Buying Advice

Is a Short Sale for you?

by John Rice

The simple answer to this question probably is “No!”  Short Sales are where the seller owes more on the house than it is worth and the lender has agreed to let them sell it for less that is owed.  This may sound good, but there are a bunch of hurdles to jump.

For starters, the lender won’t take a contingency contract, meaning they won’t wait for you to sell your old house first.  That knocks out a lot of buyer’s.  Then you will be buying it “As-Is.”  Sure, you could get it inspected BEFORE you make the offer, but they won’t make any repairs.

The worst part for most buyers is all the waiting involved.  The offer the buyer made gets sent to the lender.  The people whose job it is to deal with the sale have about 5000 other ones to work through too.  And they only have Monday through Friday from 8 to 5.  Just like a foreclosed property, they employees are overwhelmed and aren’t that interested in helping.  Often, their e-mail inboxes are full as well as their voicemail box.  It can take 4-6 weeks just to even get them to reply to the offer.  Meanwhile, the buyer has no idea IF they are even buying this house, yet alone WHEN they will be able to move.

If you aren’t in a hurry, don’t have to sell your old house first, are patient, don’t get stressed out easily or are an investor, then a short sale may work for you.  If this is you, then find an agent that has dealt with short sales before.  You want an agent that can see problems coming and prevent them rather than one that will just be reporting bad news to you.  For everybody else, avoid them.

The MOST important thing you need to know about buying a foreclosed property

by John Rice

I have been the Realtor on the buyer’s  side of several foreclosed properties.  They aren’t the easiest transaction to do.  For starters, you write an offer, send it off to some agent that usually never answers their phone, even during the banker’s hours they claim to work.  The agent then turns around and faxes it to somebody who works for the lender.  My experience is that if you do all this in the summer, the person whose job it is to get the ball moving is on vacation, and a co-worker is doing their own job plus this person’s.  You find this out when you call and get the voice mail message that say something like, “Hi, this is Suzy REO with the loss mitigation department, I will be away from my desk on vacation for the whole time it takes to close the transaction you are calling about.    Please call my co-worker, Stacy Iwillnotreturnacall at 876-5309.  For immediate assistance, Dial 911.”

After that, they send you an addendum for the buyer to sign.  The addendum usually contradicts the contract in several areas.  You have your client sign it, then fax it off to the agent that never answers their phone.  If you are lucky, you may get the addendum signed by the lender’s rep before the closing.  That is a little unnerving for me since you DON’T really even HAVE a contract until both parties sign it.

Before you even get to that part, you have to know what to offer!  This is the science part of the deal.  These lender’s have bought these properties back from themselves at the Master Commissioner’s Sale.  Yep, they were the buyer and they were the seller.  They do that to protect their own interests, which is a whole other blog entry.

What is the most important thing to know when making an offer on a foreclosed house?  You have to hit the PVA to see what the folks who got foreclosed paid for the place.  See, banks/lenders will typically only put their necks on the line for 80% of the purchase price.  The other 20% was either the buyer’s downpayment, a second mortgage or equity line, or was covered by private mortgage insurance (PMI).  So, what # is the lender looking for?  80% of the old purchase price.  They have the PMI to cover them for the back 20%.  Now, there are exceptions to all this, and this is a blog, not a dissertation.  Just know that in general, this is how this goes.

If the foreclosed house sold for $100,000, that means your first offer should be $80,000.  You know the lender is okay with this, but the PMI company isn’t.  The lady who is filling in for her vacationing co-worker will tell you that the bank/lender has approved the offer, but it is pending approval from the PMI company.  They will try to get more from you to lessen their loss.  If nobody else is chomping at the bit to buy the place, hold firm and see what they do.  Often you can get these house for 81-85% of the old sale price.

How to buy a “Relo” house

by John Rice

Well, I wrote an offer for a house last night.  It was a “Relo” house.  That is short for RELOCATION.  That is one of those deals where some executive gets transferred or takes a new job. A Relocation company comes in, appraises the house, and tells them they will buy it from them for a certain price if they can’t sell it themselves by a certain date.  Either way, the sale goes through the Relo company.

This is the second time that I have seen my clients get a good deal.  What you have to do is catch the house right before the Relo company has to buy it.  With real estate the way it is, the Relo company doesn’t want to hold it.  As time runs out, the seller will usually lower the price in the hope of getting a little more than the guaranteed buy out price.  This is the time to act.  You can sometimes even get it for less than the Relo company’s price.  The Relo company will look at how much it will cost them to hold the house.  In really slow areas they may rather lose a little to get it done. The seller doesn’t really care since the Relo company is giving them their predetermined price.  It is one of those rare deals where everybody is a winner!

You aren’t going to save the kind of money you can with a short sale or a foreclosure.  But hey, you aren’t going to have the downside of those types of sales either.  When you buy a Relo house, the Relo company wants to shield themselves from liability.  Typically they have already done termite and, in our area, radon inspections.

How preceptions effect market value

by John Rice

A pal of mine that is an agent wanted me to help him do a CMA (Comparative Market Analysis) today.  It is one of those houses that an older person has had forever.  It needs the usual paint, carpet, de-landscaping and all.  Other than some settlement on the back of the house, there really isn’t much that is wrong with it.  Yeah, there are a few age related items that will need attention, but it has been maintained well.

 The problem is that when people come in and see 50 years worth of stuff, out of style furniture, and over grown bushes, they don’t emotionally get a vibe for the house.  They can’t imagine themselves living there the way it is now.  Soooooo, you have to attract them with a good deal.  This house will probably sell for something like $35-40,000 less than what similar houses have in the same neighborhood because it needs $10,000 worth of cosmetic updates!

That is how “Market Value” works.

Why a house may sell for less than it’s 2005 Value

by John Rice

You know there is a lot of talk about house prices falling and all.  I really think Lexington is pretty safe.  If you throw out distressed properties (foreclosures, short sales, etc.) the prices have been pretty flat for houses under $250k since about 2005.  Granted, there are exceptions.  Some neighborhoods have seen the smack of the correction.  To keep this a blog and not a dissertation, I will work towards my point.

When I have a buyer these days, I like to do a “Market Analysis” for today’s value and what it would have been worth in 2005.  I do it for them to show them how their neighborhood has weathered the storm so far.  I do it for myself because I think it is kind of fun.  Makes me look smart too!

I have also spent a lot of time this year looking for houses that have sold both in 2005 (end of the boom) and once since then.  Just about all the houses are selling for around what they did in 2005.  There are a few that have sold for less than they did during the boom  (I am getting closer to my point.)  The ones that sold for less usually did so because the newest owner got a house with older carpet, older appliances, an older roof, and older HVAC system, older water heater.

So, I guess my point really is that people shouldn’t freak when a house down the road from them sells for ten grand less than it did 3 year ago.  We have been spoiled by blind appreciation.  There is a lot of stuff in any house that has a limited economic life.  If you use it up for yourself and don’t leave much for the next owner, it will affect your sale price.  That doesn’t mean the house really depreciated though, just means you are crediting the new guy for the amount you used and didn’t have to replace.