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The Market is Slow Because of the Banks

Posted by LoveInTheHouse (My Page) on
Thu, May 12, 11 at 23:28

I recently read an article that said buyers are waiting for a bottom before they buy a house. I don't think that's the case at all. I don't think anyone can get a loan. A half dozen people have told me they would like to buy my house but they have to sell their own houses first. Another half dozen people asked me if I would lease the place to them because they can't get a loan for one reason or another. The only person who was able to buy my place was a first time home buyer who didn't need to sell first. Her credit was perfect, her income qualified her to buy a house that cost more than mine, she and her husband have stable jobs, and the house appraised for the full asking price. Two days before closing the bank decided it didn't like the agricultural zoning (even though EVERYTHING here is A1 zoned) or the "income producing nature of the property,"--meaning she could make a couple of extra bucks giving riding lessons. So here we have a very qualified buyer with a property that was actually too good! And they still won't loan the dough.

One of my potential buyers finally sold his house and said he is getting ready to make an offer on mine. He has been pre-approved by the local mortgage broker I found to prevent the agricultural zoning problem again. BUT this bank wants my new buyers to put one year's worth of mortgage payments in escrow! On top of their down payment and all the closing costs. Who has that kind of money? Well, my new buyers actually do. They're moving from an expensive area to one that's a lot cheaper so they're going to make out. But most won't. This is why people are having a hard time selling. Not because buyers are waiting for better prices! The banks are making it practically impossible. And that is hurting real estate and therefore the economy, causing people who are under duress to lower the prices of their houses even more because they have to sell! Who is benefiting? Rich people who are swooping down on deals. I know the banks were too lax in the past, allowing people to buy houses they couldn't afford, but this is overkill. It really makes me mad that we bailed them out with our money and they won't lend any of it even if someone is qualified and the house is worth the price.


Follow-Up Postings:

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RE: The Market is Slow Because of the Banks

I'd be curious to know if the banks are just now meeting the standards that Canadian banks have all along. If so, then I really don't think you can blame the banks, since the Canadian real estate market is humming right along even with strict lending rules.

But I don't know your requirements, so maybe I'm mistaken!


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RE: The Market is Slow Because of the Banks

"I don't think anyone can get a loan."

You might think that, but you would be wrong. Millions of people are getting loans.

"A half dozen people have told me they would like to buy my house but they have to sell their own houses first."

Well, duh! There aren't that many people who can afford 2 homes.


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RE: The Market is Slow Because of the Banks

We've had the same problem with selling our place. No one is loaning money and our home is on 85 acres, so they use that as an excuse too. The banks and Wall Street are the ones who initiated this housing crisis and now they are prolonging it by not loaning to qualified buyers.


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RE: The Market is Slow Because of the Banks

If financing is so tough, would sellers consider carrying back partial mortgages or initiating 'lease to buy' sales?


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RE: The Market is Slow Because of the Banks

If banks don't make loans, then they don't generate income and they go out of business.

Are you sure that no one is getting a loan? The days of qualifying anyone for a mortgage are over. Borrowers must prove to the lender they can make the mortgage payments on the money they borrow.


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RE: The Market is Slow Because of the Banks

Banks are not doing anyone favors by giving out loans. They are in the business to make money and they make money by closing costs and giving loans to people that can afford them. The rules they can play by have gotten tightened up a lot and that is why people are having trouble getting loans. I just got a construction loan for a new house build myself and the mortgage officer said there's a lot of activity right now, but I've really had to work to get some of these loans approved. I wonder how many are getting turned down right now even though they have ok credit and cash flow because it's just not a perfect situation for the lender.


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RE: The Market is Slow Because of the Banks

Our realtor had a situation where the buyers had a credit score of 800 and income of over $300K a year, had $200K to put down on a purchase price of $650K and the bank declined them. I don't see how this is representation of a bank being reasonable. But those of you defending the banks will see this as normal.


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RE: The Market is Slow Because of the Banks

Billl, I know most people can't afford two houses. They don't want two houses. They can't sell the first one because the bank won't lend anyone the money.

