Tuesday, October 30, 2007

Orange County Real Estate - The Truth About Pre-Foreclosure Short Sales (Part II)

Rule #2- Understand That Sellers May Need To Pay The Difference

Link back to Part I

Many short sale transactions go along smoothly and then come to a screeching halt a few days before the scheduled close of escrow. One of the most common problems is that the seller refuses to sign a promisary note to pay back all or some of the debt at some point in the future. Without this note, the bank does not approve the sale and instead decides to continue with foreclosure proceedings leaving the buyer with nothing more than a blank stare.

Why would the seller not sign this note? There are a few reasons but the most common is that they just don't care enough about their credit rating to try and salvage it from the devastation that foreclosure will cause. It is a shame, but in some instances the seller may just be better off walking away from the property. This is one of the areas where a competent real estate agent can help you put together a realistic expectation for the likely success of the subject transaction based on the mindset and financials of the seller.

Can you do anything to get them to sign it? Other than attempt to convince them that it really is in their best interest, the real answer is "No." Of course it would be best to negotiate a deal ahead of time where a promisary note is not necessary for sale but this will not only affect the sales price, but will also be impossible in many instances.

Pre-Foreclosure home buyers need to understand that the success of closing on their new home may rely on some factors beyond their control. For this reason, they need to be careful when negotiating the transaction and exercise a degree of patience and flexibility throughout the process.

Link to Part III

Friday, October 19, 2007

Orange County Real Estate - The Truth About Pre-Foreclosure Short Sales (Part I)

Real estate in Orange County, California can sometimes be eerily repetitive. If we had a nickel for every client, or potential client, who stated that they were interested in foreclosures...well we might not need to be selling Orange County real estate. In all seriousness, distress sale properties (whether bank owned, short sale, or auction) can be excellent opportunities for prospective real estate buyers to acquire property at very good prices if a reasonable approach is taken. Dealing with pre-foreclosure short sale properties specifically, there are some things a prudent Orange County home buyer must understand.

Before we get into these rules, an Orange County foreclosure buyer needs a basic understanding of what a short pay sale means. Basically, the owner of a home owes more money on the house than it is worth, and is attempting to sell it quick in order to avoid foreclosure proceedings. With that basic definition, here are some rules to follow:

Rule #1 - List Price May Not Be The Price You Have To Pay

Ever had somebody tell you a product is one price only to raise the price AFTER you agreed to pay it? Sound like false advertising? Sound frustrating? Well, it is and this is close to what often happens in a short sale.

Why does this happen? It's easy, the price is usually set by the agent and seller who might not care what the house sells for since their won't be any profit to the seller anyway. Therefore, a price is set on the home that is very low in order to attract buyers, but the offers to purchase will have to be approved by the bank. Keep in mind, that in most cases, the bank has not stipulated what will be an acceptable price for the home, and this is ultimately who the buyer will need approval from. In a nutshell, the decision maker has not agreed to the list price, in fact, they may not even be aware what the price is at that particular moment!

We personally think this does a disservice to everybody involved, but the biggest collateral damage is that prospective Orange County home buyers generate misconceptions about property pricing, thinking that homes are selling for much less than they are in reality. This is not a good scenario for anybody involved, including the home buyers!

One solution, from an industry standpoint, is to not allow any listing to specify a price unless there is authorization from the owner, or loan holder on a short sale property. In theory, this would eliminate some of the distance between buyer and seller, but one of the problems with this lies in the fact that during most short sale markets, the lenders do not have time to help price the properties.

While we don't see an immediate solution, the bottom line to Orange County short sale buyers is that they need to be aware that the price you see may not necessarily be the price you get. In fact, you may not be able to get the home for any price! Short sale buyers should be prepared to wait longer periods of time in order to hear on the status of their offers, and not be surprised when it seems as if the bank is not being very cooperative.

Link to Part II