Pricing is Erratic on New Listings

There is an inconsistency in the market regarding new listings. Various agents are trying different 'angles' in marketing to get the best response on their listings. This situation requires buyers and their respective agents to be diligent in research before presenting an offer.

Some agents are utilizing the classic 'auction' approach with a seemingly low list price and multiple offers on day one. This can be effective but only if the house is really clean and truly move-in ready. There is always the risk of not getting the highest offer possible using this technique but for some sellers it's about a quick sale and this can be effective. These types of scenarios will often land a back up offer so the seller can bid on another property with confidence that the current property will sell.

Some agents are listing high, way high in some cases, in hopes of getting that desperate buyer that has been outbid several times and is ready with a high offer. Sellers need to be prepared for a soft appraisal and the possibility of having to reduce the price later in transaction.

Buyers need to know where the listing is in the market place before presenting their offer. The buyer's agent needs to give sound advice or the buyer may not get the house they want. If the seller is priced to create a multiple offer 'auction' environment then the buyer needs to come in strong with their offer. Some buyers have a hard time bidding a house way up above asking but that is the nature of a robust market. The buyer's agent needs to research the market and determine where the house is on the price scale.

If the house is priced up high, the buyer can use that as a means to soften the seller or get the seller to agree to concessions such as closing cost credits and such. All of these variables will determine the way the buyer needs to present their offer to get the best deal for themselves and most importantly get the house they want.

Some buyers need help with closing costs and often they puff up the offer price and ask for seller concessions. This may work but the appraiser may not bite. Sellers need to be wary of 'over-puffed' offers.

In the end, no one truly knows how the transaction will unfold. There are many variables in a real estate deal and buyers and sellers always need to be prepared to encounter some turbulence during the process. Buyers need to follow the counsel of their loan officer to a 'T'. There is no room for screw ups in the loan process and there is a good chance a back up buyer is in place should the buyer stumble.

Buyers need to realize that trying to "steal" a house in this market will almost certainly cause them to ultimately pay more for less house. I have buyers that can't seem to get the notion that they have to bid good houses up and as they wait, prices rise. We are seeing price move up at about 1/2 to 3/4 of a percent each month. That may not seem like much but on a $300,000 house a 1/2 point increase is $1500. A buyer that takes three months to buy a house will spend $5000 more than if they get aggressive now and get the house they want sooner rather than later. The market is cold and cruel and cares not about anyone's hopes, dreams, and ambitions. As prices creep up buyers lose purchasing power and sometimes are priced out of the market altogether.

Choose your agent wisely and he or she will get you the best opportunity to buy or sell a home.  

Blast from the Past...

I am out of town today but this post from a year ago still holds true...

originally posted on 9/9/2013

Many banks are starting to use online auctions for the sales of REO (Real Estate Owned) This is the term commonly used to describe real estate that is owned by a bank, obtained in foreclosure. HUD has been doing auctions for years on its FHA inventory but their auctions are not run live. HUD auctions use sealed bids. REO managers have a different idea. They want to market the house in a classic Ebay style environment. They want to drive the price up as high as possible with a bidding frenzy. This can be a great way for REO sellers to sell, but can have pitfalls for buyers which I will discuss a bit later.

One of the real areas of concern I have is short sales. I see this movement towards online auctions with short sales. Many banks are having their debtors sign an auction agreement along with the other short sale documents. The house is then placed up for auction terms and often the auctioneer does not even notify the listing agent. It seems that banks are going to continue to push ethical boundaries on short sales and in some cases take advantage of the American people while cashing in on federal programs like HAFA (Home Affordable Foreclosure Alternatives).

I have had some positive experiences with one loan short sales under auction terms. It seems the first lien holder often pre-negotiates the deal with the auction house and the short sale can move ahead with efficiency. The problem is that there is sometimes a second lien and the auction house either fails to disclose to the buyer or discloses in a fashion that is difficult to find. This can cause allot of grief for the buyer and the home owner.

People that are bidding on these auction homes should have a real estate professional aid them in the process. Typically the homes are listed on the local MLS and your real estate agent will get paid by the listing broker under the terms of the listing agreement. By all means a buyer should always have representation in a transaction involving large amounts of money.

