Supply And Demand Impacting The Short Sale Business
Yesterday we chatted about existing market statistics and how we think that the market will continue going down. So, we would like to talk about what happens when there is a steep growth in active inventory and a steep decrease in sold houses.
Having been in the short sale business for three years, we have seen slight rises with tax credit extensions and other programs. What we have seen is when inventory goes up and sales go down, lenders do not respond to that data instantly. In general, they pull in their numbers for BPO’s and appraisals from as much as six months ago. The problem with this system is that the BPO is deeply weighted on sold costs. So when you draw sales from contracts that were authored in January, February and March, the tax credits impacted the marketplace. Those comps aren’t taking into account that sales are going down and number of active listings are going up. When you see this happen, you will have to start pricing your properties more aggresively. The market is sinking all over again but the bank is especially slow to respond to that information. They do not want to be the first to take action on the lower price. You can expect that they will counteroffer with other prices of houses sold months ago when the market was different.
For example, we had a listing with an offer price of $245,000. We felt it was a solid offer because the market was going down. We received a counteroffer with the BPO figure at $265,000. We were given a day to recreate the bid or the folder would be closed.
Kevin disagreed and had to demonstrate to the negotiator that the BPO price was sour. He found a comp that was the duplicate floor plan listed at $235,000. This was sent to the negotiator and along with a note that explained the state of affairs. The alternative to the bank counter offer was to foreclose on the property and relist it in 90 days at a lesser price than the proposal.
Be aware that there will be BPO disputes in your future. With listings increasing and sold properties decreasing, you will have added disputes on your hands to rise above.
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