Short Sales: How to manage them to a successful close

Short Sales, REOs, Investor-owned, "as-is," "subject to bank approval." These are terms that the average buyer is seeing everywhere. In a market that is already getting negative press and "doom and gloom" projections, the idea of purchasing, or selling, right now can be very confusing and scary. Short Sales are here to stay for awhile, if you are thinking of a home purchase, you will definately run into one. Here's what to expect, and how to handle the process to minimize the uncertainty of buying one.

Let's start with a definition. What is a short sale? It is definitely NOT a sale that must be done in a short amount of time. In fact, they have the reputation of taking a very LONG time. This doesn't have to be the case, but it is the reputation. A Short Sale is a situation where the seller is asking the bank to accept less than is owed in exchange for the release of the mortgage lien. The lenders will often do this if they believe that the home owner will ultimately allow the home to go to foreclosure and they will end up losing more money by waiting it out, than in taking a quick deal now.

The process should be simple, but in practice it's not, why? First, the listing agent does not know how to handle this process. In a Short Sale, the bank is NOT the home owner and should not be sent all offers as if they owned the home. But often this is what the listing agent does. They mistakenly believe that their job is order-taker and that they just send offers off and wait. The lender ends up with a file of 10-20 offers or more, many of which are from buyers who are not even interested anymore. When an asset manager has 100s of files to work on, this type of file is not going to get much attention because it's too hard to work. This is not the way to handle a Short Sale, but this is exactly what many people have experienced and why Short Sales have such a bad reputation.

So, how should we handle a Short Sale? Regardless of whether we are representing the buyer or the seller, the goal is to send 1 offer to the bank for approval. As a listing agent, we price the home reasonably and collect offers. We handle them the same way we would for an equity sale...we check credit, verify funds and perhaps make counter offers. Once we have a solid buyer, we open escrow and send the 1 accepted offer to the bank. Then the home goes into Back-up status. This is a benefit for all concerned! The buyer can feel comfortable that they are the only offer on the table, the seller knows that they buyer is committed since they have a deposit in an escrow account, and the lender is looking at a complete file with a solid offer that is ready to close once they give the approval. I average about 45 days on these Short Sale approvals.

When we represent the buyer, we try and work the same way. Many listing agents are happy to find a buyer willing to open escrow and wait. Not many buyer's agents ask for this. We do! I will advise my buyers to write a decent offer if the listing agent will open escrow. We will incur no costs until we have formal approval from the lender, no inspection, no appraisal etc. So we are not jeopardizing our funds, but we know that we are the only offer the bank sees. Frankly, if a listing agent is not willing to open escrow with our offer, I will advise my buyer not to write the offer...or at least to keep looking in the meantime. There is no guarantee we will ever hear anything back from the listing agent. We might also be tempted to outbid an offer that isn't even valid anymore. This is the way to over pay for a home, and that's the last thing we should do in this market. We can watch that listing and at some point if it becomes an approved Short Sale, we can move then.

Which brings me to another term one sees in advertisements. Approved Short Sale. What does this mean? It means that some offer price was approved and now that buyer is gone, as we discussed above. But the approved price is also most likely based on home values from a few months ago so we need to be careful about writiing offers based on the approval price. Due diligence must still be done to make sure we are offering a fair price based on current values and not what the bank appraised the home for several months ago. Therefore, we might still write a lower offer and it will need to go back up the chain of command at the bank for approval. Often the list price will be lower than the approved price for this very reason. So when you see this, ask your agent to explain the situation with that specific home.

I hope you have more of an understanding of Short Sales and how to handle the process. I have more information on my website at www.great-western-realty.com which goes into detail about the seller and buyer sides. But don't be afraid of Short Sales, there are some great prices to be had working these.

San Clemente, still a sleepy beach town

San Clemente is one of best beach town values remaining in Southern California. Where else can you buy a single family ocean view home for $515,000? And that is not a short sale/bank owned price. From the sunny cottages near the beach, to the spacious villas on the hill, all of San Clemente mixes old time beach charm with a revitalized community. There is even a Starbucks!

San Clemente offers both the part time and full time resident a never ending variety of activities. Take a morning walk along the famous T-Street Beach and watch the sea gulls and the surfers. On the first Sunday of every month, head down town to Del Mar Street for the Village Art Fair. Local business and restaurants offer an assortment of food and specials and you can stroll through the booths of arts and crafts. Then head down to the pier to enjoy a seafood dinner at the Fisherman's Restaurant and enjoy the sunset over the ocean.

San Clemente is a diverse community. There are the young renters who surf in the morning and party at night. There are the young families who gather at the pools in Talega and watch their children play soccer in the parks on weekend, and then there are the older couples who enjoy their ocean views on the deck. with the range of pricing, San Clemente can be a retirement reward, a family lifestyle or a second home for weekends.

