Why do banks think investors are scammers? Why? because of articles like this.

There has been alot of talk about arm's length transactions lately and the banks "new" addenda needed.  There has also been talk of flippers, floppers, scammers, investors etc.

If we want to know why the banks think everyone is trying to scam them, read this article and the thousands of others like it.

Like it or not, this is what we have to deal with.

Scammers always seem to make a buck in tough times

Here are a few paragraphs.

 

'One of the more glaring results of the CoreLogic study was that short sales resold on the same day had an average of a 34 percent gain ($56,947) between the sale prices.'

According to the study, “suspicious” transactions are short sales that might have caused the lender to incur unnecessary losses. “Suspicious” short sales are defined as:

• a new transaction less than one month after the short sale where the new sale price is at least 10 percent higher than the short-sale price;

• a new transaction less than three months after the short-sale where the new sale price is at least 20 percent higher than the short-sale price; or

• a new transaction less than six months after the short sale where the new sale price is at least 40 percent higher than the short-sale price.

The study examined more than 450,000 single-family residence short-sale transactions in the past three years. It noted that some legitimate property rehabilitation and “flips” — where repairs and improvements were made — have occurred within the “suspicious” time frame.

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PM me and I will give you my number to call.

Gina Serra said:
Please let me know if you invest in MN. I would love to work with you on our short sale and investor properties.

The Negotiator said:

As a short sale flipper, I am proud to say that I have made short sales happen when a traditional short sale would have sent the homeowner to auction, guaranteed. We can do things that nobody else can't... for example:

1. I paid 5k at closing that the lender wanted from the homeowner. My profit went from 8k down to 3k .. NO PROBLEM!

2. I increased my offer 50k in order to get full satisfaction for the homeowner. MY profit went from 60k to 10k .. NO PROBLEM!

3. A homeowner had an auction set inside of 45 days and they were NOT going to postpone. My investor offer went in immediately, got the title cleared, the letter of approval and offered a fast closing to a buyer who lived next door. I did not make a dime on this one because we had no time. NO PROBLEM! A traditional short sale would have never closed in time, because how long would you have to wait for a buyer?

4.THE LIST GOES ON!!!

 

The point is simple. Would a retail buyer increase their offer 50k? Would they pay 5k at closing for the homeowner? Would you the agent pay 5k at closing (60k sale?) The answers are simple .. NO! But, because an ethical investor like me was in charge and doing things the RIGHT WAY, deals are made possible where they would die without me.

 

Whats the average short sale closing percentage now? Last year, nationally, less than 25% closed because of problems in my examples... maybe YOU should work with an ethical short sale investor like me! (In Florida!)

 

P.S. My agents make 6-9% commission and do not touch the dirty negotiating work when they would only make 3% without me AND do all the negotiation work! It's a win-win-win-win-win-win-win-win-win

Johnathan

How did everyone respond to that.  They really need us more than ever to get and keep deals together.

 



Jonathan Osman said:

I just returned from a loss mit conference and this was one of the high topics of discussion.  Many vendors were showcasing software to circumvent the real estate agent and have offers presented directly to the asset manager, investor, hedge fund manager, etc.  The assumption was that since they don't know who to trust, they will trust no one.

It's true. These things happen all the time. But banks need to admit something: they are the one that order the appraisal and receive the FMV. If investors are the one that purchase the properties and then try to resell it it should not be a problem as long as there is no fraud or any misrepresentation to the bank. 

I have a transaction right now with BofA where the buyer is an investor. The bank gave us a counter back based on the FMV and the investor accepted. Would you consider that the investor is doing something illegal if he purchase the property at what the bank considers FMV? 

Everyone should read the article written by Ron Ballard.  It's a VERY detailed LEGAL EXAMINATION of Core Logic's report.  No one explains this stuff better than Ron Ballard....and he's a California Attorney that fully supports short sale flipping and does a great job of explaining why it's perfectly legal.

Go to:  http://californiashortsalelawyer.com/

Look for the article on the home page, entitled, "Exposing Fallacies in the CoreLogic Suspicious Short Sale Report"

You'll need to register - don't worry, IT'S FREE - to read the whole article.  (Rest assured, he doesn't SPAM.) 

He simply uses his email list to send out new posts he writes....and they are ALWAYS very educational, sifting through the "noise".

 

On a similar vein - I believe short sales and REO's should not be allowed to be used in appraisals.  However, if they are to be used, the listing agent should be required to put in the remarks on the listing when it closes, the amount of the Promissory Note, if one was negotiated.  I'm about to close a short sale.  It will close for $100,000, and the seller is signing a Promissory Note for $100,000.  The bank will be "losing" $46,000".  This closed sale is going to show in the MLS a sale price of $100,000, rather than $200,000.

