REO/SHORT SALES
I run into many purchasers who “want a deal”, who doesn’t? They think the way to that deal is to look solely at bank owned or short sales. This is a good way to find a good home at a good price but many purchasers have no idea of the time, effort and persistence needed to buy these properties. Also once they get out into the market they also find these properties will take a lot of maintenance and in some cases major repair. Think of purchasing a “distressed” sale property as a full time second job. Short sales in particular can be frustrating since in many cases the seller thinks they can just potentially walk away from the deficiency, which generally is not the case. The seller will just sign any transaction and send it in to see if they can get out from under the obligation. In the meantime the purchaser thinks they have a transaction and they are floored when the bank request more money and the seller goes running when they find out in order to obtain short sale approval they need to acknowledge the deficiency and in some cases start a payment plan. This purchaser has probably lost at least 90 days and has seen rates go up and their selection of inventory go down.
However not all short sales and REOs are the same. Here are a few guide lines:
- The longer the property has been on the market the better a chance of coming to terms. Many banks have no idea what the property is worth so they put a property on the market and begin turning down low offers. In some cases they trun down full price offers afraid they have under priced and want to wait for more offers. After they have flogged the listing agent and frustrated a number of legitimate buyers at some point in time they decide they have worked it hard enough and sell to the buyer who might pay the highest price on offers received during some predetermined period. Some times this purchaser is just luck of the draw. If you have interest in a particular home keep making offers. Send in a new purchase and sale agreement with each offer if it has been over a month since your last offer. Don’t keep amending an old offer. I guarantee it is at the bottom of the pile. If it is a short sale often the lender will not respond until the “Notice of Trustee’s Sale” has been filed.
- See if the bank is a State Chartered insitution or well known local bank. These institutions generally have much quicker response times. In many cases the person making the decision is located in the Puget Sound region and has a much higher set of skills than those working in the call centers of the servicers for the major lenders. They still are overworked but they do seem to have a quicker response time and seem more in tune with the local market. Â However there is a downside, many will not come down much off of the price. The reason is that many of these banks are unwilling to take the write off for the sale from what they have the seet on the books at.
- Try to keep an eye on two or three houses. This increases your chances of being one of the lucky ones who walks in and gets the transaction signed in a timely manner at a good price.
- If you have a fixed move in date or are up against a timeline you might not want to look at any of the REO or short sale property. The last thing the lender will consider in the transaction is your personal issues as buyer. Â
- Don’t count on any commission rebates from your selling agent. Buyers are tough to find and many agents are willing to rebate back a portion of the selling commision as an incentive to work with them. Often times these transactions get approved at the normal selling commission and then when the HUD closing statement is done and they see the commission rebate in favor of the purchaser the transaction is not approved. The lender’s position is they are the ones taking the loss and if there is any rebated money it goes to them. By state law the agent cannot pay money directly to purchaser outside of escrow. Often times the compromise is that the agent agrees to donate to a charity of the purchaser’s choice but even this is being called into question and will probably get looked at.
If you are looking for value you might want to consider looking at homes purchased prior to 2004 these homes seem have the loan balances low enough to clear title in the present market. In addition this time period was prior to the “Sub Prime” mess so the borrowers are generally put some form of down payment and had to be approved with tougher underwrting guidelines.  In addition the property is most likely much better maintained.