In general the auction houses appear to be decent business operators. The problem is that another party to the transaction is now involved. The more parties in a real estate transaction the more likely it is to fail. Buyers and sellers can be taken for a long and uncomfortable ride when there is two banks and auction house involved in the deal.

If a buyer decides to bid on an online real estate auction, they should consult their trusted local real estate professional. That agent can do some quick research to help the buyer decide whether or not the home is viable. The agent can also help determine a good bidding range. It is paramount to remember that auction terms are designed to get an emotional response by the bidders. The emotion that screams, "I want to win" so as to drive up the price. Some auctions even have disclosures that suggest overbidding will result in mandated payment even if the property does not appraise. This could be a problem for a buyer using a loan to purchase.

In my experience dealing with the short sale departments at most banks is akin to getting a root canal without Novocaine. So adding the auction element on these sales is surfing in dangerous seas. Caution is heavily advised.

Finally, there are some banks now taking their REO inventory directly to auction without listing on the local MLS. They hire a local licensed agent to make the sale legal under state law, but offer no representation for the buyer. I believe that American banks are already about as ethical as your average mugger, now they are trying to engage the direct home buying public in a "dark alley deal" that will almost certainly take advantage of the buyer. If the auction house is listing a property that is not listed on the local MLS, I would tell most buyers to run away. Seasoned investors may feel compelled to bid, but inexperienced buyers really should not take the risk of engaging in a transaction without a buyers agent involved.

Online Auction Sites becoming the Rage with Banks

Many banks are starting to use online auctions for the sales of REO (Real Estate Owned) This is the term commonly used to describe real estate that is owned by a bank, obtained in foreclosure. HUD has been doing auctions for years on its FHA inventory but their auctions are not run live. HUD auctions use sealed bids. REO managers have a different idea. They want to market the house in a classic Ebay style environment. They want to drive the price up as high as possible with a bidding frenzy. This can be a great way for REO sellers to sell, but can have pitfalls for buyers which I will discuss a bit later.

One of the real areas of concern I have is short sales. I see this movement towards online auctions with short sales. Many banks are having their debtors sign an auction agreement along with the other short sale documents. The house is then placed up for auction terms and often the auctioneer does not even notify the listing agent. It seems that banks are going to continue to push ethical boundaries on short sales and in some cases take advantage of the American people while cashing in on federal programs like HAFA (Home Affordable Foreclosure Alternatives).

I have had some positive experiences with one loan short sales under auction terms. It seems the first lien holder often pre-negotiates the deal with the auction house and the short sale can move ahead with efficiency. The problem is that there is sometimes a second lien and the auction house either fails to disclose to the buyer or discloses in a fashion that is difficult to find. This can cause allot of grief for the buyer and the home owner.

People that are bidding on these auction homes should have a real estate professional aid them in the process. Typically the homes are listed on the local MLS and your real estate agent will get paid by the listing broker under the terms of the listing agreement. By all means a buyer should always have representation in a transaction involving large amounts of money.

In general the auction houses appear to be decent business operators. The problem is that another party to the transaction is now involved. The more parties in a real estate transaction the more likely it is to fail. Buyers and sellers can be taken for a long and uncomfortable ride when there is two banks and auction house involved in the deal.

If a buyer decides to bid on an online real estate auction, they should consult their trusted local real estate professional. That agent can do some quick research to help the buyer decide whether or not the home is viable. The agent can also help determine a good bidding range. It is paramount to remember that auction terms are designed to get an emotional response by the bidders. The emotion that screams, "I want to win" so as to drive up the price. Some auctions even have disclosures that suggest overbidding will result in mandated payment even if the property does not appraise. This could be a problem for a buyer using a loan to purchase.

In my experience dealing with the short sale departments at most banks is akin to getting a root canal without Novocaine. So adding the auction element on these sales is surfing in dangerous seas. Caution is heavily advised.  

Finally, there are some banks now taking their REO inventory directly to auction without listing on the local MLS. They hire a local licensed agent to make the sale legal under state law, but offer no representation for the buyer. I believe that American banks are already about as ethical as your average mugger, now they are trying to engage the direct home buying public in a "dark alley deal" that will almost certainly take advantage of the buyer. If the auction house is listing a property that is not listed on the local MLS, I would tell most buyers to run away. Seasoned investors may feel compelled to bid, but inexperienced buyers really should not take the risk of engaging in a transaction without a buyers agent involved.