SACRAMENTO REAL ESTATE NEWS SACRAMENTO MORTGAGE MARKET

scottsent August 8th, 2008

Hurry Up &

Wait!

That’s what you have to do to buy a home in this Foreclosure market!

Investor competition requires quick action to get an offer negotiated.

Acceptance, repairs, and closing - on the other hand, takes FOREVER!

Let’s assume you have your ducks lined up, including great credit, a sizable down payment, and pre-approval for the loan.

The banks who own these foreclosed homes will generally take about 10 days to review all offers and then counter offer the best 2. If you are one of the best 2 offers, they will request you to re-bid your offer as the ‘Highest & Best’ offer you can make.

It takes an additional 5 days (on average), to find out if your offer ‘won’.

If someone else won, then you just wasted 2 whole weeks or more for nothing.

Even if you did get a verbal offer acceptance, it could still take 2-3 weeks to get an actual SIGNED acceptance.

Now, you figure you are past the hard part - but oh no you aren’t! The clock has just started ticking…

Once the appraisal comes in, you may have to re-negotiate the price down to the appraised value, or lender required repairs to be made. Expect this to take several weeks waiting for the bank to respond.

Expect repairs to either kill the deal or wait an additional 3-4 weeks while the bank ponders over up to 3 contractor estimates before deciding to actually order the repairs.

Often, the listing agents who represent the bank are also unmotivated - they’ve become accustomed to the bank seller’s routine of not moving forward.

So, you need a good agent representing you who can follow up regularly and put some heat under their kettle so to speak.

If you chose a not-so-motivated lender, he/she can drag this process on for months after the date you were ’supposed to close escrow’.

So, in summary, getting a home in this market may be much cheaper than it was a few years ago. But you will pay dearly with your nerves as you wait, wait, and wait some more, all along feeling a sense of uncertainty at every point along the way, never quite sure if you will actually be moving into the home ever!

The process of buying a home is now taking about 3 times longer than it ever did in a ‘normal’ market. In a normal market, you expect about 1 week to negotiate the purchase contract, then 30 days to close escrow. Often, it can be done in an even shorter time period.

In this market, it’s taking about 3-4 months to close transactions!

So, plan ahead for a long wait, be patient, and try to control your nerves. Know that you aren’t alone and navigating this market is still going to be better than paying high prices.

In the long run, it is going to be well worth the wait if you can successfully purchase the home of your dreams.

• Home Purchase Negotiations
• Comments(0)

scottsent August 8th, 2008

SMART Thinking Required To Get

Offers Accepted

I know your time is valuable, so I will cut to the chase. This market is unlike ANY home market you have ever seen or heard about.

It’s wrought with heavy investor/speculator activity in the $0-300K range, unmotivated banks, and transactions that can take 3 times as long as normal.

To improve your chances exponentially, here are a few tips:

1. Short Sales - IGNORE THESE!

   • In my experience, these NEVER close escrow.

   • Sure, it’s possible 1 out of 10 do, but the ones that do take about 6 times as long as a normal private owner sale. You will have wasted MANY MONTHS of your life, along with a rollercoaster ride of uncertainty. Skip this and you’ll save yourself alot of grief.

2. Seek out homes with Long Days on Market (DOM)

   • New listings flow through to thousands of email inboxes of investors and home buyers. Newly listed homes are likely to get as many as 15 competitive offers on them in the first week or two. Even if your offer is great, you often have a 1 in 15 chance of getting it accepted!

3. Avoid Competitive Bidding Situations

   • As per #2 above, competitive bidding always ends in the buyer who ‘wins’ making an offer well above asking price, sometimes up to $15,000 higher. In many cases, you cannot avoid it, there may always be an offer or two to compete with. Just avoid those that have more than 5 offers.

4. Someone’s undesireable feature is anothers OPPORTUNITY

   • Life is all about trade-offs. If you are looking to buy a home primarily for shelter, want to keep your mortgage low, and aren’t overly concerned with appreciation or keeping up with the Joneses, then this advice is for you.

   • Look for homes near busy streets, schools, airports, or noise nuisances

5. Seek out homes with superficial issues, like old wallpaper, dirty carpet, etc

   • Paint, carpet, wall plates, etc. are a whole lot cheaper than the difference in price of a move-in ready home. See beyond the superficial as to what the home CAN be with a little TLC.

6. AVOID Homes Listed as ‘Fixers’ or With Many Repairs That Would Be Required To Fund A Loan

   • Don’t think you can get bank sellers to pay for many or ANY repairs.

   • Damage to a property is a RED FLAG - your loan may not fund, so no sense wasting a lot of time trying to buy something you will never get a loan on!

   • Examples of damage to avoid :

     • A/C or Heater Vandalized or not functioning

     • Broken Windows

     • Structural Damage

     • Electrical Issues (faulty wiring, missing light fixtures, etc.)

     • Plumbing Issues (Missing, damaged, or broken fixtures)

     • Roof needs to be replaced

7. Seek out homes with several price reductions, combined with long DOM

   • Banks are more willing to work with a buyer and unload a home after it has sat on the market for 6 months to a year, with many price reductions. The banks understand they have limited options at that point, and are generally easier to work with.

