Distressed properties present challenges
Persistent unemployment likely means that we will continue to see a certain amount of distressed properties that many view as opportunities. Of course, these properties usually are priced to move, but when they are priced below what is owed there are risks for buyers and sellers alike.
This year, short sales account for less than 10 percent of our total sales. Many avoid them with good reason. Nationally, short sales have only a 50 percent success rate. There are a number of reasons for the low success. A short sale may take up to six months from the time the offer is tendered before the bank decides whether or not they will accept. Sometimes, even though the bank may agree to the terms, the seller will back out because the bank intends to report the deficiency as income to the seller.
Idaho is one of a dozen nonrecourse states, meaning that the lien holder cannot pursue a seller for the difference between the sale price and the amount owed in a short sale or foreclosure. The seller may still be liable for any home equity loans that used the property as collateral to make other purchases or to pay off credit card debt. Even so, the impact to a short seller's credit is likely to be less than that of a foreclosure. According to FICO, a consumer with a starting FICO credit score of 720 will see his or her score drop by 130 to 150 points after a foreclosure. By comparison, that consumer's score will drop 95 to 115 points after a short sale.
Just over 30 percent of our year to date sales have been of foreclosed properties. These are less stressful for buyers since the highest bidder - usually the lien holder - at the foreclosure auction has clear title. It may still take several days to get an answer but the wait is not nearly as long or painful as with a short sale. Other than having to sometimes go through several levels of asset managers to get final approval, buying foreclosed properties is something akin to buying any privately held property.
Most banks or mortgage holders have their own set of forms to affect the sale of a home. These will likely be markedly different than the Realtor's standard purchase and sale agreement and are usually in the form of an addendum. Often these addenda can cause a buyer to sign away rights they would otherwise have. Many require agreement from the buyer that they will not pursue any legal remedy in a court of law if the seller changes the rules.
It's oft been stated that, "Desperate people do desperate things." Some property owners, facing desperation, take out their frustration on the property they are losing. If you have made an offer on a foreclosed property, scheduling your final walk through close to the closing is wise. Even though the lien holder usually changes the locks, many agents will tell you of foreclosed properties they have seen where appliances, light fixtures, cabinets, stair railings or plumbing and wiring have gone missing prior to closing.
Often these damages are due to burglars but it is not uncommon for people losing their homes to do some damage or remove some easily removable items on their way out.
Still, with mortgage rates on Friday still showing 3.75 percent on the Coeur d'Alene Association of Realtors website, there are plenty of opportunities to make good investments in real estate. Just be cautious and get professional help.
Trust an expert... call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.