Thom explains just why he tells his buyers that short sales are most often very bad deals, if they are even legitimate deals at all!
It seems that three years ago no one had ever even heard of a short sale. Now we just wish we hadn’t EVER heard of them. Short sales are the bane of the home buying market at this moment. Most buyers really don’t understand why they are so bad, so difficult, and in the end, so infuriating. I have been involved in many, from both sides. And while I am whining about them as a buyer’s agent, I can tell you it is actually much worse to be on the listing side, at least for the agent. From the customer’s perspective, it is generally worse on the buyer’s side. This is because if you are the seller, you already know you made a very bad mistake, and you are prepared for lots of unpleasantness in trying to unwind that awful thing.
But if you are the buyer, you ostensibly haven’t screwed up, and are just trying to buy that cute house with the low price. But what you don’t know in these situations will damn near kill you. In the early days, let’s say in late 2007 and early 2008 when shorts were beginning to rise locally (I am told by those in other areas Bend has been in the very forefront of short sales, as we fell so hard, so fast, the Vegas of the NW, so many have learned from our mistakes), we eagerly took our clients to them, as none of us really understood them either. Then came the hair ripping, the screaming, the crying, and the slew of buyers running for the hills, convinced the banks were evil and liars (I am not so sure they got it wrong there), and that the whole deck was stacked against them.
So if you are a home buyer, and you are looking in an area such as Bend, Florida, Vegas, Phoenix, or California’s Inland Empire, where prices are down 50% or worse from their highs, please, for your own sake, listen up.
1) PRICING-
First of all, the price you see on a short sale may or may not be legitimate, in fact, most often it is not. “But it’s on the paper”, you say. Yes, but it means nothing. A short sale is generally begun when a homeowner misses 2 payments. The bank won’t even let a seller consider a short unless they have satisfied that little detail. Then, the Realtor comes in, gets the bank information, and most often begins the short WITHOUT ANY communication from the bank as to how much they want to get out of the property. This is not the Realtor’s fault, because most lenders will not accept any communication from the Realtor UNTIL an offer is made. Therefore, the Realtor has to get an offer before he/she knows how much the house can really sell for. So, in order to show good faith to the bank that we attempted to get their money out of the deal, we generally start them at the break even price, where the bank will get all of their money back. Then, the price is lowered, often by 5%, each week or two, until an offer comes in.
So what generally occurs is that the house sits on the market for months as the price comes down, and that period is longer when there has been a huge drop from the boom prices, simply because the market is 50% or so below that price at the current moment. Finally, the price begins to look attractive to buyers, and an offer comes in. Then the Realtor is often allowed to speak to a negotiator at the bank. This negotiator is for the Seller, as, remember, the bank is not the owner of the home until foreclosure, and the seller still owns the house, so all negotiations on how much they will take to let the seller out of their obligation to pay the money back take place between seller and bank, not the buyer. So, the buyer sits, and sits, and waits for someone to get back to them while the lender’s negotiator negotiates with their board, their sub-lenders who really own the note, and the seller. What sometimes occurs in our market is that the bank finally comes back and says,”we won’t take that much, you have to offer more than the asking price”. So, that’s what I mean by the price often being illegitimate, as it means nothing at all until the bank says it does. And in cases where they are writing down over more than 35%, my experience says they won’t do it, and would rather foreclose. Now, this is where the price DOES get legit, as the Realtor is forced to raise it, and puts it back in the ACTIVE MLS category. These are your best bet if you want to look at shorts. I just closed one, in fact, where the previous deal fell apart, leaving a pre-accepted bank price for us to jump in and take advantage of. These are a needle in a haystack, but your Realtor can help.
2) SELLER CONTRIBUTIONS? Fahgeddaboutit.-
The majority of offers these days include what are known as seller contributions. This simply means the seller is kicking money in towards the buyer’s closing costs or down payment. As houses now require larger downs to buy, it makes sense that the buyer is putting the squeeze on the seller to help the sale come to fruition. But in a short sale, the seller is losing his or her house and accepting the mantle of years of bad credit. To even get a short sale to happen, they have to prove to the bank that they are essentially broke. Do you think they can, or will, kick in cash to help you make a purchase? Would that make any sense at all?
No, of course it wouldn’t. And, as you can’t negotiate with the bank (remember, they only deal with the seller and have no legal basis or right to negotiate with the buyer as they don’t own the house . . . yet), they also won’t help you. So contributions are exceptionally rare with shorts, and if you need one, don’t waste your time looking at them.
3) OFFERS-
So the buyer has made an offer, and is smiling thinking they are going to get this great house cheap. But not so fast. It often takes 1-4 months for the bank to figure out what the heck is going on, and it may take them that long to get back to you. You need to know this going in. Furthermore, there may be other interests involved. These include second mortgages, Home Equity Lines of Credit (HELOCs), and the worst, Private Mortgage Insurance (PMI). Now, your chances of actually getting a short sale with only ONE lender is somewhere around 25% at last check. Those chances drop significantly with each party attached to the debt. The First Mortgage has the power here, as they can legally take the whole offer and leave the sub-creditors with nothing, but of course then they really can’t do it as the sub lenders will foreclose. SO, all lenders and insurers must sign off on the deal, and IF this ever happens it will take a long, long time. There are bureaucracies in each, and therefore the slow wheels in those institutions have to deal with the slow wheels at the others, negotiations go back and forth between loss mitigation departments at each, and it just grinds to a halt. Frankly, these banks believe they have better things to do, and much of the time in these instances would simply rather foreclose than go through the mess of dealing with your offer.
