In this battleground home buyers and sellers find themselves on in today’s real estate market, it is often necessary to work our way through conflicting goals to reach the ultimate goal, a successful closing on the sale of a bank owned foreclosure home to a ready, willing and able buyer. That bank’s goal is to get the home sold as quickly as possible at the lowest possible cost to them, which doesn’t necessarily mean the highest possible price they can obtain, as is the case in a traditional private party transaction where individuals are selling the home vs. institutions. Banks are factoring in the more traditional costs of a sale, such as selling commissions and closing costs, negotiating the lowest price they can get these fees to while passing as many as possible on to the buyer. But, unlike a traditional private party seller, the institution seller (bank) is factoring in their employee costs, legal costs, asset management costs and maintenance costs of an abandoned home. Let’s not even get in to the bank’s focus on their balance sheet and reserve requirements! Bottom line is, the bank| institutional seller is focused on money, not service or win| win negotiations and no emotions come in to play here.
Every real estate market can be a little different... sometimes, a LOT different. Let’s look at Southern Oregon’s market. Here in Southern Oregon, a large percentage of the home loans buyers are choosing as the tool to purchase their home are FHA, VA and USDA loan programs. Based on the reports I’m reading, these three loan types, FHA, VA and USDA, have vastly increased their market share in the past 24 months. Why? Because they have low| no minimum down payment requirements, and with the deterioration of the private mortgage insurance industry and their corresponding tightening of underwriting criteria, conventional loans which require private mortgage insurance if a buyer is putting less than 20% down cannot meet the needs of the market. Entry level buyers and investors are driving the market here, and the entry level buyers are almost all using FHA, VA and USDA loans as the financing tool of choice to buy their homes with. If my pipeline is any indication of what other markets are experiencing, 99% of the home loans I am working on for California and Oregon home buyers are FHA, VA and USDA loans, and 99% of my pipeline is purchase transactions, because most of the existing clients in my database who would benefit from refinancing have already done so – or can’t, due to current market values being driven downward by the vast percentage of distress sales such as these bank owned foreclosure sales.
The buyers I am working with are in the market right now because they can buy a home for about what they have been paying for rent with little to no cash outlay. They see some amazing deals, and are attracted to the bank owned foreclosure inventory which is being put on the market at below market prices…below market for now, since as soon as those bank owned foreclosure home sales close, they become the market price for everyone since appraisers will use them as sales comparables until private party sales percentages pick back up again when the bank inventory of foreclosure homes sells through and distress sales no longer determine market values. These buyers are qualifying for such low interest rates, AND are getting tax credits for purchasing a home, so they have been coming out in droves these past 9 months. The naysayers say this is just the set up for the next real estate market crash, buyers going in to these homes without enough “skin in the game”. I say I’m sure there will be some of that out there, but since the home buyers I work with choosing FHA | USDA| VA home loans have analyzed their budgets, investigated the various loan programs available to them, and are planning to purchase these homes to live in for 5+ years, I suspect the default rate for these buyers will be as low as it has been for ALL the first time home buyers I have worked with since 1983 who have taken the time and made the effort to prepare for sustainable homeownership, none of whom have “strategically defaulted” on their home loans that I am aware of, although many have experienced financial hardship driving them to try to find solutions to help keep them in their homes.
Horns are locked and the battle is on! So what is the battle over? The battle is over the bank’s “As Is” provisions vs. the Minimum Property Standards required by HUD for FHA | VA loans which most banks and lenders adopt for USDA home loans, too. After 9 months of frenzied buyers snatching up REO inventory, we’re finding a lot of the homes on the market aren’t in the same condition some of the first waves of REO’s were in. Part 2 of Clash of the Titans | Bank Owned Foreclosure Homes vs. FHA|USDA|VA Home Loans will highlight the respective positions of the bank vs. the FHA| USDA| VA buyer in these foreclosure home sale transactions.
See you at the closing table!
