Sparta, NJ

Part 6 of Distressed Properties are NOT Black Holes!, a six part series by Sussex County NJ real estate pro, Irene Kennedy

REOs do present some challenges that may or may not occur in other types of real estate sales. I'll provide the most common issues I encounter around Sussex County, NJ - and bet my colleagues will add lots of other snafus!

Unknown conditions. The bank has no history on the property. It does not know if there is an old oil tank buried. The age of the roof is a mystery. Most banks have not even had one of their own employees visit the property. The BPO and photos are normally the basis and extent of the bank's knowledge. I've never had a bank hire a home inspector to do a more thorough job. So, yes, there is more risk for a buyer. This is true not just for foreclosures in Sussex County NJ!

Speed. Bank's love contracts that call for a closing in 30 days or less. They don't like to hear 90 days, 60 days. I did have one agree to a 45-day window but it actually closed earlier than that. Most banks specify that the buyer pays $XX per day for each day the closing is delayed - for any reason other than the bank extending.

Unusual Aspects.

• Shifting costs: In my primary real estate area within Sussex County, sellers normally pay for water/well testing, a Certificate of Occupancy and some other low-cost items. With REOs, the cost and responsibility is often shifted to the buyer.
• AS-IS: Means exactly that; what you see is what you get. What you don't see is also what you get. The bank will not do or discount the price toward repairs; these are taken into account with the list price.
• Disclosures: There will not be a Seller's Disclosure because the bank has no historic knowledge; what you see is what you get.
• Home Inspection Timing: Some banks insist any home inspections be done prior to submitting an offer. Many buyers refuse to pay for a home inspection before knowing if the seller (the bank) will accept their offer. For my most recent closing of one of my REOs in Sussex County, I had a terrible time as buyers walked away and put in offers on places where inspection followed a contract. Only a licensed general contractor who was not going to do a home inspection at any point submitted an offer (lowball). I eventually persuaded the bank to permit a home inspection within 5 days of an accepted offer. I contacted every agent and the buyers to whom I had showed the home - and the offers came rolling in.

Even though the bank will not do anything based on the inspector's report, I still highly recommend all home buyers in Sussex County NJ do a full home inspection on an REO property. Regardless of its timing, this is a sound investment and might uncover some non-visible problems. The home inspector said the place needs a new roof? Based on the big blue plastic tarp nailed onto the roof over the hole that opens into the living room where the tree fell, I'd vote that a new roof comes as no surprise... All buyers should have an expert opinion on the condition of the property they are considering, just to know fully what they are getting and to decide if they really wish to proceed with the purchase based on all facts.

Fully Executed Contract. Deal is done. Banks very rarely change any terms once that contract is ratified. Do not expect concessions afterwards. If something really surprising pops up, such as a very high radon reading, it probably wouldn't hurt to ask for a modest adjustment, but I've not yet had a bank agree.

Repairs. AS-IS really means as-is. If the property had no toilet when it was listed and when you saw it, the bank will not be buying a new toilet. For the REO I mentioned in the above paragraph, when the first offer was accepted, the buyer promptly did a home inspection. Based on that, he came back with "must fix" items or dollar equivalent and the bank politely said go fly a kite. That listing, the buyer, his agent, and the fully-executed contract itself had been clear about As-Is and most of the items were quite apparent with the naked eye.

Negotiations. No face-to-face chats. When I represent the buyers of Sussex County homes for sale, I often ask the listing agent if he or she can arrange to have us sit down together with the sellers to present my buyers' offer and to negotiate a deal. (Buyers not present but "on standby" via phone.) This isn't a possibility when the bank owns the property. Furthermore, the bank does not give a hoot that Sally & Jim look forward to raising their growing family in this home. The bank doesn't care of the local chapter of the Hell's Angels is purchasing the REO. The bank cares about the bottom line and the speed of the closing. The listing agent prepares a "net sheet," preliminary HUD-1 or similar form to show how much money the bank will net, based on the offer presented.

• Part 1 - Distressed Properties are NOT Black Holes!
• Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
• Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
• Part 4 - Want to Steal a Foreclosure? Get the REO facts.
• Part 5 - Consider a Foreclosure - Advantages of REOs
• Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers

Copyright © 2009, Irene Kennedy, all rights reserved. This blog post from RealtorIrene.com represents Irene's personal musings.