 

Also, if a lender is being "reimbursed" or "subsidized" by mortgage insurance or bail-out money, that information should be provided/REQUIRED when an appraiser uses that sale as a closed comp. 

 

If we are forced thru HVCC to deal with these assinine AMC's, maybe they should do a little more to provide a real look at valuation, since the lenders own the AMC's and should be privy to the reimbursements, Notes, etc.  Just sayin'

 

I'd love to hear some comments on this.

Jackie, I denfinately understand what you are saying here but market value is what someone will pay for the property regardless of how much the seller brings to closing.  Lets say that I owe 1,000,000 on my home and can only sell it for 400,000 which is pretty typical here in Florida.  I sell my home and write a check for $600,000 to sell it, another thing that I have seen.  Does that mean that my home is worth 1,000,000?  Not likely.  I think that the best comparable to the subject needs to be used.  I also think that MLS should require more details of a sale such as condition, and repairs needed to close the sale.  If a short sale is in good condition and sells then it should be able to be used as a comparable to another good condition sale.  If it needed $50000 to bring it to the same condition as the subject then the appraiser should make the adjustment.

My thought is that Fair Market Value is what a ready willing and able person will pay for the property. 

Jackie W. McDermott said:

On a similar vein - I believe short sales and REO's should not be allowed to be used in appraisals.  However, if they are to be used, the listing agent should be required to put in the remarks on the listing when it closes, the amount of the Promissory Note, if one was negotiated.  I'm about to close a short sale.  It will close for $100,000, and the seller is signing a Promissory Note for $100,000.  The bank will be "losing" $46,000".  This closed sale is going to show in the MLS a sale price of $100,000, rather than $200,000.

 

Also, if a lender is being "reimbursed" or "subsidized" by mortgage insurance or bail-out money, that information should be provided/REQUIRED when an appraiser uses that sale as a closed comp. 

 

If we are forced thru HVCC to deal with these assinine AMC's, maybe they should do a little more to provide a real look at valuation, since the lenders own the AMC's and should be privy to the reimbursements, Notes, etc.  Just sayin'

 

I'd love to hear some comments on this.

I think if the property is a short sale, then ABSOLUTELY short sales and REO's should be used.  It's not apples to apples if they aren't.  If there are two identical properties on the same street and one is a short sale and the other isn't, which one do you think will sell for less $$$$$?

I can't STAND it when a BPO agent uses comps for "traditional sales" against a short sale.  Now if there is nothing else to use, then they have to, but I've seen short sales go South because of this.

We have to stop treating all property like it's equal because it isn't.



Smitty said:

I think if the property is a short sale, then ABSOLUTELY short sales and REO's should be used.  It's not apples to apples if they aren't.  If there are two identical properties on the same street and one is a short sale and the other isn't, which one do you think will sell for less $$$$$?

I can't STAND it when a BPO agent uses comps for "traditional sales" against a short sale.  Now if there is nothing else to use, then they have to, but I've seen short sales go South because of this.

We have to stop treating all property like it's equal because it isn't.

I know that every area is different.  Fair Market Value is what a buyer will purchase the property for at an arms length.  If a property is on the market at $200,000 and the best offer that comes in is $160,000, that property is not worth $200,000.  It is worth $160,000 no matter if it is a short sale, foreclosure, or equity sale.  If it were worth more than that, then a buyer would have made an offer that reflects a higher amount.   The market determines the value, not the type of sale.  We see REO properties all the time here that have been renovated and are in like new condition and they are priced aggressively and get multiple offers.  99% of the time they are offered to owner occupants ONLY for the first week or so and they usually end up with a highest and best offer situation.  the buyer makes their best offer and the property sells at market value.

I don't ever buy the fact that a short sale once it closes is worth less than a like comparable that is not a short sale, at least not in Florida.  I know that there are those that work with investors that buy at what appears to be a deep discount but if that property was worth more than the price they pay, there would have been other interest from other buyers unless the listing agent is playing games.  The demand for that particular piece of real estate is what will determine its selling price.

Again, I believe that to assess Fair Market value, the appraiser should use the most similar comps in regards to size, age, construction material, location, bed and bath count, lot size and condition no matter what type of sale it is.  The appraiser should also ask alot of questions and take a look at market times and look at price reduction and what price it took to get an offer.

The original post is why do banks think investors are scammers?  This is another reason why in my opinion.  We as agents want to convince the bank that the property is worth less UNTIL it comes time for the buyers appraiser to come out and find comps, we then want to convince them that the property is worth much more.  FOR THE RECORD, I don't think MOST investors are scammers, I posted this because someone wanted to know why the banks think investors are scammers.  Remember that perception can be seen as reality.

Smitty said:

I think if the property is a short sale, then ABSOLUTELY short sales and REO's should be used.  It's not apples to apples if they aren't.  If there are two identical properties on the same street and one is a short sale and the other isn't, which one do you think will sell for less $$$$$?

