What You Need To Know About The Current Real Estate Market - Part III

Typically, the real estate market is either neutral, controlled by the seller or controlled by the buyer. However, in today's market we are dealing with an anomaly not seen since the early '90s; The Short Sale! In this commentary I will cover details of a market controlled by a new player; The Lender.

In part I of this commentary I described the characteristics of a seller's market, which is what we experienced from about 2002 to 2007. A seller's market typically results in rapid home price appreciation and many buyers are unable to buy because they are simply priced out of the market.

In part II of this commentary I described the characteristics of a buyer's market, which we began to experience in late 2007. But that lasted just a year or so, until lenders became the sole decision maker in a very high percentage of home sales due to short sales and foreclosures.

A lender's market resembles and shares characteristics of both a buyer's and a seller's market, yet has some of its own distinctive characteristics, as evidenced by the following:
1) An abundance of homes for sale, giving buyers greater options
2) An abundance of interested, qualified and active homebuyers
In this case, the dynamics of supply and demand are tilted on their side because there are plenty of homes for sale and plenty of buyers ready, willing, and able to buy them.
3) Real estate agents and lenders tend to list homes for sale for significantly less than the homes actual value in order to generate multiple offers
4) Virtually every home has multiple offers; some as many as 40 offers
5) Homes tend to sell for more, and sometimes significantly more, than the asking or list price
6) Offers to purchase can require multiple approvals; first is acceptance by the seller of the home, and in the case of a short sale, a second approval by the lender(s)
7) Lender approval on a short sale can take several months, leading to a great deal of frustration for the buyer, the real estate agent, and the buyer's lender
8) Homes are offered in "as-is" condition
8a) Termite inspections are routinely excluded
8b) Requests from the buyer for repairs are denied
9) Lenders tend to dictate the terms of the purchase contract
9a) Lenders tend to shy away from FHA and VA offers (I will cover this in more detail in a future commentary)
9b) A disproportionate amount of all cash offers, which tend to be real estate investors either looking to fix up the home and flip it for a profit or hold until the market rebounds
9c) Lenders will entertain a credit to the buyer for closing costs, though there are certain lenders that simply refuse to pay the buyer's costs due to some "company policy"
9d) Lenders rarely entertain contingent offers, which are offers contingent upon the buyer finding a buyer for their own home. This isn't typically a problem in today's market because most home sales are to first-time buyers
9e) Time frames for appraisal and loan approval contingencies, currently 17 days from date of acceptance, are strictly adhered to, if not shortened or removed entirely
9f) Contractual deadlines, while not strictly adhered to, are taken seriously
9g) If contractual deadlines are extended, fines can be imposed and can range from $50 to $200 per day until the transaction closes
9h) Earnest money deposits tend to be increased 10) Whether the home is a short sale or a foreclosure, the buyer's offer must include, at a minimum, a letter of qualification or even approval from a lender, and, in many cases, the buyer is forced to speak with a "preferred lender" of the short sale or foreclosure lender to determine the buyer's ability to perform There you have it; the major differences between a seller's market, a buyer's market, and, the newly defined, lender's market. While the seller's market and the buyer's market have characteristics almost exactly opposite one another, the lender's market exhibits characteristics of each, but has some very unique characteristics of its own.

My conclusion is that we are currently in a lender's market, but one where the buyer still plays a major role. I hope you found this information helpful.