Tag Archives: distress sales

 Real Estate Thought Bubbles

I’m not an appraiser.  I don’t even play one on TV.   All I know is, I seem to be stumbling across more and more of these kindred real estate souls slogging through the neck-deep, muddy trenches of the same difficult transactions I’m wandering around in these days.

Ships passing in the day.  Comparing notes.  Commiserating on the sad state of comps. Measuring the level of frustration in each other’s voices.  Scratching heads together below a common thought bubble that reads: “How is this supposed to work?  Are we part of a broken system that’s designed to fail rather than succeed?”

Assuming that most on board define success as closing escrows.  But of course there being no lack of conspiracy theories blogging around out there, claiming just the opposite – that the new paradigm of success for banks is fewer loans approved and more escrows not closing.

The daily grind of real estate has settled into a painfully slow peristalsis.  A weirdly protracted form of trench warfare. Bogged down in a place where familiar landmarks have been blown to bits.  No recognizable mileage markers in the flattened landscape.  Almost impossible to tell on a day-to-day basis whether the escrow everyone is working on just took one step forward or two steps backward. Or both.

Simple Translation?  Nothing is easy anymore in real estate.  Easy isn’t even easy.  Not that it ever was.  But there was a time when hard was at least a lot easier than easy is now.

Are there any key players in the process having a harder time than Appraisers?  Any getting more middle fingers of blame pointed at them?  Any thrust more conspicuously onto the front lines of real estate’s no-win ground zero?

There’s always been a lot of confusion around an appraiser’s role in a standard residential purchase.  First: they are not sitting in for God.  Theirs is not meant to be a pronouncement from on high about the enduring value of a home for all eternity.  Second: they are not there to put the Buyer at ease or quell onslaughts of remorse. Third: they are not there to help a Seller salvage a shred of equity.

They are there to protect the lender’s interest. Pure and simple. Since the bank is usually the Buyers majority partner, it wants to know that reasonable collateral for their risk really does exist.

Fast forward to the mortgage meltdown and subsequent fallout that has flipped just about every aspect of the loan process on its head. Or inside out. Or ass forwards. Or (insert your favorite phrase here).

Real estate has fallen down the rabbit hole and it looks radically different from almost every vantage point.  There’s been a huge overhaul of the appraisal system. And ongoing directives from Appraisal’s Central Command are in flux – still shifting daily, weekly, monthly.

Enter the AMCs or Appraisal Management Companies. A perfect example of consumer protection run amuck.  A middle layer inserted into the process to protect borrowers from loan brokers.  But with no way to protect borrowers or loan brokers from those same AMCs grabbing for their own piece of the money pie. AMCs who are successfully breeding an increasingly dysfunctional appraisal system.

Let’s see…appraisals now take longer,  cost more, are subject to far more doubts and delays and often employ less experienced appraisers venturing further afield to communities they don’t have much of a clue about, because they don’t live there.

At the same time: Appraisers actually make less per appraisal, find themselves bidding for jobs farmed out to the lowest bidder, while many of the most experienced appraisers have retired and those that are left are overworked, underpaid and rushing to meet deadlines that aren’t remotely feasible. All under increased scrutiny and threatening review.

All in a market when there are a lot less comps to work from because of less overall sales. Where the few comps that do exist are often suspect because the task of differentiating between organic sales, short sales and bank-owned sales requires the wisdom of Solomon when almost half the sales (distressed) violate the prime directive known as “willing seller, willing buyer.”

Aren’t we asking Appraisers to go out and determine accurate market values in a market that is no longer functioning much like a free market?

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Organic Sales

Remember those crazy bull markets of yester-lore?  Late 80’s? 1999? 2004 to 2006’s non-stop, over-the-top, shop-till-you-drop midnight of madness? Homes as cash cows? Free money handed out like Halloween Candy? Equity lines falling into everyone’s laps like manna from heaven?

There was always some new version of the same old same old bad Realtor joke floating around out there. Infinite variations on a theme.  Some little twist on the conventional wisdom that figured Agents had it way too easy and didn’t really have to work for a living.

What were the two requirements for success in real estate?  1) Showing up.  2) Having a pulse. Why did Realtors get the big bucks? Easy. They were smart enough to answer the phone, chew gum and fog a mirror all at the same time.

Those escrows just kinda closed themselves right? Automated-search engines. Automated-underwriting.  A market full of Buyers and Sellers on auto-pilot. Practically landing themselves in all those new houses.

Show a few properties. Write a few offers. And then… Sayonara! See you all after the sign-off. Call me when the deed records. And that big Commission Check is ready at the Title Company.