My own advice would be to never get involved with a short sale if it has PMI involved, as there is very little chance it will ever happen. I also counsel against getting involved with short sales that have a second or a HELOC involved, as they also have maybe a ten percent chance of going through. Meanwhile you are wasting your time and missing good Bank Owned REO’s and traditional sales that may actually be purchaseable. Which leaves us with the single lender short sales. These are your best bet. There are certain banks which have a good track record of closing these, and others which are the kiss of death. I am not going to tell you which unless you are my client, due to legal issues, but it you have an honest buyer’s agent who didn’t just fall off the turnip truck, they should be able to as well.
3) IT AIN’T OVER UNTIL THE FAT LENDER SINGS-
But you’ve made an offer, and you are prepared to wait until something happens. Optimistic, are you? Well hold on, Kemosabe, this ride gets rougher. Now, if you make an offer on a traditional sale, or on an REO, once it is looked at by the seller and approved, which should only take a few days at worst, it is marked PENDING in the MLS system, and no one can offer on it again until the offer falls out of contract. But with a short sale, the ground is shaky as Jello, and because there really isn’t a deal until a third party lender signs off, it is marked CONTINGENT, which might just as well say “WE HAVE AN OFFER BUT IT PROBABLY AIN’T GOING TO HAPPEN- GIVE US A BETTER ONE!” Yes, “your” house stays on the market during the month or more of negotiations, and another buyer can come in behind you and get in line with a better offer (generally you are still first to get a shot these days, as banks only want to look at one offer at a time, but you know the listing agent is going to tell them that they have a better one waiting behind you . . .). Which means, you might fall in love with it, as clients of mine have in the past, and over months develop a real love for it, only to lose it at the last minute. Not a recipe for stability, is it?
4) REMEMBER AIG?
Another dynamic in place with short sales is that these lenders are insured against foreclosure risk, but often not against short sale risk. So, if they foreclose, some of that loss is made up by an insurer. If they sell a short, they often have to write it all off. This just makes negotiating the short sale even less attractive to them.
5) THIS IS/WAS SOMEONE’S HOME!
When I take young couples and families through short sales, people get bummed out. When you walk through a short sale, the pictures are still up, the kids’ toys are scattered all around, and the kitchen table has recently been used. And as you inevitably look at these things, you realize these are people just like you, who had dreams of a better life, but theirs were destroyed by the housing crisis. These people are losing their home, a home they probably love. A home they might have hoped to raise their kids in, watch one of them get married in, have family gatherings and holidays in. But now their dreams are dashed, and you really can feel the despair and sadness in these homes. Clients have walked out just crestfallen after looking at a great home, only because it hits home what is REALLY going on here. If you’re an altruistic type, a sweetheart, short sales aren’t for you, either.
6) CONCLUSION:
In my book, there are only certain short sales worth looking at, and they represent maybe 20% of those on the market. Here are your criteria for a Short Sale you may actually be able to buy:
A- Look for a short sale with ONLY ONE LENDER! More than that and your chances drop dramatically.
B- THAT LENDER BETTER BE A GOOD ONE! There are good banks, and bad banks. The worst in terms of getting these closed was once the industry darling. I think you can guess that one. I wouldn’t get involved with them, they supposedly close only single digits percentage-wise. And that monster that swallowed a big NW bank is not much better. You’ll do better with small banks. They need the money. The big guys are too cash rich these days to care. Caveat- Wells Fargo has proven to be very good and conscientious about closing these, one reason I have switched to them for my own banking needs.
C- Better yet, find one that HAS ALREADY HAD A SALE FAIL AFTER MONTHS ON THE MARKET. This one may have the rarest of items- a legitimate price.
D- BE PATIENT! Constantly emailing or calling your Realtor won’t help. All he/she’ll do is call the other Realtor, and get the “I haven’t heard anything and they won’t talk to me” line we always get. If you are getting involved with a short, that’s your choice, and you must be prepared to wait and be ignored.
E- BE REALISTIC! If the price looks too good to be true, it almost always is. And don’t go looking at short sales if you need to close a house in the next two months or so, chances are it won’t happen, and then you will have only yourself to blame, NOT your Realtor (unless that Realtor hasn’t told you all of this, and in that case, you have my permission to yell at them).
F- Looking for the perfect home? Is the most important thing to you getting the right house? THEN DON’T EVEN LOOK AT THEM! Short Sales are for the buyer who wants to get the best price and doesn’t care if it is an ugly process after which they might never even get the house. They are not for people who are at all emotional about their home purchase. These are brutal, ugly, faceless deals, and if you are looking for the perfect place for your family or get emotional about homes, do yourself a favor, look only at REO bank owned homes, and at traditional sales. You will thank yourself, and so will your Realtor!
Why I don’t recommend Short Sales to my Buyers
/in Real Estate Buying Tips/by Thom GardnerThom explains just why he tells his buyers that short sales are most often very bad deals, if they are even legitimate deals at all!
It seems that three years ago no one had ever even heard of a short sale. Now we just wish we hadn’t EVER heard of them. Short sales are the bane of the home buying market at this moment. Most buyers really don’t understand why they are so bad, so difficult, and in the end, so infuriating. I have been involved in many, from both sides. And while I am whining about them as a buyer’s agent, I can tell you it is actually much worse to be on the listing side, at least for the agent. From the customer’s perspective, it is generally worse on the buyer’s side. This is because if you are the seller, you already know you made a very bad mistake, and you are prepared for lots of unpleasantness in trying to unwind that awful thing.
