REOs, short sales aren't always bargains
Some find quality, convenience take back seat to price
By Bernice Ross, Monday, November 30, 2009.
Today's buyers seem to have one thing in common: Everyone wants a great deal. So the real issue is whether the foreclosure, REO or short-sale property you're eyeing is a bargain or a money pit.
The buying public seems to think that "great deal" equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else's problems. If you're looking for a bargain property, here are some key issues to consider:
1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don't have a deal until the bank approves the short sale. At many large lenders a single processor may have up to 500 files on his or her desk at one time. Realtors are reporting that it can take six or more months to get an offer approved. The wait can be extremely frustrating. It can also be costly.
For example, if prices are still declining in your area and price range, the offer you made six months ago may be too high. Also, if you qualify for a loan now, will you still qualify six to eight months from now if mortgage interest rates have increased? More importantly, can you afford to make a higher monthly payment? If possible, search for a short sale or an REO where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.
2. Are you prepared to be in a multiple-offer situation?
Since so many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The lender will not tell you about other offers. They may, in fact, tell you that your offer will "probably" be approved -- but you cannot rely on this representation.
If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller's signature on the document merely opens the negotiation -- it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you. This is simply smart business, as so many borrowers are having trouble closing transactions due to appraisal issues. ...CONTINUED
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Submitted by Susana Field, The Steamboat Gal, Steamboat Springs CO Realtor on December 6, 2009 - 9:15am.
Bernice,
To elaborate on your last paragraph, we've found in our ski resort market that if someone bought here at the height of the market, especially if they put very little down, it only took the drop in valuation to get that owner in a short-sale situation.
Meanwhile, like you said, there are owners that have accumulated equity in their homes over that same time, such that they can afford to sell their home for a lower price without finding themselves needing to go into a short sale scenario with their lender.
Finding one of these sellers, who are motivated and thus willing to take an equity loss on their own, can provide a better deal than a short sale.
We've found some sellers not budging on their price because if they accepted anything lower they would have to go into a short sale with their lender, while other sellers with equity are willing to take bigger losses. So, I advise my clients not to get distracted and infatuated with the terms short sales and foreclosures. What's important if you want a deal is to find someone that has equity and is very motivated.
Susana Field
Exclusive Buyer Broker
Steamboat Springs, CO.
www.SteamboatGal.com