For the past 2 years it has been difficult to obtain financing to purchase homes. With more governmental requirements and stricter guidelines the prospects for borrowing money to purchase a home have greatly diminished. In addition here is what it’s like to be practicing broker. Every home that you place an offer on has to have a preapproval letter. I agree with this. Finding out how to pay for a home and finding out what the costs are, is prudent on the buyer’s part. This is way it should be. Now enter the banks. The banks are selling short sales and foreclosures. Short sales are when the bank is accepting an offer below the loan balance. Foreclosures are when the bank gets the property back after the existing borrower defaulted on the note. Banks don’t really want to do short sales but the other option is to foreclosure. The foreclosure process is costly and lengthy for the bank. So the answer is to motivate the buyer’s, the agents and the banks to get this debt off of their books, right? This would make sense. In the real world her is what’s going on.
The government foreclosures have an auction. The agent must make a sealed bid within a certain deadline, usually 2 to 4 weeks away. If the offer has any mistakes in the way it was written or presented it gets rejected. The buyer has to wait to see if they are the winning bid. If you are an agent who works with this bid process you know to tell the prospective buyers to pay more than full price to get the home. So the buyer waits and finds out they didn’t win the bid. While they waited they missed out on homes that were potentially better. A nongovernmental foreclosure often has rules and exact guidelines from the agents in the local Multiple Listing Service. Some of the instruction state that if you do not do exactly as the instructions state your offer will be rejected. As agents we attend a lot of training to keep up with the ever changing markets, but we cannot be expected to know each and every procedure of different banks in order to facilitate our customers.
Now that I have scanned the potential listings for a buyer and read every detail, I am ready to show homes to prospective buyers. As I prepare an offer I notice that the bank is paying a Realtor fee of two percent of maybe two and half percent. Commission fees are arbitrary and are not set in stone. I understand that but the word that comes to mind is motivation. The bank should be very motivated to get the debt off of their books, shouldn’t they? Many home prices are below 100,000. I recently attempted to sell a house at $70,000. The commission was 2.5%. The half percent is $350 dollars. If the bank offered the house at $71,000 it would sell at that price with no questions asked.
Short sales are long and difficult with no guarantee they will be accepted. My favorite one in today’s market is when a prospective buyer offers cash. This is simple and easy? I wish it were. Every agent is requesting proof of funds. In most cases to show proof of funds you have to show a stranger your bank statement, or retirement account or other forms of personal information. Remember you have to show this before you have an accepted offer. Of course they tell you to black out the account numbers. This is all backwards. If a buyer wants to pay cash, tell them thank you and don’t question them. If the buyer signs a legal binding contract and is a cash buyer who doesn’t perform, they will be in default. If you are concerned that they may not have the cash ask for higher earnest money.
As we all work our way through tougher times is would make sense to make the buying process easier not more complicated. There is a lot of mistrust out there and when you make the sales person talk in three different directions it doesn’t help matters.
Until next time,
Matt