How to buy pre-foreclosure properties?

Ken, a good friend of mine also a past client, has heard about the bargain deals in real estate. Being a first time investor, he has a lot of questions about the short sales and REO (bank owned properties). Here is a list of the questions that he asked me which I thought would be useful for anyone who is also thinking about taking advantage of the current real estate market as an investor.

Q: What is the difference between Short Sales and REO?

A: Short sale means that the current mortgage is higher than the listing price on the house. For example, if the owner owes $580,000 but the house is only listed for sale at $425,000, it is a short sale. Because the list price is less than the mortgage, either the seller must bring cash to the escrow to close, in this case perhaps $190,000 (the difference of $160,000 plus closing costs); or the lender will take a loss at closing.
The REO (real estate owned by the bank) means that the bank has foreclosed on this home and it is part of the bank’s inventory.
The major difference between short sale and REO is the ownership, in that short sale the owner still owns the property, whereas the REO the bank owns the property.

Q: Are there any chance that buyer may pick up a property that has lots un-paid bills?

A: No. By the close of escrow (that is, at the end of the long process of buying a house), the seller should provide buyer with a clear title (no lien, no back taxes, no un-paid utilities, no garbage fees, etc) and a title insurance which will insure against any UNRECORDED liens. The buyer don’t have to worry about any charges from the previous owner.


Q: Are there any additional costs that buyer should pay?

A: The buyer is responsible for paying any inspections that buyer had ordered, plus if the buyer is getting a new mortgage, the buyer will be paying the costs associated with that. Since most short sales are “AS-IS” sale, any repairs and remodeling will be your responsibilities too.

Q: Can there be more than one bank involved in a short sale?

A: Yes, there is possibility that there are a first mortgage and a line of credit against the property. But many times those two mortgages are from the same bank. Therefore there are two mortgages but there is only one bank involved.

Q: what is the procedure of the short sale?

A: The seller will sign the purchase contract, but the bank will ultimately decide whether or not the property is sold. The bank will review the offer and based on its own appraisal, and it will talk to the investor of this loan to decide if the offer is acceptable. If the offer is rejected by the bank, the property will be put back on the market and the buyer will get their deposit money back. But the buyer doesn’t get a refund for the inspections or other expenses that buyer must pay.

One of the complains with regarding to the short sales is that there is no easy way to know whether the bank will approve the sale and this leaves the buyer waiting and waiting. Fortunately, the federal government recently issued guidelines to speed up the process and provide more clarity for the buyer, seller and the lenders. The new Home Affordable Foreclosure Alternative Program, known as HAFA, provides a well-mapped route for executing a short sale. Although they don’t take effect until April, however, mortgage servicing companies have the option to implement them early.   I will discuss more about HAFA and its impact for the home sellers in my future blogs.

Cupertino Home Sales is on a Rebound!

The news should not come as a surprise to anyone who has been watching the market in the past several months – Cupertino Home Sales show a healthy recovery from last year.  In fact, according the statistic from MLS, the median sold price for homes in Cupertino area increased by 27%, up from $870,000 to $1,106,004.  And the number of sold properties in November increased from 11 in November 2008 to 38 in November of 2009, a whapping 245% increase in sales.

There are many more signs showing the market strength:

  • The number of pending sales (home under contract) increase from 20 homes in 2008 to 41 homes this November.  A 105% increase in sales activities!
  • The number of new listings decline from 47 homes in 2008 to 32 homes this year.  The new listings represent the supply of inventory to the market.
  • The months supply of inventory decrease from 6.8 month last year to 1.5 month this year.  The months supply of inventory measure how many month it takes to sell all the current inventory of homes.  The smaller the supply means more likely that the price will move up because the market is changing into a seller’s market.

Currently, there are 53 active listings on the market –  10 of which are asking 1.5 million or above, 25 homes are listed between 1 million to 1.5 million, and 18 homes are listed below 1 million.  For the  pending sales, there are 5 homes that are listed above 1.5 Million, 19 homes are listed between 1 million to 1.5 million and 24 homes are below 1 million.  The lowest pending sale home is Betlin Avenue, 3 bedroom, 2 bath, asking for $675,000.  The highest pending sale is the 5,300 sq ft, 5 bedrooms, 3 and half bath home on Stauffer Lane.  Asking price?  $3,500,000!

It appears that homes sales below a 1 million is the most active segment of the market and it follows by 1 million to 1.5 million.  The home sales above 1.5 million still face a bit of challenge. 

In short, sales are up.  Inventory is down. Median home sales price is increasing.  All these points to a healthy recovery of the Cupertino home market.  Despites the economic downturn and high unemployment figures in Silicon Valley, the real estate market in Cupertino is un-affected. 

I have been selling homes in Cupertino, Saratoga, Los Altos, Mountain View and Palo Alto since 1990.  If you wish to discuss your real estate needs or ask a question, please give me a call.

Has the South Bay housing market bottomed out?

Has the housing market in the South Bay bottomed out?  From the activities in the market and from my personal experience, it certainly “feels’ that way.  Since March of this year we had several buyers contacting us about buying foreclosure properties.  Plus the existing investors that we had been working with from last year, it seems that all-of-sudden buyers are coming out of woodworks looking to buy.  We took them out to see single family homes in Evergreen, Blossom Valley, and Cambrian Areas.  Yes, there are a lot of homes for sales.  Yes, the price is very, very low.  But the homes in nice neighborhood and in decent conditions are selling, often with multiple offers.  For the homes that my clients are interested in, there were often competitions and we had to raise our offer price to get the house.  For those of you who don’t closely watch foreclosure market, this could be a surprise. 

Let me show you one area that we recently looked at as an example.  Currently, in the Blossom Valley area (zip code 95123), there are 64 homes for sales and 91 pending sales.  The average home price for sales is $476,664 and the average price for pending sale properties is $440,574.  For the properties sold since 1/1/2009, there are 76 solids.  What is very interesting is that the average listing price is $442,641 and the average sold price is $444,325.  This is because there are number of homes that have multiple offers and sold above the asking price.  The active-to-pending ratio is 64 versus 91.  This is interesting because without knowing anything else, you could almost certain this is a normal, healthy real estate market.  The only thing that will tip you off is if you knew the same homes were selling at price range between $650,000 to $700,000 just two years ago. 

One can argue that the market is still depressed in certain areas, such as downtown San Jose and East San Jose (Zip code 95121, 95122, 95116 and 95111).  In these areas the market is clogged with bank owned or short-sales properties.  However, even that may change quickly.  Federal and State government has come up with new rules to prevent lenders from putting properties in foreclosures.  There are many new (for Northern California at least) Federal Housing Administration loan program to encourage buyers to buy.  Fannie Mae has come up a new program called REFI PLUS to help up-side-down home owners to refinance their homes so they don’t have to sell if they don’t want to.  All these efforts will decrease the inventory and help stabilize the housing price.  I do not have a crystal ball but if there is anything that I learned after being in the business for over 20 years, it is never believe everything you read in the paper.  The South Bay market has bottomed out.  ARE THERE ANY GOOD DEALS OUT THERE STILL?  That will be one of the topics of my future blogs.