US property sales in 2011 essentially fall into one of three categories. These are traditional sales, short sales or foreclosures. Each have their respective plusses and minuses for buyers and sellers. As of July 13th, 2011 the Las Vegas market had 25,736 properties for sale on the GLVAR's Realtor MLS system. (Every realtor has access to these properties and is paid a percentage of the total commission by the property seller.) Of this 23.7% are Traditional sales, 55.3% are Short Sales and 21% are REO's (Bank Owned) sales.

Front Yard landscaping replaced after traditional sale of this family home

1. Traditional Sale: means exactly what it says; a buyer and seller agree to buy/sell a property for a specific price.
Transfer of title to the property is recorded upon the successful exchange of purchase money and the satisfaction of all debts against the property.
No one really wants to sell in this market; most feel forced to sell for reasons that may include: personal reasons, divorce, relocation, retiree's needing the equity from their home for various reasons, death (probate/estate sale), loan qualification reasons – it is currently much easier to sell your home than keep it if you are trying to buy a larger home, someone dumping their property because they think the market will fall further.

Traditional Sale Buyer Benefits:Traditional Sale Seller Benefits:

  • Home is likely to have been lived in and taken care of

  • Seller picks who buys their home

  • Home is likely to have been fixed up to attract buyers

  • Seller decides if they want to sell

  • Seller is likely to offer incentives that may be attractive to buyers such as assistance with closing costs and making repairs identified by home inspections

 

  • There is a real face to negotiate with

 

  • Timeliness is likely to be important

  • Timeliness is likely to be important

  • Regular closing costs are likely to be prorated to the date of sale.

 

Traditional Sale Buyer Negatives:Traditional Sale Seller Negatives:

  • Sellers may not be realistic about their homes condition, value or the current market

  • Seller may have to substantially reduce the list price to compete with Repo and Short Sale listings

  • Sellers may be emotional about their property or situation

  • Seller may have to spend money on making repairs and improvements they will not receive the value for.

  • Typically, a large number of these listings are currently over priced

  • Many sellers are unable to sell their home in this buyers' market

  • Many traditional listings currently expire as the seller may want to sell but DOES NOT NEED to sell.

  • Sellers may receive 'low ball' offers from investors that can be emotionally distressing in the current market

Great deals are being closed on Short Sale Properties

2. Short Sale: is a property sale in which the sale proceeds do not pay off the underlying loan(s). A short sale is NOT automatic and a seller must seek 'Short Sale Approval' from their lender(s).
A seller must supply their lender(s) with a HARDSHIP LETTER explaining their personal circumstances and their specific HARDSHIP. Typical hardships include family illness or injury, job loss or significant loss of income, divorce or split of domestic partners, death of spouse, adjustment of mortgage payment or unforseen increase in living expenses such as by the birth of a child.
A seller must then complete a financial statement showing proof of their situation and hardship. This is a very long and complicated process but in Nevada it has been dramatically streamlined by most of the major banks during 2011.

Short Sale Buyer Benefits:Short Sale Seller Benefits:

  • It is often easier to negotiate a lower price with the seller. Some of my best deals have been on short sales.

  • The seller avoids foreclosure and is in a better position to buy again sooner. They may be eligible for a mortgage within 2 years.

  • The home is likely to be in better condition than a fore closure.

  • A short sale is not recorded on the sellers credit history, only the late payments are recorded.

  • 2011 has seen an overhaul of the short sale process with the time for approvals dramatically reducing; I have many approvals I have received in just 5 or 6 weeks

  • If the bank does not grant the seller a Release of Deficiency, the seller can cancel the buyer's contract and allow the property to go to foreclosure.

 

  • Seller can pull out of the transaction up till a few days before Close of Escrow (COE) by not signing the banks Short Sale Approval Form.

 

  • The seller may not owe the balance due on their home loan(s) even on substantially "upside down" homes.

 

  • Seller chooses who they sell to - i.e. who the buyer is.

