Buying short sale property

[arny]

Hello,
Wanted to hear your thoughts on the pitfalls of buying short sale properties as a first time buyer? Is it worth the hassle ? Right now I am working without a buyer’s agent – is that a good idea ?

I saw a listing on ziprealty and directly contacted the listing agent. The list price was $600 to $625K, but the listing agent said that there were already multiple offers and the “lender will not consider anything below $650K”. I looked up on realtytrack, and the outstanding loan on the property is $619K – if there is an offer for $650K already, why is this a short sale ? Your insights are much appreciated.

Thanks

Arny

[(former)FormerSanDiegan]

Listing it as a short sale (which at $600 K it was below the loan amount) creates extra attention for “bargain” shoppers. It got your attention didn’t it ?

There are costs to selling. Including commission, escrow fees, termite work, etc, this can easily be 6-7% of the price on a house at this price range. In this example, at 650K if these costs exceed are about 4.7% or less then no short sale is needed.

I would focus on house for the price, not whether it’s a short sale, pre-foreclosure, etc.

As for not working with a buyers’ agent. If I were you I wouldn’t be looking. I think now is not a great time to buy. If you “have” to buy (spousal pressure, money burning a hole in your pocket, etc) let the spring bounce happen, and look again in the fall. Repeat in 2008 if necessary.
If the house is right and the price is right, then purchasing a short sale might be worth the extra effort at some point. But I wouldn;t go out of my way to find them.

[SD Realtor]

There also may be outstanding liens on the property that have not yet been identified as well so it is a little bit more difficult to identify if it is a deal from that aspect or not. As FSD said, concentrate on whether the house for the price is a good deal, regardless of short sale, preforeclosure etc. This is the very best advice.

As homes fall further into the default process, the less you can expect from the listing agent with regards to service if you are a buyer. For instance, in a normal sale, if you work directly with the listing agent, what little service and support you get becomes miniscule in a short sale. In a foreclosure not only do you get no service, you will be asked to sign off an ANY liability because the lender owns the home and the disclosures are meaningless. In all fairness how can a lender even disclose any information about the house if they never occupied it.

I am not saying foreclosures and short sales are not potential great deals. IMO they are BUT I am disappointed that they have not been priced aggressively yet…Hopefully as time marches on this will change.

SD Realtor

[arny]

Thanks for your advice FormerSanDiegan and SD Realtor. I am somewhat flexible about when I purchase and am ok to wait till fall 2007. At the same time I am trying to look for potential values in the current market. Bottomline though is that short sales do not yet provide the bargains in the SD market that I assume they did – probably is priced low to draw bargain hunters like me 🙂

The property I am referring to is MLS#076007915 is probably a decent value at $600k, but beyond $650K I am not sure. In addition, I found that it has a tax lien, though the exact amount is not specified.

One thing that I want to clarify for my own understanding is if there is any obligation on part of the current owner or the lender to provide full disclosure of the liabilities for the property in case of a short sale ? Also, on whose behalf is the listing agent working – the owner’s or the lender’s ? And, why is the agent even reluctant to show the house ? I thought, in case of a short sale, the prospective buyer deals directly with the owner and the lender ? Again, any insights are much appreciated.

[(former)FormerSanDiegan]

If the owner is selling you the house, they are required by law to disclose all known defects, plus a bunch of other crap like seismic zone, proximity to nuclear reactors and even sometimes the habitat zones of the red-legged frog.

If an agent is reluctant to show the house, it could be by the sellers’ choosing, or it could be that several offers are already on the table and you are coming in as a potential buyer without an agent. This is perceived by the seller/sellers’ agent as low-probability of making a deal/closing. Either way, if someone is reluctant to show me their property I am reluctant to show them my checkbook.

I think for future bargain hunting you are better off with sellers who need to compete with the short sales and REOs rather than the short-sales and REOs themselves. Because you can expect them to meet your demands, such as seller credits, inspection contingencies, etc. rather than them expecting you to jump through some hoops.

[farbet]

The agent In my Opinion only wants high commisssion sale. It seems that they are reluctant,” at this time” to work with buyers on short sales and REO’s.
They are laid back. They get fed up after 3 or 4 showings. They want to be the “Decider” for you. This is what I think.
They just don’t want to do the leg work!!!You find the house and they get the big fat commission.

