This is just a recent occurrence that I went through here in Zephyrhills, Florida that says something about short sales, foreclosures, and some general real estate principles. Hopefully it will help some of you avoid problems of your own in the future. Short sales are often touted as wonderful things, but in my opinion, they are no longer the bargains they used to be, nor are they the salvation for all homeowners in financial trouble. Even the National Association of REALTORS in a recent editorial reported that 80% of short sale transactions never get to closing, and that when they do actually close, they take an average of 90 days from start to finish.
Last spring I had three brothers who wanted to invest in property here in Zephyrhills, Florida. All of the brothers are originally from England, but one now lives here while the others were visiting. With the pound much stronger against the dollar now, it is like a huge real estate bargain sale in the United States for foreign investors. These 3 guys were ready to buy and had the cash to do it.
- Lesson 1 - Never turn away a cash offer without at least giving it some consideration. Especially when credit is so tight. Be willing to give a little since with a cash deal you seldom have to worry about appraisals, credit checks, surveys, etc. These deals often close in a matter of two weeks! So take them seriously in a tough market.
One of the homes they wanted to see was a short sale (not the actual home pictured above). This is when a bank is willing to accept a mortgage payoff that is less than the amount the owner actually owes. Problem is, they will not give you an amount (in most cases) that they will accept. They wait to see what the offers are, and then they tell you if it is acceptable or not. They also usually refuse to commit to what they will pay real estate agents until they see the offer. No agent wants to work for what could be VERY little money (theoretically $0), so they frequently will not show short sale properties unless it is the rare situation where the bank has guaranteed a minimum fee.
- Lesson 2 - Loss mitigation departments, they are the ones who handle short sales at the lenders' offices can take up to a month or more before they say "Yes" or "No" to an offer. This really messes up buyers who are financing since they usually lock their interest rates in with their lenders, but by the time the mortgage holder approves an offer, the lock may no longer be in effect and the buyer has to pay a higher rate of interest. It also ticks off cash buyers since they feel are ready to pay hard funds RIGHT NOW and do not appreciate the banks' disinterest. So keep this in mind "Short sales can take a LONG time to do".
So the investors and I pull up in front of this home. The yard was a mess, the home badly needed a paint job, the wooden fence around the backyard was teetering, there were several large dogs in the backyard that had dug many LARGE and DEEP holes everywhere (one right under the foundation of the home), the frame around the French doors leading to the back was rotted out, the grass was knee-high, the carpets were stained and covered with debris, the walls (inside and out) were covered with stains and cobwebs, and the smell that infused the home was horrendous. Apparently many dogs had been caged in the garage. In fact, they had cut an air-conditioning vent into the garage which violated the fire codes. Since the listing data said the home was only 10 years old, I asked the owner to confirm the age. To be honest, the home looked more like it was 30+ years old. However, the question offended the owner and after we left he told his agent to never allow our office to show the home again.
- Lesson 3 - When you are in financial trouble with your mortgage holder, do all you can to have you home looking good and cooperate in any way you can to help cooperating agents and your own agent sell your home. If, however, you are too lazy to even run the vacuum and mop the floors, do not be surprised if you are politely asked about the condition of the house. The buyers agent has a responsibility to make sure that his purchasers are as informed as they can be.
When I pulled up the history of the property, I found that in October of 2007 the owner had listed the home with an out-of-town agent for $169,900, and within a month had raised the price of this "gem" to $179,900! Apparently this agent did not realize that much nicer homes were selling for the same price. There was no way someone was going to pay that much money for a 10 year old, 1,050 sq ft, 3 bedroom, 2 bath, 1 car garage home needing major repairs that looked and smelled nasty on an unpaved street, when they could buy a new move-in ready 1,400 sq ft, 3 bedroom, 2 bath, 2 car garage, on a beautiful lot in a subdivision with low HOA fees, plus closing cost assistance and a new appliance package for that same $179,900! By the time they owners and their agent finally started to reduce the price, the home had become "stale". And even at the $110,000 when my investors and I saw it, it was a horrible deal due to the amount of work that would be needed to get it into liveable condition.
- Lesson 4 - Use a local agent to market your home. Local REALTORs know the market and can price your home correctly. In today's sellers market, this is crucial. Price it too low and you lose money. Price it too high and you will wait month-after-month. And eventually, like this home, yours will become stale so that even if you do get the price to a reasonable level, both buyers and sellers will wonder what is wrong with the home since it has been on the market so long. Even if they do make an offer, it will be much lower since they will believe that you are now more desperate to sell. So get someone who knows your area to market your home. Someone who works within 10 miles at the most. The closer the better!
So, two weeks ago, several months after we first saw this home and got banned from it, guess what pops up in the MLS? A house on the same road. But this time it was owned by a bank and was priced at $99,900! One of those same investors wanted to see it and when we pulled up out front, it was the SAME place. Apparently, its condition and price had turned off everyone, and the property had gone into foreclosure. The former sellers were now long gone and a new more savy agent had it listed. We toured it and though it had been cleaned up a bit, it was of course still in need of a lot of work and investment. But now that the price was better my buyer was interested. After some negotiating, we arrived at a price of $80,000 which the bank accepted in a matter of one day. With foreclosures, the banks often like to get them off their books by the end of the month if they can. Since my buyer was paying cash that made his offer very attractive as I mentioned previously in this post. Now, with an investment in repairs of around $10,000 my customer will have a home that I could sell today for about $130,000! Tidy profit for him. As it is, he will be renting it for nearly $1,000/month and will likely sell it in a couple of years for an even bigger profit once the market rights itself, which it will eventually do. The former sellers who ruined the home, were rude to us, and made some very unwise decisions will be feeling the effects of their actions (and inactions) for many years to come.
- Lesson 5 - Review the four previous lessons. If you are getting into financial troubles and feel like you should sell your home: 1.) You need to get your home ready for sale. This applies even when you are not forced to sell, but just want to move to another residence. 2.) Use a local REALTOR who will price your home correcly from the start and give you good advice about making it more attractive to buyers. 3.) Never ignore cash buyers. Even if you do not eventually accept their offers, consider carefully the benefits that a cash deal can offer when you are in financial troubles. 4.) Remember that if you are trying to do a short sale, you need to do everything you can to cooperate with the lender, agents, and buyers to get the deal done. The lender will make things slow enough as it is. Drag your feet and you could end up with the buyer losing interest and your home going into foreclosure, just like the owners of the home I spoke of in this post. And, oh yeah, never be stupid enough to ban an agent from your home. He or She may be the one that ends up selling it for you in the end. In a tough market, a good agent can be one of your best friends!
If you have questions about this topic or just want to contact me, you can reach me at: 813-783-4444 or e-mail me at: firstname.lastname@example.org I also invite you to stop by my webpage at: www.jelwell.century21bnr.com
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida