I recently came across, Waging War . . . Real Estate Deals Where No One Wins! by Carla Muss-Jacobs. Carla describes some of her more recent transactions as "war-like" and her buyers as having the propensity of "ripping the sellers' flesh off". It kind of reminded me of my own market but not exactly in the way that Carla sees her market.
I started in the mortgage industry in 2002, a time when sellers were getting double rates of appreciation every year for their homes. A time, not so different from today, when multiple offers were the norm not just on the really nice homes but even on the not so nice homes. A time when over-paying for a home wasn't an issue because a home was simply worth whatever someone was willing to pay for it
A time when my borrowers, low-medium income people who were often using down payment assistance (dpa) to purchase their first home, were considered less desirable buyers because they couldn't afford to pay astronomical prices for some dumpy, dinky condo like so many other buyers were doing.
Back then, my borrowers weren't in a position to get one of those liar no-doc, stated loans. You see, dpa programs as well as FHA (the bulk of my business for much of my early career days) loans are all full doc loans where my borrowers eligibility to purchase was actually based on justifying and supporting what they could actually afford to buy. Furthermore, these types of loan programs were all limited to a designated price range; price ranges that fast became insufficient for the market at that time.
So, time after time after time after time, my borrowers kept getting outbid by other buyers. For my borrowers, the bidding "wars" were fierce and my borrowers were continuously battered and beaten during these battles and often left for dead (ie. not even considered).
For those that somehow managed to win the battle of the negotiation, they often suffered later from the sellers "snipers" who would just suddenly "terminate" them (and their transaction) simply because of some chest of gold (a higher offer) to be had somewhere else.
Fast forward to today and my low-medium income borrowers are still battling it out here in Los Angeles & Ventura counties and are still being slaughtered in the field too. The difference now is that their opponents are very different creatures. Instead of going to battle against other buyers higher offers, now my borrowers are duking it out with all-cash investors and their lowball offers.
Today, the sellers "snipers" are even more brutal, cold-blooded and calculating than ever before and actually make the sellers "snipers" of earlier days seem almost humane. Some of my borrowers who couldn't buy years ago because they couldn't afford the higher home prices back then, have actually said to me that trying to buy a home now is even worse than it was years ago.
Years ago, my clients were losing out to other people like themselves who were just trying to buy their first home too and who were just outbidding my clients with higher offers. Nowadays, my clients are losing out to investors scooping up properties in bulk and "stealing" available properties with their lowball cash offers.
My borrowers get so discouraged because years ago they couldn't afford to play the bidding "war" games and now that they can afford to be the highest offer, it no longer matters if they have the highest offer because sellers "snipers" now want the quickest and easiest "kill".
So while I do feel sorry (really, I do) for sellers who are getting kicked while they're down by lowball offers on the homes that they're short selling for less than what they bought them for, I most certainly do not feel sorry for the banks sellers who are shooting their nose off to spite their face by accepting lowball cash offers on many of their REO properties.
While I understand that some of these properties have to be sold for cash because based on their condition, they wouldn't qualify for financing anyway, however, there are so many other properties that do qualify for financing that are not being sold for fair market value. When the bank sellers sell these properties to cash investors making lowball offers simply to get a quick sale, they are not only driving down the prices for that neighborhood but they may also be preventing some buyers from making that property a home.
Don't even get me started on what some of these cash investors are doing with these properties. While some may be totally rehabbing them and then turning around and selling them, there are quite a few others who are doing as little as possible and then turning around and renting them out at market value (which is rising every month around here). Quite frankly, some of todays cash investors are nothing more than tomorrows slumlords.
So when I read about how buyers are out for blood these days, I must admit, it all sounds somewhat foreign to me. While I do know that those types of buyers do exist, my own Realtor friends here in Los Angeles & Ventura counties tell me stories of these types of buyers. To some degree, stories like this make me appreciate and respect my own buyers so much more.
You see folks, there are some buyers out there that are NOT out for blood and wouldn't dream of "ripping the sellers' flesh off"; it's simply not in their nature. Believe it or not, there are actually buyers out there that just want to FINALLY buy their first home (after dreaming about it for years) and are actually ready, willing and able to pay a fair market price for it (that does not mean they are desperate enough to pay more than what it's been valued at).
