In this second installment on distressed properties, we use the information generously shared just last year by Redfin Realtor Mark Biggins and add in current market analysis from ZipRealty's Haruko Hata. The information here focuses on the first-time buyer's experience with short sales and REOs in the Bay Area.
CSF: How should buyers prepare themselves?
HH: Buyers should be well-educated with the current market conditions and to be realistic. Since the inventory is extremely low and the demand is still really high, expect multiple offers, not just 2 or 3 offers but often 10 offers, 20 offers, 30 offers. They need to be aware that it's very common that properties close much, much higher price than the listed price.
Whether a short sales, REO or conventional listing, we are seeing more and more listing agents pricing aggressively and intentionally below market value in an attempt to attract a multiple offer bidding war. This applies to short sales and REOs too: sellers and banks aren't the desperate parties in these transactions because current data show it's clearly seller's market.
CSF: How do 1st-time buyers expectations differ from other buyers?
MB: First time homebuyers in the Bay Area are very well-educated on the real estate market. They are tech-savy, follow blogs and do their own searching online. They come well-armed with data and neighborhood research. However, there is only so much you can learn by simply doing research online for several months. Buyers need to actually get out from behind their computers and see houses in person with experienced agents- and remember the process will be on the bank's schedule, not theirs.
CSF: How do they react to your advice to bid over the asking price?
MB: They're skeptical when I tell them they need to offer well above ask to compete with 10 other offers. It sometimes takes a buyer to lose a bidding war for a house they want before they realize just how competitive things can be.
HH: I often remind my buyers that there is no second place in real estate. The second place is as same as losing, so you need to be really distinguished from other buyers to win the property
CSF: Are they nervous?
MB: Sometimes. It's a big step, and short sale and REOs often involve a long, drawn-out process. Beyond pricing, I also spend a lot of time explaining the escrow process, inspection contingencies, cancellation rights and the process in general so they know they will be protected throughout. This minimizes nervousness.
HH: There really is no such thing as "too much information" when it comes to buying distressed properties.
MB: All sorts of nuanced questions come up. In general, many of these can be answered during the inspection contingency period. If a buyer is very interested in a house except for one particular issue, it may be better to go ahead and get it into contract and address that issue during inspections. The competitive landscape requires that you move quickly and you will not always have the option to answer all questions before you make your offer. This of course, is precisely what the inspection contingency is for.
CSF: What other advice do you have?
MB: In any sale, the questions buyers should be asking is "how long has this property been on the market and why it's being sold? Both are great indicators of how much pricing flexibility there may be. They also need to pay very close attention to who they are working with for financing. An offer price is only as good as the lender backing it and if it’s an out of area lender with no local reputation, a list agent may be reluctant to accept the offer if there are other options on the table.
HH: And these days there will be several other options.
Ready to search for a short-sale? Tech-savvy Bay Area person that you are, you may already know that brokerages like ZipRealty and Redfin allow you to search only for short-sales or REOs, so you can do a preliminary inventory check before enlisting an agent. But be sure to study the process and its many complications before you proceed.
· Short Sales and REOs for Beginners, Part 1 [CurbedSF]
· All Curbed University coverage [CurbedSF]