As the fallout from the “Great Recession” continues and the foreclosure mess continues to loom over the heads of millions of American homeowners, solvent borrowers in need of quality, affordable housing often scratch their heads in their quest to find a new home. As the media outlets report that foreclosures and short sales are rampant and often the best deals on the market, guess what? They aren’t. After taking huge losses since 2007, banks are trying to stop the bleeding any way possible and often times that comes in the form of tightening their purse strings with list prices for REOs and getting more strict with the allowances made in their short sale approvals.
What you end up with is an anomaly that baffles buyers who think that there is some large glut of awesome homes out there that are ripe for the taking. One thing is correct, there are definitely a lot of homes on the market, but when you consider that many homes don’t appraise for the negotiated sale prices and that even if they do, underwriting departments stand ready to scrutinize every little aspect of the deal to further curtail their losses, many purchases fall through.
Here in the Phoenix Metro Area, for the past year or so, I’ve been advising my clients to consider the “seller next door”. Often times these folks are not distressed and are just selling to move up, because the time is right or for other reasons. Because they are not forced to sell, though they may not like the low-ball offers and laundry list of repairs that buyers ask but are in a position to grant these requests and do so with relatively little hassle.
Case in point, I’ve been watching a townhome in Tempe (home to ASU, one of the nations largest university campuses) for about 6 mos. I helped a client to purchase an investment property in the same community as this town home- in fact, they are about 200FT apart, the same floorplan and in the same good condition. The property we bought in October of 2010 as a short sale was fully rented to ASU freshmen for about $1200/mo. and included all appliances, furniture and of course that lucrative lease. This “pre-approved short sale” took 6 months to close, saw a change of tenants and a heated discussion over which personal items (furnishings/appliances) should be included with the sale and which would not. The property we were watching was probably in better shape, but was vacant- a former “kiddie condo” for the seller’s own child who had since graduated from ASU and sat idle as a sometimes golf retreat for friends and family of the out-of-state seller.
When we first considered this property, shortly after the purchase of the first for $105K, the $115k price tag seemed steep. The list agent explained to me that the sellers were absolutely firm on netting at least $110K, which seemed ludicrous to me. My client really didn’t care what the seller wanted to net- he just knew that he didn’t want to overpay for a good investment that essentially was as good as gold as the other one he bought. The community though older was built with solid block construction, was home to many other ASU students, faculty and staff, had plenty of available parking and the biggest selling point is that it’s along a bus route that goes right up to campus.
After inquiring with the list agent again when the home was listed for $108K, he informed me that the seller wanted to move the home to trade up to a Scottsdale winter retreat and that a price reduction would be imminent the next day. When asked about what his clients expectations were for a sales price, he confirmed that the seller was still unrealistic, but that it would be “up to the appraiser to decide” since these days they are the ones that seem to have all the power in a transaction that is financed. He then went on to hypothesize that if something came in for close to $100K and they could settle for between $100K-$103K that we’d just see what the appraisal would yield at that point.
True to his word, the home was listed at $105K, the next day. My client and I promptly wrote our first offer for $90K, with a $425 home warranty, requesting the seller pay all of the HOA transfer fees and requested a full termite treatment should any be found. Expecting a counter offer for darn close to the newly reduced list price, we were pleasantly shocked when the response was for $98K, accepting our other pre-negotiated requests!! Seeing that we were ahead of the game, we couldn’t resist the temptation to counter again for a lower price- we promptly wrote another counter offer for $95K. Not really caring if the seller would take that offer, we happily split the difference and settled at $96,500.
Inspections are set for the upcoming week and we are cautiously optimistic that our previous visit and assessment of the condition of the home being relatively good, we’ll get confirmation from professionals. One thing is for sure, my client is pleased as punch with the direction this purchase is going and so am I.
The main point to take away from this story is that we could have fought tooth and nail for a competing short sale and clawed our way to the top of the heap of offers that there would be on an overpriced REO. Instead, we took a chance on the grossly overpriced traditional sale and the results thus far are favorable. In 2009 & 2010, I had really good success pursuing these sales and think there are plenty more out there that are ripe for the picking. As the housing funk lingers on, sometimes it takes a little luck, a little dreaming and a whole lot of “ca-hones” to get what you really want.