Short Sales, To Pend or Not To Pend. . . That Seems To Be The Question.
1/14/09
Frank J. Wasung
When an offer comes in on a short sale, does it need to be marked pending? For our purposes here, I will not go into a short sale description; you can find that in my last post. For those readers not in real estate, pending means an offer has been accepted, and is marked as such on the MLS system. It no longer is an active listing and is not marketed or shown to prospective buyers.
Several times recently while representing a buyer, we submitted an offer on a short sale property. The seller signs it and returns it to us, and informs that there is another offer in, and we should give a "highest and best" offer. One deal in particular, the seller's agent had submitted four offers to the bank.
This is common on bank owned REO properties, but a short sale is not bank owned. Yes they are subject to third party approval, but the homeowner is still the primary seller. It appears that we at Advantage Realty are in the minority with our opinion, because we feel strongly that the listing should be marked pending, and the offer should then be submitted to the bank. When the seller accepts and signs more than one offer, lawsuits could develop.
To find the answer, I went to the source of all my real estate education Shelley Schoenherr. Not only does Shelley teach real estate, con ed, and more, but she is a wealth of information on legal and ethical issues. She agreed that they should be pending. I checked with others at my firm as well, and the Broker/Owners all agreed with Shelley. The reason again? The seller accepted an offer. To continue to market, show, and accept offers is an invitation for LAWSUITS!
With some of the other agents out there doing the opposite, there is obviously a difference of opinion. I suggest checking with your local board to see how they advise you on this one, but I know how I'll handle them. I wonder what old William would say?
You can comment or question me on this one at frank@advrealty.net or call
586-598-1400
Good luck out there!
Frank J.
Short Sale Success
1/14/2009
Frank J. Wasung
Today was a great day. Today one of my listings, a "short sale", was finally approved. The offer was submitted on November 8th, and the buyer, seller, myself, and the other real estate agent have been waiting for this day ever since. Who approved it you ask? The banks that hold the mortgage liens on the property approved it. In this case there were two, a first mortgage and a home equity loan. Now. . . . what does that all mean anyways? What is a short sale?
A short sale is when the mortgage holder/holders are willing to accept less for the house than what the homeowner owes for it. They do this as opposed to having to foreclose on the home, which is substantially more expensive. The cost of foreclosure is over fifty thousand dollars to them, and then they still own the house that is only worth so much on the open market. So a short sale is a pre foreclosure situation.
Some people have heard of this and may have the opinion that "hey, I owe way more than my house is worth. I'll just short sale it to get out of the debt". Is it really that easy? In a word . . . NO.
Let's say that if you sold your home and after all fees are paid there is a shortage to pay the mortgage off of fifty thousand dollars. But the homeowner has liquid assets of at least that amount. Guess what? The banks will not approve the sale. They will tell you to bring a check to closing if you want to sell. Many homeowners have to pay to sell their own home these days.
Now; if you do not have the money, and are experiencing a financial hardship, and can prove it, you have a shot of doing a short sale. Only a highly experienced real estate professional has the knowledge and ability to process a sale of this type. You will need to list the home and get a package of documents together. Your broker will help you with this. The bank will want the following items from you right off the bat:
Once all this is submitted, very little actually happens until an offer comes in from a prospective buyer. This is why a short sale should be priced very reasonably. You need to attract offers or your file will sit at the bank and collect dust.
Once an offer comes in, all parties sign it. It should be stamped that it is "subject to third party approval". A good listing broker will then put a bullet proof package together including the offer, a market analysis, listing history report, copy of the listing, and more depending on the specific situation. The bank will than send out someone to give them a price opinion. Your broker should try to meet that person at the house and give them the market report that has already been created. You want a low price to come in so the bank is more likely to approve the offer. The sellers are not allowed to walk away from this type of sale with a dime, so it matters very little to them what the sell price is. The bank will accept, reject, or counter the offer based the information they received from all parties.
The buyer needs to be patient as it is a frustrating waiting period. It will take somewhere between 3-6 weeks to even get an answer on the offer, and another 3-6 weeks to close it from there. The reason for this is that until an approval is issued, any inspections and appraisals cannot be done, as it may be a waste of time and money if the offer is rejected, especially if the listing agent is inexperienced in dealing with them. Short sales are such a big part of the market right now that many agents and brokers are vying for this business. Consumers need to be careful, as the wrong agent may just waste time and mishandle the file. And on a short sale, the seller only has so much time before foreclosure proceedings will begin.