Yes, these buyers do come with a little more baggage (dpa, low dp, minimum property requirements, etc...) but they're good people who just want to be considered and not instantly kicked to the curb like last weeks garbage.
Today's real estate market can be really scary, which is why it's important to get as much information as possible before starting your search. The home buying process is not a simple process and it's because it can get really complicated and convoluted, that buyers need to work with professionals who can help them through the home buying process.
For more info on affordable loan options that are best suited for your own needs contact me, Donne Knudsen at 805.2069123 or donne4loans@earthlink.net.
Photos courtesy of flickr: 3WN! williammeng tuan cstein96 giacomomacia
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
This is a great post and really put the issues of the day in focus. Thanks for writing...I suggested you.
Donne, Pretty brutal market you're dealing with. We're fortunate to have not hit either scenario locally.
You are spot on about the banks hurting their investors, neighborhoods and the consumers by selling at below market simply to get a house sold "fast and dirty". The banks have done more damage to families, communities and the economy with these tactics.
Donne, the scenarios you mention are reminiscent of the S&L collapse from years ago. The LA region was hit hard, and although I wasn't in the business at that time, I remember the articles about entire blocks being snapped up under investment portfolios, and the rental market was tipped on it's side. The lack of quality housing, and the frustration that buyers had then -- and it seems everything old is new again -- created some of the more lucrative loan programs to get people from renting and into housing purchases. There has got to be a happy balance, and I'm very troubled that the "brainacs" who control, monitor and manipulate are seemingly . . . at it again.
Donne, well said, I loved Bill & Liz's comment Yes it is a Brutal Market...so what are you doing? I am helping the economy by drinking heavy.....
Jeffrey - While I am sure there will be those who will say that this is not indicative of their market but I was just trying to provide a little different perspective from Carla's post where the buyers were the savages.
BLiz - Some days, I get so exhausted, discouraged and just annoyed with the brutality of my market here. Some days, I do dream of being in a much nicer and kinder and more civilized market. Probably a lot like Warren county OH. :)
Tish - It's just despicable what the banksters are getting away with these days. Don't even get me started, I'm just annoyed today. :)
Carla - While I wasn't an MLO back in the S&L days, I was a homeowener and I do remember the chaos and debacle it caused. I too hope that one day soon we do find a happy medium between the banks dumping selling off their inventory without destroying the dream of homeownership for those who want it and can still afford it.
Endre - LMAO!!! Let me guess, you're sitting somewhere right now having a beer after a day of driving around LA with some buyers. My fave saying these days: "It's 5:00 somewhere". LOL
Thx for stopping by folks; I really appreciate it. Have a great week too! :)
Donne, I had to follow up:))) Yes I drink with buyers and seller, yes it does not have to be 5:00pm local time:))) Just helping the economy:)))
Donne - I too LOVE Endre's comment, slurp slurp. And BLIZ you are lucky these are hard to bare, or bear, whichever. This market is strange right now. If it is priced right, there is a war. If it is sitting there, like some of my listings, it is based on condition/location etc....it has no war.
It always seems that the one that sits on the market that my buyer is interested in all of a sudden goes in multiples or in escrow.
Endre & Ken - Ok guys, I'm pouring a tall cold one and toasting you too! It's been a tough day for this hard working MLO and I'm vegging the rest of the night.
As you both already know, our market here in Los Angeles & Ventura counties is just flat out !#$%^&* nuts some days. It doesn't matter if we're working with buyers or sellers or the high end or the low end or if it's land, condos or mansions (at least for you two and your buyers), our market here is tough and not like a lot of other markets across the country.
I always tell my borrowers that buying a home around here is not for wussys and you have to want it really bad. Well, the same can be said for working in this market too. You really have to love your job (whether it be a Realtor/agent or an MLO) to work this market, either that or just a bit wacko. Guess which one I am right now?
