Sunday, August 30, 2009

Foreclosed/bank owned homes, Short Sales and regular sales in the San Diego market

Foreclosed/bank owned homes, Short Sales and regular sales in the San Diego market .
All 3 are very different in the way they transpire, from the offer, to the transaction and sometimes even the closing. Each one has its advantages and disadvantages.
Regular transactions are usually the easiest and least trying for all parties. Communication is usually good between everybody involved…buyers, sellers, agents. You have a willing buyer and a willing seller. You have a home that is usually in good condition, often pride of ownership. Minor repairs have been made before they become major problems. And the sellers will usually take care of any major defects and some minor defects in the home before closing.

Bank Owned Properties, REO’s (Real Estate Owned - by the bank) or Foreclosed Homes are the next easiest properties to buy.  You can find them in all areas of the county but they are more prevelant in Oceanside, Vista, San Marcos and Escondido along with the South Bay and East county areas. There are currently only 648 bank owned foreclosures for sale in the San Diego MLS.  That compares with over 3000 a year ago.   Available Bank Owned properties make up only 7.5 % of the listings and account for 33% of the sales.  They turn quickly!

But you must follow very strict bank guidelines or you will lose your good faith deposit or pay a per diem of at least $100 per day, depending on the price of the home…and who caused the delay. The following are the guidelines that most banks require. They are all doable, but the buyer and the buyers team must be ready, willing and able to proceed very quickly.

· You will have to sign the banks addendum/counter if you want the home…read them carefully!!!

· 30 to 45 day escrow.

· 7 to 10 days to complete buyers inspections & investigations.

· 10 to 17 days for loan, appraisal & all other contingency removal.

· Seller chooses Title and Escrow services (often overworked and understaffed)

· Pre-Qualify or double apply with their lender (you can then use any lender you want).

· Require proof of funds for the good faith deposit check with the offer.

· May require a Cashiers Check for the deposit within 24 hours of verbal acceptance.

· Proof of liquid funds for any all cash offer – lines of credit or stock accounts are usually NOT OK.

· Offers contingent on the sale of the buyers property are not accepted.

· Time lines are strictly followed. The bank may cancel or charge you per diem if late.

· You often compete with other offers if the home is priced right. Overbids common on good homes.

· Make your offer based on the value, not to the list price. Banks sometimes under price homes.

· Bank asks for your “Highest and Best” offer. The best “net dollars” and best terms to the bank. In many cases, the bank will not return counter-offers after they have requested this. Sometimes they will not counter and just take the best offer.

· Banks & Trusts are exempt from most disclosures. Get a complete professional inspection.

· Banks rarely pay for Home Warranty policies and often do not pay for termite repairs/treatment.

· Properties are usually sold “AS IS” and they rarely fix anything or give a buyer credit for repairs.  If you want anything repaired or included, you must ask for it in the original offer.

· You get a front door key.   Garage door openers, pool, mailbox & Assn. keys (if any) are a bonus.

· Properties still show active on the MLS while you wait 1 - 14 days for bank signatures on verbally accepted offers. Yes, sometimes you will wait that long for the bank to get the fully executed contract to you, and they still want to close in the original 30-45 days. That’s tough on your lender.
We are seeing many multiple offers on the lower end of the market for both houses & condos. As many as 80 offers on one listing. Five to 10 offers is common. Investors have been seeing positive cash flows & they have been buying. There is a lot more money on the sidelines waiting for the “right time”.

Short Sales are the most difficult, uncertain and time consuming. They can take 1 week to 8 months before the bank responds to your offer, then another month to close. Sometimes they will never respond to an offer (even a good offer), or they can foreclose while you are in negotiations.  There are currently 1702 active Short Sales and 3927 contingent Short Sales in the San Diego MLS.  That makes up 36% of the inventory but only 20% of the closings

The bank may even come to the seller and do a “workout” during the negotiations, canceling your sale. They are definitely not short in time or emotion. An “approved” short sale can usually be done in 30 to 90 days. “Approved” means the underlying lender has accepted that they will take less than what is owed on the property and acknowledge that the seller has an acceptable hardship. Often that approval has a required price for the property. If you offer less than the approved price, that can mean a complete new package must be sent to the lender, causing an additional 30 to 90 day delay.
Short Sale buyers should make their offer and continue to look because they may never be able to buy the property until after the foreclosure. Rarely does the first offer get the home because they can’t wait for the bank.
Do not mentally move in. Many fail. Do not lock your loan rate or give notice to move.

Be patient and be prepared for the long haul. Status updates are infrequent.
Short sale properties often have deferred maintenance issues, some significant, as the sellers usually do not have the money or desire to keep the home repaired or upgraded.

Always have the home professionally inspected.
Properties are sold “as is” because the seller has no money and the bank will not pay.
Banks can come back and ask the seller or buyer to pay the back taxes, HOA dues or part of the second Trust Deed. Banks can ask the seller to carry a personal note (most sellers refuse).
Short Sales are not usually great, or even very good, deals. The bank asks the listing agents for comparable sales and, if the comparables are near the home value, usually sends out their own appraiser. Banks usually counter back at MARKET PRICE. They are a business that does not want to loose more money. If you get your offer accepted (1-6 mo. later), you still get to look at the current comparables and decide if you want the home before you spend your money on an appraisal & inspections.

In San Diego County, short sales currently make up over 50% of the available inventory (very location dependant – much higher in some areas/price ranges) but only 20% of the closings (6/30/09 San Diego MLS Stats).
If you are an investor & the property is in foreclosure & owner occupied, there are major rule changes that, if not followed properly, could hit you with fines &/or jail time. Ask me first!

A "Short Sale" can occur when the loans are more than the value of the property and the seller is "short" of enough funds to pay off the existing loans, taxes, HOA, closing costs and other obligations against the property. The seller requests the bank take an amount which is short of the amount owed instead of foreclosing on the property. The bank will consider a short sale if the seller has a verifiable financial hardship, and, the bank will get more for the property than it will in a foreclosure.

The bank is not obligated to do a Short Sale. The seller receives nothing from the transaction except debt relief.

When it is time to buy or sell a home, call me.  I am here to guide you through the transaction while avoiding the land mines.

Dennis Smith, ABR, SRES, e-PRO, CDPE, Realtor® DRE# 00476662
Certified Distressed Property Expert
See my Short Sale and Foreclosure Avoidance Web Site at
Taylor Place Real Estate

View area homes for sale at
Copyright © 2009

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