Intero Real Estate Blog

As I wrote in my last post, for today’s buyer, the Short Sale and REO transactions are the market heavyweights.

Let’s recap:

Score card so far:

REO – 2 Rounds      Short Sale – 1 Round

Round 1 – Pricing (REO comes out swings and lands a quick over-hand right – perhaps) Round One goes to: The REO

Round 2 – Timeframe (Smelling blood, the REO goes for the knockout with a devastating left uppercut to the body!) Round Two goes to: The REO

Round 3 – Disclosures (The Short sale has its Balboa moment…queue the horns) Round Three goes to: The Short Sale

Round 4 – Financing, Contracts & Condition (Short Sale is getting its second wind and is peppering REO with jabs)

One of the saving graces of the downturn in the housing market has been the re-emergence of the FHA loan. This loan has breathed hope into the lives of many lower end and first-time homebuyers.  The only downside is that with the FHA loan, not only does the buyer have to qualify, but the physical condition of the PROPERTY itself, must also. In many cases REOs have sat vacant for a long period of time before being assigned to a Realtor and actually being placed on the market. It is during this time that vagrancy and vandalism (like broken windows) often occurs.  Stoves, refrigerators, dishwashers, cabinets, toilets, etc. go “missing” or simply vanish. This rather curious phenomenon results in FHA denying financing for the purchase and the buyer cannot perform due to the fault of the property.

With a Short Sale, more often than not, the seller still lives in the home and keeps the home in fairly functional condition.  After all, they are still living there. If a problem arises, the owner can fix or negotiate repairs to be completed before the close of escrow. Most REO seller’s will not entertain any repairs as a condition of closing escrow.

Many buyers of REO’s, after acceptance of their offer, are surprised when they realize they still need to sign the banks “addendum” – which for some banks can be 25 pages long.  Have you ever read some of these documents?   The language in these “addenda” are often vague, contradictory and potentially misleading.  Legal debates are swirling around the idea that certain terms strip a multitude of buyer’s rights sometimes in direct contradiction to consumer protection laws.  A high level of discomfort comes with the realization that the “addendum” supersedes the standard contract that was originally submitted and, if you don’t sign it, the deal will awarded to a competitive offer in place of yours.  OOOOF, a straight left to the jaw!

As for the short sale, you just following the boring standard CAR or PRDS contracts where everything is written simple and plain and easy to understand.

Round goes to: The Short Sale

Round 5 – The Transaction (It’s a toe-to-toe slugfest!)

The Short Sale is a sale that requires specialized skills.  Most agents who attempt to represent a seller in this process do not have the experience, diligence, attention to detail, market knowledge, communication skills, etc. to make this a viable opportunity.  This makes the outcome for either party (buyer or seller) delayed, difficult to predict, or often times not fruitful.

Another disadvantage is that some sellers “check out” and will not, despite living for months without paying a mortgage, do what it takes financially to bridge a small gap to get the deal done at the end.

Lack of experience on the Selling agent’s side can result in poor management of the Buyer’s expectations.  The length of time it takes to close the sale, the aspect of bringing additional funds to the deal beyond the original agreement, and other factors “sour” unprepared buyers on what could be decent transactions.

As for REO, many REO Listing agents do not communicate at all with selling agents during the offer/negotiation process.  This is costly to the institutions because it can frustrate qualified buyers who may be willing to improve their bid but can’t seem to get the seller’s attention. This is also an ADVANTAGE for more skilled agents with good reputations who can find their way to the Listing agent and possibly earn a higher level of consideration for their client.

Round goes to: Draw

Final Score Card: WINNER – The Short Sale

Sometimes the price might be very tempting but take a look at the Short Sale. If the agent representing you in the purchase is a skilled negotiator and properly qualifies the listing agent’s capabilities at offer presentation, you might - just might -end up with a better deal in the long run.