But if you are the buyer, you ostensibly haven’t screwed up, and are just trying to buy that cute house with the low price. But what you don’t know in these situations will damn near kill you. In the early days, let’s say in late 2007 and early 2008 when shorts were beginning to rise locally (I am told by those in other areas Bend has been in the very forefront of short sales, as we fell so hard, so fast, the Vegas of the NW, so many have learned from our mistakes), we eagerly took our clients to them, as none of us really understood them either. Then came the hair ripping, the screaming, the crying, and the slew of buyers running for the hills, convinced the banks were evil and liars (I am not so sure they got it wrong there), and that the whole deck was stacked against them.
So if you are a home buyer, and you are looking in an area such as Bend, Florida, Vegas, Phoenix, or California’s Inland Empire, where prices are down 50% or worse from their highs, please, for your own sake, listen up.
1) PRICING-
First of all, the price you see on a short sale may or may not be legitimate, in fact, most often it is not. “But it’s on the paper”, you say. Yes, but it means nothing. A short sale is generally begun when a homeowner misses 2 payments. The bank won’t even let a seller consider a short unless they have satisfied that little detail. Then, the Realtor comes in, gets the bank information, and most often begins the short WITHOUT ANY communication from the bank as to how much they want to get out of the property. This is not the Realtor’s fault, because most lenders will not accept any communication from the Realtor UNTIL an offer is made. Therefore, the Realtor has to get an offer before he/she knows how much the house can really sell for. So, in order to show good faith to the bank that we attempted to get their money out of the deal, we generally start them at the break even price, where the bank will get all of their money back. Then, the price is lowered, often by 5%, each week or two, until an offer comes in.
So what generally occurs is that the house sits on the market for months as the price comes down, and that period is longer when there has been a huge drop from the boom prices, simply because the market is 50% or so below that price at the current moment. Finally, the price begins to look attractive to buyers, and an offer comes in. Then the Realtor is often allowed to speak to a negotiator at the bank. This negotiator is for the Seller, as, remember, the bank is not the owner of the home until foreclosure, and the seller still owns the house, so all negotiations on how much they will take to let the seller out of their obligation to pay the money back take place between seller and bank, not the buyer. So, the buyer sits, and sits, and waits for someone to get back to them while the lender’s negotiator negotiates with their board, their sub-lenders who really own the note, and the seller. What sometimes occurs in our market is that the bank finally comes back and says,”we won’t take that much, you have to offer more than the asking price”. So, that’s what I mean by the price often being illegitimate, as it means nothing at all until the bank says it does. And in cases where they are writing down over more than 35%, my experience says they won’t do it, and would rather foreclose. Now, this is where the price DOES get legit, as the Realtor is forced to raise it, and puts it back in the ACTIVE MLS category. These are your best bet if you want to look at shorts. I just closed one, in fact, where the previous deal fell apart, leaving a pre-accepted bank price for us to jump in and take advantage of. These are a needle in a haystack, but your Realtor can help.
2) SELLER CONTRIBUTIONS? Fahgeddaboutit.-
The majority of offers these days include what are known as seller contributions. This simply means the seller is kicking money in towards the buyer’s closing costs or down payment. As houses now require larger downs to buy, it makes sense that the buyer is putting the squeeze on the seller to help the sale come to fruition. But in a short sale, the seller is losing his or her house and accepting the mantle of years of bad credit. To even get a short sale to happen, they have to prove to the bank that they are essentially broke. Do you think they can, or will, kick in cash to help you make a purchase? Would that make any sense at all?
No, of course it wouldn’t. And, as you can’t negotiate with the bank (remember, they only deal with the seller and have no legal basis or right to negotiate with the buyer as they don’t own the house . . . yet), they also won’t help you. So contributions are exceptionally rare with shorts, and if you need one, don’t waste your time looking at them.
3) OFFERS-
So the buyer has made an offer, and is smiling thinking they are going to get this great house cheap. But not so fast. It often takes 1-4 months for the bank to figure out what the heck is going on, and it may take them that long to get back to you. You need to know this going in. Furthermore, there may be other interests involved. These include second mortgages, Home Equity Lines of Credit (HELOCs), and the worst, Private Mortgage Insurance (PMI). Now, your chances of actually getting a short sale with only ONE lender is somewhere around 25% at last check. Those chances drop significantly with each party attached to the debt. The First Mortgage has the power here, as they can legally take the whole offer and leave the sub-creditors with nothing, but of course then they really can’t do it as the sub lenders will foreclose. SO, all lenders and insurers must sign off on the deal, and IF this ever happens it will take a long, long time. There are bureaucracies in each, and therefore the slow wheels in those institutions have to deal with the slow wheels at the others, negotiations go back and forth between loss mitigation departments at each, and it just grinds to a halt. Frankly, these banks believe they have better things to do, and much of the time in these instances would simply rather foreclose than go through the mess of dealing with your offer.
My own advice would be to never get involved with a short sale if it has PMI involved, as there is very little chance it will ever happen. I also counsel against getting involved with short sales that have a second or a HELOC involved, as they also have maybe a ten percent chance of going through. Meanwhile you are wasting your time and missing good Bank Owned REO’s and traditional sales that may actually be purchaseable. Which leaves us with the single lender short sales. These are your best bet. There are certain banks which have a good track record of closing these, and others which are the kiss of death. I am not going to tell you which unless you are my client, due to legal issues, but it you have an honest buyer’s agent who didn’t just fall off the turnip truck, they should be able to as well.
