Saturday, October 18, 2008

More on Househunting

As of Thursday, we had two offers in on two different properties. We were allowed to do this because we were dealing with banks, not people, because the banks are notoriously slow. The first offer is several weeks old, and we've still heard nothing. The second offer was, surprisingly, responded to within a week, but the response was laughable, so we're back to waiting on the first house. Unfortunately, it's a short sale, and there is at least one other offer. In cases like that, you don't get into negotiations or bidding wars; the highest offer on the table (if the short sale is approved) wins, period. (Except for the first image, all images are of the property with the laughable counter offer, and were taken from an online real estate listing.)

Short sales happen in cases where the banks agree to let the owners sell the house for less than they owe rather than foreclose. It can be a good deal for the seller, but everything we've heard about banks being motivated to sell and get some of these properties off their books? Patently untrue.

Because I bought this house 11+ years ago, with a reasonable down payment, borrowed well within my means, and have a flat mortgage with a reasonable interest rate, I've been oblivious to the whole state of affairs for the last several years. (As it is, I'll be lucky to get out of here with what I owe.) Here are some things I've learned about the state of the economy - as it pertains to the housing market - and the housing market as well. This explanation is not coming from a real estate or banking professional, just someone who's been trying to buy a house for several months. An insider's view, if you will.

I heard a statistic that 55% of the houses on the market right now are bank-owned. In our price range, and in the area we're looking, I think that percentage is higher. Everyone tells us that because we're paying cash (an inheritance from my father, not a lucky windfall), we have it made. We're determined not to borrow, so we are limited, but have heard the "oh, cash, just offer 'em $50k and they'll take it" many, many times. Banks, they tell us, will agree to any offer we make just to get the houses off their books and get some return on the money they loaned. Not even a little true. Cash has made zero difference (we aren't making the ridiculous low-ball offers, either). Banks don't appear to be any more motivated to sell with the huge volume of vacant properties on their books.

Banks don't appear to be motivated to sell, period. The laughable counter offer I referred to earlier is a good example, and it led me to some more understanding about how "we" - as a state and/or nation - got into this boat. John and I bid on a house that might be worth what their counter offer is (even in a good market) IF it was on more land AND was in better shape. Even if we had the extra $40k they wanted, the house wouldn't be worth it, in any circumstances (we could, literally, buy a big piece of land and put the exact same house on it for less than their counter offer).

It's on just over an acre, which is nice, but in Wayne county. It's a modular home, fairly new, but was treated badly by the departing owners (more on that later). The floors are down to the sub-flooring in every room. Entire sections of wall are missing. There is no water heater, and all of the doors & trim are plastic. There are no appliances, the cupboards were removed from the kitchen walls (but are still in the house), oh, and some kind of mold on the floors in a couple of rooms (we were going to rely on our brilliant inspector to tell us if it was surface or deeper). But the bank loaned these people over $200,000.00 and they want as much of their money back as they can get. Too bad they loaned far more than the house was worth to begin with. The original asking price was over $200k. It's lower than that now, but we offered even less - what we could afford - which coincided with what the place is actually, probably, worth. They countered, we laughed, and they're back to owning a property that's been vacant for two years and not worth even close to what they want.

There was this climate back a few years ago, where banks were um, "encouraged" (=forced), by the gov't to loan, loan, loan. Get people into houses at any cost. We'll bail you out. So the banks approved people for more than they could comfortably borrow, and the people took it, frequently with adjustable rate mortgages (ARMs), believing the banks with all their charts showing them they could afford it, and figuring things would improve financially and they could afford higher payments later. Some builders smelled money and charged more than the going rate because the market bore it. They got paid.(Those that managed to sell before the artificially inflated market started falling.) The banks got their pat on the head from Uncle Sam, and if the people couldn't pay for the house later, they - the banks - were still covered. This was happening up until a couple of years ago.

So, Jack & Jill buy a house. They're approved for X and start shopping at that mark, rather than below it. (Anyone watch HGTV? People NEVER pick the house that's below their budget.) They find a house, maybe working with a builder, and fall in love. But, cringe, it's right there at the top of their budget. And things never cost what you think they will (they cost more). They start paying their interest-only loan, barely squeaking by, but things will be okay because Jill's up for a raise, and Jack's got guaranteed hours at the plant and all the overtime he wants. Then Jill's company announces that they're freezing wages for a while, and Jack's company announces that overtime is going to be limited or maybe not allowed at all. Maybe they close his plant. Maybe one of them gets sick and has to take a week (or more) off work.