Feel free to contact me if you would like some more information on homes for sale in San Clemente, or you can search on your own at our website www.great-western-realty.com

When should you walk away from an escrow?

I talk to many buyers who show some hesitation when writing an offer. I think they are worried that they will be stuck with this home, and are trying to make a decision about such an important purchase in the 15 minutes they were in the home. How can anyone be expected to do that?

Buyers need to understand that writing the offer is only the first step to determining if this is a good purchase. I like to tell my buyers that purchasing a home is a series of "yes" answers as we move through the process. As soon as we hit a "no" we close escrow and move on. My buyers and I are on the same side....we are both hoping this is the right home, but if it's not, let's go find the right one!! The fear is that the agent is so invested in making the sale that they will push you into a bad deal....if you think that about your agent, then find a new agent!! A great agent should be concerned about the well-being of their client and thus earn their business for life.

So as we enter the escrow, there are important discovery elements, any one of which could be a deal breaker. The two most important are the home inspection and the loan. In this market, you might add a third to tha,t which is the appraisal. The last thing we want to do is purchase a home for more than it's worth, and the appraiser will give us that information. If it comes back low, we can go back and renegotiate the price.

There seems to be a misunderstanding about the contingency period. With so many homes listed "as-is," many buyers are under the impression that they have to accept the condition of the home once they make the offer. This is not true. Regardless of whether this is a seller with equity, a foreclosure, or a even short sale...we can always ask for concessions based on what we find in the home inspection. What if the home inspection uncovers toxic mold? or a slab leak? or dangerous electrical wiring? Are we going to buy this home only to have major repairs when we walk in the door? Maybe, maybe not. The home inspection is to find out the condition of the home so we can determine if it's a project we want to tackle. Or not....if not, let's walk away. Most major problems can be addressed in escrow and we can get money or repairs done. If not...then let's move on.

The other major misunderstanding buyers have is concerning the loan. You are not obligated to ANY loan you can get. California purchase offers include loan conditions right on the front page. We tell the seller up front what kind of loan we want to get. They accept or reject these terms. While sub-prime loans are gone, loans do vary in interest rates and terms. You will work with your lender to find a program that fits your budget. If you can't find a loan you are comfortable with, we move on. Interest rates and loan programs change constantly, and interest rate available in the morning could be gone by afternoon. Until you have final loan approval on a loan you like...we don't remove the loan contingency.

Lastly....I would like to stress again...you are trying to decide if this is the perfect home for you and your family often with a 10-15 minute visit to the house, often after seeing 5-8 other homes the same day. A home you thought was perfect at 5pm on Saturday afternoon, might be wrong on Monday morning when the rush hour traffic races past the backyard fence. During the contingency period, we need to visit the home often. Find out if the afternoon sun is too hot in the kitchen, is the master bedroom dark in the morning, traffic noise? school noise? All situations that might cause you to reconsider the home. And there is always the panic attack....yep, it happens :).

There is alot to do after you have an accepted offer! There will be times when things just don't fit! I would suggest that you walk away when you realize you are forcing a deal! There is a lot of inventory right now and you don't need to settle.

In Trouble? Upside Down in Equity? Don't be Afraid to call an Agent!

This is a scary time for many homeowners...and there are so many advertisements offering help....for a price. There is one free avenue for information, your real estate agent. Don't be afraid to call one!

Real estate agents are professionals in this industry and believe me, they are informed about the latest news. We are watching for new programs, new loan options, new modification options, trends in Short Sales and even Foreclosure statistics. And they will talk to you for free. We are not attorneys, we don't charge you a fee. If you trusted your agent to help you buy your home, call that person for help now.

During the lastest real estate boom there was an influx of new real estate agents, but many of them are gone. The ones who are here and thriving are the experienced agents who have built a reputation and have referrals. They understand that the relationship between client and agent is primary. This often means that they will not make any instant money by offering advice....but by servicing the client who needs help now, they are building their business. It's critical that we offer the best advice we have and build on the trust you have in us.

We can help you navigate through the loan modification process, help you find a legitimate company to help you, or perhaps advise you how to do it yourself. We can show you how to get a reduction in property taxes based on lower home values. We can give you information on the current prices in your neighborhood. We can recommend a loan officer for a good refinance. We can help you sell your house either with equity, or if necessary, as a short sale.

Real estate agents are a great resource for you...call us! We were there when you needed us before, and we are there now.

What does the term "as-is" mean?

One of the most common questions we get when working with buyers is about the listing statement "as-is." This is one of the most frequently misunderstood comments in the listing description. Most people assume that when an offer is given on a property advertised "as-is," that you have to have done all inspections necessary prior to the offer. This is NOT true. A good buyer's agent will make sure that the home inspection contingency is preserved.

