REOs, short sales aren't always bargains
Some find quality, convenience take back seat to price
Question: Allison, we’re looking to buy a property in Summit County and we’ve heard that the number of foreclosures has skyrocketed. We’re looking for a great deal and wonder what we can do to find the best foreclosed or short-sale property.
Answer: Despite what you may have heard, or what’s going on nationally, Foreclosures are not rampant in Summit County, CO. The total number of properties in the foreclosure process here is very low – and the number of properties that actually get sold on the courthouse steps is tiny – less than 20 recorded this year.
We are seeing more short-sale properties on the market, so that could be something to look for. Today's buyers have one thing in common: Everyone wants a great deal. So the real issue is whether the foreclosure, REO or short-sale property you're eyeing is a bargain or a money pit.
The buying public seems to think that "great deal" equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else's problems. If you're looking for a bargain property, here are some key issues to consider:
1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don't have a deal until the bank approves the short sale. At many large lenders a single processor may have up to 500 files on his or her desk at one time. Realtors are reporting that it can take six or more months to get an offer approved. The wait can be extremely frustrating. It can also be costly.
For example, if prices are still declining in your area and price range, the offer you made six months ago may be too high. Also, if you qualify for a loan now, will you still qualify six to eight months from now if mortgage interest rates have increased? More importantly, can you afford to make a higher monthly payment? If possible, search for a short sale or an REO where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.
2. Are you prepared to be in a multiple-offer situation?
Since so many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The lender will not tell you about other offers. They may, in fact, tell you that your offer will "probably" be approved -- but you cannot rely on this representation.
If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller's signature on the document merely opens the negotiation -- it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you. This is simply smart business, as so many borrowers are having trouble closing transactions due to appraisal issues.
3. Ask the agent if the seller participated in the "Cash for Keys" program
The best candidates for good bargains are those properties where the sellers are still occupying them. Many banks have a program called "Cash for Keys." This program pays the owners of foreclosure and short-sale properties money to keep the owner from trashing the property when they move out. I have seen copper piping ripped out of properties, concrete poured down the plumbing, and appliances stolen or destroyed. Cash for Keys is designed to minimize these behaviors.
4. Beware of vacant properties
Never purchase any property without doing a physical inspection. Also, if it takes more than 90 days to negotiate the transaction or if the house has been vacant, have the property re-inspected prior to signing off on the final deal. The reason for this is that the longer a house stays vacant, the more likely it is to have problems.
For example, if you live in an area where the pipes are not winterized and there are freezing temperatures, a pipe may burst. You may not discover the problem until you turn the water back on after closing.
When you purchase, it's important that you take all of these issues into consideration rather than focusing exclusively on the price.
There are good distressed property deals out there. Nevertheless, don't limit your search. Have your Real Estate Broker show you seller-occupied homes that are not distressed properties. Thirty-five percent of all properties are owned free and clear in the US. These properties are often lovingly maintained, in top-notch condition, and in more desirable locations. In the long run, they may be a much better bargain.
You would be well advised to not to get distracted and infatuated with the terms ”short sale” and “foreclosure”. What's important if you want a deal is to find someone that has equity and is very motivated.
For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours. Want to know the value of your Summit County property? Visit www.SummitHomeValue.com