Here is a good transaction to consider: A recent offer on a luxury home that was originally listed at $900K is now listed as “Bank will approve $600K”. The owner, after 520 days on the market, entered into a short sale process with his lender because of the market and economic climate that are evident in many of our real estate markets today, including Bend, Oregon. This luxury home with many extras may appear to be a bargain, and might be purchased at a tremendous discount.
However, it is important for buyers to understand thoroughly the difficult process of offering on a short sale or bank owned property.
1. Do you always get the best deal pursuing short sales and foreclosures?
2. If I submit the strongest offer, will I be sure to get the winning bid?
3. Will I be able if my offer is rejected, to get my money back on any professional inspection costs?
4. What is the time-frame for knowing if my offer has been accepted and I can move forward?
5. How can I write my best offer? What do I need to know?
Short sale/foreclosure—bargain? Maybe, or maybe not. How much time are you willing to wait? 2 months, 4 months, 8 months? In the meantime, other properties might come on the market and interest rates might vary in this market..then what is your plan? If you get emotionally attached, and if you are a home buyer who plan to move in, and not an investor, most of us do get attached and mentally start arranging our furniture and planning the proposed garden, how will you handle the disappointment and anxiety of “not knowing?”
The buyer representative you choose is more important even now in this real estate market. Choose a competent consultant, not a broker who just opens the door. Ask him/her… “what is the financial status of this home?”
Tax records and mortgage information are available thru the Taxing Authority in each county, and easily obtainable. I always try to strategize the plan of the seller very much like a football coach in using the playbook..(ie. How many months before default? How many loans on the property, amount, so that I can advise the buyer to move forward or not. If the preliminary title search (available thru the Title companies) produces multiple mortgage obligations and liens on the property, then it might take months..and months to negotiate to the closing table. At that point, the buyers are at choice in direction of path forward. And, by the way, many short sale/foreclosure contracts continue to be negotiated up and into the hour of closing. There is very little or no control for the buyers’ side of the transaction.
No money back, sorry. The buyer should be advised that any monies spent on inspecting the property shall not be returned in any event, whether or not the purchase offer goes thru. In any market, traditional or short sale, inspections are imperative and certainly inexpensive compared to the cost of repair should a buyer accept a property “as-is” without any inspections. Though your inspector can’t guarantee that you will have no repairs after move-in, you will have hired a professional licensed inspector who can conduct a thorough whole-house inspection on equipment and systems. Most will email a report and explain each process as he goes through the home. My inspectors encourage the prospective buyer to accompany them for the entire 3 or 4 hours so he can explain along the way. This is also a great time for the buyer to spend some time in the home”measuring windows” and rooms for future furniture placement.
As mentioned, buyers who enter into a short sale/foreclosure process for purchase must know the facts, and “enter into it with good advice and expectations”. Some buyers have a better tolerance of patience required in “waiting out the time period”, often 2, 4 , 6 or 8 months.
The statistics also show that less than 50% of short sales actually close, so there is a low rate of success.
Many of us hear about the friend who just moved into the “screaming deal” home that he successfully got. Great! So how many people have written offers and not been so successful..have you heard of those as well? (Just like The Lottery Winning Ticket! Yahoo..and what about the many ‘hopefuls’ who purchased a lottery ticket to no avail?
My advice is to be as informed as possible before proceeding, be positive and flexible. If the bank does return with a counter, be ready to react with Plan B—go for it, or pull off at the time.
There has never been a better time to work with a buyer broker, advocate on your behalf. Their negotiation skills are paramount , and you will appreciate the amount of research and time they put into the process for you to get your “screaming deal.” As a broker who has assisted both sellers and buyers for the past 25 years, I can tell you that many times it is the buyer you work hardest for. I have shown properties to buyers for several months on many occasions, and even a few over a period of more than a year (in a resort market). I have spent hours e-mailing new listings and getting information from listing agents about properties buyers may be interested in the copies of seller’s disclosures for their review.
I have done research to show them comparables that have sold so that can present an educated offer. I have attended more home inspections that I’d want to count, which typically take a minimum of 2.5 or 3 hours. I have assisted them in finding the right mortgage company, spent many hours reviewing home inspection reports with them, assisted them in presenting repair lists for sellers, and then negotiated for them on all of those issues. As a buyer’s agent, it is my job to oversee all deadlines in the contract, inspections, appraisals, mortgage commitments, etc. A good agent will take their buyer by the hand and guide them through every step of the process, and there are many steps to a closing for both the buyer’s and the seller’s agent. With all the opportunities of the buyers locating a home on the Internet (and almost 90% of buyers, per NAR stats do their research online before contacting an agent), it is very important for the buyer to hire the best buyer broker advocate he/she can!
This weekend in preparing my short sale offer, I also advised the Buyers to include a letter to the seller/lender stating the “strengths” of their offer, especially if the offer is a low-ball offer. There are not many blanks in the contract to explain one’s rationale in preparing an offer.
Presenting a “low-ball” offer (from 850K in seller’s mind at start of listing 450 days ago to the adjusted list price of $525K in today’s over-supplied market, is like saying to the seller: well, just how “low” will you go? So, a good negotiating technique is to compliment the seller/builder on your appreciation of the quality workmanship and attention to details the home reflects.
In my opinion, yes, it is definitely a business transaction at this stage of the listing period; however, negotiating can be defined as “the art of influencing or persuading others.”
So, write your comments in a separate letter to the seller/builder, attach it to the purchase offer. After all, a little consideration of the other parties’ side can go a long way toward getting your bid looked at, or not, especially if the seller is still involved and can make the deal work by bringing money to the closing table to reduce part of the debt.
For more information on hiring a buyer advocate to work for you, call Martha Hendrick, Martha Hendrick Realty.
