“The only thing that stands between a man and what he wants from life is often merely the will to try it and the faith to believe that it is possible.”
-Richard M. DeVos
SHORT SALES: HAS THEIR TIME FINALLY ARRIVED?
Last week, RealtyTrac released its Q2 2011 U.S. Foreclosure Sales Report. The report confirmed what we are hearing in the marketplace – banks are beginning to look more favorably on short sales as option to foreclosure.
The report dissected the sales of distressed properties in the second quarter of 2011. Here are several of their findings:
- Sales of homes that were in some stage of foreclosure or bank owned accounted for 31 percent of all U.S. residential sales in the second quarter of 2011, down from nearly 36 percent of all sales in the first quarter.
- A total of 102,407 pre-foreclosure homes (short sales) sold in the second quarter, an increase of 19 percent from the previous quarter.
- A total of 162,680 REO homes (foreclosures) sold in the second quarter, virtually unchanged from the first quarter.
- Short sales on average sold for a discount of 21 percent below the average sales price of non-foreclosure homes.
- REOs on average sold at a discount of nearly 40 percent below the average sales price of non-foreclosure homes.
This could be a great sign that banks are finally realizing the advantages of short sales over foreclosures.
Bloomberg.com quoted Rick Sharga, senior vice president of RealtyTrac, in an article covering the report:
“This is a glimmer of hope that lenders are getting more realistic. It’s a win for borrowers who avoid foreclosure, buyers who get a house in better condition and banks that lose less money, which is also a win for taxpayers.”
Banks are beginning to do more short sales. It is time for everyone involved to help in this endeavor. Tomorrow, we will have a short sale expert, Christopher Reale, blog on gaining the right mindset to do just that.
HOW TO REACH OUT TO GLOBAL BUYERS IN YOUR MARKET
Large, urban markets aren’t the only places where international opportunities in real estate exist. Your state and region may have plenty of opportunities that you may be missing. A recent article at RISMedia highlights a few tips on how to find this “treasure trove of global business” in your real estate market:
1. Identify the international composition of your market. Check out the National Association of REALTORS’ State-by-State International Business Reports to get population demographics, immigration trends, foreign investment trends in your state, and more.
2. Find the local foreign companies and facilities in your market. Contact the Human Resources departments of these companies to form relationships and start becoming the go-to real estate agent for foreign expats relocating to your area.
3. Create relationships with foreign investment officials. Build relationships with economic development agencies, which are on the leading edge of foreign direct investment. Seek out state, regional, and local development organizations as well as industry groups and the Chambers of Commerce to expand your reach.
REO, PRE-FORECLOSURE PROPERTIES SELLING AT A LARGER DISCOUNT
The share of bank-owned homes and homes in some stage of foreclosure dropped 5 percent from the first quarter to the second quarter, falling from 36 percent to 31 percent, but was up from 24 percent in second-quarter 2010, according to a report released today by foreclosure data provider RealtyTrac.
And distressed properties are selling at a larger discount these days, RealtyTrac reported:
The average sales price of a bank-owned (also known as real estate owned or REO) home was $145,211 in the second quarter, which was about 40 percent below the average sales price of a non-foreclosure home. That compares with a 36 percent discount in first-quarter 2011 and a 34 percent discount in second-quarter 2010.
The average sales price of a pre-foreclosure home (pre-foreclosures, which are homes in default or scheduled for sale at public auction, are often sold in a short-sale process) was $192,129 in the second quarter, which is 21 percent below the average sales price of a non-foreclosure home. That compares with a 17 percent discount in first-quarter 2011 and a 14 percent discount in second-quarter 2010.
There were 162,680 sales of bank-owned homes to third parties in the second quarter, RealtyTrac also reported, roughly flat compared with the 162,900 reported in the first quarter and down 10 percent from second-quarter 2010. REO sales accounted for 19 percent of home sales in the second quarter, compared with 23 percent in the first quarter and 15 percent in second-quarter 2010.
There were 102,407 sales of pre-foreclosure homes to third parties in the second quarter of this year, up 19 percent from the first quarter but down 12 percent compared to second-quarter 2010. These sales accounted for 12 percent of sales in the second quarter of this year, flat with the first quarter and up 10 percent compared to second-quarter 2010.
“The jump in pre-foreclosure sales volume, coupled with bigger discounts on pre-foreclosures and a shorter average time to sell pre-foreclosures, all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales — at least in some areas,” said James Saccacio, RealtyTrac CEO, in a statement.
“This gives distressed homeowners who do not qualify for loan modification or refinancing — or who are not interested in those options and want to sell — a better chance of completing a short sale to avoid foreclosure.” Expedited short sales, he added, “also give lenders the opportunity to more pre-emptively purge nonperforming loans from their portfolios,” and avoid a lengthy foreclosure and REO process.