Short Sale Buyer Negatives:Short Sale Seller Negatives:

  • It can take a long time to get a short sale approval; they can languish in the bank purgatory for months and then be declined by the bank. The buyers offer is declined and their time wasted.

  • It can take a long time to get a short sale approval; they can languish in the bank purgatory for months and then be declined by the bank.

  • As each bank treats short sales differently, the role of the Realtor is vital in investigating the sellers hardship situation and which bank(s) holds the underlying mortgage; thus gauging the likelihood of bank approval.

  • As each bank treats short sales differently, the role of the Realtor is vital in investigating the sellers hardship situation and which bank(s) holds the underlying mortgage; thus gauging the likelihood of bank approval.

  • The bank may approve the short sale but not at the price offered by the buyer.

  • The bank may approve the short sale but not at the price offered by the buyer. The buyer may then cancel the offer.

  • If there are 2 or more mortgages all lenders must agree to the sale. Typically the first lender takes the majority of sale funds leaving little for 2nd and 3rd lenders.

  • If there are 2 or more mortgages all lenders must agree to the sale. Typically the first lender takes the majority of sale funds leaving little for 2nd and 3rd lenders.

  • The seller may walk away at the last minute if the bank does not grant them a Deficiency Release.

  • The lender may approve the short sale, but not release the seller from the debt owed and file a DEFICIENCY. In Nevada, lenders have 7 years to pursue the deficiency.

  • When an owner stops paying their mortgage it can take 6 to 18 months for lenders to foreclose. Some sellers list their property for sale but want to maximise the time in their home without paying their mortgage before they accept an offer to sell. The buyer may need to catch the seller at just the right time.

  • Short selling an investment property may result in an additional tax liability to the IRS calculated on the difference between the short sale amount and the loan amount. Expert advice should be obtained from an attorney or tax specialist.

  • The seller may not wish to spend additional money on repairs to the home they are losing as they receive nothing from the sale proceeds.

 

REO properties are required to have pools drained and covered

3. REO: stands for Real Estate Owned by a bank or lender. Regulations in the US prohibit lenders from owning real estate, ensuring banks dispose of properties on which they have foreclosed.
REO properties, commonly referred to as Repos, were usually cheaper than short sales 12 -18 months ago. Since then, lenders have recognised the costs associated with the foreclosure process and there has been a push by the Federal government to force banks to work with consumers, making short sales more attractive to lenders. Short sales are now typically up to 10% cheaper than repos, although each property is unique.

REO Buyer Benefits:REO Seller Benefits:

  • There are quicker response times on a buyers offer than the many months of waiting that can be associated with short sales. The property must be sold.

  • Nevada law allows lenders only SIX MONTHS to pursue a foreclosure deficiency. This is the major reason for choosing foreclosure over short sale.

  • Great deals are available

 

  • For buyers wanting to live in the home, Government Neighbourhood Stabilization programs by Fannie Mae (Home Path) and Freddie Mac (Home Steps), renovate some repos and give owner occupiers a 30 day "first look phase" before offering to investors

 

REO Buyer Negatives:REO Seller Negatives:

  • Properties are bought 'as is'. No warranties are given. Some lenders may make repairs to satisfy loan conditions of an offer.

  • Foreclosure of an investment property may result in an additional tax liability to the IRS. Expert advice should be obtained from an attorney or tax specialist.

  • Homes may have sat vacant for many months and are therefore more likely to have been vandalized.

  • Foreclosure is possibly the worst situation to appear on a US credit report.

  • Yards are normally dead and pools empty requiring repairs after purchase.

  • A foreclosure prohibits a borrower from obtaining regular mortgage financing for a minimum of 5 years from the date of repossession.

  • The lenders Asset Manager may be difficult to reach.

  • Future mortgage interest rates are likely to be higher and Insurance rates will increase.

  • Banks sometimes have a time period before considering offers, in an effort to create a multiple offer situation and bid up prices.

  • Foreclosure remains as public history forever and on credit history for 10 years

©2013-2020 Steve Bland