8. Don’t expect to negotiate aggressively with Bank Sellers (Foreclosed Properties)

   • Logically, you as a buyer have the upper hand in a declining market.

   • Banks are not logical, and you will be dealing with their employees.

   • Bank Employees could care less about you getting into their home.

   • Banks list these homes at the net amount they want based on a Broker Price Opinion or Appraisal.

     • They already have a good idea of what the home is worth.

     • You often have to come in above asking price, because you will be asking for a closing cost credit back (which reduces the seller’s net proceeds)

     • Asking Price - Closing Cost = Asking seller for a discount

   • Bank owned homes are sold AS-IS

   • You will be expected to pick up the tab for traditionally seller paid items:

     • Section 1 Pest

     • 100% Title & Escrow

9. Just because this is a foreclosure/declining market, doesn’t mean there are no buyers to compete with you!

   • There is a ton of investor activity at this price range - if you don’t want to write an offer that meets the above terms, be aware that an investor will be happy to buy the property instead of you.

10. Only tour homes you actually plan on making an offer on that day!

    • Things happen quickly in this price range of foreclosed homes, especially in the $0-$300K range.

    • There are thousands of homes on the market and you cannot tour all of them, it’s physically impossible.

      • Do your homework! - First find 10 of the best homes on the MLS, view maps of the areas they are in, and make sure those areas are suitable for you

      • Drive by these 10 homes and view the neighborhood and exteriors in person. Peek in the windows if they are vacant.

      • Widdle this list down to the 3 best homes you want to tour inside with your Realtor, with the intent of writing an offer that day.

      • Tour the homes and write an offer.

    • Touring homes just to get your feet wet isn’t productive. There are many virtual tours on line you can use for that purpose. Instead, set a goal of making an offer and do it. Everyone will be happier as you will actually be making progress.

11. Be HONEST with YOURSELF and your Realtor/Lender

    • About your goals and ACTUAL Financial Situation

      • Surprises after months of work don’t help anyone

    • Don’t write up an offer because you want to make the Realtor happy. That is a waste of time for everyone. If you aren’t happy with any of the properties, speak your mind.

    • Writing an offer just to please the Realtor, with no intention of going through with it, is getting many people involved working on your transaction for no good reason (i.e. The Seller, Listing Agent, Title/Escrow, Lender, etc.).

12. Listen to the Professionals!

    • Just like you wouldn’t drill your own tooth or pilot a 747, you should at least recognize that you are hiring a Realtor & Lender to help you navigate these uncharted waters.

    • Leverage the professional’s experience so you can avoid many headaches and emotional rollercoaster rides.

    • Your goal is to get into a home in a timely manner - not 3 years. So, if you rely more heavily on the professionals advice, you will get there much quicker.

I hope you find these tips help you get up to speed in this turbulent market!

• Home Purchase Negotiations
• Comments(0)

scottsent August 6th, 2008

The Appraisal

Friend or

Foe?

Ok…so you’re probably intrigued by the title. First, let me explain what an appraisal is for those who may not know.

An appraisal is an independent evaluation of a home’s value as it relates to amenities and as it compares to homes in the general vicinity, usually a 1 mile radius. Lenders rely on this report on which to base their loan funding decisions.

Since real estate loans (mortgages) are collateral loans (they take the home back if you don’t pay), the lender needs to make sure they can resell the home at a later date if you cannot pay, and recoup their investment.

When a seller puts a home on the market, they price it according to their broker’s comparables report, not an appraisal in most cases. Foreclosed (bank owned/REO) homes often use a ‘broker price opinion’. Even if they use an appraisal, by the time they actually sell the home, the price may have fallen.

In a market of declining values, the appraisal can often limit what the seller can get for the home.

That’s because the seller knows it’s unlikely they will find an all cash buyer, and any other buyer will likely have a loan. Since the loans are based on the appraisal, the seller has to comply with reducing the price to the appraised amount if they want to sell the home!

FOE: Many banks are forced to reduce an already agreed upon purchase price to the lower appraisal amount.

FRIEND: What this means is that the appraisal can actually HELP home buyers get a discount on the home.

The flip side of this coin is that there is a lot of investor activity in a foreclosure market. Often, the only way for you to get an offer accepted is to outbid other buyers. This usually requires you to make an above asking price offer.

However, since you read this article, you already know that you MAY be able to reduce the negotiated purchase price IF the appraisal comes in lower.

The reason is simple - the bank knows values are dropping. They look at it as cutting their losses by taking a break on the price now, rather than later. Also, in some cases the appraisal may actually stay with the property for several months, whereby the seller is required to disclose the appraised value to a new potential buyer.

So, remember - to get your foot in the door on a home between $0-200K, you often need to come in high, possibly netting the seller asking price or up to $10,000 more than asking price, but you MAY be able to reduce that amount after the home gets appraised, IF the value of the home is less than you offered (in a declining market).

• Home Purchase Negotiations
• Comments(0)