Foreclosures vs. Shortsales


With the state of the current economy, there is a lot of attention being paid to the volume of foreclosures as well as shortsales.  These are two different situations that are often confused.  I thought it would be helpful to clarify what they are.


A foreclosure is a bank-owned property (also referred to as an REO property).  The process of foreclosing on a delinquent home owner has been completed and the bank has the full title to the property and the right to sell that property.  A quick look at shows the very sobering statistic that in Lake Oswego right now there are 90 bank-owned properties, there are 17 properties in pre-foreclosure (behind in their house payments) and 587 properties scheduled for auction.  When a home owner falls behind in his or her house payments, there is a multi-month process where the homeowner is notified of the delinquency.  The final step of the forclosure is public auction where the mortgage holder takes the property back for the amount of money that is owed on it.  Bear in mind that the process takes about nine months.  Many of the people currently delinquent or scheduled for auction will find a way to either bring their payments up to date, renegoiate the terms of their loan, or sell the property.  So not all of the homes currently delinquent will become bank owned.  I’d also like to put these numbers in perspective.  Lake Oswego has a population of about 35,000 people.  With an average of 2.3 people per household, that is about 15,000 households.  And with 694 households either in pre-foreclosure or already bank owned, that is about 5% of the households.  Yep, that is sobering.


A shortsale is a house that has a market value of less than what is owed on it and the home owner is attempting to negotiate with their mortgage holder to take a discounted amount so that the property can be sold at current market value.  In this instance, the sale of the home will require a third-party approval (the bank), and may or may not happen.  The process to get this third party approval can take months (I worked with one that took 6 months), so if you are wanting a home that is a shortsale, be prepared to be patient and realize that the approval may or may not occur.


I am often asked how a buyer can find foreclosure and shortsale properties.  The reality is that 99% of them are listed with Realtors and made available on the RMLS.  People who are in distress and trying to sell their home as a shortsale hire Realtors.  And banks with bank-owned properties hire Realtors to sell their inventory of foreclosures.  You don’t need to buy a secret publication or pay for a special list.  These properties are available to the public on the RMLS and any Realtor can gather information on them to help assist you with finding that great deal.


Having said that, I have two areas of caution.  First, a foreclosure is a much better prospect for purchase if you have a time-line you are trying to accomplish.  A foreclosed property that is listed for sale can be purchased within a normal transaction period of 30 to 60 days.  Whereas a shortsale can take months and then may not occur at all.  Second, when you buy a foreclosure it really is buyer beware.  Banks make no representations about the condition of the property and often have their own sale agreements with extensive waivers to protect them from any future liablity.  In both circumstances you should be able to make your offer subject to a home inspection.


OK, I have a third thought.  Be aware that people who loose their homes are people in financial distress.  They go through an extended period where they have no resources to make their house payment much less fix the leaky roof or remodel the ancient kitchen.  So be prepared to see houses that are dirty and in need of repair.  In addiiton, it is not uncommon for these houses to be stripped of appliances and fixtures.  Not all foresclosures and shortsales are project properties, but many are.


So you are looking for the great deal?  Sure, check out the foreclosures and the short sales, but don’t close your mind to the good old homeowner who needs to move and is motivated.  These people will also often sell at great prices, close in a reasonable time frame, and maybe even vaccume the carpet and polish the granite on their way out.  To make the most of the market, look at the entire market.








Selling or buying a home during the holidays

I am frequently asked if the winter, and specifically the holidays, are a good time to be selling or buying a home. My answer is yes. There are several advantages to selling or buying at this time of year.

First, a home that is warm and decorated for the holidays is extremely inviting. There is such a contrast from being outside and coming in. It really makes the home embrace the buyer. However, this means that you need to make that extra effort to create this experience. Keep the house heated properly. Homes where the heat is turned down, or even left off if the house is vacant, can actually be colder inside than out. When this happens both the buyer and the Realtor will be in a hurry to leave and get warmed up back in the car. Also, turn on every light in the house and open every curtain or blind. Buyers want a house that has lots of light. Because so many of our days are gray, it is important that you create the best light possible. I have recently shown several homes to clients that were great values and in great condition, but ruled out because they gave the impression of being too dark.

Be on top of the holiday decorations. They can enhance the look of the house, but don’t over do it and allow the house to look cluttered or small because it is filled with too much stuff. Also, take them down in a timely fashion.

There are several advantages to the quality of buyers who are out looking at this time of year. While there are fewer of them, those who are looking are serious. People are busy at the holidays so a person who is taking the time to look at houses is a person who really needs to move. In addition, many corporations have fiscal years that match the calendar year. This means that they are trying to move their transferring executives before December 31st. This is a great time of year to be marketing executive quality homes. (I’d would characterize those as being homes priced at $400,000 or greater).

What about buying at this time of year? I think there are four pretty strong advantages. 1) Interest rates are historically at their lowest in the winter. As the market picks up in the spring, interest rates trend up. 2) There aren’t many buyers looking so sellers will really jump through hoops for you. You may be the only game in town and they will work very hard to sell you their home. 3) If a house looks good in the winter, it is going to be spectacular in the summer. You can really get an idea of the actual house in terms of the light it has and the condition of the property. And 4) this is the time of year when a home inspector can most easily find water issues. If the basement leaks, you’ll more likely learn about it in the winter.

It is completely understandable if you feel like you want to get the holidays behind you before selling or buying a home. But if you do need to move, you have quite a few strong reasons why this time of year can work to your advantage.