DROdio: This an interview with one of our DROdio Real Estate Agents who is listing REO / foreclosure properties for a major bank, which is a very large bank as most people know. So I’d love to start the interview by just getting an idea of whatyou think from the listing agent’s prospective and what kinds of things you see buyers doing and what you think about the market.
Sue Ko: An interesting thing that I am seeing in the market is actually that it’s not so much foreclosures that are bringing down the market, but it’s the short sales. For example, there’s a subdivision in the Loudon County, which I will not name, however, that community has seen a decrease in about a hundred thousand dollars of equity in the span of six months. And if you actually look at the sales data and the sales history of the last six months then you can see that every single time there has been a huge jump down in prices whenever there’s a batch of short sales among the market. And the reason for that is because short sales, the very point of a short sale is not only are you shorting a bank in the amounts due, but you’re trying to sell it in a very short amount of time.
So the people who are trying to sell the properties have to compete with all the other properties on the market. So they have to price it very, very competitively, which means that they are going to be far below the market rate. So pricing a property far below the market rate it stands out and allows a property to be sold quickly. But what happens is then the other short sales properties that come on the market try to compete now with that new price. And then for me as a listing agent for foreclosure properties for A major bank I send in what’s called a BPO, it’s Broker Price Opinion and a broker price opinion is essentially a way for me to tell the bank what I think the market price is for the property. I have to use sold data and I have to use currently actively marketed properties data to give them examples on the pricing. So unfortunately I have to include the short sales, because evidentially the foreclosure properties are going to be competing against these short sales. So then the foreclosure properties having to compete will bring down their price as well down to the short sale level. So then you have a whole batch of short sales that are this lower price and then the foreclosure is dropping their price to compete with that and then before you know it you have a new batch of short sales and they have to be even more competitive than these already lower prices so that they can stand out in the market. So then you have this market that’s always in this down pressure and this one single community has effectively gotten itself to the point where it’s lost a hundred thousand dollars on average of equity per household in six months.
DROdio: So from what price range to what price range? Because a hundred thousand dollars on a million dollar property is less…(audio fades)
Sue Ko: But this a town-home community where things were, twelve months ago things were going for the mid to low three hundred’s and then about six months ago they were going at just around three hundred give or take. So high two hundreds to just at around three hundred thousand. And then now similar properties with similar square footage and levels and bedrooms and bathrooms are going for at around two-twenty, two-thirty maybe for the better properties and if it’s in a poorer condition then they are going right at around two hundred and some of the smaller properties in the same subdivision are going in the highs, one hundreds.
DROdio: Wow, that’s amazing.
Sue Ko: It is. It really is. And I think some people might have lost 50% of their equity depending on when they bought it. If they bought in the height of the market then they most certainly lost up to and more than 50% of the equity.
DROdio: So buyers always want to know these days should I wait or should I buy. Do you have thoughts for buyers when you get asked that question?
Sue Ko: The thing about buyers is that most buyers are, the ones who are unable to make a decision should I buy or should I not buy are the ones who really driven by fear. Fear of what’s going to happen to the market, fear of what’s, you know, can I afford this house. And I all I can say is you really have to inform yourself and buying a property isn’t right for everyone. If you’re just relocating to the area and you’re not familiar with the area then it is highly recommended that you familiarize yourself before you make that big purchase and I think that’s always fair to say. But for some people it’s a matter of gathering information and making an informed decision. Interest rates really at some of the lowest points in our nation’s history and it is a great time to take advantage of that.
However, there is a lot of talk of deep recession and I know some people have dropped the word depression here and there. So depending on where you’re located and what your lifestyle is, I’m sure everyone’s feeling the economic situation a little differently. But if you are a buyer and you have thought about it for quite some time to purchase a property I think it’s a really great time to buy. And I know every realtor is going to say it’s a great time to buy, it’s a great time to buy, it’s always a great time to sell, you know, we always say that. But it is truly a great time to buy, because one there’s a lot of inventory so the buyers have a lot of options, which wasn’t the case three to five years ago when properties were being snatched up in less than a day on the market. So now you just have so much inventory that you really can pick and choose. The other thing is it really is a buyers market and sellers have the mentality down to almost expect to give concessions and also with the FHA loans raising their conforming limits to seven twenty-nine, it allows people to get into FHA loans into bigger single family homes when they weren’t able to do that before. The great thing about FHA loans is that you can get up to 6% credit from the seller and 3% of which can go towards a down payment and 3% of which can go towards the closing costs. It could essentially have a down payment 100% financed, so 97% financed property with very little money out of your pocket.