3) IT AIN’T OVER UNTIL THE FAT LENDER SINGS-
But you’ve made an offer, and you are prepared to wait until something happens. Optimistic, are you? Well hold on, Kemosabe, this ride gets rougher. Now, if you make an offer on a traditional sale, or on an REO, once it is looked at by the seller and approved, which should only take a few days at worst, it is marked PENDING in the MLS system, and no one can offer on it again until the offer falls out of contract. But with a short sale, the ground is shaky as Jello, and because there really isn’t a deal until a third party lender signs off, it is marked CONTINGENT, which might just as well say “WE HAVE AN OFFER BUT IT PROBABLY AIN’T GOING TO HAPPEN- GIVE US A BETTER ONE!” Yes, “your” house stays on the market during the month or more of negotiations, and another buyer can come in behind you and get in line with a better offer (generally you are still first to get a shot these days, as banks only want to look at one offer at a time, but you know the listing agent is going to tell them that they have a better one waiting behind you . . .). Which means, you might fall in love with it, as clients of mine have in the past, and over months develop a real love for it, only to lose it at the last minute. Not a recipe for stability, is it?
4) REMEMBER AIG?
Another dynamic in place with short sales is that these lenders are insured against foreclosure risk, but often not against short sale risk. So, if they foreclose, some of that loss is made up by an insurer. If they sell a short, they often have to write it all off. This just makes negotiating the short sale even less attractive to them.
5) THIS IS/WAS SOMEONE’S HOME!
When I take young couples and families through short sales, people get bummed out. When you walk through a short sale, the pictures are still up, the kids’ toys are scattered all around, and the kitchen table has recently been used. And as you inevitably look at these things, you realize these are people just like you, who had dreams of a better life, but theirs were destroyed by the housing crisis. These people are losing their home, a home they probably love. A home they might have hoped to raise their kids in, watch one of them get married in, have family gatherings and holidays in. But now their dreams are dashed, and you really can feel the despair and sadness in these homes. Clients have walked out just crestfallen after looking at a great home, only because it hits home what is REALLY going on here. If you’re an altruistic type, a sweetheart, short sales aren’t for you, either.
6) CONCLUSION:
In my book, there are only certain short sales worth looking at, and they represent maybe 20% of those on the market. Here are your criteria for a Short Sale you may actually be able to buy:
A- Look for a short sale with ONLY ONE LENDER! More than that and your chances drop dramatically.
B- THAT LENDER BETTER BE A GOOD ONE! There are good banks, and bad banks. The worst in terms of getting these closed was once the industry darling. I think you can guess that one. I wouldn’t get involved with them, they supposedly close only single digits percentage-wise. And that monster that swallowed a big NW bank is not much better. You’ll do better with small banks. They need the money. The big guys are too cash rich these days to care. Caveat- Wells Fargo has proven to be very good and conscientious about closing these, one reason I have switched to them for my own banking needs.
C- Better yet, find one that HAS ALREADY HAD A SALE FAIL AFTER MONTHS ON THE MARKET. This one may have the rarest of items- a legitimate price.
D- BE PATIENT! Constantly emailing or calling your Realtor won’t help. All he/she’ll do is call the other Realtor, and get the “I haven’t heard anything and they won’t talk to me” line we always get. If you are getting involved with a short, that’s your choice, and you must be prepared to wait and be ignored.
E- BE REALISTIC! If the price looks too good to be true, it almost always is. And don’t go looking at short sales if you need to close a house in the next two months or so, chances are it won’t happen, and then you will have only yourself to blame, NOT your Realtor (unless that Realtor hasn’t told you all of this, and in that case, you have my permission to yell at them).
F- Looking for the perfect home? Is the most important thing to you getting the right house? THEN DON’T EVEN LOOK AT THEM! Short Sales are for the buyer who wants to get the best price and doesn’t care if it is an ugly process after which they might never even get the house. They are not for people who are at all emotional about their home purchase. These are brutal, ugly, faceless deals, and if you are looking for the perfect place for your family or get emotional about homes, do yourself a favor, look only at REO bank owned homes, and at traditional sales. You will thank yourself, and so will your Realtor!
Free Money For Saving Energy
/in Real Estate Buying Tips/by Thom GardnerThom points out Federal and State tax credits for efficient energy systems and appliances
Well, the very dark cloud of the economic De-Cession we have all lived through for the past three years has a silver lining. Energy prices. When economic activity dies and products being manufactured, shipped, and distributed slow from their frenetic pace of the early 2000’s, energy prices fall, and fall they have. Automobile gas is currently about 60% of what it was at its peak, Natural Gas is about a third of what it ran up to, and crude oil is at approximately half its former cost. What does this have to do with Real Estate, you ask?
When fossil fuel prices drop, a similar phenomenon occurs in the renewable, or green, energy industry. Prices on many renewable energy systems go up when more people are rushing to buy them to stave off the specter of high fuel prices, and they also go down when prices in non-renewable energies fall, and people become complacent about buying what is the easiest to get- fossil fuels. However, as we have seen with the stock market since the March 2009 bottom, the best time to buy is not at the peak, but in the trough of prices.
Furthermore, homeowners who install energy efficient systems in their homes in 2010 can cash in on government programs, put in place when energy was expensive and it seemed the Saudis would own the entire World, and get some real money back on their taxes both this year, and for years to come. Everything from Solar electricity systems, so perfect for our High Desert and loads of year-round sun, to wind systems, also perfect for our climate, to simple energy saving appliances has a financial benefit to install and use in your home.
After all, do you REALLY think that low energy prices are here to stay? T. Boone Pickens, who is an oil and wind energy titan, claims that oil will once again double this year to well over $150 a barrel (that means $4 plus gallons of gas to you and me). Now, he is an OIL man, so we can take that with a grain of salt, however, he made similar predictions in 2004, and he proved correct then. And he is not the only one making such claims, as the economic recovery in China charges ahead, while ours begins to start chugging along here in America. Once we get our economy cranked up and join the current booms in Latin America and Asia, and then Europe follows, we could be looking at another massive problem with energy prices right here at home.
