patrick.net

Frustrating example of what this market is like right now...

There's a 1,600 ft house in Danville that would have probably been worth $650,000 last Fall. It came up for $750,000 this last week.

10 offers later, it's going to end up over $800,000 with no appraisal contingency. My buyers couldn't justify going that high.

At this pace, it'll be $900,000 by the Summer. And that's probably right about where it would have been at the peak in 2006.

Rent, roberto, is probably around $3,200/mo.

well you if compare the monthly payment on the 2006 home priced at 900k at 6% rate to todays 3.5% rates at 900k then house payments are still way cheap compared to 06.

The whole RE sector is a 'howmuchamonth' model. except for cash investors and they are buying like never before. ZIRP is crazy making.

gregpfielding says

no appraisal contingency.

I was just talking about that with another agent about how some one could waive the must appraise clause. That is something beteeen the buyer, and the lender.

So the buyer, in theory would be bringing the difference in loan amount, and purchase price to the table.

So far, neither she, or I have heard of a property not appraising, but if it didn't I don't see where the buyer would be obligated to perform.

I'm not an attorney, but it seems to me if a property is listed for sale at a certain price, that is the price the seller is expected to pay a commission on. That is the asking price. The bid price above that would be a gift, an inducement.

In other words, if the buyer is still willing to perform at the appraised price, and that price is above asking price, I don't see who would fight it. The buyer could stick with the appraised price, and say take it or leave it.

You can't sign a document to hold up in court over an unkown quantity. No one would know what the appraisal will come in at.

The agents who drafted the documents would be pretty much stuck. Who will fight the battle if the buyer is agreeing to a price above the list price?

BTW this is getting to be common in Seattle, and comps are getting harder to find due to low sales volume.

David Losh says

In other words, if the buyer is still willing to perform at the appraised price, and that price is above asking price, I don't see who would fight it. The buyer could stick with the appraised price, and say take it or leave it.

Wrong.

The asking price means nothing. It could be much higher or lower than the contract price.

If the buyer has not waived the appraisal contingency, then, yes, they could request that the purchase price be lowered accordingly. The Seller could then agree or move to cancel the contract and find a new Buyer.

Remember that this scenario really only comes into play in multiple offer situations. Buyers are choosing to remove their contingencies during bidding to make their offers more appealing. And, realistically, they have to if they want a chance at the house.

If a Buyer had no contingency and the appraisal came in low and the buyer refused to pay the agreed upon contract price, that buyer would be at risk of losing their earnest money deposit.

SFace says

The buyer can stick with the appraised price based on what?

I'll take this one.

Number one Real Estate agents don't write contracts, they write agreements. A Real Estate agent isn't an attorney, and an attorney would recommend not signing a waiver, in writing, that the buyer would also have to acknowledge.

The buyer, and seller are kind of stuck with arbitration. The seller can sue for specific performance, but really, who would want to?

All the waiver does is open up a future negotiation.

The buyer, and seller are only obligated to the list price. We might change the terms, and inducements, but the bottom line is that the seller has offered to sell at that price, and as long as the buyer is willing to pay above that price the commission portion is set in stone.

I love it when Real Estate agents start jumping around like they have some magic powers. In court anything can happen, so you don't want to go there. Everyone is expecting the Real Estate agent to get the deal closed without a bunch of fuss.

Sorry guys, you can throw in all the language you want, but when it comes to push versus shove courts decide usually for the buyer.

Have either of you ever been to court over a commission?

We are in a weird time, a new market place, so to say this is the way things should be doesn't cut it.

gregpfielding says

Buyers are choosing to remove their contingencies during bidding to make their offers more appealing.

Unfortunately the buyer at the point of paying for an appraisal has monetary consideration. It isn't just pulling the offer and going onto the next one.

The appraisal is now done, and goes onto the table. Does the appraisal amount get disclosed?

Does the buyer's agent, or the listing agent ask for proof of funds to close if the property doesn't appraise for enough?

