Thank you for reading the MtDemocrat.com digital edition. In order to continue reading this story please choose one of the following options.
If you are a current subscriber and wish to obtain access to MtDemocrat.com, please select the Subscriber Verification option below. If you already have a login, please select "Login" at the lower right corner of this box.
Special Introductory Offer
For a short time we will be offering a discount to those who call us in order to obtain access to MtDemocrat.com and start your print subscription. Our customer support team will be standing by Monday through Friday, 8am to 5pm to assist you.
If you are not a current subscriber and wish not to take advantage of our special introductory offer, please select the $12 monthly option below to obtain access to MtDemocrat.com and start your online subscription
The 200 homes closing escrow last month in El Dorado County were nearly the same as the number of sales during May. It was the second most active sales month since June of 2006 and 11 percent better than June of last year. June is typically one of the most active months for home sales Ñ but the 30-year interest rates that dropped below 4.5 percent and state and federal tax credits, most likely accounted for the welcomed increase.
Two hundred monthly sales are not likely to be sustainable in our county Ñ since it has been witnessing an out-migration of homeowners. Federal tax credits have already expired and the stateÕs allocation of tax credits is quickly evaporating. The tax credits have likely motivated advanced home purchases which will be balanced by slower sales months during the rest of the year.
The countyÕs average selling price of $365,000 and the median of price of $335,000 were both $10,000 less than in June of 2009. Both the median and average selling prices were higher than in May, however, they reflect the increased surge in demand for short sales and bank owned REOs that now account for half of all county home sales.
Of the 200 residential properties sold last month, 67 were bank owned REOs and 46 were short sales. It was a record number of monthly sales for both categories. The number of monthly short sales has doubled since last year. Lenders are more receptive to negotiating a discounted payoff of their mortgage rather than foreclosing on the property. Both sellers and their agents are capitalizing on this opportunity. Of the 1,400 homes currently listed for sale, 400 are short sales Ñ of those, 200 are without offers and 200 have pending offers waiting for the lenderÕs approval. REOs account for 157 active listings.
Although there is no shortage of REOs and short sales, the demand is driving sale prices above the listing price. Last month the $355,000 average selling price of a typical short sale and the $295,000 average selling price for an REO exceeded their average listing price by 101 percent. Multiple offers are common. In contrast, the average selling price of a non-REO, non-short sale home was $425,000, which was 94 percent of their listed price.
Discounting the inflated monthly sales numbers, attributed to one time tax credits, the most significant market change this summer is the number of sellers attempting to sell their home through a short sale process. At best, negotiating a short sale with the ultimate decision maker, the lender, is a frustrating time-consuming process that can go sideways for a variety of reasons. Currently, more than one of every four listings is marketed as a short sale. Short sale sellers and their agents should be aware of the potential liability in an effort to generate a quick sale.
At a recent meeting of the Board of Directors of the California Association of Realtors, held in Sacramento, a considerable amount of time was dedicated to the short sale phenomenon. CARÕs attorneys and the Department of Real Estate have issued warnings to the associationÕs membership and consumers who are considering a short sale a way out of their underwater home.
¥ One area of concern has been the use of third party negotiators. This occurs when the seller enters into a listing contract with an agent who then enters into a contract with a third party short sale negotiation ÒexpertÓ who is supposed to have insider lender contacts and can expedite the negotiation process. The third party negotiator receives part of the commission for their expertise. Many of these negotiators are not licensed and their relationship to the seller is frequently unclear and undisclosed. Undisclosed dual agency often becomes an issue, subjecting the listing agent who made the arrangements, subject to potential liability and in violation of licensing laws.
¥ Another area of concern is the common practice of listing agents setting the listing price well below market value. After all, the seller isnÕt walking away with any money and a lower price sells the property quickly thus resolving the sellers problem. Once an offer is obtained, itÕs only a matter of persuading the lender that the property sold close to market value. Besides, why would the lender want to go through the long protracted process of foreclosure?
Often the purchase price does make a difference to the seller. If the debt forgiven by the lender is taxable, then the higher the selling price for the property, the lower amount of taxable income on the forgiven debt.
It may also matter to the seller when the lender will approve the short sale but only if they retain the right to pursue the seller for a future collection on part or all of the unpaid debt. And other times the lender may require a note modification, partial payment or other new terms in order to expedite the short sale.
¥ Often attempting to close the deal, an agent will minimize the sellerÕs consequences of a short sale by providing tax or legal advice, which is a licensing violation. Encouraging a seller to purposely default on their mortgage has been construed by the courts as Òcontractual interferenceÓ and when an agent deliberately attempts to influence the BPO (Broker Price Opinion), usually requested prior to a short sale approval, the agent could be committing bank fraud.
¥ Agents may deliberately set an artificially low listing price and submit the low offers to the banks while discouraging or ignoring higher ones. This practice is often an attempt to get the property sold as soon as possible keeping the negotiations simple. Other times it is part of a strategy to ÒflipÓ the property.
A short sale may be an easy way out of an underwater property but sellers and their agents need to be aware of the dangerous risks that could be lurking beneath.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website at kencalhoon.com.