Among those metro areas with at least 100 foreclosure-related sales in the second quarter, Louisville, Ky., had the largest average foreclosure discount — 54 percent below the average sales price of nonforeclosure homes. Florida’s Sebastian-Vero Beach metro area was second on the list with an average foreclosure discount of 53 percent, followed by Milwaukee (51 percent), Pittsburgh (51 percent), and Kalamazoo, Mich. (50 percent), RealtyTrac reported.
Top 10 States with Largest Volume of Foreclosure Sales in Q2 2011
California 69,897 Florida 34,558 Arizona 25,756 Nevada 15,685 Michigan 11,668 Texas 11,517 Georgia 10,485 Illinois 9,355 Colorado 8,044 Ohio 6,868
Top 10 States with Highest Average REO Discount
New Jersey 53.53% New York 52.99% Kentucky 51.58% Illinois 49.89% California 49.64% Ohio 49.04% Maryland 48.48% Wisconsin 46.69% Michigan 45.95% Virginia 45.38%
Top 10 States With Highest Average Preforeclosure Discount
Missouri 43.19% Tennessee 39.24% Mississippi 39.22% Indiana 36.93% Maryland 36.11% California 35.95% Texas 35.03% Delaware 33.84% Georgia 33.03% Kentucky 32.76%
SHORT SALE SUCCESS: KEY IS TO CHANGE OUR MINDSET!
In any business discipline, having the proper mindset is the key to a successful business venture. This holds true in the Real Estate industry. Now more than ever, having the proper “Short Sale Mindset” is a key ingredient to a successful short sale transaction. In order to have the proper “Short Sale Mindset” we need to ask ourselves:
What are the parties involved thinking?
During our nationwide educational seminars regarding the short sale process, we have found the following mindsets to permeate the industry:
Listing Agents – The short sale process is too lengthy. It is impossible to deal with the short selling banks.
Buyers – The short sale process takes too long. We want an answer from the short selling bank ASAP. Why should I wait to purchase a short sale when I can purchase a non- distressed asset?
Sellers – What is the point? I am just going to let the bank foreclose.
Banks – Their mindset changes all the time!
The Key to Success
The following comments, though general in nature, are the keys to changing these mindsets.
1.) Listing Agents – Though the short sale process does take longer than the traditional non distressed property sale, the short sale process on average is taking 72 days from start to finish. If the agents are properly positioned to negotiate with the bank, preferably through a law firm who has experience in the short sale process, their mindset will change. Taking the negotiation burden off the agent will allow them to properly market the property and help the distressed seller.
2.) Buyers – Understandably the short sale process is lengthy and not every buyer is a “short sale buyer” depending on their individual circumstances. However, according to the Realty Trac Foreclosure Report dated 8/23/2011, a buyer who engages in the purchase of a short sale will typically purchase the property at a 21% reduction to the current market value. That means INSTANT EQUITY for the potential buyer. In most cases this will change the mindset of the buyer.
3.) Sellers – In nearly every instance, a short sale is more advantageous to the seller than a foreclosure. We will cover this in detail in a later post.
4.) Banks – It is apparent the bank’s mindset changes on a day to day basis. However, through successfully negotiating over 1000 short sale transactions, we have found one common thread to be true. Banks are becoming more and more open to a discussion regarding short selling a property. We will again reference the RealtyTrac Foreclosure Report to explain our point. If a bank approves a short sale, on average, they will be approving a sales price that is at 79% of current market value. The other most common loss mitigation option is for the bank to foreclose on the property. When sold, the bank will sell the REO asset for 60% of current market value. Their mindsets are changing!
We certainly understand that a short sale transaction is not one without its complexities. That being said, if we change our mindset when dealing with them, we will be truly doing a service to our communities and the entire Real Estate market.
HUD EXTENDS UNEMPLOYED MORTGAGE RELIEF PROGRAM
The Department of Housing and Urban Development has once again extended its deadline for a program that provides up to $50,000 in interest-free loans to unemployed or medically ill home owners who are struggling to make their mortgage payments.
The new deadline is now Sept. 15. HUD resumed taking applications for the program on Monday.
The $1 billion Emergency Homeowners Loan Program, which launched in June, was originally slated to end on July 22, but HUD first extended the deadline to July 27 to give home owners more time to apply.
Home owners eligible for the program will be able to qualify for up to $50,000 in interest-free loans for up to two years. Home owners who have had a drop in income of at least 15 percent from involuntary unemployment or underemployment due to economic conditions or a medical emergency are eligible for the program. Home owners must still be able to contribute $150 per month toward their mortgage. (Learn more about eligibility requirements and the participating states at http://findehlp.com.)