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Foreclosure, Bank-repos, short-sales, VA and FHA owned properties and other distressed properties!

A Realtors® perception.  By Darren Bryce, Broker Associate -Realtor®

Please read on for important information and considerations:

Every day we are hearing about the rise in foreclosures and distressed properties of all types for sale in Colorado Springs, as well as the rest of the nation.  What is this all about?  What contributes to the rise in foreclosures?  Are these properties something the public should pursue and attempt to purchase?  I am going to first address the owner occupant, not the investor.  Is a foreclosure right for you? 

I have worked in the real estate industry for over 15 years and have experienced many fluctuations in market conditions.  The fluctuations are typically driven by several factors including:

1. Availability of employment.  As the tech industries and aviation industries change, so does the local employment opportunities.  Typically, as the available employment market decreases so does the need for housing and thus the prices decline and the availability of  distressed properties increase.

2. Availability of financing options.  This is one area that the entire country faces.  2007 has seen a dramatic decline in sub-prime financing options and thus the overall market has suffered significantly.  This, believe it or not, should have a positive impact on the # of foreclosures in the future (less foreclosures) due to the fact that clients have to have a good credit standing and verifiable income. In the short term, less buyers will be able to purchase.  100%, no income verification loans are going away.  These were risky to start with.  So sale numbers are down with available inventory on the rise.  This, obviously, decreases the prices due to decreased demand and increased inventory.  Many government agencies are stepping up to help ease the tension. The FHA, as an example, is considering raising the maximum purchase price allowed as well as considering a 100% loan (we've heard that before).  The FHA has just started a refinance program that is designed to help conventional loan customers with adjustable rate mortgages that just went up, to refinance into an FHA loan.  Many stipulations are in place, so it is doubtful that the refinance program will have a dramatic effect on the total # of foreclosures.  Rates rose early in the year but have stabilized and even decreased recently. It is now a stable market, financially speaking, and is a good time to get reasonable rates.  I worked as a real estate loan officer for 6 years and my experience will help you obtain the financing that is right for you.  Many of the available loan programs don't work on properties in poor condition, so finding the right property for the loan program that you qualify for is very important.

3. Pricing of homes in the market were you want to buy.  Colorado, as with many areas across the nation,  suffers from a shortage of reasonably priced homes due to scarcity and location.  This impacts the market dramatically and is very difficult for the "normal" purchaser (median family income) to find a home that fits in their budget. If you have ready, willing and able buyers who drive up the price in a specific market due to location (resort locations etc.)  you might not be able to buy at all because of the inflated values.  Colorado Springs has a mix of these desirable locations, but, there are still affordable areas and neighborhoods.  Otherwise, you may have to settle for a smaller home, possibly in a poor quality neighborhood.

4. The general population's perception of the national economic condition.  Buyer's have a hesitation to buy if they believe the whole country is falling apart.  The war in Iraq, political division, election years etc. all place a perception of the unknown in the buying public's mind.  It becomes an environment of "let's wait and see what is going to happen".  This decreases demand and softens the market.  This can actually stimulate buying in the longer term since market prices decrease.  Again, the ups and downs of market trends.

5. The actual cost of living.  As the cost of living increases, buyers available budget for housing decreases.  And what is not spoken of much is that wages don't ever keep up.  One of the strongest recent impacts affecting Americans  is the high price of gas and everything that is related to it.  It costs more  to transport everything.  The interesting fact of gas prices is that so many people live a long way from work etc.  The increase in gas prices affected a couple I was working with to the tune of $350 more per month.  This caused the couple to reconsider buying and they just rented instead. 

6. The media.  A very sensitive issue to most professionals.  The media has an impact on the fluctuations of market prices in the short term-- dramatically.  Just one negative story regarding interest rates has a huge impact on the buying publics opinion about buying real estate.  The public typically thinks that the media have the "inside scoop" and that waiting to see what will happen is the right thing to do. I have actually experienced many customers calling and asking me questions about news stories that were totally sensationalized. The truth is, the facts were just not presented properly.  The media has always had way too much impact on local economic conditions- in the short term.   The publics perception of the issue is what drives demand, not so much as what is actually happening. 

These are just a few of the items that would affect market conditions to a level that creates more distressed properties for sale.  In Colorado Springs, we have had all of these conditions.  So we are now in a buyers market.  The number of homes has risen and the demand has decreased.  Foreclosures are everywhere and in every price range.  Short-sales are happening every month.  But, the normal house sales that are occurring are encouraging for sellers also.   The point for sellers is---have the house priced reasonably and have it in excellent condition and offer incentives that motivate the buying public.  Remember that as a buyer you want a reasonable deal but not a steal.  If you steal the property then chances are you get to inherit the problem that caused the property not to sell at market price in the first place.  Don't get me wrong, occasionally, the unbelievable deal does happen.  Remember though, why?  If the seller, even if it is a bank, can get market price- they would.  I just spoke with a source at a title company that calculated the time it would take to sell our current inventory in Colorado Springs without any new listings coming on the market.  He stated 8.5 months.  Not too bad a number actually.  Houses are selling and for very reasonable prices.

So how do I buy a distressed property?  And how do I determine if it is priced well?

This is really where my services come into play.  First of all understand, I need to know what fits YOU.  I am not interested in having you purchase a home just because it is a good deal.  Remember, you are going to live in it, not me.  We need to get down to business to find out your NEEDS and then your WANTS.  Here is a list of the typical steps I take my owner occupants through to determine what type of property fits them:

• Loan qualification.  Let's get down to numbers.  Do you qualify for an FHA, VA or conventional loan?  Do we need seller paid closing costs? Do you have a down payment?  Let's work with a lender that really knows what they are talking about and that have a reputation for closing the deal promised with honesty and integrity.  I can and will help with this and make sure I know the details so that I can prepare a contract that works for you and that takes all of your financial needs into consideration. 

