patrick.net

@Reality...you make some good points. There are people who could have feathered their own nests but did not. I would argue that those people (I gather, people like you) are commendable.

When given that opportunity you did not chose that, while others did. So, what made you different than a bubblebuyer who sold at the top? Why didn't you get in on that gravy train?

Was that kind of profiteering a bridge too far for you? Did it feel a bit like a ponzi scheme?

I have a feeling that your moral compass made you not choose that "easy money" lifestyle.

So, if there's justice, where is yours? And if the system were fair, why were those who did what you would not rewarded? And if there were a way to clawback their fake prosperity, why wouldn't you agree with that--in principle?

justme says

terri,
Clawback is contract lingo, it has been given multiple meanings.
From Wiktionary:
3. (US, business) Any recovery of a performance-related payment based on discovery that the performance was not genuine. The airline got a clawback provision in the event of failure of the engines to meet fuel-consumption targets.
Clearly, clawback can mean whatever people want it to mean, but in the context of bubble gains I think my interpretation is reasonable.
With reference to this thread, I guess what I’m saying is that in the context of bubbles, “pump and dump” profits (as in investment banks bundling up and selling bad mortgage securities, and then betting against them) is ill-gotten gains and qualify for a clawback, whereas “Joe Schmoe sold at the top” is just “dump” and does not generally qualify.

I don't concede this, by the way. But use any term for the concept you'd like to: maybe a windfall tax?

Let's expound on the counter argument:

If you bought in 2005-2007 and the market crashed, you're an idiot and should keep paying.

If you bought between 2000-2004 and sold in 2005-2007, you're a genius and entitled to your 'earnings"

Then what if you bought at the same time as the geniuses and used the "earnings" from appreciation to buy their Mercedes and go on exotic trips?

So, what is the fundamental difference between the geniuses and the "HELOC scum"? The sale makes it moral?

Depending on if you sell at the height of the bubble, or get cash out at the height of the bubble, you are either entitled to your free Mercedes or you are not?

Is that what passes for acumen?

robertoaribas says

I also bought put stock options on countrywide and bank of america. I made a 100 times my investment on those two trades, because what I saw in the business convinced me they would both go down.

It sounds like you scored undue gains from the poor victim banks. You were probably privy to information they did not have, and should write checks to Ken Lewis and Brian Moynihan. Shame on you for taking advantage of them.

On a less sarcastic note, that's awesome. Well done.

@CL

I did not take the plunge into RE in the early 2000's because I deemed the risk unjustified. After the 2000 stock market crash, I thought the real estate market would follow within 3-5 years, and because buying and selling houses take much more time than trading stocks, the risk of being caught on the wrong side of the trade was too great.

Those sold at the top were quite justified in keeping their winnings, for a very simple reason: their very action of selling at the top provided extra supply that prevented the bubble from becoming even bigger! If you are thinking of blaming the seller for selling you the house at the bubble top, just think what would have happened if he/she wasn't selling: you would have bought from someone else at an even worse deal for you!

The scums were those who tried to transfer their losses to the taxpayers.

Deciding when to sell is of course one of the most important decisions any investor can make. Those buy at the bottom and sell at the top help stabilize prices at both extremes. Those buy at the top and sell at the bottom not only ruin their own finances but contribute to the extreme fluctuations. I don't see any justice in taking from the former to subsidize the bad decisions of the latter. Your very statement that "everyone else" was saying houses never dropped in value (not factually true) somehow justify making those bad decisions at the market top goes to show that sheep are not only bad for themselves but also bad for other sheep. We do not need more "spreading wealth around" to enforce comformist thinking.

klarek says

~8% of the country is underwater and ~33% of the country rents. Those who jumped in are just the leftovers.

The 8% number sounds low. It looks like your numbers would add up to ~100% thinking there's about 62% owners, but another number that comes to mind and seem relevant is the close to 8% that were owners two years ago, but are now renters or otherwise. There must be some overlap between them and your 8%.

