May 2011


May got off to an interesting start with the release of several foreclosure reports that frankly, seem a bit contradictory.  There was good news.  There was bad news.  And I’m not quite sure analysts have a handle on what it all really means to the housing market.

Let’s start with the good news:  Mortgage delinquencies are down.  According to data from Lender Processing Services (LPS), delinquencies are down by 20% compared to this time last year.  At the end of March there were 6,333,040 loans nationwide that were past due or in foreclosure.  Sounds like a lot, but that is the lowest level since 2008.  The report would seem to indicate that modifications are helping as 23% of loans that were 90 days past due a year ago are current today.

Now here is where it gets confusing.  The same report showed that at the end of March foreclosure inventory was at an all time high – 2.2 million loans.  This inventory represents loans that have been referred to a foreclosure attorney but have not yet reached foreclosure sale.  The number of new foreclosure actions was 270,681 in March which is a 33% increase over the previous month.  So foreclosures are up but delinquencies are down?

Another piece of bad news was delivered in a HUD report detailing sales of FHA foreclosed homes.  HUD manages the disposition of homes that had FHA loans that were repossessed.  At the end of February there were 68,801 homes in the HUD inventory.  That is a 50% increase over the previous year.  The monthly sale of HUD homes has dropped from ahigh pointof 8,893 last June to a low of just 2,632 in January.  Thus new foreclosures are entering the market at an increased rate while sales have significantly stalled.

One factor not considered in the LPS report was the increase in the number of short sales over the last year.  In addition to loan modifications, which have not been very effective, short sales are presumably impacting the decreased delinquency rate as more homeowners are opting to sell short earlier in the delinquency cycle versus riding out the foreclosure timeline.    If you are a homeowner that owes more than your home is worth and are struggling to make your payments, the bright spot on the horizon might just be a short sale should a loan modification not provide the relief you need.

For the real estate industry overall, this jumble of numbers would seem to indicate that we’re still a long way from recovery.  With foreclosures increasing and sales decreasing, a bloated inventory of homes on the market will likely keep prices fairly stagnant in most markets.

You have a buyer and their offer is submitted.  The bank has accepted the financials and reviewed the BPOs.  You’re happily waiting for a short sale approval, when out of the blue, the bank drops a bomb in your lap:  They counter with a sales price that is $25,000 more than the offer submitted.  What now?

Agents can find this very discouraging, and with lack of experience as to how to proceed, a counter can often kill the deal.  For the novice short sale agent, the first thought is often, “I’ll never be able to convince the buyer to pay that much more!”  But digging deeper into the buyer’s wallet is not the place to start.  Get ready to go to work; it’s time to prepare for negotiation. 

  • Make sure the price of the initial offer submitted is realistic.  Yes, short sales often do sell somewhat under market value, but the bank is not going to accept a ridiculously low offer.  Save everyone’s time and don’t even bother to submit a seriously low-ball offer unless you’re prepared for a counter.
  • Gather your ammunition.  Check current comps and make sure that your price point falls within range of active and sold listings.  If needed, do an additionalBPO, pointing out items that add or detract from value in all of the comps.  The comp that is most similar should also be closest in price.  Often times, bank BPOs are performed by agents who are from outside the area and might be unaware of certain neighborhood conditions that have a negative impact on value.
  • Make sure you have a list of all items that need repair on the property, or other concerns that might take away from the value.  For example, un-permitted room additions or proximity to a noisy business.
  • Speak with the buyer and the seller.  Before going any further in the negotiation it’s important that you carefully explain the situation to both the seller and the buyer.  Don’t let your seller panic.  Explain the steps you are taking to justify the original price to the bank and keep the buyer on board.  And likewise, make sure your buyer understands the price range of the comps and come to an agreement about how much more they might be willing to pay, if any.

Armed with solid comps, a list of repairs, and some wiggle room to negotiate price, your chances of getting the deal done are great!

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