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BUYER’S GUIDE TO SHORT SALE OR BANK OWNED PURCHASES

Many prospective buyers are hearing about great “deals” to be had by purchasing a “Short Sale” or Bank-Owned property. While purchasing a property under these conditions may provide a unique buying opportunity, there are also certain challenges with these types of transactions. As your real estate advisor, I want you to be the most informed buyer in the marketplace and knowledgeable about these potential challenges before you start looking for your next home.

SHORT SALES	BANK-OWNED PROPERTY
Stringent Qualifications. Some sellers may advertise a short sale when in reality they don’t qualify for one with their lender. Unfortunately, whether the lender will approve the seller’s hardship is often unknown until the seller and a buyer reach agreement and that agreement is presented to the lender.	Property Condition. Most bank-owned properties are sold “As Is”. As a result, buyers assume the risk of most property condition defects that may not be discovered until after closing. Even if the buyer discovers a defect in their inspection, many times the bank will not consider paying for any repairs.
Lenders aren’t naive. Lenders will usually require a broker’s price opinion, known as a BPO, before agreeing to a short sale price. If a lender believes they will lose less by taking the property back in foreclosure over a short sale, the lender may hold out for a higher price or just refuse to approve the short sale offer.	Buyer Financing. The buyer’s lender may require the property to be repaired (e.g. a new roof) as a requirement of the buyer’s new loan. As stated above, this cost will fall on the buyer since the bank that owns the property has little appetite to pay for repairs.
Many Homes Sell “As Is”. Since most short sale sellers have little or no cash, it is common for the seller to refuse to pay for any repairs or work orders found during the buyer’s inspection.	No/Limited Form 17 Disclosures. While banks are not exempt from providing Form 17, most will condition the sale on the buyer’s waiver of the right to receive a fully completed form.
Length of Time to Close. Lenders are overwhelmed. Depending on a particular lender’s backlog, it could take anywhere from weeks to months to get a response to your offer. If multiple lenders are involved, the process gets longer and more difficult as all of the lenders must mutually agree on the short sale.	Length of Time to Negotiate the Offer. Banks are not typical sellers, may be in a different time zone and closed on weekends. They are overwhelmed and it may take days or weeks to respond to the buyer’s offer. Further, there can be little sense of urgency to respond, especially if it is not at or near the price the lender expects to receive
Loss of Control. Because the sale cannot close without lender approval, the lender(s) essentially control the timing of closing thereby making it difficult for the buyer to plan a move and market conditions may change while the buyer waits.	Onerous Terms. The bank will provide their own addendum to the Purchase Agreement that will contain non-standard terms and conditions that are mostly unfavorable to the buyer. This may require the buyer to engage a lawyer to review the forms.
Lenders Can Change Conditions. Some lenders reserve the right to renegotiate the terms of the short sale at the last minute which can cause the buyer’s purchase to fail.	Inspections. Since the buyer is likely purchasing “as-is”, inspections are critical and sometimes it makes sense to have more than one inspection. This can increase the buyer’s costs.
Little Seller Motivation. Most short sale sellers will receive no money at closing. Sometimes this can affect their motivation to communicate, cooperate and even to close the sale.	Earnest Money. Some banks are requiring a larger earnest money deposit than would a typical seller. The bank may also require the buyer make the deposit even before the bank accepts the offer.

Closing Costs: What To Expect

Closing Costs Explained

Securing the Best Mortgage

In today’s credit market, getting the best mortgage for your needs seems like a daunting process. But there are steps you can take now to make your search for the right mortgage easier.

The first step is to answer a few of questions. How long will you be in this house? Is it a starter home or some kind of transitional residence? Or is this a home you plan to stay in for a long time?

You also need to determine what type of payment you can afford, factoring in all of the costs associated with owning a home: insurance, property taxes, maintenance costs, etc. Be realistic about what you’d do if something needed repair, i.e. can you afford a new roof if necessary?

Gather all the necessary paperwork: social security card; paystubs and W2s; bank, investment, and retirement statements; credit card account information; vehicle make and resale value, and any outstanding auto loans; and current mortgage and home equity information.

Know your credit history. Visit http://www.annualcreditreport.com/ to review your credit report. This information will help you report and fix any errors and work to improve your overall score. It’s a myth that you must have perfect credit to secure a loan in today’s market, but it is an integral part of determining if you qualify and what the terms of the loan will be.

Work with a mortgage professional to get prequalified. This will help you not only decide how much home you can afford, but it can speed things along when you do find the home of your dreams.

I’d be happy to connect you to my mortgage consultant if you would like more information about securing the best mortgage.

FHA inspections vs. home inspections

There is an enormous difference between a home inspection and an appraisal — even an FHA appraisal — and homebuyers need to be aware of this.

Many homebuyers have made the mistake of equating a home inspection with an FHA inspection. They rely on the findings of an FHA appraisal report and forego the services of a home inspector. Then they move into the home, discover undisclosed defects, and wonder what went wrong. The intent of my article was to prevent that kind of disappointment.

The primary purpose of an appraisal is to measure the fair market value of real property. FHA appraisals go a step further by reviewing the general condition and operability of various building components and fixtures. But compared with a thorough home inspection, an FHA inspection is a general overview at best.

Some FHA appraisers will disagree with this opinion, but we are discussing two entirely different kinds of inspection, with divergent standards for evaluating property conditions.

If you disagree, then compare the following job description with an FHA inspection:

Home inspectors walk on roofs, climb through attics, and crawl through foundation subareas.
They inspect the innards of fireplaces and chimneys, evaluate spark arrestors and chimney caps, remove the covers from circuit breaker panels, and test outlets for grounding, polarity and GFCI compliance.
They inspect water heaters for function, safety, and proper installation (including gas connections, exhaust venting, fire clearances, operability, and more).
They inspect garage firewalls, evaluate site drainage, operate and test built-in appliances, and evaluate heating and air conditioning systems (including burners, gas connections, exhaust venting, fire clearances, condensate drainage systems, and so on).
They test the operational condition of sinks, showers, tubs, and toilets (including the insides of tanks).
They verify proper room ventilation, fire escape compliance for bedrooms, smoke alarm compliance, garage door safety compliance, pool fence compliance, water pressure compliance, and various conditions involving fire-safety for wood stoves and gas-burning fixtures.
They check for fogging between dual pane windows and for signs of past or current building leakage (whether due to faulty plumbing, defective roofing or groundwater issues).
They evaluate physical damage, deterioration, improper construction, noncomplying installations, evidence of building settlement, and much, much more.

FHA inspectors do not spend three or more hours on site to conduct this kind of in-depth visual examination of a home. They inspect according to Federal Housing Administration standards, which are far less exacting. Home inspectors do something that is entirely different, utilizing different procedures, based upon different standards of practice. To equate one type of inspection with the other can be a costly mistake for homebuyers.