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Short Sales & Foreclosures Category

Foreclosures – A Bargain in Deed?

Types of Deeds

Or Was it a Special One?

Okay, I admit that this is probably not the best play on words, but if you’ve ever considered purchasing a bank owned property, you’ve no doubt heard about Bargain and Sale Deeds or Special Warranty Deeds, right? Read the rest of this entry »

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Woodinville Home Back on the Auction Block

Woodinville homeJust yesterday, I was touting about how to buy a home for pennies on the dollar (click HERE to read that post). In that post, I mentioned a home in Woodinville, WA that sold for $490,000 at a recent auction I attended. What happened afterward is a complete surprise to me… Read the rest of this entry »

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How to buy a home for pennies on the dollar!

AuctionIt’s a buyer’s market right now, and there are deals to be had. I’m going to tell you the best deal yet, but it’s not for the faint of heart.

Short Sales and REOs are good, but there is another alternative.

There is an oversupply of homes on the market right now. Ask anyone you know and they will tell you of a neighbor’s home for sale. Drive down any residential street and you’ll see the yard signs. Visit any condo complex and you’ll see the signs in the window. What you don’t see may be the best buy out there… Read the rest of this entry »

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Foreclosure sales account for 26% of sales in 2010

Realtytrac, the leading online marketplace for foreclosure properties just released statistics for the fourth quarter, 2010.

Foreclosures are down

Sounds promising until you read deeper into the report. Foreclosures accounted for 26% of the overall market nationwide, down from a record high of 29% in 2009.  It’s great to see the decrease, but that is still a staggering percentage of the overall market!

Overall home prices get dragged down also…

When bank owned properties were just a small portion of the market (less than 10%), their sales prices were viewed as an aberration. One bank sale didn’t really affect the values of other homes in the neighborhood. But, when the percentage of REOs increased, it started to negatively affect the values of other homes (see my previous post: What is lurking in the shadows). In the report by Realtytrac, Washington foreclosures sold for an average of 30% less than their Fair Market counterparts.

Lower Prices = More Investors

As the sales price ratio of REO : FMV sales increases, so does the investor activity. That’s when the smart money begins to show up. To put it into perspective, if you could buy something for 70 cents on the dollar, wouldn’t you be interested too? Read the rest of this entry »

Should I avoid short sales when looking for a home?

This is a question that comes up frequently when meeting with potential buyer clients, and I’ve got mixed feelings about how to respond. To be sure, Short Sales offer an opportunity for buyers to pick up properties for less than market value. In my last post, I shared a statistic that was offered to me about a nationwide average of 70-88% of fair market value for Short Sales. To put that into real numbers, let’s say you have two identical homes with a market value of $100,000. In this scenario, the Short Sale home (on average) would sell for $70,000 – $88,000 vs. the $100,000. A pretty good deal!

However, statistics are macro level, real estate is sold at the micro level. By this, I mean that each market is different, and the numbers should be taken with a grain of salt.  But, what if we could get every Short Sale for less than market value? Should I recommend them to my buyers?

I’ve done many Short Sale transactions, both as a Buyer’s agent (representing the buyer) and as a Listing Agent (representing the seller), and I will declare that they are not for the faint of heart! From a Buyer’s standpoint, there is little difference between a Short Sale and a Fair Market sale in terms of process. However, the main difference is TIME! While a typical sale might close in 45-60 days from the date of mutual acceptance, a Short Sale could take as long as 6 months to close, and even then there is no guarantee!

So, the big question that I ask my buyers is “how long are you willing to wait for a ‘potential’ deal on a property?”

I recently had a buyer write an offer on a Short Sale property. This particular property had been in contract twice before but had fallen through while in escrow. We were told by the Listing Agent and his Short Sale Negotiator that this time would be a breeze. They lied! Four months of waiting and with no end in sight, my buyers became so frustrated at the lack of response by the Listing Agent and his “team” of negotiators, that they rescinded their offer and purchased another property.

