Short Sales, Foreclosures and a Big Secret

By
Managing Real Estate Broker with San Diego Previews Real Estate CA BRE# 01101958

Short sale gavelIt is difficult to avoid the subject of short sales and foreclosures when discussing real estate these days.

We receive ongoing emails and calls from people wanting to buy short sales and foreclosures because they want the best deal possible. They believe that the best buys can only come from bloodied sellers and lenders-and that somehow real estate agents are the best bloodhounds of all (which is often true).

There's this misconception floating around that if a lender is willing to shave off some of the debt owed on the property and sell it for less than what is owed,  it must be a good buy. The same logic is also applied to foreclosures.

But reality sometimes paints a different picture.

Many of our San Diego clients have been able to get outstanding buys on real estate not through short sales or foreclosures, but from the best kept secret of all:

MOTIVATED SELLERS.

And it makes a lot of sense. If, as a savvy real estate agent, I decided to sell my own home in today's market at the best price and within the shortest time frame possible, I would:

1. Stage the home.

2. Price it 3 to 5 percent under the competition. (Hear that, Freakonomics?)

In short, I would compete with any short sale or foreclosure competitors in pricing because I can, and that's because I have enough equity in my home to do so. There are also more sellers in my position than those who are in over their heads.

Hence, it makes good sense to work with a Realtor who is in tune with seller motivations and local market conditions-and who keeps an ear to the ground to hear market rumblings as well as occasional agent gossip that doesn't appear in MLS descriptions.

In times like these, working with a knowledgeable and wise real estate professional may be one of the best investment decisions one could make. And when looking for the best buys in real estate, pay attention to short sales and foreclosures, but look even more closely at seller motivation.

Read also:

Short Sales in the Luxury Home Market

Short Sale Trauma Drama

Home Pricing Dangers

Real Value in Real Estate Gossip

San Diego Home Home Losses Hit New High

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Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Roberta.... you make some valid points. But what about those that don't have much equity?  Then what?  How would you approach that client?  thanks, jeff

                                                                                                             jeff belonger

May 02, 2007 05:09 PM #1
Rainmaker
237,535
Marlene Bridges
Village Real Estate Services, Inc. - Laguna Hills, CA
Laguna Homes|Laguna Condos|Laguna Real Estate
Excellent post.  You are so right that the majority of home sellers do have equity.  There are some sadly who don't have that luxury and are in over their heads.  Have you had much success in negotiating with banks for short sales?
May 02, 2007 05:12 PM #2
Rainer
21,127
Jason Vombaur
Keller Williams - Vancouver, WA
I tell clients that Short Sales are not always a good deal. The main key is to find you a home that meet all you needs at a great price. This may be a short sale or may not be.
May 02, 2007 05:16 PM #3
Rainmaker
197,711
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes

Jeff: When there is little to no equity, it is time to roll up our sleeves, find a patient buyer and go to work on the lender(s). It is not a pretty business.

Marlene: We have had mixed success in negotiating short sales with lenders. Some are better staffed and more responsive than others, while some dawdle and let the property go to foreclosure. Grrr.....!

Jason: You are giving your clients sound advice.

May 02, 2007 05:22 PM #4
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Roberta,... no it's not..... and if you can get a good lender to help with that buyer, looking to make a deal work, that can help to. I have done that on several occasions. thanks

And I do agree, about working with a realtor that knows the markets conditions & seller motivation. 

                                                                                                             jeff belonger

May 02, 2007 05:26 PM #5
Rainmaker
197,711
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes
Jeff: You may be onto something, A lender who would join the Realtor in helping to negotiate a short sale might be helpful. On the other hand, there's that saying about too many cooks....:-)
May 02, 2007 05:35 PM #6
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Excellent points, Roberta. So many are looking for that killer deal and yet the short sale and foreclosure are rarely, if ever that, for a host of reasons. It saddens me to see so many who are forced into those situations (although admittedly some may have laid the paths to their own destiny) and due to the circumstances cannot extricate themselves. I've seen few banks that appear to be working effectively with the sellers and the buyers with a good offer to finalize the transaction. Some appear to not know what they are doing, while others perhaps don't care and let it go to foreclosure. But the interest on the part of buyers continues. Your strategy is a good one!

