Distressed Properties

Many buyers come to SW Florida looking for short sales or foreclosures.  The thought is that these properties can be purchased at ‘fire sale’ prices.  Actually, that was the case for the last few years, but not so much any more.  First off, these distressed properties are becoming harder to find and competition for them is greater.  The number of short sales that closed in Jan 2013 was down 46% from Jan 2012.  REO’s (bank owned foreclosures) dropped by 30%, per Florida Gulf Coast MLS.

Realistically, it doesn’t make any difference if your purchase is a distressed property or not, as long as it is the right house at the right price for you!  So, find the best house for you at the best price you can get.  In both January 2012 and January 2013 there were over twice as many conventional sales as there were REO’s and about 4 times as many conventional sales as short sales.  There are many happy home owners who didn’t buy a distressed property.

Let’s take a quick look at the short sale process and what it means to you.  Imagine that you purchased a beautiful waterfront home in 2006 for $500K and now you need to sell it.  Maybe you are required to move for your job!  Today that house may only be worth half of what you paid for it.  It is certainly difficult to get a buyer to pay over market value for your home, so the seller has to rely on their lender to take less for the home and still clear the title.  This sale now becomes a short sale because the payoff of the property is less than what is owed.  The seller’s lender is now in the driver’s seat.

The short sale process has somewhat evolved over time, but the basic steps are still there and do affect you as the buyer.  Once the seller decides to short sell their property the first contact is normally a real estate agent.  The home is listed and the agent gets an offer.  Now that they have an offer they will submit the offer, along with hardship paperwork from the seller, to the seller’s lender.  The lender will then need to approve the seller for the short sale.  Once that is completed the lender will order a ‘Broker Price Opinion’ (BPO) of the property.  This is to get an estimate of the property value.  Based on the BPO results and contract terms the lender will then either approve the short sale, or counter it.  This process can take months, so patience is necessary.

You can still save money on short sales, if you have the patience for it.  REO’s are another way to go.  We might call short sales ‘pre-foreclosures and REO’s ‘post-foreclosures’.  REO stands for ‘Real Estate Owned’ by the bank.  Generally speaking most banks do not deal directly with the public, but instead list their inventory with real estate agents.  The bank assigns the property to an ‘asset manager’ who is responsible for the sale of the property.  Some asset managers deal directly with the real estate agents and others only deal through the internet and email.  The process of buying an REO is usually faster than a short sale, but often not as fast as a conventional sale.  Banks also have their own contracts and addenda.  After you have had your offer accepted by a bank for the REO property you will be presented with an addendum, which is basically a new contract written by the bank’s attorneys.  You should read this carefully, or get legal advise.  What ever is in this addendum overrides the original contract.

Whether you choose a short sale, REO or conventional purchase, once you have an accepted contract the work begins.  There are ‘things to do’ and ‘people to see’!  We will take a look at some of these over the next few weeks.