Foreclosure Crisis could mean opportunity for Private Owners/Sellers

No one knows how long the freeze on foreclosed properties will continue. But the freeze is keeping the most undesirable competitors off the market, making foreclosed properties less of a factor in pricing than they have been for the past 3 years.

Q: Shouldn’t I wait for a better time to put my home on the market?
A: When there are more foreclosed properties listed for sale, the law of supply and demand applies and suppresses prices. Foreclosed properties are active competition for private home sellers during their marketing period - often being used in negotiations to the detriment of those private sellers.

With a freeze on foreclosures (a number of active foreclosed REO properties have recently been withdrawn from the market) and the fact that pending properties that were scheduled to close have been stalled and postponed indefinitely, buyer's options are reduced and competition for private owners/sellers is eliminated.

Q: Will the freeze affect my home’s value?
A: The fact that those closings did not occur could serve to temporarily buoy the value of comparable homes within a neighborhood or market area. These depressed prices do not go on the books for appraisal purpose.
The fact that active foreclosed properties are not being negotiated on, or are even being withdrawn from the market, reduces underpriced competition for the private home owner/seller. At that point, supply and demand takes over. Fewer properties available at suppressed prices will increase demand for properly priced homes not in foreclosure.

Q: What does this mean to the average homeowner thinking of putting their home on the market?
A: Two things. First, during the freeze, fewer foreclosed homes will go on the market, reducing that inventory. Second (and most importantly), buyers will be wary of making offers on bank-owned homes. The time is right and most opportune for a private homeowner/seller to market their home at a reasonable price.

Q: Are you calling this a window of opportunity, rather than a time to sit out?
A: Yes. The law of supply and demand is still relevant and at work in our economy regardless of all the other challenges we may face. Homeowners can and should seize this opportunity to get serious about marketing their home and seize this window of opportunity that has opened while it is available!

The Value of a Pre Approval Letter

Buyers get pre-approved before they write an offer.  Sellers ask to see a pre-approval letter with an offer.  But why?? 

The intended value of a pre-approval is that it shows credit worthiness.  It is not a guarantee the buyer can get a loan.  Assuming the lender has done their job, the letter is as close to a guarantee as any buyer or seller can get.  However, assuming is a big mistake.  Many lenders check credit scores, ask the buyer how much they make, how long they have been employed and how much debt they have.  Then they write a pre-approval letter without verifying that the information is accurate. A good lender verifies the information by getting copies of W-2s, tax returns, 2 months supply of bank statements and check the credit score before they offer their expert opinion that the buyer will be able to get a mortgage. 

Is this important? As a seller, you don't want to take your house off the market while the buyer gets all their lending in order only to find out they can't afford your house.  You may have lost 30 days or more on the market.  And as a buyer, do you want to get your hopes up that you are going to buy a house only to find out you really can't afford it?  So yes, it is extremely important!

Your agent, whether you are on the buying or selling side, should help you determine if a pre-approval letter is worth the paper it is written on.  Believe it or not, a lender can make or break a deal.  So if you are a buyer, ask your agent for referrals of good lenders.  And sellers, make sure you question the validity of a pre-approval letter before you accept an offer.