Zombies in Finance and Real Estate
Many people talk about how difficult and tedious short sales are. It’s true, they take a lot of work and there is a high rate of failure or buyer walk outs. There are a few banks that are negotiating short sales, though.
Out of curiosity I checked into our local market to see what sort of properties were closing sale and what amount of them were short sales. The search was a simple search for all home sales, regardless of structure type, in southwest Florida which had closed sale in the last thirty days. The closed short sales equated to about 22% of the total of the closed sales properties.
That figure almost sounded encouraging until I went one step further. I decided to figure out how many of our currently listed properties were actually short sales. That figure turned out to be 43% of the active properties in Southwest Florida.
Typically the short sales are the more aggressively priced properties and have more of an opportunity to sell because their sticker price is more appealing to a buyer. What could possibly explain why there are so many short sales available compared to what actually closes sale?
The overall transaction failure rate is responsible for a large amount of short sales that are languishing on the market.
What would it take to get these homes off of the market? There are people that want to purchase these homes, sellers that want to sell the homes and banks that probably don’t know it but they would be better off not foreclosing on the homes so it’s in everyone’s best interest to cooperate.
The big trip up is the banks. Total shocker, huh? They really should be controlling more of how to unravel this mess. I am sure none of us doubt what a monumental task the banks have cleaning this up. Most of us are just wondering why there are still no systems in place to even make a feeble attempt at organizing it. There is no staff to handle this overwhelming traffic jam and not one organization has really taken charge to set one up.
The system is clogged with unrealistic bids and unprepared sellers. There, I said it. Most banks won’t tell what their bottom line is and won’t look at a file until there is a contract. Crappy offers count. True to human nature, the bottom feeders come out in a weak market and start throwing out offer prices for pennies on the dollar. The seller accepted contract is delivered to the bank and gets put on the short sale, not so merry, merry-go-round.
There Are Zombies Among Us
The home doesn’t stand a chance closing at that offer price but it gets put into the system and begins taking up valuable time and resources of the administrator in charge of short sales. Keep in mind, this bank officer usually has a couple of hundred files at any given time so it won’t be rejected for weeks or even months.
If the bank involved is a “zombie bank” it could be several months before rejection. Go ahead and Google zombie bank so you know where precisely where your bailout money got wasted. Listen to a Zombie Banks on NPR.
Sometimes when the contract is delivered to the bank it’s the sellers that also get put on the merry-go-round. They didn’t know they had work to do in order to get their short sale transaction ready for the ride and they got on only to be flung off because they weren’t prepared and didn’t have their own documentation in order.
Meanwhile, back at the ranch, realistic buyers are missing the opportunity to give this home a legitimate shot at a new owner because it’s “under contract”. The buyers move on to homes that are presumed to be more available.
The banks are not looking for any way to prevent avoidable foreclosures. The banks aren’t smart enough to simply name their bottom line price to liquidate short sales before they become rotting inventory. The banks believe that buyers are going to bid up and negotiate on homes that are no longer a commodity and it’s just not happening, nor will it. Buyers are left to guess at the price a bank will accept and it’s just a ridiculous waste of time.
It would take minimal effort for banks to call for a couple of broker price opinions and at the very least get a ball park price for the homes value and pre-approve that price. The wasted hours that are spent with buyers playing pricing darts and banks playing “you’re getting warmer, you’re getting warmer …” is too absurd to even try to quantify.
Besides the obvious increase in staff to handle the back log, it wouldn’t hurt the banking system to engage some sort of filter or a traffic controller to look over the contract price or even the files themselves before they get turned over to the loss mitigation department. When the paper work isn’t in order or when the price isn’t remotely close to the banks bottom line for the property it should be immediately rejected.
It is now estimated that there will be 10 million foreclosures in the next four years. Many will be short sales that were driven to foreclosure by the failed system. Shouldn’t at least one of these institutions set an example by putting in an express lane to process them?
Real Life in Bonita Springs is a project by Chris Griffith dedicated to writing useful blog posts for consumers about the Bonita Springs, Florida area. Find out what it is really like to live in Bonita Springs, Florida by reading about our fair city. You’ll get the latest in local real estate information, Bonita Springs real estate market reports and a little bit of humor. If you have topic ideas, feel free to request a story about the idea, after all, this site is just for you.
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