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