First Time Homebuyer’s Real Estate Word for Today is Short Sale

First Time Homebuyer Word of the Day Short Sale

As a Minnesota REALTOR®, I have received many calls in recent weeks from excited first time homebuyers and/or their parents as they assist their children looking for a first house. A lot has changed since dad and mom bought their first home a decade or so ago so are many questions.

A few days ago a call came from an excited first time homebuyer who has been scouring the internet for the perfect property 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 a list of a half 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.

What exactly is a Short Sale?

Even after the abundant media coverage of the mortgage crisis over the past few years, many people still do not understand exactly 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. In order to sell the home and avoid a possible foreclosure, the homeowner must ask the bank to take a loss on the sale by approving the purchase at the lower value. 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 homebuyer care if a home is in short sale? When a homebuyer writes and offer on a short sale home, the offer is submitted with earnest money to the property owner selling the home just as in any other real estate transaction. The sales price and terms are negotiated and agreed upon by the homeseller who then signs the purchase agreement. But the agreement is contingent upon the bank who holds their home mortgage agreeing to accept less money than is owed on the market to clear the title for sale. Some larger banks have hundreds, if not thousands, of these files waiting for short sale approval. It is normal to wait 12-16 weeks for an answer from the bank.  Adding to the problem, many sellers will have more than one mortgage on their home and therefore more than one bank will be involved in the approval process. In some cases, the purchase price might cover enough for the first bank to receive most of its money back so it will be willing to approve the sale. But the second bank, who is in a subordinate position, will get nothing and not approve the deal. It can be frustrating for a home buyer to wait for a closing to be scheduled when there is no guarantee as to  when the bank (or banks) will respond.

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 homebuyers along with their agents, deal directly with the bank when an offer is written. A bank representative did not reside at the home so cannot fill out a disclosure with 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. While it is always recommended to have a home inspected, it becomes extremely important to be diligent and inspect everything thoroughly when buying a bank owned property.

Copyright 2012 www.terieckholm.com

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

Inspection? We Don’t Need NO Stinking Home Inspection! Do We?

As a first time homebuyer you spent hours finding scouring the internet for the perfect homes that met the criteria of your dream home. You took the time to find a knowledgeable loan officer to get pre-approved for a mortgage. With good faith estimates now in hand, you diligently searched for a REALTOR® who as your buyer’s representative would be your advocate in the purchase negotiations. After traveling through Anoka and Washington Counties and seeing homes from Forest Lake to Andover and Blaine to Ham Lake, you decide this is THE house to place an offer on. Your agent in preparing your offer asks, “Do you want to do an inspection?” And suddenly, all reason and goes out the window because you answer, “Inspection? We don’t need a Home Inspection. Do We?”In a word, YES!
As a REALTOR® representing clients throughout the north and east Twin Cities metro, I am often surprised that someone would elect not to have an inspection. Buying a home is the single most important purchase most people will make in their lives. It is important to have a non-biased professional inspect the property for defects prior to the final papers being signed. In this market, flooded with foreclosures and short sales where the previous owner may not have been able to afford the necessary home maintenance required to keep a home in tip top shape and don't always give adequate property disclosures, it is essential.

Questions! Boy do I get questions about home inspections!

• What does the inspector check in a home inspection?


• Who selects the inspector?


• Who pays buyer or seller?


• What is the cost of an inspection?


• What should really be inspected?

I believe every buyer should inspect every home. But there are different types of inspections because while a home inspection will inspect the total home, often additional experts are required to inspect the total property. And sometimes additional or special testing is required so that the buyer can have a better understanding of the home they are purchasing.
Total Home Inspection—$300-500 depending on the size of home and company selected for the inspection. The fee it is paid for by the buyer. This is a great starting point for most home buyers and possibly the only inspection necessary for most single family homes. The basic inspection will be a 2-3 hour top to bottom look at the house; usually including a review of the roof, foundation, mechanicals, structure and built in appliances to ascertain if they are in proper working order. Other testing could be recommended by the inspector after the basic inspection is completed if the home inspector notices any particularly unusual situation that will need expert evaluation. Some inspection companies will charge additional fees for inspecting outbuildings and unusual features so verify what is covered under the basic inspection service prior to them arriving at the property.

Septic Compliance Inspection—$300-500 for the inspection plus $200-$300 to pump system before the test can be performed. This test is requested by the buyer but traditionally paid for by the seller as in Minnesota, if the septic system is found incompliant, the state will be notified and the homeowner will have one year to bring it up to code. In the case of a foreclosure or short sale, the property owner may insist that the buyer pay for all inspections including the septic system. The cost of purchasing a home with the septic system AS-IS can be risky as the cost of replacing a failing or non-conforming system is $15,000-$20,000.

Well Inspection—$75-$150 This is an inspection of the well by a licensed well installer to determine if the well is in good operating condition. The fee can be paid for by either the buyer or the seller.

Well Water Testing—$100-$200 depending on which elements the water is tested for. In most cases, this test is paid for by the seller. The water is collected by the independent testing service and some tests will take up to two weeks for results unless additional fees are paid for rush testing. Most often a test is for will require a water test for bacteria and nitrates. Some loans, like FHA and VA loans may have additional testing requirements. It is important to check with the lender to find what would be required for each specific loan. Local governments can have specific point of sale testing requirements so check with the municipality.

