Real Estate Community Forum

Everyone talks about hammering sellers to get the best price – about getting every dime you can out of a transaction. Last week a friend of mine was bragging about how he got this old lady to sell her house to him at 50% of it’s value! He’s going to make a big chunk of money on it too. Here’s my question, HOW DOES HE SLEEP AT NIGHT??? Maybe I’m just “too nice” and maybe I’ll always be just a working stiff, but I don’t want to do business that way. It seems like to be an investor, you have to be a real shark these days. Does anyone do business in way they wouldn’t be ashamed tell their Mom or their kids about?

It is not easy to find stories of fair business practices in any area. “Let the buyer beware” is a phrase that was not invented yesterday, and it applies to sellers as well as buyers in the housing market.

I did have an occasion to make a very difficult decision regarding the purchase of a house. It was a fine house that I wanted, could afford, and placed an offer on. The seller accepted, and was prepared to make their own offer on the house that would better fit their growing family. In escrow, the deposits were made on both sides, the papers were signed (in California that will take the better part of a fair-sized tree) and we were waiting for the escrow period to run out. Then I got a phone call from the escrow office. “We really don’t know how to begin this because it has never happened,” my friend and escrow officer said. Apparently the seller started moving into the house they planned to purchase, only to find out the wife and mother was seriously allergic to something in or around the house. Allergic enough to become very ill, miss work, and within a week, suffer moderate depression symptoms. She begged her husband to move back to the house they had sold me, and live there instead. The escrow officer asked me what I wanted to do. I responded that I wanted to think about it. It didn’t take long. They paid all the costs of the escrow and I got my deposit back in full. I’m sure they paid much more than that to cleanly end the purchase of their home. What else could I do? The only real investment I had was the fees I had paid, and that was returned. They, however, had a family crisis, a health issue, and a lot of cash invested that was going to be lost. These people have remained my friends since. They sleep happier in the “old” house, and I sleep very soundly as well.

Before I dropped my two cents into this bucket, I wanted to make sure the currently accepted definition is the same as the one I learned so many, many years ago. Honestly, in my area, the Real Estate professionals are doing pretty well, as far as I can see. Ethical: Being in accordance with the accepted principles of right conduct or practice. (from Dictionary.com) If everybody were in accordance, it seems everybody would benefit from a real estate transaction and the business would be good, if not booming. I guess what confused me is that the housing market has dropped so far into a hole.

I had an idea though, and so far nobody has been able to say it is wrong. When fingers started pointing at profit schemes that hid “bad” mortgages in with other investment vehicles, it seemed a pretty attractive bandwagon. So mortgage lenders got whacked in the media. Investors stayed away from mortgages in droves. Soon there were lots of foreclosed houses for sale by the mortgage holders. Realtors began “foreclosure listings,” and in my area, “foreclosure tours.” They actually took potential buyers to foreclosed properties like they were homes of movie stars in Beverly Hills.

In my area the value of a home has dropped to 60 percent (or less) in one year. Review the properties that have sold during that time and you will find that eighty percent were foreclosed properties. So foreclosed property prices are causing home values to drop. Mortgage holders are pricing the homes for less than the market value. A fairly priced home just doesn’t sell. A little more checking and I found that mortgage firms and banks are actually pricing foreclosed homes for less than the county appraisals, less than insurance company replacement values, and much, much less than a contractor will tell you it would cost to build a new one with the same features. I must conclude that mortgage holders are causing a crash in housing values, and they are doing so in order to get themselves out of the mess they created in the first place. Is this smart? Wouldn’t pricing the foreclosed properties at a level close to their replacement value end up making the lenders more money? Like any homeowner, shouldn’t they have the patience to wait for the buyer who wants and needs that house? Shouldn’t they invest a little in fixing it up inside and out to attract such a buyer? Every realtor I’ve spoken to about this has agreed; it will take an organized effort on the part of mortgage lenders to correct the problem. If this doesn’t happen, the number of foreclosures on the market will have to drop. It didn’t take very much for lender after lender to get in line for federal support. Why wouldn’t they put forth the effort to do the right thing instead? I guess the better question would be, “Is this ethical behavior by mortgage lenders and banks?”