Considering selling a home or looking to buy one around Sussex County, NJ? Benefit from creative marketing, top negotiating skills and vast real estate knowledge by contacting Irene via the data to the right or HomesIrene.com.

Irene Kennedy, who is a NJ real estate agent with Weichert, Realtors, lives in Sussex County & works from the Hamburg office. Her primary market includes: Augusta, Branchville, Crystal Springs, Frankford, Franklin, Hamburg, Hampton, Hardyston, Highland Lakes, Lake Mohawk, Newton, Ogdensburg, Scenic Lakes, Sparta, Stockholm, Sussex, Vernon, Wantage.

Part 5 of Distressed Properties are NOT Black Holes!, a six part series based on experience from a Sussex County real estate agent.

Many buyers rule out all foreclosures due to a lack of facts. I think this is a huge mistake and potential Sussex County, NJ, buyers are shorting themselves by not at least considering REOs. Part 6 will discuss the "cons" but here are some of the "pros."

Value: The homes are usually excellent value for the price. Great value. Top value. Wonderful value. Hope I'm making my point... (Now, distressed properties in Sussex County NJ and elsewhere are not the only good deals around. I always show my buyers all properties that fit their criteria - one of which is usually that they want a bargain.)

Condition: Not all bank-owned properties are in terrible shape. Sure, some are uninhabitable without a lot of work. Some need lots of cosmetics - painting, new carpeting, etc. Others, however, are in move-in condition.

Dealing directly with the owner: Pretty much like the relationship with any seller of a property, the listing agent has a direct contact at the bank.

Few multiple liens: All mortgages were wiped when the foreclosure took place. Even if other liens exist (taxes, home-owner-association dues, water bills), in my experience, the new owner is in the process or planning to pay them off. There may be banks that expect buyers to pay items normally covered by the seller, but I haven't encountered any yet.

Faster deals than with Short Sales: There is no third-party who adds a layer to the transaction process. Banks already have the comps in hand and are WAITING to make a decision on an offer - they particularly favor offers where the closing is scheduled within 30 days. From offer to ratification is pretty quick; 3 - 4 business days in my Sussex County NJ REO experience. Lengthy back-and-force negotiations would increase that but it does not take long at all to get an answer on an REO. Once I had to wait over 24 hours for a counteroffer on an REO; my personal contact was sick and I opted not to hit the "for immediate help" key.

Once a verbal agreement is reached, the bank wants the buyer to initial all changes to the contract. The listing agent sends this amended form back to the bank, where it can take a couple days to process because it may need to go to multiple departments for the authorized signatures.

Commission fixed: The commission paid to your agent is set and agreed to in advance. For Short Sales, a bank might refuse to pay the full commission; this MIGHT mean you make up a shortfall. (Something to settle in advance with your agent when making an offer on a Short Sale listing!!!)

• Part 1 - Distressed Properties are NOT Black Holes!
• Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
• Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
• Part 4 - Want to Steal a Foreclosure? Get the REO facts.
• Part 5 - Consider a Foreclosure - Advantages of REOs
• Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers

Copyright © 2009, Irene Kennedy, all rights reserved. This blog post from RealtorIrene.com represents Irene's personal musings.

Part 4 of Distressed Properties are NOT Black Holes! a six part series based on my real estate experiences in and around Sussex County, NJ.

REO List Price Considerations

Most BPO forms ask the agent to indicate what a property will sell for within 30 days and within 90 - 120 days. In setting a price, the bank considers:

• current, local market conditions including active inventory, average days on market, etc. (I primarily cover the Sussex County foreclosures - Sparta, Hamburg, Hardyston, Branchville, etc.)
• shape of the property;
• how much of a loss it has already taken on the original mortgage and the foreclosure process;
• amounts paid for trash-out and any work required to make the home safe and secure, i.e., winterization;
• carrying costs (insurance, taxes, bare-bones maintenance, utilities, etc.) during the time the REO is listed;
• the commission it will pay both agents - a fixed percentage in my experience.

Based on these factors, the bank also looks at its internal situation. How many REOs are they carrying? How quickly does the bank need to "unload" the property? Let's remember that most banks are "for profit" organizations; many report to shareholders. Nevertheless, an REO list price is usually a good deal.

