I have answered this question a multiple times on this site between my short sale FAQs and countless blogs (see links below) but it is still the #1 question asked about short sales.
YES, a short sale contract IS a binding contract once buyer and seller agree to terms and both sign off. The home is still owned by the homeowner, the homeowner can and will sign the contract if it meets the desired terms. The bank does NOT need to sign the contract to make it binding.
It is very important to understand that the National Association of Realtors states that a short sale contract is no different than any other real estate contract. A short sale contract is written contingent upon 3rd party final approval and that contingency carries the same amount of weight as a financing, appraisal or inspection contingency. During the term of the contract the seller and listing agent will work with lender to procure short sale approval.
REALTORS® received guidance today from the Internal Revenue Service on what constitutes a “binding” contract by May 1, 2010 for home buyers to be able to take advantage of the federal tax credit.
The IRS stated: “A binding contract is a contract that is enforceable under state law. A contract may be enforceable under state law even if it contains certain contingencies, such as for home inspection, financing, appraisal, and short-sale lender approval. Taxpayers who enter into a binding contract to purchase a home before May 1, 2010, and close on the contract before July 1, 2010, can take the credit if they qualify as a first-time homebuyer or long-time resident of the same main home.”
For all the short sale info you could ever want read:
Many of my current short sale sellers have been trying to sell their home before they opted to short sell with me, most have attempted to sell for many years with other real estate agents. These sellers have great homes and in great locations, so why are they at the end of their rope? They chased the home pricing spiral.
Chasing the home pricing spiral means they have been behind the curve of dropping values. When they were priced at $250k they should have been at 235K, by the time they lowered to 235K they really should have been priced at 225k. Once the seller finally agreed to lower to 225k, values were sitting around 210k.
Let’s face it, not all Realtors are like me. I am like the Dr. Phil of Realtors, telling you like it is. Sometimes my no holds barred talk gets me in trouble but in real estate it is exactly what you need to hear (whether you want to hear the truth or not)!
I would say I average 3 calls per day from sellers interested in having me list their homes for sale. I do not rush out to take these listings, rather I prequalify them over the phone. I ask them about their property, pull up comps and discuss expectations. Gone are the days of breaking ceiling heights in neighborhoods, sellers have to be realistic on where home values are. They are not where they were 2 years ago, some areas not even where they were 6 months ago. Most sellers are surprised when they say “we don’t have to sell our home, we don’t plan on giving it away” that I respond quickly with “If you do not have to sell your home then DON’T SELL YOUR HOME”. This is not the market to put feelers out to see where buyers are nibbling. I know where buyers are and they are not looking at overpriced homes. To be quite honest they aren’t looking at homes priced at fair market value either. Buyers are looking for deals and they have quite the inventory of foreclosure and short sales to choose from. If you aren’t willing to compete at or near that level then you shouldn’t be on the market. Sure there are plenty of agents out there ready to take your overpriced listing, but they know good and well that it will not sell. They are just hoping to pick up a buyer lead off their sign in your yard. I am not one of those agents, my listings SELL!
Proper pricing is crucial in this market, more crucial than ever before. While most of the markets I work seem to have stabilized (some even slowly inching up a touch in values) you still need to be realistic about your values. Every neighborhood has been affected differently, some East Cobb neighborhoods have only seen a 6-8% decrease in values whereas some neighborhoods in South Cobb have decreased more than 35%.
For a no obligation market analysis of your home, feel free to contact us for more information. Dr. Phil impersonation is optional
10. WHAT IS/WAS FOR DINNER?!? *Insert best caveman voice here* candle, incense, fragrant oils GOOD! Curry, crockpot roast BAD! Unless you are baking apple pie, keep the cooking smells to a minimum especially if you know for certain a showing is scheduled! Sellers should avoid any and all fish, fried or distinct ethnic foods that may leave a lingering scent. I have heard many a buyer discount a home over smells.
9. PETS – No one loves animals more than I do however to the buyers out there that are not animal friendly, nothing will kill a home sale quicker than the family dog or cat roaming around. While I understand that coordinating a showing around animals is very difficult (especially for last minute calls) but sellers should make every effort. Instead of a sign on the front door saying “Do not let cat out” why not put the sign on the laundry room door and leave cat in there? True Story: I once had a client that had a phobia of cats and refused to see any home that had one. When showing, sellers should remove all evidence of animals (toys, water/food bowls, kennels, etc) and most importantly remove all SMELLS and vacuum pet hair regularly.
