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. 

Misleading Values in SW Florida Real Estate

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.

Lehigh Acres is leading the county by far with approximately 3 out of every 4 sales being in distress.  This number has risen from 71.31% back in April.  Lee County numbers have risen about 10% in the last 4 months, which is an interesting sign.  Is this troubling? 

Foreclosure sales are going down, as are short sales, but regular sales are falling even faster, which leads to a higher distressed sale percentage.  To that extent, this is troubling. 

Some would argue that more short sales going through is a good thing, and it would be if this were true, but short sales have been going down in recent months.  Banks have not been easier to work with on short sales overall, while in some select instances they have been. 

Foreclosure sales have fallen as a backlog has been slow to enter the market.  We’ve been told there are still many homes in backlog, while some dispute that fact. We’re also noticing new foreclosure proceedings starting on failed short sales and people who’ve managed to hold off this long but no longer can due to employment and the economy. 

Heading into the fall elections, it’s safe to say things are not better with the economy, and the housing market is not finished cleansing itself.  The good news is we have a market, and the market is absorbing new bank foreclosure listings, but nothing is being done to help the economy and prevent them in the first place. 

Mortgage modifications have largely been a failure, and government efforts have been a joke.  Back loading a mortgage modification with extra principal and interest to the back end of the loan doesn’t help the homeowner when given a 6 month reprieve on payments.  At the end of 6 months, they still cannot afford the loan, and now the payment is higher than it was before when they couldn’t afford it. 

If a bank is willing to short sale to a new buyer, maybe they should consider a principal reduction to an existing owner who is in Real trouble.  I know banks are afraid to do this as every homeowner would ask for the same thing regardless of need, and this is a valid concern.  It is, however, probably one of the few tactics that would work.  

The other is to provide meaningful employment, and it’s clear that the stimulus plan hasn’t worked.  The government has failed at both ends of the spectrum.  All mortgage solutions have been voluntary on the banks part, and the banks haven’t always behaved nicely when dealing with distressed sales.  It’s time for a plan with teeth to compel the banks to cooperate, and a plan to get the economy moving again. 

Housing plays a big part in the economy; approximately 32% of GDP, so it makes sense to kick start the economy on Main Street.  Wall Street will respond once Main Street is stabilized.  November is only 3 months away, and I have a feeling the voters are going to vote with their pocket books this year, or perhaps with their pink slip.

This is the question most often asked, by both buyers and sellers.  The truth is nobody knows for sure, but the market usually leaves clues.  Sometimes the market leaves strong clues a kindergartner can figure out, and sometimes they’re more obscure only a tea leaf reader might understand. 

So what clues is the market leaving right now?  Median single family home sale prices are up about 10% over last year in June.  July numbers haven’t been released yet.  Prices are down .31% over last month, so we’ll call that about even.  Home sales are down 12% over last year, but home sales are up 2.81% over last month. 

SW Florida Median Sale Prices 2009-2010

As you can see by the attached chart, last year home prices rose steadily in 2^nd half of the year, perhaps due to the home buyer tax credit, low interest rates, and bargain buys in the SW Florida market. 

Prices continued to rise this year right up until the home buyer tax credit ran out.  Is this coincidence?  We don’t know.  Some speculate it is due to the expiration of the tax credit, others speculate it could be effects from the oil spill, while still others wonder if it’s not the economy and the job situation.  Perhaps it’s all three, or perhaps its simple supply and demand at equilibrium in this new economy. 

Banks have slowed down bringing bargain homes to the market, and we’ve long wondered what will happen to our market when the bargains are gone.  Because we don’t have sustained employment opportunities, it seems almost impossible for prices to shoot up drastically once the distressed sales are gone. 

The distressed sales are not gone; it’s just that foreclosure listings have slowed recently.  We’re hearing that FNMA has more properties coming to the market soon, and we have seen a slight jump in pre-listed foreclosures we’re working right now.  We’ve also seen a slight increase in short sale transactions, although not enough to make a dent. 

HAFA, the government program designed to make short sales easier to sail through with the banks has been a huge flop.  It’s almost to the point the government should stop trying, because they’re making things worse.  Last year the government intervened and tried to instill loan modifications and workouts, but it was a flawed theory and failed miserably.  Because of this, we said 2010 was the year of the transaction either a short sale or a foreclosure.  Short sales have not worked like intended.  It was a voluntary program and had no teeth or real chance.  It was just an arbitrary deadline designed to make the politicians look good, but now they just look bad. 