Cymraes, you are right. My first buyers couldn't have been more qualified. Their score was also 800 plus they qualified for a house that cost $100,000 more than mine. My house is sold again so hopefully I'm out of this game. And even if the bank turns them down too, perhaps because they don't like the color of my roses, I'm not under any duress to sell. I'm just tired of hearing that it's people who are waiting for a bottom. It's the banks.


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RE: The Market is Slow Because of the Banks

Maybe, just maybe if the buyers would put more pressure on the "banks" and start demanding to see the lists of qualifications they claim they must meet, these banks would clean up their act.
I used to work in loans many many years ago, and basically if the person could not qualify, it was no, and they knew why. Now between RE agents/brokers and banks it is ridiculous. Clean up the rules and regulations and set time limits. Train the people to look at the applications and not just go by the pieces of paper with way too much garbage on it. And yes it should be done in the US and not outside which much of it is done.
We all need to be accountable for buying and selling anything.


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RE: The Market is Slow Because of the Banks

It has been a long time since I applied for a mortgage, so I don't any recent experience of trying to borrow money.

Are you saying people are buying denied a mortgage and the bank gives no reason for the rejection?


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RE: The Market is Slow Because of the Banks

Yes Mike, in some (many) cases any loan application answers must match that """magic""" list/answers some person (may or not be trained has in front of them. yes it happened to us just a few years ago. We were not turned down, but the bank did not like the answers we gave them. We turned down the loan and went someplace else--more local.


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RE: The Market is Slow Because of the Banks

We bought a home 2 years ago and refinance 1 year ago. The only problem we had was on the refinance. The appraiser was horrible and used inappropriate houses as comps. The lender rejected it and ordered a second appraisal. It didn't delay the refi at all.

I'm sure there are some people who have had bad experiences with incompetent people, but there is no institutional conspiracy to bring the housing market to a standstill. Lending standards have tightened compared to the absurd levels of 2005, but they are still pretty relaxed compared to requirements of 20-30 years ago.


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RE: The Market is Slow Because of the Banks

I suspect that some of these mortgages (in addition to the OP's) are being turned down because of the properties, rather than the potential buyers. For example, in my city, there are lists of high rises that have been blacklisted by lenders because they are so under water (too many foreclosures). A buyer could have perfect credit and bringing in seven figures and a bank still wouldn't loan them the money to buy there.

Anecdotally, I know plenty of people who are still getting mortgages. (And with 10% down too.)


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RE: The Market is Slow Because of the Banks

There are even VA & USDA loans with 100% financing, and FHA loans with a 3.5% downpayment. Bad, bad banks!

Obviously, there is more to the stories sited above as to why those perfect borrowers did not get approved.


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RE: The Market is Slow Because of the Banks

Well I can tell you that our former realtor told us that no one can qualify for loans. The problem is that the banks need more regulation - they are the reason for the housing mess, now they are the ones prolonging the problem. The "location" has nothing to do with it in my area. We built in 2006 and have our home listed at $300,000 less than we have invested in it. Our realtor still tells us that the problem with selling it will be for any buyer to get a loan. It is a quality, custom 4000 sq ft home on 85 acres completely set up for horses.


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RE: The Market is Slow Because of the Banks

cymraes, can you explain what you mean by this:
"The problem is that the banks need more regulation - they are the reason for the housing mess, now they are the ones prolonging the problem."

Some posters here seem to think that the rules are now TOO strict. I honestly don't know what you mean by "more regulation" (not that I disagree - I strongly favour strict regulation).


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RE: The Market is Slow Because of the Banks

Sorry, but your former realtor really has no idea what he/she is talking about.

They are talking about regulating all lenders (not just banks) more ... guess what .. the new regulations they are talking about will absolutely halt lending.


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RE: The Market is Slow Because of the Banks

I think she means it would be good if there was a list of clear rules that the banks go by.

