With the current economic conditions the number of foreclosures and short sale properties on the market is significant, making it an ongoing issue for many REALTORS® who may not be as experienced with the process and have the unenviable task of clearing these sales as efficiently as possible.
The federal government is trying to help the situation with the $25 billion National Mortgage Settlement designed to provide eligible homeowners with relief as well as implementing across-the-board servicing standards meant to improve borrower communication and servicing consistency. (For more information read: National Mortgage Settlement and REALTORS®: 5 Quick Takeaways.)
The challenges of buying foreclosures and short sales are numerous. Unresponsive lenders, lost documents that require multiple submissions, inaccurate or unrealistic home value assessments and long processing delays can cause buyers to walk away. The NATIONAL ASSOCIATION OF REALTORS® offers Short Sale and Foreclosure Resource (SFR®) certification to provide professionals and clients with the training to manage these tricky transactions.
Here’s a list of tips to help REALTORS® navigate the space and offer the best possible services to their clients.
7 Tips When Buying Foreclosures and Short Sale Homes
Patience is a Virtue
Agents and sellers tend to establish a low asking price to attract buyers. Banks can be unaware of the asking price and since they have the last word on whether to accept or reject offers, and since properties with low initial asking prices can spark feeding frenzies, buyers need to remain patient throughout the process, which can take months.
Don’t Get Caught in a Bidding War
Some foreclosures and short sales are put on the market at cut-rate prices to avoid expenses like property taxes, insurance, upkeep and utilities. Lowball prices attract dozens of buyers who can bid the property from a bargain to overpriced in short order. Help your clients calculate how much they want to spend and don’t exceed that price.
Know Your Market and Demographics
To help determine an appropriate valuation and asking price, be sure to research recent home sales in the area to give buyers a better idea of what properties are selling for. Consult the Realtors Property Resource™ for current and historical information, including the largest database of foreclosure information by county in the industry.
Know What the Bank Wants
Some banks want strong buyers and some want strong offers. Build a relationship with lenders directly by getting to know asset managers at banks. Some banks prefer large down payments, some want the highest price and there’s always the possibility for deeper discounts with all-cash offers.
Don’t Count on Repairs
Keep your clients’ expectations in check – the reality of the situation is that home repairs on short sales and foreclosures are seldom completed. The good news is that buyers willing to absorb repair costs are usually more attractive to banks.
Tour the Property
Foreclosed and short sale properties can be in deficient shape, making it important to tour the property with a qualified contractor to spot major problems and add repairs to the overall budget. Some issues can be minor, but others can be deal breakers. Help your buyers know what they’re getting themselves into.
Get Your Paperwork in Order for Short Sales
In short sales, there’s no leniency with the closing escrow date. Take care of all loan paperwork immediately after opening escrow and be prepared a few days before the closing date. Then, if unexpected delays occur, a request for an extension can be made early enough for banks to consider them.
What are some of the biggest challenges you’ve faced helping buyers with foreclosures or short sales? Share your comments below.