Right now in the Seattle real estate market one can find dated estate sales, short sales and, a few foreclosures in the hinterlands of Seattle, and every once in a while, a real gem of a home. I have had a lot of our newest Diva Dwellers ask why decent homes are not coming on the market. The bottom line is that Seattle is relatively stable from an employment standpoint. People love living in the city. Its only a good time to sell your home if you want to capture a good deal and move-up in size or change your location. What’s left on the market is a hodgepodge. So what is a Diva Dweller buyer to do?
- Be Speedy: Compete for the few with a million other first time home buyers.
- Hunt Down the Rare Foreclosure: Seattle has had a very low foreclosure rate in the core central Seattle neighborhoods. When was the last time you saw a foreclosed home in Ballard or Capitol Hill?
- Learn to love a Fixer (our favorite): Estate sales are great. Basically you are getting a super deal. The owners are the estate and they are just dividing up the profits from the sale. The only thing is that you need to learn to love the fixer. Get your tool belt ready!
- Short Sale – It is a Dirty Word in Real Estate: Or dive into the murky, no road map and unregulated pool of Short Sales.
What is a Short Sale: First let’s start at the beginning. What is a short sale? A short sale is when the seller owes more on their home than the home’s current market value. As a result the home owners have to appeal to the lien holders (mortgage folks and big banks) and ask them to take a loss on the mortgage amount. The lien holders will agree to the loss only if there is a hardship in the family and the home owners have no other way to pay the mortgage. It takes a minimum of 60-90 days to get a short sale approved by the lien holders. From there another 4-6 weeks to close the transaction from the buyers side. Personally, we prefer that someone short sale their home instead of letting it go into foreclosure. Foreclosures have huge impact on the entire community and can seriously damage property values for one’s neighbors. Whereas a short sale is around 10-15% less in market value than the surrounding homes. This type of discount can quickly be recovered by the market. Expect a lot more short sales this next year and it’s best to know what you are dealing with as aÂ Diva Dweller buyer.
The Seller: Now that you know what a short sale is, how do you figure out what type of short sale is the right one to go for? In order to get a short sale closed and our Diva Dwellers in their new home, the home owners need to be prepped and engaged. The sellers are required to provide a ton of financial information to the lien holders as part of the process. They also have to have a very real hardship. They cannot just want to sell their house because they think they will never get their equity back. Those folks just need to sit in their homes and ride out the market like the rest of us!
The Seller’s Real Estate Broker: The seller’s real estate broker is also critical to the process. People have very emotional connections to their home. The thought of having to let go of the home in such a clinical manner can be at best frustrating and at other times a little dysfunctional. A good short sale broker is one part therapist and second part a very good negotiator with the lien holders. I have a lot of admiration for short sale experts. Matt Miner, on our Diva Team, does a phenomenal job keeping it going and as a result has 100% closure rate.
Lien Holders/The Banks Who Own the Mortgage: Next up – the lien holders. A major lien holder is the bank and/or banks who hold the note on the home. Not every bank is willing to do a short sale. For a multitude and unknown reasons they sometimes would prefer for the home to go into foreclosure. The larger institutions have more motivation because a significant portion of the their loss is being covered by the federal government or mortgage insurance. Some of the more obscure or sub-prime lenders who are backed by private equity firms are more complicated. Basically the owner of these types of loans are owned by a ton of small investors. In addition, credit unions do not forgive mortgage debt. They might agree to the short sale but they will require the seller to setup a payment plan outside of the transaction to pay off their forgiven debt.
The Short Sale Transaction: Next up – you have decided to move forward, you are committed to the long process, this is your dream house, you cannot wait, make this short sale work Divas! Well – a short sale purchase and sale agreement is a little different than a normal purchase and sale agreement. The timelines for one’s financing, inspections, title, etc do not start until you have lien holder approval. As you know from above that can take a couple of months. The way we structure our short sales is that we do the inspection and the title review at the very beginning. There is nothing like hanging out twiddling your thumbs for three months only to find out there is a ton of work your new dream home requires and the banks will not renegotiate the purchase price. The other thing that its critical to know is what is going on the in the land through your title review. Does the property have any assessment, potential building restrictions and a myriad of other issues. Get it out of the way now before you sit and wait for the banks to respond. You can also use these items to negotiate for a better price or standing on the home.
The Bank Approval of the Sale: Yes – we finally have approval. Oh wait the bank decided to not give you closing costs or change the purchase price. Sometimes we can go back to renegotiate. Or sometimes you just have to prepare yourself from the beginning and accept what they are willing to give you. It sucks but in the end you got that dream home of yours. It’s better than buying a fixer – right?
Regardless of one’s approach, you need to remember that there is a really low closure rate on short sales. Part of this is due to the sellers who decide to go into Bankruptcy, incompetent negotiators who do not know what they are getting themselves into and sometimes the bank just refuses to negotiate. 2012 is the final year that a seller does not have to pay income tax on the forgiven debt. Be informed, the Divas will give you their best advice based on personal experience, and do the best we can to get you the right home for you!