Lately I am seeing a trend with short sale listings which is anecdotal but, I think, significant. More and more, I am seeing and hearing about lenders which are requiring an unrealistic sales price in order to approve short sales. When I say “unrealistic”, I mean more than the market can bear in many cases.
I personally had this experience in recent months: I had a short sale listing in Sunnyvale which was priced at market value last summer. We got three offers, all within 2-3% of each other. This is a pretty good indicator of market value. (Had we been underpriced, the contracts would have come in higher.) The bank wanted about 15% more – an absolutely unjustifiable figure.
What to do? I ran the comps and submitted them. No impact. I then paid an agent to do a BPO (broker price opion). That number came in about 1.5% more than my sales price. The lender, in turn, ordered an appraisal (which we appreciated), and that came in another 1.5% higher than the BPO (or about 3% higher than the sales price my seller had accepted). Common sense would dictate that the lender would accept as authoritative the appraisal price, right? Not so. They wanted another 1.5% higher still – higher than their own appraisal value, certainly higher than market value. Needless to say, the buyer did not want to overpay for the property. Fast forward a six months and the bank now has taken back that townhouse at foreclosure. It could have been avoided had the lender been willing to be realistic.
As I speak to my colleagues in the real estate industry here in Silicon Valley, I am finding that my story with this one listing is not so unique. I see homes on the market in various west valley communities (Almaden, Cambrian, Los Gatos, Saratoga, Campbell and nearby San Jose areas) that are listed at a reasonable price and then speak with the Realtor and learn that the banks 10 to 15% more than the list price. At best, this is at the high end of market value (but in many cases is higher still and completely crazy). The agents know that if the house is listed at the bank’s number, they’ll never even get an offer.
It looks as though many of the banks would rather just take the short sale properties back in foreclosure. Why? There are incentives for them: they can write off losses, they don’t have to deal with second or third lein holders, and they may even have silent mortgage insurance, which doesn’t help if they accept a short sale – it only helps if there’s a foreclosure.
Closed in the last month, just 26 short sale houses and condos and townhouses in Almaden, Cambrian, Los Gatos, Monte Sereno, Saratoga and Cupertino closed escrow. In the same areas, there are 129 short sales on the market and available! That’s 4.96 months of inventory….
Average days on market of these solds = 143 Average length of escrow for these solds = 110 (longest was 253!)
For non distressed listings in the same area it’s 555 available and 132 sold for 4.2 months of inventory.
The US government has tried to make short sales more appealing by offering cash incentives to lenders (and consumers), but it seems to me that right now, the banks are only appearing interested – they aren’t truly working to make short sales happen in many cases. This is not a good trend and it will hurt a lot of people.