Your Offer Might Be Good - But It Might Not Be Workable

I got a call yesterday from a Buyer whose offer was rejected by the lender or asset manager. She read my post regarding short sales, and she wanted to know why her deal didn’t go through.

Here is my speculation I offered to her:

Short sales are often killed when there is more than one lien holder on the title… as is the case with second mortgages. What happens is that a good, legitimate offer does not allow the second lien holder to get anything out of the deal.

Let’s take a house that was bought a few years ago for $100K with no money down. The first mortgage was for $80K; the second mortgage was for $20K. You want to buy the property for $80K (which is the fair market value) and the first lien holder may accept this offer.

The trouble is that the second lien holder wants something, too. And your offer doesn’t include anything for them.

Are you going to pay more than the property is worth to make the deal work? Of course not! Is the second lien holder going to offer to remove the lien with no compensation? Of course not!

And therein lies the rub.

A few days ago, I was showing my clients a few select properties… and on one of the listings I wrote, "Won’t happen" on the paperwork. My client asked if we could go see it, since the price was so attractive.

I explained that it would be a waste of time, for the reasons above. The sale is conditonal on the bank’s approval - which we’ll never get, because of the second lien holder.

What do you do under these circumstances?

Go find another property. Properties like these will have to go through foreclosure before the sale will make sense. The second lien holder will be wiped off the title - and the first lien holder will eventually put the property on the market.

Short sales can be accomplished - though they can be slow and annoying. Keep in mind that you’ll have far less frustration in the process if you don’t use an inexperienced agent to assist you.

Patience Is THE Virtue When Buying Short Sale Properties

A short sale occurs when a lender allows the sale of a property for less than is owed - and the sale takes place prior to the foreclosure. While this might sound enticing to a buyer - short sales are difficult transactions that more often than not result in a lot of wasted time with no gain.

Most lenders use asset managers to handle their short sales - who often must get the "go ahead" from secondary market owners before the sale can proceed… and if the loan has private mortgage insurance, that adds another layer of bureaucracy.

It is not uncommon to get a verbal approval within a week of presenting an offer… but no written acceptance for sometimes several weeks. I have heard of instances where this verbal approval did not result in a written agreement, as a better offer came in - and the lender accepted it, instead.

There is no shame in the game, right now.

Since next month will be a record month for the number of foreclosed properties in the greater Atlanta area, lenders will have to take all serious offers into consideration, as their non-performing inventory stacks up.

In the past, lenders would often reject perfectly sensible offers in the hopes of waiting and getting more after the foreclosure. Well the times are a changin’, as the wave of foreclosures is crashing in on itself.

It won’t make sense to walk away from a reasonable deal, now.

As a buyer, the key here is to not make stupid offers. Educate yourself about value - then find a great value. They’re all around. And be patient. Newly listed foreclosures are often overpriced, too. Pay attention to the price reductions, as that will reveal a great deal about the motivation of the seller.

Foreclosures Slated For May Top February’s Monster Record

Just when I thought we had seen the crest of the giant wave of foreclosures in the Atlanta area, I am yet again amazed at the whopping 7335 properties that are now slated for auction next month on the courthouse steps of the 13 counties in the greater metro area.

Back in January, Equity Depot reported the previous record of 6992 foreclosures that were slated for February auctions.

This continues a trend for buyers to be able to select some very good properties at bargain prices… and a mounting challenge for sellers of resale homes.

"How can I sell my house for that much… I owe that much!"  a prospective seller recently told me.

"The best thing you can do is wait for the market to improve… if you can,"  was my reply.

As with all properties - whether in a buyer’s or a seller’s market - the best value proposition involves one where you can add value to the property… which means the property needs updating, renovating, remodeling or restoration. At least some paint and carpet. The key is buying these properties right… and this wave of foreclosures will allow you to do just that.

The Senate has recently passed legislation designed to provide tax credits for individuals purchasing foreclosures… and the House is busy with legislation of their own. In this election year, you can be sure that something will be done… whether or not it will be good is another story.

Should you buy these properties to flip?

Absolutely not! This market will eat you alive if you try to flip houses. I see many listings that have been rehabbed nicely… but fail to sell quickly at good prices for the sellers. The demand is just not there right now.

The key strategy for this season is to acquire a property as either an owner-occupant or for rental. Remember - the rental market absorbs a huge share of those who left their homes because of foreclosure.

This opportunity is not only great for first-time homebuyers - but those who would like to move up into a bigger, nicer home. Your existing home may be a good candidate as a rental… which allows you to use a tenant to carry the cost of the existing property until the market improves and you sell for a much better price.

Current low interest rates make this proposition very attractive.

The Quick Links on the left will take you quickly to our list of distressed properties for each of the cities shown. Who knows? Maybe your next home is just a few clicks away! 

Some Believe Their Homes Age Much Better Than Fine Wine

Occasionally, I will venture out and tour the open houses of unrepresented sellers. I really find it to be quite educational - particularly in the study of human nature.

A few weeks ago, I viewed a few homes and had a conversation with one of the sellers that went something like this:

"You’ve only lived here for two years… why are you selling?" I asked.

"Because we won’t have to pay taxes on the profits," they replied.

"You bought this home - new - for $240K… what leads you to believe it will sell for your asking price of $320K?" I asked.

"Because we have all these nice upgrades," as they pointed out their list of upgrades on their flyer.

"Aren’t these builder upgrades?" I inquired.

"Well, yes, they are."

"Have you looked at the other comps in this neighborhood?" I asked.

"Well our house is much nicer than any of those houses," they replied, "and we spoke to a few agents who said our house was much nicer than those other houses."

These folks believe that their home has appreciated by a third… in only two years… in a depressed real estate market. That would be quite an accomplishment - even in the best of markets.

The truth is that most homes are NOT worth any more than they were two years ago. In fact, many of them are worth less.

Many foreclosures start out as overpriced listings, too.

As I peruse foreclosure listings, I often see homes that started out as overpriced listings - only to be later be given back to the bank. When I analyze the original asking price - then the price reductions - then the foreclosed price… I can only wonder "What were these people thinking?"

In many cases, these foreclosures could have been avoided by simply pricing the property aggressively enough in the beginning to get it sold. For some reason, many people believe that they are entitled to profit from the ownership of real estate.

Remember - profit is an admirable goal - but it’s not guaranteed.

Don’t fall victim to this kind of thinking.

Although I am working with a buyer who might like the property I mentioned above… I won’t be pursuing a sale, there. Not in a buyer’s market. Why? Because sellers like this are nothing but trouble - a lot of work that seldom nets any reward. With so many other properly priced properties on the market, why should I bother?