Hank Miller

Distressed and Foreclosure Homes

Like cockroaches, the real estate “infomercial” crowd altered their DNA and efficiently adjusted to this market; their food source? Ill informed Atlanta home buyers. These roaches sell the idea of buying Atlanta homes for pennies on the dollar, leading buyers to believe that banks are lined up waiting for them to purchases homes at deep discount. Few people outside of the distressed property real estate business understand this market segment and how the reality is completely opposite of the infomercial picture. The best advice for buyers that are fixated with distressed properties is simple; don’t be. A few key things to get familiar with…

What is a short sale?

Simply put, it’s a home for sale that is expected to sell for less than the outstanding balance. What to expect with short sales:

• They are typically overpriced. The list price is often the outstanding balance plus legal fees, realtor fees and other additional liens
• Even if contracted at an inflated price, mortgage appraisals are almost always an issue. Appraisers use sold comparables, they are not concerned with the sale circumstances.
• Short sales often end in foreclosure. Lenders are combative throughout the process and it’s been shown that they often run the sellers in circles either due to malice or inefficiency.
• There is no such thing as “approved short sales”. At best this indicates that the lender is willing to consider an offer, but the seller’s financial situation and other factors will influence the final decision.
• Some owners unable to execute a short sale will then under price their home in an attempt to get an offer and to stall foreclosure. The logic being that this will buy them additional time in the home as the “offer” is considered by the bank. Buyers in this situation are simply being used.
• In many cases, a short sale will be behind on taxes and home owner association fees, in need of maintenance or neglected in other ways. There are typically unseen expenses.
• Many short sales are going to require approval by multiple lien holders, all must approve the transaction and typically some or several will lose money. One lien holder can stop the entire process.

We often recommend avoiding short sales and just letting them roll into foreclosure. The major advantage there is that the home is vacant, potential title issues will be resolved and there’s typically one decision maker not a group. That said foreclosures are no bargain either…

Buying Foreclosures

A bit better than short sales, foreclosures still have their own proclivities. Major concerns here include:

• Issues resulting from homes sitting vacant. Vacant homes are the devil’s workshop and his toys include mold, moisture, termites, rodents, general neglect and of course vandalism. A picture is worth a thousand words, a video a million – check the Foreclosure Video category for regularly updated foreclosure videos that show what some of these homes look like before they hit the market.
• Competitively priced and overpriced homes. Of course there are plenty of foreclosure homes priced below market, almost all are in areas of Atlanta that no one wants to be near. Homes in desirable areas are unlikely to be much of a bargain especially when you consider these purchases are completely “buyer beware” and sold without any recourse.
• Expect a “multiple offer” situation with that foreclosure. It seems that a home can be on the market for months, an offer submitted and a next thing that happens is notice from the listing agent announcing other offers have arrived and “the lender needs your highest and best offer within 24 hours”. We see this enough to have a very very healthy skepticism, could this be an attempt to simply get a buyer to bid against themselves? Seems like it.
• The expected need for updating. Most are sold in need of work ranging from general cosmetics to mechanical. Given the unknown history of these homes, most buyers end up replacing carpets, painting, replacing appliances and often other work. Consider as well that mold remediation may be needed in some cases, a surface wipe down is not sufficient; think professional remediation and HVAC duct scrubbing. Mainly, think about writing plenty of checks.
• Don’t forget when it’s time to sell this home, full disclosure will require detailing any issues discovered at this purchase.

The days of getting a tremendous buy on foreclosures are all but gone, lenders are trying to maximize the return on these homes and they follow very strict guidelines in terms of pricing, reductions, sale to list ratios and net proceeds. An asset manager may be handling hundreds of files, they are disinterested in the individual offer. They concern is whether or not the offer “fits” into the guidelines they are expected to follow.

Bottom line is that distressed homes have major hurdles to overcome. Rather than focusing only on perceived foreclosure “deals” we suggested buyers find a home that works then deal with the circumstances presented. An educated buyer knows that some homes are better left alone.

Questions? Call 678-428-8276 or contact Hound Dog Real Estate