For the agent handling the listing, hours are spent on the phone; the package submitted can be 50-60 pages long. Faxing, emailing, updating all parties, and working to get an approval, can be very difficult. They often are also forced to accept a smaller commission as well. Four times the work, and less money then a normal sale or a foreclosure.
So, as you can see, when an approval comes in, it really is a great day! Some agents try to avoid short sales all together, but they can be a great deal for buyers and provide life changing relief for sellers.
This is a big topic and I really could go on and on, so I'll leave it at this. If you need to sell your home on a short sale, or would like to consider buying one, get yourself a very experienced full time agent or broker involved to guide you through the process. You'll be glad you did.
Feel free to contact me at frank@advrealty.net or call 586-709-6840 to find out more.
Good luck out there!
-Frank-
Buyer Agency Service
To purchase a home for the best possible price and terms, securing the services of a Buyer Broker is a great decision to make. Without Buyer Broker Representation, buyers lack a competent professional looking out for their best interest in the transaction.
The Sellers agent is obligated to share any and all information obtained from a buyer with his/or her seller client. Your Buyer Broker will protect you, and guide the entire process, avoiding the pitfalls that cost home purchasers thousands of dollars and countless headaches. Choosing the correct real estate Broker is the tricky part.
Buyers Program
We believe that only the most experienced, educated, and local Brokers are qualified to handle this crucial service offered to consumers. This is why here at FJW Real Estate; you deal direct with an actual Broker, rather than an agent of, who will personally serve you.
Our Buyers Program includes:
•· Total loyalty to you as our client. We uphold our fiduciary duty by serving and protecting our client's interest in every imaginable way. We protect your information from sellers and their agents while obtaining information about their motivations for you.
•· Providing you with all the information necessary to position yourself as the strongest buyer you can be, thus maximizing your ability to negotiate and obtain the best possible home for your money.
•· Analyze your finance options. We use a three company comparison approach and break down all the options and differences in the offered plans. By pitting the lenders against each other, we will get you the best terms, ultimately saving you tens of thousands of dollars over the course of your loan! We will get a full approval before moving forward to avoid problems later. This turns you into a confident, educated buyer, well armed to move forward quickly. Sellers are prone to give these types of buyers the most consideration and the best price!
•· Searching relentlessly for the perfect property for you. This includes setting up showings for any available property regardless of who is listing it or how it is marketed to the public. We deal with the seller and/or the seller's agent so you can enjoy the process rather than stress over it.
•· Provide you with a full Broker Analysis of the property including, present market value, listing history, public records searches of previous owners and mortgages attached to it, and the sellers motivations. We than calculate the correct price for a property and consider what factors may improve your chances of obtaining it at the best possible price and terms.
•· We will attempt to present your offer to the seller face to face, rather than fax and pray, the method most ‘agents' adhere to. Using this technique, we are able to maximize our results in your favor as much as possible.
•· Once the terms of sale are agreed upon, we facilitate the entire transaction. This includes all communication with your mortgage lender, title companies, insurance agencies, the seller, and all other parties involved. We coordinate all these people and services thus leading to a successful, stress free, closing.
The state of Michigan created "Buyer Agency", to give the buyer protection and representation. Under previous agency laws, only sellers were owed the fiduciary duties of brokers and agents. Our system is designed to enforce Buyer's agency and offer the most value possible for home buyers.
The most important factor in this entire process is that you are comfortable with your representative and have confidence that everything is being done to maximize your investment in real estate. We will make that happen!
With our 24/7 availability, personalized customer service, and genuine concern that you get the best deal possible, you can rest assured that you have made the right choice.
Take advantage of this service that is virtually free to you as a homebuyer. We are confident that you will be glad you did.
Call Frank at 586-709-6840 or email frank@advrealty.net anytime for more information!
Should I Only Buy a Bank Owned Home?
Frank J. Wasung
1/11/2009
"Should I Only Buy a bank owned home"? This is a question posed to me often. Another common statement I hear is "I only want to buy a bank owned home". My response is simply. . .why?
Can you get a great deal on a foreclosure? Yes. Can you get a great deal on a private owned home? Yes. With both of these being truths, why would you limit yourself to only one type of homeownership when looking for a house? There are pros and cons either way, and as always, my advice is to seek out the counsel of a good Buyers agent to break it all down for you. That said; let's take a closer look at this topic.
