The Truth about Foreclosures & Shortsales

There are several bank owned and shortsale status properties on the market in Hawaii. Currently we have many of these property types in escrow and here's what we've learned.

Foreclosure:
The list price at  a foreclosure auction is probably not what the house will sell for. I know you're thinking sure, it will sell for less, but no, it will probably sell for more. Although there are some great deals to be had once these properties finish the foreclosure process and become bank owned, REO status. Click on the link above to see current Maui bank owned listings.

Here's why - banks usually reduce the price of a home in big drops, with the aim of

generating multiple offers. In other words, if a house generates no offers at $400K,

they don't drop it to $380K, they will drop it to $350K. This will create multiple offers

and the property will get bid up, so that it will sell someplace between $370K and

$400K. Warning: do not apply or pay for any service that promises to provide lists of ese
Think of the price as the starting price at an auction, because that's what it is.

The bank may play one offer against the other, or it may counter everybody with

 "highest and best", meaning you have one more shot to make your highest offer and

then the bank will decide which offer to take. Or they may simply accept an offer other

than yours and you miss out. Most often you are bidding against the bank.
It seems buyers have this idea to wait until the bank drops the price, and then offer less.

I'm telling you that strategy will not be successful. We lost a bid on a bank owned

property by trying that. We have 3 offers out on bank properties right now for clients

of ours, and they are all multiple offers. Yes, multiple offers, today!
I feel like I'm in the middle of a seller's market, even though it's a buyer's market!

The seller dictates the terms, picks the services, and makes you sign an addendum

where you may have no time for inspections, and you must buy the property "as is"

or lose your deposit. We just saw a title insurance report where they specifically

exclude any claims arising from the foreclosure process. Of course this was the policy

mandated by the bank, and you can't choose another title insurance company. And how

 about $500 per day penalty if you don't close on time! Does this sound like a buyer's

market to you?
There is no negotiation like you would do with a human seller, because you are dealing

with an inhuman entity. And still buyers tell me that they think they will stroll up to the

bank and make a low-ball offer and get that property for 50 cents on the dollar,

because after all, they have cash. The robots at the bank could care less, and so could

the listing agent who has 200 listings and has no time for frivolous offers.
Oh, and I forgot to tell you, the bank usually drops the price on Thursday to increase

the odds of getting multiple offers. You make your offer on Thursday or Friday.

Of course they won't answer you right away, and they are closed weekends. So by time

 Monday rolls around, there will be more offers on their fax machine besides yours.

And they will review them when they get to it. No amount of prodding of the bank or

the agent (if you can actually talk to one) will be effective. You must simply wait for a

response.
I know this sounds glum, but I'm trying to educate you to today's reality so you can be

successful and actually snag a good deal. We have several escrows going right now

with bank owned properties, and a few more in the works. So we know what works

and what doesn't. If you are serious about getting a good buy on a bank owned

property, I can make that happen for you. But you will have to be teachable, and you

may have to forget what you read in a book or heard in a seminar.

SHORTSALE: a shortsale is where the individual still technically owns the property, but

is not only behind on their payments (pre-foreclosure) and the market value is less than

what is owed to the bank. In this situation the owner sets a listing price, many times it is

below

market value and is not yet approved by the bank. The offer and acceptance begins like

any other real estate transaction, where the buyers agent presents an offer to the selling

agent for approval of the seller. The difference is that the contract is written contingent on

the banks approval of the shortsale itself, the selling price and the terms (cash or loan,

size of down payment, etc). This process usually takes months, 2-6, and the banks still

don't usually take less than market value.

The truth from a buyers agents point of view is that they rarely close.

A word of warning do not pay any company for lists of distressed and foreclosed

properties, this information is public record in the US and is accessible for free through

any Realtor.

One more note, in this market the banks do use Realtors to sell their

properties, so most REO properties will be found on the local MLS database