Now, the tax credits. The Federal Government has several tax credits, CREDITS, NOT DEDUCTIONS, for homeowners in place for 2010. Through this year, homeowners who install energy efficient products in their homes can get 30% of the total cost of the products back as a tax credit on this or next years’ taxes, UP TO A MAX OF $1500. The items must be in your principal residence, must have been put in service between January 1 2009 and December 31 2010, and include the following items:
Biomass Stoves, HVAC (heating, ventilation, or air conditioning), Insulation, Roofing, Water heaters, and Windows and Doors.
Folks, this is a no brainer. I know many of you have bought fixer uppers in the past year or two as prices have dipped, and if you need a new roof, new vinyl windows to replace old aluminum ones, or a new furnace, NOW is the time to do it. Free money from the government is not just for Big Banks (though yes, it’s a LOT less!)
AND EVEN BETTER, there are some items which HAVE NO UPPER LIMIT, and not only do they qualify for the 30% credit without a limit, they also run through 2016! These items include:
Geothermal Heat Pumps, Solar Energy Systems, Wind Energy Systems, and the new up and comer, Fuel Cells.
Now that’s a credit! Always wanted a solar electricity system on your home, but balked at the cost? Take advantage of lower prices than you will probably find in a a years’ time at the source, and let the government pay 30% of your costs! It’s a great situation for those that need to do some work, and have the seed money to do it.
And, of course, the State of Oregon has a very messy and extensive list of credits for homeowners who install energy efficient appliances and systems as well. It is too sloppy to summarize here, so I am including this link to a page which summarizes them: http://www.oregon.gov/ENERGY/CONS/RES/RETC.shtml , OR, I have included a great chart on the bottom of my “Tax Information” page, HERE.
Lastly, here is a link to the Federal Governments informational site on their tax credits: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index
Now, go save some money!
How to buy a Foreclosed/ Bank Owned Property
/in Real Estate Buying Tips/by Thom GardnerThom guides the buyer through the combination of Disney Theme Park and Cambodian mine field that is the process in buying a foreclosed home in Bend, Oregon. Yes, there is a lot of good, and really it is the only way to buy right now, but I think you need to know about the tough stuff as well.
So, you want to buy a foreclosed/ bank owned property, eh? Well, you’ve come to the right place! (He says as he peeks around, then opens his trench coat to display a good dozen listings that look too good to be true.)
The truth is, if you are letting me help you find a home, that’s mostly what I am going to show you. Unless you don’t care about money, and then I have some fantastic plots of land 475 feet under Lake Mead I’d like to talk to you about. Right now, nothing comes close to foreclosed homes as far as value for the buyer- certainly not conventional homes, which represent the very top of the current market, and which are generally priced 20- 40% higher than the foreclosed home next door. Short sales are often even worse, because the price you see on a short sale rarely is the price you will pay (it’s most often higher, sometimes a LOT higher), and short sales generally take 90 days to close, and to make matters worse, during that ninety days you most often have zero idea of whether or not you will ever get the home. It takes the banks a long time to respond on shorts, and the entire time you are waiting for them to answer you (weeks to months), the house is still on the market, and offers are still being accepted. It is not uncommon for buyers to sit and wait, all the while becoming more and more attached to a home, only to find sixty to ninety days out that someone else has made a better offer. Bye- bye dream home, and hello pissed off buyer.
Foreclosed properties, however, combine the best aspects of both conventional sales AND shorts. Like shorts, they are priced far under the rest of the market. It is my belief at this time, owing to improved economic numbers that come out almost daily (have you seen the stock market this month? how about durable goods orders? how about new home sales? how about home resales? how about same store sales? how about Bend home sales? how about oil prices? I could go on and on, but all of these are up in the last months, not just the market itself- these underpinned the market’s rise), that foreclosures represent the coming bottom in home prices, a bottom that I think will arrive sometime in the first days of Summer or waning days of Spring. But, if you get my point, foreclosures are already representing early Summer numbers, and quite often numbers so low we will never see them again. And the difference between a short sale and a foreclosure is that the price you see on a foreclosure is the ACTUAL price, not a BS number made up by a Realtor. I was at a Principal Broker’s meeting last week, and many of them want to do away with short sales altogether, as they believe they represent false advertising and set us up for bad things to come. I do not disagree.
Bank owned properties, like conventional sales, do NOT take 90 days to close, and once a deal is reached (often within days to a week), they are marked PENDING, and cannot be shown to other buyers like shorts can, AND they can close as fast or faster than a conventional sale- (30-45 days in the current lending climate.) Let me put it this way, if I was buying a home right now (you have no idea how much I wish I could- but my debt to income ratio is too high for the new standards- usually around 30%, then there is the self employed problem, etc…), I would ONLY look at foreclosed properties. Besides that, as many as there are out there, they will be gone before any of us even knew what happened, and we will all be looking back, wishing we had known they would disappear so quickly, just as we wished we had known the downturn was coming.
Sounds pretty good, right? Well . . . there ARE banks involved, after all, so how could they be perfect? Is there anything less perfect than a bank, ANY bank in 2009? I think not (I’m looking at YOU, CHASE, you pack of weasels). So, let me tell you about the negatives.
FIRST, we get no signatures on offers, or counter offers, until a deal is reached. This can be disconcerting to those who are control freaks, but we will have quick and regular communication from the bank, often communicated verbally or by a brainless computer to the agent on the other side. So, this one is really just an annoyance.
