Short Sale Tips

While my client and I were waiting to hear from the bank,in response to our short sale offer, I received the following useful pointers for Short Sale buyers and their agents, provided by Trulia.

Roughly forty percent of the homes for sale on today's market are short sales and foreclosures! Distressed properties are well known for their value (a reputation which is sometimes accurate, and sometimes not), but they also have a reputation for causing buyers to become distressed too. Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to be par for the course.
Instead of avoiding these properties altogether, get educated about the most common dramas that go down in these deals, and how you can avoid falling victim.
When you’re buying a home (or selling one, for that matter), time is absolutely of the essence, but banks don’t have the same sense of urgency individual home sellers do, and while a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale can take anywhere from 45 days to 6 or 8 months after the seller has accepted the contract to get the deal closed.

Most Common Complaints of Short Sale & REO Buyers
Run-on (and on, and on) escrows
Avoid the drama by expecting your escrow to run long, and being pleasantly surprised if it doesn’t. Expectation management is everything. Make sure you take these extended timelines into account when you’re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost
of extending your low interest rate if rates are rising rapidly during the time you’re waiting for the deal to be done.

Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as close as possible to the home’s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property’s condition. Fact is, many banks
would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table.
Avoid the drama by working with your agent to make a realistic offer, based on recent comparable sales in the neighborhood, not just on what you think you can get away with.

These transactions have an uncanny way of being delayed at the last minute - or never going through at all, through no fault of the prospective buyer. If you’re in contract on a short sale, you should take the point of view that you don't have a firm deal until you get the bank’s approval of the transaction. Make an offer on a normal home and you’re likely to know what the outcome will be within a few
hours or a few days, at the outside. If things take longer because the seller is out of town, the listing agent tells you that, and you at least know what’s going on.
Make an offer on a bank-owned property or a short sale? It could be days, but could also, easily, be weeks or months before you know what’s going on. No amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller’s short sale application is being handled or what (if any) progress is being made. That “black box” into which your offer disappears at the bank level can be very frustrating.
Realize that working with the bank on the bank’s terms is unavoidable when you buy a
distressed property. Then, go into the deal with realistic expectations - including the expectation that the bank will drag its feet, despite expecting you to keep every deadline - and you’ll be less frustrated, and less likely to make poor decisions out of frustration. Also, make sure you do respond in a timely manner to the bank’s requests and your obligations under the contract.

When the Value is In the Land

Potential clients called this week asking about the value of a double lot on a busy street in Sunnyvale. The house on one of the two plots is quite run down, and the other is vacant. The magic comes from the school district...being located near some of the top Cupertino Schools will make this property valuable to a contractor who wants to tear down the existing house and build a large new home.
Coincidentally, my son Dave sent this photo of the autumn view from his patio in Michigan today. Earlier this year, they bought this lakefront property consisting of 10 acres and a huge older home for under $400,000. With their extensive remodeling, the value would be about a million dollars. In the Bay area, it would be priceless...if such land existed. Well, at least we don't have snow.

My Short Sale

Funny that I had written my last entry about problems in short sales, and here I am, handling one. Fortunately, this sale should be simpler. Most of my business at this point of my career is from client referrals, but an all-cash buyer had contacted me this summer from my website, looking for an investment property. I saw a good deal in a Sunnyvale townhouse, listed as a short sale, but before we could write an offer, the property was in contract.
Around a week ago, the listing agent called me. We knew each other from way back, and she asked if my client might still be interested. The first sale had fallen through when the offer reached the bank's negotiator. Typical for short sales, it had taken two months to reach that point.
My buyer and I went through the townhouse, and re-read the disclosures, and quickly wrote an offer. The package is on its way to the to the bank, and I have scheduled a property inspection to eliminate any surprises down the road.

