Tips For Buying a Short Sale or a Bank Owned REO Foreclosure

Short Sale

Although there are plenty of homes being sold through foreclosure, many banks are moving to a mind-set of letting the distressed homeowner sell for less than they owe - known as a short sale. The short sale process is a bit different since the seller is the homeowner and not the bank- meaning the bank allows or encourages the homeowner to sell the property for fair-market-value rather than foreclose on the property. So the homeowner picks the REALTOR to represent them and the homeowner makes the decision as to what offer will be presented to the bank for consideration. If a seller and a buyer enter into a contract, the seller's lender is not obligated to sell unless the seller's lender accepts a loan payoff for less than what is owed. Some buyers flock to short sales in the hopes of snatching up a good deal, whereas others stay away believing short sales are more trouble than they are worth. Ultimately, as the buyer, you can't be sure your short sale transaction will succeed, but you can stack the odds in your favor. Here are some good tips to help ensure your short sale process will succeed.

Hire a REALTOR

We are REALTORS. The word REALTOR is a trademark designation to distinguish real estate agents who are members of the National Association of REALTORS. REALTORS stand apart because among other things we voluntarily pledge to abide by a strict code of professional ethics to protect and promote your interests in the transaction.

Knowledge is Your Friend

A short sale is a new experience for most home buyers, but knowledge of the process is key to success. You should know the pros and cons of buying a short sale. You should also understand the the overall short sale process- what you need to do, how long the process may take, and what the common pitfalls may be. We are a great resource for this information because over the past couple years we've represented both sides of short sales. We continue to update our knowledge base with regards to short sale requirements by many banks. Be careful as there is a lot of mis-information on short sales floating around.

Do Your Homework

Gather and review as much information about a transaction as you can before writing an offer. We can help you identify which properties for sale in the MLS are short sales. We can also get more information from public records, find comparable sales, and other sources and information to determine the likelihood a short sale will succeed. A short sale where the lender will have to forgive the seller with a $50,000 shortfall will be more likely to succeed than a seller with a $200,000 shortfall. A transaction where one lender has to approve the short sale is less problematic than a transaction where there is both a senior and junior lender. Finally a transaction with a sales price at market value is more likely to be approved than a sales price below market value.

Write a Clean Offer

The word "Clean" is the industry jargon for describing an offer to purchase that the seller is unlikely to take issue with. Although the lender must ultimately discount the payoff, you have no purchase contract unless the seller accepts your offer. To get the seller's acceptance, you can offer a good price, demonstrate your ability to obtain financing, and offer other favorable terms for the seller. A clean offer can make a big difference, especially if you are competing with other buyers to buy the same property.

Understand the Timing

The timing of a short sale can be tricky. Things start off slow, but speed up at the end. Once the seller accepts your offer, you may way a few weeks to a couple months for an approval from the seller's lender. As the buyer, other than asking for status reports, it may be difficult for you to speed up the process. Lenders are often inundated with short sale requests. Each short sale request may involve a sizable loan. Before agreeing to give up the collateral for the loan, the lender may take its time to review the seller's financial position, the property value, and the terms of sale. Once the lender approves the short sale, the pace can change dramatically. Because the short sale approval expires within a few days or weeks, the buyer must move quickly to finalize the transaction. to make sure you succeed in your short sale transaction, be prepared to wait a long time for lender's approval, and then perform quickly thereafter. Patience and persistence will serve you well. Although the timing depicted above is a general depiction of the process, many banks are in the process of setting up systems to shorten this process. We keep tabs on the short sale process guidelines by many banks and can provide specific information regarding the short sale timeline based on the lender that holds your mortgage.

Prep as Best You Can

Because of the unique timing, short sale buyers are often uncertain whether to perform on their sales contract before the short sale lender's approval. One one hand the buyer may be reluctant to incur expenses by ordering property inspections and appraisals until after the the lende approves the short sale. On the other hand, if the the property inspections and appraisals are unsatisfactory, the buyer waited all that time for naught. Also, if the processing of property inspections and the buyer's financing causes delays, the short sale approval may expire. The alternative of waiving your inspections may be too risky.

Manage Your Expectations about the Property

In a short sale, the property may be in excelent , or oftentimes, the distressed homeowner may forego maintentance and repairs. As the buyer, you may ask the seller to make certain repairs or do things before close of escrow. But there is a good chance you'll have to take care of those things yourself. A seller generally receives no money in a short sale. Givent the seller's financial situation, the seller may be unwilling or unable to take care of the repair items that you may request. Moreover, the seller's lender who has already discounted the payoff may be unwilling to discount the payoff further to take care of the repair items you requested.

Don't Lose Sight of the Big Picture

Buyers can get so wrapped up closing a short sale that they lose sight of the big picture. Whether it is a short sale or not, buying a home is a serious matter. Be sure you are ready for homeownership by determining the financial, tax, liability, and other legal consequences of your transaction and consult with an accountant, attorney, or other professional as needed. With proper planning, negotiations, and execution, buying your piece of the American dream can be a reality.

Changes in the Short Sale Process

The process, systems and technology used in the foreclosure timeline has been around for many years (homeowners have been foreclosed on long before the housing crisis of 2007 - present), the systems and technology used in the short sale process have been less than efficient. The short sale is a relatively new concept, so the process of selling (and buying) a short sale can be at times difficult. As the short sale process is increasing with popularity among the banks/investors, so to is the technology handling the process.

