Gilbert Real Estate Blog
~ by Randy Hooker of Dreamcatcher Realty
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What does AS-IS mean?
With so many bank owned (foreclosure) and short sale properties for sale in Gilbert, Arizona these days, I get this question quite often: “What does AS-IS mean?” The AS-IS terminology is showing up in a lot of MLS listings, and the true meaning of AS-IS continues to be a mystery to many home buyers – and apparently to many real estate agents as well.
In my almost 14 years in this business, I’ve never seen a bank owned listing where the seller would NOT insist on selling the home in AS-IS condition, and their addenda are always loaded with AS-IS language to which the buyer must agree. They declare upfront that the seller will NOT preform any repairs on the property, no matter how major or minor. They also state unequivocally that the buyer will receive absolutely NO disclosures about the property – even if the seller happens to know things.
And then there are the listings that test the very fabric of sanity: Short Sales. It’s become common practice for short sale homeowners/sellers to refuse to perform any repairs on the property, irregardless of the severity. The logic seems to be that if the homeowner/seller is truly in a hardship situation with their lender(s), then how could they possibly afford to make repairs (however reasonable) for the buyer?! So while navigating through Gilbert foreclosed real estate can be a bit tricky and challenging, it pales in comparison to the insanity of short sales.
For those of you that know me well, it will come as no surprise that I can’t write this post without editorializing a bit. But first let’s touch on the meaning of AS-IS. In basic terms, AS-IS means the property is being sold in its existing condition, or as I like say, “What you see or don’t see – is what you get.“ It also means the seller is unable or unwilling to do any repairs on the property, even if we say “Pretty please.“ And to paraphrase the standard Arizona Association of REALTORS® AS-IS Addendum, it also means the seller makes no warranties concerning the condition, zoning or fitness of the property.
For my mini-rant, I’ll say that I know for a fact there have been certain pre-existing property conditions and repairs that were known of and/or done by an asset manager and/or contractor on a bank owned home that could have been and should have been disclosed to the buyer. That doesn’t seem to matter to them, though, so once again we buyer’s agents are left with waiving the ‘Caveat Emptor‘ a/k/a ‘Buyer Beware‘ caution flag. How and why banks are allowed to get away with selling foreclosed properties without having to disclose ALL known facts is still beyond me.
As for short sale properties, there’s absolutely no reason the homeowner/seller cannot deliver a Seller’s Property Disclosure Statement (SPDS) to a buyer. It just makes no sense whatsoever that certain listing agents try to exclude seller disclosures under the guise of AS-IS, and yet I see it all the time.
Word to the wise — it is HIGHLY recommended by the real estate industry as a whole, including yours truly, that every home buyer hires a reputable, licensed home inspector to perform a professional home inspection on the property. Even though you might have signed an AS-IS Addendum, hopefully your buyer’s agent made sure you didn’t sign off your rights to perform inspections. Typically, there is a limited time in which to do your inspections (Inspection Period), but what prevails is what’s in writing. It’s absolutely imperative to do a home inspection as well as a termite inspection. Standard AAR Purchase Contract language gives the buyer an opportunity to cancel the contract and receive a refund of earnest money if anything big, bad or ugly is discovered during the Inspection Period. Please do NOT construe anything in this post as being legal advice, as each contract and addendum is unique to each seller and buyer. If you have doubts, consult with your real estate agent and/or attorney.
I’ll wrap up by telling you that just because a home buyer signs an AS-IS Addendum on a bank owned property, it doesn’t necessarily mean they have no other options. We’ve now negotiated several exceptions to sellers’ AS-IS policies and addenda.
One of my favorite examples is a home that had three (3) covered patios/balconies that on the report of an outstanding home inspector, had little to no life expectancy. The estimated cost of repair/replacement of the patio covers was somewhere in the $15,000 range – much more than the buyer was prepared to suffer. In spite of the AS-IS Addendum, we submitted the inspection report to the listing agent, along with a formal request that the seller repair or replace the patio covers. Guess what –> the seller agreed, and 3 days later all 3 patio covers had been professionally rebuilt, and the transaction closed on schedule. What do you know – a win/win for both parties!
The moral of this story is that in spite of all the attempts by sellers to avoid any responsibility for any property condition(s), AS-IS is not necessarily set in concrete. If you as a home buyer are ever faced with a seemingly frustrating and bitter situation, be sure to have your buyer’s agent at least ask! After all, at that point what do you have to lose?
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.
When Can a Short Sale Seller Buy Again?
Thanks to one of my favorite Mortgage Consultants, here’s some very interesting information for those involved in or contemplating a short sale of their home.