Don’t hear that kind of snarky talk much anymore. Now that buyers remorse has become a matter of course.  Now that so many escrows aren’t over until they’re over.  Now that so many loan processes feel like a not-quite-what-you-bargained-for water-boarding experience at a Guantanamo theme park.

Now that so often, just when the fat lady is clearing her throat getting ready to sing, some totally improbable, completely unexpected, fluke out of the blue happens, causing the whole game to slip into the interminable limbo of extra innings. Leaving players’ jaws open in a state of suspended animation. Throttled with frozen disbelief. Numbed by the sheer absurdity of it all.

In the back of our minds we’ve always known that control is an illusion. But it took a marketplace full of too many short sale transactions and bank owned properties to teach us beyond a shadow of a debt that control is a delusion. The banks’ control of the process is completely out of our control.

In today’s new and unimproved real estate it is difficult to find any kind of closure. Most of the time our clients start out thinking they’re running a 400 meter race. Long but not too long. Tough but not impossible. We get them started. We coach them along. They enter the altered estate of escrow at some point in time.  And then things really get strange.

Suddenly the fates and fortunes and futures of real people are delivered into the vise-like grip of unintelligible corporate processes fubar-ed by the overlay of unintelligible government regulations. The epitome of everything that’s wrong with decision by committee, collective conspiracy and the over-arching confederacy of dunces.

We ride out each day during our clients’ contingency periods ready to tilt at windmills. Do battle against ghosts in the machine. In the end, we are often relegated to the roll of glorified cheerleaders. Handing exhausted buyers and sellers water bottles and platitudes from the sidelines while their short runs turn into marathons that become super marathons before they’re all over.

“The end is in sight. We’re almost there. It’s always darkest before the dawn. The farther away you feel, the closer you really are. We’re heading into the home stretch now.”

Funny how a simple transaction between a real live seller and a real live buyer is now referred to as an “organic” sale in the vernacular of real estate. Sure organic sales, like some organic foods can be a bit messy at times.  They’re not always pretty.   But organic sales sure leave a better taste in your mouth than the overly processed kind.

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Normal is as Normal Does

What’s the most common refrain anyone working in real estate hears these days? That’s easy. “ I can’t wait until everything gets back to normal.”

 

Screech. Whoa. Stop right there.

 

Normal? What’s normal? What does it look like again? Would we even recognize normal if it jumped up and bit us in the collective behind while we were busy gazing towards the horizon, pining for its return?

 

I confess there’s part of me – not the better angel part – that hears the word normal and instantly imagines a rosey-colored-glasses version of the market circa 2005. I suspect I’m not the only one with flawed vision. You know, lots of supply and demand, tons of transactions and a median price streaking towards $800k!! All without the aid of subprime loans, credit default swaps or a heapin’ helpin’ of irrational exuberance.

 

Dream on. I usually settle back to earth, tempered by my real experience of the past four years. Reminding myself how crazy that craziness was. And I usually throw this question out to the universe: “If we knew then what we know now…would anyone have thought that real estate was anywhere close to normal?”

 

Is it even remotely possible to get back to an 800k median price without finding a new way to give everyone lots of debt disguised as free money while convincing them to buy into the notion that home is just another name for a cash cowabungalow?

 

I think I’m ready to start over. Search for a new story about the marketplace. A new definition of normal.

 

When I close my eyes to paint my fantasy landscape of “new” normal, I always start with a healthy tension between buyers and sellers. Relative balance between supply and demand. Very different from today’s market. Both sides feel comfortable being there. Doing business. Making life transitions. There are willing buyers and there are willing sellers in the new normal. Right now, neither buyers nor sellers are particularly comfortable.

 

I read the front page article in the Sentinel yesterday to see if there might be a new story starting to emerge there. I’m cringing a little as I read it again.

 

That’s not anyone’s fault. Real estate is a complicated thing. Select a headline. Call five agents. Get some quotes. String ‘em together with a few metrics.

 

But I always want to add an extra appendix onto the end to flush out the nuances and hidden meanings. I’m never sure it’s news the average person can use without a lot more translation.

 

Headline: County Home Sales Jump! There’s the hook. A nod to Sellers who need to believe in 2005. And a prod to Buyers. Oh-oh, prices going up. Time to buy.”

 

Real estate is treading a fine line. Parsing perspectives. Playing both sides. Trying to encourage more buyers and sellers at the same time. Get more people off the fence, moving in eachother’s direction.

 

The message in yesterday’s piece? Things are bouncing, not jumping. The market is going up and down simultaneously. When prices fall enough, multiple offers ensue. And there are lots of multiple offers – which isn’t supposed to happen in a “buyers” market.

 

When prices fall, the inventory shrinks, because most sellers don’t want to sell unless they have to. If more sellers would just put their properties on at lower prices, they’d have multiple offers too. Because more buyers would buy. Except if too many put them on. Then the inventory would be too high.

