I just got my short sale listing 2122 Ventura Place in Santa Clara in contract. The sellers and I initially tried to sell the home where the sellers could possible come out clean without a short sale on their record. As the market deteriorated however, this proved to be an impossible venture and eventually we all agreed that this is the best course.
Now begins the time consuming task of working with the lender, in this case Countrywide Home Loans, to get the short sale approved. For those of you who are unfamiliar with short sale properties, short sale occurs when the proceeds from the sale of a home will not cover the loans or liens against the home. In this situation a seller, in order to sell the home, would have to bring money into closing or negotiate with the lien holders to take less than the amounts owed. The motivation for the secondary lien holders to negotiate would be to get some money as opposed to none. In the event of a foreclosure the primary lien holder would take title, and the property would become an REO or Bank Owned.
In many cases it is to the lender’s benefit to work with a short sale as opposed to waiting for the home to be foreclosed. This is assuming the seller’s are in default and have stopped paying the mortgage. This Santa Clara home has only one loan which makes the negotiation much easier than dealing with two two loans and possibly two separate lenders.
Now that I have received an offer I can submit it to the lender to get the short sale approved. I need to provide the lender a summary of the seller’s monthly earnings and expenses. In addition the lender will also need a copy of the purchase contract, estimated net-sheet, two months of pay check stubs and 3 months of bank account statements. This is referred to as the Short Sale Package, and different lenders require different items. Now that I have submitted the package, I will follow up tomorrow to ensure that they received it in its entirety, and wait for the approval. I will continue to update this blog as the transaction progresses.
Tags: Short Sales
 4534 LAIRD CI, Santa Clara (map) |
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Type: Townhouse Status: Active List Date: 11/25/08 Price: $524,900 Bedrooms: 2 Bathrooms Full: 2 Bathrooms Half: 1 Sq. Ft.: 1437 Lot Size: 2,178.sf Approx age: 4 MLS#: 80846894 |
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This Rivermark town home was originally listed two months ago for a reasonable price of $600K. The home has hardwood floors, granite tile counter tops, and some very nice updates. About two weeks ago the listing agent who specializes in selling bank owned properties dropped the price to an unconceivable level of $524K. Why this home hasn’t sold yet truly amazes me. Unfortunately I don’t have any buyers currently looking in Rivermark at that price range or I would certainly suggest this home. There is one downside to this model it has tandem parking. Other than that the location is desirable, the condition is clean and updated, and the price, well the price is down right cheap. So for all of you home buyers who I have spoke to recently here is your official deal. |
They key to spotting a market bottom is by following the home inventory levels of a specific market. Once the inventory of homes reaches a top and starts to declince that means the buyers are beginning to overtake the sellers, and hence supply and demand are changing. Here we take a look at the recent historical level of inventory in a few areas of the Santa Clara Valley.
Home inventory levels for Santa Clara have been climbing every year since 2005. Levels top off in the summer forming a plateau, typical of the real estate cycle we experience here in Santa Clara Valley. Every subsequent year the number of unsold homes have carries over increasing the number of homes for sale in Santa Clara. In 2007 we experienced a large increase of Inventory. As the average humber of homes increase, so does the average days on market, and prices begin to drop.
Sunnyvale’s home inventory performance is similar to Santa Clara. Again inventory levels rise, toping out in the summer and then falling in the Winter. Home inventory levels have remained fairly stable through 2005 and 2007, but in 2008 average inventory of homes in Sunnyvale stayed steady over the winter, and increased substantially in 2008.
Cupertino home inventory stayed stable in 2005 and 2006, and actually dropped in 2007. Again we notice the plateaus in the summer months followed by steep drops in the winter. Home inventory levels have returned to 2005 and 2006 highs.
If we look at Los Altos and Saratoga home inventory charts we see similar patternes to Cupertino. With average home inventory dropping in 2007 and increasing in 2008. This we can attribute to the higher end or luxury home market performance in 2007 which can be closely tied to the NASDAQ which also peaked in 2007.