Right or wrong, this all leads up to more eventual foreclosures.  We believe more are coming, and they take time to work through the process.  The Lee County Clerk’s office has been working down the backlog of files lis pendens, and this is a good sign.  Unfortunately, there are more to come.  The stimulus has not worked, nor has the governments plan to revive housing.  It’s time for a new plan, a plan that can actually work.

 We invite local, state, and federal officials to sit down with those on the street and think about the big picture.  Theory should align with reality, and implementation should be realistic, and have teeth.  Otherwise politicians are kicking the can down the road, prolonging the housing crisis, and adversely affecting the economy.  Housing is 32% of GDP, so it makes sense to work on a comprehensive solution that helps both, not one that sounds good for votes but does nothing. 

Where is our market headed?  We’ve identified some clues, and maybe there are others.  You can read the tea leaves and decide for yourself which elements will win out.  We can say we have record low rates, below replacement cost prices, and affordability is at an all-time high.  So if a buyer has a job, has good credit, and wants to buy, now is a good time.  I just want to get more people good jobs so more people can take advantage of this market.

Watch this week’s The Future of SW Florida Real Estate Video Show August 13, 2010

It’s been a little while since we released the official SW Florida Real Estate Current Market Index.  This index accurately predicts the near term forward direction of the local real estate market by analyzing current market activity against inventory levels and assigning a value.  A lower index level indicates a hotter the market, and a higher number indicates a cooling market. 

Ellis Team SW Florida Current Market Index

As you can see, the forward indicator heated up in February and we witnessed strong sales since that time.  We have noticed a slight cooling trend since May.  As we write this article official numbers haven’t been released yet, but we have spoken with several agents and loan officers who have also indicated a cooling trend since May. 

At 4.94 the index still boasts very strong numbers; however the trend has been rising lately so we’ll want to keep an eye on it.  One reason the market has cooled a bit is because bargain based foreclosure property inventory levels have fallen off which has cooled buying demand.  SW Florida has been a price sensitive market and buyers are off the fence and buying because they perceive real bargains.  The looming question has always been what will buyers do when the real bargains begin to dry up? 

We have heard reports that banks will be unloading more foreclosures to the market soon, and already we are seeing that.  Banks are not filing new foreclosures at the pace they once were, so we wondered how this could be true.  The answer may be that the banks have not released the entire inventory they foreclosed upon in the past few years. 

To give an example, we just pre-listed a bank foreclosure we’ll be bringing to the market soon.  From the time an agent receives a pre-listing it can take 1-6 weeks or so before property is ready to bring to market.  Several reports, valuations, and decisions must be made, and in some instances repairs, water hookups, etc before the property is ready for market. 

This particular property had suffered some fire damage.  The bank of course wanted a fire report from the fire department once they learned this new fact.  Keep in mind, the banks don’t know what they’ve got on their hands until the appraisal and agent reports inform them.  We obtained the fire report and determined the fire occurred back in 2007.  It’s obvious the borrower has not lived in the property since 2007, and presumably hasn’t made a payment on a damaged property they weren’t living in. 

So the question is, if the buyer wasn’t making payments, why did it take from 2007 until now for the bank to foreclose and/or bring the property to market.  The bank is just now discovering there was a fire over 3 yrs ago in the property.  

The answer is either the banks have held back inventory, or have just been too busy working their backlog.  So just because foreclosure filings have been down in the past year doesn’t mean there couldn’t be more ready to hit the market.

In addition to the banks we’re dealing with, we’ve also been working on FNMA listings.  We’ve been told by various sources to get ready for an influx of FNMA properties as well, and already we’ve been assigned several pre-listings. 

Banks have been more diligent on short sales, but they’re still not quick enough.  Short sale closings have been rising, but they’re still a drop in the bucket compared to the struggling homeowners out there. 

With short sale closings rising, and the possibility of more bargains hitting the market, we could see the index drop again, but for now it is rising and we’ll want to monitor.  Nationwide sales have slowed, so it’s not just a SW Florida trend.  We’ll be watching sales volume and pricing trends closely in the coming weeks and update you.

Tune in to The Future of Real Estate Video Show.

Here’s an update to our SW Florida Real Estate Video Channel.  The Top Agent channel has received 1,661 channel views and the videos have received 29,940 views.  We have videos posted other places, so this is just the videos contained inside this channel.

