Thursday, May 27, 2010

Short Sales and Bank Stupidity

I had a comment from a good friend the other day, that my blog posts have a tendency to be a bit negative. I took his constructive criticism, mulled it over, and decided that newspaper editors discovered long before my time that bad news sells, and who am I to mess with a winning formula?

But to temper this post a bit, I will start out with good news. I had two closings this month, weekends have been full of appointments, and the phone is ringing. Value and more value is still the mantra. Anything over 250K is approached with the same caution as a hornets nest, and on more than one occasion I have heard. "I just love the house, but I can't justify paying that much for it."

Anyway, on to the real reason for this post. The bubble bursting has brought short sales and foreclosures to the forefront of our industry. Although not so much as other parts of the country, they are still prevalent here, and any agent worth their salt has encountered one of these lovely little nuggets of frustration. Most attempt to muddle through with little or no idea what they are doing.

Dealing with either, (although I find short sales particularly challenging) it immediately becomes apparent why our banking system collapsed. There is absolutely no common sense or vested interest in anyone I come into contact with. Every colloquialism is true, they can't see the forest for the trees, penny rich and dollar poor, a bird in the hand...etc.

Every time you deal with a bank, it comes down to the magic "market value." That is what every one of them are stuck on. And you can see how they would be. They are numbers driven, and putting a number on their investments or in a foreclosure situation, their assets is paramount.

However, what they always seem to miss, is that market value is only what someone is willing to pay you in a free arms length transaction. Careful appraisals, or haphazard BPO's, makes no difference.

Case in point. I had a buyer make an offer. The home was listed as a short sale, for 109K. Offer was 90K. Offer was submitted Jan. 2. We wait, and wait. Negotiator appointed, negotiator transferred..yada yada. Finally last week I get a call from the listing agent. The BPO. (brokers price opinion) came back at 155K.

Now a brokers price opinion is a joke anyway. In the banks attempt to save a few dollars, they randomly ask brokers or agents from the area to do a BPO or a CMA (comparative market analysis.) All the agent does is drive by the house, take a few exterior pictures, go back to the mls, find three sold comps, and three active comps, with sort of the same lost size and square footage, and come up with a number they think is fair market value. They then send that to the bank. The bank pays them around 50 bucks, and that is how value is determined.

Using this formula, I could easily do two BPO's on the same house with a 40% difference. It is that inaccurate and subjective.

You might ask yourself why don't they hire an appraiser? A pre requisite to become an appraiser is much more stringent than a real estate agent. And an appraisal is a much exhaustive process, (although still subjective.) Well an appraiser charges quite a bit more. A bank does hire an appraiser when someone apples for a mortgage, but that cost is passed on to the borrower in application fees. Why pay an appraiser 400, when you can pay an agent 50?

Any agent who attempts to list a short sale should submit their own BPO. Often the bank will use it, or at least give it some credence in comparison to another that they order. In my case the agent did not, so we end up with a BPO of 155K. The sellers only owe. 130K on it. The house has sat on the market for over a year. The owners have not paid the mortgage for eight months.

Were the bank to take this deal, they would immediately stop the fiscal bleeding. But no, they will take this absurd opinion of value. Continue to lose money, let the house fall into foreclosure, have it sit as a blight on one of our streets, until it is finally bought for pennies on the dollar 18 to 24 months from now.

When did common sense become so rare?

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