SECOND, and this is the big one, once you get past the standard right of refusal for a) a loan you could not get or did not like, and b) a bad inspection, both of which you can still pull out after, provided it is within the time limits specified in the contract, once you get past those? Yep, you get the house, or you lose your earnest money, and sometimes damages as well. All banks on foreclosures make you sign a really nasty addendum that makes lawyers nervous, saying that you cannot sue them for anything once you have blown through the inspection and the loan process. They are all sold as-is, so it is the buyer’s responsibility to be sure that as-is works for them. Really, this is just a grown up way of doing business, unlike the hand-holding that often accompanies traditional real estate sales. It’s put up or shut up time, essentially. They don’t want to waste their time with a buyer who is wishy washy. And who would?
THIRD, they won’t fix anything. It is paramount that you get the best inspector you can find, and for years we have queried our clients as to whom is the best, and we have a list from 1st choice to last. I will of course always recommend Mike Wilson, the first on that list. But several others are good if he is too busy to get it done in time. So, as-is, really means as-is. We may be able to get them to reduce the sales price based upon a poor inspection on a house that you still want to keep going with, however, so be sure to let me know immediately, as we usually have 7-10 days AFTER SIGNING to pull out or whine, based on an inspection.
FOURTH, they won’t listen. Now, this is a much worse category with short sales, because there they won’t even listen to you throwing your money at them, much less your desires and wants about this or that problem with the property, or the fact that you think it’s basically a tear down, or that you’d really like them to replace the carpet before you reach a deal, or any of the things you can often push for with a regular sale. REMEMBER, YOU ARE GETTING IT FOR WAY UNDER MARKET VALUE, so they aren’t going to play that kind of ball. The only chance we have for those sorts of caveats is the one I mentioned above, the post-inspection period. That’s it.
FIFTH, there is an icky little thing called a PER DIEM. What this means is that if YOU, THE BUYER, go over the closing date for some reason, usually because your loan guy can’t get it done, (Please think about using Carl Salvo if you want as close to a trouble free, well informed, HONEST process as you will ever see- he saves me trouble, pain, and sleep, and he saves you trouble, pain, AND money), then you owe the bank some extra money at closing. This can be $50 per day, or $100 per day. Either way, it is trouble. And they will neither rescind this stipulation, nor will they pay it if THEY go over. Not exactly fair, but a cost of getting a great deal. Hey, I said they weren’t perfect. But they still are the best thing going out there. SO, the key with this one is that you check with your loan guy and be sure he can get it done in the time allotted. If he doesn’t, at least he gets yelled at, not me! Happy
Now, you will get a Special Warranty Deed at closing, which is basically the same as a traditional sale. Only, as they have never been to the property nor lived there, it is a Special Warranty Deed, not a General Warranty Deed. This really is just a name thing, with no real troubles ahead for you in reality. And, your title insurance policy that you pay for at closing insures you against some creep coming back later and saying he has title. Guess what? He doesn’t. And even if he could prove he did, the title insurance would pay him off, or for your home, or whatever remedy is necessary. But these are so rare as to be akin to the Dodo.
The last major thing to tell you about foreclosed property sales is that you can’t be that guy. You know the guy, the one who think he is going to get everything at a huge discount, or he’s walking away? Now, we all have a little of that guy in us, but it’s important to keep him on a short leash during a foreclosure negotiation. Foreclosed homes are, again, WAY BELOW MARKET VALUE, so they are rarely going to go more than 10% to at the most 15% lower than the listed price. We can offer lower to try to get bargaining position, and I always recommend we do to start, but it is important to get real about how much you want the home after the first counter, because they will often not continue negotiations unless you quickly get in the ballpark. The other minor thing to note is that the best ones go very, very fast. Often under two weeks on the market. If I have been working with you on foreclosures, you have probably heard me say, “Whoops, that one’s gone”, at least once. It is not uncommon for me to pull a batch of 5-10 homes one week, only to discover the next week that 2-3 of them are outta here. So, find what you want, get serious, and move fast. The deal you get will be worth it, especially a few years down the road.
So, if I haven’t scared you away with my usual, full disclosure style, and you want to check out some foreclosed/ bank owned homes, email me at Bendbrokersrealty@gmail.com, or call me at 542-480-7554. Let’s go get ‘em!
BEWARE Multiple Offers, Artificial or Natural
/in Real Estate Buying Process/by Thom GardnerBeware the new monster lurking in Bend. His name is “Multiple Offer”, and he comes in both natural, and artificial, forms.
I’m here to warn you, folks, that there is an ugly monster lurking about in the bend market that we haven’t seen hide nor hair of since 2006. His name, which I don’t even like to speak, is Multiple Offer. Egads! See, that wasn’t fun.
I have been involved this year in several multiple offers in Bend, and I do NOT recommend them. They generally cause people to bid homes up to levels that the homes don’t merit. Unless this home is your dream home, you have other options and I would always suggest that you exercise them and move on to your next choice.
This year they seem to come in more flavors than usual as well. You have the legit ones, where multiple people actually do offer at once on a home and they are then told they have so many days to come up with their “highest and best” offer. These things happen, and in a hot market such as ours, you will eventually come across one. But there is another kind that really gets my goat, an artificially drummed up kind in which the Listing agent sets the price artificially low, often on a short sale so that there is no real obligation for the seller to go through with it if no other offers appear. These are ugly, and in my opinion, unethical. And there’s a new type I just saw, which blew my mind. I’ll get to it in a bit. First, a couple examples of some I have seen this year.
