Buyer’s Guide to Understanding Listings
The economic crisis has had a great impact on the Real Estate market throughout the country and here in Arizona as well. This has led to a high volume of distress sales which has significantly changed the way property transactions are conducted. This has also complicated the market for Buyer’s in that it is hard to identify current market trends from simply viewing Active listings. Not all listings are the same and the informed buyer needs to be aware of the various listing types in order to understand the market and make an informed decision on their next purchase. This can also relieve Buyer frustration when dealing with various listings.
There are several different listing categories that are prevalent in today’s market. Bank Owned, Short Sales, Regular Resale/Investor Owned, HUD, and New Homes. Below you will find information about each type of listings and I highly recommend when searching for a home the buyer look at these listings through each category.
Bank Owned Homes (A.K.A Foreclosures, REO’s)
Bank owned homes have become a major portion of the sales over the past 2 years. These are homes that have cleared the foreclosure process and are owned by the Lender/Bank. These homes are aggressively marketed and tend to sell fairly quickly once placed on the market. Asset managers for the Lender/Bank are utilized to transact these properties and act as the “Seller” in this situation. A Listing Agent usually also works on the Banks behalf to market and transact the property. These Agents often work full time on the listing side with the banks. They have very defined procedures and will require specific documentation such as a Loan Status Report from the Buyer’s lender or proof of funds if the Buyer is purchasing the home with cash. They will not waiver from this policy. You must be prequalified prior to submitting an offer or the offer will simply be rejected.
The process is fairly straight forward. The Buyer simply needs to have their Agent write a Purchase offer that will include addendums such as an AS-IS Addendum, Real Estate Agent Disclosure Addendum, LSR or Proof of Funds, and HOA Addendum. At times the Bank may also require that the Buyer also be prequalified with a Lender of their choice however the Buyer is not required to use their preferred lender. Once to offer is reviewed by the Asset Manager it is pretty common that any subsequent counter offers are done informally through e-mail. Once there is an agreement regarding the terms of the deal then the bank will usually give a Verbal Acceptance and then will produce its own addendum redefining the terms of the deal. This is an extremely important addendum because often there will be changes to the language of the original offer and it will dictate the terms of the deal. Each bank will use their own addendum and they do differ from bank to bank. It can take several days for this addendum to be sent to the Buyer. Once the Buyer signs the addendum and it is returned to the Asset Manager there is a binding contract.
In the case of multiple offers the banks often will ask qualified buyer’s for their Highest and Best offer. This is one last shot for each buyer. This does not guarantee that they will respond to all offers. They often will exclude low ball offers from this step. Multiple offers are very common at this time.
The home are sold “AS-IS” which means the banks will not make repairs to the property however this does not exclude the Buyer from having a professional inspection of the property. The inspection period is usually between 7 to 10 days from execution of the contract depending on the terms of the banks addendum.
Banks will also not include a Seller’s Property Disclosure Statement or C.L.U.E. report which is a 5-year insurance history on the property. Buyer’s must do all inspection during the inspection period and have the right to reject the property during this time and have their earnest money returned.
It typically takes between 30 and 45 days to close escrow on Bank Owned homes. It is very important that the Buyer’s lender is ready to finance the property on or before the close of escrow date. Banks will give very little forgiveness to errors on the buyer’s side.
Short Sales
Short Sales are a situation where the current owner is trying to sell their property for less than is owed on their current mortgage or mortgages and do not have the necessary funds to cover what is owed on the mortgage. Short Sales can be very problematic for several reasons and have the lowest chance of transacting successfully of all types of listings. For the few that do transact they can take many months to go through the process. Buyers are often given very little information during the process while the Seller and Listing Agent attempt to negotiate with the bank. Most often these types of transactions end up in foreclosure and then move into the Bank Owned Category.
