Let's Appraise The Real Estate Market

Just within the past two weeks I have had some mortgage lenders from different parts of the country tell me that they are not able to close loans or refinances because of low appraisals, even after miles of paperwork had been executed. Yet, none of them could explain it in detail.

Certainly, I’m not here to attack real estate appraisers. They have a job to do, and I don’t know the first thing about how to do the hard work they do. However, it looks like they (appraisers) are just as caught up in this mess of a real estate market as the realty agents, hopeful sellers, and frustrated buyers.

My displeasure with how the realty associations and many agents continue to toss out negative statistics by comparing home sales figures is well documented over the past two years. Many of the banks contributed to the fallout on the mortgage side. And so it goes.

Sure, the appraisers have to go buy comps and other local market information. But wait a minute. A home sold via foreclosure is, or maybe I make that “should be”, considered a special circumstance and not a determining factor.

Suppose there is a development of 10 homes which sold more than two years ago for an average of $300,000. Then suppose two of those homes went into foreclosure and sold for an average of $200,000 within the past six months. I would prefer to think that since the only two homes in that development which sold were due to foreclosure, that it would NOT mean that the other eight homes are no longer valued at $300,000. Yet, that’s what’s happening.

Yet, it’s not only the appraisers taking this path, although it appears that this is what is causing purchases and refinances to be blocked. The realty agents and associations are going along with this trend. And many potential buyers and sellers, along with mortgage lenders and those related to a transaction, are being, well, screwed, because of it.

Here is my solution. Stop the madness. Why can’t the National Assn. of Realtors create a separate category for “Non-foreclosed homes”?

Using the ten home development as an example, comps would show that the eight “Non-foreclosed homes” are valued at an average of $300,000. The fact that two homes sold for a lot less due to special circumstances should not impact the value of the others.

Even if the “special circumstance” properties were factored in for “weighted” statistics, the impact would not be as draining for all concerned. If the $300,000 homes development was only reduced to a value of $280,000 due to “special circumstances”, it would most likely open up for more loans than appraisers coming in closer to $200,000 (based on current comps) and the realty professionals going along with that.

Let me put this another way. Suppose another national electronics retailer is about to go under and has a “Going Out of Business” sale including laptops. Let’s say they have an inventory of 5,000 laptops which retail for $800 each. And, due to court order, they sell them all for $450 as a final sale.

Would that mean that every comparable laptop for sale via other retailers still in business would now be priced at $450 permanently? After all, 5,000 people bought that brand and model for $450!!

A foreclosure is a court order. The property owner(s) could not or did not pay their money, and lost the property, and it was sold in this manner.

How are these situations different?

Instead of coming up with more negative statistics to show why people aren’t buying and selling homes in most cities, it would be nice to have the people who shape the industry working on some serious and immediate solutions to this crisis. Before it's too late and thousands more hard working people lose their homes, too.

Statistics Don't Sell Homes

Why are real estate agents giving potential home buyers so many reasons NOT to buy? The practice of bombarding the public with negative statistics about the real estate market instead of only focusing on positive ones is a bigger part of the problem than most people think.

Sure, not as big as the banks have caused by way of the mortgage crisis, but still up there on the list of reasons.

Suppose you are looking for a property, or looking to sell one right now. Let me ask you this. If you are looking to buy, is it because of a statisical comparison with past years?

(I didn't think so!)

If you are trying to sell, is it because of statistics from previous years?

(I didn't think so!)

As I review news stories and releases from around the country most every day, I am still amazed at the number of stories out there like this one from Tulsa:


http://www.tulsaworld.com/business/article.aspx?subjectid=32&articleid=20110813_32_E1_Metroa254755&rss_lnk=5


If this story focused on the fact that 913 homes sold during July in the Tulsa area and that more than 5,400 have sold there during 2011 (through July), I'd be impressed. Tulsa is not an area that has been in the business news, positively or negatively, lately. But homes are selling there.

Those are statistics the realty association should be putting out there. Maybe compare it with other cities with a similar population and demographic, and put the names of those cities in the "story" which haven't sold at that pace so far this year.

But, no. Still another realty association that finds the need to compare these sales statistics with recent years. And proceed to tell potential buyers how the market is suffering. They keep bringing up last year's tax credit as a reason for more sales during early 2010. Well, there is no more tax credit. Just how does this "help" the market today?