HUD recently released its ruling on when and how soon a borrower may use FHA financing after
survivingclosing a short sale. Here is how it is going to work (effective immediately).- A buyer can immediately purchase a home if they executed a short sale on a previously owned residence, IF:
- They were current on their mortgage and other installment debts at the time of the short sale (no 30 day late payments in previous 12 months from time of new loan application for new purchase), OR
- The proceeds from the short sale serve as payment in full.
2. A buyer must wait 3 years from the time of a short sale, IF:
- They did a short sale simply to take advantage of declining market conditions, AND
- They are looking to purchase at a reduced price, a property that is similar or superior and within a reasonable commuting distance from the property that was sold short.
- They were in default at the time of the short sale
The exact methods being used to determine bullet 1 of reason 2 were not discussed in the mortgagee letter. However, it is expected that they will need to explain and document a legitimate reason as to why the short sale was necessary. That reason would need to indicate that the client did not short sale merely to adjust their mortgage liability to current market values by selling one house short and buying a very similar or “better” house in the same marketplace.
Exceptions may be made to bullet 3 of reason 2 IF:
- The default was due to circumstances beyond the borrowers control (death of primary wage earner, long term illness etc…), AND
- The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrowers control that caused the default.
In my personal opinion, this new HUD ‘statement of clarification’ provides many more questions than answers. Time will only tell, but I’ll be attempting to keep you updated.
Image courtesy of ebmorse.
Short Sales: Reality or Mirage?
Those of us that are experienced, professional real estate Brokers, tend to have very strong feelings about them, pro or con, so I decided to share with you some of my personal attitudes toward and feelings about “short sales”.
I remember as a kid when my family would be on a road trip across the hot summer highways of West Texas. As I would watch the horizon, and the road ahead, I would see what I would always swear was water on the highway. I knew it HAD to be water, because I could see it with my own eyes. The reality was that it was hotter than hell, and dry as a bone – and what I was ‘seeing’ was in effect a mirage, an illusion, a distortion of perception created by the heat. That, my friends is exactly how I feel about short sale listings. They are nothing more than a mirage.
Lenders do what they want, when they want, if they want ~ and there is no way to predict their behavior or decisions. I’ve facilitated short sales, consulted with short sale and bankruptcy attorneys about it, dealt with asset managers, loss mitigators and bank negotiators, and otherwise kept informed and abreast of the market and the so-called experts and short-sale-gurus’ claims. The seller’s lender(s) hold all the power, and control, and their actions have proven time and time again that they do NOT care one iota about the homeowners, agents, brokers or buyers that are involved in the attempted transaction.
The fact is that only about 10% of all short sale listings in the greater Phoenix real estate market ever make it to closing. Period. And considering that the processing time on short sale transactions is typically 6-18 months, my question is, “Why would any home buyer or investor want to subject themselves to such an ordeal?”
The answer? As one of my clients put it this week, “I want to buy a house and get a smoking deal, i.e., make a good investment!” The unfortunate but realistic truth is that roughly 90% of all short sale properties are ultimately going to end up back on the market as bank owned (foreclosure) properties. Most short sale listings are unrealistically priced below a price point that the seller’s lender(s) will ever seriously consider accepting – which in my opinion is why most of them fail.
But before a lender will even take a serious look at the purchase contract, they will evaluate and scrutinize the homeowner/seller. The seller’s lender(s) will, in their sole discretion and timetable, decide:
- if the seller is truly in “financial hardship”;
- if the seller has the capability to pay their mortgage loan(s) in full;
- if the investors behind the mortgage loan(s) will agree to take the short sale loss (and amount) right now;
- if the contracted sales price is a number they will accept;
- if they will agree to the rest of the contract terms and conditions, costs, liens, property taxes, etc.;
- if they would rather just foreclose and sell the property themselves.
Lenders do NOT pre-approve short sales or lay out in advance the sales price that they will accept, so the listing/asking price is nothing but a “phantom” or imaginary price that the listing agent and seller use to attract a prospective buyer and secure a contract. After the contract is in hand, then and only then is when the submission and negotiations begin with the seller’s lender(s). I could go on and on, but I’ll stop here for today. My hope is that all of my readers and clients will see the insanity, futility, false hopes and unrealistic illusions of pursuing short sale properties.
Personally, I would much rather go to Vegas and roll the dice or play the slots. Odds of success are about the same.
The seller’s lender(s) will, in their sole discretion and timetable, decide if they think:- if the seller is truly in “financial hardship”
- if the seller has the capability to pay their mortgage loan(s) in full
- if the investors behind the mortgage loan(s) will agree to take the short sale loss right now
- if the contracted sales price is a number they will accept
- if they will agree to the rest of the contract terms and conditions, costs, HOA fees, liens, property taxes, etc.
- if they would rather just foreclose and sell the property themselves.
