The State of Real Estate Professional Opinions by Don Carr, ABR, GRI, REALTOR

Do you think know what is going on with real estate? If you do, would you tell me. Every week seems like it brings a new worry or a new outlook on what is going to happen. The media doesn’t help much. Every time they get a report from the National Association of Realtors or the Federal Housing Administration it is either the best thing that could happen or the worst. Actually a couple of tenths of a point change do not make that much difference, especially if you are sitting around waiting for your home to sell.

The President in a speech a couple of weeks ago noted that economists are saying the economy is rebounding, but not if you are the one looking for a job and wondering how to feed your family. We are so fortunate in Austin not to have had the great number of homes in short sale or foreclosure that many areas have, but we have had enough.

It is always very sad when someone looses their home. Many of us these days can find lots of people to point our fingers at as being responsible. There is plenty of guilt to go around. Buyers were offered mortgage deals they could not afford and that were too good to be true. They were almost sure to be unable to pay their mortgages. Mortgage brokers were making great money and who was to blame them if lenders could find a way to give anyone a loan, they did; sometimes for people that were no longer alive. I’ll skip the jokes on the origination of the word mortgage from the French verb “to die”.

Oversight was needed. Sadly enough not all realtors realized the pitfalls of bending a pencil and many have paid dearly. Some even went to jail. The biggest mortgage scam here in Austin resulted in a Realtor committing suicide. I have sat in many classes, even on ethics, and heard Realtors explain how to get around regulations. Just because someone could do something did not make it right. It seems to me that regulations are there for a reason. Whether it is real estate and mortgages or oil spills, regulations are a good idea. A rule of biblical proportions is that “the piper will always be paid”.

So where are we now? Now everyone is over reacting by following the regulations to the point of distraction. The pendulum has swung so far that sometimes the smallest thing can derail the dream of a new home. This affects buyers and sellers. Sellers find it harder to sell their homes because there are fewer buyers who qualify. Lenders are looking more closely at the conditions of properties, and many of the costs that sellers could pick up for buyers are now prohibited. As a result the smaller pool of buyers expect attractive homes in great conditions and a good price. Negotiations have become harder and more picayune. Buyers have to have good to excellent credit scores , down payments, and ready cash for costs. At least for people I know it has been a long time since anyone has seen a 100% loan (except VA or USDA loans) and I could not believe it when someone asked me not long ago if they could get a no-doc loan (a loan where no credentials are checked and they pretty well take your word as good enough to get the loan.) For a while it seems we were seeing only government secured loans. Now we are seeing a comeback from the conventional sector as more banks are encouraged to loosen the reigns on lending. It is going to be a while before real estate and the financing of homes comes back to a logical center.

An area of concern as a result of the tightening of lender regulations has caused considerable problems. This is the question of appraisals. From the changes that have come about one might think that appraisers were major offenders in the collapse of the mortgage industry. It did seem that there was a time when your appraisal was based primarily on the sales price. Oddly enough the appraisal rarely varied from the sales price. It was uncanny how two realtors and buyer and a seller could negotiate and come out with the correct appraised value of the property. As a result a lender cannot pick their appraiser. They have toapply to a government arranged pool that assigns an appraiser. Before we suffered when appraisers only looked at properties online, now we suffer from appraisers who come into an area about which they know nothing and appraise properties as experts.

This can create a big problem for a seller, but in the past two years I think the biggest problem I have encountered with sellers is the idea that “We have a figure that we have to get for the house”. There are some things that are just true and as I have said before and before, every house sells at market value. The market will establish the value of a house; that is why it is called a market. What the market was last year or even last week really will not determine what you are going to get. One of the major reasons for using a realtor to sell your home is the professionalism, experience and access to the materials to as closely as possible achieve a price where your home will sell. A lot of sellers will hear this and agree then look their realtor straight in the eye and say, “I have a figure in mind that I need to get for the house.” Usually that figure will be based on how that money is going to be spent not what the market is telling us about the property.

If your house is priced above the market value you can expect several things to happen.
Someone will offer you a fair price for your house and you will be offended forgetting that they would not go out and overpay for a home because the seller “had a figure” in mind. You will sit on the market and your home will get stale. You will keep paying interest every month that will be going to your lender when you could go ahead and sell your home, not waste your time and money and go on with your plans. You will become more discouraged, blame anyone you can find, your realtor, inspectors, your mother in law, and then sell your house at the market price you should have priced it at in the first place.

And finally the appraiser is not going to know about “your figure”. He or she is going to know about comps and will use the most readily available comps to achieve the value of your property. Chances are these are the same ones your Realtor used to present you market value. When the appraisal comes in too low there are three alternatives. The seller can drop the price to the appraised value, the buyer can throw in extra cash above the appraised value, if this will be allowed by the lender, or you can forget that contract put the house back on the market and wait for a cash buyer who will pay what you want. I’ve found most cash buyers to be pretty savvy folks.

Selling and buying Real Estate is a complex process. More complex than it used to be. It involves personal feelings, memories, relatives and friends opinions, needs and wants, expectations, realistic and outlandish, and it involves figures. Statistics, appraisals, comparables, market value, all are figures based on relevant research.

The real estate industry is in a mess, and there is plenty of guilt to go around, but the best realization a buyer or seller can have is that it is not business like it has been for the last decade or two . The piper will always get paid and the times, they are a changing.