- Sacramento Real Estate Adventures - Your Sacramento Real Estate and mortgage blog!

It seems like the perfect match... You have a Seller who is offering a home for a set price and a Buyer who is willing to pay it!

That should be the end of the story right?  NOT ALWAYS!

REO homes (homes now owned by the bank that have been foreclosed on) are dominating the market and take up a large percentage of the properties being bought and sold right now in Sacramento.

This circumstance, along with tightening credit requirements, has created a unique set of circumstances for pretty much anyone involved in the real estate market right now.Banks are facing huge losses to their bottom line right now. Not only from the losses on the homes being taken back, but those REO inventory homes on their books directly affect how much money they can lend to borrowers.

Because of this, the majority of banks are trying to position their properties to be "the next house to sell" by dropping the listing price way below others in the same area. This certainly gets attention for their listing, but also contributes to the decline in our market place here in the Sacramento area. Some areas within Sacramento are seeing a 5% decline in value every month.

This technique is great news for Investors and First Time Home Buyers that are seeing affordable home prices that we haven't seen in years... BUT is wreaking havoc for non-REO sellers such as private parties or builders.

This competition with REO (Bank Owned) listings is horrible news for private party sellers and already heavily hit home builders. They are now having to compete with REO values to not only attract the attention of the homebuyer looking for the best value, but also meet the lender's tougher scrutiny of value before the loan can be funded. Banks are often asking for multiple appraisals (in addition to their internal evaluation or AVM) and are requiring more and more recent comps.

Also, another factor complicating the evaluation dilemma is on May 1^stthe Home Valuation Code of Conduct (or HVCC) goes into affect. The assignment of the appraisal will now go to a clearing house of appraisers where the individual performing the appraisal is completely left to chance, not necessarily performance.

Read our Blog regarding the new Home Valuation Code of Conduct >>

So now that you are in contract.. we have to check the value with an appraisal!

This can prove to be a challenge as new bank owned homes come on the market every day!  Homes are also being sold every day and the lag time between when the appraisal was completed (comparable properties determined)and the final review and approval by the Underwriter can be weeks.

Having such movement in the Sacramento Market, especially in the under $200,000 price range, is like trying to hit a moving target in regards to getting a solid appraised value. 

There have been circumstances where at the last hour the Underwriter decided that we needed to use a comparable property that had closed just a couple days previously.  This forced the purchase price down and everyone had to go back to the drawing board at the last minute to renegotiate!

Here is what happened:

Assume for this discussion the following: sales price is $200,000, the Buyer will obtain an 80 percent loan ($160,000), and provide a down payment for the difference between the loan amount and the sales price ($40,000). If the house appraises at $200,000 or more, the lender will be able to make an 80 percent loan.

However, if the house only appraises at $180,000, the Lender/Bank will only allow a loan amount of $144,000 (i.e. 80 percent of the appraised value). In order to buy the house for the full contract price, the Buyer will have to come up with another $20,000.

So the moral of the story is to make sure that the house you listed for sale or the home you will be buying is priced correctly!  Have your Real Estate Agent run a comparable market analysis on the home BEFORE you write the offer so you know if it is even in the ball park!

The only other advice I can give you is to trust your Realtor!  This is what they do for a living and will know right away if there is an issue with the purchase price!

This blog by:

Team Newington
Sacramento Mortgage Planners
(916) 687-6868
www.SuperiorLoanTeam.com

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