Thx for stopping by guys; I really appreciate it. Have a great week to guys. :)
Donne: I've seen the ups, downs, and sideways of this business .. but I don't think I've ever seen such a cut-throat mentality as right now. Not to condone it, but from investors ... you almost expect the behavior to some degree. But the slasher mentality is coming from typical buyers and sellers right now. Just a viciousness to it that I've not seen before. I totally understand wanting that drink! I think buyers are mentally preparing themselves to do battle when entering the process right now .. even before they get into the process. It's what they hear. It's what they expect. It just makes the whole transaction edgier. Harder to get through. Hard to enjoy. So sad.
I keep saying ... you and I will pop the cork some day and have a long long talk. We'll invite Carla ...
Gene
I know this sounds awful but there are times when I just want to slap my clients silly and scream "GROW THE $&%! UP!" The "I've got mine, so F&$! YOU!" mentality is quite simply disgusting. I agree with Gene - the cut throat mentality is out of control and its not as though they aren't getting a good deal - they are getting the moon and the stars. Sellers are now getting some spine back and are finally say "NO!" I hope that this sinks in with some of the buyers because I'm sick of being forced to make totally outlandish demands of sellers. I've got a buyer who will be fired if they don't go through with the 4th transaction that is now on the table. They've been haggling for six weeks over a deal that is already gooey sweet and are still trying to carve out more for themselves.
THey are like two-year olds that feel that stamping their feet and acting like grown infants is going to somehow force sellers to do what they want. Its the unbelievable selfishness and gouging for ever last nickel that absolutely infuriates me.
I was once told that I do not suffer fools gladly....this economy is bringing that trait out. They were right - I don't.
Gene- I'm sure you've seen the Good, Bad & Ugly of this industry in your decades long career in this business. Your market there in Chicagoland sounds like the market here in Los Angeles & Ventura counties - cut-throat!
As I've said, I know that some of the buyers out there have that slasher mentality that you and Carla make reference to but that is most certainly not the mentality of most of my borrowers. Most of my borrowers know from the get gothat they already have some strikes against them (FHA buyers, dpa borrowers, low price range, etc...) so they do their best to bring their best & highest from the get go. Most of my buyers don't play those silly lowball games of trying to "steal" the property or "beat" the sellers down the lowest that they can get them to go. SERIOUSLY!!!
While there is the occasionally one (maybe two) who try and play those games when they first start out, they eventually learn very quickly that they don't have what it takes to get away with that kind of nonsense. After they lose a property (maybe two) that they really wanted because they screwed around with some ridiculous offer, they will almost always get more serious the next time out.
Anyway, most of my clients don't play lowball games or have that slasher mentality; they just want to buy a home and they're actually willing to pay fair market price for it too. Hopefully, things get better for them soon because I've already lost too many borrowers this year because they simply couldn't handle the search anymore (they turned out to be wussys) and have renewed their leases for another year.
Thx for stopping by Gene; I really appreciate it. Have a great week too. :)
It is a TOUGH market. Without a great deal of inventory it is a peculiar buyers market though. Price reductions are all around my market but there is still a great deal of competition. I respect the fact that my buyers don't want to pay too much -- but it doesn't mean I should spend a weekend driving around at today's gas prices with people who don't think the home prices are right. Call me when you think the price is right!
Ruthemarie - I feel for you for having to deal with buyers like the ones you described as well as the ones that Carla described in her post too. However, not all buyers are like that - really they're not. I speak from experience when I say that. I feel lucky that most of my buyers are NOT like that - really they're not.
While a few of them may start out with that "I want a deal" mentality, they learn very quickly that they can't afford to play silly games like that, usually after they lose a property (maybe two) that they really wanted. The rest of my borrowers already know that they aren't in a position to play lowball offer games and will typically come out with their best and highest right out the gate. That way if they do lose out to some other offer, they know that they did the best they could. What is discouraging for them is to find out that they lost out to some lowball cash offer.
Almost all of my clients are really good people who just want to buy a home and they're ready, willing and able to pay a fair market price for it. However, around here, that doesn't always mean they get to be the one that wins the bidding war. Around here, lowball cash offers will almost always win out over a higher financed offer. Unfortunately, the bank sellers taking these offers have no spine to speak of and they're just taking these offers because they're quickest and easiest offers to take.
