Hi Gang. We are working on our full real estate update for June that will include lots of graphs and info about what’s going on in the Phoenix area real estate market. In the mean time I just read something to do with short sales I thought interesting and wanted to share it with our readers today.
The first has to do with short sales. As you probably know, short sales can take months to make happen. The time delay has been a nuisance in the past but in our rising market we have a new twist; Lenders and investors are balking at the contracted sales price. We’ll use an example to explain what’s going on.
Let’s say John and Mary made an offer on a downtown Phoenix short sale in mid-April 2012. The agent who listed the home probably did his price analysis for the homeowner in late March or early April and let’s say he or she came up with a value of $150,000 and that was the offer price they accepted from John and Mary.
Now we fast forward to June when the short sale lender does their priced evaluation known as a BPO. Since home prices have been rising over the last 3 months at about 5% a month they come up with a price opinion of about $173,000. What do you think they do? They come back to the home seller and say wait a minute, this home is worth a lot more than the $150,000 your contract says. We want more money and someone has to come up with about 20,000 buckaroos.
Either the homeowner has to kick in some serious bucks or John and Mary does. What happens if the buyers are maxed out on their loan amount or the home seller doesn’t have the cash? Either the home goes to trustee sale or they put it back on the market at a higher price and hope to get a new buyer.
You might be wondering if this is really happening. According to our buddy Mike Orr at the Cromford Report it is indeed happening. In fact, he reports that over 400 shorts sales set to close at the end of June did not and are going back on the market. (This figure doesn’t include homes that ran out of time and are going to trustee sale.) Mike also reports that this phenomena caused the average price of a Phoenix short sale to rise from 73.26 $/sq.ft. to $74.63 $/sq.ft. in the last two days of June.
So what does this mean to home owners and home buyers in the Phoenix short sale market?
- If you are planning on selling your home by short sale make sure your agent knows to do some mid-range forecasting and set the sales price at a level the lender/investor will accepts a few months down the line.
- If you are a homebuyer trying to buy a short sale we recommend you leave a little wiggle room. In other words, make sure the price you offer isn’t at the max of loan amount. This way if the lender comes back at a higher price you may still be able to buy the home. NOTE: Your lender will do an appraisal to make sure the price is at market value.
FYI: We have a number of articles about home buying, home selling and short sales on UrbanConnectionRealty.com. Take a look when you have a question or toss us an email and we’ll provide you with personal answers one on one.
We hope this has been a little entertaining and educational for you. And since I am writing this article on July 3rd I hope you have a most wonderful Happy Birthday America Day.
The Urban Team at Realty Executives