Call me bias, but I love Valley Center. When my wife and I were looking for an affordable place to live out of the city, one with good schools and less stress, Valley Center fulfilled that goal. Our story is not uncommon. “A growing family with young children and a highly stressed living environment seeks place away from the traffic noise and the endless concrete pavements.” Although Valley Center has grown somewhat since our arrival in 1996, it is still the great country town we fell in love with. Yes there are more traffic lights (they were just putting in the second when we arrived in 1996), and yes there are more homes and more people. But, with over 100 square miles of undulating hills and valleys, thousands of acres of groves and a county minimum acreage of 2,4, 8, 40 and 160 acres, Valley Center still has lots of space to hide you from the busy life we often lead. Spend some time on Valley Center Homes and Estates web site and look at all the great deals and fantastic properties there are for you to purchase, and when you are ready to buy, let me help you through the purchase process. We will become friends, and perhaps even your children will play in the award winning Middle School Jazz Band.
Thanks for stopping by. I am looking forward to some good feedback on my web site’s recent changes and additions. I will get back to blogging more seriously over the next few weeks. However, at this time my goal is to enhance your experience when you visit and provide you with useful tools to address all your real estate needs. I have just launched two new domains. Valley Center Homes and Estates and also San Diego County Homes and Estates. Both these domains are .com names and can be easily spelled out. At this time we are beta testing the new Life Style “Spacial Match” mls feature, and our first responses are very positive. If you have time, please enjoy playing with all the features. Since we have four children, my wife and I have enjoyed the school feature which allows you to see how far you are from the various schools on your selected listing. As we continue to add more features and content, I will continue to look for feed back. I am considering some special awards for those beta testers with the most helpful suggestions. Until my next post…have a great day and enjoy the site.
Q. Why, when I offer full price or even a little more for an REO listing can I not get it. I am getting so frustrated with these Bank owned sales. I am a well qualified buyer with excellent credit and a 20% down payment – what’s happening?
A. This is an excellent question and one that’s asked more and more lately. The simple answer is found in these two principles; The Power of Knowledge and the Power of Cash.
This month’s teaser – What would an Englishman do with a quid?
How many of you would rush to the Car Dealer’s “Going out of business Sale” in order to secure that great car (the one with the great gas mileage, awesome safety record and that looks really great too). The dealer advertises his last five vehicles in inventory at $2,000.00 or best offer’s each. Is your interest stirred in what the dealer has now? O.K. what if that dealer said, in order to buy his car, you have to submit an offer in a sealed envelope for the owner of the company to look at a week on Friday? A little unusual, but you really liked the car, it’s a late model and you know they were selling for over $10,000 before the sale, and so you know it’s at a bargain price You decide you might just submit your offer at the $2,000 asking price in order to secure the bargain in case others show up and buy up the inventory. However, you might also remember hearing a couple of other people talking about the sale at work, and so, just in case they showed up, you decide to offer another $250.00 above the price asked (you feel sure your colleagues will not offer more). You know you can finance the purchase as you have good credit and at least 20% down. You are excited about owning the vehicle and are ecstatic at the thought of getting your own car at such a bargain. Now, what if on the way to the Dealer you saw “Jonny Buys Used Cars for Cash” getting out of a large tractor trailer towing an empty vehicle transporter at the rear of the Dealer’s property? You might gulp and begin to wonder how much the car is really worth; after all it was selling for $10,000 before the sale. As exaggerated as my example is, it should bring you into the world of REO sales. The reality is, not only do you have to know the right price to offer; you also have to compete with Jonny and his cash.
The Power of Knowledge
Knowledge of the particular market area in which you are interested is your number one ally right now. If you are finding yourself unable to buy an REO listing there are a couple of things you should keep in mind. The first is how much the property is really worth. This may seem a little obvious, but actually it’s not to a lot of buyers. The second is the utility of “real cash.” The current market has produced a number of potential buyers with the belief that there must be unbelievable bargains out there, and “I want to buy that one.” If that is true of you, you’re not alone, and who wouldn’t want to buy that one? However, lurking in the background is not only the investor buyer (usually with a greater degree of knowledge of the current investment/market value), but also his cash, competing against you and the ever changing world of Mortgage Lending. These two forces now in the market place work in concert on the REO Bank in a sometimes less than obvious way. Your challenge is to overcome these obscure forces and achieve your goal of buying an unbelievable deal.
The Power of Cash
Q. Clark, why should cash matter; isn’t my loan treated the same as cash?
A. This is another excellent question. Well there is a technical aspect to this that warrants discussing. In Real Estate transactions, conventional financing (a somewhat moving target right now) has traditionally been regarded the same as cash. You make an offer, prove your qualification for financing, show your down payment funds and, subject to the usual inspections etc, you are ready to close – right? Not so quick, what if your bank changes its mind or finds a reason that you no longer qualify, what if the property doesn’t appraise for your offer price, what if the termite report indicates $10,000 of work needed before the Termite company can give you a clearance – can you still close? But they have to give me a loan, I am qualified! You may be, but they don’t. It’s their money (who’s money it is could be discussed at great length, but let’s assume it is their money), and they will do what they want with it. That might include lending it to you; however, it might not. Lenders, regulators, underwriters, the stock market, Congress and nervous investors all around have been stirring the pot of monetary policy of late, and the stew is pretty well mixed right now. I can call my Lender today with a question for which the answer today could be different tomorrow. Right now, cash is king of the hill and the REO Bank knows it is. He doesn’t want to get into a transaction with anyone who from his perspective might not close. He wants to move that property as quickly as he can for as much as he can, so that he can get a non-performing asset off his books and get back to enjoying his performing ones.