8. LIGHT BULBS – Nothing looks worse to a buyer when they walk into the master bathroom and see that most of the lights at the master vanity are burnt out. Same goes with kitchen, dining or any other room in the house! Sellers should do a weekly inventory of every light in the house and replace as needed. Which leads me to my next point…
7. DARK ROOMS – While not every showing is scheduled in advance, when possible the seller should turn on all overhead lights and lamps. Also equally (if not more) important is to open all blinds and curtains so natural light floods the rooms. Never underestimate the power of light!
6. TEMPERATURE – whew, this is a tough one especially in the era of vacant bank owned foreclosures and seller deserted pre-foreclosure short sales where most properties do not have power turned on. What I can say from my experience is anytime there are extreme temperatures (freezing cold in winter and blazing hot in summer) buyers are in and out in a flash! Kind of hard to get a buyer interested in a property when they won’t stay in it longer than a few minutes. When possible keep temperatures at a reasonable and comfortable level.
5. FAMILY PHOTOS AS DÉCOR – I have always stood firm that sellers should not remove every photo from their walls however that statement is only reserved for the seller who uses photos sparingly. For the seller who uses family photos as décor on every wall in every room then I recant that statement. Buyers should be looking at the home not counting how many kids the seller has! Removing personal excess keeps the buyer focused.
4. COLORS / WALLPAPER – There is no secret that I have a strict “no wallpaper policy” in place. This is 2010 people, mullets and bellbottoms are gone, so should the wallpaper. I love it when sellers tell me that it is too time consuming and/or expensive to remove and I kindly remind them that the buyer is thinking the exact same thing. I once had a seller adamant against removing her aged yellow wallpaper from the 1970’s and she told me that a home was not a home without flowered wallpaper in the kitchen. I told her I was glad she loved the wallpaper and I would be happy to sell her back her own home for a reduced commission. She didn’t get the joke! I share the same sentiments about paint color. I am so glad that you loved your red family room, yellow dining room, orange kitchen but when it is time to sell it’s time to PAINT! Never go white, it looks too institutional. Behr has an amazing color called “Indulgent Mocha” that is light and bright with just a touch of taupe.
3. SMOKING – If you are a smoker then it is time to take the smoking outside FULL TIME until the home has closed. If you have smoked in the home for 30 years then I will probably turn down your listing. Majority of buyers turn around in the foyer to leave when they smell the remnants of cigarette or cigar smoke. Nothing kills a home sell faster than smoking!
2. CLEAN YOUR HOUSE! – I do not live in a perfect model home but then again I am not trying to sell my house either. Every day you should make your bed, clean your kitchen, hide dirty clothes in laundry room. Every day you should leave for work as if you had an important showing scheduled that same day. A couple years ago I had some buyers up from Florida for a packed house hunting weekend, we had 20 viewings scheduled for the Saturday in Powder Springs and planned to submit an offer on the top pick. The first home of the day was unkept (dirty dishes in sink, pile of dirty laundry on floor, kids toys strewn around the house and seller walking around in his boxer shorts) not to mention every room was painted a different color. My buyers walked out of the home and said “gross”. Nineteen homes later we had made a complete circle and close to where we began our search. My buyers walked in, threw their hands up in the air and said “THIS IS IT! We love this home!” Ironically enough it was the same floorplan, probably from the same builder as the first home. The difference was it was cleaned, neutral and move in ready.
1. SELLER GIVES THE NICKEL TOUR – Nothing is more uncomfortable for a buyer or a buyer’s agent when the seller feels the need to guide us through their home highlighting every change, upgrade and special moment that has happened for the 20 years they have lived there. A buyer on a mission knows within a few minutes if they like the home however if the seller is there now we feel obligated to talk back and walk through observing every room even though the home was discounted as soon as we smelled cigarette smoke. I do not necessarily feel that sellers should always leave the property. Although it is more preferable, it is not always convenient for a seller to leave especially when buyer’s agent has given a wide timeframe of showing window. With that being said, I recommend to my clients that they should take a walk around the block, even just step outside on the deck to give the buyer some privacy to look at the home in peace. It’s also crucial for the buyer’s Realtor to get a good feel of what their client likes and dislikes about the home. It is very difficult to be honest about the home with your Realtor if the seller is standing right there.
Every state has different real estate laws and procedures and this blog is written for Georgia’s procedures of purchasing AS IS short sale and foreclosure properties.
In the GAR (Georgia Association of Realtors) standard contracts, there are two ways to purchase real estate: Due Diligence and AS IS. Since the bulk of real estate transactions currently are some form of distressed properties (REO Bank Foreclosures, Short Sales, Pre-Foreclosures) it is very important to understand the difference especially when the contract instructions state that property is sold AS IS.
