A few years ago we reported that listing agents were listing homes at ridiculously low prices to create buying interest simply because the home was being sold as a short sale. This is a bad practice for several reasons, and yet we’re seeing it continue today.
This past week I noticed two different homes, each located in a different subdivision, listed at far below actual values. This can cause many problems we’ll outline now.
The bank is not likely to accept a short sale on either of these homes. The bank will learn the actual value by ordering a BPO (Broker Price Opinion) or a bank appraisal. Once they determine the home is worth much more, typically they just kill the sale. Many owners and agents mistakenly believe that banks typically counter, but this isn’t normally true, especially when the offer is far below value. There also can be more than one lien holder involved, and both look into value, and either one can kill the sale.
If the banks were to accept such a deal, it creates a potential tax event or larger deficiency judgment against the seller. The bank could also ask for a promissory note against the seller, and that note would be significantly larger due to the under valued sale.
Even though the deal is not likely to be accepted, it also hurts the market in two other ways. Buyers mistakenly believe that artificial number is the new market, because they saw a home for sale for X amount of dollars, even though it has no chance of selling. Some buyers act quickly to tie it up, then wait months to find out the answer is No. All the while, some good bargains have come and passed and they’ve missed out. They may not have been the Steal they thought they were getting, but they were good bargains and suited their needs.
In addition to the misperception buyers have, banks must also make decisions on how to price foreclosure inventory. They do look at sold comparables, but they also look at what is on the market. If they’re not careful, they’ll notice a particularly low priced sale and price theirs too low, which has a domino effect on future foreclosure properties, and it snowballs from there.
The artificially low listing can influence future sales if people aren’t paying attention. The foreclosure process is far from perfect, and people from other states typically make decisions about local property, so there is no need to give them false ammunition for fear they may shoot themselves in the foot with it. When they do this, it hurts the entire market.
The market will go up and down as conditions dictate, but it need not move in a direction due to false hopes and misinformation. Sellers need to do a better job interviewing agents, and agents need to insure they know the local market, understand the short sale process, offer advice commensurate with what market conditions dictate. This can be challenging I know in a changing market, but we see False Listings everyday and it doesn’t help anyone.
The seller is let down when the bank rejects and it goes to foreclosure, the bank wastes time investigating a False Listing, and the buyer mistakenly believes they’ll end up the proud owner of a steal; all the while great bargains pass them by in the process. And the market is let down by false and misleading listings that really shouldn’t be on the market.
If you missed last week’s Future of Real Estate Show, you can tune in now. We interview Lee County Sheriff Mike Scott and ask him tough questions about Florida’s and Arizona’s immigration law and how that affect what he does. Additionally we ask him his views on controversial red light cameras, the upcoming tight budget process, school resource officers, the jail, traffic stops, and much more.