| Should I Consider Buying a Short Sale or Bank-Owned | | | | makes it much harder to inspect the property properly |
| Property?!? | | | | - HVAC, electrical, plumbing systems. (2) Remember, in |
| By now you have probably heard and read about the | | | | this scenario, the bank has forcefully taken ownership |
| distressed real estate market down here in Arizona. | | | | and possession of the home before attempting to sell |
| As a result of the mortgage meltdown of 2005-06 | | | | it. This means that the defaulting party was probably |
| and rampant speculation that caused the meteoric rise | | | | very upset prior to leaving the home. It is becoming |
| in housing values, it was only a matter of when would | | | | more common to hear stories of how angry |
| the housing market correct and return to some | | | | homeowners damaged/destroyed property in the |
| semblance of normality. | | | | home, removed appliances, plumbing fixtures, cabinets, |
| It happened rather suddenly during 2006 and had been | | | | light fixtures/ceiling fans and/or other home fixtures. I |
| in a downward spiral ever since. As a result of this | | | | have even seen property with significant water |
| housing value correction, there is presently an | | | | damage, drywall damage and heard of stories of |
| abundance of opportunities to purchase distressed and | | | | people throwing cement into the drains to cause future |
| devalued real estate assets near the bottom of the | | | | owners headaches. It is VERY IMPORTANT TO |
| market in Metropolitan Phoenix. | | | | HAVE THROUGH INSPECTIONS OF THESE TYPES |
| BUT BEWARE! All is not as it appears... | | | | OF HOMES. (3) Banks can take long periods of time |
| Before we get into it, let's discuss what is a short-sale | | | | to respond to offers, although response times are |
| vs. bank-owned property. | | | | typically quicker than on short sales because the bank |
| SHORT SALE - A short sale is a property in which | | | | has already done the legwork up front to determine |
| the owner is delinquent in paying their mortgage | | | | value and what they would be willing to accept. |
| payments. It has not yet been foreclosed on by the | | | | As a result of these issues, Bank Owned and short |
| bank, but it may be IN THE PROCESS of being | | | | sales should only be considered by buyers that: |
| foreclosed on. In this situation, the owner, many times | | | | (1) Aren't as concerned about finding the 'one' perfect |
| through an agent (their real estate agent) will negotiate | | | | home and are not the type of people to get attached |
| a stay of execution on the foreclosure and allow the | | | | to a home they absolutely have to have. (2) Prepared |
| owner to attempt to sell the property for a price that is | | | | to take on the risks associated with buying distressed |
| typically BELOW the total mortgage amount on the | | | | properties for the reward of getting a |
| property. The bank is basically agreeing to take a loss | | | | below-market-value property (3) prepared to get their |
| on their loan amount in the hopes of avoiding a | | | | hands dirty in making repairs and organizing the |
| foreclosure proceeding and having to take physical | | | | cleaning and trades to come in and refurbish damaged |
| ownership of the property. | | | | properties (4) Are not concerned with long waits in |
| BANK-OWNED OR REO (real estate owned) - In this | | | | getting replies from banks on properties they have |
| case, the bank has gone through the complete | | | | submitted offers on. |
| foreclosure process and actually taken title to the | | | | THESE TYPES OF PROPERTIES ARE BEST |
| property and evicted the previous owner in order to | | | | SUITED FOR INVESTORS BUYING FOR VALUE |
| sell the property. | | | | RATHER THAN HOMEOWNERS BUYING FOR |
| So now that you have a clearer understanding on | | | | THEIR OWN USE. |
| what these are, | | | | An investor can form the strategy of putting in multiple |
| Here are the pros and cons to purchasing short sales | | | | offers on properties, not really caring which one(s) are |
| and bank-owned (REO) properties in Phoenix. This is | | | | accepted so long as they are getting that property for |
| what you need to know to decide whether this type | | | | a great value in line with their investment objectives. |
| of property purchase is for you. | | | | Once they have an accepted contract, they can |
| PROS | | | | rescind their other open offers. |
| There is one big pro - you are typically going to get a | | | | SO HOW DO I DETERMINE WHETHER A LISTING I |
| property below even current market value. Could be | | | | AM LOOKING AT IS A SHORT SALE OR BANK |
| up to 10+% below current market value so there is the | | | | OWNED?!? |
| potential to get a great deal. Unfortunately, in this world | | | | Good Question. |
| you never get something for nothing. There are | | | | Here's the short answer. Work with a professional and |
| drawbacks for this 'smoking' deal | | | | knowledgeable local-area Realtor. |
| CONS | | | | Why? In most cases, Listings do not openly disclose to |
| Short Sale (1) While you are still dealing with the | | | | the general public whether a property is distressed or |
| delinquent property owner, the contract will have to be | | | | not. A Listing agent must make this disclosure to other |
| approved and signed off on by the bank taking the | | | | agents and specifically, Buyer's Agents as it materially |
| loss. In some cases, the bank does not even know | | | | affects the buyer's decision to purchase the property |
| that a short sale is being attempted until they receive | | | | and for how much. Your representative can very |
| an offer. This means that the wait time when | | | | quickly inform you whether a property you are |
| submitting an offer on a short sale could stretch from | | | | interested in is distressed or not and through a couple |
| days to weeks to even MONTHS to get a reply. Not | | | | of phone calls can find out the status of the home |
| only that, but until the bank has accepted/counter the | | | | (whether there are already submitted offers on the |
| offer, the listing agent will leave the home showing as | | | | property awaiting acceptance). |
| ACTIVE on the market and in the MLS soliciting other | | | | ARE DISTRESSED PROPERTIES COMMON IN |
| offers and will submit all received offers to the bank | | | | SOME AREAS OF METRO PHOENIX MORE THAN |
| for approval. The bank can only pick one, of course. | | | | OTHERS?!? |
| So you could be waiting for months and then get | | | | Absolutely. Some areas have been harder hit in this |
| turned down and hear that the bank accepted an | | | | latest housing crisis. The hardest hit areas, in general, |
| offer submitted weeks or months after your offer. | | | | tend to lie farther away from the Metro Phoenix core |
| This can be very frustrating, to say the least! (2) | | | | where many new homes were purchased by |
| Because of how the bank processes offers and the | | | | speculators. With the speculators now in hot water |
| aggressive pricing of these properties, it is not | | | | and the cost of gas going through the roof, the outer |
| uncommon for well-priced short sales to sell for the full | | | | rim areas are not as attractive as they used to be. |
| list price OR MORE due to a bidding war between | | | | Some areas like Surprise, Queen Creek, Anthem, |
| suitors. (3) Banks want to avoid liability and will demand | | | | Maricopa and Buckeye have a disproportionately high |
| that the buyer submit offers with an AS-IS addendum | | | | number of distressed properties to total listings. That is |
| basically stating that the buyer assumes all risk | | | | why some areas are seeing sharper drops in values |
| associated with the condition of the property from the | | | | than others. Keep this in mind when considering outer, |
| time of the offer acceptance. Buyers will have the | | | | fringe parts of the Valley. |
| right to inspect the property, but if you miss something, | | | | The information contained herein represent the |
| the buyer - not seller - is responsible. This is one of the | | | | OPINIONS of the author and should not be relied upon |
| reasons these properties are discounted - to factor in | | | | in the purchase of real estate. Buyer should conduct |
| the buyer's risk. | | | | their own investigations and satisfy themselves as to |
| REOs (1) AS-IS addendum. Same as above but even | | | | the accuracy of this information prior to making any |
| scarier. Once the bank has taken over, many times | | | | decisions to purchase real estate. |
| they shut off the utilities to reduce their costs. This | | | | |