Are we in a lenders' market?

I read a very good blog on ActiveRain this morning, which took the position that we are in a "Lenders Market" right now. You can read the entire blog, written by William Johnson, a San Diego Realtor, at http://tinyurl.com/lxgsvy .

William began by defining the more normal Buyers' and Sellers' Markets that we tend to swing back and forth between. We haven't seen a Sellers' Market, where there's low inventory and multiple bidders on every property at asking prices or above in quite some time (in fact I've never seen that in my 7 years in the business, but the "old-timers" tell me that we had a market like that here in Michigan back in the 70's). We've been in a Buyers" Market for several years, where there is more inventory than buyers, with buyers in control of prices and very slow sales. And perhaps a year or two we likely entered into a Lenders' Market, where lenders control much 0f the available inventory and st their own prices and rules for sales. As I have been reporting for some time now, the sale of foreclosed properties has dominated the market for the last year, with 60-70% of all sales being foreclosed properties. That gives the lenders control of the market. What the lenders have done with that control is the rub.

Early on, most lenders were simply overwhelmed by the flood of foreclosures. Most did not have adequate staffs in place to handle the workload and most had inadequate policies and procedures in place to deal with the property management aspects of taking over foreclosed properties or with the marketing of those properties. That gave rise to a whole host of sleazy operators in both the property management field and in the real estate sales field. We all suffered through those early stumbling, bumbling days and having to deal with some of the sleazy people who were initially given rein over foreclosed properties. We also had to deal with interminable delays in bank processing of offers, often waiting months to get an answer on an offer. It was terrible.

The banks have gotten better. They have developed better systems for handling the foreclosure workload and they have hired better people to manage the properties and to market them. There are still a few of the original sleazebags holding on, to be sure; however, most people who are representing foreclosed properties now are doing a decent job. There are still issues with short-sales, but many of the issues are being caused again by sleazy operators who are misrepresenting themselves to sellers and mishandling negotiations with the lenders.

So, even though they have become better at it, the fact remains that the lenders are in control of a major segment of the market inventory (generally about 15-20% of the active inventory) and that is the segment in which most of the sales activity is taking place. In that segment the lenders make all of the rules. They throw out almost all of the normal real estate Purchase Agreement terms and conditions and impose their own terms. Why and how? Because they can and because they just do, if you want to buy a property that they own. There is no appeal or higher authority to turn to in real estate. In more normal times there is a quid pro quo in the market, largely brought about by the Code of Ethics of the real estate profession and it's practitioners. The lenders have no such code and do whatever they want.

So, until things settle down and we get rid of the foreclosed properties overhang on the market, we will likely be at the mercy of this Lenders' Market. It is a market that is destroying home values everywhere as lenders dump foreclosed houses at well below normal neighborhood averages. It is a market that allows abandoned homes to blight neighborhoods and endanger residents. It is a market currently being fed by the twin beasts of bad ARM mortgages that are resetting and the impact of layoffs in our primary local industry. It is a market being exacerbated by a slumping overall economy and a high unemployment rate in our state.

What is a potential home seller to do in this market? My best advice is to understand that the market that you are entering requires a very aggressive pricing strategy, but that you are not necessarily competing directly against the lenders and their foreclosed inventory. Their inventory is often distressed and in need of major repairs and investment to bring them back up to a livable state. You need to have you r home in tip-top shape – clean, uncluttered, all maintenance up-to-date, and as updated as you can afford to make it. You are really competing against other owner-occupied homes, so make yours stand out from that crowd. It will likely already be in much better shape that the foreclosed houses that the buyers may look at in their search. Your advantage can (and should) be that your home represents a move-in-ready proposition.