By This Intero Insider – Video Series brings you Dominic Nicoli, one of our top real estate agents at Intero Real Estate Services from the Los Altos office. He speaks candidly with Intero COO Tom Tognoli and shares his insight and projections on today’s real estate market from luxury real estate to foreclosures – where we have been, where we are now, and where we are headed.
Posts Tagged ‘REO’
Confessions of an REO Buyer’s Agent
By One of the great things about being a Realtor is that the profession is always changing. Every year I try to figure out what is on the horizon for this world and how I can get involved in what is new. Despite the relatively few number of REO properties in my market area, they do exist and I have had clients interested in properties that are REO, banked owned and being sold through the multiple listing service. This has lead me into a world that is sometimes more bizarre than Wonderland and definitely harder to understand than astro-physics. But as I said, I love learning new things, and this past year has been nothing if not educational. So here is a summary of what I have learned.
1. Most new buyers have absolutely no idea how to go about buying a bank owned property and have the unsubstantiated notion that the bank will be so grateful to have any offer they will go 30% less than list price, regardless of how low the property is originally listed. Here is my version of the story: Banks generally list the properties 10-20% below similar properties in the neighborhood with the hopes of getting multiple offers. Most of the REO homes in the bay area sell between 5% under and 20% over list. Many of the properties that sell under list price have been purchased by all cash buyers even if there was a higher offer with a loan contingency.
2. Speaking of contingencies here is the order of preference from the bank for financing: cash, conventional loans, FHA, VA loans. No loan contingency will get the banks attention. I did manage to get my VA buyer an offer accepted but he lost out on a number of properties first because of cash offers. Also, the condition of the property requirements for FHA and VA loans are so stringent that many REO properties do not qualify. It is a little easier to get a condo or town home to get thru the condition contingency, but the owner occupancy rate and delinquency rates sometimes derail the process.
3. Inspection contingencies were always the norm because the banks provide no disclosures or reports. Unfortunately this leads to a very high percentage of transaction falling through. Banks definitely prefer no inspection contingencies, so a buyer who inspects before making an offer will have an advantage. This means if you find a home you really want that is bank owned it is a good idea to give the most generous offer you are comfortable with and inspect the house ahead of time. It costs some money, but it is important if you are in a multiple offer situation. I had clients beat out 12 other offers on a very rare bank owned property in Palo Alto by presenting an offer with no loan or property contingencies since they did their inspections before making the offer.
4. If you do need to get a loan, many of the banks will ask you to get pre-qualified with their own bank or with a preferred lender. It is almost impossible to use a mortgage broker for your pre-approval letter so be sure to have a pre-approval from a direct lender and then get the pre-qual from the bank’s preferred lender. Some banks, like Bank of America or Chase will give the buyer some incentives if they use that bank to purchase the house. I had one client who was buying a foreclosure from Countrywide. They agreed to use Countrywide for their loan and when it came time for the appraisal, the appraiser said Countrywide could not lend on the house that they had just foreclosed on because it needed a new roof. I know it seems ridiculous, but I promise I am not making this up. The good news for my clients was that since they could not buy the house from Countrywide with a Countrywide loan without a new roof, Countrywide agreed to put a new roof on the house. Not only that, but the Countrywide appraiser said their house was worth less than my clients had offered and less than what the previous Countrywide appraiser said, so Countrywide agreed to lower the price. I am not convinced any of this would have gone my client’s way if they had used a different lender.
5. Patience is a virtue. You may hear something in a few days and it may be a few weeks after you submit an offer. If you do not get your offer accepted you may never hear back from the listing agent. It is unlikely there will be any phone calls unless your offer is accepted. E-mail is the best way to communicate with an REO listing agent. Some REO agents are using Twitter to update the status of a listing, but I have not found that to necessarily really be up to date. One Friday afternoon I got a call from a listing agent telling me my client’s offer had been received and he thought we would get an answer on Mon. This was a home that had received 13 offers, but I knew if he called me it meant we had a very competitive offer. If you do hear back the first contact may be a “counter” which is just a worksheet asking if you want to make your offer better. You can do that, or re-submit your original price and terms. After that, if your offer is “accepted” it just means they have accepted your offering price. You will get an addendum that negates most if not all of the terms you wrote into your offer and changes them to the terms the bank wants. You can accept the addendum or counter things out. If you are in a multiple offer situation and you counter out some of the terms in the addendum another offer may be considered, or they may stick it out with you.