How would any one know at the time of the offer what the appraisal will come in at, or how much money a buyer may have to bring to the table?

Like I said, it's weird times, but I have seen it before.

It's a mess when agents start talking like lawyers.

David Losh, please stop giving poor advice based on nothing more than the theories you pull out of your ass. The inexperienced may not understand enough to dismiss your ridiculous statements and you are doing them a disservice.

David Losh says

Unfortunately the buyer at the point of paying for an appraisal has monetary consideration. It isn't just pulling the offer and going onto the next one.

The process in California is this: If a Buyer is failing to perform as the contract requires, then the Seller can give the Buyer a 48-hour notice to Perform or Quit. If the Buyer then still does not perform, the Seller may unilaterally cancel the contract and move on to the next Buyer or put the home back on the market. Whether or not the Buyer has spent any money on appraisals or inspections has NOTHING to do with it.

David Losh says

The appraisal is now done, and goes onto the table. Does the appraisal amount get disclosed?

If the Buyer had to appraisal contingency, the amount is irrelevant. The Seller doesn't care what it is.

David Losh says

How would any one know at the time of the offer what the appraisal will come in at, or how much money a buyer may have to bring to the table?

It's something all Buyers have to carefully weigh. With my clients, we look at all of the comps and try to best guess what the house will appraise for, and we also imagine a worst-case scenario. If the Buyer doesn't have the cash or isn't willing to spend it, then we don't make the offer.

David Losh says

It's a mess when agents start talking like lawyers.

No. Real estate agents are acting like real estate agents. And this is a time when the great ones can really help their clients be successful. Our California Association or Realtors contracts are crystal clear when it comes to contingencies and risks.

David Losh says

A Real Estate agent isn't an attorney, and an attorney would recommend not signing a waiver, in writing, that the buyer would also have to acknowledge.

Fine. A lawyer might recommend not waiving the appraisal contingency. And that buyer will probably not get their offer accepted.

I would never recommend that a Buyer remove the contingency unless it was absolutely necessary, they had the cash, and they clearly understood the consequences. David Losh says

The buyer, and seller are only obligated to the list price.

This could not be more wrong.

David Losh says

I love it when Real Estate agents start jumping around like they have some magic powers. In court anything can happen, so you don't want to go there.

No, you don't want to go there. Which is why you follow through with the agreed upon price in the purchase contract rather than play bs games regarding the list price or appraisal value.

SFace says

Bottom line is you don't have to waive your loan contingenecy caveat.

No one should sign a waiver of appraised value.

Real Estate agency has gotten to be a ridiculous joke. How would a buyer's agent ever advise signing such a thing?

That's the point.

Real Estate agents aren't lawyers, and make obscene promises all the time.

The buers agent could make a statement like don't worry about it, I've never seen a property not appraise at purchase price.

That was the statement the other agent here in Seattle made that started this discussion.

SFace says

You will LOSE.

Statements like this make the situation even more ridiculous.

Real Estate is a negotiation. Good agents close deals. They aren't there for Earnest Moneys, and a deal on the table is worth more than a promise, especially when an appraisal is on the table along with the offer.

Suppose I'm the buyer? Are you really going to razzle dazzle me with You LOSE. No. I'm going to negotiate, no matter what.

David Losh says

No one should sign a waiver of appraised value.

Real Estate agency has gotten to be a ridiculous joke. How would a buyer's agent ever advise signing such a thing?

That's the point.

Buyers truly terrified about this have every right not to make an offer.

gregpfielding says

Our California Association or Realtors contracts are crystal clear when it comes to contingencies and risks.

Our Washington State contracts aren't crystal clear. If they were they would put an upper limit on what the buyer may bring out of pocket, say like $50K, because you don't know what the appraisal will be.

The second part would be that the buyer would also need to show proof of funds at the time of the offer. Why would an agent waste the time otherwise? So how much proof should a buyer show?

A better question is if this is really a game any buyer should be playing.