Doesn't this all suggest that very few people fit your group who figured it all out?

klarek says

If the losers own up to their irresponsibility, then they’re on the same field. If they’re trying to abdicate responsibility and claim they had no way to know, then they’re not better than the winners.

If you think the losers were all irresponsible people, then I get what you're saying. I wish that were the case. I think some people might view me as an idealist, but the kind of equality of understanding you're suggesting is possible among people is truly stretching my imagination. For a lot of reasons, not everyone was going to get your level of understanding on this subject no matter how much they were told to try.

klarek says

What’s not healthy for an economic system is when people make the biggest purchase in their lives without any thoughtful considerations.

"Thoughtful considerations" are not the same for everyone and would be required for me to agree with what you're writing.

klarek says

That’s like saying that the number of murders that have been committed by all of those who have committed murder is greater than the number of people that have been murdered. That makes no sense at all.

Input —–> output.

The point I'm trying to make is that when a buyer is dealing with a real estate agent selling the house, the buyer has probably not bought several homes that year. The real estate agent has probably sold several homes that year. So the real estate agent understands the process of selling a home(and buying for that matter) better than the buyer.

Sure the buyer can go and do hours and hours of research to try and get to a professional level of understanding and maybe even reach it. But don't forget to include that time in the cost of the sale, because, it will be significant.

klarek says

When I told her “the rule of thumb is 3x your income”, she said, “yeah, but I heard they changed that to 7x your income”. Buyers were not unaware of what was happening. They were aware, they were hungry, and they wanted in. In many ways this encouraged the stupider non-owners of the time to jump into the game.

A person who says "yeah, but they changed that to 7x.." is not aware. They're believing something told to them by someone who they think is an authority on the subject and so they jump. Too bad she didn't realize you were basing your advice on fundamental concepts, like income, or she would have realized how valuable it was to be getting information from you instead of "they." I think a lot of people just go into the situation of buying a house in such an abstract state of mind. After all, if someone were actually confronted with spending 7x their income in any other setting they'd see how crazy it seems. "Write me a check right now for 7x your income."

People are not aware of what they're doing, they're just trying to have a life like everyone else and they think those are the rules. So they try and play by them without question.

CL says

Depending on if you sell at the height of the bubble, or get cash out at the height of the bubble, you are either entitled to your free Mercedes or you are not?

Is that what passes for acumen?

Yes. In the former case you understand that the market is overvalued and there may be volatility ahead -- time to get out, in the latter case you are buying into the pipe dream and increasing your exposure.

I guess for me a big consideration is the person selling at the top didn't have any control over the bubble -- they just reacted to it. It's hard for me to blame them. What if they have to move for a job in 2006 -- do they list their house at what they think the market will bear, or do they list 25% below market because that's what they think the true value is.

Maybe what you are objecting to is the general treatment of a house as an investment? If we were talking about someone making money in the stock market, do you also say that they don't earn their returns? Is it only "fair" when the profits match the risk? The early buyers of Google got an undeserved windfall? The sellers of a presumed low-risk low-return house who happen to double their money in 5 years, it's unearned because they were only supposed to make 13% in that time period? I guess I'm not sure what the objection is. Sure, the guy that corners the market on wheat and makes a killing on the other end, I get it. The guy that gets washed in with the tide of housing and profits big...how is it his fault?

FunTime says

I think some people might view me as an idealist, but the kind of equality of understanding you’re suggesting is possible among people is truly stretching my imagination. For a lot of reasons, not everyone was going to get your level of understanding on this subject no matter how much they were told to try.

This is a good point, and you are right. The typical family buying a house doesn't have the capacity to understand what they are getting in to. In the past when we had extended periods of more or less stable prices, no one really got into trouble on the scale we are seeing today. Since housing provides a fundamental human need (shelter), it probably is different than other domains (business, stock markets, etc). The societal need for stability in housing is pretty important, and warrants some sort of oversight to maintain stability...the government screwed the pooch on that one, and it created a situation where uninformed people could no longer just buy a house without too much downside risk...There are probably plenty of people who feel like the rug got pulled out from under them...it sucks.