So what does "as-is" really mean? First, in a bank-owned property it's quite common to see "as-is" language. They will also include clauses to clarify that they have not occupied the home and have no first hand knowledge of its condition. They will also outline what, if any, seller disclosures they will provide for the buyer. Seller disclosures are required in sales transactions in California and if a bank does have knowledge of an existing problem, perhaps from a previous inspection, they are still obligated to disclose this to the buyer. The main purpose of the "as-is" clause is to pre-warn the buyer that the bank will not make repairs nor concessions based on the results of a home inspection.

During the home inspection contingency period (normally 17 days) we will do as many different inspections as needed. We will start with a comprehensive home inspection by a licensed professional. This might lead to other suggested inspections or estimates. These can include electrical, furnace, roof and even mold inspections. More and more banks are also refusing to pay for termite and other wood destroying pest inspections and repairs. If this is the case, we would want to get a termite company out there as well.

Once the inspections are all done and we find there are some problems, is the buyer forced to choose between the problems or walking away because of the "as-is" language in the contract. Maybe!!! It really depends on the problem. Everything in real estate is negotiable, so we negotiate. As mentioned above, if the seller (in this case the bank) is aware of existing problems with the property, they must disclose it to all buyers. If we find a mold problem for instance, often a bank will provide a credit or even remediate the problem, because if we walk away they will have disclose our report to all future buyers. They often decide it's better to just keep the buyer they have. The same might be true of a major electrical problem, slab leak, termite infestation...if it makes financial sense they will still negotiate with us.

What if we see "as-is" on a short sale? How does that affect the buyer? This is trickier! Remember that in a short sale, the bank doesn't own the property yet and in accepting a settlement, they have to deduct all the real estate expenses from their profit. The sellers are getting no money out of the sale, so they have no incentive to pay for any repairs out of their pocket. This is the toughest situation to get some concessions for repairs, but the bank is trying to mitigate their loss, so they will look at reasonable requests for concessions. Again, mold is a common issue where the bank will include some reduction in proceeds to repair the problem and complete the transaction.

Finally, in this market we are seeing more sellers with equity using the phrase "as-is." This is an effort to set the expectation with the buyers not to ask. But, we will anyway! As mentioned before, everything in real estate is negotiable. In better markets, buyers were used to expecting the seller to replace screens with tears, replace loose tiles and other small items of wear and tear. This could lead to 100s of dollars of cost for the sellers. With so many sellers having big drops in their equity, they often will place "as-is" in the listing to prevent such requests. In case where there are handyman issues, as just mentioned, we often ask for a $500-1000 credit in escrow. This is usually easier for the sellers to agree to than a itemized list which can seem nit-picking. It's all in the presentation. Larger problems again are usually something sellers understand and will normally address.

Obviously we need to pay attention to all information in the home listing and we are not trying to minimize the importance of an "as-is" clause. But it doesn't mean you are buying a problem, sight unseen.

What can your buyer's agent do for you!

I know that this market is unusual, confusing and frustrating. The good news, many "agent" who were really just order-takers have had to leave the industry. This should leave a group of experience, committed agents left to help you. This is a positive step for our market...more experience means better service and smoother escrows. But, if you haven't found the perfect agent yet, and are wondering what they can do for you, I'm hoping to give you an understanding of what to expect from your agent.

Obviously an agent will work with you to put together a list of possible homes to go see. Great Western Realty Group specializes in using the latest technology for Internet searches. Many buyers do a lot of the "leg work" on the Internet before they begin the physical search. Once you contact us with your specific criteria, your agent will create a personalized website for you to begin using at your leisure. This site will be linked to the Southern California MLS and you will receive all new and current listings directly on this site.

You will have the capability to sort home into favorites and possibilities. You can also make notes directly on the listings, email them to your agent for further questions and map them if you would like to drive by them yourself. We like to use this tool to develop a working list of homes you might like to see in person. It allows your agent to know in advance what interests you, we can offer suggestions and do back ground research prior to meeting with you. This system allows you to go at your own pace, with no pressure, often we will work with clients for over a year while they watch the market. Especially in this market, the ability to keep an eye on prices and inventory will lead to an educated purchase.

Once we have identified interesting homes, we will go see them. At this point you might write an offer on one, or more of the homes you see. The Southern California Market has seen drastic drops in price, but there has also been a flurry of offers, no reason not to explore all homes you have interest in. Remember that listing prices are simply the sellers' wish price, not the one they might actually take. The next step would be counter offers or acceptance of our offer. For the purposes of this article, let's assume you found a home at a good price and are ready to open escrow.

Escrow is the term for the closing process in California, other states use attorneys. An escrow officer and number will be assigned to you. The escrow officer acts as an impartial third party whose job it is to make sure that the terms we have all agreed to are carried out. They work with buyer and seller agents to get the full contract and deposit. They will order a title report and title insurance to make sure the seller has the legal right to sell the property. They will also check for liens on the property and make sure they are released. They talk to the current and future lenders, order payoffs and gather information necessary for the new loan documents. They also order Home Owner Association documents to verify that the association is not being sued nor incurring unforeseen expenses which might cause your dues to increase. All monies also go through escrow.

While escrow is handling all this, your agent will work with you to do all home inspections necessary for you to find out the quality of the home you are buying. This should always include a home inspection by a licensed home inspector. You might also need a mold inspection, if there is evidence of moisture problems. If the home is on a hill and/or if you notice cracking in the walls or concrete, you might be advised to get a geological survey. Other inspections could include termite, electrical or plumbing. The home inspection time is also an opportunity to get estimates for improvements or repairs.

The other important activity during this time is finding a loan. You have probably already begun this process by pre-qualifying with a loan officer, but now is the time to get final loan approval. Once you find loan program that fits your budget, your lender will order an appraisal. The lender will want to make sure that the home is worth what you are willing to pay for it. This is especially critical in our market. The last thing we want to do is over pay.

When all these items are done, and meet your approval, we will remove the contingencies and we "coast to the close." Your Great Western Realty agent will be available for you at all times during this process. I know you've heard stories about agents that disappear as soon as you sign an offer, but the great agents will always be there to help you through any hiccups that come along. We want you to find the home buying experience an easy, stress free one. And once you close escrow and have moved into your new home, we want that stress free feeling to continue.....so every buyer who buys a home through a Great Western Realty Group Agent will have a complimentary home warranty on the home.

A home warranty will cover you for all your major systems in the house for one year....and you can renew it if you like. Electrical, Air Conditioning, Furnace, Plumbing, Pool/Spa Systems and many other major items. This is just one more way your agent makes sure you are a satisfied home owner.

Please visit the search page of our site to get started, search for active listings.....and if you like, register your criteria for your free website.

http://www.great-western-realty.com/HomeSearch.htm

We look forward to working with you!

Karen
www.great-western-realty.com

Why Buy a Home in Mission Viejo, California

Beautiful Mission Viejo has been one of the most desirable family oriented cities since it was first built in the mid 1960s. As one of the very first master planned communities, Mission Viejo set the example for the surrounding cities with every park, school and shopping center designed well before they came into reality.

There are many reasons why families in particular love living in Mission Viejo. The first, and most important, is that it's a very safe city. In fact in 2007 it was named the safest city in the United States. Parents can feel comfortable allowing their children to play out front or walk to the park. During the summer months, you will find children running unsupervised in the parks and the lake, this has become obsolete in most cities of America.

Another big draw is the school districts and the extras they are able to offer the students. There are two school districts that service Mission Viejo, The Saddleback School District and Capistrano Valley School District. Both have excellent schools and many that have been awarded the title of California Distinguished School. Mission Viejo High School is well known for it's athletic programs, especially the football team, the Diablos. Many college and professional players received their start in Mission Viejo.

Capistrano Valley School District also offers wonderful opportunities for students. One such opportunity is the ability to participate in their music program. All elementary schools in the district offer bands and orchestras as early as 4th grade. By the time the students are in middle school there are even more classes available. In fact, Newhart Middle School employs two full time music teacher and have 6 different music classes. There is also a Jazz Band that meets as an extra curricular class after school.

Any discussion of Mission Viejo must include extra curricular sports. Most families participate in at least one after school sports club. There are basketball leagues, Pop Warner Football and of course, AYSO soccer. In addition the world reknown Mission Viejo Nadadores Swim Team has produced Olympic Gold Medalists and any child interested in competitive swimming would find the facilities exceptional. The swim center also offers many swimming instruction classes and beginning swim teams through the Swim America clubs.

Finally, perhaps the most beautiful feature of Mission Viejo is the Lake. Lake Mission Viejo is a private lake open only to residents and their guests. There are two beach areas, one that is open all year. There are free concerts and movies in the summer, white sand beaches with lifeguards, and boats to rent. The association stocks the lake throughout the year with trout and bass and hosts fishing contests. There are also quite areas where you can fish year round.

During the summer and school holidays, the Mission Viejo Lake Association offers day programs including Junior Life Guards, sports programs and basic "hanging at the lake." They also organize special day trips to Disneyland, Knott's Berry Farm, and other Southern California places of fun. The lake also offers enrichment classes year round, such as Mommy and Me, Adult Yoga, Intro to Basketball for Elementary Students...etc. And the best part? The Mission Viejo Lake Association dues are only $222/year, not a month, a YEAR.

We hope this has given you some understanding of the quality of life you and your family can find in Mission Viejo. Please contact a Great Western Realty agent to help you begin your home search in this special family city.

www.great-western-realty.com