This post is intended to help you understand the types of sales in today's marketplace. Whether you are a first time home buyer, or it is just one of many times you've purchased real estate, today's market is simply not the same as yesterday's. Read on to understand what you might find once you start your great house hunt.....
Traditional Sales If the prices are right, these are the best transactions! This is when "Joe the Plummer" is selling his home, and there is no third party involved on the seller side of the transaction. The contract is more “normal” in nature, allowing reasonable negotiations between the parties. Each party genuinely hopes for the sale to be completed and therefore works together to meet deadlines and ensure everything is resolved to the mutual satisfaction of all parties. Each party is likely only conducting one or two real estate transactions at a time, which are usually the largest financial considerations in that particular moment in time ~ therefore, each party gives this transaction his priority attention, and the process goes more smoothly as a result.
Considerations
- Generally, private homeowners can not compete with the aggressive pricing strategies of a bank/seller.
- Properties are often in better condition, requiring less fix up. Owners may also complete some repairs.
- Private owners generally do not consider a cash offer more valuable than common financing terms.
Short Sales In these sales, the Seller must negotiate with their lender(s) for approval before selling. They may be asking for full or partial debt forgiveness or a note payable for any deficit. Banks agreement to these sales are dependent on the ability of the family to repay the debt, and the circumstances that have changed since the loan was originally approved. This process can take several months, and sometimes does not result in a closing. Considerations:
- How many lenders are involved?
- What is the hardship/ability of the owners to repay?
- Will they be asking for debt forgiveness or a note payable?
- Who is negotiating with the bank and what is their experience level?
- Which bank is it; what is their process and has it been started?
Contract considerations:
- Longer contract periods with floating deadlines, all based on the approval timeline of the bank.
- Banks generally will not agree to a below market sale – this is determined based on an independent appraisal they conduct.
- While owners may consider doing some repairs, generally contracts are “AS IS”.
- Inspections are usually OK, but buyer can not ask for any repairs; their only choice is to terminate the contract.
- Cash offers are considered favorably, but not to the extent they are with bank owned properties.
Bank Owned (Post Foreclosure) Properties: These tend to be some of the best deals available in today’s market. Contract considerations:
- Banks are pricing aggressively, and when they do, often there are multiple competing offers for properties. You may consider submitting an escalation addendum in these cases, although some banks will not consider escalation addendums during negotiations and simply come back and ask for “best and final”, or accept an alternative offer.
- Cash is king! Banks realize the struggles and risks involved in some buyers obtaining financing. In addition, they are aware of property condition guidelines from FHA or other types of loans, which might REQUIRE repairs prior to closing… and they want to avoid this.
- By targeting homes which might not qualify for government financing, and making cash offers, you may be able to buy at a more reduced rate.
- If you are using a government loan to purchase, be prepared to have offers on REOs rejected.
- Often properties are in “fixer upper” condition, and properties are sold strictly AS IS.
- Inspections are usually OK, but buyer’s only recourse is contract termination.
- Banks require that you agree to the terms in their addenda, with NO CHANGES.
- Some banks require certified funds as deposit and/or specify who will hold the deposit.
Banks are like the military – it’s “hurry up and wait”. The timeline looks something like this:
Offer Submission
- 3-10 days later, Offer “Acceptance” (verbal or email)
- 1-2 days later, Counter Offer sent w/bank addendum
- Within 1 day – resubmit offer w/ acceptance of bank terms
- 3-10 days later, Ratified Contract.
Closing is as specified in the counter offer, which is generally a fixed date. Challenges here become getting utilities turned on to complete the home inspection; completing title searches; & obtaining HOA docs within the time frame permitted by the contract.
Banks will close AFTER you, and you will not get possession until they’ve signed off on everything. This can cause delays, I have seen more than 1 take over 2 weeks. I suggest attempting to negotiate a penalty to the banks should this occur.
Read more about Buying Post Foreclosures/REOs HERE.
Auctions: Public Auctions/Courthouse Steps: These are the foreclosure auctions. The vast majority of these are purchased by the bank who owns the mortgage/lien, which is generally more than the current market value. There are some opportunities here, but they are more limited than many expect. There are also more challenges in these transactions. Generally, no contingencies are allowed. Should your financing fall apart, you will be considered in default and not able to recover your deposit. Private Auctions/Ballrooms or at property: These are often done by banks (or other parties) and most commonly are done with a RESERVE. Again, there are sporadic opportunities here. Terms are very similar to those by any Bank Owned Homes. Be sure to understand the purchase agreement, as there may or may not be allowances for contingencies.
Read more about Real Estate Auctions HERE.
These are the primary types of sales we are seeing today... depending on your specific circumstances, you can decide which of these types of sales are ones that you would like to consider for purchase; and now you have at least some idea what you might encounter.