Q. Well then how can I ever buy an REO if I don’t have all cash?
A. The short answer is – with difficulty. However, it is not impossible! You have to start with the knowledge of what the property is worth and what condition it is in and/or what repairs it might need. That’s where your investor buyer Jonny Cash started. Remember, this is not the first time that Johnny Cash has bought at the going out of business sale (remember the Car Transporter he was driving). If you are not skilled at valuing homes, and determining current visible conditions then you need a good Realtor who knows your market area well and is used to looking at properties in less than perfect condition. The Realtor should be able to look at recent sales of similar homes along with current inventory and the observable conditions of the listing to give you a pretty close range of value to work from. Then you have to decide if your desires for the home along with the information you have gleaned warrant offering at the top of the range or somewhere lower. The way your offer is written will also be important. Your offer needs to give the REO Bank a good deal of confidence that you know what you are buying and that you are most likely to complete the transaction. I said most likely to complete, because even our Jonny Cash buyer may have a reason to back out of the transaction before it closes if he has given himself the out. You should still have a period, all be it shortened, to get the assistance of a Physical Inspector and any other specialists you might need in order to increase your confidence in what you are buying, or to cancel the deal should closer inspection reveal unexpected issues that can’t be easily overcome.
Having now understood the property condition, location, desirability and what you believe the appropriate current value is, you now have to show that your financing is as close to being cash as it can be… I will address the bidding process in next month’s blog. Until then, if I can be of any assistance in helping you locate, or buy a property in Valley Center, Escondido or North Sand Diego County, I will be happy to assist you. The best part in representing buyers is they usually get my services, experience and knowledge of the market completely free as the seller usually pays for Broker commissions.
Answer to Teaser:
Spend it, or invest it – depends on your perspective! A Quid is the common term for a pound (the English Currency). We might say buck – right!
Question: Clark, what is the difference between an REO and a Short Sale?
Answer: The difference is in who is doing the selling.
This Week’s Teaser: What is a “Winker.”
REO property is rarely misunderstood. REO simply means “Real Estate Owned” and is commonly known as property directly held by a lending institution. Usually a Bank (lender) has gone through a judicial foreclosure process or Trustee’s Sale and has taken the property back by enforcement of a defaulted lien. The borrower has been evicted and the property is owned by the lien holder or Bank. When these types of properties are on the market the seller (Bank) usually has a strong motivation to dispose of the property quickly in order to “get it off the books”. These properties are often discounted and provide a good purchase opportunity. However, one should be careful in purchasing this type of property as it usually comes with no warranty. A lender is not obligated to comply with normal disclosure requirements, and so the buyer needs to do good due diligence when he/she makes an offer on this type of property.
Short Sale property is owned and sold by the purchaser of record and offered for sale below the amount owed in liens – hence – “short.” Since a Bank is usually the lien holder and the sale will not pay off the amount owed, the seller needs to obtain the Bank’s approval before the sale can be completed. For the patient buyer, this type of property can provide a good discounted purchase provided one is willing to go through the process required. For the seller, a short sale usually does not impact their credit as much as a foreclosure might. There can be some tax implications, so a seller should always check with their accountant as to what possible tax consequences might occur if they do choose to sell in a short sale.
Answer to teaser: A “winker” is the common British term used for the flashing light at the front and rear of an automobile. To an American it’s called a “turn signal.”
Supply, Demand and Price
Question: Clark, I want to sell my home, and I need to get X dollars for it. What do I need to do in order to get my price?
Answer: You need to consider these three elements: supply, demand and price.
First, today’s teaser: Where would an Englishman use a “Trolly.”
Sometimes we carry beliefs and emotions into a business transaction that may or may not help us transact business. This happens quite often with real estate, ask any agent. Real estate sales are an intensely emotional transaction; however, they still obey the laws of supply side economics. What I mean by supply side economics is that both buyers and sellers, whether realizing it or not, operate in their own self interest and approach the market place with that conviction. That said, along comes our need to sell and our desire for a certain price to a market place that has no regard for our feelings and desires, but only the self interest of disinterested parties. As you likely know, a buyer’s market, and a seller’s market favor one or the other. Excess supply or lower demand (depending upon your perspective) will create a natural depression in the price as more and more sellers compete for fewer and fewer buyers. Conversely, limited supply or greater demand will create a natural appreciation in price as more and more buyers compete for fewer and fewer sellers. Equilibrium is reached when supply and demand are in balance and price is somewhat static.
So, what you need to do in order to get your price? Simply respect the rules. Price is the ultimate determination of what “sells” and that price has to fall within the current market’s expectations. Your price needs to be the market’s price in order for you to expect to sell within a reasonable time frame.
Contact your agent to get an understanding of what your home might sell for in your market area. For Valley Center and Northern San Diego County sales I would be happy to assist you.
Answer to teaser: An Englishman would use a “Trolly” in the supermarket. Trolly is the British word for “Shopping Cart.”