6. Once in contract, the listing office will generally stop treating you like Public Enemy Number 1 and the staff will take over. At this point it is in everyone’s best interest to get the deal closed so they tend to be pretty co-operative. The most important thing is to follow the timelines for contingency removals and closing. If closing is delayed the buyer will have to pay a per diem charge, usually $100-$150 a day. It is not worth fighting it, you won’t win, and the addendum will say the bank can cancel the contract at any time for any reason. I had a transaction where the title company delayed the close by 4 days because they could not get the HUD 1 statement right. This was a title company chosen by the bank, but my client had to pay for them so my client had to pay the 4 day late fee.
So if you still think an REO is for you I say go for it. You can get a house for less than market value in some neighborhoods, and in others REO’s may be one of the only options. Just go in with your eyes open, thick skin, and a lot of good humor and patience.
If you have any questions or just want to commiserate feel free to contact me.
Marcy Moyer
Intero Real Estate Services
marcy@marcymoyer.com
www.marcymoyer.com
650-619-9285
D.R.E 01191194
Top 10 Silicon Valley Real Estate Trends for 2009
By As 2009 draws to a close – you’ll soon be reading lots of top 10 lists for the movers, shakers, and trends of the year and the decade! In the spirit of being just a little ahead of the crowd, here’s our list of the top Silicon Valley Real Estate trends of 2009:
1. Low Interest Rates – with More Strings – Interest rates have been low this year, with periodic dips into historic record ”low” territory. These great rates, though, come with seemingly ever-changing requirements and conditions. Selecting a great financing source who can get you great rates AND help you navigate through the process has never been more important.
2. We’ve Got to Keep It Together For Longer – With the changing lending guidelines, it’s been taking longer for properties to close escrow and having a signed purchase contract did not automatically mean a closed escrow in 2009. Having a black belt negotiator on your real estate team has been critical this year.
3. “Turn Key” is Hotter than Ever – A few years ago – buyers could purchase a property & count on some quick appreciation to pay for a remodel in just a little time. Now – buyers can’t count on home appreciation to finance a remodel in the near term & are looking for great condition, move-in ready homes to buy (as if location and condition ever go out of style in the world of real estate!). On the other hand – for buyers seeking to purchase a property in a high-demand area like Palo Alto or Cupertino – it may pay to look for properties needing some work. If you can see the potential in a fixer – you may have fewer competing bids from other potential buyers.
4. Buying a Silicon Valley Foreclosure is not as Easy As It Sounds - Some of the busiest agents in any real estate office are the ones listing “Real Estate Owned” or REO properties for the banks. Buying one of these properties means navigating a maze of bank-specific requirements for making the offer, competing against multiple offers (some properties are getting 20, 30 or even 50 offers), and positioning your offer against “all cash” investors. Finding a deal & making sure it stays a “good deal” through the process is not for the faint-of-heart!
5. No Shortage of Short Sales – over the course of 2009 – we continued to see properties listed for less than what is owed to the lender(s) – resulting in a short sale requiring lender(s) approval to go through. We’re starting to see short sale listings where the lender has approved a short listing price – allowing the whole process to go smoother and quicker.
6. The Year of the First-Time Buyer – with more affordable home prices, the First Time Home Buyer Tax Credit, and sweet interest rates – many of the homes sold in 2009 went to first time home buyers. In the final months of the year – we are starting to see more and more “move up” buyers rousing the mid and higher-end price points. Welcome! Please bring friends! This is a trend we want to see continue & grow in 2010!