There is no more to this story as someone suggested. In my case, my buyers were applying for an FHA loan. They were putting more money down than FHA required. The had a very high credit score. They qualified to buy a home that cost a hundred grand more than mine. The wife was an RN and the husband worked for a big company for many years. My house appraised for the asking price. I live in southern Virginia. Everything around here is A1 zoning unless you are smack dab in the middle of town. What? They don't loan money to people in Virginia? Agriculture is our number one industry. A1 means agricultural with single family dwellings permitted. It's a horse farm. My buyer's bank KNEW this was a horse farm because I called and told them myself. I was actually concerned about the appraiser using the correct comps. I wanted to make sure he compared it to other homes with barns and riding arenas. Everything looked good. Two days before closing the bank declined the buyer because of the "agricultural zoning" and the "income producing nature of the property." Meaning they could give riding lessons if they wanted to. Even though this property has never been income-producing. I called our zoning officer because the buyer was so upset she wondered if we could change the zoning. The zoning officer was baffled; said that she knew many people who had FHA loans around here on similar properties. On my actual road, as a matter of fact. She said "Your buyer's bank obviously doesn't understand our zoning." I was suprised because it was a fairly local bank. I called FHA and described the property. She said there is no reason that my buyer couldn't get an FHA loan for this property and suggested my buyer try another bank. She said it was the way her bank was interpreting their rules. So I looked at the declinal letter a little closer and discovered that even though the bank was local, the underwriters were from Wisconsin! My buyer also could not get a USDA loan because they actually made too much money--over a hundred grand a year. She didn't have 20% to put down for a conventional loan. She saved thirty thousand dollars for a down payment but none of it was enough. This was not an unqualified buyer and this is not a house that should be difficult to get a loan for.

The banks are over-correcting now just like when you go off the side of the road and then you jerk the steering wheel back the other way. Either way, it's bad.


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RE: The Market is Slow Because of the Banks

LoveInTheHouse,

Did your first buyer use a bank or a mortgage broker for the loan? Was the underwriter in Wisconsin getting the money from a bank or a private lender?

You said the buyer did not have a 20% down payment for a convential loan. What is the definition of a conventional loan?


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RE: The Market is Slow Because of the Banks

"In my case, my buyers were applying for an FHA loan."

Sounds like they are not LOW risk if they have not accumulated enough money to put down.

"They were putting more money down than FHA required."

Then why are they seeking an FHA loan?
The low down payment FHA loans are designed to get people into their first house in most cases.

"The had a very high credit score."

Automated credit underwriting has tuned out to be one of the problems.
It is easy to game the system (thus the reason that they do not want to be excessively open about how the score is arrived at).

"They qualified to buy a home that cost a hundred grand more than mine."

Qualified by who?

A loan commitment or a 'qualification letter'?

The letters are hardly worth the paper they are printed on.
I can get one for the asking fro my broker, with all the usual "this is not a commitment" and is "subject to further review and underwriting."

It actually sounds like there is something in your buyers background that is not all above board.


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RE: The Market is Slow Because of the Banks

As I said in one of your other posts about buyers and banks ... your property is different, and banks don't want a property that has a high probability of being a working farm or gentleman farm. Regardless of FHA guidelines, and they are GUIDELINES, lenders can chose to accept a property if it fits with their own criteria (not FHA criteria), or not.

A conventional loan, usually is a Fannie or Freddie loan, and borrowers can put 5% down, not 20%, on a conventional loan. I'm not sure where people get this 20% down thing ... it's just not true.

Personally, as a banker, I don't think lenders are over-correcting at all. I think they are making sound loans to borrowers who actually can qualify for a loan.


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RE: The Market is Slow Because of the Banks

Here in NJ home sales have been pretty good.
However, the homes that ARE selling within a month or two are those that are under the 400K mark...that are not on acres of property, and are not much older than 50 years give or take.

There are many homes in our area built during the last 10 years or so that are very high end that sit on the market; most overpriced.

