Thursday, March 20, 2008

If you are short - you are screwed.

Companies have all sorts of perverse incentives.

Now that I think about it - the very foundation of this blog is created from perverse incentives. Most companies don't care all that much what makes a customer happy. Yet they want to keep getting money from them. When customers finally go away, it seems companies are clueless at to why it happened.

The reason I am writing about this today - is because yesterday I learned something new about the Real Estate sector. Right now there are two real estate markets. What does that mean you ask?

When people get into trouble with their houses, typically instead of walking away - they try to invoke a short sale. This means you get someone to buy your house for less than you paid for it. There has been a large segment of the market that has revolved around short sales for at least a few years.

Anyway. Yesterday I learned that buyer agents (at least in my area) are refusing to bring any clients by a house that is listed as short sale. And very soon the seller agent will stop listing these houses as well.

This is the reason. The seller agent would list these houses at a price in which they felt they could move it. But the company who holds the mortgage hasn't agreed to take a lower price for the house. And they won't agree to taking less money until they have a signed contract from a potential buyer.

A few years ago, when the industry wasn't so chaotic it probably wasn't as big of a deal. But now, (I'm told) it takes months and months and months to get someone at the mortgage company to agree. This leaves a potential buyer twisting in the wind. And at the end - the mortgage company might not even agree to the short sale. So the client may not even wind up with a house.

The seller agent is equally affected, because they may never get a commission. So, all the agents are abandoning these houses.

While Mr S. and I were having a discussion about subject this last night - he made me realise that the guy who handles short sales, has a perverse incentive to drag his feet, or refuse short sales altogether. He looks good if his numbers are low. Even though the company will take a more severe loss on the house once it does go into foreclosure.

Lets face it.. most of the short sale houses will go into foreclosure now. These people were already on the razor's edge, and without agents to represent them. They are basically screwed.

So, I have to give a resounding kudos to the department who didn't want their short sale numbers to be high. You got your wish. Now you can lay that guy off. He won't have very much work.

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