INFORMATION FOR BUYERS

Price and value are not the same when buying real estate. Price is simply a figure; a number; an amount that a given buyer wishes to pay or can afford. Value on the other hand is relative and possibly subjective, but one that generally represents “a lot (of house) for the money”. A buyer purchasing a property for tens of thousands of dollars below the listed price may feel good about the purchase, but may not have received as good a value as a buyer paying the listed price on a property that was priced below market.

As a home buyer or investor today, you are undoubtedly looking for “value” in what you purchase. You are likely asking yourself, “Where are the best values and how can I find them? What risks are involved with buying today and how can I increase my chances of finding the right property at the right price?”

There are four primary types of sellers in today’s market: regular seller sale, bank owned or foreclosure sale, corporate sale and short sale. Value can be found in any of these four types of seller offered properties.

Regular Seller Sales

The best value on regular seller sales is tied to seller motivation and the need to be competitive with the other types of sellers in the marketplace. Oftentimes these properties are in the best condition; a factor that adds “value” to the property. Many of these sellers have aggressively priced their property in order to compete with other types of sellers today. These sales typically offer the buyer more contractual protection when purchasing, as compared to corporate or foreclosure sales.

Foreclosure Sales

A foreclosure, commonly referred to as REO (real estate owned) property, is property that has had a legal proceeding in order to remove ownership/title from the homeowner and convey it to the lender. The lender then, in all foreclosure/REO sales, is the seller of the property. The lender ensures that the previous homeowner is no longer residing in the property prior to offering it for sale.

Foreclosures have been a popular target for many real estate buyers over the past few years. They oftentimes represent a good value because the price is low enough to offset the other risks involved in purchasing foreclosed property. While the price may be low, it may not always represent good “value”. There are numerous risks in purchasing foreclosed property, as you will see below.

What are the Risks of Buying a Foreclosure?

• Oftentimes the condition of a foreclosure is sub-standard and less than average due to the fact that the previous owner had not made house payments for perhaps a year or more, and in such cases, rarely kept up the property with respect to maintenance and repairs
• Standardized purchase agreements are rarely used, and if they are, the lender adds numerous addendums to protect their interests, to the disadvantage of the buyer
• Wording and the terms of purchase agreements are totally one-sided in favor of the lender
• Purchase agreements are only binding on the buyer, not the lender
• Lenders refuse to put money into the property for repairs
• Buyers must accept the property totally “as-is”
• Buyers rarely receives a Warranty Deed, but a lesser assurance of clean title
• Lenders tend to force buyers to use the lender’s title company
• Real estate brokers will soon be coming out with yet another disclosure; one that warns buyers to the risks of buying foreclosed/REO property

Corporate Sales

Corporate sales result when a homeowner’s employer or third-party company purchases their property as part of a relocation or guaranteed sales program, then subsequently offers the property for sale in the market. These types of sales are much less common today as a result of the economy; as employers do not want to own real estate and have taken a variety of measures to assist the employee in selling the property prior to having to take ownership of it. It is possible to find good value in property that is being sold as a result of a relocating seller, but oftentimes only after the property has been on the market for a while and pricing has become more competitive.

Short Sales

Short Sales, which are vastly becoming the best “values” in the marketplace, are where shrewd buyers are now looking. There are pros and cons of buying a short sale property, but when such a transaction is handled correctly by the real estate representative(s) it can be a huge win for the buyer, the seller and even the lender.

What are the Pros of Buying a Short Sale?

• Oftentimes the condition of the property is excellent and is being sold by the current owner only as a result of a recent hardship and/or the economic conditions that now affect the values of many properties in relation to what is owed the lenders
• Standardized purchase agreements are used and are not complicated by numerous addendums favoring the seller or lender
• Properties may be sold “as-is”, but it is not the rule
• Buyers receive a Warranty Deed, the highest form of secure ownership
• Buyers are allowed to choose their own title company
• Prices of short sales are highly competitive and in line with comparable REO/foreclosed property; this creates excellent value for the buyer

What are the Cons of Buying a Short Sale?

• Short sale transactions are extremely complicated. They require a multitude of additional work by the real estate professional in order to get a transaction approved by a lender(s) who is losing tens, if not hundreds of thousands of dollars
• Many real estate agents have attempted to get a short sale approved by the lender(s) once the buyer is found on a seller’s property, but few have been successful in doing so; as a result, buyers have a tendency to shy away from short sale purchases, believing they will never close. The buyer likely got a great price (and value), but the question of “will it ever close?” remains
• Here are some common questions buyers ask when buying a short sale property:
  • Will my offer be competing against other offers once I initially write it?
  • If my offer is accepted by the seller, will subsequent offers be submitted to the seller as well?
  • Can the seller accept another offer after accepting mine?
  • Once my offer is accepted by the seller and sent to the lender for their approval of the short sale, will other offers (if received) be sent to the lender as well?
  • Can the property I am trying to buy be sold from under me while I am waiting for a response from the lender?
  • How long will I need to wait to get a response to my offer from the seller?
  • I have heard short sales can take weeks or months to simply get a response from the lender. Is this true?
• The above questions are easily answered by an Expert in the area of short sales. There are right and wrong ways of navigating through the short sale process and handling the multitude of possibilities that will be encountered. Hence, the greatest con of buying a short sale is working with a real estate professional not educated in short sales. Even the best agents in the industry, without proper short sale training, will find it most difficult to get a short sale transaction accepted by the lender
• Submitting a comprehensive file to the lender up front that supports seller hardship, a true and clear financial picture of the seller and all required documentation is the ONLY WAY a short sale will be accepted by the lender. Incomplete or inaccurate material is set aside and rarely processed by the lender. Lenders have an incredible work load and will not take the time to educate the real estate community, thus huge percentages of short sales fail to close and sadly enough, the seller ends up with a foreclosure on their record and the buyer must begin his/her search once again for “value” in the marketplace. The statistical odds of getting a short sale approved and closed are startling.

Are you Ready to Buy a Short Sale?

As you can see, there are advantages and disadvantages of buying short sale properties. With the experience in this field of real estate, hopefully I have removed any negative conceptions you may have had about purchasing a short sale property.

As a potential short sale seller, please consider me as a source of information and expertise to help you and your family at this time and avoid the possibility of foreclosure.