Two things happened yesterday, prompting me to write this post today.
1) One of our buyer clients closed on a bank-owned property at 20% under current market value.
2) Someone asked in comment #61 of this post “What percentage of homes sold from Jan-Apr 2009 are foreclosures and short sales? What percentage of the above graphs are attributed to those numbers?”
We were exceptionally pleased with the result of yesterday’s closing, especially when the new lender’s appraisal came in at 20% higher than the sale price. Given how tight lenders have been on appraisals lately, that was an awesome bargain. One of the quirks of the contract when you purchase a bank-owned property is that the bank-seller may have the right to cancel up to the day of closing. There is often no home inspection negotiation, so you do a home inspection for your own information and adjust your offer price accordingly prior to making an offer, or prior to finalizing the contract.
Other than that, I have to say clients buying a bank-owned vs. a short sale was much easier and a very rewarding experience for all involved. The commission to both agents was cut dramatically, but that may be why there weren’t too many offers, so worked out well for my clients. There were huge risks of the seller keeping the Earnest Money if the buyers failed to close, many more than in a normal transaction, but as long as everything goes well and it closes, that was a stress factor but not a disadvantage in the long run.
Now to 2) and the picture at the top. There are many types of “as-is” bargain sales, and always have been. When someone is using the mls as a source of information for stats, most “as-is” bargain sales are always part of the mix. They are difficult, if not impossible, to identify and remove from the stats. To remove bargain sales from the stats today, and then compare to a previous year without removing the bargain sales from those stats, would be of no value.
The question “are foreclosures included” suggests that there are some misconceptions about what “a foreclosure” is. In WA, foreclosures are usually “non-judicial foreclosures” called Trustee Sales, and they don’t happen in the mls. So those would never (or at least almost never) be part of the stats if someone is using the mls. You can tell if you are buying “a foreclosure” if you are buying it outside “on the Courthouse steps” in the rain 🙂 and not in the comfort of an escrow office.
Pre-Foreclosures
Bank-owned Post-foreclosures
Estate Sales
Relocation Properties
All of the properties named above are most often discounted and have “as-is” addendums, but are handled through a normal escrow closing. That means you usually have a lot of the risks removed with regard to the property having liens after closing.
When you buy “a foreclosure” vs. a pre-foreclosure or a short sale, you have to buy them cash and they are not cleared of liens and you usually buy them sight unseen and without someone “representing” you as to the purchase.
In my experience so far, buying a good property that is bank-owned seemed to be a really good deal with less risk than buying at foreclosure. As long as you do a really good inspection and know the condition of the property well, they don’t take nearly as long as most of the short sales.
Bargains in the form of Estate Sales and Relocation Properties have as-is addendums, but most often allow for an inspection negotiation phase after you enter into a contracted price.
Not all bargains are alike, and some sellers will sell at bargain prices and “as-is” even though they are not shown as one of the options in the picture. You may not find your “perfect dream home” in these options, but if it’s a bargain you’re looking for, one of the options shown in the picture is a good place to start.
Thanks for the great information. I have been hoping that the short sales will disappear, they dont make my life easy.
It’s not about you, is it? You should love them if you have a buyer client, as they can get a “bargain”. You should not like them if the seller is your client. But for you to not like them because of your work load…not appropriate.
You only like or dislike something based on the impact it has on your client…right?
“One of our buyer clients closed on a bank-owned property at 20% under current market value.”
Ah yes, the old “instant equity”
One guess as how the new “current market value” forms.
Ardell- More than a few times I’ve been asked to give an informal appraisal of a home’s condition and value. Lengthy practice as a residential specialist enables me to make a useful estimate of what’s a “good enough” property that enables a deal to proceed. I think almost all of our personal real estate dealings were essentially one day affairs as far as a go, no go decision was concerned. Jerry-
JN,
Isn’t often that the buyer’s appraisal at time of purchase is 20% over the sale price. That’s not an everyday event.
Your snide remark not appreciated.
My apologies as to what you may have inferred from my remark.
I used to enjoy your posts until the cheerleading started up again.
I also do not appreciate misleading statements. Unless the seller choose the offer 20% below otherwise equivalent offers, then for that particular property at that particular time, that was the market price. Appraisals are of course, another ball of wax.
