As a Full Time Realtor in S FL, I have noticed a very strong increase in my business working with many buyers lately. Of course I work with seller to market and sell properties as well but the buyers are heating up and starting to take notice. Buyers of single family homes, town homes, condos – you name it, people are starting to buy and many want to buy. Of course getting qualified for a loan is a different story. That being said, there are many programs out there now for potential buyers – especially first time home buyers. I have been fortunate enough to have quite a few cash buyers. Buying with cash is not only a stronger way to make an offer (especially if offering a very reduced priced offer from original asking price) but will allow for a cleaner, faster closing. But not many people have 20% to put down in cash much less a few hundred thousand dollars to purchase a property with straight cash. This is why I align myself with strong, ethical mortgage brokers. People I know who are honest, trustworthy, aggressive, on point with their communication and will do what it takes to get a client the right loan.
In working with buyers it has become very obvious to me that the under $250,000 market is becoming very strong. I have closed 4 properties in this price range in the last month alone and have contracts out on more currently. It is nice to be getting back to many multiple closings per month. My wife is happier too!!
But what is the right strategy for buying in today’s market? What will allow a new home owner or someone relocating from out of state to purchase a home in time to start that new job, start that new semester at school, get into a home before their current lease is up or be with family and friends quicker?
While I don’t claim to have all the answers there are a few that I have been giving to all of my buyers – outside of investors who don’t care about waiting. Of course my way may be very different than another Realtors ways but, I know first hand that my strategy has been effective for my buyers and I have many satisfied customers who are referring their friends, family and co-workers to me left and right. (And I appreciate it!!!) But good, hard work, professionalism and handling customers with respect and honesty has proven to really make my folks happy.
So, what types of opportunities are out there? The main 3 are Seller Owned, Bank Owned (REO) and Short Sales (Pre-Foreclosure). The last one, Short Sales, seems to be the hot topic – and for good reason. They are flooding the market. But, in my opinion offer the worst chance at actually purchasing the house. My strategy is to go straight at seller owned and bank owned properties first with short sales being the last option. This too is for good reason!
Let’s break them down in basic form and if you have questions about any of them, feel free to email or call me.
Seller Owned Properties – These are your “regular” properties. These are properties that are being offered for sale by the home owner for whatever reason. Maybe they are moving. Maybe they want to upgrade or downgrade. But, the seller owned property is usually a property where the owner is in a decent position on their home. They may have owned it for years and regardless of the current market they are still making a profit on the sale. Maybe they did not refi like crazy or pull out all the equity they have. Then again, maybe they owe more than it is worth but have cash in the bank and need to move and can afford to pay it off at closing. I just had a closing like this last week. I was able to negotiate about $30,000 off of asking price and the owners actually had to come to the closing table with about $28,000 to close on the sale of their house! Fortunately they had the money to do that – verified by their proof of funds which was a bank statement of their account. This is a GREAT situation for a buyer. Seller Owned properties offer a buyer not only a great opportunity to negotiate the price (sometimes very dramatically) and terms of the sale (terms such as seller contributions towards buyers closing costs, price reductions for repairs, home warrantees, etc…) but also allow for a quicker closing time frame. So, as a buyer, if you need to get into a house in 15, 30 or 45 days from initial offer, seller owned properties are a great option to go after and this is one of the first I suggest my buyers consider.
Bank Owned Properties – These are properties that are becoming more and more prevalent in the local real estate markets across the country as lenders begin to foreclose on folks who are delinquent in paying their mortgages for whatever reason. Basically the process goes like this in today’s market. The owner is not making payments and a lis pendens is filed along with notification to the owner that the lender is starting the foreclosure process. A lis pendens, Latin for suite pending, is legal notification that a suite has been filed on real property. About this time many home owners are attempting short sales, which we will get into next. With the a huge amount of defaulted loans out there right now due to ARM’s (adjustable rate mortgages)adjusting, some hardship on the owner, investments gone bad or a whole slew or reasons, the banks are becoming overwhelmed with properties. So, it may take a year or longer for a bank to actually foreclose on a property. Once they do foreclose on the property, the bank then takes possession of the property and brings it to the local courthouse steps for aution. Many times these properties are not sold at auction and then become another property owned by the bank.
Now, the banks are beginning to come into possession of so many of these properties that they need to hold and pay taxes on that it is really adding salt to an already open and bleeding wound for the banks. So, the bank will then relist the property with an agent (generally an agent who specializes in REO properties) at a drastically reduced price to try and sell the property as quickly as possible. Again, this often represents a great opportunity for a buyer. Often times there is less negotiating room due to the fact that the property is already being listed at such a reduced price. But, there still may be contributions back to the buyer. Sometimes these properties will require some work by the new buyer. People being foreclosed on sometimes kick holes in walls, take appliances or cabinets in kitchens and bathrooms but if the property is purchased at a very reduced price, this may leave plenty of cash for these repairs and let’s face it, most buyers are going to spend money changing things when they move into their new home anyway. So, these bank owned properties are generally the 2nd property type I suggest buyers go after. Generally a quick close can be made (30 days) and it can be pretty hassle free. The banks will require special documents and addendums to be signed. They will require proof of funds or pre-qualification letters from a lender and sometimes require potential buyers to be qualified by their lender or bank. But again, this is a quicker and more efficient way to buy property over a short sale. There will be many more of these opportunities surfacing in the coming year or two as short sales become foreclosed properties.
