Buying distressed real estate is NOT for the financially immature and usually is not a good strategy for first-time homebuyers. Why? Because most of the properties are in need of repair and some require extensive renovations, which is usually in direct conflict with the low downpayment mortgages being offered and insured by FHA. The lenders offering this type of financing are particular about property condition and most sellers in this position will not or cannot afford to make needed concessions needed to complete the transaction.
The ideal buyer in the distressed real estate market is the investor, with means or access to home building and remodeling skills, and who plans to hold the property at least 5 years.
Contrary to what the media may be reporting, it is very difficult, if not impossible to "flip" property in this market.
If first-time homebuyers are determined to buy into the distressed market, it's preferable that they are pre-approved for conventional financing with a hefty downpayment and money in reserve that can be used to refurbish the home.
Most, if not all, distressed property is listed "as-is with right to inspect". From a professional standpoint, planning to purchase a home inspection should be priority upon acceptance of a purchase offer. Normally, a buyer will have a 10-day period to have the inspection performed, review issues and problems, and, based on the report, may decide to walk away from the contract. BE CAREFUL! A buyer only has a specified number of days to cancel a contract based on the inspection results without losing the earnest money deposit.
With the inspection results in hand, it is often easier to obtain estimates from various contractors and determine the true cost of necessary repairs.
This entry completes my coverage of the biggest pitfalls associated with buying distressed real estate. There are too many other issues that can arise, and it's always advisable that a buyer have a team of experts to help navigate this strategy of buying real estate "for fun and profit"!
:-)
Check out this week's FORECLOSURE LISTS on my website- 60 homes ranging from $39,900-$989,000!
Just visit my website and click on the FORECLOSURES page.
www.mypinellasparadise.com
Have a great week!
Sunday, June 28, 2009
Sunday, June 21, 2009
Short Sales, Loan Modifications and Bankruptcies, oh my!
What else could go wrong with a short sale? How about last minute loan modifications?
Example: (Based on a real situation)
Seller lists home with Realtor as a short sale. Buyer puts in and secures a contract to purchase the home through a selling agent. All inspections are done, financing arrangements are made and appraisal is done. Four months into the transaction, it is finally time to close. The morning of closing, the sellers do not show up to sign the documents. Some panic ensues and the seller's Realtor finally reaches the sellers and is told they will not be selling the home since they just worked out a loan modification and will be keeping the house!
What does the buyer lose? Technically they would not lose their earnest money deposit, but would lose any money they paid to secure the mortgage or for independent inspections. The biggest loss of all though, is the loss of the "great deal" the buyers thought they were getting,
as well as the time invested in the transaction. Perhaps moving arrangements had even been made, utilities transferred, boxes packed, etc, etc.
Another event that could trouble a short sale situation is if the seller files for personal bankruptcy. Once the filing is legal, lenders are forced to cease all action until the case is worked out through the bankruptcy proceedings. This is less common than loan modifications, but it can happen.
Both of these scenarios are more likely in the case of an occupied property, specifically OWNER-OCCUPIED.
If you are seriously looking to buy a short sale home, I would suggest eliminating the ones that are still occupied. And of course, as for ANY short sale- prepare to wait.
If you don't want to wait, and possibly miss out on the great deals that are closing every day, start looking at foreclosed homes instead! My website has an updated list of 59 homes in the local area, a third of them in the beach areas of a popular vacation destination!
http://www.mypinellasparadise.com/
Example: (Based on a real situation)
Seller lists home with Realtor as a short sale. Buyer puts in and secures a contract to purchase the home through a selling agent. All inspections are done, financing arrangements are made and appraisal is done. Four months into the transaction, it is finally time to close. The morning of closing, the sellers do not show up to sign the documents. Some panic ensues and the seller's Realtor finally reaches the sellers and is told they will not be selling the home since they just worked out a loan modification and will be keeping the house!
What does the buyer lose? Technically they would not lose their earnest money deposit, but would lose any money they paid to secure the mortgage or for independent inspections. The biggest loss of all though, is the loss of the "great deal" the buyers thought they were getting,
as well as the time invested in the transaction. Perhaps moving arrangements had even been made, utilities transferred, boxes packed, etc, etc.
Another event that could trouble a short sale situation is if the seller files for personal bankruptcy. Once the filing is legal, lenders are forced to cease all action until the case is worked out through the bankruptcy proceedings. This is less common than loan modifications, but it can happen.
Both of these scenarios are more likely in the case of an occupied property, specifically OWNER-OCCUPIED.
If you are seriously looking to buy a short sale home, I would suggest eliminating the ones that are still occupied. And of course, as for ANY short sale- prepare to wait.
If you don't want to wait, and possibly miss out on the great deals that are closing every day, start looking at foreclosed homes instead! My website has an updated list of 59 homes in the local area, a third of them in the beach areas of a popular vacation destination!
http://www.mypinellasparadise.com/
Monday, June 15, 2009
Short Sale contract terms- Pay Attention!!
Our local board of Realtors requires a Short Sale Addendum with every purchase offer submitted. This addendum states in no uncertain terms that the seller is not liable for the following:
A- Delays caused by Lender,
B- Failure of the Lender to approve the contract
C- Failure of the Lender to complete the short sale after approving the contract, or
D- Any costs or expenses associated with the delays or Lender's failure to approve the contract, or to complete the short sale after approving the contract.
It doesn't take a brain surgeon to determine that, for a buyer of a short sale, this can be a high-risk situation.
However, as a buyer of distressed real estate, you do still have the standard right to inspect the property. Within an agreed upon number of days after the inspection, a buyer can cancel the contract due to inspection results, but would not be refunded any inspection fees.
