A few months back I wrote at length about “Short Sales” versus “Foreclosures” with the basic idea for buyers being “Short Sales” BAD and Foreclosures GOOD. Meaning with foreclosures we knew who the decision maker/seller was, could expect an answer to an offer within a few days, have an escrow of 45 days or less, and generally expect that the condition of the property wouldn’t deteriorate much before closing. None of that can be assumed with “Short Sales”. While “Short Sales” are still an aggravation to be sure, lately foreclosures have become much more troublesome than last year and certainly a far different animal than they were in the 1990’s. All of the following is important for a buyer to understand before making an offer on a foreclosure:
1. The majority of all foreclosures are having multiple offers. Yes, in stark contrast to much of the overall Real Estate market, the foreclosure market is “hot”. Multiple offers is a turn off to many buyers and complicating things is the fact than most lenders will require the property to be available for bids for a certain period of time-usually 5 days. Then expect a counter offer to make your “best and final offer”. The process to actual secure the property can often take more than a week and sometimes more than 2 weeks.
2. Once you have “won” expect there to be delays in just about every step of the process. From opening escrow, getting your offer officially signed off by the lender, getting necessary HOA information, updated preliminary title reports and eventually a signed grant deed by the seller so you can close. I recently closed a deal that was supoosed to be a 30 day escrow. My client gave notice to his landlord (don’t ever do that until advised!), locked his interest rate (ditto), removed his contingencies (fine unless he wanted to cancel due to the seller’s non performance), and because of so many things that have to happen in a timely manner in the escrow process to convey clear title-we closed almost 45 days late. It was highly frustrating for all concerned except the listing agent (who carries about 100 foreclosures in his listing inventory and it’s all he can do to keep up with his email), the Title Company (out of the area because the seller/Bank chooses the escrow and title Companies and is similarly overworked), and the Escrow Company that does the best they can, but lets face it, do they really have to answer to Neal Weichel the way local companies would? No. In short the Seller/Banks are now counter offering for LONGER escrow periods than I am writing in for my buyers offer on a VACANT HOUSE. Yes, it’s ridiculous. Remember, until the seller has actually SIGNED the offer the buyer cannot complete the loan process. Until the seller signs the Grant Deed, you cannot close escrow. Until the preliminary title report and required HOA documents are received and reviewed by you and your lender you cannot have loan documents etc In today’s foreclosure world there is virtually no communication between listing agent and seller-it is all through the internet and email. So the days of picking up the phone and solving the problem (like in the 1990’s) are gone. Bottom Line-expect all of this to happen and be prepared for delays.
3. Properties are sold completely “as-is”. I have seen lenders not even PAY for the Termite, let alone do any work. Often they won’t pay for a home protection plan. Sometimes they do. In the newer construction of much of Santa Clarita this often isn’t a problem but a great inspection-including a thermal scan-is often a good idea. You don’t know-and neither does the seller-what has happened in the past. Be aware
Now after reading all this you may ask-“is it worth it?” Multiple Offer headaches, delays in signing off and processing the paperwork, buying “as-is” etc. As agents, I can tell you they are WAY more work and frustration when you are trying to do a good job for your buyer. But worth it from a value point of view? Just ask all the people that bought them in the 1990’s! In today’s market, for value, they are hard to beat.