DROdio: So what do these new FHA rules mean for people? Most people, I don’t think, really know what FHA, how that differs from a regular loan. What’s it like to write a contract for an FHA property or when you’re listing a A major bank home and you get an FHA loan, what are some of the differences between conventional and FHA loans?
Sue Ko: The thing about conventional loans and FHA loans, there’s a lot of advantages to the buyer for an FHA loan, however, there are some disadvantages to the seller of FHA loans and so buyers and sellers should both be aware of that. FHA loans will have tighter restrictions on appraisal and so an appraiser can go out to the property and they’ll note certain safety hazards and they’ll ask that those items be required prior to funding. So the sellers could, the buyer may not want anything fixed for the home inspection, but if the appraiser says, well we need these items fixed in order to fund your loan then all of a sudden you have a situation in hand where someone is going to have to give. Either the buyer pays at settlement or the seller’s going to have to pay for it. So those situations can arise. And there are certain fees to the seller for the FHA loan, it’s usually under six hundred dollars, but those buyers and sellers should definitely know about that. Conventional loans, when an appraiser goes out and does an appraisal it is for the value of the property and they’re not necessarily looking for safety hazards or code violations or those kind of bind ups. They are really looking at the market value of the property. But an FHA loan appraiser is going to be more detailed, because it’s the government, pretty much, insuring the property, mortgage insuring the property.
DROdio: So how do REO properties compare to regular properties?
Sue Ko: In what way are you asking?
DROdio: For example, somebody’s thinking about buying a property, what do they need to know to consider the differences between a regular property with a real human seller versus a bank owned REO property. How might these experiences differ?
Sue Ko: The first thing is the buyer should be aware, as well as the buyers agent, that they are no longer dealing with a human being on the other side they’re dealing with numbers. And what I mean by that is at the end of the day for a bank it’s going to be the bottom line and a lot of people have approached me and asked me, well is there a specific math that’s related to how much is owed on the property by the previous mortgagor minus a certain percentage and there is no math like that, that I’m aware of.
What I do know is that bank usually spend quite a bit of money trying to get the property ready to be sold and part of that process is getting the right price. And so they ask brokers like us to give them a price opinion, as well as do an in-house review, in-house appraiser review and they also do independent appraisers, they have them go out and appraise the property as well. So what people should understand about foreclosures is that the bank isn’t basing the price off of the previous mortgagors amount that is owed to them, they’re basing it off of the market rate. I get so many phone calls on the property listings where the buyer or the buyer’s agent tells me well I’m going to put in an offer at a 100K below, do you think the bank will take it, because I don’t want to waste your time and I tell them, you know, forget about wasting my time, you’re really going to be wasting your time, because the bank is aware of what the market price is and they like to price it competitively to the market rate. And it’s not equal to than sometimes a very, very low amount below so that it’s more appealing. However, they’re not in the business of losing their shirts on a property just because it has a stigma that it is a foreclosure. The other thing that everyone should know about is the fact that there is a general stigma to the foreclosures that it is an incredibly good deal and that it is far below the market value and it’s just not the case in this market and the reason for that is because the foreclosures are happening, a lot of the times, on properties where people do not have any equity. And what that means is because it was a 100% loan, 103% loan, 107% loans, you know, all these loans that were fully financed that are being foreclosed upon, you’re not going to find the properties that are 80% of equity, 60% of equity like you did ten years ago. You are just not going to be finding those crazy, crazy priced properties unless there is, you know, some defects that are known and the bank has to price it accordingly.
DROdio: Well thank you for all of the information today. I hope to talk to you again soon.
Sue Ko: Thank you.