David Losh says

Our Washington State contracts aren't crystal clear. If they were they would put an upper limit on what the buyer may bring out of pocket, say like $50K, because you don't know what the appraisal will be.

Buyers can certainly propose this with their offer. There is nothing wrong with a proposed cap beyond appraisal. It just makes your offer look worse compared to other offers with no cap.

David Losh says

The second part would be that the buyer would also need to show proof of funds at the time of the offer. Why would an agent waste the time otherwise? So how much proof should a buyer show?

Per the default language in the CAR contract, yes, the buyer is required to show proof of funds to close within 7 days of the contract being accepted. If I'm representing an buyer, I would always submit this with the offer. And if I'm representing a seller, I would require it from all bidders.

David Losh says

A better question is if this is really a game any buyer should be playing.

If you want to buy a house, yes.

robertoaribas says

you'd write a clause like:

A Real estate agent isn't an attorney, and can't insert language, at least not here in Washington State, and that is why we have boiler plate forms.

I know exactly what I'm doing, and saying.

OK, gentleman, as fun as this is, the fact remains you are argueing that a buyer should take money out pocket to be further underwater on a mortgage.

Let that sink in for a minute.

To buy a crap shack some place in a hot market, the Real Estate industry decided they were going to ask for monies over the appraisal, because that would close more deals.

Brilliant.

David Losh says

To buy a crap shack some place in a hot market, the Real Estate industry decided they were going to ask for monies over the appraisal, because that would close more deals.

You sir, are beyond fixing.

San Francisco is a scary place. Huge fees and taxes everywhere, cost of living through the roof.

Just experience tells me that is not a place to buy for anyone, too much risk for too little reward. Greg, I don't know if you make money in SF, but I think you need to find a better place where you can find houses to sell.

Low inventory and high prices are bad for everyone.

gregpfielding says

You sir, are beyond fixing.

That is true.

I remember I drove through San Francisco a while back. And I had to pay a fee to cross a public bridge. That is a highway robbery, literally! I paid taxes to build that bridge, and now they are charging me money to cross it!

Never going near that city again!

robertoaribas says

as usual, your stupidity is stunning. the more money the buyer puts down, the LESS likely they are to be underwater in the future.

You stun me repeatedly with your lack of understanding of the Real Estate market place. You come here all day every day packed with insults when you should be listening a lot more.

I just got off the phone with a Real estate Investor who just sold another rental while the getting was good. This is like a dream come true where buyers will pay for the priveldge of being under water on a property.

Hey, maybe that will be the next bragging rights at the cocktail parties. I paid $900K for my house, but it's only worth $800K according to the appraisal.

You're just to easy to get excited about nothing.

SFace says

Anyone can write a contract including agents.

I let this pass before, but as long as you aren't an agent I'll explain that better. I have written contracts on napkins, you're right, any one can write a contract.

Real Estate agents today however are stuck with boiler plate forms, mostly provided by the Broker. The Broker is ultimately responsible for the agent's actions.

Most Purchase, and Sale Agreements have a clause for Member Broker arbitration.

What I'm saying is that this is a new wrinkle in the already complicated Real Estate enviorment.

The Greg guy is the only one who seems to have gotten the point of adding the prooof of funds clause, which again is another boiler plate form.

We have the waiver of appraised value forms in Washington State, but no one, so far as I've heard, has had them disputed.

In San Francisco though I would think it could be a huge deal if Properties sell for $100K over apparaisal.

David Losh says

I paid $900K for my house, but it's only worth $800K according to the appraisal.

Couple of points on appraisals...

First, a property is worth what people are willing to pay. If multiple people are willing to pay $900,000 then, guess what, it's worth $900,000.

Second, an appraisal is just one person't opinion. Five appraisers on the same house will come up with five different numbers.

Third, appraisals are behind the market. They look at sold comps, which are often 3-6 months old. In a market like mine, that could easily be a $100,000 difference.