Short Sale Fraud--Trash for Cash

In the world of real estate, there's always something new under the sun. There also seem to be new types of fraud and scams developed with each change in the market. Now the scam artists have discovered short sales and foreclosures.
If you’re thinking about working with a financially distressed seller and the house he wants to sell is trashed, make sure he didn’t trash it himself. One of the types of short sale fraud that Fannie Mae is seeing these days is “reverse staged” houses. In these cases, owners trash their house to knock down the property value. There are photographs on broker price opinions that actually show cupboard doors missing, appliances pulled out, and graffiti or trash on the counter tops. Because there are actually websites where you can get repair bids, they can submit false repair bids for the work that needs to be done. A buyer with whom the owner is colluding then comes in with a low-ball offer, buys it and fixes it back up, then flips it for its real market value. That seems like a brazen scheme, but mortgage fraud by its nature is a brazen activity.
Kim Ellison is a Fannie Mae senior industry relations manager for the mortgage fraud program. She also sees a lot of illegal flipping and non-arm’s-length transactions. The non-arm’s-length space is a smaller percentage, roughly 9 percent. Usually the delinquent home owner is selling the property to a family member or a business partner without disclosing the relationship. It’s really an effort for the owner to stay in the home. Instead of making payments to the mortgage company they’re making payments to the family member, as rent. They’re hoping to clean up their credit and reapply for a mortgage down the road.
Selling to a related party isn’t illegal. It’s just the lack of disclosure. The loan servicer may waive the non-arm’s-length requirement, but there have to be compensating factors, and story has to make sense.
These are just a couple of the fraudulent schemes out there. No wonder Fannie Mae is in trouble.

Finding those Files

My friend Lynn Gross-Cerf, who is a great organizer, just sent an email reminding me that Sept 19-23 is "National Love Your Files Week". (There seems to be a week or day for anything and everything.) This event was created to demonstrate that a good filing system is a powerful asset.
It was apt timing because I had just been out to my garage searching for an escrow file. My associate, Judy, is the listing agent for a property that I sold in 2004. In that earlier sale, I represented the sellers, who have since left the area. Her clients wanted to know what termite work the sellers had completed....The recent inspection found old pellets, and needed to know if these were "souvenirs" from the previous sale. Naturally, the buyers had not kept these records, and neither had the termite company.
I moved the freezer that sits in front of the filing cabinet in the garage where I keep the really old records, and then I hit a snag. There was a box neatly labeled 2004, and another labeled 2004-2005, but neither would budge. I plugged the freezer back in, and called Judy. If they really want that file, they will have to come and retrieve it...and no, Lynn, I do not love my files.

New Agents

Last week, I was contacted by a young woman who lives in Old Orchard, an area that I contact regularly with mailings about the market. She had recently passed her real estate license test and wanted advice on how to get started. I remember from many years ago that schools such as Chamberlain and Anthony's prepare a future Realtor to take the State exam, but provide no direction beyond that. The basis college classes are not much better preparation for the actual world of real estate sales.
She came into my office and we talked for some time about time management, juggling a home, young children, and this business.(Been there, done that) Then she spoke to Nina, my manager about training and costs.
Coincidentally, My grandson is in his last year of a business degree, and is also seriously considering a sales career. I plan to mentor him as he begins.
With an aging Realtor community (see my post:Real Estate Agents are Aging:Saturday, November 13, 2010), it is a pleasure to have young people choosing what can be a challenging but potentially lucrative business.

Balancing Work, Play and Volunteering

August should be a month for vacations, but having been away for more than a week in late June, I am playing "catch up" at the office, and fitting in a few added demands on my time.
Thousands of local Realtors are taking part in a lock box and key exchange this week, along with the juggling involved in making this happen smoothly. As expected, there are glitches in the system, even though both boxes and keys were Beta tested. This morning, I lugged seven extremely heavy lock boxes to a well-coordinated exchange at DeAnza College, and carried out a set of even heavier replacements. I also picked up a new key that will need to be used while the stragglers replace their old boxes, hopefully within a month. The exciting part of all this is that eventually, when all the bugs are worked out, my Android phone will...at long last...serve to open the boxes when I show property.
Next week begins the volunteering segment. Our office is holding a breakfast and auction to benefit Habitat for Humanity, and I'll help out as sous-chef, runner and dishwasher. This is just the first of several events we have planned.
So when do I manage to play?...Whenever I can.