DISTRESSED PROPERTY
Not for fifteen years have we seen so many distressed properties on the market. We are in the midst of the best buyer’s market since 1990. How do buyers operate in such an environment? There are basically two ways to approach a seller of distressed property.
1. Make a full price offer, but ask for many concessions. What are these concessions?
· Ask seller to make repairs to the house
· Ask seller to pay closing costs
· Ask seller to carry back a portion of the purchase price in the form of a note
· Ask seller for an extended time to close the transaction
The trouble with this approach is that because the very nature of the distressed seller market is that the seller is discouraged, not interested in the property and in many cases the owner of the property does not even control the property. In the case of a short sale or a property with a notice of default in effect, the lender controls the sale. In fact, there may be several lenders.
So when you ask for something you will not get a negative answer, you will probably get no answer. In fact, in many cases, you will not have any idea what the seller is going to do. Imposing deadlines in an offer is a futile step. Deadlines mean nothing to a distressed seller.
So what is the best way to proceed in this market? We at Coldwell Banker Town & Country have been through several of these markets over our 40-year history and we recommend the second approach.
2. Make a low offer. Not a ridiculous offer, but a low offer and make it a clean, simple offer. Include the following elements in your offer.
· Make a large deposit. Nothing influences a seller like the look or sound of cash even through the deposit is going into an escrow account. It is the old story – money talks!
· Provide a pre-approval letter from your lender to prove that you are fully capable of completing the purchase. Please use our affiliated mortgage company – Supreme Lending Company by going to our web site, cbtcsocal.com. You can become pre-approved in a matter of hours.
· Don’t ask the seller to do anything except provide for a termite report. Purchase your own home inspection report and even a home warranty. Inspect the property thoroughly or have an expert do it for you so you know what you are purchasing. You reflect the cost of the repairs in your low offer.
· Remember, the seller has probably vacated the home and in many cases left it in a mess. The lender will not do anything. Believe me, you will only get frustrated asking a lender to do anything for the house.
3. Bank Owned Properties, sometimes called "Bank Repos", more commonly, "REO" for "real estate owned (by the bank). These are properties that have passed completely through the foreclosure process and are owned outright by the lending institution. Certain exemptions exist with regard to disclosure when a property has been taken back by a lender and for that reason a thorough professional home inspection is the minimum "insurance" that a buyer of REO property should have before making a final commitment to purchase. An urban legend exists that says that Bank Owned Properties are a bargain, that they are below market price. In general banks have a much better understanding of local markets than is generally understood and the prices at which they list REO properties will be very close to "what the traffic will bear" in a given neighborhood. Also, it is important to remember that, since the bank does not need to offer any warranty or make any repairs, the home that seems to be a "bargain" may simply reflect the deferred maintenance that the bank does not wish to correct and, therefore, the price has been adjusted accordingly;
We can help you evaluate the house, the market and the repairs that are needed.
It is a fabulous time to buy and in a few years you will look back and say to yourself how smart you were to buy your house in 2008.
