Tina To's Real Estate Blog

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Hello my dear readers, please answer the following questions without peeking the answers first.

1.  Short Sale means the selling price is shorter than the seller‘s loan amount, yes or no?

2.  Short Sale takes a longer time to process because it involves more than the seller’s decision, yes or no?

3.  Short Sale requires seller’s lender’s approval and this decision usually means the Bank, yes or no?

4.  The sold price of Short Sale property is lower than the fair market value, yes or no?

5.  Fair market value means the selling price of similar properties sold in similar locations within 3 months, yes or no?

6.  The parties involve in the Short Sale are: sellers, listing agents, buyers, buyer’s agents, seller’s lending institution, yes or no?

Do you get all yes?  So did I before I attended the Short Sales Seminar hosted by Chinese Real Estate Associationof America (CREAA) and presented by Elena Celestine of Bank of America today.

The answer to question no. 3 is no because while most people think that the seller’s bank has the major power to decide whether to approve the short sale transaction, in reality, the bank is only a third party who carry out the instructions from the investors behind the loan.   This also explain the complex communication path.  The listing agent has to negotiate with the “loan mitigation department” of the bank but the assigned negotiator is usually only a middle person and has to pass the information  to the investors.  Therefore, this is an extremely complex negotiation and it is more than what ordinary people think in the communication path.

The answer to question no.4 is yes and no.  Technically all sellers will not want their properties sold below fair market price and so do the seller’s lender.  However, market price is very dynamic and is determined by many factors.  Therefore, not only short sale properties, but all properties can be sold at market price, below market price or above market price.  Basically short sale properties and real estate own properties will involve more than one formal appraisals – one from the seller’s lender and one from the buyer’s lender.

The answer to question 6 is no because at least one more party will be involved, that is the investors.

1. yes    2. yes    3. no    4. yes or no    5. yes    6. no

Image by Getty Images via @daylife

REO  is the short form for Real Estate Owned.  The real meaning is the lenders, usually the banks, have taken over the properties and are actually owners of the properties.  When the properties put up to the market for sale, the lenders/banks had already come up to an agree upon for sale price so usually if the buyers offer the asking price, it will be approved.  However, some lenders/banks will still listen to the sale experts marketing strategy, i.e. to ask for a ridiculously low price to encourage strong competition and thus beat up the sold price.  Anyway, the buyers involved usually can close the escrow within a reasonable time like a normal sale.

Short Sale means even after the sold price of the property is still too short to pay the mortgage.  In this case, the individuals are still owners of the properties and not the lenders.  However, since the homeowners cannot bring additional money to pay back to the bank/lenders, the sold price has to be approved by the lenders.  Since in this case, it is the homeowners who initiated to sell the property to avoid foreclosure, the lenders/banks involved had not yet came up to an agreed upon price prior to the property put for sale in the market, every offer has to be reviewed by the lenders/banks involved.  Thus it usually takes a much longer time for closing.

As a real estate agent, I encountered many times potential buyers/investors like to throw me one looks like simple question or statement: INFORM ME WHEN IT IS A GOOD DEAL.

Wow, that is a big question.  What is a good deal?  I have a client who have rejected my good deal suggestions many times.  To many people, a good deal usually means after you put down 25% downpayment, you can get an annual return rate of 8% or higher on the money you invest.  But my client is very different.  She would only like to have the expenses break even with(i.e. equal)  the income.  Typical expenses of property may include: mortgage payment, tax & insurance, utilities, management fee.  Thus if the total rental income minus all these expenses still comes up with a positive figure, we call it a positive income or positive cash flow.  However, my client has a very high tax bracket and she does not care too much of her income because most of it goes to Uncle Sam (tax office). 

Another two very important factors to bear in mind are the potential of the income property and cost of maintenance.  If the property is newer and does not require any major repairs in the next 10 years and it is located at a upcoming area, it is considered good.  Some good indicators of the upcoming of a certain area are growth in  good schools, in jobs and in infrastructure (easy commute).

Since different people have different needs, a good deal to one person may not be so to another one.  Please feel free to contact me if you want a free anyalysis of your real property investment.

After working hard for a few weeks with my investor client, she finally decided to make an offer on a Bank Owned property at Pleasanton, California.  As my routine practice, I provided her with the home profile, the recent sold comparables and she made a full price offer.  Since I always urge my clients to put an inspection contingencies (this is almost a must for my clients) and upon acceptance of the offer, the listing agent called me and emailed me the inspection reports on file.  The house happened to have been shifted previously (may be at 1989′s earthquake) according to the home report.  The foundation is intact and the termite is very minimum, only a few hundred dollars, and the price seemed to be the lowest in the area in respect to the conditions of the house.  In order to help my clients to make a reasonable decision, I asked the listing agent to provide an environmental report and he agreed and ordered it right away.  From the report, we found out the house was located within one mile of the fault zone and there was a nearby dam and during any rainy storm and in case the dam broke, this house may be washed away.   The worst part is the house was grounded to aweak sediments (soil deposited by the surrounding running river).   

The listing agent told me that this house used to receive $2500 per month as rental and it seemed to be very attractive to my client.  After I do the research on the rent price, my find out also supports this rental price.  My client wants to buy a house at a good location but the usual problem  is the rental income often times not in a good proportion of the house price.  What I mean is it could still be negative income for an investor even with a down payment of 35%.  For this property, my client will put 70% down payment and she can have a good positive income.

Here comes my dilemma:  If I tell my client to proceed with the purchase, she will listen and I will earn my commission income.  However, if I myself were the investor, I would back out from this transaction.  Of course, I would love to close this transaction but in view of three very important factors: fault, dam, river sediments, my client seriously considered my point of view and backed out from the offer.  Now, I need to work from square 1 again but my conscience feels at ease.

I think every real estate agent should hold up this ethnical standard.  What do you think?

Your opinions are very important to me.

Please feel free to put a comment or email me at justynato@sbcglobal.net.