Here is an Index of some of our recent videos:

Realtors Clean up Neighborhoods WINK News 5-17-10 5PM

Cap and Trade E-Mail Hoax Fox 4 News 5-3-10 10 PM

Brett Ellis on NBC Nightly News with Brian Williams  January 11, 2009

Brett Ellis on NBC Today Show  October 1, 2008

Innovative Sales Techniques  August 25, 2008

Pricing Your Home to Sell – Future of Real Estate

Featured Hot Listings – Future of Real Estate SW Florida  June 4, 2010

Hot Listings-Future of Real Estate SW Florida  May 23, 2010

Future of Real Estate Hot Properties for Sale  May 10, 2010

Home Prices on the Rise – Effects of the Oil Spill

The Future of Real Estate – Hot Properties of the Week  May 4, 2010

The Future of Real Estate – -Home prices going up in SW Florida May 4, 2010

Featured Properties of the Week-April 19, 2010

Short Sale vs. Foreclosure

Future of Real Estate-Government Shortens Short Sale Time

Future of real Estate-Flood Insurance Program Expired   April 1, 2010

FUTURE OF REAL ESTATE 3-19-10 Michigan, Florida a Market Comparison

The Future of Real Estate 03-13-10 Hot Properties

The Future of Real Estate Market Trends   March 15, 2010

Future of Real Estate March 04 10

Short Sales and Bank Foreclosures REO   March 6, 2010

Future of Real Estate 3-04-10 Hot Properties

State of the Market Report SW Florida Seg 1 Feb 2010

State of the Market Report SW Florida Seg 2 Feb 2010

Future of Real Estate State of the Market Report Fort Myers Beach, Lehigh Acres, Feb 2010

Future of Real Estate State of the Market Report Fort Myers, Estero, Bonita Springs Feb 2010

Future of Real Estate State of the Market Report Cape Coral Feb 2010

Future of Real Estate Show 2-9-10 Inside the Numbers

Future of Real Estate 2-9-10 Seg 2 Interest Rates-Featured Properties

Lee County Property Appraiser Ken Wilkinson Segment A  Feb 1, 2010

Lee County Property Appraiser Ken Wilkinson Segment B   Feb 1, 2010

Lee County Property Appraiser Ken Wilkinson Segment C   Feb 1, 2010

Sean Ellis Condo Association Law pt 1

Ellis Team Sean Ellis Condo Assn Law Pt 2

Ellis Team and Lee County Florida Home Down Payment Assistance program

Lee County Florida Selling Foreclosed Houses

2010 New Years Predictions

Chinese Drywall- Future of Real Estate Seg 1

Chinese Drywall Future of Real Estate Seg 2

Chinese Drywall – Future of Real Estate-Seg 3

Future of Real Estate Ellis Team -Social Media

Insiders Guide to a Successful Short Sale Part 1 12-5-09 Future of Real Estate TV-Radio Show

Insiders Guide to a Successful Short Sale Part 2 12-5-09 Future of Real Estate Show

WINK News 5 13 09 10PM-Local Housing Rebound?

WINK News 2 18 09 10PM – State of the Market Report

WINK News 2 18 09 11PM  Home Prices Where They Were a Decade Ago

State of the Market Report

Changing Mortgage Rules SW Florida 8-1-08

SW Florida Real Estate Housing Numbers  This was the Beginning of Increased Sales Which Led to Record Sales

Ok, we have many more videos but you get the picture.  Subscribe to our SW Florida Real Estate channel and browse away.

It’s been 8 weeks since we last reported on short sales, and we’re happy to report short sale activity is up as we’d hoped it would be.  Short sales make much more sense to all involved over a foreclosure as it helps preserve the sellers credit better, minimizes losses to the lender, and keeps the neighborhood in better condition. 

I recently heard a funny quote “Why do they call it a short sale if it takes so long?”  While I can’t remember who said it, it’s funny because it’s so sad.  Hopefully with new initiatives in place we’ll see quicker turn-around times for short sales.  As a CDPE (Certified Distressed Property Expert) we thought we’d share a few tips to help agents navigate this short sale process and make your deals quicker and smoother. 

Foreclosures Vs. Short Sales in SW Florida Real Estate

There is a clause in the Short Sale Addendum to Purchase and Sale Contract entitled #5; Multiple Offers which reads “Unless otherwise agreed by Buyer and Seller in writing, Seller may continue to market the Property for sale and accept other offers and submit those accepted offers to the lender.”  We are not attorneys and we are not giving legal advice.  This clause seems suspect though and we encourage listing and selling agents to amend or supersede this clause. 

