Some REALTORS® look at the short sales market and see the Wild, Wild West. But there’s no denying that short sales, foreclosures, distressed homes and flipped houses make up a good percentage of the real estate landscape in 2012.
In an effort to stabilize housing prices and unload some of the foreclosures flooding the marketplace, the Federal Housing Administration (FHA) extended a waiver of its anti-flipping regulations through 2012, suspending regulations that prohibit agencies from insuring mortgages to purchase homes that are bought and resold in less than 90 days. The Federal Housing Finance Agency (FHFA) also announced a new directive that directs Fannie Mae and Freddie Mac to align their guidelines for servicing delinquent mortgages they own or guarantee. These regulations, as well as current economic conditions, have led to a steady quantity of distressed and foreclosed homes.
In the first quarter of 2012, sales of homes that were in some stage of foreclosure or bank-owned accounted for 26% of all U.S. residential sales – up from 22% of all sales in the fourth quarter of 2011 and up from 25 percent of all sales in the first quarter of 2011. The price of bank-owned homes is stabilizing or even increasing in some cases where a restricted supply of bank-owned homes.
Real estate flippers aren’t bad for the market, if they do it the right way. Buyers often rehab distressed homes before reselling, improving conditions in neighborhoods where foreclosures and distressed properties make up a higher percentage of the retail market. In major metro areas like Atlanta, Detroit and Sacramento, these purchases are helping rehab neighborhoods, making areas more attractive to live in, work in and raise a family.
Patience is one of the most important things when buying foreclosed and real estate owned (REO) properties. Don’t depend on a tight closing schedule and pre-plan for mix-ups with paperwork or administrative delays. Short sale transactions can take 30 days, but sometimes the process can extend for months, so stay in it for the long haul.
It’s also important to know who you’re dealing with when you purchase. Many times low-level bank employees will be involved in the day-to-day operations and they won’t have the experience or the motivation to make a sale work. Get to know higher-ups at the banks you’ll be dealing with, make some relationships and then make your case. If the bank declines an offer, counter with confidence. The Realtors Property Resource™ can help REALTORS® in the information gathering process, providing current and historical information, including the largest database of foreclosure information by county in the industry.
It’s of paramount importance that you tally up all the costs involved in these transactions and factor those in when projecting potential return on investment. Incidental fees like unpaid utilities and survey fees can add up, and a surprise finding during a home inspection can tilt the ledger into the red. Since buyers will also sink money into a property before flipping, make sure to also factor in costs of everything from some pretty flowers for the backyard to potentially a new roof.
REALTORS® specializing in short sales and REOs need to work in volume. Some REALTORS® juggle 20 listings at a time due to the lengthy procedures involved, and they always keep their purchase and sales funnels full to avoid long gaps in work.
The short sales market can be tricky, but if you arm yourself with the right tools and ride a fast horse, you’ll find that the benefits outweigh the hardships. The NATIONAL ASSOCIATION OF REALTORS® offers Short Sale and Foreclosure Resource (SFR®) certification to lend REALTORS® training in the market and help manage tricky transactions.
Here are 7 More Tips on Buying Foreclosures and Short Sales Homes.
Tell us some of your success stories (or lessons learned) in the short sales market. Have you found it rewarding? How have you succeeded? Comment below.