Supply And Demand Impacting The Short Sale Business
Yesterday we talked about current market data and how we believe that the market will continue going down. So, we would like to speak about what happens when there is a steep increase in active inventory and a sharp reduction in sold homes.
Having been in the short sale business for three years, we have seen small rises with tax credit extensions and other programs. What we have seen is when inventory goes up and sales go downward, lenders do not react to that information instantly. Commonly, they pull their data for BPO’s and appraisals from as much as 6 months ago. The trouble with this system is that the BPO is greatly weighted on sold costs. So when you draw sales from contracts that were authored in January, February and March, the tax credits impacted the business. Those comps aren’t taking into account that sales are going down and number of active listings are going up. When you see this transpire, you will have to begin pricing your houses more aggresively. The market is dipping yet again but the bank is especially slow to respond to that data. They do not want to be the first to act on the lower price. You can presume that they will counteroffer with other prices of properties sold months ago when the market was not the same.
For instance, we had a listing with an offer price of $245,000. We believed it was a strong offer because the market was going down. We received a counteroffer with the BPO value at $265,000. We were given a day to recreate the offer or the folder would be closed.
Kevin disagreed and had to prove to the negotiator that the BPO price was off. He discovered a comp that was the identical floor plan listed at $235,000. This was sent to the negotiator and along with a letter that explained the state of affairs. The alternative to the lender counter offer was to foreclose on the property and relist it in 90 days at a lesser price than the offer.
Be conscious that there will be BPO disputes in your future. With listings increasing and sold properties decreasing, you will have additional disputes on your hands to prevail over.
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