Inspection for Radon—$100-200 usually paid for buy the buyer. Radon is a naturally occurring radioactive gas which is the leading cause of lung cancer for non-smokers. It is found in many Minnesota homes entering through cracks in basement foundations and open tops of block walls. It is colorless and odorless so most homeowners are not aware of a problem unless the home has been tested. It is estimated by the Minnesota Department of Health Radon Information page, that 1/3 of Minnesota homes have radon levels that pose a substantial risk to homeowners.

Inspection for Lead—$150-250 usually paid for buy the buyer. Home seller are required to disclose whether there are any known risks of lead in all homes built prior to 1978. Lead was a common ingredient in paint prior before 1978. Many homeowners have not tested so they are not aware of lead risks in the home. It is important to assume that older painted surfaces used paint containing lead. If these surfaces have been painted the risk is limited. But home buyers do have an option to have additional testing completed on the home they purchase. The Minnesota Department of Health has additional recommendations for testing a home for lead on their website lead poisoning can cause permanent problems with health, learning and behavior in children and significant health problems with adults.

READ MORE INFO from HUD Protect Your Family From Lead in Your Home

Mold Inspections—$200-$1000 Mold testing is costly and according to the Minnesota Department of Health Mold Information Page, it does not need to be done for most homes unless there is an indication of a problem. Stucco homes built in the late 1990’s with poor air circulation have been known to have significant potential problems. Homeowners with stucco homes will often test the home prior to listing and have a report for the buyer to review. Buyers can also elect to retest the home if the previous report is not acceptable to the buyer. If a foreclosure and short sale owner does not have the funds to do the expensive moisture testing, the buyer may have to pay for the test or accept the home AS IS. This is a risk as repairs for full mold abatement can run into the tens of thousands of dollars and the home would be unlivable during the process.

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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. 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.

Copyright 2008 terieckholm.com

Close Look at Short Sale & Foreclosure Market—Twin Cities Homeowner Equity Safer than Indicated

Most media reports have been exclaiming the double digit drop in housing values in the Minneapolis/St. Paul metro area since the beginning of 2008. The RMLS numbers showed a drastic decline in the values of homes from Anoka to Ramsey to Washington Counties. It seemed that no area in the 13 county Twin Cities metro area was completely immune to the pressure the reported up to 2% foreclosure rate was putting on the housing market.

The numbers are staggering when looked at as a whole…but what if the foreclosures and short sales could be filtered out? Reality is that in most areas few than 2% of properties are in foreclosure in the metro market. But many more homeowners are sitting at home nervously watching the news reports touting the ‘gloom and doom’ and believe the equity is draining from their homes like a flood prone levee. Is this picture accurate?

Intuitively, I knew the answer was no. Or at the very least it was incomplete. Homes being sold in the market by a traditional seller, without a bank or corporate entity involved, are appearing to hold their value somewhat better than other homes. But I had no way to back up what I believed I was seeing until now.

A local Minneapolis Realtor, Aaron Dickinson and Jeff Allen, the research manager of the Minneapolis Area Association of Realtors (MMAR) teamed up to find the answer. They created a report entitled Foreclosures and Short Sales in the Twin Cities Housing Market. This report shows that significantly more bank-owned and mediated homes are currently listed than two years ago…nearly 10 times more! The report also goes on to show that while the median sales price for the foreclosed homes are down almost 16%, homes sold by traditional sellers is only down about 3.5% from 2006 to 2008. 

This is awesome news for Twin Cities homeowners frightened that their largest single investment is draining in value daily as more foreclosures hit the market. Rest assured that while this changed housing market IS affecting the property values during this time of correction, we are not in a freefall throughout the metro area.

Other Real Estate Related Articles that might be of interest:

• Anoka County Foreclosures Rate Highest in Metro—How Does this Affect Homeowners?


• Why Some House Flips are Flops


• Think You are Ready to Buy a Foreclosed Home?—Take the Quiz!


• Foreclosure Disclosure—Do I Really Need An Inspection?


• Doctor! Doctor! Give Me the News! I’ve got a Bad Case of Real Estate Blues


• A Snapshot of Real Estate Across the Twin Cities and the US


• Real Estate Resolutions for Home Buyers and Sellers in Minnesota

If you are buying, selling or relocating to Minnesota and need help from a professional Realtor to better understand this changed real estate market, give me a call or visit my website for a FREE Relocation 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.

Copyright 2008 terieckholm.com

Think You are Ready to Buy a Foreclosed Home?—Take the Quiz!

As a Realtor working in this changed Twin Cities real estate market, I get lots of questions:

• “Is it REALLY a good time to buy a home?”


• “With all the foreclosures, there must be some awesome deals?”


• “What does mean when an offer requires bank approval’?”

The media has lead many first time buyers and investors into believing buying a foreclosure or pre-foreclosure home is a great deal. So I get the questions. Potential buyers and those on the fence often want my expert opinion if buying a foreclosed home is a good idea. Well, my answer is it all depends on the buyer.