• Property selection.  Can you buy a repo?  Are you the type that has the patience to go through the grueling experience of submitting an offer under a short-sale?  Do you have ready cash to fix up a property?  Do you need to move immediately?  Distressed properties can be the best deal on the market, but why?  Usually because they are in poor shape.  Bad carpet, paint, landscaping.  Remember that the yards haven't been watered. Also, the banks want them GONE now and price them reasonably-Sometimes.  But, and here comes the but-  Some properties are on a bid process and can be very frustrating to wait and see if you get it.  If the owner is a bank, they usually won't fix anything and they don't disclose anything to you the buyer.  It is the old "buyer beware" story.  You can have an inspection and back out as long as we do it in the time frame stipulated in the contract. 

• Searching and viewing.  I set you up on an automated search system that sends you listings with property addresses and details.  Then we go out an take a look.  We find a property that meets your needs and wants - wow!

• Offer preparation and presentation.  I will write an offer that benefits you.  We will run comparable sales first to make sure that the property is worth what we are offering in the current market.  I will make sure YOU UNDERSTAND what is in the contract and the implications to you. 

• Inspections.  We will have a property inspection and consider all of the work that the inspector notes.  If things aren't right, we will move on.  This is for your protection. 

• Working with the lender.  I will work closely with your lender to make sure that there are no surprises for you at closing.  I review your closing statement, go to closing and work with the loan officer on appraisal issues etc.

• Post closing.  Would you want to know if putting a extra garage on your new house would be a wise decision regarding the potential value?  Call me anytime for a current market analysis of your property and find out if you can get the money back out of the work today.  Some improvements get a more positive ROI then others.  I can help with those decisions. Ready to move up? Contact me for a discounted commission I provide to previous clients.

To summarize the details into a short paragraph is difficult but I can say it is important to find the house that fits you best.  It may be a bank repo, VA or HUD, or a normal sale that is "ready to go".  I can't state it strongly enough that speaking with me and letting me work you through the process of evaluating your needs and wants and then selecting the property that fits you best is what is important.  Remember this house will turn into a home.  And if you are just going through the process to make money then you are really an investor, right?  There is a balance between the proper fit and the long-term proper investment.  Remember that buying a home is also an investment in your future financial condition.  I will help make sure that both your peace of mind and your comfort and needs are fulfilled the best way possible.

INVESTORS- READ ON----

Everyone is an investor, if they realize it or not.  Real estate has always been the most solid place to shelter your money and get the most consistent return on investment.  But I would like to speak now to the non-owner occupant or true investor.   I always consider the education level of the investor I am working with before going too far into the process.  The education I'm referring to is "actual experience" not textbook education.  I have witnessed many investors that have taken some "get rich" seminar and feel that they are well equipped to wheel and deal their way to riches.  Let's get down to the truth.  There are some very sound investment strategies out there and, when properly applied, get the investor a fair ROI.  It is not TYPICAL to make HUGE returns in the short term on real estate.  I have a tremendous computer program that helps analyze all of the data available and prepare a wonderful looking report that helps the investor determine if the investment makes sense.  I still find, though, that good old common sense is very important.  Here are some mistakes I see investors make:

1. Buying a property that has functional obsolescence.  You can't, easily, change a floor plan that just isn't in demand today.  Small kitchens, small living areas etc. just don't appeal to the majority of the market.

2. Underestimating the true cost of renovations- You have to make sure and include market time losses, cost of sale, unexpected repairs etc.  There are several good, solid approaches to reducing the risk.

3. Buying in a declining neighborhood.  Careful attention has to be given to market trends that look at what is happening in the specific neighborhood.  In the case of Colorado Springs, that might mean breaking it down to the surrounding 200 houses.  Characteristics of our neighborhoods can change in just a couple of blocks. 

4. Believing that just because it is a distressed property, it must be a good deal.  The banks have "as is" market evaluations done on the property before listing it.  They want to obtain as much $$$$ as they can just like everyone else.  You really need to evaluate each property for its condition, cost to revitalize it, and all the other costs of sale, and see how it stacks up against the other "regular" sales in the neighborhood.  I have seen customers buy property that just doesn't make them any where near the ROI they expected.

5. Not paying yourself for time spent on repairs and renovations to the home.  "Sweat equity".  I have seen many the investor look like they have made a good profit on the sale without looking at the amount of work they put into it.  Paying yourself $10/hour just makes no sense at all.  The work is just way too difficult.

6. Believing they are "interior designers" and finishing out a house that has an appeal to less than 1% of the market.  This one I see all the time.  A couple buys an investment home and overspends on chair railing, fancy fans, crazy colors.  Buyers find the house just too committed on decorating and go on to the next house.  Keep it simple.  You end up spending more and make less and can increase market time.

These are just a few ideas and suggestions.  I can help you balance these factors and help you make a solid investment decision.  Remember the financing issues that face the investor today.  100% investment loans are pretty much a thing of the past (or just too expensive) so you really need to get your ducks lined up in a row before starting the process.

Some of the government owned properties aren't even available to the investor during the initial bid period.  Find out how this works through an experienced, knowledgeable, agent--such as Darren.

Darren currently works for Morning Star Real Estate in Colorado Springs, CO and is a Colorado licensed broker.  Darren has worked with many clients helping them realize their dream of homeownership.  Call Darren Bryce today to find out how he can work with you to realize the American dream.   

   719-659-4000