Jeff

May 02, 2007 05:56 PM #7
Rainmaker
147,071
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
Roberta- Nice post.. I'm also getting a number of calls wanting a good foreclosure deal.. It's hard to ge t people to understand that the best deal may not be a foreclosure or short sale but a regular owner who is ready to sell. As Jeff noted above.. Banks have forgotten all they learned in th 90's and now don't seem to have a clue how these things should work
May 02, 2007 06:56 PM #8
Rainer
24,065
Marc Brinitzer
Big Valley Mortgage - Sacramento, CA

And at least in those cases where the seller still does have some equity, you can actually get an escrow closed in a reasonable period of time!  I've had two short sale transactions recently with the buyer approved, docs in escrow and signed for two months, only to have the lender who original agreed to consider the deal come back and decline.  Ninety days of everyone's time wasted.  How many buyers can afford to wait that long?

May 03, 2007 12:53 AM #9
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Roberta... I don't have to be the cook, just the waiter and busboy. ;o)   I'll take the application and clean up after all is done, when I get that deal to closing and make it work for all.  

                                                                                                              jeff belonger

May 03, 2007 01:28 AM #10
Rainmaker
197,711
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes

Jeff:  Thank you! Holding REO's is very costly baggage for lenders. I don't know why they all don't either set up efficient loss mitigation departments--or outsource the process. Countrywide seems to be the most prepared to deal with short sales--and Bank of America has done the best job in avoiding them altogether.

Kaye: I agree. Some inexperienced buyers see the foreclosure as the easy key to riches. I know of an investor who bought three foreclosures last summer--and is now underwater on all three. These properties went to foreclosure because they were over-leveraged to begin with.

Marc: We just had a listing where the lender was unresponsive (four weeks to respond to an offer???) and the home went to foreclosure. It was a waste for the buyers--who lost both time and opportunity.

 

May 03, 2007 01:41 AM #11
Rainmaker
197,711
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes
Jeff: LOL! It appears enough deals have been cooked to last a decade--at least in some markets.
May 03, 2007 01:56 AM #12
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Roberta.... so true. If you don't mind me sharing this post that I wrote back in November of '06. This goes back to Jeff Dowler's comment and what you commented to him. Foreclosures: Banks & Lenders don't want your home, do they?

                                              jeff belonger

 

May 03, 2007 01:59 AM #13
Rainer
80,957
Patrick Harfst
Realty Executives - Phoenix AZ - Gilbert, AZ

Hmmm... Let's buy a home WITHOUT an inspection, WITHOUT the power or water on, WITHOUT a seller disclosure statement, WITHOUT a home warranty. Let's do this because we are getting a "good deal", as it is a foreclosure, and "everyone" knows that foreclosures are the best deals going...

Once the buyers have crawled through this trainwreck scenario, they'll be very appreciative of homes being sold by honest sellers, with an extra dose of motivation. We are seeing many of these short sales & foreclosure sales falling out of escrow... No surprise why!

May 03, 2007 04:36 PM #14
Rainmaker
197,711
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes
Jeff: Good posts deserve re-posting!

Patrick: Amen! And worst of all, the debt for which the property is acquired may still be over market value. Ouch!
May 04, 2007 01:20 AM #15
Anonymous
Marc Brinitzer
We need to remind buyers to shop for the home, not the "deal".  Better to end up in a home you can live in for 5-10 years and be happy-even if you pay a little more, than to buy a "deal" in a crappy part of town or one that you have to sell in two years in a bad market.
May 04, 2007 03:28 AM #16
Anonymous
Tina

Hi,    I have been in the real estate business for over 2 years and have recently started to learn all about short sales.   I'm interested in trying to purchase a property this way but I was wondering if someone could help anwser a question for me.   I know of a seller that is about to go into foreclosure, I know the routine with negotiating with the bank and so forth but how do you approach a homeowner in a way that they are willing to allow you to try to purchase their home??  The question is, "what is in it for them?" is what they'll ask.     1) you can't give them any money back as a benefit and 2) you can't guarantee that their credit won't be ruined.   How do you approach this with success?

May 12, 2007 05:13 AM #17
Ambassador
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Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team

It is so hot here in Central Valley.  Somebody pour water on me.....

I forgot to invite you to my celebration this weekend.  I will be celebrating my 100th post and I don't want to do it alone.  What I need is lots of readers with comments.  Can you help me out???? I can't say which day it will be right now because I am stuck between waiting for Sunday so that I can get the whole 200 points for the post or doing it on Saturday 7-7-07 for the luck thing.  But either day, it will be a time of celebrating for me.  I have been a member since April 2007 and it has been a hard climb for me to get used to posting and bloging and all that.  I love the AR network and have invited others (none joined yet) but oh well.

I think it might be a swim party because of this extreme heat.  I don't want anyone to be hot and bothered. Hope to see you there!  Entry is FREE!

Rosemary Brooks - Mother and Daughter Realty Team - Evolve Realty Group

Jul 05, 2007 05:09 PM #18
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Roberta Murphy

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