The first was on a West Side bank owned. Those are rarely seen anymore, as we have pretty much run through our allotment of West side foreclosures, and it’s been a long while since I have seen one. But if you do see one and you want to buy it, you will be looking at multiple offer s. The one I was in occurred in January, and my buyer came in at $1000 over the asking price, which we thought at the time might actually get us the house. How wrong we were. This house ended up going for $28,000 over asking price, and mind you this was a home listed at around $175,000, so we’re talking a large percentage here. I DO NOT recommend you ever go more than a tiny amount over list price, as it rarely works out in the end for the buyer. Buyer Beware.
The next one was a short sale on the East side. The Realtor had been unsuccessful selling it, so one day she slashed the price by a large margin, to a hard to believe low amount. Well, it was hard to believe because it was never going to happen. This price was so cheap, the cheapest ever in that neighborhood, that buyers and their agents descended upon this home en masse. I ran into several agents that said “hey, have you seen this house? My buyers want to write on it.”. So did mine, I said. The Realtor then said that she was getting so many offers that she was telling everyone to submit their “highest and best” by that Friday. My buyers were willing to come in a bit higher than list, but I quickly became aware through other agents that it had already been bid up to a HIGHER price than it sat at for months with no offers! Much, much higher than the latest asking price! DO NOT fall for this trick! If a short sale looks too good to be true, folks, it is.
And now the new wrinkle. I saw a home, a very nice home, this week and it was a standard, traditional sale. The price seemed very fair, perhaps overly so. But the eye catcher was in the agent remarks, where it said that they were accepting offers through Thursday (the house just went on the market on Monday), and would decide Friday. Wow, I thought, what the heck is this? They must have already gotten a bunch of offers. Well, it turns out, that’s what they wanted us to think. But when I called on Tuesday to ask, I was told there were no offers yet. None. They were “anticipating” a buyer frenzy based on showing interest. Yep. That smelled to me like they were trying to build a buying frenzy through buyers liking this very nice home and being afraid someone would get it before they did, and gosh, now we better make our offer HIGH if we want to win! But a win when there is no one else competing is not a win at all.
So, the moral of my tale, folks, is that sellers and their agents have come up with some new ways to get you OVERLY excited. Don’t let them. These are the days of multiple offers in Bend. And if someone else m
Crisis & Bailout
/in Real Estate Trends/by Thom GardnerWas that noise I heard in September people buying houses or just the thud of the !CRISIS!, and where the hell is that bottom anyway?
Did you take a look at those September statistics on my stats page? Huh, Didja? Because, if you did, you’d see that we were up for September! Yes, you heard me right. We were up! As in, more sales than August! Shock of shocks, it’s true. And let me tell you, I saw it from the ground. The first three weeks of September I was deluged, and quite happily so, with buyers who came out of nowhere. In fact, I had been predicting that people would hit September and say to themselves, “It’s the Fall. That’s supposed to be the bottom! Let’s check it out!” And that they did.
So, is this the bottom? Is this the end? Is it up, up and away from here? Did you notice how I mentioned “three weeks”, as in a finite sense? Well, there’s a good reason for that. You see, the new buyers stopped coming right about the time the good old news media found a new way to hit us all below the belt . . .
!CRISIS! Yeah, you heard me, I said !CRISIS!. And that’s the way I will spell it from now on, and if you see me in person I will put my hands to the side of my face and give you the pained shriek look from the painting “The Scream”, because I have discovered you can’t discuss the !CRISIS! without panic and hysteria. It’s like eating jelly without peanut butter, you can do it, but you won’t get the full effect.
And so, dear reader, I tell you that buyers were stopped in their tracks by the !CRISIS!, and not just by an over zealous news media, but by the very same banks that caused much of this in the first place with their bogus loans and lack of income verification, and even flat out income reporting fraud, who found that they no longer had enough money to lend. Loans dried up very quickly, and perhaps the scariest sign of all was that our incessantly lazy and self centered President got out of his easy chair for a few hours and actually tried to DO something! God, that scared the bejeezus outta me! I mean, if he’ll sit through Katrina, and snoozed halfway through an attack on our Country’s soil, when he gets up it must be awfully serious!
Our recovery was killed right as it got started. And I don’t blame the buyers, I’d have sat out a bit and watched the skies for a few months myself. That’s just being prudent. But, there is good news. The !BAILOUT!, derided across the Union by folks who don’t like seeing sharks in suits steal our cash, is actually starting to work. The money it provided is starting to slither its way through the dark underbelly of the reptilian banking sector. How can you tell? A 24 hour viewer of CNBC like myself can tell you that LIBOR is coming down. LIBOR reflects the risk of lending capital between banks- a high LIBOR means that it is hardly worth loaning money, as you will pay too much to whomever you have to borrow it from to re-lend it, whereas a low LIBOR means that all is clear, and that banks are able to profit from loans again. That is merely a layman’s description- hit CNBC for more on that one.
But banks are beginning to lend again, and we can look forward, I believe, to a Springtime where people feel happy to have a smart President once again, where spirits are lifted by the site of children playing in the White House once more, and yes, where banks can lend money with a portion of the freedom they once did. We are not going back to easy loans, thank goodness, but we are going back to responsible loans that will be freely available to folks with a traditionally high beacon score of 720 or more, rather than the 800 or so needed now. And we should be going back to 90% loans, maybe even 95%, though probably not 100%.
I believe we are at the beginning of the bottom, and we will continue to build that bottom over the Winter. Spring should be better in many senses of the word, and I continue to feel that we will have a real “Morning in America” happen with the change of the presidency. Positivity will be in the air, a new day will be dawning, and if ever there was a promising time for housing to stabilize, that would be it. Signs point that direction- Buyers coming out, Loans becoming more available, finally getting this god awful election season behind us, and a new family in the White House- a young family with smiles and energy that will lift all of our spirits. I doubt we will see prices shoot up any time soon, but as we are down a good 40% or so in real market value terms, we should see some leveling off in 2009 -the year I originally said this would end, way back in Fall 2006.