Monitoring these inventory levels and when they start to change will be the first step in determining the real estate market bottom for the Santa Clara Valley.
Tags: santa clara
You hear on the tv and the paper that you can get a great deal on an REO. You expect 50% savings off your dream home, after all isn’t this the worst real estate market in history? Sounds great and it might just happen, but first you should take a look at some facts and get prepared.
REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier’s check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property. So you better know what you are buying, and don’t expect your real estate agent to help you out, since foreclosures do not pay commissions.
These days, and the Santa Clara County is no exception, what is owed to the bank is almost always more than what the property is worth, and as a result very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.
REO Properties For Sale
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property. Much better than buying a foreclosures.
A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. Not all REO’s are great deals.
How Banks Sell REO’s
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.
Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."
Property Condition
Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.
Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.
Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.
Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.
Some REO’s are in such poor condition it may be difficult to get a lender to lend on the property. Even the bank who owns the property may not even provide the loan. Some banks will provide financing on their REOs. So you definitely want to have a financing and appraisal contingency.
Making an Offer
Offers are usually FAXED to the bank. The listing agent needs your originals. There is no formal presentation. Keep in mind: nothing happens evenings and weekends since the banks are closed.
In Santa Clara County which by national standards is an active real estate market there are thousands of REO properties. Some localities have more REO’s than others. Where there are fewer REOs, areas like Sunnyvale, Mountain View, Santa Clara, Saratoga, and Cupertino don’t expect to get that great of a deal on an REO property. In areas like South San Jose, East Valley, Milpitas, Morgan Hill, Blossom Valley, and Gilroy, where REO’s and Short Sales make up a large percentage of the total inventory, you will see that prices have dropped significantly. This will include standard homes that are competeing with REO’s.
If you still want to buy an REO, make sure you find a Realtor who knows the market in the area you are looking, and can decipher if its a good deal or not.
Short sales happen when home values fall and sellers do not receive enough cash from a buyer to pay off their existing mortgages, providing lenders agree to take less than the amount owed to them.
On the surface, it may appear that a short-sale buyer is getting a good deal. Although a slim margin of short sales may be profitable for a buyer — because there are always exceptions — much of the time, a buyer would be better off buying a home that is not in default.
In Santa Clara County, where I work, for example, many agents ignore short sales like the plague.
Here are 9 Reasons Why Buyers Should Not Want to Buy a Short Sale:
1) Sellers Paid Too Much.
If a home sold for $500,000 a few years ago and is now for sale at $400,000, that doesn’t mean the buyer is picking up $100,000 of equity for free. It means the seller paid too much in a rising market and now the market has fallen. It means the seller has no equity.
2) Stringent Qualifications.
Inexperienced or unethical real estate agents might push a seller into considering a short sale when the seller does not qualify for a short sale. Sellers must prove a hardship and submit evidence of the hardship to the lender for approval. Some agents list homes as short sales without ever talking to the lenders or pre-qualifying the sellers. Thus this results in a waste of time for the buyers who are attempting to buy the short sale home.
3) Homes Sell at Market Value.
Lenders aren’t naive or unaware of the value of a home. Lenders will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO. If a lender believes a better price can be obtained by taking the property back in foreclosure over a short-sale offer, the lender may hold out for a higher price. That price will be close to market value. In the Santa Clara Valley where some areas still have held on to their home values, like Cupertino, Sunnyvale and Saratoga lenders are less likely to take low offers.
Lenders will accept short sales when the home is worth the short-sale price, which means market value. Many buyers feel that they can get a deal on a short sale and in some cases they do, but that is more to do with the properties condition and frustrating process then the fact that the lender is relinquishing the property for a better price.
4) Homes Sell "As Is".
If a mortgage company agrees to a short sale, it is most likely also paying the closing costs in the transaction. Lenders ask buyers to purchase the home in its present condition. Lenders typically will refuse to pay for:
* Suggested repairs disclosed on a home inspection.
