Newspapers are filled with talk of the flood of foreclosures, but none that I have seen have taken a step back and defined all the different industry words for my new industry word: "SOL" (S* Out of Luck) Homes (tm), and how to buy them. 2-3% of MLS listed homes are SOL in Northern Virginia. Can your agent find them?
It might seem odd that I'm writing about how to buy foreclosures listed on the MLS since some might have just finished reading my article Attn. Market Timers! The EXACT Best Day to Buy!
Well SOL homes can get you a 5-15% discount* if you
- Know how to search for them, AND
- You have patience
- You aren't picky!
- Fully understand the risks of buying "as is"
* Side shout: BusinessWeek did a great job in their article This Old Foreclosure Buying directly from a bank avoids some risks, but don't expect a steal They both dispelled the 30-50% pennies on the dollar mentality people equate with foreclosures and how foreclosures of a year ago are different today, they no longer occur mainly on courthouse steps. They use the MLS)
So, let's go over the SOL terms:
- Pre-Foreclosure: term used by agents or sellers that are in the process of being taken to the courthouse steps since they have defaulted on their mortgage (didn't pay it). They want to sell the property before it gets foreclosed on, and oftentimes before it is taken over by the bank.
- Foreclosure: Technically a foreclosure is a house that is being auctioned off at the courthouse steps. Many people use this word incorrectly to represent a house that is in Pre-foreclosure, or has already been foreclosed on and taken over by the bank (see REO)
Foreclosures aren't occurring on the courthouse steps as much (see BusinessWeek Art) since the amount owed (the starting price for the auction) is TOO HIGH. So when the minimum price is too high on the courthouse steps, the banks take them over and sell them on the MLS through Realtors. (learn how to find these later in the article)
- Short-Sale: Usually an MLS listed house that is on its way to being foreclosed on. The bank has agreed to allow the seller to sell the home for BELOW the loan amount. For example a $500k home was bought with 100% financing. The market price is now $475k. The seller can a) bring $25k to closing or b) do a short-sale. With a short-sale, the bank eats the $25k (but the seller still gets a taxable 1099 for the difference. This process is seen as being better for the seller's credit vs
bankruptcy and foreclosure.)
- REO- Stands for "Real Estate Owned", but it really means Bank Owned. I guess buying a B.O. house wasn't too appealing. These are homes that were already "foreclosed" on. Nobody bought them on the courthouse steps and the bank took it over and is attempting to sell them, usually (but not always) for a discounted price.
- Bank Owned (same as REO)
- Third Party Approval- If you see this in a listing, it is probably a Short-Sale and it is warning the agent that some extra paperwork and time will be required.
- Auctions, "Buyer's Premium": Some auctions require a 2-10% "premium" be paid on top of the winning bid. So if you bid $500k, you have to pay $550,000. In my opinion, it is a marketing trick that auction houses use to trick sellers by saying "you pay nothing, the buyer pays our commission." Just make sure you do the math, your NET is what matters.
- Auctions, "Reserve price." Sometimes this is also marketing trick. I have seen $700k listed houses have a $690k reserve. They get people to the auction, all excited to get a deal. The auction ends and they say "sorry you didn't meet the "reserve price," here, how about a counter? Sounds like a trick to find out who might be remotely interested in the property.
- Auctions, "No Reserve." If you are an Ebayer, you know what this means. The product will be sold, no matter HOW low it goes. If you see "No reserve" it MIGHT be what I call a REAL AUCTION (send it to me, I'd love to see it).
Auction disclaimer: I am not an expert when it comes to Auctions. I still have yet to see ONE "real auction" in Northern Virginia. I think they don't exist, but I can be proved wrong if you'd like (have at me in the comments section).
Dealing with the above types of property are a PAIN.
Expect counters to sometimes take several days. And an SOL home is NOT necessarily a better deal. Somebody might have paid $500k for it with 100% financing and the list price might be $480k as they feel the waters. I saw one short sale in my building that started at $600k (they paid $590k). It was overpriced. so it sat. Then the seller/bank got serious. They did a drastic drop to $530k. It sold for full price (while I had 4 people come to me wanting to offer $480k, and they missed out). This was 1 of 2 best priced units in the building over the last 2 years. Another short-sale came on and was sold in 4 days, so be ready to act FAST.
So how many of these are there EXACTLY on the MLS?!
Homes that are SOL can be found by having your agent search the Realtor Remarks for keywords:
REO, foreclosure, bank, pre-foreclosure, forclosure*, short sale, auction, third party, 3rd party. (*9% of the time this word is misspelled!)
In Arlington:
Update to article: I thought I'd run some data from Woodbridge. To my amazement 35% were SOL! This blows my mind!
In Woodbridge
- Today there are 273 MLS homes from $300k-$325k. 97 (35%) are SOL!
MORE DATA ON 6 NOVA AREAS: 48% of MLS homes are SOL (Foreclosure etc) in Herndon ($300k-400k)
This is shocking!
If you do plan to buy, you need a good agent to know when to spot a "better deal" (remember I don't believe in "good deals" until you sell your place. See "Buyer's Market?" No Such Thing As a "Good Deal")
NEW SOLUTION: EMail alerts for SOL homes & PATIENCE.
So have your agent sign you up for alerts based on your price range AND these SOL keywords in the Realtor Remarks (different than the MLS Public Remarks). If your agent can't do it, have them email me, I'll show them how. If you don't have an agent... (sorry I tried to hold off as long as possible) welcome to FranklyRealty.com . I'll set it up for you.
Love getting your comments, so please let me know if I missed any search terms. I just added "foreclosed" with the "ED" ending. Also tell me if you think my definitions are inaccurate.
-Written by Frank Borges LL0SA Virginia Broker FranklyRealty.com
Ps. Please send typos and corrections.
pss. The volume of foreclosures and SOL homes is MUCH higher further out from DC in areas such as Woodbridge and Manassas and Fairfax.
psss. Virginia Realtors, make sure to join the new Virginia Foreclosure Group.
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I like that Fred tells it like it is. I try to explain to my clients that these properties aren't always as good as they seem. In fact, most of these properties are bought "as is" (Frank forgot to mention that :-). I find myself browsing through hundreds of listings for so many of clients because they think they are going to get a phenomenal deal from a foreclosure or an REO. You can make a lot of money in times like these...but we sure work extra hard for it!!
Lisa David
www.haymarketrealtygroup.com