Phoenix Real Estate Market Keeps Tanking (closing costs, litigation, schedule)

[JoeC]

Oops!

Sorry...

[JoeC]

A short aside:

It seems that the media, occasionally, gets it right...

Big profits for home-flippers signal Phoenix-area rebound

[Zippyman]

Originally Posted by JoeC

I disagree. What do you do when the appraisal is several thousand lower than the contract price, and the buyer doesn't have the cash to make up the difference?

The only way that works is to create a requirement that ALL homes have an appraisal on record (and available to any potential buyer) prior to being listed - or that the buyer has the right to send an appraiser in (at their cost) prior to signing.

As a buyer: If I saw that clause in a contract, I'd walk immediately - unless the house was listed "As-Is", with a correspondingly low price.

Appraisers would be the first to tell you that they don't set the value of a property. Lenders claim their "hands are tied" by the appraisal. In an appreciating market, appraisals are based on history, which means they can't be accurate. What someone paid for a property six months ago is irrelevant if the market at the time had lots of choices & the current market has few/none.

What I'm seeing in my area is short-sales closing based on contracts issued months ago. I closed on one myself in February, and wrote my offer a full year prior. Those are "comps" to an appraiser, even though no one can buy any more at that price.

I bought ground sirloin @ AJ's last fall for $2.89/#. Horay for me, but if I want any more this weekend, it'll cost $4.99/#. If an appraiser looked at the historical sales data, $2.89 is fair, even though there is none to be had at that price.

[Howard Roark]

No. The ones commenting on that article get it right. At least that site allows other opinions on real estate.

Originally Posted by JoeC

A short aside:

It seems that the media, occasionally, gets it right...

Big profits for home-flippers signal Phoenix-area rebound

[ReadyFreddy]

I agree with that. I think we also agree with the subjectivity of the opinion and that the appraisers are human and can an do make mistakes. Therefore, someone needs to challenge the appraisal when errors and omissions are spotted.

I agree. But be aware that some of what you see as an error is just a difference of opinion, like adjusting for tile.

How can a bank say it didn't cause the problem when the loan officers are the bank's employees?

Yeah. When I say "the bank" there I'm thinking of the greater entity, as in the shareholders. The managers knew the process and didn't change it, because like the L.O.'s, they too had every incentive to maximize loans.

There were appraisal mgmt. companies back then, too, but it wasn't a requirement. I actually think the new structure is good, and I chose to work under it when I appraised. The appraisers make less per appraisal but they're not doing 3 unpaid 'comp checks' for every paid appraisal, doing marketing, doing collections, fielding phone calls all day, dealing with L.O.s. For me it was worth it. All the communication with the AMC was electronic. You got orders via email through the day, you completed them and sent them back electronically, and you got paid within X days. Realtor/L.O./homeowner feedback was screened through the AMC.

That "abundance of homes" comment was probably leftover boilerplate language.

The free market, the prices where buyers and sellers have a meeting of the minds, is what should control prices, in my opinion.

I agree, but I think there could be some controls over how high loan-to-value ratios go in a steeply increasing market and that's what the appraisals apply to... the non-cash sales. So prices themselves could go as high as the market wants but if I'm a buyer, I better have more cash than the buyer in a 'normal' market. The bank is at higher risk and they should recognize that, based on recent history, and require more cash down. I guess they don't have to rely on appraisals for that, though. I wonder if the govt loan programs like FHA are the only ones with the very low down payment options, and the banks don't have much risk with them?

[JoeC]

Originally Posted by Zippyman

Appraisers would be the first to tell you that they don't set the value of a property. Lenders claim their "hands are tied" by the appraisal. In an appreciating market, appraisals are based on history, which means they can't be accurate. What someone paid for a property six months ago is irrelevant if the market at the time had lots of choices & the current market has few/none.

What I'm seeing in my area is short-sales closing based on contracts issued months ago. I closed on one myself in February, and wrote my offer a full year prior. Those are "comps" to an appraiser, even though no one can buy any more at that price.

I bought ground sirloin @ AJ's last fall for $2.89/#. Horay for me, but if I want any more this weekend, it'll cost $4.99/#. If an appraiser looked at the historical sales data, $2.89 is fair, even though there is none to be had at that price.

Good point. However, forcing a buyer to abide by an agreed price prior to knowing what a bank is willing to fork over isn't going to work, either. Sellers are demanding (at least up here) qualified, pre-approved buyers; buyers should have the same rights - that the house can be financed for something close to the asking price.

[Zippyman]

Originally Posted by JoeC

Good point. However, forcing a buyer to abide by an agreed price prior to knowing what a bank is willing to fork over isn't going to work, either. Sellers are demanding (at least up here) qualified, pre-approved buyers; buyers should have the same rights - that the house can be financed for something close to the asking price.

They have the "right" to not put out an offer they can't back up with cash. It's always been a pet peeve of mine when a buyer tries to use a home inspection or an appraisal as a negotiating tool. It's fine if there is a genuinely hidden defect, but too often, the things "discovered" were in plain sight. The appraisers won't even talk to the seller & they routinely ignore any seller-supplied comparables, seemingly as a point of pride. Until you weed out the egomaniacs & the 10-minute wonders that claim geo-competency for a five-state area, sellers are going to push back.

[Captain Bill]

Originally Posted by JoeC

I disagree. What do you do when the appraisal is several thousand lower than the contract price, and the buyer doesn't have the cash to make up the difference?

The only way that works is to create a requirement that ALL homes have an appraisal on record (and available to any potential buyer) prior to being listed - or that the buyer has the right to send an appraiser in (at their cost) prior to signing.

As a buyer: If I saw that clause in a contract, I'd walk immediately - unless the house was listed "As-Is", with a correspondingly low price.

Requiring the sellers to provide an appraisal, especially because they are subjective and will go out of date quickly, would be an an unrealistic imposition on the free market process.

It would be best for the seller if the buyer does not enter into the contract, tying the sellers home up, if the buyer is not willing to pay the contracted price.

Remember, what we're discussing is a rising market with a short inventory where appraisals are not keeping up with the market.

Obviously the buyer is going to take a different perspective because they want to get the house at the lowest price.

Therefore, if my client is the buyer, and I see the clause I mentioned, I would be certain to check the most appropriate comps so I know where the appraisal should come in. Then with the buyer I would devise an offer strategy.

Any listing or offer strategy must be well thought out, after determining the current market value, and worked out with the client. The Realtor needs to know the market well enough, and be able to devise strategies that have a chance of success in that market. Then working as a team with the realtor providing advice, the client makes the final decision. The goal is to select the best strategy to help the client succeed.

With short inventory and increasing prices, walking may not be the best strategy for my buyer.

[Captain Bill]

Originally Posted by JoeC

A short aside:

It seems that the media, occasionally, gets it right...

Big profits for home-flippers signal Phoenix-area rebound

However, they call the difference in purchase price and sale price gross profit, which is not correct.

They need to add the buying costs, the rehab costs, the carrying costs, and selling costs, to the equation in order to determine the gross profit.

[Captain Bill]

Originally Posted by ReadyFreddy

That "abundance of homes" comment was probably leftover boilerplate language.

It probably was, and was a gross error. I don't think
boiler plate is appropriate in a fluid market.