Short Sales. Bank Owned. Which is Better? San Mateo CA

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We’re into the January gloom. Both in weather and in real estate.  Our local market really starts coming to life the end of January and sometimes as late as right after Super Bowl Sunday.  If you’re a serious buyer you already know most of what’s on the market right now is either a short sale or a bank owned property.  If a new listing comes out and isn’t a short sale or bank owned it might be one soon, if they can’t get their price.  January is also one of the two months where prices are the lowest in the year.  Prices begin to go up in the spring.

What’s better to buy?  A Short Sale might be a great way to get a home under market value if you’re willing to wait a little more than normal.  Often though, the wait can be longer than that because the wait is determined by several things.  First, the number of loans on the property you’re considering.  If there’s only one loan this will be a fairly smooth and close to normal transaction for you and the seller.  Two, if there is more than one loan, such as a second and a HELOC (line of credit) and they are with the same bank, it will be longer but not a killer.  Three, if more than one lender is involved, all bets are off and it can take from several months to never.  The banks in second and third position must agree to taking a minimal amount as a payment and many aren’t willing so the force the property into foreclosure.

Buying a Short Sale is really buying all the debt left behind by the seller.  That includes past due property taxes, homeowners dues if they apply, and repairs that are needed to the property to make it inhabitable.  The people selling “short” have gone through extensive proof for the banks to assure the lenders the borrower has no money to pay them.  There are never concessions with the seller in these instances and sometimes additional fees for the buyer to pay for a specialist in negotiating with the banks to make sure the deal closes.

Bank Owned properties, also referred as REO’s, come with their own issues.  The day of getting a great buy below market are gone.  The last time you could really get this was in 2009.  Today bank owned properties are priced about 5-10% below market and the banks will negotiate only if the property has sat on the market for a while.  We are really seeing multiple offers on the houses that are in pretty good condition so prices often move up, rather than down.  Banks often want the buyer to be pre-approved through them and if you elect to use them for your loan, give small concessions for a free appraisal which is a $450 savings and sometimes cut fees for the application.  You are not required to use them.  You can use your own lender.  They used to force you to use their Title and Escrow company but California passed a law outlawing this practice last year so you may use the Title and Escrow company of your own choice.  What the banks are doing now is offering to pay some of the title fees if you agree to use their company.  Sometimes it’s worthwhile and sometimes a nightmare.

Like buying a Short Sale, what you see is what you get with some exceptions.  Some cities have laws requiring banks to bring property into compliance for zoning so the bank will do so.  They must make sure all statewide requirements are met including strapping the hot water heater, new smoke detectors and any other requirements.

If you’re looking at buying a new home in 2011, congratulations on the decision.  Just don’t wait too long.  Interest rates are going to go up.  The window of 4% loans is going to go the way of history and when it does your buying power will have shrunk. Buying a distressed property is an adventure and you should look for an agent who is skilled in handling these sales.  Look for the SFR and CDPE designations with the agent’s name to know they have taken extensive classroom education and ask if they’re experienced in listing and selling distressed property.  You need to be protected by a knowledgable agent.

Here are some of the short sale and bank owned San Mateo listings.

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