As this was and still is a rural area, there are also many very old homes (100 to 300 years old) that also sit on the market. Sometimes it is price. However, more often it is that they have not been updated in years, are energy inefficient in too many ways, and/or they are on large property that was farmland that most people have no time or money to spend on owning.

That said, I think it is more about banks not wanting to get involved with properties that they KNOW will be hard to unload in the case of a default.

IMO, even if it appears that the buyer can afford the home based upon amount of deposit and credit score, that does not mean that they have no debt. It also does not mean that they have not had to job hop. It also means that they may not be in an area where job prospects are improving should they get laid off again. Last but not least, if they are over 50, the banks know that a new job will be hard to get if it comes to that, and age discrimination is one of the last forms of discrimination that is rampant as it is so hard to prove.

However, as long as unemployment remains absurdly high, and DC continues to allow Wall Street to control the price of oil and other commodities based upon pure specualtion, and to continue to create unregulated "investment instruments", and continue with naked short selling and other activities below the regulation radar thereby manipulating the economy to their sole benefit,this will not change anytime soon if at all.


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RE: The Market is Slow Because of the Banks

20% down is the magic "no PMI" requirement.


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RE: The Market is Slow Because of the Banks

True, but a home here just sold for almost 500K, 3% down, and the young couple who bought it still own their previous home that still has a mortgage.

No way to ever know the full financing picture of others.


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RE: The Market is Slow Because of the Banks

"Regardless of FHA guidelines, and they are GUIDELINES, lenders can chose to accept a property if it fits with their own criteria (not FHA criteria), or not. "

No, they are pretty hard actually if the lender wants to sell the loan to FHA.

Once in a while you might be able to persuade FHA to purchase outside their 'guideline' but it will greatly slow the process.

No single person wants to approve the liability, so committees and multiple levels of review clog the underwriting process.


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RE: The Market is Slow Because of the Banks

It's a common misconception that 'banks make money by making loans'. They do, but home loans aren't the most profitable loans to make.

That's because the large expenditure means holding back a corresponding reserve percentage. That money in reserve has to remain liquid and can't be loaned out again. It's the same principle by which insurance companies operate for whole life, annuity, and universal life policies: it takes several years to actually profit from writing new business that has a cash value.

Now, with reserve requirements under pressure to be mandated larger (making a bank less likely to fail) and the Basel Accords trying to make countries more consistent in establishing minimum reserve requirements, there is a corresponding reluctance on the part of many - not all - banks to loan money to a sector which has already produced not only substantial equity losses but lawsuits and increased regulatory paperwork.

By contrast, checking and savings accounts funds can be loaned at high interest rates on credit cards. Bank fees can be assessed for having a card, overdrawing one's account, or not maintaining a mininum balance.

Investment banking fees run into tens of thousands of dollars on commercial interbank loans or stock underwriting IPOs. High-income priority banking where the investment banking and traditional banking depts merge is extremely profitable and can be managed for a lower risk by coinsurance or reinsurance.

So although you as a customer may think the bank is in business to make loans, in actuality they are in business to make money....and there are many ways to make money with money that do not involve making residential mortgage loans.


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RE: The Market is Slow Because of the Banks

brickeye ... the point I was trying to make, and didn't do very well, is that lenders do not have to be as generous as the FHA guidelines allow.

Case in point is the OP's conversation with FHA about her property. Just because FHA says it would meet their guidelines doesn't mean a lender has to accept it.

And there are still plenty of loans being made to conventional borrowers with 5% down, with PMI. The PMI companies have actually been loosening up some of their restrictions in the past 6 months.


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RE: The Market is Slow Because of the Banks

"the point I was trying to make, and didn't do very well, is that lenders do not have to be as generous as the FHA guidelines allow. "

Rgat is pretty far from what you initially posted.

No bank is required to make FHA loans.

They can refuse to participate.

What they cannot do is attmpe to stretch the FAA 'guideline' very much if they want to make an FHA loan and sell the loan to FHA.

The same thing happnes with confroming (Freddie And Fannie eligable loans).
The bank cannot do much to violate the 'guideline' if they want to sell the loan ti F&F as 'conforming.

