a cash buyer or another buyer who will pay the difference, keep in mind that you will likely be required to disclose the appraisal report from the first buyer. If you are thinking of renting the property make sure to crunch the numbers and take into consideration rent amount, property taxes, homeowner association payments and/or assessments, insurance and maintenance costs.
Appraisals, like many home sales, can be challenging these days. Over-improved properties and properties in neighborhoods with multiple distressed sales (that tend to sell for less) are especially at risk for low appraisals. But if you and your agent are prepared and have done your homework, there can be a successful outcome even when an appraisal does not come in at contract value.
Photos courtesy of Dreamstime
Friday, October 28th, 2011
Buying and selling anything in this economy can be a bit tricky, and that goes for real estate as well. Many buyers, who think they’ll be able to negotiate a phenomenal deal, are often discouraged when they actually get out there in the market and try to do so. Likewise, sellers who price their homes at market value may find it hard to hook an offer, oftentimes having to reduce their price well below comparable value to get it sold. Sellers who do not have to sell are opting not to, which makes for less inventory. Why is it so hard to buy and sell real estate right now?
1. Lender hurdles. Getting qualified for a loan these days is very difficult. Even those who have steady jobs, make sufficient money and have a nice savings on the books are facing troubles. The lenders, who I believe are the main cause for much of the stagnation in the market and the overwhelming number of foreclosures (see previous blogs if you want more detail on this), simply have a death grip on their funds. Anything that is seen as risky, any tiny little thing, gives them cause to deny a mortgage application. This applies both to traditional sales and distressed properties.
If you are a buyer you need to make sure you are working with a mortgage professional who has access to different products, and can help you to figure out which one is best for you.
2.Â Foreclosures/Lender owned properties. Foreclosures have been weakening the market for years, and there is no end in site. The lenders simply have too many properties on their books, the majority of which have not even been released to the open market. Once they are, prices will suffer. This tends to make sellers withhold selling their homes (the ones who can), in order to wait for a “better” time to do so. Buyers, who should be able to reap the benefits from the lower prices, still have to go through the loan qualification process. Many buyers are now also afraid because of recent lawsuits claiming bank-owners did not in fact possess title to the homes. If purchased at auction buyers usually do not have the opportunity to have home inspections or even get inside the property; if the property is sold as an REO (lender-owned, post-foreclosure) the buyer can view the property but is provided no disclosures related to it’s history.
3.Â Short Sales. Short sales should be a no-brainer, as I have blogged about many times. There are willing buyers out there who want to buy homes in neighborhoods they otherwise would not be able to afford, but for a short sale and the lower prices. Sellers of short sales obviously want to and need to sell to avoid the scarlet letter “F” on their credit. Similarly, banks save lots of money selling their properties short rather than going to foreclosure. Despite the end goal being common, short sales as we know can take a long time. The main reason for this is because of the banks, who dilly dally around and take forever to approve them, work off bad BPOs, and often have inexperienced and downright nasty people in their loss mitigation departments.
4.Â Title issues. Another problem plaguing the real estate industry is title issues, especially in homes that have been foreclosed upon. There have been several lawsuits against lenders who have been found to have wrongfully foreclosed on homes – after the home had been sold and new owners had moved in. These types of suits seem to be growing, and there is no telling what will happen to the new owners. If found that the banks did not have the authority to sell (because they did not physically possess title), the sale is rendered void. We will have to wait and see what effect this will have on purchasers, but surely it will may scare some buyers away from these lender-owned properties. For sellers, it is imperative to understand any title hurdles at the time your home is listed
5.Â Appraisal and BPO issues.Â It seems appraisal issues come into play these days more than in times past. This is especially true in areas where there have been a lot of foreclosures or short sales, which bring down comparables. If an appraiser has to look outside a neighborhood s/he may use comps from another neighborhood or complex that really does not compare to the subject home. If the appraiser is from out of the area s/he may not understand the particular nuances of a neighborhood, and that can also affect valuation.
Bad BPOs (Broker Price Opinions – these are ordered by the banks and are typically completed by certified real estate agents, not appraisers) also wreak havoc on short sales. Some properties are hard to appraise/establish value, if they are one of a kind or there are no valid comps in the vicinity, or where the condition of the comps do not compare to the home being appraised. California has hinted at drafting a law about how foreclosure and short sale homes can be used as comps for a traditional sale home. There are problems either way when a home is hard to appraise. Suffice it to say there is a lot of deal-killing going on because of bad appraisals and BPOs. [NOTE: This is not meant to be a degradation of appraisers – most are highly skilled professionals.]
Buying and selling property can be difficult in these troubled times, but the silver lining is that there ARE great deals out there for buyers, and it is possible for sellers to sell their homes as well. One simply needs to know how to best accomplish her/his goals. To do that, you need to start with a great agent.