Too many buyers that I see, are waiting on the fence just because of the headlines. With individuals and businesses hanging on to money and creating a savings account they may not have in the past, that's a good thing. There will however come a point when that savings will need to be put into an investment. At what point though, will that translate? When jobs recover? When consumer confidence gets steady? After the election? And should we keep the Bush tax protection for the wealthy? Crystal ball gazing anyone?
We've all heard about the mortgage debacle but despite its notoriety, there are lots of questions on how to buy or sell distressed houses.
When a homeowner misses a payment, an unitneded grace period may ensue. Some owners report they hear nothing and assume they were "forgotten." (Not true!). Most of the times banks are calling nervous owners who think it's better to sell the house as opposed to talking to the bank. Unfortunately, they make the mistake of overpricing the house as opposed to trying to negotiate with the bank. Or worse, they simply ignore the lender's calls.
If they don't sell, some find money to borrow from relatives, but most have to opt for a short sale or risk facing foreclosure. If you think the current proposed legislation will bail you out, it could but there are tough parameters. It's designed to help borrower who hasn't missed a payment, has at least 3% equity in their home, along with specific dates as to when the loan was secured and when it is set to adjust.
Unfortunately, for owners unable to qualify, a short sale is the best solution, although it's not pretty. Despite losing everything, the homeowner may still have to repay something to the bank plus pay taxes on the shortfall as the IRS considers it ordinary income. It could be worse. A foreclosure stays on your credit for 10 years as opposed to 7 years for a short sale. A short sale could help stave off bankruptcy although a bankruptcy would halt the foreclosure process. If it's this bad, consult an attorney.
A short sale means the bank takes it "short" on what's owed to them. Why would a bank do this? Banks don't want to own real estate, they want to make loans. Per federal guidelines, bad debt has to be offset by real money which equals less to lend. A foreclosure is a legal, expensive and time consuming process. Of course, there is shareholder income and investor approval to consider. It isn't just a simple yes or no. Offers often languish with no answer for months while banks assess seller's ability to pay, appraise the house and whether investors want to sell.
While a short sale can be a good deal for a buyer, don't expect to steal the house. Most short sale activity in the Northbay, is at the entry level. Many a short sale house look distressed. It's not uncommon to see lots of work needed on the house.
By the time a house is in deep short sale territory, it's usually priced to sell-below market. While the seller may be pining for a higher offer, a good listing agent knows any offer, is exactly what's needed to get the bank moving. Most banks won't even consider a short sale until an offer, a net settlement statement or a HUD 1 has been submitted. Typically about 3-4 months lapse before the clock starts ticking on a foreclosure. With offers in hand, a bank could cancel a foreclosure. Agents spend months calling and waiting for an answer. They earn their commissions on these!
Confused by what to offer? There are prior sales to compare, condition of the house to consider but know what's owed to whom. If there's one lender in both first and second position, a lower offer has a better chance than with multiple lenders. Lenders lower down the totem pole, may get nothing and are less inclined to work with lowball offers. They'll seek to negotiate with all parties including buyers. Lenders want buyers to take the house ‘As Is' (that doesn't mean you can't do inspections). Forget credit-backs or 100% financing. Items to negotiate include price, back taxes, transfer fees and reports. Buyers usually end up paying these.
Overall, the entire situation points to buying a property as smartly as you can whether in an up or downmarket.
January 2008, Pacific Sun article Real Rules
Thinking of a home improvement? Let resale value be your guide. Think like a homebuyer when making your home improvements. According to US Census data, the average homeowner will stay in their house for 7 years so it pays to improve smartly.
First, determine your budget. Add an additional 10% for surprises. Do not over-improve above the neighborhood comps. The better the location, the safer you are spending more on home improvements. Even if money was no object, look to what sold recently near your house and stay within that range.
Do not rely on internet sites for current value. These sites can't see your house to judge condition, school location or proximity to a busy street. Also, do not rely upon value from an appraisal used to refinance. Get a professional comparative market analysis from a reputable realtor to find out what improvements make sense. Then plan accordingly.