Stealing an REO around Sussex County NJ

Interested in getting a foreclosure for 70% or less of list price? Ain't gonna happen!

The list price is typically a huge bargain already. The bank really DOES know what a fair offer is, based on hard data for local market conditions. The list price takes the shape of the property into account, so don't expect another discount based on bad condition. The bank will not take lowball offers seriously and may not even counter one.

The bank knows that most homes in an area the average sold price is XX% of the list price - in my Sussex County, NJ, market area, this ratio is 95%. While a bank might accept slightly less than the average ratio, my experience shows that this percentage gives one a great idea of what number the bank will accept.

I've found REO banks to be even less flexible on price than non-corporate sellers. Why? Because they know their list price is a steal, which is why buyers come in droves to look at REOs.

Non-Money Components - Your offering price is just one factor

1. Closing Date: If you want to purchase an REO, offer to close in 30 days. Yes, I realize this is quick but it has a dollar value! Banks want the REO off their books, especially if the closing will be prior to the end of a financial quarter.
2. Paperwork: Complete and submit every piece of paper the bank has requested. Most banks have their own forms and want them used. For my REO listings, I can load them in the MLS for any agent to readily obtain. Banks will reject offers that are missing the required paperwork.
3. Down payment: Some banks specify a percentage of the price as minimim earnest money. In every case, I suggest the "good faith deposit" be at least 1.5% of your proposed purchase price. Show the bank you are a serious buyer. A strong second deposit (post-contract, before closing) will also sway the bank in your favor.
4. Mortgage: A few banks want a shot at your loan and insist they do your pre-approval, even if you have no intention of using them for the loan. (Remember, it is their property and they can make whatever rules they want...) Even without any imposed requirements, a pre-approval from a "brand name" will strengthen your offer. Sure, you can actually then get your loan from "My Cousin Vinnie's Finance Center in Podunk" but a name-brand might just be that little added extra that gets your offer accepted by the bank.

Here is why I earn the big bucks (ROFL) for Sussex County real estate

A tip I use to help my buyers "steal" a Sussex NJ REO

Banks tend to have a very aggressive price-reduction strategy. They want to sell the REO quickly even if they will not consider offers far below the list price. Many banks drop the price almost monthly, assuming no offers are being negotiated. Waiting until the price drops where you want it to be could mean someone comes in ahead of you -DON'T RISK LOSING A PROPERTY YOU REALLY WANT OVER A SMALL DOLLAR AMOUNT.

But in considering your offer, you should know WHEN the last price reduction took place, the frequency between all price changes and the percentage of each. If it is a new REO listing, I can often determine a particular bank's reduction pattern by examining another local REO listing owned by the same bank. So, if a bank habitually reduces its list price 5% every 32 days and the current price came about 27 days ago...

(Fellow agents - I know this tip is could mean more work, if you're not already doing this. Some of you might use MLS systems that do not permit you to research historical data to gather a price reduction history. My personal perspective is that I'll continue to do all I can to get my buyer the best deal possible AND submit an offer that will fly.)

• Part 1 - Distressed Properties are NOT Black Holes!
• Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
• Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
• Part 4 - Want to Steal a Foreclosure? Get the REO facts.
• Part 5 - Consider a Foreclosure - Advantages of REOs
• Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers

Copyright © 2009, Irene Kennedy, all rights reserved. All posts from RealtorIrene.com represent Irene's personal musings.

Considering selling a home or looking to buy a foreclosure in Sussex County, NJ? Benefit from creative marketing, top negotiating skills and vast real estate knowledge by contacting Irene via the data to the right.

Part 2 of Distressed Properties are NOT Black Holes!, a six part series based on the experience of a real estate agent serving Sussex County, NJ.

Not all Short Sales, also known as pre-foreclosures, are nightmares. The right real estate agent makes all the difference. Yes they are more complicated because it is not just a transaction between a seller and a buyer. A third party (bank, mortgage company or debt collector - I'm going to use the term "bank") has to be consulted every step of the way. Many people have heard of or been involved in a Short Sale that drags on forever; banks take forever to respond, if they respond at all. This does happen, but it should NOT.

Timeframe with Short Sales

First, the bank needs to be informed that a Short Sale is being attempted. Banks handle delinquent mortgage loans in many ways but the loan information will NOT be shifted into the correct Short Sale department until the bank is notified that a property is listed for sale. "Transferring" the loan from one section to another can take several business days.