First allow me to define the differences:
DUE DILIGENCE – means the purchaser would have a mutually agreed upon period of days to inspect the property and its surroundings. This includes the actual inspection of the home structure, systems, roof, etc. It also includes any additional tests the purchaser may want to perform during this time period: termite inspections, radon gas, soil tests and inspecting the neighborhood and surroundings. The later would include research for any landfills, high voltage power lines, registered sex offenders, etc. The costs and work of these are the sole responsibility of the buyer.
AS IS – means the purchaser is forgoing all inspections purchasing the property AS IS with any and all faults whether known or unknown. The Seller will not perform repairs of any defects.
What becomes confusing is when the Bank/Seller advertises the property AS IS. This does not mean that the Seller will not allow inspections to take place as it is the right of the purchaser to inspect the premises. What this means is that after the inspections have been completed, the purchaser understands that no matter the outcome, the seller is stating they will not make any repairs. In distressed sales (foreclosures and short sales) purchasers should always choose the “due diligence” route and perform inspections knowing that within the timeframe they can either accept the property “as is” OR terminate the contract and receive their earnest money back (within the due diligence time frame).
Now with that being said, if a purchaser submits an offer on a bank owned foreclosed property and inspection finds issues that would not allow purchaser to move forward with the property through their VA or FHA appraisal, I have seen instances where banks did in fact complete repairs. You may be saying that this is in direct conflict of what is written above and you are correct! Since the end of 100% financing in 2008, the two most popular financing options have become FHA and VA loans due to their lower required levels of down payment. As of 2010, VA still offers 100% financing and FHA offers 96.5% financing. Since the majority of current buyers are using these two types of loans, if the home does not pass FHA or VA minimal inspection guidelines then the bank realizes it will take longer to sell therefore the required repairs must take place to get these homes off their books. There are two common solutions to this problem:
Some banks will pay for the repair costs out of their own budget
Some banks will repair however roll the repair costs back on top of the sales price
It is important for the purchaser or purchaser’s agent to inquire before submitting an offer whether the property will pass FHA or VA inspection.
There are some new terms being thrown around in both real estate and at water coolers around the country and I want to assist homeowners with what they mean.
The Obama Administration is attempting to assist homeowners stay in their homes by budgeting $75 Billion dollars in funding to help reduce foreclosures. The first program to be discussed is HAMP which is the Home Affordable Modification Program. This program temporarily allows eligible homeowners to lower their mortgage payments to 31% or lower of their pretax income through a loan modification.
Technically the adjustments are labeled as “temporary” however do become permanent once the homeowner makes 3 consecutive on time mortgage payments. As an additional bonus, if you make all of your loan payments on time for five years you will also receive a $5000 credit on your first mortgage principal balance. To qualify:
The home must currently be a primary residence meaning this is not a rental/investment property
Your first mortgage must be less than $729,750
There must be some kind of hardship (divorce, job loss, chronic illness, ARM adjustment, etc.)
The mortgage must have been obtained prior to January 1, 2009
The mortgage payment must be more than 31% of the mortgagee’s gross income.
If these qualifications are met, you must contact your service provider (who the mortgage is serviced with ie. Bank of America, Wells Fargo, Suntrust, EMC, etc) to see if they participate in the program.
Next is HAFA – the Home Affordable Foreclosure Alternatives Program. This program began very recently on April 5, 2010 and is designed for homeowners who meet the above terms for HAMP but cannot keep their homes. This program ends on December 31, 2012.
In summary, HAFA is designed to provide incentives to homeowners to short sell their properties as opposed to allowing the property to go into foreclosure. The following are some outlines of the program:
Borrowers must be HAMP eligible however unable to keep their home
Allows homeowners to receive pre-approvals for short sales (including the minimal acceptable net proceeds the bank will accept for a short sale)
Allows homeowners to be fully relieved of responsibility for the first lien. What this means is that the first loan cannot ask the homeowner/seller to be held liable for the loss, sign a promissory note or bring additional cash to closing. It is important to note that this does not cover any additional liens such as second loans, home equity lines of credit, etc.
Provides financial assistance for homeowner relocation costs (up to $3000); $1500 for service providers to process the short sale; up to $2000 for investors who allow a minimum of $6000 short sale proceed distribution offered to a subordinate lien holder (2nd mortgage)
Loans must be conventional loans, the HAFA program does not apply to FHA or VA (both government backed loans)
What does this mean to home owners, home buyers and Realtors? The HAFA program is set up to assist in streamlining the short sale process (which in some instances there is nothing “short” about it). Shortening approval processes, higher short sale approval success, guaranteeing Realtor’s commissions and eliminating future liability for Seller’s first liens.
