Gilbert Real Estate Blog
~ by Randy Hooker of Dreamcatcher Realty
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Archive for January, 2011
How can the price of this Short Sale house be so cheap?
Here’s the latest question to hit my ‘Ask the Broker’ Inbox, and to be honest, similar inquiries are posed to me several times a month.
“I saw a house I like. The price is $100,000 less than the other houses for sale in the same neighborhood. How can the price be that much cheaper?“
Without even looking up the listing in the Arizona Regional MLS, I would bet $100,000 that I already know the answer. Would you like to venture a guess before I tell you???
Now how exactly does that Jeopardy jingle go? Da Da, Da Da, Da Da Da… Dot, Da Da Da Da Da. Da.. Da… Was that close?
Does the term Short Sale ring a bell? Or what about the difference between a Short Sale and a Foreclosure? Okay… I’ll quit playing around and get down to business.
The listing my client asked about is a Short Sale that has an asking price of at least $100,000 below the nearest comps in the neighborhood. And given the mindset of most folks looking for a deal/steal in this Gilbert Real Estate market, who wouldn’t be attracted by this price?
So what’s the catch?? => On any given Short Sale listing, the asking price is what’s called a “phantom” price. The seller and a buyer can agree to the price, and even sign a contract at that price, but unless and until the seller’s lender(s) agree and approve of that price, the contract will NOT be honored and the purchase will NOT happen. End of story.
How is the asking price of a Short Sale listing determined? It’s determined solely by and between the homeowner and their listing agent.
Doesn’t the asking price have to be reasonable? Or doesn’t it have to at least be based on recent comps (comparable sales)? Nope!
What are the chances of the lender(s) being willing to accept a payoff amount that is substantially below current market value? Slim to none! Lenders have proven over and over again, by their behavior — that they would prefer to foreclose!
So now that I’ve dispelled the nefarious truth about Short Sale asking prices, or at least cast reasonable doubts about their efficacy and integrity, where does that leave the serious home buyer or investor? => With your eyes wide open! The next time you encounter a listing that seems too good to be true, trust your instincts and know that it IS most likely too good to be true. And when in doubt, consult with a Buyer’s Agent you know and trust, and that speaks the truth from her/his heart and experience.
What’s the difference between a Short Sale, a Bank Owned Home and a Traditional Listing?
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If ever there was a more confusing real estate question than the title of this blog post, I can’t remember it. Here’s my attempt at demystifying the three categories of properties that comprise the residential Gilbert Real Estate resale market in Gilbert, Arizona (and the greater Phoenix area for that matter).
A Short Sale property listing is one in which the homeowner owes more in mortgage loan(s) than the property’s current market value – commonly referred to as being ‘upside down‘ or ‘underwater‘. If the homeowner/seller finds a buyer that is willing to contract to purchase the home, then the homeowner’s lender(s) must be willing to accept LESS than full payoff on their loan(s). Being ‘short’ of payoff is where the term Short Sale originated. [Please note that a Short Sale is anything but short in processing time, as the vast majority of successful or unsuccessful Short Sale transactions take 6-18 months just to find out whether or not the homeowner's lender(s) are willing to play ball and approve the Short Sale.]
A Bank Owned property listing is one in which the former homeowner’s lender has already foreclosed and is now the legal owner of the property. With such listings, an asset manager has been assigned to negotiate the sale of the property, and compared to Short Sales, response times to an offer may be expected by a home buyer or buyer’s agent considerably sooner than with a Short Sale. (NOTE: The terms Foreclosure, Lender Owned and REO all mean the same thing.)
A Traditional Listing is one in which the current homeowner is neither upside down nor in a distressed situation. That can mean it’s owned by a classic homeowner, or it can mean the property is owned by an investor who purchased the property at a Trustee’s Sale (foreclosure), fixed it up and is now re-selling (flipping) it. Either way, the response time to a prospective buyer’s offer is typically quicker than Bank Owned listings.
I can already hear a few of you saying, “SO WHAT?!?! A house is a house, so what difference does it make what ‘type’ of property or listing it is!!” Here’s what –> If you’re a nonchalant investor who loves the thrill of gambling and has no worries about time or energy invested, then Short Sales should definitely be your game of choice. But if you’re a serious investor or home buyer who wants a modicum of predictability, respectability, control and sanity involved with your next purchase, then choose wisely – Bank Owned properties and Traditional Listings may very well hold the opportunities you’re seeking.