A purchase and sale contract is between one buyer and one seller, and once accepted you can request the lender to take less than what is owed via a short sale.  In a normal transaction a seller wouldn’t enter into multiple contracts with multiple buyers, so why would you muddy the waters and try that on a short sale?  Selling the property to multiple people just seems unethical and one buyer may have legal remedies against a seller for employing such a tactic.  

Quite often we see sellers accepting any offer that comes down the road, but the lender certainly would not agree to the short sale because it is so far below market value. The lender wants to minimize their loss, and only agree to short sales if it makes sense.  Sellers would be far better off negotiating or waiting for a reasonable offer than to accept any old offer.  

When you submit multiple contracts to a lender they mistakenly think it must be a hot property and hold out for more, and many times each new offer starts the process all over again, further delaying approvals.  And keep in mind when you submit more than one contract, the seller may be legally liable to more than one buyer. 

You don’t submit offers to the lender, only accepted contracts.  A seller should really only enter into one accepted contract.  A lender cannot do anything without an accepted contract between buyer and seller as the lender is not a party to the transaction and can’t sell to anybody.  This could change if they foreclose, but until then they are just the lender. 

If you’re a buyer the last thing you want is the seller sending in other accepted contracts.  It would be far better to move on and go buy another home and not waste any time waiting or investing in inspections, etc.  As a seller, it should also be the last thing you want as well as it can hold-up or kill your sale.  From a practical standpoint we don’t even know why this clause is in the addendum, or why agents or sellers would employ this tactic. 

The other advice we would give is to have the sellers completely fill out a financial questionnaire upfront before taking the listing.  There is no sense wasting buyers and sellers time if the seller isn’t going to qualify for hardship with their lender.  You’ll need all this information with the accepted contract anyway, so it’s best to do it upfront and save everybody time.  Not only will this speed up your short sale, but it will also help you skip doing deals that should never be attempted in the first place.  Buyers are skittish enough on short sales anyway, so why attempt one if it has no shot at success?  We’ll bring you more tips on short sales in upcoming articles.  By educating the market on what works and what doesn’t, everybody wins.  Good luck buying and selling.  We’re all in this market together, for better or worse, and it pays to work together for success.

Last week we reported showings and phone calls were down for a few weeks after Easter according to several agents we spoke with, but that all changed about a day after writing the story.  Phone calls and offers picked up significantly last weekend, so it’s very hard to judge the market on a daily basis.                   

This week we decided to step back and analyze April 2010 vs March 2010.  Official numbers won’t be released until next week, however we believe we’ll see a year over year increase in home sales about 9-10%, and we believe prices will up again over last year as well. 

Single Family Home Sales in SW Florida March-April 2010

We’ve created a graph illustrating sales numbers for March-April of 2010.  Sales for single family homes increased ever so slightly over March.  We then wanted to know the mix of foreclosed homes and short sales.  Foreclosure sales actually fell 10.43%, while short sales rose 12.96%.  This coincides with our predictions back in March that we may see a rise in short sales as bank gear up to handle more short sales. 

Foreclosure filings have been down, so 6 to 12 months in the future it’s reasonable to assume there may be less foreclosure properties for sale, especially if banks continue to increase their short sale efforts. 

Our numbers are close to but not identical to official numbers that will be released next week for one reason.  We use data from multiple MLS’, but there is the potential for some listing overlap if a property is listed in more than one MLS.  Statistically that runs about 5% give or take.  We’d rather have a little overlap than miss a lot of listings and sales. 

Condo sales were up in April over March, and that would be expected as condo sales tend to build throughout the season and culminate in April.  Condo sales are increasingly difficult to finance with new regulations on approving not only the borrower, but also the association itself.  Many March closings were pushed back to April, and we suspect many April closings may get pushed back to May, so May could be a good month due to high sales and delayed closings, both in the condo and single family markets. 

Headlines next week should read home sales up somewhere around 10% +/- depending on what the official figures are, and home prices up as well.  Last year’s April median home price dipped to $85,500.  March 2010 median figures shot up to $95,100 up from $88,000, so even if prices hold steady from March we should be reading about price increases. 

