The new Multiple Listing System (MLS) software provides a quick
glance of information pertinent to real estate professionals about the
daily real estate world. This "hot" list includes New Listings, Pending
Sales, Reduced List Price, Sold, and Increased List Price. Increased list price?
It caught my eye when I realized in the last week, 32 homes in the San
Jose area have increased the list price of the home. I had to know why.
In this market, what kind of seller believes, after sitting on the
market for a while, they should increase the list price? Yep, you
guessed it. Lenders.
Out of 32 homes that increased the list price, many were simply
clerical errors and the fact that the agent forgot to include an "8" in
the list price. But 19 of these homes were short sale listings where
the list price had been increased. Many times after it had been a
"pending" sale. This means that the list price was published on the
MLS, an offer was received, accepted by the seller, and then submitted
to the lender for short sale approval. Something happened and the deal
did not go through and now the home went back on the market with a new,
higher list price.
I dug into the history a bit more and found that in many cases, there
were multiple offers, the highest offer was submitted but before the
lender could approve the short sale, the buyer walked. Therefore the
listing agent decided to bring the home back active with the highest
price offer to find another buyer. Why? Mainly because if the agent did
not list at the higher offer previously received, the lender will
almost certainly question it and at minimum counter to the last highest
offer price. Short sale listing agents do not like wasting time on
offers they do not think will work with the lender. Many times, we do
not have time to waste as a foreclosure trustee sale is looming on the
horizon and our selling client's lives are in limbo until we get the job
second possible scenario is that the offer was submitted to the lender
and the lender counters with a higher offer, the buyer says "no way"
and cancels. Now, some agents will re-activate this listing on the MLS
as an "approved" short sale at "X" dollars. I don't agree with this
practice as there is no approval yet, simply a counter. Even if the
lender did give an actual approval letter and the buyer walked after
receiving the approval letter, any new offer will have to be reviewed
all over again. Lenders look for "straw buyers" as an indication of
fraud and do not allow for buyer names to simply be switched on approval
letters. Also, if the deal fell out and it took a month before another
buyer submits an offer, the lender will want to re-run the numbers as
there is now one more month of late mortgage, taxes, and the like
associated with the bottom line.Â In my opinion, there is no such thing
as "already approved short sale" if the listing is active.
I didn't want to be to quick to jump to conclusions on why exactly
there were such a high percentage of price increases on short sales but
after I looked at the data, another trend appeared. Most new list price
were almost exactly 10% higher. The average of the 19 homes actually
came out to 10.5% higher. Yep. There were some as low as a 3% increase
and some as high as 23% but most fell between 10-12%. Hmm.
Did you know in San Jose, the average sales price in 2010 compared to 2009 increased 11.8%?
I also looked at the comparables for the neighborhoods where these 19
homes were listed. I have not seen the inside of each of these homes
and am only comparing online photos but in general looking at the comps
for the very local area and similar square footage, number of bedrooms
and baths, the original short sale list prices were within 2-5% of
comparable list prices. Only one showed a 20% lower price than the area
and it had also been a short sale for over a year with multiple offers
and canceled contracts.
Assuming the home is comparable to other properties in size,
location, and condition pricing within 2-5% is completely logical for a
short sale. Some agents will price the home 10-20% below market when
the trustee sale is too close for comfort so as to create a frenzy and
drive the price with a quick market demand response. But as a part of
the short sale package an agent must (should) submit photos, a repair
list, and comparable properties in the neighborhood. If the list price
is not close to the comps, there better be a written, justifiable
reason to why it is not listed at market value. Not to mention, more and
more lenders are completing full blown appraisals on short sales and
they will absolutely compare the numbers against the offer in hand.
In the end, the real real estate question comes to me. Why would a
buyer want to wait 3-18 months for a short sale if there is no discount
advantage? ( I kid you not, I have personally witnessed a short sale
with WAMU, then owned by CHASE, with PMI and an investor take 14 months
to be approved.) Did I mention short sales are AS IS purchases?
Meaning, the lender will not normally approve credits for repairs found
during inspections. If the buyer does ask for repairs or credits for
repair the short sale approval is void and the approval process starts
There are at least two assumptions we can make from the information:
1.) Lenders will continue to expect short sales to be bought at market
value by buyers willing to wait for however long it takes for an AS IS
2.) Buyers will realize that buying a short sale under market is probably not likely and move on to real deals.
Which will lead to short sales being sold at or above market value
(assuming there are some repairs) or short sales not being sold and
becoming foreclosures. Foreclosures cost the bank money and will
certainly be more than any market discount of 2-5% a short sale could
collect in the market place. But that would require logic. So far, I
am not seeing lots of examples of logic in this market.
If you are a buyer looking for a deal, I am so here for
you. I will let you know the pros and cons of short sales,
foreclosures, relocation properties, and good 'ole fashioned (few and
far between) equity sellers. There are deals, but they don't
necessarily have a blue light hanging over the doorway or a particular
title like "short sale" or "REO". Finding a deal depends on a buyer who
knows what they have to have, would like to have, who is working with a
real estate professional who knows the market, the value range, and is
an excellent negotiator. I am available to anyone who wants to hear my
opinion on a particular home, neighborhood, or market trend.Â Contact me if you would like to talk about your next move.
CJ Brasiel is a REALTORÂ®, Broker Associate with Fireside Realty
great neighborhood of Willow Glen in San Jose.Â Committed to exceeding
clients' expectations through market knowledge, strong negotiation
skills, prompt communication, and a passion for making each transaction