 

Seems like we need more or less inventory at the same time. More or less buyers, sellers and listings.

 

Why so much confusion? Blame the elephant in the market. Distress sales. People talk about them like they’re normal. Question: Can we intelligently assess a marketplace where 40% of the sales (70% condos) are distressed? Involving institutions rather than individuals? This is a significant deviation from anything we’ve known in past markets.

 

Do distress sales fit the definition of fair market value – willing buyers, wiling sellers? Aren’t they fundamentally different? Can we apply the same laws of supply and demand when analyzing data like prices, volume of sales and the unsold inventory index? Can a new normal emerge in an era defined by short sales and REOs. Before the pendulum stops swinging backward?

 

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THE DISTRESS TEST…

An Over the Hill Agent happened to catch me on the cell the other day as I was running between a home inspection and a sign-off …

Now, when I say ‘Over the Hill’, I  want to issue a disclaimer and reassure any sensitive souls out there that I’m not using the phrase in a pejorative sense. It’s not meant to be ageist or politically-incorrect. God knows, if I didn’t photoshop my own Dorian Gray picture at the bottom of this column each week, I’d probably look as old in print as I do in my real estate life (pact with the Devil and all!)

No, I mean ‘Over the Hill,’ as in an Agent that works in the asphalt jungle of real estate beyond the great barrier reef of mountains lying North of Scotts Valley. One of those parts of the Bay Area where they seem to believe that most of  us Agents in sleepy little Santa Cruz, are just rubes farming our fallow fields, stuck in an outlying gulag of value, light years away from real estate central – so busy falling off our turnip trucks, we can’t focus on the true art of the deal.

Anyway, the mostly one-sided conversation went something like this:  ” Hello Thomas.” (That’s always the first tip they ain’t from here.)  “This is Jane Dough from Real Real Estate  and I’m calling on the property you have listed in Soqwell.  (She has that edgy, Agent-on-steroids tone in her voice. Sounds like she’s just finished a two-day Duncan Hines success seminar and she’s ready to Shake and Bake!)

Of course I say Hello and then politely wait for her follow up.  “This listing has been on the market for a while hasn’t it? (Yes. It has.)  Why do you think it hasn’t sold? (Well, to date, no one has bought it.)  “Are the Sellers really motivated to sell?” (Yes, they want to sell their house.) “Why are they selling?” (They want to live somewhere else.)  “But there must be a reason why they want to sell?” (They would like to have a different roof over their heads.)  “Who priced this house?”  (I’d say it was a collaborative effort.) “Here, in our market, things sell quickly.” (Some properties sell quicker than others.)  “Here, if something is priced right it sells with multiple offers.”  (We see multiple offers on occasion.) “But not on this property?”  (No, not on this one, yet.) “Do you think there is any flexibility in the Sellers’ price Thomas?” (I think if someone is interested in the property they should write an offer.) “Do the Sellers understand that the market has changed?” (They are sophisticated people.) “Don’t you think they should reduce the price Thomas? (I think it is their home. Their decision to make.)  And so on…

Admittedly, I’m a bit dense, if not rube-like on occasion.  It finally dawned on me to turn the table and  ask my own simple question: ” Excuse me, but have your buyers even seen this property?” Her answer: “No, they are going to be closing escrow on their home in Los Altos soon. They want to move to your area but they don’t want to waste their time looking at overpriced properties.”

I was speechless. For a moment. An Agent, pre-negotiating the negotiation before even showing the property?  Wow. Buyers wanting the price reduced before they’ll even take the time to look? Double wow. Buyers who haven’t even finished selling their own house yet? Triple wow.

It’s a sign of the times for sure.  The kinds of calls and conversations all of us are experiencing more and more in a market where half of the properties are clear distress sales (bank owned or short sales) and the other half  are suspicious listings that buyers are scrutinizing and trying figure out through a series of coded questions, just how much unseen distress there might actually associated with them.

Just to save us all a lot of time and Verizon brain cell minutes in the future, I have a suggestion. Let’s create a new category of information for the MLS.  Let’s try to make all this distress stuff more transparent so we can cut to the chase easier.  Let’s publish a  STRESS TEST for each nominally, un-distressed property – with the Sellers permission, of course.  We can rate the underlying distress level of each new listing and put a number in a  big red box right next to the photo. Maybe a 1-10 scale with 1 being a  Seller with lots of  equity just hoping to escape to Utah with as much of his remaining nest egg intact as possible, 3 being a recent pink slip and an unknown period of joblessness ahead,  7 being a pending ugly and messy divorce and 10 being a situation where the four horsemen of the apocalypse have ridden in to take up residence in a three bedroom home.

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