Of course, I could be wrong.
Careful with Short Sales
/in Real Estate Buying Tips/by Thom GardnerI am changing my tune, a bit, on Short Sales and the likelihood of closing one. Also my tips for finding short sales that might actually close, and a word about a specialist and moronic lenders.
Ahh, yes my friends. I have been married to the most wonderful woman I have ever met for two years today. We have the best life, the best kids, and wow, what a relationship! I never knew it could be so real, so deep, and so on the level with a woman before. If you knew me during my previous marriage, you’ll understand. Thanks for being my wife, Jeni, and I love you so much.
But, Real Estate intrudes, at least for the afternoon. There is a subject I have been meaning to write about here, as I am changing my tune just a bit on the hot little newcomer to the Real Estate scene- short sales. If you used my previous website, ThomGardner.com, you may have seen my short sale primer, telling buyers not to be scared of shorts, and that that’s where the real deals are. Well, it USED to be that way, but banks are exposing their moronic underbelly to those of us in the business, and those of you with a TV, every day now. It used to be that they understood that prices were in decline, and that they better be prepared to take a loss to move the product that they allowed to become so falsely inflated in price to begin with. THAT is how you clean up a balance sheet, by getting rid of the bad assets, writing off the loss, and moving on with those assets in your portfolio that ARE actually worth the paper they are printed on. I mean, if you have tried to sell anything, as I have, in the past year, cars, boats, bikes, electronics, clothing, whatever, you have likely found that they are worth much less than they were last year. My car had a used book value of about $17,000 at the beginning of the year, only to fall precipitously to about $12,000 today. IF I’m lucky and can find a buyer. But, such is the cost of cyclical swings, and I think both you and I understand that fact of life.
But the banks don’t seem to know what to do. They have homes they are going to have to foreclose on, at a minimum cost of $60,000 per foreclosure. And then you have the Winter here, and have you ever bought a foreclosure in the Winter in Bend? NOT RECOMMENDED! You are buying a foreclosure (an REO) as-is in all cases, and I am here to tell you that these far flung banks have no concept of our climate (they think Oregon is where it rains all winter, not snows or freezes, and hey, it’s all the same hillbilly state, right?), and they hire fly by night fools to “winterize” them, fools who don’t care about the home, only the check, and lo and behold, when you take possession of this home in which they have refused to keep the utilities on, you have tens of thousands of dollars worth of damage from burst pipes waiting for you on move in day! WELCOME TO YOUR NEW HOME!!! I personally watched a bank’s crew “winterize” a home here that we had been representing, and all they did was spend 5 minutes pouring antifreeze down the drains in the home. Yep. That’s it. Magically, we were able to sell the short the day before foreclosure, and the new buyer moved in to a home with ALL the pipes destroyed, and a pool of ice under the house, and a selling lender that basically gave them the finger.
So, you would think they’d be in a hurry to move these homes, cut their losses, and get back on track, right? WRONG. Shorts are becoming harder and harder to close. In the past few months, lenders have clamped down hard, and are choosing to foreclose more often than they used to. I have buyers that made a full price offer on a short, and after almost 3 months of the bank saying, “sorry, you’ll have to pay more”, we are walking away from the table. And do you know what the difference in price is? $15,000! They won’t cut $15,000 from the deal to make it happen, they’d ever so smartly rather walk away and foreclose, and hand $60,000 over to lawyers and handlers, to eventually sell the home we offered $275,000 on, for what I would guess to be about $225,000. I hate seeing great homes sit empty, but I hope National City chokes on that one.
Here are the facts as I now understand them regarding short sales. There are two kinds of shorts which still close relatively easily in this environment.
1) Homes where the loan is just held by one company, meaning there are no seconds or HELOCS (lines of credit), are the easiest to close. This is because only one bank has to make concessions, and in a second loan situation, the subordinate loan often gets next to nothing, as the first has primary dibs on your dough. And you know, they are just a little bit pissy about that. and so they love to play the spoiler and screw up the whole deal, you know, so the first lienholder gets to feel their pain right along with them. That’s pure capitalism, folks.
2) The other decent option is to find a short (such as the one I have listed on Mt. Hope) where the first and second lien are from the SAME BANK, that way, though the second may get very little, the same company gets all the money from the first, and so they are amenable to cutting a deal on the second.
That’s about it. Short sales where there is a first, and a second, and, god forbid, any PMI debt owed, are getting harder and harder to close. I do have access to a specialist that contracts with Realtors (I split my fee with her 50/50) to close even the toughest shorts through insider negotiations from former mortgage specialists with the lenders. Early in the year they could boast a 95% short sale close rate, thought now it is down to 82%, illustrating just how tough it is out there. But my own guess as to the rate of closing otherwise is probably less than 30%. So, if you need to sell your home short, and want to be relatively SURE it sells, call me, and I’ll help you, along with my specialist partner. We collect nothing if you don’t sell, so no risk to you. And if we do sell, we share my usual commission from the bank, at no additional cost to you.
Remember now, just like Grandma used to say, be careful wearing Shorts in the Winter!
POSTSCRIPT: I had to add in this little snippet. Two days after my clients formally left the table in the deal mentioned above, I got a call from the other Realtor, who said the bank now would accept our offer! HAH! I passed it on to my clients, but they are passing. This has also happened in other shorts I have run- often, when you can get nothing out of the lender, it pays to walk away and make them treat you like you matter. Then, YOU get to be “the decider”!