These listings can be very misleading to buyers searching the entire market. They often have a fabulous list price but rarely will be sold at such a list price. One of the major problems is that often the lender is not involved in setting the list price. The list price is set by the Seller often with advice from their Listing Agent. They offer a spectacular price in order to draw an offer. Banks often will not even discuss a short sale without an offer and significant proof that the current owner is in financial distress and have no way of repaying the loan. Even then banks often simply don’t have the man power to process the vast majority of Short Sale requests. These listings will often hang on the market for many months giving a misleading impression that there is no interest in the property. This is not the case. The problem is that often the mortgage holder has no interest in accepting a Short Sale of the property.
For those that do transact the process is similar to that of a Bank Owned Property when and if approval from the Lender is received. These homes are often sold AS-IS as well. Seller’s Property Disclosure Statement and a C.L.U.E. report may be available. The close of escrow date is often set 30-days from the time a Short Sale is approved. Lenders will require an LSR or proof of funds for these types of transactions as well.
There has been some recent improvement in these transactions but Buyer’s should be aware that the vast majority of the time these homes will not transact because they are unable to get acceptance from the Lender. All Agents would love to sell these listings but it would be unprofessional to tell Buyers these are easily purchased. Expect a long waiting period and also do not expect that waiting for a long period will make the transaction successful. I have no problems writing offers on Short Sales but as I mentioned above they can be a shot in the dark to acquire. Please don’t shoot the messenger. I am upfront or else you will probably want to shoot me later after months of wasted time.
Regular Resales/Investor Owned Homes
The good old fashion regular resale is also starting to come back but with a little bit of a twist. A regular resale is just that when the home is being purchased directly from the Seller and no bank approval is required. In this situation time is definitely of the essence so when a deal is found the sooner the contract is presented to the Seller the better. Even in this type of transaction most often either a Loan Status Report or Proof of Funds is required so make sure you are prequalified before you start to look.
In a regular resale situation the transaction can move quickly. Often offers are responded to within 24hrs. When counter offers occur this process is usually pretty quick as well. The emotions of both the Buyer and Seller play a major part in the transaction. In a pure regular resale there is also an inspection period and the opportunity to request the Seller for repairs to the property. The seller then can either elect to perform all, some, or none of the requested repairs. The traditional inspection period is 10-days. Seller’s Property Statements and C.L.U.E. Reports are also often provided unless they are explicitly omitted in the contract. These are typically the quickest of all transaction types and a customary close of escrow is usually 30-days however this can be negotiated in the contract.
There has been a significant rise in Investor owned homes that also function a lot like regular resales with a couple of difference. These homes where often recently purchase through Trustee sales, Auctions, or directly from the Bank prior to going on the market. These types of investors often purchase several homes at a time and are well funded. They will then make the repairs needed to the home prior to listing them on the market. These homes usually show well. The one issue that arises has to do with the ability to acquire financing on the property if the home has previously been purchase within a 90-day period. This term is known as seasoning. Many of these investors also will omit a Seller’s Property Disclosure Statement and C.L.U.E. report. Many often will also sell the properties AS-IS. Buyers still have the right to inspect the property. 10-day inspection period is the customary time aloud. These types of listings have grown significantly in the past few months and are often very competitively priced especially for their condition.
HUD Homes
HUD homes are homes owned by United States Department of Housing and Urban Development. These homes are very similar to Bank Owned homes and are sold AS-IS and do not include a Seller’s Property Disclosure Statement or C.L.U.E. report. The process of purchasing these homes is slightly different. Homes are up for Bid and these bids can be made on-line. Often times when the homes are first listed there is a period of time in which bids from only Primary Home buyers will be considered. After this time expires the homes can be purchase by 2nd home buyers and Investors. For Primary Home Buyers there often is special financing available with a very low down payment required. Sometimes it is as low as $100 for qualified Primary Home Buyers. These homes can be a great deal for buyers who qualify. Please talk with a Lender who has experience with HUD loans. I would be happy to recommend one if you like.
