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Sep 13, 2010
Buying a short sale house
Good deal or media hype?
You've more than likely seen the term “short sale” in more than one medium lately; newspapers, magazines, TV, radio and the internet have nearly worn out the phrase, many touting its great benefits to buyer and seller alike. A short sale means the lender, or lenders, will accept less than the amount due on their loan to release their lien and allow the home owner to sell a property; they do this, supposedly, to avoid the costs of foreclosure and related costs and risks of putting the house on the market after they foreclose. Typically, the home owner is far behind on payments, and the house is worth much less than the balance due on the loan.
- Here is the significant question for buyers: Can I expect to get a really good deal?
- And the important question for sellers is: Will it substantially help my credit rating?
We've been listing short sale houses for a number of years, before the term became a household phrase. We have a good handle on the implications for buyers and sellers and can answer these two questions with a good amount of authority.
The answer to the first question is, yes, buyers can expect to get a really good deal; the reality, though, is that they rarely do; and you might agree when you realize what's typically driving a short sale: Disillusioned sellers who are upside down in house value to loan ratio and are generally experiencing severe economic problems. In a situation like that, property maintenance will come to a screeching halt; HVAC filters no longer get changed; watering around the yard stops and foundations are allowed to shift; roofs that leak continue to leak; you get the picture.
Add to that the attitude of most lenders. The process is completely impersonal; the listing agents rarely get to speak with the people handling the sale since they often must deal with a computerized system that makes no sense, was probably designed by programmers designing software for people selling airline tickets, and is handled by lender negotiators who generally don't know the difference between a warranty deed, a deed of trust and a mortgage, and who are following a set of rules set by those above—way above—who are themselves clueless of local market conditions.
Buyers are asked to provide earnest money on a deal that has not been approved by the real seller: The lender. Inexperienced agents will often have their buyers pay for an inspection on a house that has a good chance of not closing. Months can pass while the listing agent and the lender go back and forth; the listing agent providing reams of often useless information and receiving silly counter offers that are way above the real value of the property. If the house is vacant the foundation continues to suffer, vandals can enter and damage it and remove essential items like the HVAC condensing unit.
Here's a good example. Our buyers were in love with a house that was listed for $115,000 in Arlington. The house was dated, it was vacant, and there were signs that there had been foundation leveling performed in the past; it needed work; lots of work. The house was worth about $100,000 tops, but it was in a good location, and exactly where the buyers wanted to live. They offered the asking price. After a reasonable amount of time, the lender came back with a counter offer of $130,000; it made no sense to us, and it made less sense to the listing agent. You see, the listing agent gets to set the price, and the lender gives no idea what it will accept; it will look at offers as they come in; a truly backward way of attempting a house sale.
Our buyers pulled their offer and the listing agent raised the listing price to $130,000. The house sat on the market, I imagine with zero showings, for a number of months. One day we received an email from our buyers saying that the price of the house had been lowered to $115,000. They put in another offer. The lender came back with a counter offer at $130,000. I wanted to laugh; it was stupidity beyond belief. The listing agent was getting weary of the lender's games. She asked the lender for an appraisal and the lender complied. The appraisal came back at $128,000; I figured the appraisal had been what is known as a “drive by” appraisal, and not a full-blown appraisal. Our buyers pulled their offer. The house sat for a few more months on the market at $115,000; eventually the listing agent must have tired of dealing with the house and the lender and took it off the market.
That was the last short sale we worked with a buyer, and we refuse to waste any time with another one. While we’ve sold a number of short sales, they always took too long to close, the negotiations were often foolish, and buyers never really got a steal; a few got what I'd term a “decent” deal. We have sold a good number of “steals” after lenders foreclosed and as owners they were much more motivated to get their non-performing assets out of their books.
The last listing short sale we worked was a nightmare of stupidity on the part of the lender; it involved an incredibly impersonal web-based system run by negotiators who must have flunked fifth grade, quit school and were fired as hamburger flippers because they couldn't quite figure out which was the correct side to flip the burger. We listed the house in July of 2009 and the lender finally foreclosed on it this month. It was nothing but frustration for us, the buyers' agent, the buyers, and the title company. When we closed our file I looked through our notes and couldn't help but laugh at how many times I read “stupid person” when one of us was referring to one of the many negotiators that were assigned to the file by the lender. This month we decided we will no longer list a short sale; the stress level is simply not worth the spotty number of successes.
There are some advantages to sellers. While some are concerned about their credit rating, most have already hacked theirs down to the low five hundreds or below and they won't gain much if the short sale is a success. The big advantage is that savvy sellers can remain in the house for an extended period. We gave up on one listing after working with the lender for about eight months; there was no way we could convince the negotiator that the house was not worth what the lender wanted to receive. When we gave up, the seller had been in the house two and a half years without making one single payment; that was one sweet deal for the seller, but an unfair situation for the buyer.
