A Griffith Listing

Real Estate Services by Jon Griffith

The Short Sale Pricing Plan

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Supply and Demand Basic Curve

Every short sale needs a pricing plan.  Every home on the market needs a pricing plan.  In any market, it’s in the best interest of the home owner to sell the home for the highest possible amount.  In a distressed market, with a distressed property, sometimes there isn’t enough time to “hope” for a higher price than the home will bring.  Knowing that, it becomes critical to the life of the listing to have a scheduled price reduction plan.

Every short sale that I have listed has received an offer, because I implement a pricing plan, depending on the amount of time left before foreclosure, which prices the home slightly above market value, then systematically reduces over time at regular intervals. When the price reaches market value or below, it will most likely draw an offer, and as a result of the planning, enough data has been captured to make a solid case to the lender that no higher offer is possible. This is all driven by supply and demand.

It’s very important to illustrate to the banks (because they have no idea about real estate) the gradual increase in showings over time as the price is slowly reduced on a schedule.  When we can show a lender that an over-priced home is receiving no showings, yet when we reduce the price, the number of showings increase, we make a good case for the offering when it comes.

What Do We Do? There’s a Notice On Our Door!

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Yikes.  That’s probably the first thing you’re thinking.  We just received this thing called a “Notice of Trustee’s Sale” and we have no idea what went wrong (“except that we stopped paying our mortgage a few months ago.”)

AHA!  That’s the problem.  What’s happened is the bank has taken action to recover the home to cover the note.  The fact that the note is greater than the value of your home, most likely, is irrelevant at this point.  The bank is going to take your house back.

The good news for you is that the bank doesn’t really want the house.  They want as much money out of the house as possible, but they don’t want the house because it costs tens of thousands of dollars for them to auction it, take it back, maintain it, re-market it, and sell it.

The real error in the entire situation was the fact that you didn’t recognize that you needed to have this house on the market a long time ago.  The banks will tell you that you need to miss payments in order to put your house on the market and have a short sale approved, but this is not true.  With a true hardship, whether or not you can pay your mortgage today or not isn’t important.  What’s important is whether or not you are headed for the dreaded foreclosure in the near future.

If you are, then you don’t need to miss payments.  In fact, if you are able to keep up with the payments, you are more likely to be able to down-size by buying another home after this process.  The key is whether or not you are keeping up to date on all of your payments.

So, what do you do now?

You’re headed for foreclosure.

  • You can re-instate and get caught up, which will cost you more than the amount you’re behind
  • You can walk away from the house and experience turmoil, have a larger than required deficiency, and potentially face future law-suits and high tax liabilities;
  • or you can attempt to buffer the losses and have your lender release you from your note by selling the house!

But we owe more than the house is worth!  Right, that’s why it’s a short sale.  You’re going to bring a market value offer to the lender, and you’re going to get them to approve it and allow the sale.

It happens all day long in this market, and it’s going to keep happening for years to come.  Short Selling your home is the best preventative measure you can take now that you KNOW you’re being kicked out.

One Tweet From Wells Fargo, One Tweet From Bank of America

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I’m on a bit of a tirade today as I work through a few short sale issues and personal banking issues that shouldn’t exist.

I have a firm understanding of my value to a large corporation.  It’s purely monetary, and I’m just a number.  To further exacerbate the problem, one of the companies mentioned in the title is owned by the Government, and the Government is the last entity on the planet that I place my trust in.  The only thing that I can trust in is my own ability to survive.  I am 100% responsible for 100% of my actions 100% of the time.  Period.

Things don’t happen to us.  They are a result of choices we make, and today, I choose to shift my entire financial strategy from big bank, to small bank.  Here’s a simple illustration of what drives me to be suspicious of big banks.  I recently noted two independent tweets from the “team” of twitter support people at both Wells Fargo and Bank Of America.  Let me first disclaim that I don’t believe that either bank has genuinely taken an interest in supporting their customers through twitter for any other reason than to appear as though they care.  There’s no possible way for them to support all of their customers through twitter.

A recent Tweet fromWells Fargo:

@jimgoodman I work for @Ask_WellsFargo & saw ur tweet. (I also replied to @corkz.) Plz follow & DM Deutsche Bank Barry Snyder with the details. We want 2 help. ^JR

…and now a similar response from Bank of America:

@RealScottsdale I work for Bank of America. Were you able to find a resolution to your Equator question? ^km

Perhaps they care, perhaps they don’t.  It’s possible that they both follow a basic protocol that has organically grown through the phenomenon known as Twitter, or it’s possible that they have both hired a 3rd party support organization who answers questions based on a list of policies and procedures.  It could be that they are just hiring whomever to “do it the way the other guy does it.”

Either way, the only responses I have ever received from the “support” department from a lending institution has been something to the tune of, “I work for the bank, so I can help you, I hope we helped.”  No real help is being offered.  They’re simply fielding tweets to gauge customer perception, and they should probably already know that the amount of bad comments will inherently outweigh the good comments, because that’s how people work.  People will always tell 10 people how terrible something is before they’ll tell one person how good something is.

