Lately many buyers are approaching all sellers with the idea that "sellers are desperate and will do anything to get their homes sold." Nothing could be further from the truth, so I want to set the record straight.
Buyers are actually very innocent and naive in their understanding our market. The information they have been fed is mostly propagated by the national media. The media have continued to preach a doomsday mentality in the housing market - i.e. nothing is selling and that the only way a seller can get a home sold is to give it away.
There are some markets where sellers are very desperate. Michigan is still very much that way. However, Florida is not quite as bad as it once was, and California is rebounding as well. Other markets, such as Henrico County, Virginia (the Richmond area) is actually doing very well. Overall, the midwest saw no change in their market. And the south and west markets are both up.
Here in the Nashville area, we actually have TWO real estate markets. There's the "distressed" market and the "normal" market.
Distressed sales include foreclosures and short sales. With foreclosures listings, banks have already typically discounted the price of the house, so an offer substantially below the list price would probably not "fly" very well. In fact, I have seen sale prices actually increase when the buyer placed the offer asking for closing costs to be paid. If the house does not sell within the first 30-45 days, then the foreclosing bank may lower the price. However, if a buyer intentionally waits for that to happen, he or she may "lose" the house to another buyer. It's a gamble that a buyer should not take if they absolutely love that house.
In a short sale situation, there are two strains of thought. First, a savvy and experienced short sale real estate agent will have already sent over all of the necessary paperwork to the seller's lender(s). The lender(s) will have already named the price they will accept for the house, and the agent will have added in closing costs for the selling side, any possible closing costs the buyer may ask for, the agent commissions, etc., to come up with the list price. Rarely, in our market, does this happen.
Second, and most frequently, a short sale becomes a guessing game. The seller has been unable to make his or her payments due to one or more of a variety of reasons, and the listing agent has determined a list price for a home based on area comps. No paperwork has been submitted, and sometimes the lenders have not been contacted. A good buyer's agent will know what questions to ask the listing agent so that the buyer can have appropriate expectations.
In the first situation, since the price has already been determined, the buyer should make an offer very close to the list price, and can expect a very quick response from the seller's lender(s). In the second, a long wait can and should be expected, and there will be no guarantee that the lender(s) will approve the contract that the seller and buyer have for the sale of this home.
When the listing agent has done all of the necessary homework for a possible short sale, the bank will order a BPO to determine the market value of the house. This is NOT a hard-line appraisal, and it is done by a local real estate agent. In each short sale situation, a bank is looking for a certain percentage of the market price. Percentages vary by type of loan the seller has on the property. There are several types of loans that mortgage banks hold: (1) FHA loan; (2) VA loan; (3) Conventional loan; (4) Multiple loans on the property. The multiple loans can be FHA or conventional. Each type of loan has a different percentage the bank is looking for.
In the normal market, sellers should have already priced the house to sell. A higher price indicates that the seller is unrealistic about the price or that the seller is really not motivated to sell. A realistic price reflects the current market and is an indication that the seller wants to sell the house.
However, when buying in the normal market, a buyer should expect to buy a house at a purchase price of about 95%-97% of the list price. It is unrealistic for a buyer to expect foreclosure or short sale prices in the normal market.
When working with your real estate agent, the best and first thing you should do is trust him or her to guide you through the process. The best agent will understand both the normal market and the distressed market. Your agent can provide advice for you in making your offer so that it can be a win-win situation.
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When selecting an agent, look no further than Jack Jernigan. He continues to use his 10-step plan with buyers, providing them only the best and most professional service. Jack knows the two current markets in Middle Tennessee. To contact Jack, give him a call at 615-373-3513 or email him at jack@jackjernigan.com.
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