Minnesota REALTOR®, Teri Eckholm Explains Short Sales

Ring—Ring! There’s another call…Since, interest rates dropped to an all time a few weeks ago, buyers are again asking questions and getting in a buying frame of mind. As a Minnesota REALTOR®, many of the calls I have received lately are from excited first time buyers and/or the parents of young people as they assist their children looking for their first home. A lot has changed since mom and dad bought a home so there can be many questions.

This time the call is from an excited first time buyer who has been scouring the internet for the perfect home at the ideal price. He calls and wants to set up some showings for the homes he has found. With a quick email, he forwards the dozen MLS listings and I bring up an array of his dream homes. With five of the six properties there is an agent note that indicates the home is in short sale. When I pass on the information, I hear a puzzled silence and pause.

Time for Real Estate 101—What exactly is a Short Sale and why should I care?

After months, going on years now, of the media coverage of the mortgage crisis, many people still do not understand what a short sale is…And more importantly, how it affects the home buying process. In a nutshell, a short sale is when the seller owes more on the home than it can be sold for in today’s market. To sell the home, the seller must ask the bank to approve the sale of the home for the lower price. It is also know as a pre-foreclosure home and can be a way for a homeowner to avoid being foreclosed upon if they can no longer pay their mortgage.

Why should a buyer care if a home is in short sale? A buyer will submit and offer with earnest money just as in any other real estate transaction. The sales price and terms are negotiated and agreed upon by the seller who then signs the purchase agreement, contingent upon the bank agreeing to the lower sales price. Some larger banks have hundreds, if not thousands, of these files waiting for approval. It is the norm to wait 8-12 weeks for an answer from the bank. Adding to the problem, many sellers will have more than mortgage on their home and therefore more than one bank can be involved in the approval process. An offer can give the first bank most of its money back so it will be willing to approve but the second bank, who is in a subordinate position, will get nothing and not approve the deal. It can be frustrating for a buyer to wait for an answer when there is no guarantee of when you will hear back from the bank.

How does a short sale compare to a foreclosure? In a foreclosure, the bank has taken back the home from the owner. The seller is now the bank and a buyer is dealing directly with the bank when an offer is written. A bank representative did not reside at the home so cannot disclose or tell you information about the condition of the home. While negotiations are easier and much faster, buyers must accept the risk and purchase the home in as-is condition. It is extremely important to have a home thoroughly inspected when buying a bank owned property.

If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give me a call or visit my website for a FREE Relocation Packet or Homebuyers Success Packet. I specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Buying a Home? Check out my new HOME BUYER'S BLOG!

Copyright 2008 terieckholm.com

Foreclosures! Not Just for Investors Anymore…First Time Buyers also get DEALS!

This past spring I asked readers if they were ready to take on the challenge of buying a foreclosure or short sale home. Test Yourself--See If YOU are Ready to buy a Foreclosed Home! was a tongue-in-cheek look at the average homebuyer purchasing a pre-foreclosure or bank owned property. I have thought of that post often in the past few months …At the time, I was seeing overpriced pre-foreclosures and trashed REO houses, in many cases buyers were better negotiating with traditional sellers for their dream homes. But, as they say, that was then and this is now. NOW, I think it is time to take a serious look at foreclosure properties.

In the past few weeks, I had the opportunity to visit several dozen bank owned properties in the $100,000 to $150,000 price range throughout Anoka County. Though several were trashed, my buyers and I were pleasantly surprised to find many REO homes in move-in condition. The fear of AS-IS purchasing was still a concern, but not so dramatic as when the homes literally had holes where the appliances should have been.

Now, I am finding tremendous deals on bank-owned homes throughout the north and east metro on a daily basis. Many properties are going back to the bank in extremely good condition and being put back on the market quickly and at unbelievably affordable pricing.

So what do you need to know if considering purchasing a foreclosed home? Here are a few key points to consider….

Understand the difference between short sale and REO. A short sale or pre-foreclosure is a home where the seller is selling but owes more to the bank than the home is worth. A REO property has been returned to the bank and is now bank-owned.

In a short sale, the seller lists the home on the multiple listing service, MLS, for what they believe the home to be worth even if the list price is less than they owe. When an offer is received on the property, the bank is sent the offer for approval as they will have to write off thousands of dollars to attract a buyer. It can take months to receive an answer from a bank (or banks if there is a second or third mortgage on the home) and the answer is not always positive.

I recommend to most buyers that it is better to keep looking at other properties and wait and see if a particular short sale home goes back to the bank. If it becomes an REO property, it is usually relisted at a much lower price. Because the bank now knows exactly what it wants for the home and only one bank or division of a bank is involved, answers come much more quickly; usually within days, if not hours. This is a much smoother process.

Get Representation. Dealing directly with the bank is extremely risky. If you are going to be looking at foreclosures, find an agent you trust and sign a buyer’s representation contract. Then that REALTOR is working for you! When I represent a buyer, it costs nothing to that buyer because my commission is paid for by the seller. I can help a buyer understand if the list price by the bank is a fair price for the property and in its current condition.

When you find that perfect foreclosure, I, as your agent, assist you in putting together the best offer for the situation and negotiate on your behalf. Good homes are seeing multiple offers. If you find an almost perfect foreclosure, chances are several other buyers will like the home too. In November, I wrote offers on three move-in condition foreclosed homes. All three had multiple offers just days after the home listed. A listing agent is working for the bank. Don’t you think you deserve to have a professional REALTOR working directly for you?

Get Ready to Waive Goodbye to your Right to a Disclosure. Minnesota requires that the seller of a home disclose all known defects to the property. Most banks will require you to sign a seller’s alternative to the disclosure where you will waive your rights to receiving a homeowner’s disclosure. This is not negotiable as the bank representative did not live at the home and does not have any way of knowing the condition of the property.

Inspections are Critical. Buying a foreclosed home means buying a home in AS-IS condition. That means the bank will not warranty that anything in the home is working and will not make repairs to any part of the home. A complete home inspection is designed to give you a picture of the current condition of the property and if any major repairs will be required to make the home habitable.

Rethink a Home Warranty. Many buyers do not want to spend the additional dollars on a home warranty. However in the case of an as-is purchase from a bank or other corporate-owned property it could be a smart investment for that first year. If something is missed at the inspection or is not visible, a home warranty might be able to cover the defect. For example, central air conditioning cannot be tested during a Minnesota winter so come spring, you might find your home full of hot air and no blower to help you cool down. Most home warranties will cover central air conditioning.

Don’t Overlook Traditional Sellers. Homes being sold by a traditional home seller in this market are in most cases priced to sell! This is good news for FHA and VA buyers as many foreclosed homes will not qualify for these programs due to the poor condition of most properties. Sellers understand they are competing with banks that have only a financial not emotional interest in the property. So homeowners needing to sell have to check their emotions at the door and price their home accordingly. A lovingly maintained property with a full disclosure at a rock bottom price could still be the best deal for a buyer.

If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give me a call or visit my website for a FREE Relocation Packet or Homebuyers Success Packet. I specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Buying a Home? Check out my new HOME BUYER'S BLOG!

Copyright 2008 terieckholm.com