If you read my last post, you already know the pros and cons of bank owned purchases. But what advantage could there possibly be to buying a privately owned home in this buyers market? With all these foreclosures on the market, would it not make more sense to buy one of these? Maybe, but do not eliminate any possible house from your search and here is why.
Due to the foreclosure market presence, private owners have to compete with bank owned homes. It was not so much at first, a few years ago, but certainly now. Almost every area has multiple bank owned houses available. Private sellers know this, and many realize that these are their competition. Once this reality sets in, they are willing to price the home accordingly. A good listing agent will assist them in setting this price. Now more than ever, precise pricing is what it takes. Go too high and you will rot on the market. To low, and you'll leave money on the table. How to tell what the right price is? You must look at a multitude of variables.
What is the average price per square ft. for your homes style and area? How much is the average amount sold times the SEV (state equalized value)? This amount used to be 2 times the SEV equals the present value. Now it fluctuates in our area from 1 - 1.8 depending on more variables. Now look at the comparables and see how your home measures up. Adjust accordingly, remembering that to sell in this market, you need to be the nicest home and on the less expensive end of the price list. So you also need to look at the active comparables in your area.
Another reason to consider a privately owned home is that most often they have been maintained properly, which is rarely the case on a foreclosure. Private owners are required by state law to provide a written disclosure of the condition of the property. They are available for questions and most often willing to cooperate with inspections and providing information to buyers. They will be at the closing and are usually genuinely interested that you enjoy their home. They can tell you about the neighborhood, neighbors, schools, restaurants, parks, play areas for children and so much more. Banks are exempt from providing disclosures, hidden repairs costs are more likely to surface, and the seller will not tell you anything about anything on a bank owned home.
Many private owners, contrary to what the media will have you believe, are not upside down in their mortgage. They understand the market value is what it is, and will sell correctly. A good buyer's agent will help you identify these homes. Some homes are an estate, or in a trust for one reason or another (death, assisted living) and have been paid off for a long time. My parents paid $22,000 for their first home and today it is worth around $90,000. Sure it was worth $120,000 3-5 years ago, but it lost value and guess what? It is still worth tens of thousands more than what they paid for it. These types of people are willing to sell for whatever they can get.
The point today is simply that there are many private owned homes that are excellent investments right now. Keep that in mind as you look for one and as always, feel free to contact me for questions and assistance.
Good luck out there!
Frank J. Wasung
Buying Bank Owned Homes
Frank J. Wasung
1/11/2009
"Only send me bank foreclosures"! This statement is made to me so often from home buyers who are looking for the best deal. Many feel that the only way to accomplish this is to purchase a bank owned home. This may or may not always be the case, depending on the purchasers willingness to accept "as is condition", their ability to refurbish/refinish a home, and their ability/willingness to jump all over the best deal. Let's talk about some common issues involved with buying a bank owned home.
Bank owned means that this home has been foreclosed on, gone through the process of the bank obtaining possession of the house, and the loan redemption period for the previous owner should be expired. It hits the market from a listing real estate brokerage and is made available for public offers from both investors and private people looking to live in it as their homestead. Now is where it gets tricky. Unfortunately, the media hypes the market situation and convinces folks that there are no houses selling (not true). After hearing this and doing some research, the buyer feels they are fully informed on the market and ready to jump in.
Buyers start looking on the internet and find really inexpensive listings for an area. The picture looks great and it's such a good deal. In reality, most often the house is in need of repairs. It may have multiple major issues, or maybe just needs lots of "TLC". Either way, the seller has usually been well informed, and has priced the home accordingly.
If the house is priced correctly, it will attract many prospective buyers. Those that are looking to get a deal get very excited and want to schedule a viewing. Many of these parties are fairly inexperienced in dealing with these type homes, and when they get to the home, look inside, see the actual condition, and they are disappointed. I have had clients create huge list of problems the home has and they tell me they would buy the house, but only after all these problems are deducted from the price. Others just leave and write it out of their search, saying it needs so much work. What they are not understanding is that the home is usually priced well under value for the neighborhood, and the sellers have had several price opinions made to them, including an "as is" price, and they are not about to take an offer ridiculously low.
Several instances recently, my client did not believe the home would sell fast in this market, and they decided to wait it out until the bank reconsidered their offer. They would go into great detail with me on how much work the house needs, which is counterproductive because I am on their side. Guess what happens. . . . It sells to the next buyer and fast.
