"If I could only find an agent who sees things my way," whined a wanna-be seller. First he tried to refinance, but the mortgage broker ran the comps and couldn't justify the value. Then he considered selling, but only if he could find an agent who truly understood the value of his home.
Harry, we'll call him, bought a home in Sacramento two years ago for around $300,000. Part of his problem was the ZIP code -- that area was, and still is, depressed. Harry, blinded by the falling market in Sacramento and feeling it affected everybody else in town but him, insisted he had enough equity to either refinance or sell.
I ran a map search for him that crossed ZIP codes and encompassed more desirable areas. The results were the same. His home was worth about $200,000. I delivered the news.
Harry exploded: "I see you came up with the two miserable comps the mortgage broker found." He demanded that I use a different formula, the one that exists in Harry's head. The thing is I found a few dozen comparable sales, and they all pointed to the same hard, cold, cruel number.
In the old days -- like 5 years ago -- appraisers would throw out the foreclosure and short sale comps from an appraisal. But the truth is today those depressed sales are what comprise the market. Foreclosures affect the neighborhood. They make up the market values of nearby homes. As I explained to Harry, even if we found a buyer willing to pay Harry's inflated price, that buyer's lender would never appraise that home at the higher value.
It's not a conspiracy, Harry. The problem is you paid too much for the home when you bought it and values all around you have declined. Harry's not too happy with me right now. Oh, well.
The Short Sale Savior, by Elizabeth Weintraub, coming in June 2009.
Photo: Big Stock Photo
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
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The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
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Elizabeth
That is a lot of fun when we have to tell people they just paid too much for their home.
Sincerely
Tom Braatz
That story is a common one these days. It is no fun being the one to break the news, but we are the ones that have to!
It is a hard fact that is very hard for some to swallow, but the truth is the truth. It's all in the stats -no fairy tales...
Elizabeth: We had an appraiser come by the office in January and explain that while short sales and foreclosures are the majority of sales in a neighborhood, they will continue to be comps. It's the market. No one cares who owns the home. Market value is still market value.
I heard a stat at the Convention a few weeks ago that on average, home values in a neighborhood drop 9% after a foreclosure. It's proving true in my area so far. If only Harry knew we all would love to use the "formula which exists only in his head"....LOL!!
Unfortunately, we don't set the market. The market does. And unfortunately, the distressed properties affect the CMA.
Good observation, Elizabeth. Short sales are now the norm. Our MLS requires sales factors to be entered upon closing. I used to enter "short sale". On my most recent closing, I entered "no unusual sales factors".
P.S. When is your book out?
Hi Elizabeth!
I am fairly certain that we all have sellers like this. Try as we might, we can never get them to understand the appraisal issue. I am not sure what they expect...as one of my misguided sellers said "But SOMEONE will fall in love with my house!" I just can't get her to understand that the buyer has less and less to do with market value these days!
Elizabeth It's interesting that just a few years ago many of the same appraisers appraised for the contract price regardless of comps, Karen
I've had appraisers go out three miles to get comps, but in this guy's case, it ain't gonna happen. Plus, with the new financing guidelines going into place on May 1, lenders won't be able to choose their appraisers anymore. Which is going to wreck havoc on the appraisal process as appraisers are selected from a pool, regardless of experience or competence.
Some how the appraisers need to evaluate the value of the structure. With so many home s that have been trashed by the sellers before foreclosure the buyer then has to correct all the damage. I don't have a problem with them using the comps but condition needs to be evaluated also.
Elizabeth, buying at a peak of a seller's market then watching everything crater around you makes you become a big believer in some areas that renting a home is not such a bad idea.
Elizabeth - we have a lot of Harry's around here also. I am listing a home in a great area with terrific comps, but, have to foreclosures coming on the market in the next 2 weeks.
Elizabeth- Harry called me too! I guess he owns a home or several dozen up here in Tacoma! Harry is not going to be too happy for a few months... at least he can still make his payment and have a roof over his head.
Elizabeth, The "Harrys" have a tough time seeing the market. Just had an appraiser looking at one of my listings to purchase for himself. He knew it was an excellent buy and was ready to make an offer. The problem: he has a home to sell and he has it WAY overpriced! He wants to do a contingent contract. Does not know why my seller is not going along with his idea. "Harry" thinks my seller is lucky to be getting an offer! Buuuuut....my house has the "heavy duty" nails!
Aptly put. Granite counter tops and Viking Kitchens don't exist in vacuums when the very dirt beneath the home has lost value.
Elizabeth - It's hard to deliver the bad news, but we have to tell them the truth.
Ah yes, the reply I get from Harrys here in Hawaii is "well let's list it for the price I want and maybe we will find a cash buyer who doesn't care about the appraised value." Huh???? Like people who have the money to pay cash for your $1.5 million property are stupid about how they spend it?
Aloha
Beth Thoma Robinson
Vog free North Kohala and the Kohala Coast--watching whales jump in front of my Open House!
We can always come down but we can't go up! That would be a good Harry whine! All the Harry's of this country are gonna have to live in their houses for a few years and hopefully, things will get better.
Elizabeth, sad but true. So many similar scenarios. Explaining that it won't appraise helps, but doesn't really get the seller to "understand" two things: If you sell it at a price that is low, you can also buy at a price that is low. Of course, this seller probably had better stay awhile...I'm thinking. ;-)
Elizabeth,
My friends who live 60 miles from me, decided to sell their home. They started talking to realtors. I know their home well enough, but I do not work in their are and do not have that 6th sense. By our Daytona standards, I would say that it is about $200K. I was surprised when they told me that the first agent suggested $340K. The other suggested $320K. The third said $305K (I hate numbers like this as you are simply excluding thhose who would limit the ceiling at $300K.). I recommended an agent, who writes good blogs on AR, they interviewd her, she said the same what I thought, and thhey are so frustrated, they do not talk to her, and, I am afraid, to me. Of course, their house is great and they know that it is worth $350K.
They want to sell and move to California close to their children and grandchildren. I am sure I will be seeing them in this homes for a few more years.
Oh well......
The appraisers are using short sales and foreclosure's in my area too. The sellers sometimes don't want to believe me but it is the truth.
Hey Elizabeth- guess what? I think Harry's appraiser called me earlier today. She really wanted me to give her something that she couldn't find in the sold data to make the refi work. BUTTTT! I said, mam, it is what it is and those ARE the comps, so that IS the value. I can't manufacture comps either.
This market makes it difficult for flippers, too. Even if an investor can get a terrific deal and fixes up the home, it might be hard to flip if there are no comps to support his fixed-up value. Appraisers will take receipts for repairs, but there is no such receipt for "profit margin."
Elizabeth - Better Harry be upset with you during the listing presentation than be really p#$$ed O'd with you when his home sits on the market at an outrageously inflated price. Maybe he'll list with one of those other agents with almost no short sale experience and soon realize the reality of his situation. The sad truth is usually when they do, it's already too late.