While reading my email this morning, a letter to the editor in Inman News caught my eye - "A Plan to Solve the Housing Crisis." Great! I thought... let's hear some ideas! After all, I love it when a plan comes together... As I read the letter, however, I realized that my problems with the solution presented hinged on the first sentence, which I found fatally flawed - "Houses are being sold after foreclosure or short sale far below actual market value." WHAT? Mind you, the rest of the letter is quite well written, proposing what seems to be a viable solution - if it wasn't based on what I feel is a completely inaccurate assessment of the real estate market. Let's see... the last time I looked, market value is - ta dah! - what a buyer is willing to pay for an item, and for what amount a seller is willing to sell the item. No more, no less. Therefore, houses are not "being sold after foreclosure or short sale far below actual market value," they are being sold at an agreed upon dollar figure - which is therefore actual market value.
The letter outlines a solution to the crisis based on banks reducing the amount a homeowner owes on a house down to current market value, dependent on the owner staying in the house and keeping it up for a minimum of five years. Interesting thought, but again, it brings me back around to writer's assumption that "current" market value has nothing to do with the "actual" market value of the house - that somehow the current market value of the home is magically higher than what the market is willing to bear. This very assumption is why we hear so many complaints about overpriced listings... a flawed logic that one's house must command a drastically higher price than similar houses because it's not (fill in the blank).
So the next time you hear someone bragging about how they got this sweet deal on a house because they paid so much less than the listed price, remember - they paid only what they were willing to pay for the house, and what the seller was willing to let it go for - what is commonly known as "market value." They paid what the house was worth to them, not to the previous owners. Markets rise, and they fall - we just have to wait for the market to work things out by itself. I love that people are trying to come up with solutions to perceived problems - spirit of inventiveness, American ingenuity, whatever you want to call it. It's what this country was founded on. However, please make sure that the initial analysis of the problem doesn't make me want to slap you upside the head, because it kills any sense of credibility that should be given to an otherwise decent idea.
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