Saturday, January 3, 2009
Do You Really Know the Difference?
REOs Foreclosures Regular Sales Online Auctions Short Sales Pre-Foreclosure
In today’s San Francisco Bay Area market there are numerous properties for sale. I have been working with buyers and sellers in this challenging market. For the most part, prices ranging from $200,000 to $400,000 are being sold as Short Sale or REO properties. There are some being sold on Auction websites. Very few homes in the above price range are being sold by homeowners as what we call a Regular sale. Below are a summarized definition of these types of transactions.
Regular Sale - A sale where the seller has equity in the property. The buyer and seller will the
negotiate price and terms of the sale. The seller is required to provide Disclosures according
to California Law and statute. The transactions in this type of sale are generally much easier to come together as there are timelines in which the seller needs to abide by in the transaction. The seller is motivated to sell and move on in his/her life.
Short Sale - A short sale is the sale of real property where the fair market sale price is less than the loan(s) on the property. A short sale means the seller's lender is accepting a less than the existing loans on the property. Just because a property is listed with short “sale terms” does not mean the lender will accept your offer. These properties must be purchased “As Is” without any repairs or warranties. Some are in need of repair. The lender is already taking a 30% to 50% loss on the property. This is why a majority of the time, they will NOT negotiate on the price. In fact, in most cases in our area, there are multiple offers on most properties that are in good condition and the price will higher than the listed price.
If the property in encumbered with more than one loan, there could be a problem. All of the lenders must agree to a short sale or a contract can never be ratified. There is no guarantee the lender will approve of the sale. My buyers have waited over 4 months for the lender to respond to their offer. We are still waiting for an acceptance! I have heard of circumstances where it took the lender over 9 months to respond and did not accept the offer. Statistics show over the last six months that only 20 % of these sales have closed. The homeowner should consult their CPA or Tax Attorney before entering into a Short Sale agreement.
REO/Bank Owned Property - REO is an acronym for a real estate owned property that has been
foreclosed on or repossessed by banks or lenders. These properties are also sold in “As Is” condition without any repairs or warranties. The seller (lender) is exempt by law from completing any disclosures. The agents involved in the transaction are not exempt from completing their visual inspection as per California’s disclosure laws.
Prior to these properties going on the market, the lender has had an agent submit a BPO (Broker’s Price Opinion). So, just as in a short sale transaction, the lender is already taking a 30% to 50% loss on the property. This is why a majority of the time, they will NOT negotiate on the price. In fact, in most cases in my area, there are multiple offers on most properties that are in good condition and the price will higher than the listed price. Again, some properties are in need of repair. The process for bank approval can be anywhere from 3 – 10 days.
Pre-Foreclosure Property - A property where the homeowner has fallen behind in their payments or when a Notice of Default (NOD) has been filed against the property by the lender. May not have much flexibility in negotiating. These properties may be regular sales or potential Short Sales. The homeowner should consult their CPA or Tax Attorney before entering into a Short Sale agreement.
Online Auctions - Recently I have found that some of the REOs that have not sold were placed on an online auction website. Do not be fooled in thinking that you can purchase these properties lower than what they were listed for by an agency. The agency still has the listing. The website starts with a minimum bid and the buyer is made to believe that they can purchase this property for this amount if there are no other bidders. Not so, there is a reserve amount that the lender expects to get for the property. This price is usually what the real estate agency has listed the property for in the multiple listing service. There is a 5–10% fee paid to the auction house in addition to the final bid price. These properties are all “As Is” sales without inspections or warranties.
For All Your Real Estate Needs:
Jean Powers CRS,ASP®,PMN,e-PRO
Real Estate Broker