[SD Realtor]

Hi Arny –

In the case of a short sale, absolutely the Seller is responsible for full disclosure. The PR will identify all issues regarding title including all liens and your lender would not approve your loan unless all of the liens were cured.

I do not really understand why the listing agent is reluctant to show the house. I have not had that same experience. I have had no problem showing clients short sale homes. If you called that listing agent and asked them to show you the home, and you told them you were not represented, they should be encouraged to show you the home as they can get both sides of the commission. However if you told them you wanted to see the home, but that you have an agent, then more likely that listing agent will ask you to get your own agent to show you the home. If this is not the case then yeah it is a lazy agent.

Regarding the MLS listing you posted about. From the tax roll on 9/2005 there are two recordings, it looks like a first mortgage for 620k and a second for 155k. The home is currently listed at 600k-625k. That is a nice little bath the lender will be taking.

SD Realtor

[LookoutBelow]

Arny:

 

Are you totally convinced this property will go no lower in value than right now ?….There is evidence we are At the top of the market still, still buying ?……..God bless you 

[arny]

All,

Thanks for your comments and good advice.

I cannot fortell the future, but I expect housing prices to go down by atleast 15-20% over the next 5 years in San diego. Attempting to purchase something below current market value provides some downside protection against this expected decline.

But purchasing a home is not purely investment decision – there are other factors such as kids education, spousal pressure etc. The main criteria for me in purchasing a house would something I can afford, using a regular 30 year loan and regular downpayment, in a good school district. Having said that, I am in no hurry – I can probably wait for another year. But I believe unless I start looking now, I won’t know if a deal is there.

I have spoken with a couple of buyers agents and they would rather like me to buy something within the next couple of months. They don’t like my model of waiting for the right deal – understandably so, since they want to get their job done quickly and get the comission. So, right now i am looking on my own – with help from the internet and folks like you on this forum.

Thanks

Arny

[arny]

LookoutBelow:

I am totally convinced that this property will go down in value in the next 5 years. I think we’re already past the top of the market. But as I explained in my previous post, buying a home is not always a investment decision.

Thanks for the warning though – much appreciated.

[arny]

FormerSanDiegan:

Any pointers to how to identify “sellers who need to compete with the short sales and REOs” are much appreciated ? Can this even be done by a relative newbie using the data available on the internet (ziprealty, realtytrac etc.) ? Or, are there agents who specialize in identifying such sellers.

Thanks

[SD Realtor]

Arny –

I am not sure what you need by saying “sellers who need to compete with short sales and REOs”.

Are you asking for a way of identifying all of the sellers who are in a distressed situation? You should have no problem finding a realtor who will perform specific searches in the zip code you want to find all of the short sales, foreclosure sales and REO sales. Similarly it is easy to identify NODs, foreclosures and REOS that are not on the MLS. Again your realtor should easily provide this for you as that is trivial to do and you should have no trouble finding one who does that. I would imagine you can in fact use public resources as well but I don’t use Zip or any of those sites. I am sure people here can help.

Like you I am also in a buy because of family situation. I am taking it slow and actually just recently signed another lease. Don’t let anyone push you into something, take your time and it will happen.

SD Realtor

[hipmatt]

Buying a short sale now is still too early. There will be much better deals still to come. This is just the beginning. Just wait as long as you can.

[(former)FormerSanDiegan]

Arny –

What I meant by “sellers who need to compete with the short sales and REOs” is that at some point in this cycle, there will be enough foreclosures that REOs and short sales will make up a significant percentage of the market. ALL sellers will have to compete with these properties to sell in that market. That’s when you want to buy. It’s more the “when” then the “who” that matters.

[SD Realtor]

I got ya Arny…

Yeah I am hoping that will be the case as well. I guess we will see. For sure it is not the case right now. Even the REO’s and short sales themselves are not what I would call price competitive right now. So yeah what we need is that real bump in the quantity of REO’s. Then we need them to sit on the market. Then we need them to start price adjusting and affecting overall sales… Let’s keep our fingers crossed.

SD Realtor

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