As to what an awesome bargain it is, that, like market bottoms will only be determined several years into the future.
When you bought your house, I assume you thought at the time you at least had a fair price or deal, did you not?
Right to cancel, no home inspection negotiation, commissions cut dramatically, huge risks of the seller keeping the Earnest Money. Sounds awesome! Despite what you read in the newspaper, clearly banks are in no hurry to liquidate their portfolios.
My experience is that the best bargains are found with estate sales. You often end up with a number of sellers who really just want to sell and be done with it. Low ball offers are rarely rejected outright and more often than not you can reach an agreement at well below market value.
Just my two cents.
I am looking at a relocation property, being sold by a relocation finance company in CT, and I’m wondering if this addendum clause means that we lost earnest money at any time in the process, or at any time after inspection and other contingency stages?
“In the event of a default in consummating this purchase by the Buyer(s), it is agreed that any earnest money or deposit shall be retained by the Seller as liquidated damages. Any provisions of the attached Agreement with respect to any payments or amounts due to brokers are null and void. Broker compensation is governed exclusively by the Listing Agreement belween Seller and Listing Broker.”
James,
Pretty much every contract, relocation or not, provides for the seller to keep your Earnest Money if you don’t buy the house. If you buy the house, the Earnest Money comes back to you at closing. If there is no closing, then you need to rely on some contingency in the contract (a “legal out”) in order to get your Earnest Money back.
I’m confused by your question as you ask: ” I’m wondering if this addendum clause means that we lost earnest money at any time in the process…”
You don’t lose your money IN the process if you COMPLETE the process. Are you cancelling? Are you cancelling because you simply changed your mind about buying the house?
If you are not cancelling the contract, your Earnest Money will appear as a credit against the purchase price on your final closing statement, with none of it “lost”.
Thanks Ardell. Yes, the question was would a clause like this prevent us from getting our earnest money back, but I think as long as we work through any repairs with them, or agree a credit, we wouldn’t lose earnest money if a deal wasn’t reached.
Yes and No. “a deal being reached” is NOT the criteria as to whether or not you can get your Earnest Money back. You have very specific time frames noted in your Inspection Contingency, and you are ASSUMED to agree if you don’t disagree in writing (or vice versa) within the allowable time frames. In other words “no answer” IS an answer.
Hypothetical Example:
Let’s say you have 7 days to do and deliver your response to the inspection. Let’s say on day 5 you ask for $5,000 to resolve the inspection defect list provided to you by your home inspector.
Now let’s say your Inspection Contingency allows the seller 3 days to respond to your request. Since you are talking CT vs WA, you need to know how days are calculated in your contract as they are not likely the same as here. In some cases they use actual time of delivery. There should be a “computation of time” clause in your main contract and possibly one in the Inspection Contingency as well. If you are even 30 minutes too late with your response, you may have negated your right to cancel.
VIP that 3 days is from the time you delivered it (5 days) vs the 7 originally allowed for you to make the request. That is why a timeline calendar can not be prepared at the time the contract is signed by all parties. Each action creates a new time frame, not the days allowed for that action.
Let’s say the seller does not respond in 3 days. That usually means they said no. Check your contract. Most often no answer from the seller means no to your request.
Now let’s say you have 3 days to respond to the seller’s non-answer that is construed as no to your $5,000 request. That time starts when their time ends (or when they answer, if they answer).
IF YOU DO NOT ANSWER IN WRITING, YOU MUST CLOSE WITHOUT ANY AGREEMENT AS TO THE HOME INSPECTION AS THEIR NON-ANSWER MAY BE YOUR AGREEMENT TO TAKE NOTHING IF YOU DO NOT RESPOND WITHIN THE ALLOWABLE TIME FRAME.
In other words, it is ALL about the time frames and not about “a deal being reached” affirmatively. Most often an Inspection Contingency treats no answer as an answer. So you have to be exacting as to monitoring the times, as most often if you do not respond, you are accepting the house “as-is” and lose your right to have your Earnest Money returned.
In most contracts, no response favors the seller and not the buyer. There is an END to the back and forthing…and you must cancel in writing if you are not happy with the seller’s response, especially if the seller does not respond at all.
You protect your Earnest Money by monitoring the time…5 minutes past the time allowed can be too late.