Personally, I get written seller authorization to work with the bank along with the listing agreement. That is also when I get the other important pieces of a complete Short Sale package. My first contact with the bank is the day I list the property. I have worked with excellent agents who don't know the ins-and-outs of the process, so they wait until there is an offer on the table and then learn they need written authorization. Meanwhile, the loan isn't even in the right section of the bank.

Second, many banks will order a BPO (Broker Price Opinion) once they know the distressed property is listed for sale. Because a seller is cooperating with the sale, the BPO will usually include the interior of the home. This will be the first assessment by the bank of the current, local market value of the home and its actual condition. Depending on the length of time, the bank might order a second BPO once it has an offer in hand. On average, it will take 5 - 7 business days from the BPO request date until the finished report with photos gets back to the Short Sale Department.

Because I immediately establish a good working relationship with the bank's Short Sale department, I'm often successful in getting reluctant banks to do a BPO right away. Banks pay for the BPOs, so some wish to hold off. By broaching it as a WIN-WIN proposition, "this way we'll all know the reasonable value," most banks order the BPO. And then share those amounts with me, so I can work with the sellers to tweak the list price... (Remember - The bank does not own the property, so it cannot dictate list price. Only the seller may do that.) When an offer does materialize, the bank already has at least 1 objective opinion to compare to the offer.

I've listed many where I've gotten third-party approval very rapidly - 2 different deals with 2 different banks, I got the buyer's agent a counteroffer in less than 2 hours. On one Short Sale I listed, we closed 20 days from the date I got the offer.

Third, with Short Sales, it depends greatly on the listing agent's interaction with the bank and that bank itself. There is a "third party" involved, so they will always take longer than "two party" deals. If there is more than 1 bank, as with a second mortgage, you're adding to the timeframe.

Lowballs: Serious Offers Get Serious Consideration

Sellers really don't care what the sale price is because they're not going to be walking away with cash in their pockets. The banks, however, do care. Even if the offer is for full list price, the bank probably is taking a serious loss - and the buyer is probably getting a good deal. Whether I'm working for a buyer or a seller, my job is to process all WRITTEN offers.

So what happens when the offer is for 55% of the list price? I do my job.

What does the bank do? It puts that lowball offer on the "not even worth the time of day" stack to be looked at way down the line. Seriously, I have never even had the bank provide a counteroffer to a real lowball, although I have been successful in at least getting them to reject the offer - and thus provide a rapid response. Based on my experience, an offer of 75% of the list price is necessary to even begin negotiations with a bank.

My perspective on Short Sales? I'm delighted to do the extra work they involve, so keep ‘em coming.

• Part 1 - Distressed Properties are NOT Black Holes!
• Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
• Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
• Part 4 - Want to Steal a Foreclosure? Get the REO facts.
• Part 5 - Consider a Foreclosure - Advantages of REOs
• Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers

A distressed property normally is associated with the foreclosure process. Distressed properties are on the rise in my market area of Sussex County, NJ. They're not limited to this region plus experts predict we'll ALL be living with them for quite some time to come.

So, let's get comfortable with Short Sales and REOs.

When the owners are behind in mortgage payments and cannot catch up, they may try to sell the property for less than they owe on it. As an alternative to foreclosure, many banks will "forgive" the shortfall between the debt and the sale price. These are commonly known as Short Sales or pre-foreclosures.

The other common type is when a foreclosure or a deed-in-lieu-of foreclosure has occurred. I'll use the term bank but the new owner also could be a mortgage company, corporation or debt collector. The bank is now the deeded owner of the property, usually called an REO for real-estate-owned. The initials are normally spelled out R-E-O although some people say it as a word for like the Brazilian city, Rio de Janeiro.

Many buyers and agents lump all distressed properties into the same "it takes months to get an answer" category. Based on my very extensive work - and training - with pre-foreclosure and foreclosed real estate in Sussex County, NJ, I can dispel some myths and clarify some issues for you.

Many folks confuse Short Sales and REOs. These are very different animals. Let me elaborate in a little series of postings...

• Part 1 - Distressed Properties are NOT Black Holes!
• Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
• Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
• Part 4 - Want to Steal a Foreclosure? Get the REO facts.
• Part 5 - Consider a Foreclosure - Advantages of REOs
• Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers