By Karen Ziegler, Ziegler Realty
February 20, 2012 (San Diego’s East County)--As a real estate agent, I’ve seen firsthand frustrations with factors that are needlessly driving down housing prices. Below are some of those factors, along with potential solutions.
One leading frustration with the market today, is the condition of the REO (Real Estate Owned)/Bank Owned Homes. The buyer’s investor/bank won’t loan on a house needing certain repairs, yet the REO seller won’t allow work to be done on the property prior to close of escrow. These distressed homes are advertised needing cash or financing with 20 % down and those buyers are rare.
The solution involves allowing the needed repairs, often times only 1% of the purchase price, and billing escrow so that the seller doesn’t pay until funding. Many contractors will wait until closing for the funds. The repairs can be allowed and figured into the bank’s required Net. A listing agent needing repairs to qualify for strict government lending, FHA (Federal Housing Administration) and VA (Veterans Administration), could have the work done, and the bill put into escrow for the repairs, to be paid at close of escrow.
Another agent frustration involves submitting for an “Estimated HUD” (Housing Urban Development) Net sheet. This is where the bank approves a certain number that they will accept at close of escrow. The REO/Bank seller often times takes weeks to approve an offer. This leads to us losing that buyer during extensive wait times. When another buyer comes in a new “Estimated HUD” must be submitted for approval. We repeatedly lose buyers waiting for this updated approval.
A solution involves the bank giving the listing agent a NET and sticking with it. No new estimate needed as there is already an agreement of the Net. We advertise that we have an accepted Net but each new buyer requires a new Estimated HUD which delays the opening of escrow and subsequently the closing of escrow. These homes sit on the market and deteriorate further. The banks’ responses are increasingly slow as files are repeatedly transferred to new negotiators.
Banks are giving bulk listings to a few agents with big staffs. I often find it difficult to deal with these offices as the staff handles the offer submission collecting a stack of proposals and then submitting them to the selling bank blaming it on bank policy. It becomes a game of bidding war that most clients do not want to play. The offer is submitted but the client continues to look for other homes. Buyers who are looking to owner occupy a home get emotional especially when they think they’ve found the home of their dreams. I’ve encountered many agents with up to 100+ listings! The banks have told me they like dealing with one office instead of many. Realtors can’t handle that many listings but they carry a large staff in an attempt to handle the load. New computers are needed to handle the new software as banks require that your offer be submitted by these new delivery options which are mandatory. We’ve lost control out here.
FHA and VA eligibility is being withdrawn from condo complexes which cut out these low down payment options. These loan programs require that homeowners and homeowners associations (HOA’s) are solvent and also have high percentages of owner occupied units. Even if we find a complex that qualifies there is a good chance that the status will change before the escrow can get closed. With the foreclosures many of the HOA’s have delinquent fees and the new buyers are required to pay the balance when it a Short Sale. People who lose their homes don’t have places to go since rentals are requiring first & last month rent plus deposits and good credit scores. Bank owned properties don’t allow leases and qualifying restrictions are getting tougher.
A solution would be to allow a short term lease of three months where all money for rent, equal to an estimate of their new loan payment, is deposited through escrow and applied toward the down payment. Buyers are under contract to perform or vacate within 3 months. All funds through escrow would be non-refundable. This will keep prices reasonable, get families off the streets and get a vacant home occupied and cared for. This should also relieve some stress from many and give the buyers some increased self-esteem. If I had a vacant home next door I’d rather have a potential buyer living in it and taking care of it instead of worrying about squatters and critters moving in.
The “FHA 203K” loan sounds good but look deeper. This is a loan, that the buyer qualifies for, that allows some money to be set aside for rehabilitating the home after close of escrow. I have found it cumbersome and too complicated for most buyers. Required inspection fees and required planner fees eat up much of the rehabilitation money. This plan needs to be revised so that the novice buyer can either follow the plan or a better plan would be to allow the upgrades while in escrow which takes me back to my first paragraph regarding the condition of many of these homes.
The solution would be to have a new loan program allowing for a maximum of maybe 30K in upgrades, financed into the deal. This would allow the work to be done while in escrow. The contractor could be paid through escrow or up front from the buyer. After all, these loans are to bring the home up to code and safe for government lending standards. They aren’t used to put swimming pools in or add room additions.
Someone needs to open some employment opportunities and give us some loan programs to work with so that we can obtain occupants for these distressed houses. There are plenty of people who want and need homes. Rates are great but credit scores are low. Between buyers’ credit scores and the condition of the houses lending is becoming impossible hence driving the prices lower as the banks end up with the inventory.