There are awesome deals on homes throughout Anoka County. Some of these properties are foreclosures or bank-owned. Others are short sale or upside-down, where the homeowner owes more for the home than the average buyer in the market place will now pay for the property. And then there is the traditional seller or builder who has the controlling ownership of the home, is ready to negotiate and move on to their next home.

Before you jump into buying a home in the changed Twin Cities real estate market, how do you know what type of property makes the most sense for you to buy? Face it—It is hard to pass up the very attractive, low prices on foreclosed and short sale listings. But not everyone has the stomach to handle the roller-coaster ride that accompanies the purchase of these homes. So, I created a 10 question true/false quiz to help you decide what might be your best option.

Is A Foreclosure or Short Sale Home for Me?

1. My ability to deal with household emergencies and repairs is limited to picking up the Yellow Pages and having a consult with Dex.


2. I have a huge rainy day fund and don’t know what it means to live on the edge from paycheck to paycheck.


3. I cheer for the banker in Deal or No Deal.


4. I expect empathy from the seller not apathy.


5. I have the patience of a saint.


6. I love my in-laws and vice versa that my entire family including the dog and two cats are welcome to live in their home for months on end while the deal goes through and the home is made habitable.


7. I will be purchasing my dream home.


8. I have expert knowledge in all areas of home construction and/or can afford to hire experts for inspecting the property prior to closing.


9. I need to be assured that my family won’t be exposed to lead paint, toxic mold, radon, failed septic systems, contaminated well water, rodents, insects and dirt.


10. This is the biggest personal investment of my life.

So how did you do? Are YOU ready to buy a bank-owned or upside-down property?
Question 1--False. If you answered true here, you might prefer to stick to the traditional seller. Foreclosed and short sale homes are not always in the best repair as the previous owners did not have the funds or desire to keep them in good condition. Paying out of pocket to hire contractors for every little repair can be cost prohibitive.
Question 2--True. If you truly have a considerable nest egg that can be invested in the known and unknown repairs of a foreclosed or short sale home, then it could be worth the risk. However if your budget can not withstand unexpected repairs, you might want to have a better understanding of the home you are buying with a complete seller disclosure and try to negotiate a home warranty with a traditional seller.
Question 3--True. Obviously a true on this one is an indication of a foreclosure and/or short sale buyer. You understand your purchase is just business to the banker. You are in it for the investment and feelings do not enter into the equation.
Question 4--False. Anyone who expects empathy from the seller needs to avoid short sales and foreclosure homes. The banks do not care about your family, your needs or your life. It is strictly a business transaction.
Question 5--True. If you don't believe patience is a virtue and answered false here, don’t even consider a short sale. Most transactions will take a minimum of 8 weeks for the purchase agreement that has been accepted by the seller to be reviewed by the bank. And when the bank finally reviews the agreement, then the negotiation begins. This process can take literally months!
Question 6--True. If your answer is false and your in-laws become out-laws after a day of togetherness, avoid the short sale or foreclosure scenario or find alternative housing prior to submitting your offer. Banks don’t accept contingent offers so if your current home sells and you put in that offer to the bank, your current property can close long before even getting an answer from the bank. Traditional sellers are much more flexible with timing as they are usually in a similar situation an can empathize with the buyers.
Question 7--False. In the best case scenario, the foreclosure/short sale buyer is purchasing a property not a dream. Dreams can become nightmares when buying an AS-IS foreclosure or short sale home. If you are not looking at the property as an investment devoid of emotions, stick with the traditional seller situation.
Question 8--True. If you cannot answer true to this question, be prepared to fork over hundreds of dollars for inspections on the home prior to purchasing it. Inspections and testing can cost into the thousands if the home is on a private well and/or sewer system, if there has been water intrusion/mold or if the home’s age indicates the possibility of lead or asbestos.
Question 9--False. If you need assurances about the condition of the home, stick with the traditional seller. In Minnesota homeowners are required to provide disclosures. Some inspection costs can be negotiated into a purchase agreement with a traditional seller like the well and/or septic system. Banks rarely pay for any type of inspection and buyers are often asked to agree to purchase the home AS-IS and waive their rights to a disclosure.
Question 10--False. If you answered true and this is the biggest investment of your life, as it is for many first time buyers or owner occupied residences, maybe a traditional purchase would make more sense in the long run. First time investors need to heed this warning and give careful consideration to foreclosures and short sales too. Until you can say, it is just another property and you don’t have your heart and sole tied to the investment, it might be more prudent to choose the investment with the least risk.

All kidding aside, these are serious questions to contemplate. Buying a bank owned property is not the right choice for the average buyer. Dealing with a corporation where a home is just numbers on a balance sheet can be frustrating. Buying a dream shouldn’t be a nightmare. The buyer alone is the only one who can decide whether buying a home that requires a bank approval is worth the risk, frustration and effort.

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Featured Ham Lake Listing--An awesome deal that is NOT a short sale or in foreclosure!

15139 E Vermillion Circle NE, Ham Lake, MN 55304

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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. 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.
Copyright 2008 terieckholm.com