Banks can refuse to make FHA, VA, or participate in federal programs if they wish (and even for individual particular loans).

Banks that hold notes only need to satisfy their own underwriters, not Freddie, not Fannie, not FHA, not VA.
They then have to meet reserve requirements while holding a note that can be very difficult to sell into the secondary market, unless they wish to issue bonds backed by the note to investors (and that creates another sea of rules that must be followed from the SEC).

Something appears wrong with the borrowers overall credit and finances.


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RE: The Market is Slow Because of the Banks

Brickeyee, are you saying there was something wrong with my borrowers' credit and finances? There wasn't! I saw the declinal letter and the e-mails between my borrower and the bank. I also saw the letter saying how much they were qualified to borrow. Like I said, it was for a hundred grand more than my house. In the end, the broker said to my people, "Aw, too bad. I guess you'll have to find another house. Maybe it was a blessing in disguise." They simply did not want to lend my buyer money for this house because of the A1 zoning and the "income producing nature of the property." I think that's a lousy reason since this whole area is A1 and this property was never income producing. That's all they could come up with to reject the loan.

My buyers were applying for an FHA loan because it WAS their first house and they saved thirty thousand dollars. That's a lot of money to save in this economy. They were putting about ten percent down which was $26,000. I believe they went to a mortgage broker. It was called "Something Mortgages." Mike_home, I don't know who the underwriters in Wisconsin were getting the money from. I assumed it was a bank. As far as what a conventional loan is, I always thought it was a loan for a property with 20% down, 30 year, fixed interest.

After this deal fell through, I called a local company myself. Farm Credit. I don't know if they are a bank or brokers. How can we tell? The man I spoke to told me he could give someone a loan for this place but said the person would need 20% down. Who is giving out these loans for 5% down Pam?


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RE: The Market is Slow Because of the Banks

"Brickeyee, are you saying there was something wrong with my borrowers' credit and finances? There wasn't! I saw the declinal letter and the e-mails between my borrower and the bank. I also saw the letter saying how much they were qualified to borrow."

You did NOT see anything that would give a complete picture since the lender is NOT allowed to show everything to the seller.

If a lender revealed my information to a seller my attorneys would be all over them in a flash.

Do not think for a moment you saw everything.

'Qualification' letters are nor worth the paper they are printed on.
They are a 'feel good' things for gullible sellers looking for assurance, and mean nothing.


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RE: The Market is Slow Because of the Banks

Agreed. When we started house hunting and needed a pre-approval letter to include with our offer, our banker said, and I quote, "How much do you need it say?" (And this was a local bank, not some fly-by-night place that got TARP money.)

FHA loans are, in many cases, actually harder to get because of the restrictions, including purchase price, income levels and zoning. IIrc, FHA loans can only be used for a primary dwelling house and the first 10 acres. You have to get an agricultural loan if the property exceeds 10 acres. Seems like your prospective buyer and/or their agent should have done more legwork.

Conventional mortgages can be fixed or adjustable, and downpayments of 5% or more. Some banks can require 20%. At 20% down, you no longer have to pay PMI. Many banks here (in Wisconsin) are loaning with 5% down, but we have not had anywhere near the bubble or economic depression that other areas of the country have had.

Google Conventional Mortgages, there are many sites that explain the differences b/w them and FHA, VA and USDA loans. Anyone who is or will buy or sell a home needs to educate themselves about wtf they're doing when they're spending hundreds of thousands of dollars of other people's money. Or making plans to buy a new house based on the people who are buying theirs. Maybe if they did, we wouldn't be in such a mess. (Yes, lenders do bear some responsibility, but buyers need to do their homework too. TNSTAAFL.)


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RE: The Market is Slow Because of the Banks

"Who is giving out these loans for 5% down Pam? "

Banks here in PA are... and I was shocked.

When my son said he wanted to buy a house, DH and I said "with what ans with who?"
I mean... who would lend to recent college grad with a new credit history and a small saving account?