If you have any questions regarding any of these programs OR want to discuss the possibility of avoiding foreclosure with a short sale, please contact us for more information.
You have been out scouring the area you want to be in, walked through dozens of homes in search of the right one. Finally you find it, your dream home! You submit an offer and are looking forward to an acceptance or a counteroffer but instead you are hit with a “Multiple Bid Scenario – Please submit Best and Final Offer”.
What?!?
What this means is that other buyers have stumbled across your prized home and fell in love just like you did! Sometimes it is a foreclosure property, sometimes a short sale and sometimes it is a regular resale listing. Many buyers become very stressed out asking me how to handle it and my answer is always the same. “Best and Final” is actually what it means. The seller is looking for your absolute best and final offer, there will be no counteroffer, the seller will move forward with the best net offer on the table by the offer deadline. The offers of others will always be held confidential (sometimes so will the number of offers on the table).
In these scenerios it is crucial to know the comps of other properties in the neighborhood. In the event of a foreclosure, the property could be priced well below fair market value and the bidding could significantly increase the final sales price. For instance, not long ago a foreclosure hit my client’s radar hours priced at $114,000. After reviewing the comps I found that sales in that Powder Springs subdivision ranged from $189,000 – $260,000 and this particular foreclosure was the largest floorplan in the subdivision. We submitted an offer for $135,000 which was $21,000 OVER ASKING PRICE. Unfortunately we lost the bidding war. We found out later that the property sold for $164,000 – Fifty thousand over asking price. While that is not the norm, it is an example of how important comps are when bidding.
Normally, as detailed in a previous blog “The Skinny on Foreclosure Bidding”, multiple bid scenerios usually result in a final sales price at or above list price. With that being said, how do you know which number makes best sense for you?
I always tell my client to think about the number that they can sleep well at night knowing that they wouldn’t have paid 1 penny more for in the event they lost it. Nothing worse than a client coming back to me and saying “I know I bid $150,000 but I really would have gone up to $154,900”. In best and final scenarios, your absolute highest bid is what you should submit. If your submit best and final is truly that, there is nothing more you can do. Good Luck out there!
Every short sale has its own unique challenges but to try and simply the complicated, here are the six steps to a short sale:
Initiate the Short Sale - Every lender is different as some lenders will want the homeowner to call and verbally initiate it whereas some lenders will not initiate the beginnings of a short sale until an offer has been submitted.
Collecting Homeowner’s Financials – Gathering a bunch of financial documentation isn’t always easy, especially if you are packing up the house or have already moved. What banks are looking for are two years of taxes, 60 days of bank statements, last couple pay stubs, all other financial statements (investments accounts, retirement accounts, etc). You will also need to provide a hardship letter stating why you are seeking a short sale. Hardships can include: job loss, chronic illness or injury, reduction in income, increase in interest rate, divorce, death.
Submitting the Offer – Most of my short sale listings are taken immediately after first contact so upon listing the property for sale, I immediately introduce the homeowner to my short sale coordinator to obtain the above stated financial documents ASAP. I try to set the goal to have all documentation in within the first 48 hours of listing the property. Sometimes an offer comes in before we have all our financials uploaded and sometimes an offer comes in after everything has been submitted and properly uploaded into the system.
Valuations Process – This is the very slow and quiet time, typically the time where uneducated buyers and buyer’s agents with unrealistic views of the process walk away. The valuations process can take 30-60 days with little or no contact from the bank. During this time the lender is ordering appraisals and/or BPOs (Broker Price Opinions) and evaluating the current state of market, local comps and getting a very specific idea of what the property is worth at the present time.
Offer Review and Approval – this is what I consider “Rock n’ Roll time”. After periods of long silence from the lender a flurry of activity ensues. Lenders ask for updated seller financials and updated Buyer’s preapproval letter. This is typically the second tier negotiator who is getting the file complete to present to the investor of the loan for final short sale approval.
Closing – Once final short sale approval is granted, there is typically a 30 day window to close the sale. This is the period where the buyer will inspect the property, lock interest rates, order appraisal and generally get the loan ball rolling. A good short sale agent (like myself) will begin all contingencies (appraisal, financing, inspection, etc) at time of final short sale approval. In essence, the last 30 days are what typically happens in a normal resale closing.
