An overview of the process and what to expect as a buyer

By Dan Mullarkey, REO Specialist with Re/Max Excalibur Realty

So, you're in the market for a home and you've heard the buzz about the tremendous deals available on REOs.  First off, you're asking yourself what is the heck is an REO? This is a term that you will hear often when discussing foreclosures and the next section will explain what this term means.

REO is an acronym meaning "Real Estate Owned", a shorthand term for a foreclosed property.  This is a property that was previously mortgaged and has reverted back to the bank after an unsuccessful foreclosure auction.  REO is not a term that banks want to see on their books because after all, they are in the business of lending money for homes, not managing them.

Many of these properties do not sell at an auction for several reasons.  First, the property usually does not have any equity to satisfy the loans and liens, as many homes bought over the past few years have negative equity.  Most foreclosures do not even receive a bid because the minimum bid includes the loan balance, attorney fees, any accrued interest and all costs associated with the foreclosure process.  To even bid on these properties, you need a cashier's check in hand, ready to go, for the full amount of your bid.  If you are the winning bidder, you receive the property in complete "as-is" condition-meaning someone could be still living in the home, other outstanding liens against the property,  and possible structural or environmental issues with the home that could cause enormous problems for you later.

Since in today's market most people who purchased in the last few years are upside down in their homes, very few of these auctions are successful.  After all, if the owner had equity in the home, they would have sold it versus foreclosing. If the auction is unsuccessful, then the property reverts back to the bank.  It is now referred to as a REO, and the bank wants it gone ASAP.

Now It's an REO, What's Next?

So now the bank owns the property and the previous mortgage loan is gone.  Next issue is, "How does the bank sell their REOs?"  Most banks hire an outside company, called a Default or Asset Management Company to handle the sale of the property.  These companies usually take a percentage of the commission that they give to a local real estate broker or agent to sell the property.  That broker in turn offers the buyer's agent a portion of the sale, same as any other real estate transaction.  The Default Management Company employs asset managers who may manage several hundred properties at once, in many different states.  The local REO agent is their eyes and ears to the sales process and has many duties to make sure that the property is in saleable condition and being marketed aggressively.

The listing agent is in charge of arranging cleanup and even eviction if the former owner or a tenant is still occupying the property.  After the home is vacant and cleaned up, the agent turns in their BPO (Broker's Price Opinion) which is similar to an appraisal but completed by a Realtor to give the bank an idea of what the home will sell for.   Finally, the home is listed on the local MLS and ready for offers.

Offer Received!

Once an offer is received, the bank may take several days to respond.  It is customary with some banks to always counter the offer, even if received at full price---this practice is diminishing though as in many areas banks are competing with other REOs and becoming more motivated to sell.  As a general rule of thumb, the longer the home has been on MLS, the more motivated the bank is to sell it at  lower than list price.  If more than one offer is received, the bank may request a "Highest & Best" from all parties- meaning that each buyer has 24 hours to submit their best offer, not knowing where the other offers stand.  This is difficult situation for buyers and another reason to be working with an experienced REO agent to help advise you on how to proceed.

Offer Accepted!

Okay, so the bank has accepted your offer and now it's time to order inspections, right? Well, it might take a few days to get the contract signed by the bank, even after you have an acceptance.  During this time, they usually have a policy where they can still look at and accept other offers.  So again, make sure your Realtor is working to get the contract signed ASAP, otherwise you could still lose out on the home.  The bank will most likely have their own addendum to the purchase contract which supersedes the contract you submitted, SO READ IT CAREFULLY!!! They may change terms such as: length of inspection period, contingencies, per diem charges if buyer does not close on time, seller performance, seller concessions and various other items.  The main purpose of the addendum though is to release the seller from any liabilities and warranties of the home since they have never occupied it.  When buying from a traditional seller, the buyer is given a disclosure statement-with REO you will never see one.

Inspect, Inspect, Inspect!!!

I ALWAYS recommend getting a professional home inspection, no matter the age or condition of the property. This can be even more important with REO as items not seen with the naked eye may be huge problems in the future.  Remember, you are not limited to just a general home inspection...you can use a roof inspector, HVAC specialist, plumber; whoever you feel will give you the best advice for the specific mechanics of the home.   Home inspectors are not roofers or HVAC specialists, so their scope can be limited on some items.   Get the inspections done early and quickly as time is of the essence, some banks limit the inspection period to 5 or 7 days.

As-Is, or Is It?