He only need 5% + closing costs... and he has been in his house a year now.


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RE: The Market is Slow Because of the Banks

To give a buyer's perspective, my husband and I have been trying to buy a house for weeks. It's an older house and needs some updates, we figured we might be in a higher insurance pool while we get the electrical up to modern code. We found insurance, but we can't get a loan. As soon as the banks saw that there were closing concessions to cover upgrades they demanded all notes and insisted that all fixes (including some really trivial ones) be completed weeks before closing. We've tried offering to put money in escrow and agreeing to do the fixes within 30 days - no dice. Our realtor is floored - lots of houses in this area have older systems and it's never been a problem. We're now exploring voiding the old contract and writing a new one without any concessions so we can start again.

It's a collective action problem - the banks are terrified that they'll have a hard time selling a house if the deal sours. As soon as one bank says they won't underwrite a house with older (but still safe) systems, none of them will because they will run into the same problem with buyers if they try to sell.

For the record, this house has systems that are normal for the area, but something has shifted for the banks in the last few months. We have been approved as buyers for more than this house costs, it's been appraised at a higher price than we're paying, but the banks are just gun-shy about any hint of trouble. We plan to do the updates as soon as we close, we just want it out of the way, but the banks won't consider an escrow and timeline. We want to buy, the seller wants to sell, the banks want to loan money to us, they just have become really picky about the houses.


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RE: The Market is Slow Because of the Banks

"As soon as the banks saw that there were closing concessions to cover upgrades they demanded all notes and insisted that all fixes (including some really trivial ones) be completed weeks before closing."

The banks (and Freddie & Fannie) have a huge stock of houses they need to dispose of.

A performing note on a property is an asset to the bank and counts against required reserves.

A non-preforming note is no longer an asset but a liability, requiring the bank to find money for required reserves.
If they sell stock in the bank it depresses the value of all the bank's previously issued stock and dilutes the ownership of existing stockholders.

If you put more money down things still (as always) get easier.

The bank is scared to death that the repairs will not be made, they will end up owning the house, and will need to sink money into it to recover whatever value is there.

The value of large down payments has returned by reducing the loan risk.

When I purchased two pieces if REO last fall my broker had lenders falling all over themselves to lend.

Each property had over 30% down, decreasing my rate of return but at least keeping my business going (and my workers employed in a bad market, if only for a few weeks to months).

It has reached a point of almost freeze up for some buyers.

Luckily prices should not rise much so they have time to save up additional money.


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RE: The Market is Slow Because of the Banks

I understand where the banks are coming from - if we won't buy the house "as is" then other people won't either -- but using the inspection results to haggle over price is a normal process. Having the seller agree to drop the price in lieu of making repairs is pretty normal too. Frankly, we have a bigger incentive to make sure the upgrades are done right so we'd rather hire our own folks than trust the seller. I understand that the bank is worried the repairs won't be made, but when we offered to escrow money to ensure completion they wouldn't consider it.

It's a matter of degree, really. I don't think we should go back to no-money-down on anything with four walls, that was a disaster, but it may have swung too far in the other direction. Most houses aren't brand spanking new and will have things that needs to be grandfathered in. To basically declare that they won't do any grandfathering, even temporarily, is too far.


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RE: The Market is Slow Because of the Banks

"...but using the inspection results to haggle over price is a normal process."

Maybe for you in your location, but I simply refuse.

The price is stated asnd based on condition.

If you want a new house buy one.

The ones I sell are typically upwards of 60 years old, though renovated thoroughly.


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RE: The Market is Slow Because of the Banks

Brickeyee, yes, I saw the documents. That is not why the deal fell through. AGAIN, it was the A1 zoning and "the income producing nature of the property."


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RE: The Market is Slow Because of the Banks

"Brickeyee, yes, I saw the documents. "

You should tell the buyer so they can sue the bank.

As seller you are not privy to that information (YOU are have no relationship with the lander for the buyer's loan.


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RE: The Market is Slow Because of the Banks

The buyer showed me the documents.


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