The new Multiple Listing System (MLS) software provides a quick glance of information pertinent to real estate professionals about the daily real estate world. This “hot” list includes New Listings, Pending Sales, Reduced List Price, Sold, and Increased List Price. Increased list price? It caught my eye when I realized in the last week, 32 homes in the San Jose area have increased the list price of the home. I had to know why. In this market, what kind of seller believes, after sitting on the market for a while, they should increase the list price? Yep, you guessed it. Lenders.
Out of 32 homes that increased the list price, many were simply clerical errors and the fact that the agent forgot to include an “8” in the list price. But 19 of these homes were short sale listings where the list price had been increased. Many times after it had been a “pending” sale. This means that the list price was published on the MLS, an offer was received, accepted by the seller, and then submitted to the lender for short sale approval. Something happened and the deal did not go through and now the home went back on the market with a new, higher list price.
I dug into the history a bit more and found that in many cases, there were multiple offers, the highest offer was submitted but before the lender could approve the short sale, the buyer walked. Therefore the listing agent decided to bring the home back active with the highest price offer to find another buyer. Why? Mainly because if the agent did not list at the higher offer previously received, the lender will almost certainly question it and at minimum counter to the last highest offer price. Short sale listing agents do not like wasting time on offers they do not think will work with the lender. Many times, we do not have time to waste as a foreclosure trustee sale is looming on the horizon and our selling client’s lives are in limbo until we get the job done.
The second possible scenario is that the offer was submitted to the lender and the lender counters with a higher offer, the buyer says “no way” and cancels. Now, some agents will re-activate this listing on the MLS as an “approved” short sale at “X” dollars. I don’t agree with this practice as there is no approval yet, simply a counter. Even if the lender did give an actual approval letter and the buyer walked after receiving the approval letter, any new offer will have to be reviewed all over again. Lenders look for “straw buyers” as an indication of fraud and do not allow for buyer names to simply be switched on approval letters. Also, if the deal fell out and it took a month before another buyer submits an offer, the lender will want to re-run the numbers as there is now one more month of late mortgage, taxes, and the like associated with the bottom line. In my opinion, there is no such thing as “already approved short sale” if the listing is active.
I didn’t want to be to quick to jump to conclusions on why exactly there were such a high percentage of price increases on short sales but after I looked at the data, another trend appeared. Most new list price were almost exactly 10% higher. The average of the 19 homes actually came out to 10.5% higher. Yep. There were some as low as a 3% increase and some as high as 23% but most fell between 10-12%. Hmm.
Did you know in San Jose, the average sales price in 2010 compared to 2009 increased 11.8%?
I also looked at the comparables for the neighborhoods where these 19 homes were listed. I have not seen the inside of each of these homes and am only comparing online photos but in general looking at the comps for the very local area and similar square footage, number of bedrooms and baths, the original short sale list prices were within 2-5% of comparable list prices. Only one showed a 20% lower price than the area and it had also been a short sale for over a year with multiple offers and canceled contracts.
Assuming the home is comparable to other properties in size, location, and condition pricing within 2-5% is completely logical for a short sale. Some agents will price the home 10-20% below market when the trustee sale is too close for comfort so as to create a frenzy and drive the price with a quick market demand response. But as a part of the short sale package an agent must (should) submit photos, a repair list, and comparable properties in the neighborhood. If the list price is not close to the comps, there better be a written, justifiable reason to why it is not listed at market value. Not to mention, more and more lenders are completing full blown appraisals on short sales and they will absolutely compare the numbers against the offer in hand.
In the end, the real real estate question comes to me. Why would a buyer want to wait 3-18 months for a short sale if there is no discount advantage? ( I kid you not, I have personally witnessed a short sale with WAMU, then owned by CHASE, with PMI and an investor take 14 months to be approved.) Did I mention short sales are AS IS purchases? Meaning, the lender will not normally approve credits for repairs found during inspections. If the buyer does ask for repairs or credits for repair the short sale approval is void and the approval process starts all over.
There are at least two assumptions we can make from the information:
1.) Lenders will continue to expect short sales to be bought at market value by buyers willing to wait for however long it takes for an AS IS home.
2.) Buyers will realize that buying a short sale under market is probably not likely and move on to real deals.
Which will lead to short sales being sold at or above market value (assuming there are some repairs) or short sales not being sold and becoming foreclosures. Foreclosures cost the bank money and will certainly be more than any market discount of 2-5% a short sale could collect in the market place. But that would require logic. So far, I am not seeing lots of examples of logic in this market.
If you are a buyer looking for a deal, I am so here for you. I will let you know the pros and cons of short sales, foreclosures, relocation properties, and good ‘ole fashioned (few and far between) equity sellers. There are deals, but they don’t necessarily have a blue light hanging over the doorway or a particular title like “short sale” or “REO”. Finding a deal depends on a buyer who knows what they have to have, would like to have, who is working with a real estate professional who knows the market, the value range, and is an excellent negotiator. I am available to anyone who wants to hear my opinion on a particular home, neighborhood, or market trend. Contact me if you would like to talk about your next move.