New Homes
New homes are not nearly as actively selling as they once where but there has been some recent improvement in sales. New homes can sell at different stages. Homes can be purchase at the initial phase which basically starts with picking out a lot and selecting from the floor plans they offer. Build times usually take around 4 to 5 months but can be done in less time depending on how quickly permits are acquired. Homes are marketed at a base price and the final sale price will be determined by the upgrades selected. It is not always easy to determine the cost of upgrades as builders can and do change their prices depending on their marketing strategy.
SPEC homes are another way to purchase a new home. These are homes that have already been built or are in the process of building. The plan has already been selected. Sometimes there is still time to make selections such as tile, counter tops, cabinets, carpet, and other interior features which do not require city permits. Move in can vary depending on the stage of construction. Deals on these properties do come up especially in today’s market as builders too at times have to liquidate assets to raise cash. It is to the Buyers advantage to use a Realtor to negotiate the process. There is no cost to the Buyer to use a Realtor. The builder will have sale representatives that are very helpful but it is important to understand they are employed by the builder and if issues should arise they represent the builder. A Realtor can also help identify the different options offered by various builders. To use a Realtor all a Buyer has to do is be accompanied on their first visit to each sales office.
If you would like more information regarding the Maricopa Real Estate market please feel free to contact me with any questions you may have.
John Guthrie
Realtor
The Maricopa Real Estate Company
520-350-1304
John@347homes.com
www.SearchMaricopa.com
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Maricopa Market Update, August 7, 2009: The Maricopa Real Estate market continues to work through an unprecedented amount of distress sales. Bank Owned properties have dominated the Maricopa market since January 2008. With this said there are some strong signs that the market has bottomed in Maricopa. The average price per square foot has risen for the past 3-months and Multiple Offers have become very common. Lending remains a major issue except for Primary home buyers who meet FHA qualifications. Even for those that meet the FHA requirements the competition is very strong. Cash buyers are dominating the market and Banks in particular are aggressively seeking cash buyers. Listing Agents are pricing homes to induce an EBAY like frenzy. It is extremely rare to successfully acquire a property for less than list price. In many cases especially for highly desired neighborhoods in Maricopa homes are selling for well above list price. With this said appraisals are consistently coming in below the contract sales price. This makes it even more difficult for Primary Home buyers using tradition financing. Buyer frustration is very common. For cash buyers don't expect to undercut the market. Cash buyers simply have a better chance for a seat at the table. Both cash buyers and those using financing should expect a challenging Buyer's market. It is very common that Buyer's will need to offer multiple times before getting an accepted offer. Other than the low prices this is a Seller's market dominated by Corporate Banks. The banks will dictate the rules and often move very slowly. For those fortunate enough to acquire a property don't schedule the moving truck just yet. Asset Managers at the banks appear to be completely overwhelmed with the volume of transactions and will often move at the pace of a Sloth. Regardless of closing dates stipulated in a sales contract the transaction will close when it closes. The banks are in control. Any Agent that tells you they can make the banks perform has simply not participated in this market. I can't change the ways the banks work but I will tell my clients the truth of what to expect and will help guide them to make the best deal possible in this market. For some good news prices are great!
Maricopa Market Update, July 19, 2009: The Maricopa Market continues to experience a very competitive Buyer’s market. Bank owned inventory is holding steady as demand remains strong. Prices are trending upward as multiple offers on many homes is pushing prices on an upward trend. Appraisals are becoming an issue with the upward price movement. Although multiple offers have put upward pressure on prices Appraisers are closely scrutinizing the market and many deals including bank owned properties are not appraising at the contract purchase price. Needless to say this phenomenon is rather bizarre. Inventory remains low with an estimated 3.72 months of supply. Banks in particular are having difficulty keeping up with the volume of transactions. The home buying process is taking on average 45 to 60 days from an offers acceptance to close escrow. Customer service is not a priority of the banks and Buyer’s should be aware that purchasing in this market is a much different experience than in any other market I have ever experienced. It is crucial to work with a Realtor who understands how Banks operate and has the experience to guide Buyer’s through this process. Logic is something that is difficult to find when purchasing a Bank Owned Property.
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