7. Deal Hunting in Palo Alto – Where’s the deal on a single family home in Palo Alto for less than $300,000? The media in 2009 did a fantastic job of painting the picture of real estate in free fall, and we went through a period in the spring where every day brought Internet inquiries looking for the extraordinary deal in Palo Alto. According to the MLS – the least expensive Palo Alto single family home sold so far in 2009 went for $703,000 for a 67 year old, 703 square foot cottage with foundation issues.
8. Your Home May Have a Bigger Electronic Footprint than You Do - Social media sites like Facebook and Twitter are 2009 Trendsetters above and beyond the world of buying and selling dirt. In real estate, though, the savvy home seller now ensures that their Real Estate agent is marketing their property through multiple Internet channels. Wouldn’t you want 30 million visitors at your open house – especially the ones who can’t leave foot prints on your new carpet?
9. Welcome to California! – We are working with an increasing number of clients who are relocating to Silicon Valley for a new job. It looks like both our job market and our real estate market are picking up! Welcome!
10. Less to Pick From, More Competition – And finally, in many areas of Silicon Valley – we are seeing fewer homes on the market. In fact, for Silicon Valley overall – more homes are “pending sale” than are actively for sale. For buyers – this means that there are fewer homes to consider and more competition to get your offer accepted. For sellers – it means that there are fewer competing properties. This sets the stage for an even brighter 2010!
We wish you the best holiday season & look forward to serving you and your referrals in 2010!
Short Sale vs. REO: Buyer “Thunderdome” Part 2
By 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.
SHORT SALE vs. REO: Buyer “Thunderdome” Part 1
For today’s buyer, the Short Sale and REO – real estate owned property – transactions are the market heavyweights.
Let’s go a few rounds weighing the pros and cons to see how they compare!
Round 1 – Pricing (REO comes out swings and lands a quick over-hand right – perhaps)
The biggest and most powerful draw the REO property has on buyers is typically lower pricing when compared to other homes on the market. In San Jose lower prices have enticed so many buyers that, for the first time since 2005, there are more pending sales than active listings. However, there is no Tyson-like knockout because with lower prices comes competitive bidding which drives the price up to where the deal is, in many cases, not so hot. Case in point, we recently listed an REO on E. Duane Avenue in Sunnyvale and within 48 hours had 18 offers!
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!)
A huge complaint about the Short Sale is the uncertainty of outcome and the time frame – they take too long! There are Pending Short Sales right now that have been waiting for lender approval for over 9 months! The majority of REO offers can be ratified within 7 days and closed in 30 days. This gives the REO a huge advantage. Short Sale’s knees are a little wobbly at this point but somehow manage to stay upright. Why? Thankfully many major lenders have finally recognized the value of the short sale and are beginning to streamline the approval process. In the case of Wachovia Bank in Santa Clara County they are pioneering a program where the short sale approvals happen at the local level. They have staff that actually discuss and assess the situation with the homeowner. Their approval turnaround time – from offer submission to final approval - can be as timely as 5 to 10 days. In general, private parties are typically more nimble in their ability to respond and make decisions related to the transaction – far less “bureaucracy” in this process. Short Sale survives REO’s early barrage and is saved by the bell!
Round Two goes to: The REO
Round 3 – Disclosures (The Short sale has its Balboa moment…queue the horns)
As an REO listing agent myself, it amazes me that buyers and/or their agents sometimes don’t get it – There are LIMITED SELLER disclosures in a REO transaction. The seller is an institution – they have never lived at the property. They have never seen the property, much less know its history. Apart from the Natural Hazard Disclosures and a few mandatory disclosures, you have no idea what has happened to or around the home. This is where the Short Sale has a HUGE advantage. The seller most likely occupied the property and has a legal obligation to disclose everything they know to a potential buyer. Out of nowhere, Short Sale regains his legs and starts landing body punches to REO!
Round goes to: The Short Sale
This match is just heating up! Come back for Part 2 and see who will win.
The Intero Insider
A weekly e-newsletter with fresh market data and candid insights from Intero CEO Gino Blefari
