[quote=CA renter][quote=eavesdropper]
While I do firmly agree that the “worth” of a property is what someone is willing to pay, I don’t believe that this is the dynamic at work when a lender preemptively sets a price that is far below most of the recent sales in a neighborhood. And forcing appraisers to cherry pick sales is not a way to “normalize” the market – no more so than when it was done when prices were on the upswing.
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Trust me, if the house is worth $400K (or more) and the lenders are listing it for $300K, they will get multiple offers in the $375K to $425K range. I’ve seen this over and over and over again this past year. However, if the lenders are listing homes for $300K, and other hopeful sellers are listing for $450K (and not selling within the first 60 days), then it’s the lenders who are getting the prices right, while the “regular” sellers are having a difficult time coming to terms with the real market values of their houses.
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CA renter, you are on the money with your statement about prices not being set correctly if there hasn’t been sale within 60 days, and I am in agreement 100%. It’s for that reason that I specified “recent sales” and not “recent listings” in my earlier post. Any lender, or realtor for that matter, who uses listing prices as setting the worth of a house isn’t doing their job. But it’s just not right when they’re setting prices well below recent sales. And they’re not getting multiple offers, either. Much of the DC market is priced well below what the SoCal market was. So a $450K house is definitely a “move-up” house for many people who live here, which means that people have to sell their existing houses first. And there’s not a lot of buyers around here with the funds to speculate on bargains. Our selling atmosphere is getting a little more brisk, but it’s not what yours is. It’s mostly centered on $150K to $300K properties, or on some of the late-constructed luxury developments $800K to $1.2 mil that were bought for top dollar as the market started to slide, resulting in lots of defaults.
The scenario I laid out in my post was not a personal experience, but has been taking place in a community near mine. I went through an experience that is more in line with what you’ve mentioned above. Our last child is in h.s., so we decided to downsize in Sept. 2007. We narrowed our search to an very popular upscale townhome development in a Chesapeake Bay community that was built in 2003. During the salad days of 2004 thru 2006, their prices rose from an avg of $400K to a high of $700K. It was Feb 2008 by the time our existing house was ready for the market, and it was the first time that people in this area were acknowledging a distinct downward trend in pricing (Sales of houses had definitely slowed over the prior year, but excuses for this abounded). My belief was that this “housing correction” was going to take several years, so I figured that we were going to take a hit on whatever we settled on. So I set about finding a development that had the best chance of recovering when prices began to rise again, and getting it for the lowest price possible. However, all of the 10 or 12 houses we looked at were listed at between $575K and $700K. A property came on the market listed at $495K. The seller, who had already started to construct a large luxury home a few miles away, obviously hadn’t gotten the memo that it was a buyer’s market, and it was a really tough fight to get him down to $465K. I’m pretty sure he set the price thinking that it would pull in multiple offers. The reason it didn’t was the same reason we slugged it in negotiations. An exhaustive search of the tax records revealed that out of 23 sales in the prior 18 months, 22 of them were below $523K in price. 19 of them were below $500K, and five sold for between $450K & $465K.
I don’t know if the reason that the listing prices were so much higher because sellers were insisting on it, or because the LAs hadn’t done their homework and, and as a result, had not advised their clients properly. All I know is that a lot of homes didn’t sell, and were back on the market a year later at the prices they should have been a year earlier. But, because prices had continued to slide, they were still chasing the market. Case in point: my neighbors. Gorgeous property, 3300 sf. Initially on market at $700K in summer of ’07. Down to $659K when we started looking in early ’08. Reduced to $600K in May ’08 when we bought. Got a contract, but sale fell thru in 8/08, because lender wouldn’t approve price (probably because ours had sold for $465K a few months earlier). House finally changed hands in October ’09 for a sale price of $500K.
I can’t speak for your area, or even most of the DC area, but I know that there’s been a ridiculous amount of talk about “what my house is worth” in my county (Maryland, 30 minutes east of downtown DC). I do know that there were a lot of HELOCs taken out in these parts, and people were using their mortgage amounts as estimates of “worth”. And still are, as you can see from UC Gal’s posting about the HGTV show, “Real Estate Intervention”. What’s happening is that they’re talking themselves straight into a short sale. In general, a lot of the residents here remain in serious denial about what’s happening in housing. It took me 3 years to convince my husband to move, but at least he saw the light before it got too far into the slide, and we managed to collect most of the “value” that had accrued in the aughts. But we made sure the house was model-perfect, and set a selling strategy with which we stuck, that included significant price reductions when indicated.