Lately, banks are grading the brokers that have given them a price opinion as to how close it sells for compared to what was recommended. The banks want the houses sold, and are not interested in "playing the market". If a broker recommends an incorrect price and the house sits, that broker may accumulate marks against them, and could eventually lose the banks business.
The bottom line. . . . .
The bank does not care about you, your agent, what you think the house is worth, what is wrong with it, what your needs and time lines are, or anything else you can think of. They only care about one thing, and that is how fast and for how much they can sell the house for. These days, they are in the habit of pricing homes very low in an attempt to create multiple offers. Often, this is exactly what happens and the savviest buyer, with the best looking offer wins. An ideal offer to the bank has several elements:
•1. The offer price is with-in 10% of the list price
•2. It is a cash offer, or at least a conventional loan with a sizable down payment
•3. The buyer can close almost immediately
•4. The buyer has waived their right to an inspection
•5. The buyer has signed all the additional addendums that the bank has issued, agreed to all of the banks terms, and submitted a complete, professional, legible, offer package including an earnest money deposit check.
When there are multiple offers, this is likely how it will go. When you are the only offer, they are much more likely to bend, but only so much. If they cannot sell the house for a price with-in 10% of the list, they will reject or counter your offer and lower the list price. Remember that the entire time you are negotiating with them; the house is still on the market. The moment they get a better offer, they will dump you like a rotten bag of onions. Even if a verbal agreement has been reached based on your original offer, you had better get a signed sealed and delivered document package before you count it as a deal. Many banks even have you sign disclaimers stating that they can back out of the deal at any time for any reason. Not you of course, just them.
What it all means. . . . .
Forget what seems logical to you and to me. Many times the bank will eventually sell a house for much less than what previous offers were for. There is a home on our local market right now, which my client offered 120K on, they rejected our offer. I just noticed it on the market now for 102K. My same client and I found another home listed at 140K. We offered 125K, they countered to 135K, we countered back at 130K, and while we were waiting for the answer, the house popped back up on the MLS for 110K. We resubmitted our offer package at full price and got the house for 20K less then what we were willing to pay. Why? The banks have systems of time and price reductions and are not very good at communicating with the listing brokers. In this case, they hit a price reduction time frame, did not consider that they were in negotiation with a buyer, and lowered the price. Whoops, they just cost themselves 20K and don't even know it. The listing broker should be making sure this type of thing does not happen, as they are supposed to be representing their seller, but often they are not very alert, concerned, or dedicated to and for their seller.
Soooo. . . .
This post only touches on the volatility of buying bank owned homes but I'm sure you can see that they have some interesting, sometimes frustrating elements to them. To have the best chances of getting a good deal on one, here are some pointers.
•1. Be fully approved for your mortgage and have bank statements proving the existence of the down payment amount or purchase price in the case of cash purchase. Without this, the bank will not even consider your offer. With this, they will take notice and are most likely to agree to a lower price. A good buyer's agent will assist you on this.
•2. Obtain and hire a Buyers Agent to work on your behalf. This is free to you, as the seller pays all the commissions, and you benefit from having a savvy professional on your side of the table. Find one that works full time, has proven experience, and you feel comfortable with. It is a team effort and the right agent will educate you on all aspects of the purchase. Many bank listing brokers will be slow to react to your inquiries, may not respond at all, and when they do, will dump you off on their own buyers agent of whom they will charge a percentage to, thus making money on both ends without having to do much. And remember, many do not care about you or who gets the house.
•3. Be ready! The best deals come up on the market, and sell immediately. If you are just casually looking, and are not ready, don't believe that you will stumble across a good deal and will get it together then. It will be too late. My clients expect to receive calls from me saying "Did you see the new listing, lets meet there in ASAP!"
•4. Do not plan on writing any contingencies such as "closing on the sale of our home" or "subject to our home selling first". They will not even look at your offer.
•5. Try not to get too excited about any one house or deal. Deals do go bad for one reason or another. If it is meant to be, it will be. Everything happens for a reason.
•6. Be willing to consider all types of homes including, bank owned, HUD owned, short sales, privately owned, corporate owned. All sellers are competing for business and now more than ever, all types are considered in setting present market value.
Look for me to elaborate on the last couple items here in future posts. For questions on any of this, please feel free to contact me.
Good luck out there!
Frank J. Wasung
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Real Estate Associate Broker, specializing in residential listings, short sales and Buyer agency representation with in-depth experience in navigating foreclosure purchases.
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