But I have to say, ignoring the larger social implications, an individual who isn't as well informed, diligent, or sophisticated is at a disadvantage in the world...they are going to make bad decisions and suffer from them. That's how the world works, it seems.

FunTime says

klarek says

~8% of the country is underwater and ~33% of the country rents. Those who jumped in are just the leftovers.

The 8% number sounds low. It looks like your numbers would add up to ~100% thinking there’s about 62% owners, but another number that comes to mind and seem relevant is the close to 8% that were owners two years ago, but are now renters or otherwise. There must be some overlap between them and your 8%.
Doesn’t this all suggest that very few people fit your group who figured it all out?

8% is roughly the proportion of people who are underwater currently. This excludes those who have been foreclosed upon, and does not include those who bought into the housing bubble with significant down payments. Take it for what it's worth, I don't know how else to estimate the ratio of people who jumped in versus refrained. I do know that of those renters who have remained as renters for the duration of the bubble's peak and collapse, pretty much all of them could have bought had they wanted to.

FunTime says

If you think the losers were all irresponsible people, then I get what you’re saying. I wish that were the case. I think some people might view me as an idealist, but the kind of equality of understanding you’re suggesting is possible among people is truly stretching my imagination. For a lot of reasons, not everyone was going to get your level of understanding on this subject no matter how much they were told to try.

I'm just using 'loser' as a pejorative for those CL is talking about, people who are apparently due the profits of those who left the housing market. I think it's pretty hard to justify how one could have bought a house between 2004 and 2008 in the bubble cities without concluding they were idiots or completely negligent in doing their homework on the largest purchase in their lives.

FunTime says

The point I’m trying to make is that when a buyer is dealing with a real estate agent selling the house, the buyer has probably not bought several homes that year. The real estate agent has probably sold several homes that year. So the real estate agent understands the process of selling a home(and buying for that matter) better than the buyer.

Sure the buyer can go and do hours and hours of research to try and get to a professional level of understanding and maybe even reach it. But don’t forget to include that time in the cost of the sale, because, it will be significant.

Now you're talking about agents. What you said before was "sellers". Which did you mean? By simple economic conservation, on the whole, sellers would have to average as many sales as buyers do purchases.

If you meant agents, then I'll agree that both during the housing bubble and in normal times they cannot be trusted to serve the interests of their clients. I'm not shy in expressing my views that NAR should be burned to the ground.

FunTime says

A person who says “yeah, but they changed that to 7x..” is not aware. They’re believing something told to them by someone who they think is an authority on the subject and so they jump. Too bad she didn’t realize you were basing your advice on fundamental concepts, like income, or she would have realized how valuable it was to be getting information from you instead of “they.” I think a lot of people just go into the situation of buying a house in such an abstract state of mind. After all, if someone were actually confronted with spending 7x their income in any other setting they’d see how crazy it seems. “Write me a check right now for 7x your income.”

People are not aware of what they’re doing, they’re just trying to have a life like everyone else and they think those are the rules. So they try and play by them without question.

My case was pretty clear to her. I told her that the prices of real estate were unsustainable, very likely to fall a significant amount, and it was being fueled by a massive number of buyers who were able to purchase well beyond the traditional 3.5Xincome rule of thumb (or 3Xincome, depending on interest rates, etc.)

My entire point was that this was the problem, and she used that very point as an excuse to buy: :"yeah but they changed it to 7Xincome"...... THAT is how F-ing dumb people like her were. There was literally nothing I could say which could have deterred her from buying. That can only partly be blamed on her agent. People who aren't aware of what they're doing when they are 30 years old, have a college degree, and spend a half million dollars in a purchase which they were adequately warned would blow up in their faces are not defensible. They're idiots.

YesYNot says

I agree, a clawback on personal levels like this is a terrible idea. Where would you stop?

As much as I would love to see some clawbacks from those who profited in the ponzi scheme, I much rather support a really high tax on flipping houses. That would eliminate future speculation in the market and let the current speculation basically die off.

ChrisLA says

I much rather support a really high tax on flipping houses.

I'm up for that. Something prorated from date of purchase... and something that couldn't just be easily baked into the sale price.

We already have that tax. It's called CAPITAL GAINS.

HousingWatcher says

We already have that tax. It’s called CAPITAL GAINS.

Too easy to bake into the sale price. I was thinking of something that would make it harder to flip properties.

terriDeaner says

HousingWatcher says

We already have that tax. It’s called CAPITAL GAINS.

Too easy to bake into the sale price. I was thinking of something that would make it harder to flip properties.

Why? What is wrong with someone who buys a run-down property, invests time and energy repairing and updating it so that it appeals to the move-in ready loving public?

I don't get the hatred for flippers...

tatupu70 says

terriDeaner says

HousingWatcher says

We already have that tax. It’s called CAPITAL GAINS.

Too easy to bake into the sale price. I was thinking of something that would make it harder to flip properties.

Why? What is wrong with someone who buys a run-down property, invests time and energy repairing and updating it so that it appeals to the move-in ready loving public?
I don’t get the hatred for flippers…

I understand the hatred. Flippers have an advantage on the REO market. They pay with cash, beat higher offers, and put it right back on the market at a higher price with little or no improvements, and score a profit. This compounded over several transactions builds up their cash pile while ultimately costing homebuyers more. It's economic inefficiency.

Again, that's just applied to this current situation, not to fix-up flips.

klarek says

People who aren’t aware of what they’re doing when they are 30 years old, have a college degree, and spend a half million dollars in a purchase which they were adequately warned would blow up in their faces are not defensible. They’re idiots.

They're also the majority.

klarek, since you don't like people who sell things for a profit, I assume that you don't own any stocks, bonds, or mutual funds and if you do, you will sell them for exactly what you paid, right? Because selling them for a profit would be an economic inefficiency. I also assume you don't own any gold or silver and if you do, you will sell them for exactly what you paid because profiting would just cost future buyers more and result in an economic inefficiency.

swebb says

I guess for me a big consideration is the person selling at the top didn’t have any control over the bubble — they just reacted to it. It’s hard for me to blame them. What if they have to move for a job in 2006 — do they list their house at what they think the market will bear, or do they list 25% below market because that’s what they think the true value is.

Exactly right. That's why I made a distinction between those people and the opportunists and flippers. It's clever and good for feathering your own nest, but it's not scrupulous.

And I do think that "housing as an investment strategy" is a big part of the problem. If people got a small, modest return on investment, the problems with "stupid buyers" would melt away---this whole depression would have been avoided really.

Some of the assumptions here have been based on a healthy, non-distorted market. Under normal circumstances, a buyer and seller agree to a price and a transaction is done. But in this case, buyers would have had to have known the status of the securities, the Government policies related to housing, the acquiescence of Fannie and Freddie, the over-leveraging by AIG et al, the failure of the ratings agencies, all while ignoring the historically safe purchase of American housing.

And anyone who knew all of that during the bubble or prior, would appear to me to have an asymmetrical advantage.

If a seller had such an advantage, I'd say they do not deserve their winnings. I'd say there is a difference between someone moving due to fortunate or unfortunate circumstances (both could be winners in this case) and a glorified pump and dump.

and again, I'd say that I personally don't see a difference between someone who sees appreciation of 200% in two years taking their cash via HE or selling it outright. In both cases, people walked away with unearned and undeserved income.

I invest in the market, but yeah...something about those "earnings" feel a bit like "winnings". Buying into the market at 7k didn't require me to be a genius any more than selling during the bubble did for those who profited.

@CL, this thread has gone on too long and lost direction. It's basically going around in circles now, with the same points being argued over and over. The people who disagree with your concept of clawback have made their arguement: no, it is not deserved, as everyone willingly participated in the same game. (In most cases) no illegal activity was partaken by the sellers therefore they have no obligations to their buyers.

But I haven't seen any convincing arguements as to why a person who bought a house and then sold it for more than he paid isn't entltled to his profits. So now I turn the question back to you.

What morale obligation is there to return profits? How are those profits unearned?

FunTime says

They’re also the majority.

Again, no they are not. I gave some accurate numbers which validate that there are four times the number of renters than there are people who are underwater.

You're entitled to your opinion and imagination, but they are baseless.

HousingWatcher says

klarek, since you don’t like people who sell things for a profit

I never said this. I just said there's a pretty good argument for taxing the shit out of somebody that takes advantage of their ability to buy a house for a much lower price than other bidders because of his cash position, dumps the property right back on the market at a much higher price, and builds his cash pile thus perpetuating this cycle. There's no economic efficiency being added here, just a sort of arbitrage.

I'm all for taking risks and making profits, but I see way too many houses in my area that are purchased at an extremely low price relative to their comps, then show up on the market again a mere few weeks after closing at substantially higher prices.

klarek says

somebody that takes advantage of their ability to buy a house for a much lower price than other bidders because of his cash position, dumps the property right back on the market at a much higher price, and builds his cash pile thus perpetuating this cycle. There’s no economic efficiency being added here, just a sort of arbitrage.

I guess you could argue that the value being added is the reduction of risk, and timing. As I understand it most REO properties are sold "as is" and with minimal inspection / remedies available. The risk of a major problem is relatively low in the aggregate, but if an individual case goes bad it could spell disaster for a retail buyer, whereas the investor can shoulder the burden of a bad foundation every now and then. Also, as I understand it, the time frame for short sales and other distressed purchases is not as structured as a typical retail purchase...The investor, not needing it as a place to live, has more flexibility here than a retail buyer. The cost and uncertainty associated with just the 2-week "spit shine" is enough of a burden that many buyers will avoid it...

Plenty of cash buyers get stuck holding the bag, as well. I have seen several purchase / re-listings that appear to have not gone well for the investor (Denver, Co).

Would flipping work if the housing market was at a stable supply-demand equilibrium and not propped up by low-interest loans, GSE's, the MID, etc., etc.?

terriDeaner says

Would flipping work if the housing market was at a stable supply-demand equilibrium and not propped up by low-interest loans, GSE’s, the MID, etc., etc.?

I think klareks argument is the opposite--that cash buyers have the advantage now. That seems to imply that the lack of financing, or at least the lack of belief in financing, is causing cash buyers to get properties at below market value.

tatupu70 says

I think klareks argument is the opposite–that cash buyers have the advantage now.

(edit) I suspect financing is always difficult to get for truly run down places, as they make poor collateral, so the all-cash buyer should always have an advantage there. Consider also that currently almost all of the flipper properties would be bank-owned or short sales so it is not surprising that the seller (essentially the bank) would rather do less paperwork and take 'cash on the barrel'. In a 'flat', stable market, there would be few of these properties available for purchase, so the 'flipper' would be limited in their ability to profit from the system. However, in a gamed system, like the one we currently have, the flippers can potentially manipulate the market prices, at least temporarily, by reducing low-priced housing supply, putting little actual value into the house, and selling houses at a profit to take advantage of currently inflated market prices. This activity is bad because it stabilizes or further inflates already overpriced housing, AND reduces availability of affordable low-end housing. Not every foreclosure or short sale is a shithole waiting to be rehabbed or demolished.

To make this work buy-and-flip system work well, however, you NEED potential homeowner access to cheap credit. Some sucker needs to be stuck with the reno-flip bill. Otherwise the flipper gets stuck chasing the market back down and makes no money.

One caveat... a flipper could sell to a buy-and-hold investor for cash, although I suspect few deals are done this way as the latter would probably just buy a foreclosure for cash and fix it up as a rental.

As an aside, I would LOVE to see how many cash transactions are ACTUALLY money pulled from a personal line of credit...

tatupu70 says

terriDeaner says

Would flipping work if the housing market was at a stable supply-demand equilibrium and not propped up by low-interest loans, GSE’s, the MID, etc., etc.?

I think klareks argument is the opposite–that cash buyers have the advantage now. That seems to imply that the lack of financing, or at least the lack of belief in financing, is causing cash buyers to get properties at below market value.

I refrained from using the term market value since it's in essence what is being paid for the house, but I've heard of countless examples where banks shunned higher offers from, say, first time buyers with little down in favor of a ridiculously low price from an all-cash buyer. On one hand, I understand that the bank is just being pragmatic and realistic. The fully-leveraged first-timers are waaaay more likely to fall through on the deal, for a number of reasons. On the other hand, I think that these flippers can take advantage of this, and sell that same house right back to the people who were going to offer more for it, and score a quick profit out of nothing. Essentially, this is a system which is introducing an unneeded middle-man. A person that's able to pony up the front money, and take it right back (plus some) from the original buyers. What sort of efficiency is there in a system like that? More transactions, more realtor commissions, more tax and title fees?

It's just a general argument and observation, and per Roberto's above remarks, it's not really an issue if the person holds onto it. I'm just seeing a lot of houses going through flippers and back onto the market with nearly no time elapsed between closing and the new listing.

klarek says

Essentially, this is a system which is introducing an unneeded middle-man. A person that’s able to pony up the front money, and take it right back (plus some) from the original buyers. What sort of efficiency is there in a system like that? More transactions, more realtor commissions, more tax and title fees?

EXACTLY.

terriDeaner says

Consider also that currently almost all of the flipper properties would be bank-owned or short sales so it is not surprising that the seller (essentially the bank) would rather do less paperwork and take ‘cash on the barrel’

I don't understand your point here. To the seller, there is no more paperwork for a cash buyer or financed buyer. There is, however, risk that the deal will fall through--appraisal doesn't make, loan is denied, etc. That's why they take the cash.

To me the answer is obvious--there is a non-zero risk that the deal will fall through. In a declining market, a deal that falls through has a definite cost. So, the bank is transferring that risk to the "flipper" (I think that is a misuse of the term--investor is probably better). The investor is taking the risk and is therefore entitled to the potential reward (or loss).

terriDeaner says

klarek says

Essentially, this is a system which is introducing an unneeded middle-man. A person that’s able to pony up the front money, and take it right back (plus some) from the original buyers. What sort of efficiency is there in a system like that? More transactions, more realtor commissions, more tax and title fees?

EXACTLY.

+1. When credit system in deep trouble cash can be used to generate more cash.

tatupu70 says

I don’t understand your point here. To the seller, there is no more paperwork for a cash buyer or financed buyer. There is, however, risk that the deal will fall through–appraisal doesn’t make, loan is denied, etc. That’s why they take the cash.

I'm using the term paperwork a bit loosely here. Consider that an all cash buyer merely needs to show up with a check and/or some easily acquired proof-of-funds, and the seller just needs to cash the check (once it is written) order to close escrow. Contrast this process with the financed buyer's process. Even if the FB shows up with a pre-approval, the mortgage still needs to *actually* be written, which is not instantaneous and is far more involved than cutting a check. Sure, in some cases the financed deal may be straightforward, and nearly as easy as a all-cash transaction.

tatupu70 says

To me the answer is obvious–there is a non-zero risk that the deal will fall through. In a declining market, a deal that falls through has a definite cost.

This is part of what I meant by 'paperwork'. As you indicate, most banks will likely choose the path of least resistance (all-cash), with the highest probability of clearing quickly. Part of this is because there is ALWAYS a chance that a financing-dependent purchase may fall through due to the financing. And I would suggest that this chance of dumping is probably MUCH higher than the chances of an all-cash deal falling through.

terriDeaner says

And I would suggest that this chance of dumping is probably MUCH higher than the chances of an all-cash deal falling through.

Agreed. That's why I don't think it's a valueless transaction. The investor is assuming the risk for the bank.

tatupu70 says

So, the bank is transferring that risk to the “flipper” (I think that is a misuse of the term–investor is probably better). The investor is taking the risk and is therefore entitled to the potential reward (or loss).

Flippers are more like middlemen than investors. Sure, they are taking on risk, but in the end that risk is not the same in our current gamed market as it would be in a stable, supply-demand equilibrium 'freeish'-market. The government guarantees that with every low-interest loan it backs, and every other trick currently in place to keep inflated prices propped up.

If you don't believe me (and I suspect you won't), consider how much flipping activity has declined since the days of foolishly easy credit (sub-prime, alt-a, pick-a-pay, etc). Flipper risk during this period, up until the end, was ACTUALLY pretty low since increasingly crooked financial policy virtually guaranteed price inflation for an extended period of time. They were operating more like real estate brokers/agents who had to slap a coat of paint and redecorate a property between sales. The ones that didn't make money during the boom, or got caught with their pants down at the end of the fuckfest (and I do mean fuckfest) were probably shortsighted, stupid, or greedy or some combination of the three.

Sure, credit is tighter now and flipper activity is lower, but plenty of idiots can still get low-downpayment, high principle FHA loans, for example. Think about how demand for highly-priced flipped homes would deteriorate if these idiots couldn't get financing. And think about how this translates into ACTUAL investment risk on the part of the flipper.

tatupu70 says

Agreed. That’s why I don’t think it’s a valueless transaction. The investor is assuming the risk for the bank.

I have some more thoughts on this but I'll have to come back to it later...

bubblesitter says

terriDeaner says

klarek says

Essentially, this is a system which is introducing an unneeded middle-man. A person that’s able to pony up the front money, and take it right back (plus some) from the original buyers. What sort of efficiency is there in a system like that? More transactions, more realtor commissions, more tax and title fees?

EXACTLY.

+1. When credit system in deep trouble cash can be used to generate more cash.

That's my issue with it. Great, take advantage of the system, but at the cost to whom? Other buyers. The fact is that these investor flippers can buy with lower bids says how very wrong the system is.

tatupu70 says

The investor is assuming the risk for the bank.

If they bought it at $80k under "market value", excluding defects, what are the chances they're inheriting any real risks?

klarek says

That’s my issue with it. Great, take advantage of the system, but at the cost to whom? Other buyers. The fact is that these investor flippers can buy with lower bids says how very wrong the system is.
tatupu70 says
The investor is assuming the risk for the bank.
If they bought it at $80k under “market value”, excluding defects, what are the chances they’re inheriting any real risks?

Essentially you are saying that the banks are stupid and don't properly understand the risk of these loans not closing. Judging by their past performance, it's hard to argue with you.

It's not the systems fault though--it's just the seller's fault. The seller is leaving money on the table. Robert is right... Finally, if you are crying because you can't get a below market deal--shut up and save the money yourself! There is nothing stopping you from putting in an all cash offer...

tatupu70 says

It’s not the systems fault though–it’s just the seller’s fault. The seller is leaving money on the table. Robert is right… Finally, if you are crying because you can’t get a below market deal–shut up and save the money yourself! There is nothing stopping you from putting in an all cash offer…

Don't disagree at all. If one is to whine that it isn't "fair", they're not wrong, but the answer is of course to come to the table with more money. Just pointing out that the way this kind of system repeats itself, it sort of compounds this problem to where the only people who are compounding their available capital are the flippers.

I'm just looking at it as an economic inefficiency and why flippers don't deserve any sympathy.

klarek says

I’m just looking at it as an economic inefficiency and why flippers don’t deserve any sympathy

I agree too--I would definitely not have any sympathy for flippers...