Short Sales – Also known as Pre-Foreclosure Sales. These, in my opinion, are the last option to consider. While this can present a great opportunity to purchase a home at a discounted price, the time, patience and frustration are often more than most people are willing to deal with. I know and say this as an agent who has worked both sides of a short sale – representing both sellers and buyers. I would say, in my experience, a short sale can not only take upwards of 4 – 6 months or more to come to a conclusion but at the end of that time frame, the outcome may be that you do not get the house at all. There is no guarantee.
In its basics, a Short Sale is when a owner has come into some hardship (divorce, illness, job loss, etc…) or for a certain reason cannot afford to pay their mortgage. They have missed some payments already and have significant debt outside of their mortgage. They may owe $200,000 on a house that is currently only worth $125,000 and are trying to sell the house, have the lender forgive the debt and get out of there without the foreclosure on their record. They cannot make any money off of the sale but will get hit less with credit scores and so forth then they would on a foreclosure.
At this point a seller will try to sell the house – generally with the help of a real estate agent. The agent will or should have the sellers supply many things to build their case with the lender to show that a short sale should be allowed. This will require documentation such as a handwritten hardship letter explaining their situation, tax records, recent pay stubs, copies of all outstanding debt (credit cards, car loans, other outstanding bills, etc…) and other things such as an authorization to release information form allowing the agent to speak directly to the loss mitigation department and anyone else at the lenders office who will handle the account. Once all of this is submitted, the property is placed on the market at a reduced price and the owners try to get a contract – usually at any price. Once this contract / offer is received, the listing agent presents it to the lender. It can take weeks or months to get a response back from a lender as they are overwhelmed with short sales right now and it is difficult for most agents to even get the lender contact on the phone. Most agents are not aggressive enough to try them daily which is what needs to be done to expedite the process. If and when they finally do speak with the lenders rep, the negotiating and so forth can take another few weeks to months and at the very end, the bank may decide that they want more money which may often kill the deal.
I know I had one fall through over $4,000. That’s right, $4,000. That is not a lot of money when you are talking a $250,000 home. I was the listing agent but the buyers had told their respective places of work they were moving, gotten the kids ready to get out of school, etc… and then the deal fell through over $4,000. I felt so bad for both parties. Then the bank called me back after 2 weeks and said, “Hey, are those buyers still around? We will now accept the offer.” Of course they were not still around. With the amount of options in the market, they simply brought their money and their offer to another property – probably a seller owner property – and closed. This, for me, was the deal the broke the Realtors back so to speak. After that situation I vowed to help my buyers find homes that can close for a good deal and in a decent amount of time. I don’t want to have my people going through those headaches and heartaches. And getting angry with me in the process!
Yet, some still want to go for short sales. Some demand to see short sales and, after explaining the process in detail and giving them examples both positive and negative, that is what I will show them. Usually after we make an offer on a place or two and they don’t hear anything back in a few weeks, they are ready to move on and we do. But, some people need to experience it for themselves before they will listen to their professional.
Recently I closed with some folks on a home. They placed 2 offers on short sales, after I had explained everything to them. After 3 weeks of me contacting the listing agents and getting no new news back, they were convinced that a seller owned property was the way to go. So, we made an offer that was accepted (a great deal for the buyers) and we closed. They are now happily in their new place and I have yet to hear back from the other listing agents on anything. By the way, those offers were placed over 2 months ago and they have closed and moved into their new place. Just goes to show you what can happen!!
Now I know I will hear people and other agents say “We are doing short sales and we are closing them left and right.” To that I say either “Congratulations” or “Your full of it!”. Hopefully it is a “congrats” but in reality, most are not closing that many. It is the reality of the situation. Closing 1 or 2 out of 20 or 50 offers is not “closing left and right”. The proof is on the MLS.
So there you have it Mr. and Mrs. Potential Buyer. Of course there are other buying options – seller financing, lease to own, etc… But in general, these are the 3 types of options a buyer will see during their search. It pays to have a Full Time, Experienced and Professional Realtor working on your behalf. The sellers will most likely have someone representing them – and so should you. This will help you in not only finding the right type of property but in explaining and understanding contracts, negotiations, addendums, documentation, getting things in line foreclosing and keeping in contact with the selling party, the title company, inspectors, etc… And the buying agents commissions are paid out of the sellers accepted price!!!!
If you are thinking of buying in Florida, please contact me. I would love the opportunity to discuss your situation and what is out there for you.
Thanks and I look forward to your comments. Fire away…