Now Jack and Jill have a house with zero equity (because they were assured that a down payment wasn't necessary (0% down!!!!)), that is worth less than they owe, AND they can't afford the payments. At some point, after trying to sell it for what they owe, they are evicted or maybe just walk. But damn, they're pissed. And they take it out on the house as they go.

At least 80% of the houses we've seen were trashed in some way. I say "we," but John has actually done all of the leg work, driving out to see properties from at least the outside before asking our Realtor to see the inside. A vast majority of possibilities are deleted before that second step is made. Even more are cut when they get inside. John went to one house that had a homeless person living in it, using one of the bedroom floors as a toilet. Another had several squatters living in it, with piles of clothes and mattresses on the floor, but nothing else except some stolen electricity. Apparently, the listing agents take these properties on, hand over fist, and don't drive by and check on them (the volume is too great). Our Realtors won't consider listing houses like this, which is another reason we like them.

Some houses that look great from the outside are nightmares inside. John saw one a couple of weeks ago, with the Realtor, a cute Cape Cod that was perfectly lovely from the outside. Then they walked in, and it turns out that the foreclosed owners had turned on every faucet on their way out. The house was sinking and there was mold climbing the walls. The house was listed at over $120k. It is not, under any circumstances, livable, not with the foundation cracked down the center and mold down to the studs and up to the roof.

Most of the time, people seem content with knocking a few holes in the walls, but some are smarter and strip out anything of value: appliances, pipes, ventilation ducts, doors, door jambs, trim, cabinets, faucets, etc. I don't blame them for this, but of course the banks still want X for their house, and the buyer would have to invest a big chunk of money to get it in a livable state. I think my favorite is the older mobile home that had been put up on a foundation, had holes knocked in almost every wall, some substance smeared onto the walls and poured into the carpet, an old foundation broken up and piled in front of the new one, and an acre of weeds and trash. They only wanted $113,000 for it.

As one of our Realtors explained, the banks are so overwhelmed by all of these foreclosed homes that they can't keep up. They hire temps to process paperwork, but these people don't know the business and certainly aren't motivated to process things too quickly. The banks' reps also make little to zero effort to make the houses appealing. As in, they don't bother having someone sweep the floors, let alone pay someone $100 to wipe down the counters and clean the tub, etc. They have to know the houses are unlivable, but they still have them listed for the amount of the outstanding loan.

The banks are going to be bailed out of their losses, eventually, as Uncle Sam promised, so maybe they'll get a little more reasonable. But right now? They don't much care about selling. And our cash means nothing to them. Yes, some people are having a hard time getting a loan right now, but not everyone. They're still as happy to sell the house to someone with a mortgage as they are to someone with cash. It's all the same to them. The very nice person that bought my dad's house is a great example. Just a few months ago, he not only financed 100% of the purchase price, but he also borrowed several thousand more for closing costs and other expenses. So now he owns a house where he owes more than he actually paid for it. At least it was in tip-top shape, and because of the falling market, we'd had to drop the asking price something like $50k. So if the market improves, he could find himself with some equity.

Anyway. It turns out that, unless we're willing to buy a newish, cookie cutter place on a postage stamp-size piece of grass, in a development (and one of those places would take every bit of cash we have, and not be worth it, not really), we're kind of at the mercy of the banks who own the majority of the property here. And they aren't all that interested in moving property off their books.


Jennifer said...

Keep pluggin away! I know something will work out. We hit a lot of dead ends before we found our place!

Cateling said...

I have friends who are house-hunting in Mpls and they are having the same problems as you with banks not being serious about getting foreclosed houses off their books.

My friends went so far as to have put in a bid at the bank's asking price (which was very reasonable but in no way under-valued), and then the bank came back and counter-offered for many thousands of dollars higher!! My friends and their agent pushed back, but in the end the bank ended up taking the house off the market rather than sell it at their original asking price.

Hang in there. The right house is out there somewhere, and it will be waiting for you when everything is right.