Since the golden rule is to think like a homebuyer when making a home improvement it helps to know what makes a buyer tick. Buyers tend to react consistently to a house, whatever the price. The top ten issues buyers have are:
This checklist should help you prioritize your improvements. Start at the top and work your way down. If you have a structural problem, don't do cosmetic improvements and hope that'll hide the structural problems. It won't. Structural problems require experts who can give you repair quotes. Hire only licensed experts and make sure you get a permit otherwise, you'll be pound foolish when you go to sell. A municipality can force you to pay steep fines or remove/correct the improvement upon resale.
If you have a poor floor plan, hire a designer or architect before you bring in the contractor. It's easy to spot a house where the owner forgot to bring the designer in before work was done. Contractors are not designers.
Don't put in an in-ground pool if you have a small backyard. Buy a membership to a swim club instead. Pools are such a subjective purchase...think carefully on this improvement. If you add a pool, do it correctly by hiring a landscape designer and position the pool as an aspect of the landscaping instead of the focal point unless maybe if it's an infinity pool. Buyers want child/animal proof automatic pool covers.
If you've lived in your house for a while, hire a competent home and pest inspector to check the house's vitals in case you have to do repairs first. Make sure you keep up routine pest maintenance if termites are detected. They do come back to eat.
Unless you live in a Victorian, don't think you can get away with selling your house for top dollar if your house looks like a model house out a period magazine with original appliances. Just because everything still works fine for you, doesn't mean a buyer will think the same. However, don't rush out to a big box hardware store to buy all their latest products without thinking about protecting yourself from these design elements growing old, quick, if you plan to stay a while. Buy insurance by consulting with a designer. This could be the best investment for any cosmetic home improvement or remodeling project.
Lastly, think about making tasteful improvements with a controlled dose of uniqueness. For example, a custom concrete countertop in a kitchen with stainless steel appliances would be less trendy than today's ubiquitous stainless steel and granite combo. Often it's the updated house with an original concept that compels a purchase over a house that offers only the latest in home design trends or worse, a house sorely in need of updating or repairs.
However tricky to navigate, home improvements can be the most satisfying aspects of owning your own abode, especially when it's finished!
If only selling a house were as easy as putting a "FOR SALE" sign in the ground. Instead, would-be-sellers have lots of questions before the sign goes up. This how-to guide will get you there.
The first thing to do is to get a comparative market estimate from your realtor. Popular online appraisal sites can give an inaccurate virtual estimate, so that's why you need a real human to help you out. Once you get an estimate, ask your realtor to get a seller's pre-tax net sheet from the title company. Typical selling costs include a commission, transfer fees, property taxes plus the pay-off to lenders. Compare the estimated pay-off with your lender to make sure that there are no hidden pre-payment penalties.
Now you are set to go to your accountant. What holds true for online appraisal sites holds true for bookkeeping software programs. Don't rely on them to give you an after-tax number. Too much is at stake and there could be something significant that gets overlooked. Bring your past tax statement, current estimated net sheet, your purchase HUD 1 Statement and a spreadsheet of all improvement expenses. It's worth the expense.
To arrive at your after-tax net gain, your accountant will advise you on projected capital gains, deductions against gains and pertinent local property tax issues. Your accountant, not your realtor or lender, is best suited to give you this number and tax advice. Each person's taxable outcome is affected by many variables including income bracket, employment and marital status etc. If this is an investment property or you plan to rent it out, speak to your accountant about possible1031 tax deferred strategies. Don't overlook a conversation with a 1031 Exchange Accommodator before you start the sale process. Your accountant or realtor can give you a referral for an Accommodator.
If you are thinking about buying something once you sell, make sure you first talk to a lender if you need a loan. Make sure they have your after-tax net, and ask them how far back they need to see your bank statements to verify income and assets.
Once the numbers are finalized, only then is it time to think about moving on.
A house is easier to find, if you know your own personal navigational map. Deciding to buy is much more than the house itself. It's often why people can't make their mind up about which house to buy because they are uncertain about their foundational reasons to start. If you've checked out the area and are confident you want to live here, then going to Sunday open houses becomes a more purposeful quest. Too many folks start checking out houses first thinking this is that this is what they need to make the decision to move. Rather, it's the last thing because once you commit to the intention to buy a house, finding that house happens a lot quicker than you think.
Feeling confident about your next step means it's easier to let go of the house you are in. Then, it's easy to trust and follow the realtor's advice on pricing, staging and other sales strategies. No doubt, your house will sell quicker.
