Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Tuesday, April 28, 2009

Housing Market Games- Lessons Learned

I want to start a little series on house hunting in the current California market. There is something rotten in the state of Real-estate. I will use my story as an example.

The sad truth about today's housing market is that it is as corrupt as ever. As a prospective first time buyer I sense something is deeply amiss. Allow me a couple of anecdotes.

I live in one of the most expensive parts of California. And for years, middle class buyers were locked out of this market, in part by design. There was ample opportunity for affordable housing, but none of it came to pass because local developers and property owners were greedy. They want stock low to keep prices high. Not much has changed, just hat the greed has gone a little deeper.

Back in March I placed a bid on a bank owned property. The house had been listed in January for $345K. On March 21st, they dropped the list price to $279K. Four days later, I offered the asking price and was told that they had 4 offers on the property, one over the asking price. So I gave a last and best offer of $285K. I was "Outbid". However, was I? The reason I was given was that they other people had a bigger down payment. Therefore, the highest bidder is not necessarily the "winner"., nor is the guy who is most likely to close. Lesson 1 learned. The property is still on the market by the way, but in escrow. We will see what happens there.

The second lesson from this experience is that seller's agents, in an attempt to generate offers, are listing homes for a "bargain", but then generating little mini-auctions. Because of the pent-up demand, they can get slighly higher prices this way. Clever, good for the banks, but ethical? Oh, what am I thinking. . . if ethical were part of the equation, much of this crisis wouldn't have happened.

Recently, I became mildly interested in a second property. This one was listed as a short sale (meaning the bank is willing to take less than the asking price) for $299K. It needed quite a bit of work. So I offered $250K. My realtor talked to the seller's agent who couldn't offer much information about the property because "she had so many, she didn't know which one that was." But she did say no offers had been made on the property. We offered $250K the same day. However, suddenly, at the same time, a second offer came in. We were outbid. We were told that the other people offered more money. Humm . . . an obscure house suddenly generates so much interest? Coincidence? Part of me doubts it. I hear this story too often.

My realtor has had clients who made as many as 22 offers and were outbid every time. Somewhere, there is collusion to keep prices high. And perhaps things aren't as distressed and we think. I think people in the biz here are loath to let a house go for under $300K. I have friends who have been looking for a year and a half and not been able to land a home after making several offers. Yet we are hearing how banks want to unload all these homes at all costs, but the reality seems to be different.

And no one does a thing to clean these places up. I am not talking about spending money, but something as simple as picking up the trash in the yard would improve the street appeal. In one yard, I found a dead dog, unburied. My realtor tells me that banks have no idea that their agents aren't doing their jobs in this regard and I am surprised the neighbors aren't squawking. Having a crappy looking yard doesn't help them either. But then, many of them are probably so underwater that they could care less.

People are still flipping houses as well. One house went for sale at $273K. Then three months later, was resold for $293K with improvements made.

This is what needs to change. 1) Houses should be sold for the list price. This is how we purchase everything from cars to groceries. The price on the tag is what you pay. 2) The amount of all bids should be disclosed. In what other auction environment do you NOT know the highest bid?

There is no transparency in the housing market, and there is tons of abuse. My search continues, but I am finding that it as slippery as college admission. When you aren't accepted, you have no real idea why. From time to time, I will post an update.


The Law Talking Guy said...

Playing devil's advocate here. Shouldn't a homeowner be allowed to take whatever offer he or she wants? Won't economics drive the higher price or the surer-to-close offer normally?

Uswest said...

In a regular market, I would agree. However, the banks are the "homeowners" on many of these properties. This market is not regular.It is a market in distress due to abuses. You cannot expect to fix a distressed market if you don't find a way to regulate abusive practices.

The Law Talking Guy said...

USWest- It sounds like the concern is lowball listings. But what is the problem with that, unless the decision is being made on an improper basis (race/gender/religion etc.)? Are insiders being favored with specially low deals? You can see the final purchase price when itis reported on or zillow, btw.

I don't understand your comment about paying sticker price for cars, since nobody does that.

The statement that there is "collusion to keep prices high" is actually (to my ears) a specific concern about competition laws. With whom do you think are bank owners colluding?

Btw, taking an offer with a higher downpayment is usually about taking the offer that is most likely to close. When I bought my house from a bank (REO) two years ago, they were adamant about a 28 day closing period, and demanded an enormous amount of credit info about us before accepting the bid. They didn't want it to fall out of escrow for any reason - they'd rather have taken less money than risk waiting to sell the property (why? Probably some internal accounting reason).

Anonymous said...