True, REO is sold As-Is at the time of purchase unless noted otherwise.  But what if the A/C is inoperative or a leaky roof is discovered?  Many banks will fix the mechanics of the home to qualify it for financing, especially now with FHA being used so often.  

What if you have a laundry list of issues that are discovered that were unknown at the time of contract?  Depending on the demand for the home and the length of time it has been listed, some banks will either make additional repairs or credit the buyer for repairs.  Again, this is where an experienced REO agent comes in handy.  They can truly save you money and negotiate with the bank to make the home acceptable to you.   After all, the parties involved in the transaction want to see it close just like any other home, and you as the buyer may have more leverage than you think.

Loan Docs Are In, Ready To Close

After the bank has made any necessary repairs (the appraiser may need to visit the home again to confirm), the closing process is pretty much the same as any other home.  Escrow length is typically 30-45 days but can be quicker depending on the buyer---I've closed cash deals in under a week and financing in less than 3 weeks.   The seller usually signs the closing docs fairly quickly.  Once the buyer's loan funds and records, the home is yours!  Now it's time to get moving and go enjoy your new home!

A few things to remember about REO:

•1)      Contrary to late night infomercials, they are not sold for pennies but are usually priced aggressively for a quick sale and can be a great bargain.

•2)      It may take some time to get an acceptance, so patience is a virtue.

•3)      Working with an experienced REO buyer agent does not cost the buyer and can save time, headaches and money.

•4)      Fully inspect the property as they are typically sold As-Is.

•5)      Many REO listing agents deal in volume and may have hundreds of properties listed.  Their interests lie in selling as many REOs as quickly as possible so working in the buyer's interest is not a priority---one more reason to use a REO buyer agent.

REOs can be a tremendous value but there are many things to consider.  Working with an experienced agent can help guide you through the potential pitfalls and is absolutely a vital asset when considering these types of properties.

For more information or to search Phoenix Area homes, please visit www.DanMullarkey.com

Copyright 2008 Dan Mullarkey, Re/Max Excalibur Realty

 

 

 

 

With almost half of the homes currently listed on Arizona Regional MLS being vacant, I'm just wondering how they are selling when compared to occupied homes.  I decided to run some numbers and see if there was any correlation that suggests vacant homes are selling quicker.  Typically a seller would want to get rid of a vacant home faster than if they are living there or have it occupied by a tenant but of course this isn't always the case.  Let's take a look at some numbers and see if they have something to say.

I ran two sets of numbers-the entire ARMLS and then only Phoenix.  I compared these vacant homes with sales from last month, October 2007.  Currently we have 57,291 active listings with 27,815 being vacant, or 48%.  Of those active listings, 9,942 are in Phoenix and 4,390 of those are vacant-44%. 

As for sold homes in October, we had 3,467 sales out of our 57,000+ listings, only 6% of the entire MLS inventory.  In Phoenix numbers were a little better, with 756 sales out of 9,942, 7.6% of the Phoenix inventory. Okay, now lets see how many of those sales were vacant homes.  Of the 3,467 sales on the MLS, 2,103 were vacant, 60% of all solds.  Phoenix was about the same, 441 vacant homes sold out of the 756 sales, 58%.

Now there's one more set of numbers that is interesting, what percentage of vacant homes sold out of the vacant listings? Remember that only 6% of the entire MLS sold last month, and only 7.6% sold out of the Phoenix inventory. Now let's see what that percentage is with the vacants. In Phoenix, 441 vacant homes sold out of the 4390 vacant listings, 10%.  Compare that to 7.6% of Phoenix homes sold and you have a gain of 2.4%. Of the entire MLS, 2,103 vacant homes sold out of the 27,815 listings, 7.6%, an increase of 1.6% over the 6% across the board. So, there was more vacant homes sold than occupieds, but not a significant amount.

What kind of conclusions can be made from this data? To me, it suggests that vacant homes are selling better because sellers are financially "pinched" more-so than if the home is occupied by an owner or renter.  The difference is small which shows that many sellers are simply not able to drastically discount these vacant homes because of lack of equity.  Sales falling less than 10% of inventory is probably the most important number that we need to be concerned with.  I know that everyone keeps saying it, but this really is a terrific time for buyers to find a great deal. Short sales are going to grow and maybe my next analysis will be to see how those sales are going.

We've seen it happen in California and other coastal states.  Generally, property values are significantly higher the closer you get to the beach. Arizona doesn't have the coast, but we have the desert preserves, which offers amenities, recreation, and aesthetic beauty, just like the ocean.  Now obviously this can't be an "apples to apples" comparison, but with our temperate climate and year round recreation, desirability comparisons can be made. 

