The Neighborhood Bully
In the past when you wanted to sell your home all you had to worry about was what your neighbors home sold for. You still have that worry, but now you have a new and destructive force which is slapping folks around and beating them up even in their own front yard. And the worst news of all is the bully isn't leaving anytime soon, and there's no one standing up to him.
Here's what's happening: Lenders who have foreclosures on their books are now deciding they can't wait for the market to absorb their real estate. So they have had to get more aggressive in getting rid of the over stock of non performing assets (foreclosures). So rather than just list property at market value as they have done in the past, and wait for a buyer to amble along, lenders are now undercutting the market to make sure they have the lowest price available, and therefore the fastest sale. In other words they have become the neighborhood bully when it comes to prices. Here's how it's affecting the current sellers.
Imagine you just listed your home for $300,000. A lender had a foreclosure they want to dump. They have to come in under your listing so they choose $240,000. It sells and another lender in the same situation sees the sell for $240,000 and sells at $205,000. You on the other hand are still listed at $300,000. So your realtor(playground monitor) tells you that you just lost $95,000 in equity and you will have to drop your price by a huge amount if you expect to sell it. What I've just described is happening all over the bay area and in some areas is so prevalent that realtors wont even take a listing unless it's from a lender because they know the homeowner doesn't have a chance in the competition. The bully always wins.
Another twist: Lenders are now requiring appraisers to use current listings as comps. That simply means that your home is competed against the declining market and not what has actually sold. So you're able to sit in your swing on your front porch while the bully steals your equity. I've been told by appraiser that certain areas are being dumped on by lenders so hard that it's killing the market: Richmond, Vallejo, Stockton, Brentwood, Antioch, and parts of Oakland, all seriously damaged. And the dumping is not over.
With the bully stealing all your marbles (equity) the results are devastating. The impact on neighborhoods is lost tax revenue so severe that some cities have filed suit against lenders for creating a nuisance. The lost revenue coupled with increased vandalism and police activity to protect the empty homes has stretched many local budgets to the "just broke" point.
Prices dropping: This current fall off of values was created by the dumping of home by investors who worried that the peak had been reach in prices, and they wanted out before there was a drop off...and they in fact created the drop they were afraid of by saturating the market with so many homes. And the drop became like a snowball rolling down hill picking up size and speed as it went. Now you add lenders who don't have a bottom number they have to get on a property, and the snowball keeps rolling.
For a current home owner needing to sell the scenario couldn't be much worse. One bit of advice would be if you don't have to sell now...don't. Just wait. it will improve in time. So get back in your swing and just relax. However if you do need to sell then move quickly. Get your home priced a bit below the market and make a full out effort to sell it. Add an incentive...a trip to Mexico or give away a car that's paid for or a big screen tv or a pool table. Make it a bit special. The bully isn't doing any of that.
The good news: If you're a buyer it couldn't get much better. Lenders are dumping homes into your lap at prices not seen in years with interest rates at amazing lows, how can you not buy. So do it...buy! And there are new federal programs designed for this market allowing 97% financing to $726,000. It must be full doc...no stated income. Decent credit and debt ratios in line. But now is defiantly the time. If you miss this opportunity then you deserve the landlord you will always have.
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