Next weekend is Memorial Day weekend, so sales activity will drop-off as people plan their time off.  It will be interesting to note people’s perceptions of Florida and their willingness to book vacations here in advance due to the oil crisis in the Gulf.  Many visitors come back in the summer and buy.  Additionally, the Euro is now worth less, so it will be interesting to see if that affects foreign visitors this summer with less buying power.  Hopefully once we sort out the Gulf oil spill, our Chambers of Commerce will promote the area as a great place to visit.  We count on many of these visitors to buy property in Florida each year, so we do want them to visit and spend money in Florida and help our economy. 

In the meantime, let’s enjoy some positive publicity next week.  Our market is due for positive news, and it helps buyers to understand that prices are rising and inventory is shrinking little by little, and the time is now to step up if they want in on today’s bargains.

It’s a fact that 7 out of 10 distressed home sellers go into foreclosure without visible intervention to improve their situation.  We speculate that sellers do not realize there is help available, and that doing something about their situation is better than just walking away. 

Many sellers we talk to are embarrassed about their situation, while others are simply depressed and don’t wish to speak about it, hoping their financial situation will improve in time to change things.  The sad reality is once a homeowner falls behind; it’s very difficult to ever catch back up, even if their job situation improves. 

We’ve been reporting about the new government HAFA (Home Affordable Foreclosure Alternatives) program announced on April 5 designed to improve short sales.  We’ve also told you that 2010 will be the year of the Transaction, either a short sale or foreclosure as loan modifications have not worked. 

This past week we’ve met several large banks who have all committed to diligently approving short sales in a quick fashion.  Many agents and buyers have been reluctant to offer on Short Sales because the truth was they were really Long Sales.  This has changed and may now be a viable alternative for sellers and buyers alike.  If your loan is with Bank of America, Wachovia, or Wells Fargo, it may now be possible to streamline your short sale.  Other banks are following suit depending on who the end investor is on each loan. 

We’ve provided a chart for sellers to illustrate the financial advantages of considering a short sale VS.  foreclosure.  Some of the details may affect you well into the future.  You may wish to discuss this with your attorney as well, especially if you’re considering bankruptcy. 

Why a Short Sale May be better Financially Than a Foreclsoure

The good news is the short sale process has just improved dramatically, and while still very complicated, can provide relief for struggling homeowners and help them restore their credit so they can move on with their lives much sooner.  This economy will improve one day, and it will be nice when current distressed homeowners can look back and not be held down by circumstances of the past.  The short sale is one such tool to accomplish this.

This past week we sat in on a meeting with the founder of RE/MAX, Laurie Magiano with the US Department of Treasury, Matt Vernon who heads the Bank of America Foreclosure and short sale department, and the president of Equator, the online transaction management platform for 7 of the 10 largest banks for foreclosures and short sales. The topic was HAFA, the government’s new initiative which stands for Home Affordable Foreclosure Alternatives Program. 

SW Florida Foreclosure Versus Short Sale Graph

The government’s new plan is voluntary for lenders, and it does not include Fannie Mae and Freddie Mac owned or guaranteed mortgages as they are working on their own solutions to assisting and speeding up the process.  The government’s new plan allows for homeowners to receive $3,000 for moving expenses if the seller agrees to a short sale or deed in lieu of foreclosure.  A short sale or deed in lieu of foreclosure is better on the sellers credit than a full blown foreclosure and will allow the seller to purchase a home much sooner than a foreclosure. 

The plan also stipulates that the seller will not receive a deficiency judgment, so the seller won’t be bogged down with debt payments in the future resulting from the sale of the property.  This is big as it’s been a stumbling block for many sellers in accepting a short sale.  The seller’s housing expense ratio should exceed 31% or lender will believe seller can afford payment, and lenders will be particularly mindful of strategic defaults where seller has money saved but chooses to walk away anyway, especially on the higher loans. 

The new regulations, if the lenders agree, stipulates that the 2^nd mortgage holder will receive 6 cents on the dollar, which is far more than a foreclosure where they won’t receive anything, and much more than the 2-3 cents banks sell debt for on open market.  The 2^nd lien holders have held up many short sales, and now that the government has set guidelines, it should make it easier having a roadmap to negotiations. 

The new guidelines also call for lenders to make decisions within 10 business days as to the viability of doing a short sale, and banks such as Bank of America are committing resources so that agents will now receive communications within 2 days, so the days of asking questions and not hearing anything for weeks or months may be over.  Bank of America has put systems in place whereby an agent can contact a negotiator’s supervisor if the agent has not heard a response within 2 days, and the Treasury department has given us an e-mail address to escalate all inquiries no matter who the lender is so they can step in and help. 

