Underwater houses are heading further down, thanks, surprisingly enough, to a major contributor to the recovery of the housing market: the short sale. The problem for many people trying to get a good value on their home – either for refinancing or for sales purposes – is that for every 30 days that a home is on the market, the housing market can change. These days, those changes usually will include the short sale of at least one home within the local area.
If a comparable area contains a short sale home, an appraiser must include at least one short sale in the appraisal. This can cause the values of everything in the area to plummet abruptly if a homeowner negotiated a “good” deal on the short sale of their home.
Interestingly, according to what Steve Madonna of Weichert Financial told The Philadelphia Inquirer, lenders, buyers, agents and sellers are all accepting this new, sizeable sinker on home values with some resourceful alternatives, like giving buyers credits to help close the gap between the listing price and the appraised values, or just lowering the sales price until it meets the appraised value and then moving smoothly forward to closing[1].
However, what no one seems to be doing is contesting the numbers. “Most agents are aware that the banks are making the rules,” Madonna said. “There really is no appeal process to the appraiser for a lower value.”
However, you can get another appraisal if a non-requisite type of property has been included. For example, one homeowner trying to refinance discovered that a sheriff’s sale had been used in the appraisal. He contacted other appraisers, who “both came in ‘almost a third higher than the first,’” he said.
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[1] http://www.philly.com/inquirer/real_estate/20100516_On_the_House__Deciding_home_value_now_tricky.html#axzz0o8sBtkXB
Although short sales can or are pulling down neighborhood valuations it may not be appropriate to point to them as the cause of declining values. It is fairly well recognized that the possible alternative of the home ending up in foreclosure and ultimately REO status does two things: 1) typically results in a lower net to the bank after factoring in foreclosure, maintenance, and listing fees; and 2) can even further pull down values if the property sits on the market for an extended period while collecting dust. The reality is that the bubble has burst from speculation, over-building, and unrealistic appreciation in prior years. With values underwater as a result, a short sale is the only realistic option for many homeowners; and with typically less severe valuation impact on the neighborhood versus an REO.
As the troubles with the housing market are well documented with over 3 years of case study; the speculation point of view, the evil wall street syndrome, unscrupulous lenders, naive borrowers, etc, We can all take stabbing points if we choose to stay “within the lines, the lines are our friends” and remain there as good boys and girls.
I can say that as growing up with 2 younger brothers, our ability to maintain the status quo was severely strained many times over.
Another variable was added when we added the family dog.
Our favorite ploy was to deliver the infamous “stinker” to movie night. Easy way to locate the villain was to notice who complained first and complained and finger pointed the most.
Not saying that this method is written in stone, however, it does seem that our fair minded friends in congress as well as the executive branch has the above points in common. Unless the dog shows up and proves everyone innocent I’ll take my stand!
Another point of view as for motive may exist. Farfetched as it may seem, under closer scrutiny, in hindsight would seem a plausible course of action to obtain the desired goal.
One may come to the conclusion that the objective existed by government to provide home ownership to their constituents that could not afford houses. “Why else would such lending practices make their way down the chain of command?
The powers that be, not the most forward thinking representatives that we have sent to DC, requiring instant gratification, allowed loans to be made with the simplest of documentation. “Fanny & Freddie dreamt up the ARM, Interest Only, Pick a pay, and lowered documentation requirements to a “Cross My Heart, Hope to vote for you” promise that had as its goal home ownership for votes.
OK, I may be stretching it a bit (a disclaimer for the liberal amonst us).
Anyway, since that scheme didn’t play out as planned, or maybe it did, that being to raise the amount to be loaned to people in order to get them a house, the next step would be to lower the cost of a house in order to get them a house. Hence,
REOs and Short sales. Does the trick?
Nah, that would be permitting our political elite more credit for intelligence than would be prudent. Can our congressional chess players really thing that many moves ahead?
The only way that the housing market will become stable is to get the distressed properties occupied by homeowners that can afford to keep them. ( and get people back to work) I think that is very sad that you can drive through any neighborhood in my town and see plenty of the houses that are either foreclosed upon or unoccupied. If you short sale those houses at least somebody is living in them and keeping it up. The market will come up again and the values will rise until then we are in reset mode.
Supply and demand of the market place will determine the true value of homes . . . this usually tied to median income level for each area. In many areas, the inflated prices of the real estate bubble have still not reach the bottom and stabilized.