I can't STAND it when a BPO agent uses comps for "traditional sales" against a short sale.  Now if there is nothing else to use, then they have to, but I've seen short sales go South because of this.

We have to stop treating all property like it's equal because it isn't.

I don't think once it CLOSES it's worth less, but the only reason a short sale is worth less is because it's DISTRESSED, therefore the homeowner has a compulsion to sell AND it sees less marketing time overall.  I think once it's listed as a distressed property, it fetches less.

 

A short sale and a traditional sale of the SAME EXACT HOUSE at the same time, on the same street, will fetch two very different values - In the short sale, the homeowner is under the gun to sell, and in the traditional sale the homeowner may not need to sell, can keep it on the market as long as he wants, take it off, sell it next year, keep it on the market for two years...see where I'm going?  Two different values for the same property.  Appraisers know this, but most real estate agent don't.  Distressed property sells at a LIQUIDATED VALUE...not a fair market value.  That's why REO's and Short sales sell for less than their traditional sale counterparts.

This is a pretty good article about it, although not 100% real estate focussed.

http://seekingalpha.com/article/114234-pick-your-poison-fair-market...

 

Smitty I think we could go back and forth all day long on topic like this.  The reason a short sale would sell over an non short sale that is exactly like it is simply the price is lower. If the non short sale were priced the same as the short sale, which one would sell first?  Assuming that the non short sale is in the same condition and can close in 30 days, which will sell faster?  In my market, anyone that bought before 2004 and did not refinance and need to sell can easily out sell the short sale all day long.  I believe the biggest thing that would make a short sale worth less than its non short sale counterpart is the fact that it could take several months to close.  Assuming todays FMV of 200,000 and a declining market of 1 % per month, a buyer may think about offering what they anticpate the market to be in 6 months. 

Each area is different, I study my local market very closely, fortunately it is small enough that I look at EVERY sale that occurs and have yet to see a short sale sell for much less than what would be considered FMV.  I have yet to see one that looked like the lender agreed to a sales price of 80% of the appraisal or BPO which would mean a 30% discount after expenses from appraised value.  I call those the Urban Legends of Panama City Beach.  If they did occur, they would stick out like a sore thumb.  I know they occur is other areas but they are as rare as hens teeth here.

Back to the 2 homes in the neighborhood that are exactly alike, lets assume a 200K house and the short sale sells for 80% of 200K that the non short sale is asking, that is a selling price of 160,000.  Now there is not a chance in heck that the non short sale house will EVER sell for 200K if the exact same house just sold for 160,000.  No buyer in their right mind would pay 200K when the next door identical house just sold for 160,000. 

In the neighborhood that I live in I have seen REO sell for more than the non REO non short sale counterparts because the banks priced them for multiple offers and got buyers emotionally into a bidding war. 

The fair market value of anything is determined by what someone is willing to pay for it.  Most of the time, people dont pay more for something if they can buy it for less.  Cars, boats, motorcycles, homes, clothes, shoes, etc

Smitty I do appreciate your input and LOVE to debate about these things.  I respect your opinion and value you as a member here.  I just have to disagree respectfully :)

Jeff, I'm sorry, but I just read what you wrote and can't find anywhere necessarily where we disagree.  You basically said the same thing I did but in reverse. I would love a good debate but I can't debate what you wrote because it is the same thing.


So are you saying everything in your area sells for list price?  ASSUMING list price is fair market value and a list price of $200,000 for a distressed property is on MLS, you're saying you don't ever see it sell for $180,000 or $170,000?


I 100% agree with you NO one is going to pay more for something they could get for less (although I have to eat crow on that too because I have a deal right now where a developer wants a property and is offering WAY more than list) so there are the urban legends.  ( in reverse ) but, for the 99% of the other listings I see you're on the money, which is why to me, a house that is overpriced and sticks out like a sore thumb is USUALLY one in which the seller has all day long to sell it and doesn't care it's overpriced or whether it sells OR it's an agent who is trying to appease a not so smart homeowner who THINKS their house is worth WAY more than it is.

 

In the case of the REO bidding war, hey, Kudos for the bank.  They were smart enough to UNDER price something and get multiple offers.  Remember we had the conversation about if I can comp it, even though it's low, I'll list it there?  Well, I've done that and guess what happened?  yes, multiple offers.  It's a different marketing strategy.  It worked and sold and it was a short sale.  I've also started in the middle of the pack and then done gradual decreases.  Depending on the homeowners situation I take different marketing tactics.  Either way the same property with the same beds, baths square footage and areas sold for LESS if it was a short sale or REO - normally. 

I actually think we are saying the EXACT same thing.  I have a very good friend who is an appraiser who has really enlightened me on why REO's and Short Sales, are liquidated values and not FMV.  They will always sell for less than a property that is not distressed.

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