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Our Real Estate Market: More Art Than Science

Many people want absolutes when making one of the largest financial and emotional transactions they’ll ever make- buying or selling a home. This is reasonable.  But making the leap into a fickle and still adjusting real estate market can seem more like a crapshoot than a sure thing.  

My client, Patty, is purchasing a short sale on Novelty Hill in Redmond. Patty is an unshakable woman and investor who has seen and done it all. I never have to worry about delivering news to Patty or bringing her a more creative real estate opportunity. Patty and her partner have flipped homes, rented duplexes, developed raw land, bought foreclosures sight unseen, and owned a resort in another   country.  She’s won a lot and lost a few.  Just a few weeks ago she told me that she really thought she’d seen it all but dealing with the bank on her first short sale was on a totally different level. And she certainly wasn’t implying that it was the best experience of her life. But not the worst either. Just something so unpredictable that she couldn't’t gauge, she couldn't’t get her bearings. It was confusing.  She couldn't’t size up her competition because her competition was “a thousand moving parts.”  It’s really like David and Goliath.  In this example the buyer and seller are David and the banks are Goliath. With the right negotiator the banks will usually end up like Goliath, too.

My point is that something is askew.  Transactions in this market are as unpredictable as a moody teenager.  (Certainly not making any comparisons to any one I know!)  Something is wrong when Patty the Unshakable is scratching her head, weary, impatient after 3 months of waiting for an answer from the banks as to what exactly may happen to her deal. And in the end it will be one of about six  scenarios.  

All buyers and sellers want absolutes. They want timelines they can stick to, accurate market statistics, and reliable comparables that will lead them to the favorable outcome they want. That’s why they hire Realtors; to give them just that. Well, that’s why they think they hire Realtors.  

The real reason that buyers and sellers hire Realtors today is because they want to guide them through the ART of real estate as well as the SCIENCE . Buyers and sellers think they want the numbers and stats but what they really want is someone to tell them what those numbers and stats mean in relation to the strange, new world of real estate today. They want to know numbers but really the question is ‘What can we expect out there?’ They want someone who is active in the market, encountering and confronting all kinds of problems, to tell them how to navigate the waters. They want to be warned upfront about the pitfalls and problems they may run into and to be prepared upfront to take advantage of the incredible bargains out there. They want to know the “price they will pay” for playing and what they can win.

What are some of the reasons that the market is asking more like an art?

1. Human Nature and Emotion – Understandably many sellers are tired and worn out. They’ve been beat up. Many are unsure about their futures. Some are sad or angry and just want out. When tensions are running this high, it’s natural for sellers and buyers to bring emotion into negotiations and to the sale. It’s important if you’re entering the market to remember at all times that the responses you get from the other parties are not personal or within the other party’s control.  

2. Speculation About Rates and Prices – Read all of the stats you want but no one can predict the future of rates and home values.  Home values were up compared to the previous year for 4 months in a row and then last month they dropped. Why? Consumer confidence seems to be getting stronger from what I see.  Don’t base your decision to buy based on speculation.  Does the home sale or purchase make sense for your personal and financial situation RIGHT NOW? That’s how you know you should be in the market. I concede, we’ve all been shaken to our core with what has happened to home values. We used to be able to count on homes gaining appreciation. Now we can re-appraise homes on a weekly basis.  Everyone wants the real estate market to bounce back. But how can that really get on a roll if buyers are unsure about the market and wondering if prices will go down again? Will rates go up? Speculation is inhibiting some buyers from acting.     

3.  Contracts vs. The Other Party- Yes, contracts are black and white. But sometimes the humans and banks (haha) responsible for carrying out those contracts don’t abide. Banks sometimes don’t respond to a request within the agreed time frame. Depending on the asset manager, the bank may complete lender mandated repairs, they may not.  Sometimes a seller is supposed to clean the home prior to closing but they don’t. They just leave.  Sometimes when negotiating with banks on HAFA short sales they represent in the contract that they will respond within 10 days but really they take 15-20. It is more common in this market for the other party to not strictly abide by the contract generally due to bureaucracy with banks and lenders.  

4.  Appraisers – Some appraisers are working in areas in which they aren’t familiar. I just had an appraiser from Oregon appraise a home in Bellevue, WA. This was his first time to Bellevue. This happens because of the new HVAC appraisal rules created to protect the consumers and lenders and to maintain an arm’s length between influential loan officers and appraisers. But the unintended side effect was that you have appraisers in areas they don’t really know much about. This could result in inaccurate values and even the appraisers making calls for repairs for a home that aren’t mandated in that area.     

