Tuesday, April 27, 2010

Getting Close

Our agent had cautioned us about short sales from the beginning of our search. If you are confused about short sales, they are properties that are still owned by an individual, but that person is behind in their payments. The bank and the owner reach an agreement to sell the property, with the understanding that the selling price will be less than the amount of the bank note. Ostensibly, the bank absorbs the difference, although in reality, the loss is often passed to the government or to the quasi-governmental Freddie Mac. The problem with short sales is that they may take a very long time. The bank waits to collect offers, and even once a potential buyer has been selected, it takes a long time for the bank to bundle the sale with other sales and pass the property to Freddie Mac.

Despite all of the above, the potential of purchasing a property at an extremely low price, tempted us into looking at short-sale properties. In November we found a beautiful little 1250 sq. ft. cottage (pictured) that was listed at a very attractive price. We put in a bid that was $3,000 under the asking price. This was probably a mistake on a short sale, but my wife hates to pay full price for anything. It took more than a month for the bank to come back with a response. Their offer was 8K over their own asking price. What? This is actually fairly common on short sales. Common or not, we were not paying more than their asking price, when there were no other bidders in the mix. We countered with an offer equal to their original asking price, which they took. On a conventional deal, one my speculate that the bank's actions were simply a play to get us to pay full price, but I don't think banks are operating rationally in this climate. Bottom line, our offer was accepted.

Normally, once an offer is accepted on a conventional sale, escrow is opened very quickly, but on a short sale, escrow is opened when the bank can get itself together enough to agree to open escrow. Oddly enough, after another month of waiting, we were informed that we were in escrow, although we had not completed any escrow papers. The bank had unilaterally opened escrow. Since we wanted to go with the deal, we quickly signed the papers and made the escrow binding.

Now the waiting really began. On a conventional deal, the parties agree to a length of time for escrow (30 days, 45 days, etc.), not so on a short sale. Buyers just sit in escrow limbo for months. During this period, the bank that owns the note attempts to pawn the sale off on the government or an investor. We heard nothing for two months, and had no idea if and when the sale would close. For anyone considering a short sale, patience is absolutely necessary, espcially during this period. Finally, the letter arrived saying that the seller was ready to go ahead i.e. they had pawned off their losses. This is the point we are at today. The deal should close in four days, but when dealing with a short sale getting one's hopes up is a bad idea. We believe it will close in four days, but we could get a notice tomorrow saying "The deal is off; we are so sorry."

If time is important, a short sale is not a good idea. However, if you are looking for a fantastic deal and don't like the idea of an auction, a short sale might be a good solution. (More about short sales and bank-owned sales next time.)

Sunday, April 25, 2010

Be In It For the Long Run

Eventually, my wife and I found the perfect vacation home. It was relatively new, in the right location, and priced right. Thus, we put in a full-price offer, despite it being a buyer's market.

The property was banked owned, and it didn't take long for the bank to accept our offer. Further, we were quickly able to finance at a AAA credit rate. However, there is not a happy ending with this first attempt: The bank's appraiser felt that the property was over priced. The bank appealed its own appraiser's opinion, which took a long time. Meanwhile the seller bank grew increasingly impatient. Eventually, our own bank let us know they would not be able to get the property to appraise; the property fell out of escrow. No problem, right? Wrong! The seller bank blamed us for the fact it wouldn't appraise. They informed us through our agent that they would not sell us the property at any price. Neither our agent nor we had ever heard of anything like this. The bank just seemed to believe that we were bad luck. In the end, we went back to looking for properties.