March 7, 2013
Looking back at May of 2005 when the real estate market peaked, it’s amazing that eight long years later we are actually experiencing a modified frenzy of home purchases. If this is any measure of a renewing economy, we can all celebrate.
There is a high level of energy circulating in the county’s home buying circles. Some of it feels good, but some of it is uncomfortably familiar. There are reports about the large number of offers on properties, mostly in the “affordable” price ranges. A $179,000 condo in Moorpark was on the market for 48 hours and had 11 offers; one home in Camarillo in the $400,000 range had 26 offers in 72 hours.
Some buyers are offering over asking price and removing the appraisal contingency. They are producing evidence they can pay the difference in cash if the appraisal falls short of the sale price. Many buyers, however, are winning just with cash offers. There are rumors that a buyer’s chances of success in competing with other buyers are enhanced if they work only with the listing agent. This just can’t be.
Some very good things are very different from 2005. Lenders can no longer talk to the appraisers to eliminate the possibility of collusion in fixing prices. We all remember the days when it took a team of criminals to deceive borrowers. However, stories of fraud of all kinds are still unfolding within the offices of the District Attorney and numerous arrests and indictments are still in the wings.
Unlike the last upswing, appraisers are slow to move prices up from the last sale, but this will change as overall closing prices begin to rise. Underwriters grind away at the details and often delay closings by asking for additional documentation. Incredibly complex laws were passed that affected all aspects of homeownership, from borrowing guidelines to appraisal and title company admonitions, tax relief accommodations and a host of safeguards to protect the consumer.
In today’s environment, most homeowners who choose to shortsale are simply making a business decision to shed a non-producing asset, unlike the choices made in the early days of shortsales when shame was a common emotion.
Whoever thought a lender would send you an overnight package offering to reduce the interest rate on your home loan even though your current rate is under 5%? There are still mysteries around the shortsale process where some banks are offering as much as $25,000 in relocation funds to borrowers who choose to shortsale and move rather than suffer foreclosure. The majority of offers are generally around $3000 to $7000 but it seems odd they offer anything.
Shortsales are considered “contingent sales” and show as “active” in the Multiple Listing Services even though sellers seldom accept a back-up offer or want to continue showing their property. It is rare when a seller will accept a higher back-up offer and actually submit it to the lender for consideration. The expectation from the lender is that the seller negotiated the best offer in good faith.
Pre-qualification letters are harder to come by and are no longer provided after a brief phone conversation. Lenders are required to review tax returns, paystubs, W2s, work history and credit reports. If the letter is not well written, sellers are shy about accepting the offer.
There is a whole new lingo in the industry that runs in tandem with the changes in technology. Standard practices are home inspections, home protection plans and electronic signing.
Other good news is that consumers who suffered through a foreclosure in 2005 and 2006 should be able to buy again and families who completed a shortsale more than two years ago can jump back into the pool. The REO inventory we thought was being guarded by asset managers as they watched prices rise has diminished with the move of the banking industry to cooperate and facilitate shortsales. Homes are left in better condition and there are elements of honorable exit, particularly when homeowners can honestly say, “We sold our home at market value.”
There is some certainty that all of us are wiser and more thoughtful about the value of money. We have witnessed and learned cruel but valuable lessons on the wisdom of living within our means and having a reserve account. If the lessons of the past give us a brighter more predictable future, they have great value. Now, if we will just teach them to our children!
These are the opinions and experiences of Kay Wilson-Bolton who has been a broker in Ventura County Since 1976.