GRRRR.  Good bye big banks!

Dear Wells Fargo, I’m Leaving You

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Dear Wells Fargo,

After nearly 20 years of banking with you, I am leaving.  I will be finding someone else who cares about me more.  I will find someone who doesn’t charge me to hold my money, who doesn’t rip me off when I use the ATM that’s part of the “network,” who doesn’t eat up my money every month at a rate of return that makes what you pay me look like a fee in itself.

I will find someone who makes decisions based on who I am as a customer, not as a number.  I will find a company who is in touch with their client, and who doesn’t hire a team of people to “handle customer service issues” through one twitter account with canned responses.  I will put my money where I can shake the hand of the people connected to the pulse of the company’s culture, who understand and believe in the vision of the company, who aren’t sheep, controlled by a corporate attitude.

Bank of America?  No.  Chase?  No.  Citi?  No.  Don’t worry Wells Fargo, I’m not going to leave you for another famous bank.  I’m going for the bank next door, cause she’ll care more, and we can raise a family of children named Benjamin, Lincoln, Grant, Jefferson, and Washington together.

When I deposit my certificates of appreciation, I do so trusting that you appreciate it, and so far, you have not appreciated me.  So, farewell.  I’ll never come back.

We’re Due for a Second Wave

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Just Last year in Maricopa County, there were roughly 35,000 single family homes that sold.  That number almost matches the prior year.  Of those homes sold in 2009, 12,975 of them were Short Sales.  That’s 37% of the market.  That’s HUGE!  Most of those can be attributed to the sub-prime mortgage crisis and subsequent market crash.

While there are reports that have surfaced about the market improving, prices on the rise, etc., one of the more important topics that needs to be addressed is the impending wave of 5-year option-arm “smart online loans bad credit” that will be resetting this year.  During 2010, I believe that we will see a huge influx of foreclosures in the 400K+ market.

In 2005, buyers were qualifying for homes that were twice as expensive as they could afford because of products that had interest only payments with huge adjustments on the horizon.  At the time, people believed that real estate just continued to go up in value, so it seemed to make sense to purchase a $400,000 home based on income that would qualify you for a $200,000 home, in the hopes that within the next 5 years, the home would be worth at least $600,000.  That’s not what happened.  Now homeowners in the jumbo and luxury market are as stuck as the rest of us, being completely upside-down in their homes.  As a result, they are trapped with a ticking time bomb.  As soon as those 5/1 ARMs reset, they’ll be headed for foreclosure, and the 2nd wave will begin.

I would encourage you to watch this video created by Jonathan Jarvis which explains why our market experienced what it did, and also makes a great case against borrowing money.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

The Moral Obligation: Repay or Walk?

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Short Sales are a tricky beast.  There are two sides to the argument when it comes to paying off a loan that you’ve promised to pay.  The first argument is that you’ve signed a promise to pay and you have a moral obligation to do so.  The second argument says that the lenders took advantage of us, so why should be pay them back?  They are the cause, right?

It doesn’t exactly work that way.  When you signed the note on your home, there was no clause within it that stated that you promise to pay “when the market is good.”  You signed a promise to pay no matter what.  Let’s face it.  I think we all can take a step back and say that we’ve learned a huge lesson about borrowing money in this day and age, and the lenders have clearly taken a step back to re-evaluate how they lend money.  So, it’s arguable that both parties are at fault for the disastrous market conditions.

That doesn’t release you from the obligation that you agreed to.  So, what are you supposed to do now?  Repay, or walk away?

That all depends on your financial outlook.  If you are in a position of financial distress, and you’re headed towards an inevitable foreclosure, then you’re probably a candidate for a Short Sale, which is the best option for you because it’s not really walking away.  It’s asking the lender for permission to sell for less than you owe. Foreclosure is what happens when you simply don’t pay. Foreclosure is not an option, it is a symptom.  People who don’t pay their mortgage lose their homes.  People that walk away from their homes, lose their homes.

It’s critical that you determine whether or not you qualify for a Short Sale.  A short sale allows you to move on with your life with the permission of the lender.  The lender agrees to release you from the note, and release the mortgage, and in most cases, you can walk away with peace of mind and a bright outlook on your future.

Why would a lender allow this?

Banks don’t want real estate.  They want money.  They lend money to make money.  Without cash, a bank goes out of business.  We’ve seen this happen time and time again.  When you quit paying your mortgage, and the bank reposesses your house, they have to spend thousands upon thousands of dollars to maintain the house, prepare it for sale, and sell it.  It will cost them more to foreclose than it will to allow you to sell it for current market value.

You have a moral obligation to pay your debts.  You signed a promise.  When you walk away, you are invalidating your credibility and as a result, regaining trust in you as a borrower will take years.  Don’t walk away without attempting to sell the property, and make sure you hire someone who knows what they’re doing.