We started representing both sellers and buyers in the short sale process a couple years ago and have seen a dramatic increase in the efficiency and shorter timelines in getting a short sale closed as banks are making huge improvements in the process.

As part of our commitment to constant improvement in our service, we update our knowledge with regards to both the foreclosure and short sale process. We use this knowledge to help you with your short sale purchase.

If you have any questions about buying a short sale please call us at 707-297-6580.

Foreclosure

If you are thinking about buying a foreclosure property as a first time home buyer, looking to up-size or down-size, or purchase a foreclosure as an investment, you are part of over 50% of the home buying marketplace. Buying a foreclosed home is a task that should not be taken lightly. You need to know the ins and outs of buying a REO bank owned foreclosure home. Over the past 3 years, we've represented over 100 bank owned homes in Benicia, Vallejo, Glen Cove, Hiddenbrooke, Fairfield, Vacaville and Suisun City and have put together a detailed list of what you need to know regarding buying a bank owned home in Solano County. If you are looking to buy a foreclosure or any home for sale, please give us a call to help you in your search.

Get Pre-Qualified / Pre-Approved for a Loan - A Most Important Step!!!

The most important step in the process of buying a foreclosure home is to get pre-qualified (or better yet pre-approved) for a loan. Getting pre-qualified for a loan will allow you to zero in on a price range you can afford. The seller of a foreclosure property uses an asset company to act as middle-person between you (and us as the buyers agent if you decide to use our services), the sellers agent, and the lender or investor that owns the REO bank owned real estate. In most (if not all cases now) an asset company will not accept an offer where there is no pre-qualification letter supplied by you (the buyer). They also require an Ernest Money Deposit from 1%-5% of the purchase price. So on a $250,000 purchase the seller may require deposit of from $2,500 to $12,500. They will also need what is called proof of funds which is a copy of bank records showing you have the finances to cover the down payment or enough finances to cover the purchase price if the offer is a cash deal.

Securing financing early in the process is important; it will ensure that you have all the financing you need to purchase the property. Find a lender that has worked with a number of foreclosures and understands the foreclosure process in depth. Taking the time to find the right lender will save you a lot of frustration and may save you from losing out on a great deal. If you need help with getting a loan, please contact Greg Bechelli, Certified Mortgage Planner, at Lendscape Financial. You can get more information about Greg's services here at this website or you can take a look at Greg's Mortgage Website also.

Research the Property

Once you have a handle on your finances you can start looking at properties for sale. You will need to do a lot of research before finding a suitable property. In very rare instances, you may purchase the first property you look at, but generally, it will take you hours of careful research and planning to find a foreclosed property that fits your budget and your needs.

Search for Bank Owned Properties at our website

Our website here allows you to search on ALL properties for sale in Solano County or you can search FOR JUST REO BANK OWNED properties. You can search by city, area, sq ft, beds/baths and such. You can create an account to store properties that you like and get emailed updates on new properties that come onto the market that match your requirements. If you sign up and store properties you find or sign up for email alerts any of the information you provide is not shared with anyone. It is used to do a better job for you.

Research the Area

When you've put together a list of properties that you are interested in, the research is not over. You will need to start looking into the benefits of the surrounding neighborhood, the availability of public and private schools, the population of the area, average property values, the rate of property value growth in the area, and the availability of career and recreational opportunities.

IT IS IMPORTANT TO KNOW that we can provide more information about the property and area in question and do a comparative market analysis report that provides comparables to your target property in the neighborhood. Finding out this information before visiting each property can save you a lot of time and eliminate neighborhoods that would not accommodate your lifestyle.

View the Properties

Once you've compiled a list of potential properties, we will schedule an appointment to view the property. This is the time to find out how accurate the listings were. Carefully examine every nook and cranny of the home, checking for structural damage, rodents, termites, plumbing and heating issues, and other common problems. Check to make sure that all features outlined in each listing are truly available with the purchase. Ask as many questions as you can think of before making a decision. Buying property is one of the biggest and most important decisions that you make in life. You need to have all the information available to you when you are considering a foreclosure purchase. Use this handy checklist to compare homes you are considering.

How much should you pay?

Once you've viewed the properties, you need to consider the price, the condition of the property, and the surrounding neighborhood. Don't make your purchasing decision based on price alone. A very low price can mean that the property was abandoned for many years or was not kept in good condition by the previous owner. It may need extensive renovations that can be expensive and time-consuming. Buying a more expensive home that is in good condition rather than a bargain-basement home that has extensive damage will save you money in the long run. You will also need to find out if there are any liens on the property or if the property has been affected by a bankruptcy. This information is not something you want to find out after you have already progressed through most of the buying process and can be a legal hassle to resolve.

Make an offer on the Property

Once you've finished all of your research and decided on a property, it will be time to negotiate with the seller or make an offer on the property. Depending on the process being used, you will be working with a number of professionals; including bankers, attorneys, real estate agents, and other representatives of the home. During this negotiation process, you may be able to get a deal on the total cost of purchasing the home.

Once you've wrapped up the closing process, the home is yours to enjoy. You may need to repair some of the structure or even make minor repairs. Furnishing your new home and settling in may be one of the most satisfying times in your life.

If you have any questions about buying real estate please call us at 707-297-6580.