From my experience during the S&L debacle, the Resolution Trust Company was formed to liquidate the failed banks' assets. At the time, Bush 41 was in office and 21 of the total 23 RTC offices were located in Texas. My friend, who was a commercial real estate broker, made an offer on an RTC property in Arlington, TX. It was a multi-million dollar property, even in a distressed market. My friend lost in the bid process...he lost to General Electric...and my friend's bid was higher than GE's. So I do understand some of US West's concerns about corruption in the system and frankly, Monterey is a hot bed of local government insiders and city council members, in bed with developers, so who knows what the hidden agendas are really. Unless you have a lot of cash on hand, I think you are a 2nd class citizen to banks now. They do not want to increase their exposure to another possible loan default without the borrower having a good amount of skin in the game. If the pundits are correct, we may be looking at our national unemployment figure growing larger over the next several months, so I think the banks are afraid of that too. But they sure as hell are not afraid of paying multiple millions to their staffers eh? I have to tell you, even when I call my bank for a routine call, a simple service call, they are very nasty and I was even hung up on today...good luck US West!

Raised By Republicans said...

I'm wondering how much of US West's experiences are unique to her region or to her particular economic circumstances within that region.

When I bought my house I did not experience anything like what she describes. And I don't recall any stories like that from my friends here in town, most of whom moved into town around the same time I did.

I haven't heard of the kind of 22 offer nightmare scenarios US West describes happening in her region.

My home buying experience was fairly easy. I made an offer, it was accepted, I hired someone to inspect the soundness of the house and subject to that inspection I moved on to sign the deal.

QUESTION: US West, isn't your region a popular location for second homes? Maybe that's part of what's causing this unusual market dynamic?

USWest said...

Actually, RBR, you are correct. It is also an area that is really big on contractors buying at low ball prices and then trying to flip. also, it is a place where banks make backroom deals. In most normal housing markets, like the one you are in (and I remind you that you bought 2 years ago), these problems are probably less common.

LTG, the low end of the market where I live is where the issue seems to be the worst. I agree that a seller has the right to pick his price and deal. However, I object to the lact of transparency for the buyer who seems to be at a huge disavantage.

Anonymous is right that I live in a very corrupted market. This is a market that is working very hard to keep the middle class out. Everyone is in bed with everyone else. I cannot say, but I suspect that areas similar to this one, perhaps in place like Florida or Airzona, experience similar things. I can't really answer your questions about discrimination because there is NO transparency in the market.

In my most recent case, I think the seller's agent called a client and said, "Hey someone put a bid on on this property. If you want it, better put a bid in too!". Now there is nothing illegal about that. But is it ethical? The seller's agent doesn't want to split commission with my agent. So basically, I have to hope a house comes up that is represented by an agent that my agent has a relationship with or that my agent gets a listing that might interest me so that she can pair up buyer and seller.

Then there is other types of problems that you see. Right next door to my boyfriend's is a set of condos. They have been approved for FHA loans. However, under FHA rules, a certain number of the units must be owner occupied. However, most of the units are now under property management companies, which means they aren't owner occupied. In addition, the unsold units are being advertised as FHA approved and a great "opportunity for investors and vaction homes" in the same advertisement! But no one reports this.And no one is properly disclosing to potential buyer that due to water credit issues, HOA fees may triple.

I was recently reading a New Yorker article about an agent in LA that is famous for unloading bank owned fast. He repos and then sells. There are over half a million agents in the state of California alone, most who have done nothing more than take a 5 day certification course.

Banks are playing hardball. In the state of California, you should have 17 days to clear contigencies. Banks ignore these rules and will reduce contigency periods to as short as 5 days. They are trying to unload properties with structural problems, termites, etc. and they don't want buyers to have proper time for inespections. Or they are trying to set you up where they can calim your good faith money when escrow fails.

Banks will break agreements as well, especially if there is a more attractive buyer. A colleague was in escrow on a place when pipe burst in a neighboring condo. They had to open the wall. The bank agreed to pay for the repair, then refused and tried to keep the downpayment when my colleague pulled out of the deal. She eventually got her money back after threatening small claims court. But the bank sold that same property within a week. Under law, once an offer has been accepted and the contingency period starts, even if the bank gets an offer for millions over your price, there is nothing they can do, but bully you into backing out on your own, which is what happened here.

My agent told me flat out that you won't in in court against a bank because they will always find a better attorney than you will and they can foot the cost when you can't. So there you go. We rely on courts to set things right rather than regulators and in effect, lock the citizen out.

Maybe I haven't quite hit the right remedy, but there does seem to be little protection for buyers in this market, which banks doing their best to sqeeze every last penny, fairly or unfairly.

Anonymous said...

The by product of deregulation and lobbyist...fascism.

USwest said...

A good article to read is

He points out that so long as we offer supports and prevent foreclosures, we don't allow the market to balance. Rents and mortgages have to fall in line with real salaries.