What Goes on Behind Closed Doors at the Banks?

The hot topic of conversation these days is the “shadow inventory,” a boogie man hovering over the real estate market and always lurking in the background, ready to plummet our residential real estate market.

More than $480 billion properties fall into this category, defined as “outstanding properties that are (or were recently) 90 days or more delinquent, in foreclosure, or foreclosed on but haven’t yet hit the market.

That would keep average prices low and ensure that supply would outpace demand.

Many adamantly argue over what will occur, quoting various facts heard from different sources. 

Without a doubt, a big landslide of properties hitting the market would have a horrible effect on everyone’s property values.  Here is the truth: no one can predict what will happen.

Let me go one step further, no one can see what is behind closed doors.

The size of the inventory could be huge.  Agreed.

What is going on at the banks though, I wonder?

There had been a murmur that bank CEOs and their buddies would be able to have first dibbs at the properties before they hit the market.  It was just a murmur, no one heard anything else and it passed very quickly.

Yesterday however, I received an email from an agent in a different area of California.  I was blind copied to the email, as were quite a few agents from what I could gather. 

The email stated that their client is “buying a bunch of properties directly from the banks and they are looking for agents in each area to value the property and then list it as soon as it is purchased.”

A second follow up email stated that the buyer still needed agents covering an additional 6 areas.

Shortly after I received a call requesting an evaluation of a property from this buyer.

What’s my point?

The shadow inventory in theory would hit the MLS, like a big market for buyers to negotiate the price down.  What happens then if the banks are unloading all of these properties instead to individuals or companies who clearly have the money to buy them up in a bundle and resell them to the general public?

At this point, there are too many factors that we don’t know yet.

What goes on behind those closed doors may be an unfair advantage to those that already have the money to purchase those homes and scoop them up for cheap, reselling them to the average folks like you and me.

And what would happen to the shadow inventory then?  Possibly scooped up by investors and sold at market value, putting money in their pockets….?

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