Buying Distressed Properties

Purchasing a Short Sale

July 18, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

Charlottesville is currently seeing a handful of short sales, and for every short sale that we can successfully achieve, we are avoiding a foreclosure hitting our market. Short sales, however, are not for the faint of heart! They are highly unpredictable, and while they can result in an incredible deal on a home, they can also result in frustration and confusion. Here are a few tips and warnings for anyone who is considering making an offer on a short sale.

SHORT – SALE DEFINED: The term “short sale” is used to describe a sale where the debt owing against a property combined with the costs associated with the sale exceed the property’s market value. In a loan default situation (pre-foreclosure) creditor(s) may be willing to agree to allow the property to be sold for less than the loan amount and/or accept less than (or “short”) the amount owed, and may or may not accept the net proceeds of sale as payment in full of the debt.

The sales contract will be between YOU (the Purchaser) and the SELLER, not the LENDER. The sales contract will then have a contingency in it that states that the LENDER must approve the agreement and that allows the SELLER a chance to open this dialogue with the LENDER.

1. Timing is everything! A short sale can take up to 6 months to be approved by a bank. If you are a first time buyer looking to take advantage of the 2009 First TIme Home Buyer Tax Credit, I do not recommend looking at short sales. There is no way to predict whether or not a short sale will close in alignment with any sort of deadline. If you absolutely need to close and be in your home by a certain date, a short sale is probably not for you.
2. What you offer on the home and what a SELLER may agree to and ratify into a contract MAY NOT be the sales price. The LENDER still has to approve any agreement that is made in a short sale, so don’t get your hopes up about the sales price that you’ve agreed upon with the SELLER. The LENDER may counter-offer and ask you to pay a completely different, higher price. The price that the LENDER is willing to take is going to be determined through the help of a third-party broker, who will do a BPO (Brokers Price Opinion) on the home, and who will recommend a value for the home based on recent comparable sold homes.
3. It is recommended that you do your inspections immediately. The PURCHASER will need to take on some risk of lost investment on items like a home inspection or an appraisal. Once the SELLER and PURCHASER have a ratified contract, it is recommended that the PURCHASER go ahead and conduct the home inspection. This inspection will likely be for information only, as the SELLER likely cannot make repairs, and the LENDER likely will not. It is possible that the PURCHASER will spend money on a home inspection only to find out that the LENDER does not approve the sales price and the contract may fall apart, with the PURCHASER being out the cost of a home inspection.
4. Once the LENDER approves the short sale, they will likely require the PURCHASER to close immediately. The lender will often request closing to occur within 7-14 days, so the PURCHASER needs to have their finances in line by then.
5. During all of this, the home is still in pre-foreclosure and CAN progress to foreclosure. A ratified contract on a home does not necessarily stop the foreclosure process from occurring, as sometimes the short sale department (loss mitigation) does not have contact with the foreclosure department, and foreclosure proceedings may begin. If a home does progress all the way to a foreclosure sale, the contract between the PURCHASER and the SELLER becomes void.

All of these items can make purchasing a short sale a very lengthy and sometimes confusing process. Please make sure that you are in a position to purchase a home under all of these conditions before you begin to seek out short sales.

For those of you who DO have the flexibility to purchase under these conditions- happy hunting, and congratulations on the great deals you may be able to find out there!

Thinking Points For Buyers & Sellers

January 10, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

I read a good article a while back that was really aimed at motivating real estate agents in a tough market, but it made some very strong points for buyers and sellers, that I think are relevant to transactions nationwide.  I have pulled out the key points below but have also linked to the Joe Klock article in it’s entirety, here.