Remember: There is NO penalty to the lender or the seller for failing to complete a signed purchase contract on a short sale. You would receive any earnest money deposit back, but you would lose other monies and could end up with nothing, not even a house, and certainly no "GREAT DEAL".
You can review a list of current Foreclosure homes on my website, updated every Friday:
www.MyPinellasParadise.com
A- Delays caused by Lender,
B- Failure of the Lender to approve the contract
C- Failure of the Lender to complete the short sale after approving the contract, or
D- Any costs or expenses associated with the delays or Lender's failure to approve the contract, or to complete the short sale after approving the contract.
It doesn't take a brain surgeon to determine that, for a buyer of a short sale, this can be a high-risk situation.
However, as a buyer of distressed real estate, you do still have the standard right to inspect the property. Within an agreed upon number of days after the inspection, a buyer can cancel the contract due to inspection results, but would not be refunded any inspection fees.
Remember: There is NO penalty to the lender or the seller for failing to complete a signed purchase contract on a short sale. You would receive any earnest money deposit back, but you would lose other monies and could end up with nothing, not even a house, and certainly no "GREAT DEAL".
You can review a list of current Foreclosure homes on my website, updated every Friday:
www.MyPinellasParadise.com
Monday, June 8, 2009
Buying Distressed Real Estate- where to start?
The most important first step when seriously considering buying distressed real estate is to become familiar with the pros and cons of such transactions.
Short sales should NOT be confused with QUICK SALES. Prepare to wait. And wait. And wait. And then wait some more. These transactions can take months to see any progress towards closing. Once you submit an offer, there is no deadline for the lender to respond. And the lender is the decision maker in a short sale situation.
Even if you specify a response date in your offer, lenders are not obliged to act in a timely manner. The acceptance of an offer depends mainly on how much loss the lender is willing to lose, and secondly, the strength of the buyer's offer. Buyers offering list price or higher and paying cash are typically considered more favorably.
Often, short sale transactions are "processed" by yet another party, a for-profit company that specializes in this type of transaction; commonly known as a Loss Mitigator and hired by the listing agent. However, there is virutally no oversight of Loss Mitigation companies, and this does not always make for a smooth process or even speed up the transaction.
Bottom line: First rule of buying short sales = practicing extreme levels of patience. If you are looking for a home you can move into within 30-60 days, short sales are probably not for you.
Short sales should NOT be confused with QUICK SALES. Prepare to wait. And wait. And wait. And then wait some more. These transactions can take months to see any progress towards closing. Once you submit an offer, there is no deadline for the lender to respond. And the lender is the decision maker in a short sale situation.
Even if you specify a response date in your offer, lenders are not obliged to act in a timely manner. The acceptance of an offer depends mainly on how much loss the lender is willing to lose, and secondly, the strength of the buyer's offer. Buyers offering list price or higher and paying cash are typically considered more favorably.
Often, short sale transactions are "processed" by yet another party, a for-profit company that specializes in this type of transaction; commonly known as a Loss Mitigator and hired by the listing agent. However, there is virutally no oversight of Loss Mitigation companies, and this does not always make for a smooth process or even speed up the transaction.
Bottom line: First rule of buying short sales = practicing extreme levels of patience. If you are looking for a home you can move into within 30-60 days, short sales are probably not for you.
Sunday, June 7, 2009
Foreclosures and Short Sales- Learn the Lingo!
Many prospective real estate buyers are looking for a “deal”. Most of them are speaking of distressed properties; homes that have been through the legal foreclosure process, are bank owned, and/or known as “short sales”.
To become a savvy buyer in this complex market, it’s crucial to distinguish between these terms, and they are quite different. Many buyers interchange the terms “short sale” with “quick sale”, and this couldn’t be farther from the truth.
The majority of short sales are technically “pre-foreclosures”, where the owner usually has a hardship, the mortgage payments are in default, and the lender has started the foreclosure process, sometimes filing a Lis Pendens (public notice of intention to begin formal foreclosure). Many lenders will not pursue a quick foreclosure if there’s a chance the real estate can be sold first, as foreclosure is the most expensive option for a lender.
The length of time a lender may allow a property to be sold as a short sale will vary from a few months to more than a year. The next step for an unsold short sale is foreclosure.
Foreclosure means title has been transferred to the bank holding the defaulted mortgage, through the proper legal channels, and is now owned by the bank as a non-performing asset.
These properties are usually vacant, or, in some cases, the bank allows a tenant to remain in the home until it can be sold.
So, what if you want to buy distressed real estate? Where do you start?
Stay tuned for my next blog. You can also visit my website: www.MyPinellasParadise.com
To become a savvy buyer in this complex market, it’s crucial to distinguish between these terms, and they are quite different. Many buyers interchange the terms “short sale” with “quick sale”, and this couldn’t be farther from the truth.
The majority of short sales are technically “pre-foreclosures”, where the owner usually has a hardship, the mortgage payments are in default, and the lender has started the foreclosure process, sometimes filing a Lis Pendens (public notice of intention to begin formal foreclosure). Many lenders will not pursue a quick foreclosure if there’s a chance the real estate can be sold first, as foreclosure is the most expensive option for a lender.
The length of time a lender may allow a property to be sold as a short sale will vary from a few months to more than a year. The next step for an unsold short sale is foreclosure.
Foreclosure means title has been transferred to the bank holding the defaulted mortgage, through the proper legal channels, and is now owned by the bank as a non-performing asset.
These properties are usually vacant, or, in some cases, the bank allows a tenant to remain in the home until it can be sold.
So, what if you want to buy distressed real estate? Where do you start?
Stay tuned for my next blog. You can also visit my website: www.MyPinellasParadise.com
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