For more information on Short Selling your home in Georgia, please visit our Short Sale FAQs for Buying Short Sales and Selling Short Sales. There is also a lot of information in previous Short Sale Blogs. The Walker Derby Team specializes in short sales throughout the following areas in Georgia: Acworth, Atlanta, Austell, Canton, Douglasville, Hiram, Kennesaw, Lithia Springs, Mableton, Marietta, Powder Springs, Roswell, Sandy Springs, Villa Rica, Vinings and Woodstock.
Most of the last 2 years made your typical “resale” listing the ugly stepchild of real estate. (Note “resale” is defined as a reselling of a previously owned home by a seller/home owner). The hot commodity of real estate since the downturn of the market has been the distressed market which is comprised of foreclosure, bank owned REO, pre-foreclosure and short sales. While April showers may bring May flowers, April will also bring a huge (albeit temporary) sell off in resale inventory!
There are tons of first time and return home buyers who have straddled the home purchase fence for months. Now that the tax credit deadline looms, buyers are becoming frantic! Short Sales are time consuming and this late in the game cannot be guaranteed a June 30 closing date to meet tax credit deadlines. With the influx of foreclosure offers, some banks are now taking WEEKS to respond to offers leaving many buyers worried that they won’t have enough time to find a back up property in the event their foreclosure bid loses.
Enter the beautiful position of the average home resale.
Sellers are available, motivated and ready to make it happen! A good listing agent has advised their sellers that it is do-or-die time until April 30, 2010. Today (Saturday April 17) I received an offer for a resale listing of mine at 1:09 pm and had it binding with a counter offer by 4:25pm. Definitely a refreshing change from the typical bank’s snail like pace and the buyer met the tax credit deadline! That makes THREE of my listings that have gone under contract this weekend and it is only Saturday afternoon!
Metro Atlanta (including suburbs) typical peak spring market runs from late January through Memorial Day weekend. With the tax buyers credit deadline (which said tax credit is not expected to extend) at the end of April, we may actually see an early end to what has really been an amazing spring selling season! Only time will tell however at this moment through the end of the month, resale sellers have become the belles of the ball. Enjoy this brief moment to shine and SELL, SELL, SELL!
About two years ago one of my neighbors (who was also a Realtor and investor) was hit hard by the turn in the market. The rumor was that his family was so upset that the housing market declined that upon their move out, they dragged garden hoses to the top level of the home, turned on water and left. The house sat vacant for about 8 months after their move out. While that part is rumor, I can confirm that I saw workers in HAZMAT suits demolishing the property: stripping all floor coverings, drywall, AC units, cabinetry. When I say the home was a shell of what it once was, I am not exaggerating one bit. From the exterior one would never know but peer inside a window and all you could see were wall studs and water pipes. Sad to say the home sold to an investor for less than 1/3 of what the value would have been if not destroyed. As neighbors, that selfish and defiant act hurt all of us and our property values. (more…)
I was recently out with a buyer showing a brand new listing in Marietta, GA. As we pulled up, an agent with buyers were leaving. As we walked around the house and property, two more sets of agents with interested buyers came through. When we left another agent pulled in. Since I knew this was exactly what my buyer had been waiting for being priced well under fair market value, I told him that “time is of essence”. We had lost out on two other homes before now so he agreed that we should go to my office and prepare an offer. Even after losing two other bids I was floored when he told me “paying list price is just paying too much, Jennifer”.
One of the biggest misconceptions in real estate is that paying list price is simply overpaying or not getting a good deal. Nothing could be further from the truth, especially in the land of foreclosures and distressed properties. As detailed in the recent blog “The skinny on foreclosure low-balling”, it is not uncommon for both banks and distressed selling agents to price a property aggressively and watch a flurry of activity ensue. Often this flurry ends with the property selling well over list price.
As a short sale agent, when I take a new short sale listing I purposely price the home at the lowest price I feel the bank will accept. I don’t pull numbers out of the clear blue sky, I base them on actual distressed sales within the past few months as before any short sale is approved it must pass a BPO (Broker Price Opinion). When agents show my short sales and call for offer instructions, I communicate how price was derived and that we expect a full price offer. Every once in a while you get the buyer that refuses to put in an offer at list price and 99.99% of the time that buyer loses out on the home.
Buyers: Do not base your emotions on the list price, base them on the comps! If the home is listed at $200,000 and comparable homes in the neighborhood have sold between $215,000 – $245,000 then you are getting a good deal at list price. Don’t allow a misconception get in the way of the home of your dreams!