Obviously, it doesn't. At least it's obvious to me and to thousands of others who are trying to sell their property and move on. Again, I'll bet the reason for trying to sell now is not because of home sales statistics from 1 to 5 years ago.

Give us statistics which encourage sales and which will entice more potential buyers and help those looking to sell. How many "sellers" were able to enter a "rent to buy" agreement for their homes?

If more families could rent a home and have most of their monthly rent go toward a future purchase, it would allow more opportunities for sellers. It would allow more opportunities for individuals and families who can afford the rent, want the home owner responsibility, and can't get approved for a mortgage to do so. It would help to take some of the lowest priced homes off the market.

There are some very motivated and some very desperate sellers out there in most markets. But as long as the realty associations and news organizatons continue to bombard us all with apples and oranges negative statistics, we'll all be stuck in this rut.

What happened last year or five years ago does not impact a buyer or seller decision this week. At least it shouldn't. But knowing the number of homes in your area which have sold within the past 60 days could.

If you didn't refinance yet.............

If you did not yet refinance, and conditions have been such that you would have benefitted in some way, you need to keep some changes in mind if and as you revisit the possibility in the weeks to come.

Fannie and Freddie have added what they call "loan level price adjustments" which take effect on April 1st - no fooling. It looks like the only way to avoid these extra fees is to have a FICO score of at least 740, and that isn't easy in today's economic client.

Yet, it could depend on which lender you would use. It is believed that some lenders (and we don't know how many or how few) already have incorporated these "extra" fees into their costs during the first quarter. While doing so likely cost some borrowers more than it should have, this does mean it is possible that a quote of costs you may have recently received could include these figures.

Thus, if you are planning on contacting one or more lenders about doing a re-fi in the near future, please clarify about the impact on these additional fees. If it could cost you a few hundred dollars more than you anticipated to get a re-fi done, factor it out against your total and actual monthly savings.

I have also heard about some lenders increasing their underwriting and processing fees by as much as $300 to $400. On one hand, I can understand this because many lenders have to work harder to put loans through because of the new credit concerns and restrictions. But on the other hand, the lenders need these loans in order to survive and a reduced profit is a lot better than none at all.

My point is that if the new costs and additional fees were to, for example, result in an additional $1,200 cost, you could look at it that it is really costing you an "additional" $100 per month over the first year. If you are refinancing to save, say, $150 per month, your savings would really be equal to $50 per month for your first year. Is it really worth it?

On the other hand, I have heard too many "I'm going to wait and see what happens" stories from both consumers and lenders over the past few weeks. My fear is that too many people will wait an additional 6 months or so to refinance to THEN start saving a couple hundred dollars per month. But in waiting, they paid the "extra" $200 per month (total $1,200 using this example). Add another $1,200 for the additional fees just described, and a borrower could, in effect, have paid $2,400 more because they waited. Probably not enough to offset the lower rate they waited for.

By all means, check with different lenders and examine everything you are being quoted.

If you are lender, be sure you explain the new fees and their impact on potential borrowers so that you don't leave them disappointed. If you are a realty agent, you might wish to help your client consider the merits of refinancing vs. a downsize or lateral move for greater monthly savings in this economy. Doing that could produce either an immediate or long term sale for you.

a cup of coffee and a new business venture........

Let's start out 2009 on some positive notes, in addition to mortgage rates dropping at least once for the 9th consecutive week.

This article, buried in a community newspaper near Milwaukee, is actually inspiring:

http://www.menomoneefallsnow.com/story/index.aspx?id=827860

After I read this, I got a vision of this group making a go of this coffee shop and how 10 years from now they would own and operate a series of these in the region.

This sort of story is how partnerships often start. And in today's market, I'm disappointed this story, and others like it, are not getting any play. If I were a realty agent or lender in that area, I'd be all over this group offering to help them with planning.

And for those in other areas, I'd be looking for a few people with money toward a common cause.

Even if not enough money to purchase, the recent availability of rehab loans in most states (such as the program linked on the right of this blog page) could be a viable alternative to get a group started. It could make the difference if a small group can't afford to buy the real estate which houses the business.

Such a positive story, yet such little play. This should be on the front page instead of the current week's "the real estate market is tanking...." statistics. Something to think about over your next cup of coffee.........