5. Non-Published MLS Comparables -  Most agents and appraisers get their stats from the MLS. But with the influx of unpublished Trustees’ Sales (foreclosures) many declared home values are inaccurately high because the foreclosure that sold down the street wasn’t taken into consideration when pricing the home. The repercussion is that when you go to have an appraisal, the appraiser may take these into consideration and home may not appraise if the offer was close to asking price. Then there is the question of should a beat up foreclosure, although right down the street, even be valued the same way as regular old resale home? That’s the debate.  And since Trustee’s Sales occur weekly everywhere, the landscape and the effect of these foreclosure sales on neighborhoods changes constantly.

6. HUD/FHA Approval for Condos – If you are the buyer or seller of an FHA condo, in most cases that condo is going to need HUD approval in order for the sale to happen. However, fewer and fewer condos today have HUD approval. HUD stopped renewing approvals unless condo associations renew under the new guidelines.  However, even if a condo has HUD approval, in rare cases, the lender still may not approve the association. And the process is such that you have to generally don’t know if the condo will be denied for financing until a few weeks into the process.  

7. Lender Guidelines -  In many ways the lenders, government and real estate markets are still in a major adjustment period. This is the main reason real estate is more of an art now than a science.  Lending was loosey-goosey to say the least (thank goodness the days of the stated loan are over) and now in the post-boom world, the pendulum has swung in the opposite direction.  Lending guidelines are tighter than they have been in years.  As you read, lenders and the government are still trying to develop systems to handle the influx of foreclosures and short sales. Finding a working system to facilitate them is a work in progress. The lenders and government are trying to pass regulation to protect the consumers and the future economy. The real estate agents are reacting to the effects as quickly as they can.

Ways we can cope and win when real estate is acting more like an “art”:

1. Be Organized and Alert Your Boss- Lenders are picky for paperwork and documentation in ways I have never seen.  True story:  I had a buyer who represented on her loan app that she works 40 hours a week. Her pay stubs showed that she clocked an average of 39.8 hours every week. The lender wanted her boss to write a letter of explanation of where the missing 12 minutes went.  Have your files handy, keep meticulous records, file your taxes on time, let your boss know they’ll have to help you document your employment, and just go with it no matter how overzealous it may seem. The end result is well worth it!

2.   Learn to Om - You will experience the inexplicable. Banks will respond to you with answers that don’t make any sense.  It will require utter patience as you wait for months for a response from a short sale representative. You may never get a response at all. Being patient and flexible actually IS the way to have control over the times you feel you don’t have much control.  Roll with the punches for your own sake and stress levels. 

3.   Forget the Money and Examine Your Personal Motivators- Imagine that money doesn’t come into play. Would you still want o buy a home without the promise of appreciation or tax benefits?  Why do you want to own a home? Many would say because they want a place they can call their own, or get their kids into a nice neighborhood, or reduce their commute.  Examine your motivators for buying. When you know your own personal motivators for owning a home and you clearly know what’s important about buying or selling to you, it’s easy to make tough decisions during the sale. When the bank in the short sale comes back with a sales price $10k higher than you offered, you’ll be able to ask yourself, “Is it worth paying $10k more if it means getting my kids into better schools this year?”  You can then make that decision with clarity.      

4.   Give Yourself Double the Time – Everything in this market takes double the time that it normally does. Lenders are backed up and banks can take weeks to respond. Count on it taking 45-50 days to close rather than the standard 30. Meet with a loan officer and Realtor in January, not April,  if your goal is to get a great deal and find a home by July.  

5.    Work With  an Active Agent – It’s really to your advantage to work with an active Realtor doing multiple deals a month. Admittedly there is a learning curve even for us agents in this market. Every single transaction brings new challenges and insights. The only way for you to get the best advice is to work with a Realtor who has very current experience and lots of it. And even when the Realtor is very active, we have a solid grip on about 90% and the other 10% is estimating based on our experience.      

6.   Hire a Negotiator for Short Sales- Don’t venture into a short sale without employing a negotiator. It is worth the fee you’ll pay because the probability of closing on your sale without one is very low.  Some agents are qualified to negotiate short sales but the reality is that they have a lot to work to do aside from the regular transaction and a professional negotiator will up your odds of closing and ensure that enough attention is paid to that portion of the negotiation. It’s fantastic if your agent has short sale experience but it’s best not to expect your Realtor to be a jack of all trades.