Thinking Points for Buyers

• The doom and gloom you’re hearing about in the mass media should not affect your decision to act if you are ready, willing, able and eager to do so.
• Prices may still go lower, but as soon as they hit bottom, they will rebound with a vengeance, quickly wiping out any advantage you might gain by waiting.
• Right now, you have an unusually wide selection of properties to choose from, including those owned by people highly motivated to sell immediately.
• With so many potential buyers holding off, you have a much smaller number of people competing with you for the available properties.
• When the turnaround comes, those “waiters” will be your competitors, making your offer less attractive to those selling their homes.
• Financing is still available at historically low interest rates, but are sure to escalate when activity resumes at more normal levels.
• Even if you SHOULD pay a little more than you would if you actually hit the “bottom” of the market, normal appreciation would make the difference irrelevant within a few short years.
• If you as an individual ARE ready willing, able and eager to make a move, the time for action is NOW!

Thinking Points for Sellers

• What you might have sold for a year or two ago is irrelevant. Properties sell for the best price obtainable in the CURRENT market – and not a dollar more.
• If you sell for present market value, even though the price is less than it would have been in the past, you can reinvest at the same relatively lower range.
• If your present property has appreciated in value over the years, a reduced price affects only “paper” value, which you never actually realized.
• If you genuinely want to sell and have a good reason for doing so, there is little to be gained by waiting for “things to get better,” especially if you’ll be reinvesting in the same market.
• If your home has been on the market for a considerable period of time and is not attracting the attention of prospective buyers, it is OVERPRICED (end of sentence).
• If you are unprepared to accept the best offer obtainable from the best buyer available in the present market, you should NOT list your home for sale!

The Virginia Foreclosure Market

January 19, 2008 by Sasha C. Farmer Realtor · Leave a Comment 

Courtesy of Virginia Business Magazine, here is a good article on how Virginia’s housing market has fared in 2007, despite trouble nationwide with foreclosures. As stated in the article,

“At a time when foreclosures are soaring and some mortgage lenders have gone out of business, plenty of homebuilders would gladly trade places with Genuario. And homeowners in other states can’t help but look at their counterparts in Virginia with envy, because home prices here continue to outperform the nation’s. That’s one piece of encouraging news in what has been a bruising year for the housing industry.”

Additionally, click here for a very bad scan of a nice chart that was included in the article on Virginia Foreclosures FILINGS By County.

As you can see from the graphic, about 1 household out of every 196 households are subject to filing for foreclosure. However, in Virginia, only 1 out of every 411 homes are subject. Virginia has avoided quite a bit of the foreclosure mess. The two closest counties to Charlottesville that are listed- Orange and Culpeper counties- have 1 foreclosure FILING for every 132 and 96 households, respectively. Our local area hovers at about a 1% foreclosure FILING rate, which really is not a terrible statistic. Following the trend that the majority of foreclosures are a result of subprime loans, failures at flipping, and unscrupulous lending practices, it is probably safe to say that most of our neighbors here in the Charlottesville area will be relatively protected from impending foreclosures or short sales.

Over 80% of all foreclosures are in 5 states – and Virginia is not one of them. Currently, the top 5 foreclosure states are California, Florida, Ohio, Michigan and Texas, with Virginia currently falling at #21 in the nation. Compared to 148,000 in California; 86,000 in Florida; 47,000 in Ohio; and 44,000 in both Michigan and Texas; Virginia looks great with it’s mere 8,000 foreclosure sales in 2007. With an estimated 3,300,000 households in Virginia, this would leave us with less than a 0.01% ACTUAL foreclosure rate in the state. Back to the first article, on median home prices, we see

“Still, compared with states such as Florida, Nevada and California — which experienced huge building booms and busts — Virginia is holding up well. For instance, the median price for a Virginia home was higher in September than for the same time in 2006, a stark contrast to what’s happening nationally. In September, the national median existing-home price for all housing types dropped 4.2 percent to $211,700, while it rose by 5.53 percent in Virginia to $229,000. In fact, the Virginia Association of Realtors reports that a Virginia home purchased in 2002 at the median price of $144,480 appreciated 58 percent in the past five years.” 

However, all is not rosy.

“Virginia has one of the highest year-over-year increases (in foreclosure filings) in the past months. It’s catching up with some of the other states,”

says Daren Blomquist, a spokesman for RealtyTrac. While the bulk of these filings are occurring in Northern Virginia, Charlottesville will certainly see some evidence of the shift as well.