As a buyer, I would urge you to consider the following before deciding to pursue a Short Sale property:

  1. Do you have a deadline (date) in which you need to be settled in your new home? If the answer is YES and it is less than 3 months, then I wouldn’t suggest a Short Sale property.
  2. Do you have a low tolerance for frustration? If the answer is YES, then I wouldn’t pursue the Short Sale property.
  3. Are you impatient? If so, then move on…

From an Buyers Agent standpoint, Short Sales are time-consuming and frustrating. There is no guarantee of a closing, and after 4-6 months of working with a buyer on a deal (only to have it fall through) it can be disappointing. Based on personal experience, I recommend only pursuing Short Sale properties if:

  1. The Listing Agent is experienced in handling Short Sales AND has processes in place to insure that the appropriate paperwork and communication between the bank and seller/agent is professionally handled.
  2. There is NO 3rd party negotiator involved. This is because these “professional” negotiators try and pass their fees onto you, the buyer. How unfair is this???

Still interested in Short Sales? Give me a call…

What is lurking in the shadows?

Many people have heard the term “Shadow Inventory” in connection with real estate. But, what exactly does the term mean?  In a nutshell, shadow inventory

“is the inventory of homes that are either owned by the bank (foreclosed upon but not yet listed for sale), or where the current owner is in jeopardy of losing his/her home to the bank in the near future”.

CNN recently released a report on this problem and in it described the long term effects it could have on our nation’s housing recovery.  You might be asking yourself how

homes that aren’t even on the market could have an effect on the market? There are two ways that this inventory can affect the market.

  1. Perception – This is when potential buyers read in the news about how bad the real estate market is, and decide to delay their purchase until they see more positive results.  I call these people the Lemmings. They blindly follow the crowds, listen and believe whatever they read and/or see on the news. Until this shadow inventory actually comes into the market, it is all speculation.
  2. Reality – When these homes are actually listed for sale and compete against other homes in the marketplace. The effect of this extra inventory causes downward pressure on the asking and eventual sales prices of other nearby homes. It is simply the law of supply and demand but with a twist…

According to some statistics provided to me at a recent seminar I attended, Short Sales (those sales where the sellers’ home will not sell for an amount high enough to cover the liens on the property) will generally net 70-88% of fair market value. REOs (bank owned property where the home has been taken back by the bank) generally net 40-60% of fair market value.

Here’s the problem if you actually think about it:

Fair market value is generally defined as the price at which a seller is willing to sell for, and a buyer is willing to pay in an arm’s length transaction. However, housing sales are not done in a vacuum. There are many factors that contribute to a property’s value, including but not limited to: location, condition, amenities, and much more. So let’s create a scenario which is pretty common right now…

A condo complex of 100 units with a historical average value of $250,000 (the price that many of the current owners paid for their homes just a few years ago) has one unit (fair market value) for sale at $250,000. What is the value of that unit? $250,000? Maybe a little less given the decline in the market?
Now let’s say that that unit sells for $200,000 and is recorded as a closed sale at that price. Another unit comes on the market for $225,000. Is that unit over-priced?
Then another unit (short sale) comes on the market at $150,000. Then another short sale at $140,000. Then another short sale at $130,000. Finally when all is said and done, you have 19 units for sale in the complex (out of 100 units = 19% of the total # of units, but 100% of the total units currently for sale) that are either short sales or REO, and with an aggregate average price of $150,000. What is the value of a unit in this complex now? This scenario is real, and happening in a condo complex in Lynnwood, WA. All of these short sale and REO properties have brought down the values of ALL units in the complex!

The end result of this glut of REO and Short Sale properties, is that those homeowners who weren’t “Short” before, may now become “short” as a result of the declining values in the complex brought about by the other short and REO properties, thus setting a new value benchmark, and exacerbating the problem further…

Current MLS statistics show that there are 2846 condos for sale in King County. Of those 2846 units, 623 are short sales, and 402 are REO properties. An astounding 36% of the total units for sale (1025 units) are NOT Fair Market Value properties. Imagine what is happening to the prices!

And those buyers? The savvy ones are jumping in and picking up one or more units to hold long term. The Lemmings stand on the sidelines because they fear that prices will continue to fall and their purchase will lose even more value. Just like the stock market, these buyers wait until the market has bottomed out and is on the rise before they jump in…

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