Appraised value is simply the value a bank will lend on. It's not necessarily the same number as the value of the house on the open market.

Appraisals are not a perfect system, and, in a Sellers' market, they are not the Seller's problem.

David Losh says

We have the waiver of appraised value forms in Washington State, but no one, so far as I've heard, has had them disputed.

Things are only disputed when they are unclear. There is nothing unclear about this situation. If you waive your appraisal contingency and you use that as an excuse to back out of a deal, then you lose your deposit. This is crystal clear.

FortWayne says

I remember I drove through San Francisco a while back. And I had to pay a fee to cross a public bridge. That is a highway robbery, literally! I paid taxes to build that bridge, and now they are charging me money to cross it!

Never going near that city again!

Try driving through the midwest. The scourage of toll roads. In quite a few cases, no alternatives either. Driving across say OH will easily cost you dearly.

gregpfielding says

First, a property is worth what people are willing to pay.

We have found that not to be true, and the tax payers are paying for it.

The difference between what the appraisal will come in at, and the out of pocket expense isn't crystal clear until the appraisal in in.

If the appraisal comes in way low, and the out of pocket is way high, then yes, the buyer can have a dispute.

The biggest problem the appraiser can have is low comps due to low sales.

Let me repeat, none of this is crystal clear, and I think agents will suffer over the long run. I don't see this as doing anything more than promoting the idea of the slimey Real Estate agent.

I do think many, many agents will say, and do anything to make the sale, and when some one comes out of pocket to perform a lot of feelings are going to get hurt.

robertoaribas says

You'll notice I'm not the only agent calling you out on your bad and wrong advice.

Roberto, unlike you, I come here to learn something. That is the point of the internet, so you can learn something.

We don't have the waiver of appraisal problem here in Seattle yet, but we will, because we have a form for it.

I know you Real Estate agent types like to refer to it as a contract, but you are agents representing clients through your Brokerage, so it's kind of a complicated relationship.

So here on this forum I present the problems as I see them and you have nothing but insults. You have no insight, no working knowledge, just insults.

The Greg Fielding guy obviously has some experience with the forms, and provided great insight in a concise manner without the drama.

I learned something, did you?

robertoaribas says

I am getting a very clear idea of why you left practicing real estate.

I left the business because of agents like you.

You had nothing to say in your entire comment, but you felt a need to say it anyway.

Real Estate is all about negotiation to a successful closing. Taking Earnst Moeny means you didn't do your job well, so that is nothing to brag about.

Stick with the college gig, because some one would have to be brain dead to hire a guy who can't keep himself together on an internet forum.

robertoaribas says

But when you continuously debate me on things that you don't understand,

Oh, I understand that you haven't got a clue.

Real Estate is a negotiation from beginning until the numbers are recorded.

Any time, any agent starts talking about the contract, I know they are lost.

We negotiate the best terms, and conditions for our clients. That's what we do, then we move those terms to a closing.

So professor stick with the college gig. I'm going to continue to advise people to avoid buying, but they should for sure sell in a market like this.

robertoaribas says

I sold in 2005... you held on

You keep making this assertion when in fact I did sell in 2005, 2006, and 2007.

We've been over that, a dozen times.

Many people hide in acedamia.

Here in the real world we make money.

Stick with the college gig.

My advice is always correct. It's based on the real world rather than theory.

OK, college professor, we will be starting a new ad campaign this next month which should increase our business another 30%. How much increase will you get with that Real Estate license? Not too much I suspect with that low inventory, multiple offer thing going on.

Do the math.

BTW, taking a comment out of context of the thread seems to be a constant with you.

robertoaribas says

you clean toilets and carpets!!!

Most importantly, we don't clean carpets. I bought the van, but found it unprofitable because of too much competition. So We ripped out the carpet cleaning machine sold it for what we could get, and coverted the van to hauling. We did hauling until the van was paid for and made a good profit, but it has been sitting for three years because that cleaning toilets thing pays very well.

You should read more about me, keep up the research.