Everyone in the room agreed that short sale transactions could one day outnumber foreclosures, and that would be a good thing as sellers credit is better preserved, and lenders generally lose less money on a short sale versus a bank foreclosure, and 2^nd lien holders get paid something.  The property tends to remain maintained and require less fix up than an abandoned or vandalized property, which further upholds values in the neighborhood. 

There is one other advantage few people think about to a quick process.  Many short sales are priced too low and will never sell, but they subliminally drive values down in the market as some view the unsalable short sales as the new market value when in fact they’re artificial and won’t be approved.  By speeding up the process, or issuing pre-approved pricing, this should help alleviate this phenomenon and improve the market almost immediately. 

Stay tuned as these are lofty ideals, and we’ll report back on how well they actually work.  Of course, this will depend on how many of the lenders and investors participate in the voluntary program.  See our Future of Real Estate Show discussing new HAFA program on short sales.

A few weeks ago we wrote about attending a recent bank foreclosure and short sale conference.  We told you that banks and the US Treasury department have learned that home retention and loan modifications are not working, and that 2010 will be a year of “The Transaction” either by short sale or foreclosure.  More banks are actually pursuing both simultaneously. 

We’ve been illustrating graphs showing the percent of distressed sale activity in Fort Myers, Cape Coral, and Lehigh Acres for months now, and this week we decided to update Short Sale activity.  While analyzing MLS data this week we noticed foreclosure sales have dropped in January and February to about 579 per month, down from approximately 700 or so the previous 5 months.  This can be attributed to a backlog of foreclosures in process and a moratorium in place early in 2009. 

Closed Short Sales in SW Florida

We also noticed a stabilization and recent up tick in short sales, reversing a decline in December 2009.  Will these trends continue?  Let’s start with the foreclosures.  We believe foreclosure sales will increase in 2010 as the backlog comes to the market. In fact, we’ve received a large volume of foreclosure listings we’re working to bring to market.  It typically takes time to secure the property, assess the condition, the value, workup a Broker Price Opinion, compare that against the bank’s new appraisal, and meet with the investor to develop a marketing strategy on each property.  All of this is done through the use of a bank asset manager, either an employee of the bank or 3^rd part asset manager.  Either way, asset managers specialize in disposing of REO (Real Estate Owned) bank foreclosures. 

Once the value and strategy is determined, the property goes from a pre-listing to an actual listing complete with instructions.  The agent then lists the property in MLS and solicits offers.  Many times the property elicits multiple offers, and the agent presents all offers that match the bank’s criteria.  For instance, we are not allowed to present any offers where we have not personally verified cash funds to close on all cash deals, nor are we allowed to present any subject to financing offers without pre-qualification from that bank’s in-house loan officers.  Banks do not want to take properties off the market simply because a buyer presents a pre-qualification letter from an unknown or out of town bank or mortgage broker.  Speaking from experience, banks and agents have had bad experience with pre-qualification letters.  They are easy to get, and are rarely worth the paper they’re written on, so it is quite natural the bank wants their own people to look at the qualifications of the buyer if they are getting a mortgage.  The borrower doesn’t have to use that bank, but the bank will not look at the offer unless they are offered their pre-qualification letter with the offer. 

So we know 2010 will offer more foreclosure properties that have been initiated in 2009.  What about short sales?  Banks are not offering loan modifications as much as they have proven that they do not work long term.  Politicians still promote the idea as it sounds politically correct, but it further exacerbates the problem.  We are seeing large banks making a push to go online.  Bank of America for example now negotiates their short sales online through a system called Equator.  We have been using Equator to handle Bank of America foreclosures for years.  We hear that banks such as Wells Fargo and perhaps others are in the process of adding their short sales to Equator.

This online venue will allow greater efficiency and allow more people to touch the file, reducing the time it takes to approve a short sale.  The short sale is still a complex transaction and homeowners should not attempt it alone.  In fact, your bank will refer you to use an agent who is familiar with the process.  Short sales are not for every agent and should only be tackled by agents who are committed to learning and operating in a very rigid and complex process.  Buyer agents regularly interview listing agents to make sure the listing agent knows what they’re doing, because if they don’t, the process will fail. 

Look for 2010 to see rising foreclosure sales throughout the year, and perhaps rising short sale numbers as well.  The banks are committing resources to it. We’ll keep reporting the numbers we track, so check back often.

Printed in the News Press, News Press Online, and Ellis Team Blog.