The biggest issues both sellers and buyers have when dealing with and understanding the intricacies of short sales is how the appraisal process can effect the transaction.
Recently a home seller requested a price opinion on a home that would be a short sale. The homeowner felt the price quoted by one of the interviewed real estate agents was particularly low. Even though the home was being sold short, at the quoted price they really felt that they would be “giving it away.”
The home seller was correct in being concerned about listing the home at too low of a price. While a lower list price will materialize a faster contract, that contract needs to also endure the appraisal process in order to close sale.
One of the many gears in the short sale machine is that darned appraisal. The lender being asked to forgive the homeowners debt is usually taking a heck of a hit and wants to be sure that the home is being sold for its current market value. The majority of the time the lender or loan servicer had nothing to do with determining the list price and, of course, the list price of the property doesn’t indicate its value.
The appraisal is a means to vet mispriced or “drama priced” properties simply to get an offer. It also flushes out schemes to game the system for the purpose of generating sweetheart deals for friends or family members or for the homeowners themselves in a buy-back scheme. Surely you aren’t surprised that people are doing that, are you?
The fact of the matter is that you could paper the walls of Mall of America with failed short sale purchase offers that died when the bank or investor countered the offer over list price. Buyers get a little miffed and bail out when they feel they “offered full price” only to be counter offered after months of waiting. The buyer trots off into the sunset and the homeowner starts over with a new and improved list price to support the appraisal.
So what’s a seller to do when they’re pricing their short sale real estate? First, they have to start out as close to the estimated value of the property as possible. Second, they have to be mindful of standing inventory and what the absorption rate is for the community. What is or is not on the market at the time, the pending sales about to close and the rate properties are selling at is going to have an effect on the sale, appraisal and market value.
The homeowner who was questioning the proposed list price being too low was located in a community with about six to seven months of inventory, which is essentially a balanced market. The proposed list price was about 20 percent under recent closed sales which were recorded within the last 30 days.
Whether that homeowner lists 20 percent below market value or for one dollar the end result would, in all probability, be the same. The list price is wrong and the bank will counter the offer when the appraisal comes in.
The end result is that the less than committed buyer ends up walking and that contract ends up decking the halls of Mall of America or at the bottom of the bird cage, right beside this little work of art.
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Chris Griffith is a real estate agent at Downing-Frye Realty Inc. in Bonita Springs. If you have a question about local real estate or Bonita Springs, e-mail her at chris@LifeInBonitaSprings.com.