Buying a home can be a VERY frustrating process if you are not knowledgeable about the types of sellers that exist in today’s marketplace. It is a fact; there are a growing number of homes offered for sale that will not close. Distress properties, pre-foreclosures, short sales, subject to bank approval….what does this mean to you as a buyer?
#1 Traditional Sale
Buyer and seller negotiate a sale and the transaction closes in a timely fashion. These homes are more likely to have been responsibly occupied and repaired as needed. In addition, sellers usually repair or negotiate home inspection issues that may be of concern to a new buyer.
#2 Short Sale / Pre-Foreclosure
Buyer wants to buy, sellers want to sell—however, there is not enough money to complete the transaction. The seller owes more back to the bank than the buyer is willing to pay. In this situation the seller will accept the contract with a contingency “SUBJECT TO BANK APPROVAL.” There may be more than one bank involved to clear the seller’s obligations. This process will take a minimum of 90 calendar days and up to 6 months and sometimes longer. Short sale market standards mandate that seller accept multiple offers, which means your offer will not be the only offer under consideration. Rarely does the bank disclose the number of offers collected or the position your offer is relative to any other contract presented. The bank may keep your offer or accept a higher offer.
o Sold “as is”: No repairs.
o Stressed ownership: Property may not have been managed or repaired appropriately.
o Frustration: Weeks/months will go by with no progress/updates from the bank.
o Competition: Unknown if you are the only offer or how many offers are being considered by bank.
o Sellers Qualification: To be a valid candidate for short sale, sellers must prove hardship, many sellers have assets and liquidity that would preclude/disallow bank to accept short sale. Typically not determined until months into process.
o Bottom line: Bank may decide to re-negotiate purchase price “prior to close.”
o Availability: Home may revert back to bank in foreclosure before getting an answer from the bank.
o Loss of Rate Lock: Buyers will lose their rate lock due to time expiration.
o Loss of Power to Buy: With daily continual lender restrictions, loans available today allowing you to be a purchaser can be gone tomorrow along with your ability to buy.
o Close of Escrow: Rarely, if ever, do these deals close timely.
o Close of Escrow Stats: 20% of all short sales actually close while 87.8% of other sales mentioned sell and close.
o Interim Housing: Are you willing to make interim housing plans with the high risk and no guarantee of closing?
Have you ever heard the saying “sounds too good to be true? Can you afford to risk losing time, money, effort, and the home of your choice by fooling with a property that doesn’t have the power to perform?
#3 Foreclosure / Bank-Owned / Corporate Owned
The Bank is the owner of the home.
o Sold “as is”: no repairs and no disclosures.
o Slow to Negotiate: M-F, 9-5 p.m. and can take one week to accept a FULL PRICE OFFER.
o Difficult to Inspect: Utilities often turned off and house winterized.
o Additional Requirements: Buyer must be pre-approved with lender and accept additional purchase addendums.
o Quick Close: Generally request closing in 30 days or ASAP.
o Penalties: Per diem penalties apply to buyer if house does not close timely due to buyer/financing delay.
o Delayed Closings: 50% of the time closing is delayed 7-10 days because seller/bank is “not ready.”
o Higher Closing Costs: Survey, well, septic & city inspections are buyer costs.
o Less Tax Credits: Typically credit 100% taxes to buyer vs. 105% customarily given.
o No Help with Closing Costs: Typically do not help in closing costs to buyer.
o No Water: Utilities often cannot be turned on (water) until 2-3 days after close.
WHAT DOES THIS ALL REALLY MEAN TO YOU! Your trusted real estate advisor will help you through the process of buying any home you want. But it is best to be prepared for what will come up when you are looking into distress properties.
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