Home Buyer’s Lament

As I wrote in this post we sold the Mother-in-law’s home ten days after putting it on the market. There were 3 other homes for sale within a block of her house – including her next door neighbor’s – yet hers was the first to sell. Two remain on the market four months after listing - including the next door neighbor’s.

At the height of the market two years ago, properties sold in her neighborhood for $4ook. One even sold for $450k. Her next door neighbor listed their house for almost $400k. We listed her property for $70k less – and the house sold because we priced it for what our agent showed it would sell for today- not two years ago.

Tonight I spoke to a Wachovia wealth manager. She said that she regularly sees frustrated buyers who get pre-approved for a mortgage and find sellers who won’t budge on price. The buyer wants to buy property, but buyers aren’t fools: they want to pay what the property is worth today, not what it was worth in 2006. They are also under pressure from banks who are writing clauses into the mortgages stating that the property must appraise for the value of the mortgage, and appraisers are much more independent than they were prior to the housing meltdown. Consequently the banks are forcing buyers to make conservative offers or risk making offers that they can’t back with a mortgage.

I don’t gamble for pleasure for philosophical (and practical) reasons. We bought our current home with a conventional fixed rate 30 year mortgage. At the time we were told we could have gotten a larger house with an adjustable rate mortgage, but our parents whose life experiences were tempered by the Great Depression convinced us it was too risky. So we stuck with the smaller house, and although we’ve outgrown it and will leave it soon, I am proud of our little piece of Delaware. It has treated us well and served as our son’s first home that he will remember and compare to all his other houses he will know during the rest of his life.

But some people do gamble, and it doesn’t bother me – unless I’m the one tasked with cleaning up their mess after they lose. Why should I have to pay for the mess when I don’t profit from the winnings? This is one reason why I have been against all bailouts, and this is also why I don’t feel that I should offer more money to bailout the owner of the house I want to buy.

I’m a homeowner too, and when I sell our home of 11 years I will be happy to “break even” or maybe even “make a few thousand.”* But I will set the price of my house based on the market conditions at the time I list – not what it had been in the past.

Even if a buyer wanted to bailout the seller by paying what he wanted, there is the issue of the appraisal. This comment from this post from City-Data.com shows the impact of an appraisal that disagreed with the agreed-to selling price:

I’ve seen quite a few bad appraisals come through lately; way undervalued, resulting in people having problems getting approved for mortgages. I feel like part of the tin-foil hat crowd when I say this, but I can’t help but think that there’s some amount of collusion between lenders and their appraisers. I saw an appraisal the other week – House is clearly worth between $185,000 and $200,000. 2009 Tax value is $198,000 (that’s after the revaulation). 8 recent sales in the same neighborhood, all very similar to this one – same # of beds, baths, garage spaces, same lot size, 3 on the same street even. Every one of those homes has sold since March, and every one sold for between $190,000 and $210,000. Yet this appraiser chose just one of those sales as a comp, and then picked the other 2 from different neighborhoods; one from more than 2 miles away with fewer bedrooms, fewer baths, less square footage and no garage. Big surprise – the value he came back with was $170,000 and the prospective buyers couldn’t get their $190,000 mortgage

So to summarize the home buyer has to contend with:

  1. The possibility of losing his/her job (unemployment is rising).

  2. Finding a lender willing to lend (the credit crunch isn’t over).

  3. Saving up enough money for at least a 20% down payment (Mortgage insurance is tough to come by).

  4. Depressing (in all meanings of the term) housing market making it painful to sell his/her own home in order to buy.

  5. Sellers who can’t let go of the past valuations and face reality.

  6. Appraisers who are keen to make up for their past mistakes by low-balling appraisal values.

In short there is much to lament these days. It would make a great song.

*Note: There is truly no way of breaking even or “making a few thousand” when taxes, upkeep and repairs, and interest are factored in after 11 years of home ownership. That was a consequence of taking out a 30 year mortgage.  I understood that at the time I signed the paper work, I have no regrets, and I am not asking for the government to bail me out for my decision. I also have no regrets over owning my home and not renting. While renting may make sense for some, I am willing to pay more money to have the liberty to paint my walls whatever color I choose and whenever I choose to do so.

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