In my opinion, living near a preserve has many benefits. Miles and miles of hiking and mountain biking trails, nature in your backyard, and the aesthetic beauty of the mountain scenery are just a few. The good news is developers in Phoenix are now required to keep 60% of the preserve's 150 miles of boundaries, or about 90 miles, open to public access.  This means that they cannot put up miles of homes and block walls limiting access to the public.  That is exactly what happened in Ahwatukee Foothills, where 11 miles of walls cut off access to South Mountain Park.

This is going to have a big impact on the new communities surrounding the preserves.  Take Fireside at Norterra, by Del Webb for example.  They are embracing the fact that their 1800 homes are located within a half mile of the new Sonoran Preserve of Phoenix. Most of the culdesacs and  streets follow the new requirements, and the community center directly backs up to the preserve.  The developer is landscaping the bordering areas and building a trail system that will link into the existing preserve trails. Even the promotional material says the community has "an intelligent land plan that welcomes the surrounding desert."

As our city continues to develop, there will be an increased demand for these areas...rural suburbs, so to speak. Imagine the convenience of nearby shopping, restaurants, and easy freeway access surrounded by the beauty of the Sonoran desert.  The desire for these neighborhoods will continue to increase as the retail continues to fill in, turning these subdivisions into a "convenient desert oasis".  With our market currently geared towards the buyer, it is a great time to purchase in these areas, both for ownership and future investment benefits.

Stetson Hills is a picturesque community, developed expressly to take advantage of the beauty of Deem Hills, and the vistas they provide. This locale, comprising over 900 homes, was developed to render a variety of friendly neighborhoods, providing a large diversity of home styles and sizes. The community, which encompasses a grade school (Stetson Hills Elementary), and borders a high school (Sandra Day O'Connor), includes 95 acres of dedicated parks, washes, and common areas. These interfused open areas enhance the feeling and beauty of the community. Builders include Morrision, TW Lewis, Pulte and Shea. Homes were constructed between 1999 and 2001 and vary in size frome 1200 square feet up to over 4000.

It seems as though we have had an increase in winter visitor population over the past few weeks.  Many seem to be ready to purchase winter homes now that our market has cooled off and great deals abound.  Hopefully this gives our market a nice "jumpstart" that we could really use right now as we approach the slower winter months.

Currently there are 19 homes on the market with an average list price of $331k for 1963 sf...$169/sf. 17 homes have sold this year for an average of $311k for 1844 sf...$169/sf.  So, homes are priced right and are currently taking about 2.5 months to sell.

Compare this to 2006, where we had 18 homes sell for an average price of $328k for 1936 sf...$169/sf.  Those homes took 94 days to sell.

So, some positive news!!! In a down market, this community has not depreciated from last year and homes are selling quicker, definitely a good sign:-)

For more information, check out http://www.danmullarkey.com

Wildcat Ridge is a North Phoenix neighborhood located near the Desert Ridge marketplace, a shopping and dining hub of the North Valley. There are just under 300 homes built between 200-2002 and the average size is 1880 square feet.  The biggest draw of this neighborhood is the affordability of the homes when compared to the surrounding neighborhoods of Aviano and Fireside at Desert Ridge.  Wildcat Ridge is located just north of the Loop 101 and SR51 interchange.  To access the neighborhood, go north on Tatum from Loop 101, head west on Deer Valley Rd., head south on 40th St and then make a right into the entrance on Potter.

Location

Wildcat ridge is located just north of the Loop 101 and SR51 interchange. To access the neighborhood, take Tatum Rd north from the Loop 101, head west on Deer Valley Rd, head south on 40th St, then turn right on Potter.

Schools

Wildcat Ridge is in the renowned Paradise Valley School district with both the elementary and high school within a few miles.

For more information and a list of homes for sale in Wildcat Ridge, visit http://www.danmullarkey.com

There are currently 12 homes on the market for an average list price of $371,057 for 1,893 sf...$196/sf.  We have 12 sold homes this year for an average sales price of $362,991 for 1,883 sf...$192/sf.  Right now it is taking 4.5 months to sell.

In 2006 we had 19 homes sell for an average of $394,542 for 1,882 sf...$209/sf and it took just over 2 months to sell. That's over a 6% decrease this year and we are approaching the slow months. My advice...hold onto your home if you can for the next few months, get it rented, or be prepared to price it WAAAAY less than comparables.

For more information, check out www.danmullarkey.com