Irene Kennedy Sussex County NJ Realtor®

Part 3 of Distressed Properties are NOT Black Holes!, a six part series. (While I'm based in Sussex County, photos here are from one of my REOs in Passaic County, West Milford, NJ.)

REOs are wonderful opportunities and should NEVER be dismissed!

I'll use the term bank but the new owner could be a mortgage company, corporation or debt collector.

By the time a bank actually owns the property (now called an REO = real estate owned), the bank already has hired one or more people to provide a written opinion of current market value where the property is located. This could be an appraisal but more often is a BPO done by an experienced real estate agent. The condition of the REO is taken into consideration by the appraiser or agent doing the BPO, although some BPOs are external only and the agent never sees the inside.

NOTE - Many BPOs ask for the cost to do basic repairs to the property; I've never had a bank actually pay to do those. Sometimes banks have multiple BPOs done to get a few different opinions.

Work begins long before the REO is listed!

Banks may or may not select one of the BPO agents to be the listing agent representing the seller. Once the bank has selected an agent to handle its REO, there often is work to be done before the home is actually put on the market.

If the home is occupied by a tenant or the former owner, that situation needs to be changed. Many banks offer a "Cash for Keys" deal - a payment made to the occupant in return of moving out and leaving the property in reasonable condition. Based on my experience, I'd say the amount would cover the first month rent on another place and a U-Haul in which to move personal property. It's a modest incentive to avoid eviction proceedings.

Warning to agents - Absolutely talk to your broker or an attorney before handling any Cash-for-Keys work! Do not assume it is okay because the bank has asked you to do so. Local laws relating to this can vary widely. Your safety is another factor - not everyone will react well if you knock on a door and ask them to vacate...

Then it is cleanup time. A few banks have their own contracts to handle this but most leave the work to the listing agent. The bank expects its agent to pay for such work and get reimbursed. Because of this, as well as time and effort, some agent use a service to handle this "trash out" process and continuing care.

What gets done

• Depending on the amount and cost of work involved, the listing agent might need to get several bids on these items.
• The banks pay to have contents removed. (Agents - again check laws, you may have to hold this personal property and make an attempt to contact its owners to claim it.)
• Basic yard work yields some curb appeal. As I mentioned above, few repairs will be done but safety issues might be corrected.
• The home is winterized - at least in my neck of the woods - probably in most places to prevent water damage even without freezing.
• Utilities. Some banks insist electricity be on; some pay to heat as well.
• Continued care. Many banks authorize minimal on-going work: shoveling snow, periodic lawn mowing, leaf removal, etc.

During this period, the bank will have obtained price opinions and set an asking price. Now the property is ready to be listed.

• 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 (this page)
• 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

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

Whether you're considering Great Gorge Village condos for vacation homes or permanent residences, the fact that this neighborhood is nestled at Mountain Creek ski resort is always a plus. Both for year-round and weekend getaway owners, Sussex County NJ is a great choice.

I prepared some statistics on April 16, 2009 for a specific deal, so this focuses more on condos with at least 2 bedrooms and 2 bathrooms. Thought others might benefit from this overview, based on data from the Garden State MLS system.

I look forward to your questions about Vernon NJ real estate and Sussex County vacation properties!

All Great Gorge Village condo units, regardless of size

• Active listings - 57 units with an average list price of $167,528
• Under Contract - 9 units with average list price of $156,622
• Sold/Closed within last 12 months - 38 units. Average list was $163, 413 but average sold price $152,457. Means sale price was about 93% of asking price (at time of sale, not original list prices).

2 beds, 2+ baths - Interior & end units, 4 & 5 rooms

• Active listings - 13 units with average list price of $177,115.
• Under Contract - 3 units with average list of $156,600
• Sold/Closed within last 12 months - 9 units. Average list $159,600, average sold price $151,588. (95%)

End units only - all shapes & sizes in Great Gorge Village

• Active listings - None
• Under Contract - Only 1 and it is 5 room, 2 bed, 2 bath end unit on the lower level. List price $165,000. The MLS indicates it will close June 30 .
• Sold/Closed within last 12 months - 5 units. List averaged $150,940; sold at $140,200. (92%) The only one 5 room, 2 bed, 2 bath end unit on the lower level listed at $155,000 and sold for $145,000; that closed Sept 30, 2008, owners offered to leave all the furniture in place.

2009 Sold/Closed

3 units. Average list was $146,633, average sold price $138,216 (94%). Various configurations. All happen to be end units.

Search VERNON NJ Homes for Sale

My office had a guest speaker on March 10, 2009. Albert Bolle, an excellent local appraiser, reviewed some hard data on local Sussex County, NJ, homes sales within a one-year period. I took notes on Al's lecture and did an Excel spreadsheet.

Home values in Sparta fared MUCH better than any of the other Sussex County towns cited. Mortgage rates remain low, so buyer's dollars stretch further.

So it IS really a good time to sell that home in Sparta.