San Jose Real Estate * REALTOR ® * Richard Gonzalez

I continue to have more luck getting buyers into Short Sales than REO properties and have now come up with a strategy to increase our buyer’s chances of getting a home in this inventory drought.

One of the key factors of our success rate is due to the packaging of our offers. Buyers who have been at this for months will tell you that frustration begins to set in ultimately creating a routine of hit and run. Make an offer and run to the next listing if your offer was not accepted.

Follow up is everything

Short Sales in past months were challenging to say the least because of the lack of communication with banks and investors who own the loans. The secret is in the follow up.  Our chances of getting our clients into a home increase dramatically if we simply follow up with the listing agent every couple of weeks though the Short Sale process.

You wouldn’t believe how many times Short Sale negotiations fall apart between buyer and seller just when a transaction is at the point of approval from the bank to proceed with a sale. This is where we have to be ready to jump in with our buyers. Having a backup offer can be just as successful as being in first position.

REO Nightmares

REO (Bank Owned) is an attractive option to a buyer especially in the affordable areas but it’s an arena filled with cash buyers and aggressive overbids. I caution buyers who tread into this environment.

There are good deals out there but there is also a huge unknown when buying REO properties. Banks have no knowledge of the property and as such are exempt from providing Transfer Disclosure Statement (TDS). TDS information can make or break a purchase; it discloses anything affecting the desirability of the property including its surroundings. Do you want to buy a property blindly? In REO most people are doing just that.

Short Sale vs. REO

I will always ask our buyers to consider Short Sales over REO simple because there is a higher probability of success when making offers in a highly competitive market.

I had a buyer call me to check on status of an offer on one of my Short Sale listings and in the conversation the subject of all cash offers came up. The buyer who had made an offer was under the impression that an all cash offer would be looked upon by an investor/bank as the best offer.

The offer was under asking price, I informed the buyer that at the current pace of submitted offers he would be no where near the highest offer I had received. One of the biggest misconceptions of most cash buyers is that this gives them an advantage, the truth is that most investors have already taken huge losses on these homes and ultimately any investor is looking for highest net to mitigate their losses.

Some buyers even use cash offers as a tactic to get their foot in the door in a multiple offer situations. I have seen this bait and switch offer plenty of times with the intent of coming back to the negotiating table and asking the negotiator to accept a lower price or additional repairs on a home. Bank negotiators and asset mangers are under so much pressure to move the inventory that in some cases it works.

Banks are now doing everything they can to defend against these practices by setting very short time lines and having backup offers ready to go just in case.

As a listing agent I now use my own process to qualify cash buyers and their agents to make sure they are committed to the purchase and the time lines required to successfully complete the transaction.

So what do you do if you are a cash buyer?

1) Adjust your search criteria by looking for homes that are under your maximum purchase price. If $300,000 is your limit then look for homes under $250,000. This will give you buffer to allow you to be an aggressive negotiator.

2) Inventory is low, make your best offer the first time. Most bank negotiators and asset managers will pick from the first group of offers that come in. The likelihood of being able to come back to the negotiating table is very low.

3) AS/IS offers are always favorable and will be considered first. Understand that affordable homes in many cases are priced to move because they need to be updated or repaired. Negotiator are always looking at the bottom line for the investor.

Cash used to be king but it has lost it’s luster with the low levels of inventory and high volume of buyers competing for the few homes in this hot market.

There has been much discussion about this program and its ability to get buyers off the fence and now the National Association of REALTORS is making a push to keep this program going through next year. The good news is that there are plenty of buyer out in our market place, the bad news is that there are plenty of buyers in our market place.

Until the inventory levels begin to rise we are going to continue to see a hot market with or without this program. Do I think this is a good program? Yes. I would like to see a tax credit to help those first time home buyers and those folks looking to upgrade to a new home. Home builders are trying to move the little inventory they have. Empty Nester’s(people who live in an empty home now that the kids have moved out) would also benefit from a program like this given young families a chance to live in a home.

I am going to continue to support NAR’s push for an extension of this program.

Read More: NAR Call to Action of $8,000 tax credit

“Overall, Fitch’s expected losses for recent-vintage Option ARMs range between approximately 35%-45%, depending on the collateral quality of the underlying mortgage loans. In addition to expectations of higher defaults, severities have also contributed to higher expected lifetime losses. Fitch has observed that loss severities on Option ARMs have increased significantly to an average of approximately 60% from 40% a year ago. A key driver in the worsening severities is the fact that 75% percent of Option ARM loans are secured by properties located in California, Florida, Nevada, and Arizona, which have experienced average declines of 48% from second quarter-2006 to date. Even without further declines in home values, defaults on Option ARM loans are expected to soar as loan recasts occur, as these borrowers are unable to effectively refinance into alternative mortgage product.”

Incredible to see the long term aftermath continues with the exotic loan products the the very popular Option Arms in California. I feel for those homeowners who are facing the harsh reality of their decision to leverage it all on an option arm. I do sense that there will be a continued effort to mitigate this impending disaster.

Read Full Story Here

Bay Area Mortgage Delinquencies Expected to Rise

Local media reports on TransUnion estimate to 10 percent delinquency rate  in the Bay Area.