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Is it possible that this buying frenzy could result in people paying more for a home that it's actual value? If so, isn't this a gamble that home values will increase in the near future?
Is it possible that this buying frenzy could result in people paying more for a home that it's actual value? If so, isn't this a gamble that home values will increase in the near future?
Most of the over price bidding I have seen is driven by two causes.
1. Absurd underpricing by the REO owners.
2. The valuation for inexpensive properties being higher as investments than as owner occupied.
On the first we bid on a nice large property in the NW five weeks ago Listed for $380K. Client bid $455K. After two weeks client lost to a $475K cash bid who then cancelled. Potential buyer said the lender was likely incompetent to take two weeks and he would not play. After another week a second $475K buyer got the place and opened escrow.
In my opinion the place easily comped at $500K. My client would likely have paid that for it. Maybe a little more. But how do you get your client to bid the comps when the list is that low?
In the range below 100K the prices are less than single owner occupied value. But the bid prices are well above single owner occupied and represent what an investor can get with a reasonable return. That value is really not possible on a FHA loan which rules out almost all owner occupants. The only exception is a HUD home where owner occupants have first dibs.
So homes are being offered for sale well below their "free market" value. And the price is beginning to rise above that list price. None of these are really going above the comps though.
Most of the over price bidding I have seen is driven by two causes.
1. Absurd underpricing by the REO owners.
2. The valuation for inexpensive properties being hire as investments than as owner occupied.
On the first we bid on a nice large property in the NW five weeks ago Listed for $380K. Client bid $455K. After two weeks client lost to a $475K cash bid who then cancelled. Potential buyer said the lender was likely incompetent to take two weeks and he would not play. After another week a second $475K buyer got the place and opened escrow.
In my opinion the place easily comped at $500K. My client would likely have paid that for it. Maybe a little more. But how do you get your client to bid the comps when the list is that low?
In the range below 100K the prices are less than single owner occupied value. But the bid prices are well above single owner occupied and represent what an investor can get with a reasonable return. That value is really not possible on a FHA loan which rules out almost all owner occupants. The only exception is a HUD home where owner occupants have first dibs.
So homes are being offered for sale well below their "free market" value. And the price is beginning to rise above that list price. None of these are really going above the comps though.
I was in 5 multiple bid situations, in June, and not one of them was a bank-owned home. All were at the same price point, low- mid $400's, substantially less than the average, in my area.
Two were new listings priced right. The rest had recently been adjusted and priced to sell and that they did. The difference between the original asking prices and the most current was, in all cases, substantial. There was nothing other than owner fantasy and agents willing to play along with that fantasy, to support the original prices.
Most contracts have a contingency (due to financing) that the property must appraise for greater than or equal to contract price, which would eliminate the possibility of bidding higher than appraised value (actual value is hard to say, since on this board it appears that there are tons of people who diagree with their appraisal results).
I guess if you were bidding to buy outright, without financing, though, you could pay whatever you wanted, including more than what it would appraise for.
I was in 5 multiple bid situations, in June, and not one of them was a bank-owned home. All were at the same price point, low- mid $400's, substantially less than the average, in my area.
Two were new listings priced right. The rest had recently been adjusted and priced to sell and that they did. The difference between the original asking prices and the most current was, in all cases, substantial. There was nothing other than owner fantasy and agents willing to play along with that fantasy, to support the original prices.
I will take a listing at a price I believe unwisely high. But I generally dicker for a reduction or two at set points in time. And I tell them it won't sell at that price....though every once in a while it happens...just to destroy ones belief in sane pricing.
There are houses where I will take a relatively high price and just sit there...that is because I know that house is not price sensitive. When it wins the beauty contest in that general range it will sell close to list. That is true for houses from about 400K upward in the areas I practice. Particularly true in Sun City Summerlin on the more expensive houses.
Note that houses below 100K routinely sell for cash well above any practical appraisal. It is, IMO, the appraisal that is wrong. The list is generally a bit below the appraisal.
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