Marin Real Estate Pulse

Most banks don’t want to hold an inventory of foreclosed homes (REO’s) so they are priced to sell quickly which usually equates to a good deal.

Looking at the year-to-date sales of Marin County single family homes $500,000 or less (which is the low end for Marin County real estate) the numbers show that REO’s have sold for less than a traditional sale. One thing these numbers don’t take into account is the condition of the property.  Most REO’s need paint, carpet, and minor repairs.  There are no disclosures to speak of on REO’s so it really is buyer beware because you don’t know the history of problems.

Of the 105 REO’s sales year-to-date ($500,000 or less) the average price was $382,000 with an average of 1387 square feet.

Of the 119 sales that were NOT REO’s the average price was $411,000 with 1239 square feet.

Does this mean every REO is a good deal?  No, but be sure to look at them if you can stomach not having disclosures (which usually means you should get more inspections) on your new home.

When looking for a new home put Short Sales at the bottom of your list. The reason most Short Sales fall out of escrow is the buyers get tired of waiting for the bank to accept their offer. In most cases it takes months for the Short Sale bank to respond to your offer and then you might find out they want to counter with a higher price.  Or perhaps you have waited several months for the bank to respond they at the last minute a new buyer comes in with a higher offer than yours.  At the very least I hope you keep looking for another “perfect” home while waiting for the bank to respond, and no, it is not legal to write offers on several Short Sales and take the first one that is approved (unless you disclose your intent on all offers).

Maybe everything goes along perfect, the bank accepts your offer and then you find out the sellers have changed their mind.  Rather than go through with the Short Sale they will let the bank foreclose and live in the house for several more months without paying their mortgage.

Speaking of waiting, did you realize that you don’t lock your loan rate until the bank accepts your offer?  This means you may write your offer when rates are in the 4% range and by the time the bank accepts your offer rates may have gone up close to 6%.

Don’t think you are getting a better price on a Short Sale either.  Many times the bank will list the home for a lower price as an REO (foreclosed home) than a Short Sale offer they refused.

This is a great opportunity, because of very low prices, for first time buyers to finally get into the housing market.  Those that have saved a down payment (sometimes as low as 3% with FHA financing) and have documentable income can buy a home that just a few years ago may have cost twice as much.

The problem is many of these homes have multiple offers, ten or more is not uncommon in Marin county.  It is not unusual that the majority of those making offers are cash investors that have no plan on living in the home.  Nothing wrong with that, after all the United States is a capitalistic society which is not a dirty word.

The sellers, big banks many of whom received bailout money favor cash offers as do most sellers.   There should be some regulation that would put intended owner occupied buyers on the same footing as cash investors.  If the buyers have a down payment and proof of income and fully qualify for the purchase REO banks should not be allowed to accept a lower cash offer from a non owner occupied investor.  These qualified buyers are the type that build communities, have an interest in local events and tend to keep up the homes and therefore the neighborhoods.  This just seems like a no-brainer to me especially if the REO bank is using OUR bailout money.

Buying a foreclosure is for the pros with a big checkbook. In Marin a “real” foreclosure is literally sold on the steps of the courthouse on Fifth Avenue in San Rafael. The buyers have several denominations of Cashers Checks that add up to the maximum they will pay. They bid against each other and the bank that holds the loan on the house and is foreclosing on it. The bank has the upper hand because they don’t have to write a check unless the bidding goes over the loan amount.

You will be bidding on a house you likely have not seen on the inside. No bank will lend you money until you buy the home. This is a cash transaction that does not come with title insurance.

When you hear someone say they bought a foreclosure that usually means they purchased a home that has already been foreclosed on by the lender. They are known as REO’s, which stands for Real Estate Owned (by the bank). When buying an REO the paperwork sucks. Banks expect buyers to start their inspection and financing timelines without so much as a signed offer acceptance from the bank. In many cases the acceptance of the offer is conveyed to the buyer verbally. As you know, in real estate verbal does not cut it, the law requires everything in writing. But as long as you are getting a good deal are you really going to fight with the bank that selling the house?

Homes are also sold in pre-foreclosure status which may mean the seller had a notice of default (they are late in mortgage payments) or it is a short sale. In a short sale the seller gets the bank to agree to sell the home for less than the amount owed.

Warren Carreiro

Propositions 60 and 90 were passed by California voters and lets you transfer your current property tax rate to your new home sell and purchase your primary residence. These propositions apply if you or your spouse are 55 or older. In some situations the rules also apply to permanently disabled individuals (prop 110).

This is not intended as tax advice, I am not qualified to offer that so please check with your accountant, attorney and the county assessor to verify you qualify.

The basic rules are:

1. The home must be your primary residence.
2. You or your spouse must be 55 or older when you sold your primary residence.
3. The replacement property must be purchased two years before or after you sell your primary residence.
4. This exclusion may only be used once in a lifetime.
5. The replacement property must be of equal or lesser market value.
   1. 100% if purchased before the sale of your home
   2. 105% if purchased up to one year after the sale
   3. 110% if purchased in the second year.
6. Prop 60 only applies if you new home is in the same county as the one you sold.
7. Prop 90 allows transfer to a different county if the new county allows. Most counties do not follow prop 90 so check with the assessor before you count on this. Counties change their rules so check again even if you have previously done so.

The counties take the rules very seriously so don’t think or try to “beat the system” because it will come back to bite you. Also, the rule refers to market value and in some cases counties are looking at REO (Bank Owned Homes) as not selling at market value. For more information look at the Board of Equalization web site.

Warren Carreiro, Broker.

It is not uncommon for a client to ask me about purchasing foreclosure homes.  We hear the misleading ads on the radio, “I just bought a home for $199 a month”.  While that number is totally unrealistic in Marin, foreclosures can be a bargain.  In some parts of the country banks and other owners have foreclosure auctions, other than the occasional homeowner (usually with an unrealistic reserve) I have not seen this in Marin. Although our foreclosure rate is significantly up from prior years it still is very low and most foreclosed properties are taken back by the bank.

In Marin, properties in foreclosure are sold at the court-house steps.  Buyers with cashiers checks (for the full amount) bid against each other and the bank.  The bank does not need a cashiers check because it is their loan that would be paid off.  Okay, get this straight, you need cash to buy the home, often you have never seen the inside of the house, and you many not be sure the title is completely clean.  Once you win the auction you can get title, go to a bank and then (after you bought the home) try to get a loan.  You also get to evict the occupants and finally see the inside of the home you just purchased.  The experienced buyers have lots of cash and make a bundle on most of them but do loose their shirts on about one in ten.  This is a rich person’s game as most of us don’t have the extra cash laying around and can’t afford our one purchase to be the dog that is a money looser.

So the court-house auction does not work for most of us but the next best thing is post foreclosure, bank owned property (REO – real estate owned by the bank). Once a bank takes a home back they want to sell it quickly because they are in the business of lending money, not owing excess homes.  These REO homes are priced (usually) realistically, as the banks wants to dump them within a month or two. Caution here; just because a home is an REO does not mean it is a good deal and the banks will negotiate.

If you are interested in looking for these homes ask your agent (or me if you don’t have one) as it is easy to do a search in the Marin MLS.