Too often, the root of an overpriced house is a seller who isn't confident about their net gain (or loss) because their research fell short by not following all of the preliminary steps. So they compensate by overpricing. The typical outcome is the list price follows the market downward. Buyers circle, kicking the tires but not truly committed to buying unless they think they can get the deal of a lifetime with a lowball offer. Not surprisingly, it results in an unhappy seller who thinks they should have gotten more from their sale.
Unless you have unlimited reserves or don't mind sleepless nights, my advice is don't commit to a purchase until your buyer has removed contingencies (a "pending" sale). Typical buyer contingency removals include all house inspections, ability to fund, appraisal and insurability contingencies. Negotiate for a longer escrow period and a rent back instead. You'll keep yourself busy enough packing and shopping for a house during the buyer's investigation period. In this way, you won't need the stress of a contingency purchase.
Happy ‘moving on' to you!
Hundreds of bank owned or REO (real estate owned), also known as foreclosures, are currently on the market. They are priced to sell. Are they for you?
An REO is a property that has gone through foreclosure. The bank may have already tried an auction. It's still possible to see it go to auction but in Marin and Sonoma, the foreclosure sale is mostly managed by asset managers retained by the lender and a real estate agent, retained by the asset manager.
By the time a property has become a foreclosure, it's been vacant awhile. Expect to see deferred maintenance. Landscaping is the first to go. Pools haven't been maintained. Rodents and insects may inhabit the property. Prior to leaving, homeowners may have stripped the house of its amenities including kitchen appliances and fixtures. Utilities have been turned off for some time. Sometimes an asset manager has a budget to fix the property and relies on the listing agent to manage the improvements. From what I've seen, this is the exception.
Price is arrived at by the seller. A broker price opinion, or BPO, is often done by a real estate agent who is not the listing agent and also an appraiser. This isn't set in stone but price is arrived at via the lender's representative. The listing agent will also weigh in on price.
Yes, you can still offer less than list price but pay attention to the interest on the property. I've seen an REO get multiple offers. This isn't the time to offer less than list price. The best time to offer less on a property is once it's sat on the market awhile with no takers.
Prior to submitting an offer, the buyer's agent should ask the listing agent if the lender will consider any concessions. Some will pay for some or all closing costs while others won't. It is pointless to submit an offer requesting closing costs when the lender has already specified they won't. It's better to ask for a reduced price. There could be a significant lag time between presenting an offer and getting an answer or counteroffer back from the lender. Be cognizant of unrealistic offer expiration times. Again, the buyer's agent should work with the listing agent closely before presenting an offer. Buyers and their agents need to be patient in this process.
An REO is an ‘As Is' purchase. The prospective buyer gets no seller disclosure statements. The seller remains obligated to disclose known material facts but a lender is typically clueless as to what the property looks like let alone what's wrong with it. Typically, there are no reports. However, if the property was previously marketed by another agent as a short sale, it's possible the seller did some inspections. Check in the garage near the water heater to see if there is a home or pest inspector's tag with a date written on it. If so, the buyer's agent should call either the prior listing agent or the inspection company.
An 'As Is' sale, simply means the seller is saying to the buyer, do you due diligence in inspecting this property. The buyer is responsible for the cost of these reports. It's especially relevant for these properties as they have so much deferred maintenance. Neighbors are a great source of archival information. Knock on a few doors and ask questions. For example, did they ever see the roof worked on? Since houses in a tract are similar to one another, you can learn a lot about the house you are interested in by talking to a homeowner who already has one.
The forms used in the process can be lender prepared or can be California Association of Realtors forms typically used in most California resale real estate transactions. In the case of lender prepared addenda, the buyer's broker may require the buyer to sign additional addenda to ensure the buyer has been appropriately advised and directed. Local laws need to be adhered to including strapping of water heaters, operational smoke detectors and any miscellaneous resale inspections or set asides for low flow toilets if none exist.
An REO can be a great buy as lenders are motivated to get these houses off their books. It's a great opportunity for a first time homebuyer or investor.
Certified Distressed Property Expert helping sellers get back on solid ground and buyers to find great value purchases. Over $70 million in sales over 7 years of Marin, Sonoma, Solano properties.
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
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