Tni - Like Santa Barbara county, we also have some extremely fierce competition but the difference is that we do have a lot of inventory. However, so much of the inventory isn't eligible for financed buyers so thats where the competition is, among the remaining inventory that is eligible for financing.
I agree to about those buyers that are just simply unrealistic - dump em! The only ones who can get away with make ridiculous lowball offers are all cash investors. Financed buyers simply don't have what it takes to get away with ridiculous lowball offers.
Thx for stopping by Tni; I really appreciate it. Have a great week too!
Thank you for this post, Donna - a great reminder that we really do not need to have (or promote) a warlike mentality - but it is critical that we educate our clients on the practicalities of the current market. That said, Endre (#5) might have the right idea...cheers! :-)
Yeouch - what a terrible state of affiars - what happend to civility? All gone? Will it come back?
Donne. .one of your best posts so far. . and you are so right.
Its almost like a gladiator fight out there. .kill or be killed and we are the weapons of choice
Donne...good post and host...this subject is like a entree to the agents in the business. We eat this stuff up and trying to keep the current meals down is rough and even hard to swallow. This is a tough business because money tends to bring out the aggressor in us all....I promote responsbility, dilligence and moving with a purpose, but taking no prisoners and eating the wounded....NEVER
Karen - Right now, how much education and information we're providing our clients will often be the difference between a good or bad transaction. I often get chastised by the local Realtors/agent for overwhelming my borrowers with TMI. Professionally, it is my duty and responsibility to educate and inform my clients on what they can expect. When I educate and inform my clients, I am coming from a place of experience of 8.5yrs in this industry and what I am seeing in my market.
Orlando - Actually, my borrowers are the most civilized people I know. I don't have a problem working with most of my borrowers. Yes, occasionally there is that one or two that I have to spend a little extra time and energy training but for the most part, my clients "get it" and I don't have a lot of problems from them. It's all the other people in the transaction that drive me a little wacko some days.
Fernando - I'm glad you liked my post; that means a lot to me. It sounds like your market there in VA & MD is a lot like my market out here on the left coast. While I do understand that some buyers are just horrible to work with, I just wanted to blog about my buyers who are actually really nice to work and I guess just remind people that not all buyers are savages and cannibals. Some are actually really nice.
Richie - I'm guessing that Riverside county is all that different than Los Angeles & Ventura counties. While I understand that Realtor/agents sometimes get frustrated with the whole slasher mentality of some buyers, it still doesn't negate their duty and responsibility of being the voice of reason. If that doesn't work, then perhaps we need to start being more selective about who we choose to work with. I know that's saying a lot but personally, life is too short to work with people we can't stand being around.
Thx for stopping by folks; I really appreciate it. Have a good day everyone and a good week too. :)
Nowadays you have to have full body armor out there. It's a dog eat dog market out there and will be like that for some time.
Robert - Your market sounds like my here, which is why I feel so blessed to have the kind of borrowers that I have who aren't savages with a cut-throat mentality. Unfortunately, my borrowers are typically the ones getting slaughtered and as you have stated, I don't see that changing anytime soon either. Thx for stopping by Robert; I really appreciate it. Have a good day and a great week too. :)
Donne your comment to Tni:
"we also have some extremely fierce competition but the difference is that we do have a lot of inventory. However, so much of the inventory isn't eligible for financed buyers so thats where the competition is, among the remaining inventory that is eligible for financing."
EXACTLY!! But I am starting to notice that as more homes foreclose and the market is becoming even yet more flooded with inventory, especially in LA, these same investors are starting to show a lot more flexibility and cooperation in bringing the properties up to code.
FHA buyers are the ones that are closing. Everything else seems to be in the air nail biters up until recording. I am convincing the listing agents that my buyers are the surer shots!
Andi - Its good to here that some of the properties down in your end of the county are starting to look better. Unfortunately, up here in north county (San Fernando valley), things don't appear to be improving much. I wish I could say that the banks and their investors were cleaning up these properties. Perhaps they are but I'm just not seeing that in the properties that my clients are getting into escrow on. Sub-par property conditions still remain to be an issue with my escrows.
Thx for stopping by Andi; I really appreciate it. Have a good night too. :)