Short Sale, Foreclosure and Market Value

The Buyer Client specifies they want to focus in on the short sale and foreclosure market. At this point any Realtor worth their salt should say "do you understand the difference between a short sale, a foreclosure and a property at market value"? The truth is, short sales and foreclosures are not a new concept, but they are a newer concept to lower Fairfield County Connecticut. If you are interested, the following is a brief, user friendly overview of what the heck is happening out there.

Short Sales are properties whose value in today's market has dropped below what is owed on the property and whose owner can no longer afford to make the payments on the property and whose owner must sell the property for a variety of reasons including but not limited to: Divorce, Job Loss, or Medical reasons. Short Sales must be approved by the lender of record. Most lenders in today's market have thousands of short sale approvals they are working on, and a finite number of people to work on them. This means that the approval period can be quite long (there is no average approval period for us to quote you here). Most property owner's who can no longer pay the lender, also stop paying for improvements and repairs to the property. What all this means to the Buyer is that when they make a purchase offer that a) there is no guarantee that the offer they made will be accepted, and b) there is no way for a Realtor to tell you when or if your offer will translate into a closing. In addition, the Realtor you are working with as a Buyer Client (see our previous blog about CT Laws of Agency) is going to ask you the Buyer to protect their commission (how a Realtor gets paid for the work they do) by agreeing that if the Realtor can not collect the commission from the Selling side of the transaction, that the commission is to come out of the Buying side of the transaction (out of your pocket) as most lenders who agree to accept less than what is owed on the property want the Realtors representing the Buyer and Seller to decrease their commission, sometimes down to $1.

Foreclosures are properties that did not sell on the open market that the bank has taken back after the owner failed to pay what was owed on the property after a specified period of time. They are now owned by the bank. In this market banks have a good amount of foreclosure inventory already on their books. In this situation (as in the situation of the short sale above) there can be multiple liens on the property in addition to what is owed to the bank including but not limited to: property tax liens for back taxes and mechanics liens for work performed by a trade’s person that was not paid for by the previous owner. In a foreclosure auction, the lender will typically provide the first bid to ensure they are able to recoup their losses. Additional bids if they are not sufficient to cover the additional liens will continue to be encumbered by them and will become the responsibility of the new owner. Translation, the Buyer, or their Attorney must perform a title search to discover all encumbrances prior to presenting offers at auction to ensure the Buyer protects themselves. The properties presented at auction will typically also be in AS IS condition with all necessary repairs being the responsibility of the new owner. Generally speaking at a foreclosure auction, Buyers must register and present a bank draft for a deposit prior to being allowed to bid. The Buyer with the accepted bid will be expected to close within a short period of time, making it imperative in this market that the Buyer know their financing is lined up and unless they have cash to close the transaction, that the bid they present will appraise for their lender. Word to the wise, Buyers MUST do their homework about foreclosure properties.

Market Value properties in this market are properties whose owner's want to sell (possibly because their job is transferring them elsewhere etc.), that because of the affect of Short Sales and Foreclosures on the Market are priced competitively against both the Short Sale and the Foreclosure. They are properties whose owner's are paying what is owed on the property, and are paying for improvements and repairs. These properties in this market offer several benefits including: a) the owner's willingness and ability to negotiate and accept in short fashion a reasonable purchase offer personally, b) the properties have the ability to move to a successful closing in a reasonable (normal) amount of time, and c) the owner of the property is generally willing to make repairs to the property if they are necessary to close the deal.

Buyers need to be aware of the potential pitfalls of the Short Sale and the Foreclosure so they can make educated decisions about property purchases. While they can present an opportunity, they can also present many challenges for the Buyer.

If you are in need of an experienced team of Realtors to guide you through this process in these market conditions, we would love the opportunity to represent you. You can find out more about us at www.CTLuxuryGroup.com

Best regards,

Brooke Buccieri, Lic. Real Estate Broker
CTLuxuryGroup, William Pitt Sotheby's International Realty