If you have a problem property, give us a call; there are alternatives to a short sale. If you're wanting a great deal to buy, call us and we'll help you find a real deal. - ☺md
Jul 26, 2010
Experience pays
What makes a great agent
Carol Thimesch got her real estate license in 1991; since then she has helped hundreds of people purchase wonderful deals in HUD, VA, bank foreclosures, and a considerable number of homes for sale by individual sellers. Working on the sellers' end, she's helped a significant number of homeowners sell their properties. She has a tremendous number of satisfied clients; we can be sure of that because a sizable percentage of her business comes from referrals.
The two deals she closed in the past few days are classic examples of an experienced agent providing sound advice to sellers in a listing situation, and buyers looking for an upscale home.
To the sellers she suggested a selling price—after doing a meticulous study of the market—that would provide a good number of showings from the very inception of the listing. She also indicated deficiencies in the property that could be remedied at minimal cost that would enhance the saleability of the property. The house went on contract at a price very close to listed price, and closed quickly.
She worked with the upscale buyers by showing them houses that were in excellent condition, priced correctly and offered by very motivated sellers. Her buyers bought a superb home for 85% of appraised value.
Working with an experienced agent pays handsomely. If you're in the market to buy or sell in the north Dallas area and northern suburbs, give Carol a call at (469) 774-9074. - ☺md
Mar 5, 2010
A fine home and a wreck
Why houses are like nice autos and jalopies
This isn't just for sellers; buyers pay close attention.
A seller called; she explained that she wanted to sell her house quickly, but that she had to have a certain price. She went on to give me a list of all the amenities, bells, whistles, superior design features and wonderful condition as a reason for her insistence on getting her price. I explained to her that the market sets the selling price, and that real estate brokers and professional appraisers could only approximate the ultimate value of a house to a buyer; I didn't mention that sellers can set an asking price, but not the final selling price. You’re right if you guessed that she wanted more than the house was worth.
I have a Property Sheet with a list of questions for sellers. Sometimes I pass over some of the questions; this time I carefully went over each one with the seller. It dawned on me that selling a used house is not much different than selling a used car. While this seller's home was in excellent condition, it turned out that the home had a lot of miles on it. The house was built in the early 1980s. The current owner was the original owner. The carpet was original; the roof had been replaced after a hail storm in the mid 90s at about the same time that the cooling unit had been upgraded. The water heater was about 12 years old. The doors and hardware, the windows, the kitchen and bath cabinets, the counter tops, and the light fixtures were all original. The most recent update was the interior and exterior paint that was less than two years old.
The house has about 2,000 square feet of living area; it has 3 bedrooms, 2 baths and a 2 car rear entry garage; it’s a good home, but the design is dated. There is no way to compare this house to a similar house that's one year old; no way. To do so would be like comparing a 1982 Honda Civic with 300,000 miles to a one-year-old Civic with few miles on the odometer; most 82 Civics are in the junk yard or have been crushed; most people would be appalled at how tiny, tinny, bouncy, primitive and worn out the old Civic would be. Such is the real fate of many older houses.
It's true that some older houses were better built than newer ones. For example, in the old days builders used real, solid boards for roof decking; later one half inch CDX plywood was substituted for the boards; finally Oriented Strand Board (OSB) was created as a “better” alternative to plywood. But it's not better; however, it does the job and I will take a one year old roof over OSB than a 15 year old roof over 60 year old solid board decking because in a short while I'll have to come up with a few thousand dollars to replace the 15 year old roof and the one year old roof should last a couple of decades.
Can you get a good deal buying an older house? Yes, if you keep the upgrading factor in mind. Make a list of all the items that are nearing the end of their useful life expectancy and figure out what it would take to have them replaced by a professional remodeler (remember that paint and carpet that are two years old can be used up if they have not been treated gently). Deduct a small amount of money for the value they might have to you until you replace them, and then deduct the grand total from the value of the house if it were in excellent condition; that's what the true value of the house might be to you. If you're handy, you can take care of most, if not all of the items for a fraction of the cost to have a professional do the work. You'll end up with a good deal. Naturally you'll need help from a knowledgeable real estate professional as to real values in the property's neighborhood.
Can you get top dollar when selling an older house? Yes, if you consider the paragraph above and look at it from the buyer's point of view. Replace everything in the house that's about worn out; that takes money, but it takes money to make money. If you don't have much money, then replace as much as you can that can give you the most bang for the buck. If the roof is 15 years old but still looks good, and the exterior paint is 10 years old and looks faded, buy some paint at your local paint store and paint it yourself; however, don't be upset if shrewd buyers discount for the old roof.
Want help getting the best deal when buying or selling? Call me; I'll be happy to answer your questions: (972) 814-7391. - ☺md
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