Gentlemen,

Let's agree that David and Roberto will probably never be great friends.

And now, let's get back to the original focus of the thread: what the heck happened in 2012 that wasn't happening in 2011 that cause inventory to absolutely collapse?

The frenzy in my area only seems to be building over the last few weeks. It certainly feels like 2004 all over again.

Set Phoenix aside for a moment... why should we feel comfortable about current pricing in the Bay Area? What if it goes up another 20%? Which it'll probably do by July at this rate...

I think current pricing is insane in the Bay Area and SoCal. Buying in at the asking prices right now is lunacy (I'm a new home owner btw).

gregpfielding says

Set Phoenix aside for a moment... why should we feel comfortable about current pricing in the Bay Area? What if it goes up another 20%? Which it'll probably do by July at this rate...

People shouldn't, but if someone ends up paying more than they can reasonably afford this time around, then they've really only got themselves to blame.

robertoaribas says

Now, to make the counter argument, the high priced areas could get hit real hard in a future crash, if it was enough of a recession to hurt the people who would buy or rent there, and or if rates went up a lot.

On the flip-side, the US just went through a pretty major recession and the collapse of a very substantial housing bubble and yet housing in the BA has still come out the other side in pretty robust condition.

The inventory collapse was pretty clear though. First prices collapsed and sellers wanted the good pricing of 2007.

There was a house in a prime area of Seattle the buyer paid too much for in 2006, and had tried to sell without bringing money to the table. A local agent had it for sale for like a year, but it sold for asking price.

That was a couple of years ago, and since then others in that area, it's called Ballard, have sold absolute dog properties for full price.

Then the bidding wars started.

I think this last price push will bring sellers off the fence. There are moves a seller could make to be better positioned in the market place here in Seattle.

So, I think sellers were waiting for this window, and may even wait until prices peak, and start to decline.

gregpfielding says

The frenzy in my area only seems to be building over the last few weeks. It certainly feels like 2004 all over again.

I think your a good agent, and I like the blog you have listed, it's good, balanced information.

I love the Bay Area. I love San Francisco. A lot of people do.

If you are doing International business with Asia you want a Bay Area address. I think some of the speculation about cash flowing into the Bay Area is very true.

There is also a ton of tech money to be made. Microsoft talks about being unable to fill really high paying jobs. I think if some one had a choice to work here or the Bay Area, they would choose the beach proximity.

Many of the workers who come here from India have family money, and obscene profits from Real Estate in India.

I think the constant demand for the Bay Area is a no brainer, and don't really see it collapsing.

robertoaribas says

I certainly didn't see the explosive price rises coming, I don't think either of us saw that coming...

I think nobody really saw it coming because there is no fundamental reason for it. The economy didn't massively improve all of a sudden in January of 2012. Yeah, foreclosures and negative equity were falling, but it was gradual.

There isn't any logical reason why the swing upwards should be so violent.

More specifically, higher prices should be incentive for sellers, especially struggling sellers, to sell. Yet they aren't. Perhaps all of these 2 and 3% refi's have had a bigger impact on market dynamics than we realize. Nobody wants to sell.

If we can figure out why this is happening, then we can figure out when it'll change again. Until then, we are all just guessing.

It was the rate crash- werent rates for 30yr fixed at 5+% 2 years ago. Now 3.5 or so.

I bought last year with a 5 year IO arm at 2.8% - pmt is 2500 a month for tax+intrest which is 1800 a month after tax break.

This house would cost 3500 to 4k a month to rent. I checked union bank for same loan and its even lower now 2.75%
If you have 20% down this loan lets u live cheap. There is no intrest rate risk - if rates sky my other funds in the bank will return hopefully 5% on a cd (im dreaming!)

gregpfielding says

Nobody wants to sell.

In your area, maybe not, but there was an article today about rising inventory:
http://www.cnbc.com/id/100577800

gregpfielding says

You sir, are beyond fixing.

The writing seems to have brought up an area of sensitivity.