It's understandable that homeowners and sellers want to know who's to "blame" for slowdowns in the markets, declining prices, so forth and so on. The real truth is "blame" and pointing fingers is something hard to do. The fact is that the impacts are very widespread and sometimes very unique to every market. A recent article in BusinessWeek called "Bonfire of the Builders" focused on some of the issues in regards to overbuilding and some of the unethical practices that have occurred regarding lending.
Here is one story from the article which really peaked my interest:
Elizabeth and Armando Motto are living a real estate nightmare with a new breed of monster: the big homebuilder as lender. In November, 2005, the couple, who have four children, agreed to pay $540,000 for a newly built three-bedroom house in suburban Clarksburg, Md., near Washington, D.C. Rather than send them to a bank, the builder offered to provide a mortgage itself in an arrangement of the sort that helped fuel the long housing boom across the country.
But when it appeared that the Mottos might not qualify financially for the loan, things took a troubling turn. [the builder], according to the couple, inflated the pair's earnings in loan-application documents by incorrectly stating they were collecting rental income from the house they were leaving. "I don't want to misrepresent myself," Elizabeth said in e-mail correspondence with [the builder's] outside mortgage service, dated July 14, 2006. But in the end, the couple signed the documents, and soon after they closed on the Clarksburg house.
They now regret it. The Mottos moved to Clarksburg, but they haven't succeeded in unloading their previous home in Rockville, Md. They have nearly $1 million in mortgage debt on the two dwellings. With $145,000 in family income, Elizabeth says, they are "on the brink of foreclosure" on both houses. "We are so broke."
Obviously, something was not "right" in this situation and the buyer chose to continue with the transaction. No, I don't place all the blame on the buyer in this situation. It is very unfortunate. But this story shows the importance of making educated and sound decisions. Yes, trust, comes into play. But it is my recommendation that when a buyer or seller feels as though something may not be on the "up and up" it is vey important to question. In some instances, even just walk away.
Other parts of the article spoke briefly about investors, and I am not certain how many are aware of the deep impact "investors" made upon the Real Estate market. I am not speaking of experienced and seasoned investors, I am talking about the novices who bought up property mostly on speculation of future profitability. Some sold quickly for profit which inturn had its hand in driving up price. Others borrowed heavily against the properties for the cash excpeting to "unload" the property later on and still make a profit. Many are are finding the reverse situation today.
The untraditional part of Real Estate today is the transparency of information. Buyers and sellers have a lot of information available to them, and I feel that is a great thing. Many Realtors are working very hard to provide some of that and also help consumers sift through all of the data as well. I have had many potential buyers recently who are researching public records to know the last pruchase price and questioning the reasoning behind asking price. This is another great idea, and yes as professionals we know we have to be able to back that price up. So it is always my recommendation to gather the information, ask questions, and don't be afraid to "put your foot down" when something doesn't seem ethical.
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