* Pest inspections or work necessary to issue a clear pest report.
* Roof certifications or roof repairs.
* Home protection plans for the buyer.
* Deferred maintenance.
In a regular sale, sellers may be motivated to sell and offer up incentives and improvements to get their properties sold.
5) Length of Time to Close.
Depending on when the Notice of Default was filed, the lender’s back-log of foreclosures and how much paperwork the seller has already submitted, it could take anywhere from two weeks to two months to get a response on a purchase offer from a lender. In addition, if two lenders are involved because there are two loans secured to the property, it could take longer to satisfy the demands of the second lender.
6) Lenders Can Change Conditions.
Some lenders reserve the right to renegotiate the terms of the short sale at the last minute. If the market changes, new laws pass or new information crosses the lender’s desk, the lender can attempt to change the terms of the contract. Lenders generally have lawyers at their disposal, and ordinary buyers do not.
7) Higher Buyer Closing Costs.
Because lenders rarely will pay for any extras, like a seller would be willing to do, if you want any of those extras, you will pay for them yourself. Sometimes lenders will refuse to pay for standard seller closing costs such as transfer taxes, too. If you want specific inspections, you will probably pay for them out-of-pocket. Expect to pay higher transcation costs for short sales. You will have to pay for inspections to have the property inspected, and it has been my experience in areas like Santa Clara, Sunnyvale, and San Jose rarely will the lender agree to make any repairs or offer up any credits.
Lose Control of Transaction.
If you need to close escrow by a specific date, lots of luck with that. A short sale home closing process takes an indefinite amount of time. The seller’s lender calls the shots, not the buyer nor the buyer’s lender. If you are trying to close escrow concurrently with the sale of your home, it might not happen.
9) Little Seller Motivation.
When the seller discovers that the short sale effect on credit is identical to that of a foreclosure, there is little incentive for a seller to cooperate with a short sale. There is no benefit to a seller to consider a short sale and move out before the foreclosure is concluded, except for peace of mind that the nightmare is over.
There are many homes for sale in the Santa Clara Valley that are “short sales”, meaning the mortgage is larger than the asking price. Other descriptions for short sale listings might be described with the phrases ”subject to bank approval” or “subject to lien-holder approval”. Rarely will you see “short sale”, so it’s best to be armed with some crucial information about short sales before considering buying one.
- In this type of transaction there is an additional party involved besides the buyer and the seller; the bank. The bank must approve the sale, and this can make the time to close much longer than usual. Expect it to take anywhere from four to six weeks. And once the bank’s approval is granted, they will expect you to be ready to close as soon as possible.
- You will need to pay for your own inspection which is always recommended. Since the sale is “as-is”, don’t expect the bank to make any repairs or offer any assistance with closing costs.
- You will also need to pay for your own appraisal. The bank will do their own as well, and have been known to reject the sale based on their appraisal. Also, they may ask the buyer to raise their offer before approving the sale.
- Deferred maintenance on the home is a potential risk for the buyer. Consider that since the mortgage payments were not being made, it’s highly likely that the homeowner was not able to afford regular home maintenance.
Pending Sales Santa Clara County – Real Estate Market Indicator
I always review the Santa Clara County home sales at the end of the week by checking the pending sales. This is a good way of checking the strength of the market in terms of buying activity. I usually compare from the previous year’s figures to gauge performance. It appears that 2009 has started out very positively, well at least better than 2008.
Santa Clara sales for the week are up 50%, Cupertino also higher, Sunnyvale as well with over 50%, Mountain View also an increase. When we view the higher end Markets of Los Gatos, Saratoga, and Los Altos, they experienced decreases this year. Part of that I think we can attribute to price gains that these areas experienced in 2008 and have just recently felt the slow down. Price adjustments may have to be made in these high cost areas in order for sales to increase.