The primary being: 

If you are not currently under contract that is dated prior to 4/30/2010 this extenstion means nothing to you.

Statistics from the National Association of Realtors claim that nearly 180,000 homebuyers will be affected by this extension providing more time to close and relieving the stress placed upon Title & Escrow companies across the nation.

The leading culprit to delayed closings is the ever present Short Sale.  A short sale (with relation to real estate) is defined as the sale of a property in which the proceeds do not cover the liabilities against the property.  In most cases, lien and mortgage holders on the property are asked to take a reduced amount to settle the debts often being less expensive for the banks to resolve the issue than foreclosure.

Short Sales can take up to 3-6 months to complete, although our average is around 90 days on most traditional 1 or 2 mortgage properties.  

I can imagine there are some very relieved agents out there with the passing of this extension…

LAS VEGAS NEVADA, fore example is one of the hardes hit foreclosure and loan default cities in the nation, but some investors are complaining that it’s too hard to secure a deal, and the competition is too fierce to obtain the margins necessary to make a profit.

According to a recent Wall Street Journal article, even investors with cash are finding it hard as many banks receive 20 offers in days on properties – often escalating the prices well above asking price.  Other outside groups are buying blocks of homes, sight-unseen and many investors cannot afford that risk.

Meanwhile, In Spokane Washington…
We’re seeing an increasing amount of inventory for Bank Owned Propeties.  I have made agressive cash offers on dozens, for many of my investor clients.  Most were too agressive for the bank’s liking.  Most, were extreme fixer-upper’s with no room to make the necessary repairs and sell in today’s market for profit.  Four to five years ago, we saw rapid appreciation where one gained value in their home while the grass grew, we’re not so fortunate in today’s market.  To make money on a flip, the property has to be bought right.  The numbers have to work before you buy, or they never will.

No matter how many flashy elements, slabs of granite, travertine tiles or plasma TV’s you put into a home, it’s still worth what it’s worth and if you paid too much, well good luck turning a profit.

What’s my point you ask?

My point is that buying bank owned properties is a numbers game.  You cannot get hung up on the two or three propeties you didn’t get.  Educate yourself on price, needed repairs and your exit strategy.  Make you best offer with those factors in mind, and walk away if you don’t get it.  Try-Fail-Adjust.

In 2008 and 2009, banks would jump for quick-close cash offers.  The quick exit seemed to be a viable strategy for them to get many of these propeties off their books, but it affected the bottom line poorly.  Today, banks are looking at bottom line net AND the strength of the buyer.  Most will counter a 5 day close with a 25-30 day close, and will not rush to close any sooner.   It’s become a timing game.

As a property ages on the MLS, banks strategically drop the price small frations at a time.  Depending on the age of the price redution and the current price, I speculate that most banks have a formula or range that would be an acceptable offer (at least I would if I were in their shoes).  It will take multiple offers on the SAME house over time to get the deal you want. 

Patience Grasshopper

Just as the banks have strategised a plan to yield the highest and best offers possible, you must strategize a plan to get them where you want.  The swing hard make ‘em hurt method hasn’t worked in a while (i.e. $100,000 property and offer $30,000), most times this will get shut down right away.  If your end goal was $70,000 I’ve found it wiser and more efficient to start closer to your goal and hold firm over multiple offers several week’s apart.  Don’t worry if someone comes in and pays $90,000 – you weren’t willing to pay that anyway, let them have it.  Eventually, barring any interest to the contrary, your $70,000 offer will start looking attractive.   The trick is to have multiple irons in the fire and negotiate many deals at once.  And you must have a great agent.

Like me.

The primary reason most people look for Bank Owned Homes is that they assume there’s instant equity, that cannot be more FALSE (Best said in the tone of Dwight Schrute, from NBC’s hit show “The Office”).  Many of the listing entities that manage the Bank Owned Properties (REO’s) are loss mitigation and asset management divisions looking to liquidate the banks newly acquired properties in the shortest amount of time for the highest amount of money.  Many bank owned properties start out merely under acutal market value and incrementally inch their way down in price as time passes. 

I’m sure there’s a bank formula for the way they handle their price reductions or their terms, but there’s no “golden rule” for REO’s,  I’ve seen banks take significantly less for a clean (low or no contingency) CASH offer when up against a more restrictive FHA or Conventionally financed offer.  In many cases, the quicker the asset can move, the better off and the more motivated the bank will be.  On the flip side, some asset managers are not impressed at all with cash (although, it’s hard to forget the “Golden Rule of Cash”  — “He Who Has the Gold, Makes the Rules”).

Some experts estimate that there are up to seven million bank owned homes that are currently not on the market.  This is an attempt for banks to manipulate the market inventory to help stabilize and firm up the prices on the current inventory being marketed. 

Case in point: a home a client of mine just put a cash offer in on was acquired by trustee deed (at auction) by the bank in mid OCTOBER 2009, the property reached the market the second week of January.  This home sat empty and unmaintained for over a quarter.  There are MILLIONS of homes out there like this.

My advice, do your home work on bank owned properties first.

Now the big fallacy aside, some other things one must watch out for:

1. Custom Bank Addendums – Fannie Mae and other Banks all have their own addendums, I call them CYA addendums covering the banks “Bum.”  Thes can have serious ramifications on your transaction that will affect your rights in the deal.  These addendums are not part of the standard Washington State purchase and sale agreement and it does modify some of the boiler plate.  If you have concerns or do not understand it it is advisable to get a competant real estate attorney to review.
2. Damage to property – The banks are getting a little better at winterizing homes prior to severe damage but they cannot always get to them in time.  In most cases you’ll find bank owned homes to be winterized (water turned off, antifreeze in the pipes and the water heater drained, some cases the power will be off).  It’s imperative that the utilities be activated for inspections.  In many cases the banks will refuse to do this for you and the burden to turn on the utilities is placed on the home buyer (keep this in mind when making your offer that there are sometimes increased costs when buying a bank owned home usually under a few hundred bucks).

Now there are probably a million other scenarios and hypotheticals for puchasing bank owned properties, but for the most part these are the top few in my book to watch out for.  Best advice, do your research  make a solid offer and be ready to walk away if you don’t get what you want.

According to their website, the qualifications include:

FHA Special Sales Incentive (UPDATED: 10/01/2009): Alaska, Idaho, Oregon, & Washington

October 1st, 2009

HUD will continue to offer a $100 Down Payment initiative. The $100 down payment is for owner occupants (any individual who purchases a HUD home as their primary residence for a minimum of 12 months after closing and who has not purchased a home from HUD as an owner occupant in the past twenty four months), utilizing FHA financing. This incentive is also available to owner occupant purchasers who obtain an FHA Home Repair loan. Note: Earnest Money Policies and all other contract requirements will remain the same. In order to qualify for this incentive the buyer must purchase at HUD’s appraised value or lower, obtaining a second appraisal to justify an overbid is NOT allowed, and the purchaser cannot finance closing costs, prepaids, etc. into the loan. $100 down payment financing is available on most properties through FHA approved lenders It’s a great time to purchase a HUD Home with FHA financing.

What does this mean for qualified buyers?  HUD homes can be purchased for as little as $100 down as opposed to the traditional 3.5% down.  There are some qualifications and restrictions (as with anything) but for those a little tight on finances this option may be great.

Interested?  Drop us a line.

1) How will a short sale affect my credit

2) How will a foreclosure affect my credit

The above two questions get emailed to me on a daily basis.  The answers are here.  With GREAT examples and comparisons vs. late payment on the Credit card all the way to a full blown foreclosure on the house.

Great information – happy to share it!