Buyers need money to buy in this market

The days are long gone for the short, smooth real estate transaction that we used to so often have 5 years ago.  We are in a much different market today.  We thought that we'd talk a little about some of the challenges we are facing being that there are so many changes currently taking place with lending institutions. 

As you have probably heard all over the media, it is much more difficult to qualify to buy a home than it was a few years back.  Banks have made their guidelines much tighter not only when it comes to the financials of a potential buyer, but also when it comes to property condition.  In the past whenever there were issues with property condition, the obvious party to take care of it was the seller.  Why you ask?  Well, the seller had an abundance of equity.  Sellers would take home anywhere from $50,000 to $200,000 when they sold their homes.  Handling repairs on their home to satisfy the buyer was no problem and made every one’s life a lot easier.   The times have changed…

You may ask, ‘who is paying for all the repairs that are required by the borrower’s lender now that the seller has no equity and is having to short sale their home?’  For all you buyers out there reading this, I hate to tell you but unfortunately it is you that will need to be prepared to make repairs on the property should your lending bank require it, and should you want to move forward with the purchase. 

In our market area which includes the cities of Downey, Norwalk, Pico Rivera, Lakewood, Bellflower, and surrounding areas, most homes are at least 40 years old.  There is no question that certain things on the property need to be repaired or replaced.  We are finding that issues can always come up, and lending banks are not willing to move forward in lending money unless certain repairs are made.   For the most part the typical repairs needed in order for banks to lend money are cosmetic things such as exterior paint.  But everything in the home, especially the 50 year old floor heater that hasn’t been used in at least 20 years need to be in working condition before a bank will release money. 

Now the question is, where is the money going to come from to pay for that?  The seller, the majority of the time obviously cannot pay for it because they are financially unstable; hence they are “short selling” the property.  The real estate agent cannot afford to pay it because the commission they will be earning isn’t anywhere near what it once was.  Real estate agents are earning approximately 50% less in commissions then they were over 4 years ago and they still have to deal with the same expenses they had 4 years ago.  In addition, banks are not willing to pay the standard 6% commission that a real estate agent is used to earning.  That leaves only the buyer to pay for the repairs required.

Regardless of the fact that a buyer will be spending money to repair certain things the lender is requiring, homes are selling for 50% less (in some areas) than they were 3 years ago.  So all in all, it is still a HUGE benefit to buy in this market. 

Inventory is still low in the South East Los Angeles area.  Ninety percent of the homes that you see on real estate search engines available to the public have multiple offers on them already.  We will talk more about this is a future blog post but for now, if you know of anyone that needs help selling their home, or is interested in buying a home  please don’t wait to contact us.