Short Sales Are "Fake Listings." Only 5% Close!

Most Short Sales are what I call "FAKE listings."

Only 1 in 20 sells.
In Arlington only 3 have sold out of 65 attempts.

I briefly went over Short Sales when I defined all SOL Homes including REOs, Bank Owned Etc. But Short Sales need more attention, as they are very tricky and misleading.

A Short Sale is a listing for sale that requires "Third Party Approval." That means that 1, or 2!!, banks are owed MORE than the list price.

For Example:

1. Home is bought for $500,000 with 5%, or $25k down.
2. Home has a $475,000 mortgage.
   
3. Value dropped below $475,000
4. If the seller is facing foreclosure, they slash their price for a quick sale
   
5. A Short Sale is attempted at $450,000
6. If the bank accepts it, the BANK eats $25,000 (see Phantom tax for Seller)

The Theory Behind Short Sales: Banks would be better off to accept a loss now, versus going through the legal expense of a foreclosure, just to end up selling it for less later. Win win, right? Wrong. Read on.

Bank Trick 1: "Sure, we will consider a Short Sale, IF YOU KEEP PAYING US."
Yep, a bank sees a desperate seller, and a potential $50,000 loss. They then mislead them into thinking that they might consider taking a bath on the deal IF the owner keeps paying their mortgage. The bank then ignores offers for 2-4 months in order to squeeze out another $2,000 x 4 or $8,000 profit. Brilliant. The bank then takes it over after foreclosure and sells it for $10,000 OVER the Short Sale List price. $18,000 better off, NOT doing a Short Sale.

Bank Trick 2: Sometimes the bank has mortgage insurance and it is CHEAPER for them to let it foreclose versus allowing a Short Sale, which is NOT insured.

For example, I was at an NVAR short sale class and a Realtor asked the speaker, "Why after 60 days, calling 2 times a day (120 calls) with a full price Short Sale offer, did the bank not call us back?" The speaker claimed it was due to an overworked staff.

I asked:

1. Did they tell you they would consider a Short Sale IF you kept paying $3,000 a month? The answer was Yes.
2. Was the home bought with Mortgage insurance? The answer was Yes.
3. Bingo! Why eat $50,000, by accepting the low offer, if the bank a) gets $3,000 a month and b) is insured against a foreclosure and NOT a Short Sale.

She was pissed. She realized that she had been "had." But this goes on ALL THE TIME. It can take MONTHS to hear back.

Another example:

1. A seller in Clarendon 1021 tries to sell his property and profit $30,000 at $600k. (Yeah right!)
2. Then he drops it to $570,000. No bites, but the foreclosure is pending!
3. They SLASH it to $530,000
   
   (sidenote, I get flooded with calls from friend that want to pick it up for a steal at $470,000! I said that it was impossible... since I'd buy if that price was a possibility.)
   
4. It sits for another month, then the listing disappears after 100 days!
5. A month later it is "bank owned" and listed for $560,000
   
6. It sells for $540,000 in 26 days.
   

The moral here is banks are not dumb and the market isn't so horrible that they will take all these lowball offers. They sold it for $10,000 OVER the previous list price (which probably had lower offers).

Short Sale Statistics:

Reston homes from $300k to $400k.
- 20 Active "Short Sales" in Reston (watch out for "Not a Short Sale" listings)
- 73 were Withdrawn, or Expired.
- 3 Under Contract (1 under contract since Nov 2007! Many UC do not close.)
Only 3 sold in the last 24 months. 3 closed sales in 100 attempts!

1. Dropped From $480k to $400k, sold at $400k (Full list)
2. Dropped from $430k to $400k sold for $380k (5% under list)
3. Dropped from $380k to $350k sold for $345k (2% under list)

Arlington Short sales.
- 25 Actives
- 37 Withdrawn
Only 3 have sold in ALL price ranges in all of Arlington in the last 2 years.

1. Listed at $335k, sold for $335
2. Listed at 700k dropped to $620, sold for $600k
3. Listed at 480k dropped to $420k sold for $420.

In Alexandria, only 8 have closed in 2 years out of 80 attempts.

(most were at list, or 2% under list, some were $20k over list)

I show this, so you don't think "Wow, they are desperate, we can now lowball. These 3 were the ONLY successful ones. Probably because they gave the bank a real offer.

Ok, so enough already with the War N Peace, what should I do?

Advice for Regular Sellers

1. Do NOT blindly compete with a Short Sale. If you get an inexperienced agent, and they see 3 Short Sales in your neighborhood, and they have you compete against these "fake" listings, you can lose $25,000. Hope you "saved a ton" on that agent. (see Realtor Rebates)

Advice for Sellers Facing Foreclosure

1. Watch out for the bank tricks to "keep paying." Talk to a lawyer that specializes in bankruptcy to help guide you. They MIGHT recommend stopping payments immediately and saving it up for a rental.
2. Use an agent that has completed (as in CLOSED, not listed) at least 1 Short Sale.
3. If you have mortgage insurance, be extra careful, the bank might prefer that you foreclose.
4. Get bank approval for your list price before listing it. Put in the listing remarks "List Price approved." Otherwise you will get lumped into all the other Fake Listings and ignored by smart buyer agents.

Advice for Buyers looking for a "steal" (see "deals" post)

1. Avoid Short Sales, or expect to wait 2-3 months and expect to put in 5-10 offers on Short Sales before one is accepted. A Short Sale in my building now has 4 offers. He says he is expecting a reply any day now... sorry, but yeah right!
2. Look for Approved Short Sales. Ask if the bank has been contacted and if a price has been approved. Multiply time estimates by 4. Ie. 3 days= 12 days.
3. Consider offering near, full or OVER list. What! Over list! Are you nuts! CNN says this is a BUYER's Market! I know it sounds crazy, but if you and your agent see the price is well under your other options... I've said time and time again, I'd rather you pay $10,000 OVER list on a house that is $50,000 under the competition versus "saving" $50,000 on a home that is overpriced by $100,000. Ignore list price, focus on VALUE.
   
4. Focus on Bank Owned. These units get replies in a day or two. (See video of Realtor buying a Bank Owned property)

Advice for Buyer agents & Listing agents

If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client's "deal" not turn into destroying his own investment).

Sidenote: A home should NOT go under contract until the BANK signs it, but many agents will make this mistake. The seller signing it means nothing, and it should stay on the market as Active.

• Updated Correction 2-29-08 I'd like to thank DAAR CEO Jeanette Newton for this correction. I'm excited that she is participating in blogging!
• My above sidenote about when to go Under Contract is 100% wrong. So let me explain... IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.

  
  Here are a sellers' options (please comment if you know of more options) :

• 1) A seller can counter the contract and add in a "Kick Out" so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means "there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.")
• 2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the "offers" unsigned to the bank. Why not try and keep your home as "Active" for as long as possible? Some banks will require the seller to sign, so try #3.
• 3) Or lastly, the seller might add "acceptance of the contract is contingent on lender approval." or "contingent upon review and approval of the lender." That one line can keep it "Active." I am not a lawyer, so please verify any additions you make to a contract with a lawyer.

• As a buyer agent I would prefer it to be "Under Contract" if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with "Increase your price $2,000 and we will place it UC/KO."

New Trick: Now that Short Sales are getting a bad wrap, some listing agents are NOT disclosing that it is a Short Sale.

Conclusion: Short Sales suck.

Question: Realtors, should you have a "No Show" policy for Short Sales that aren't approved by the bank? Are they really "for sale" if the owner (the bank) doesn't even know about it? Feel free to just tell your clients "read this blog."

-Written by Frank Borges LL0SA- Broker FranklyRealty.com
(please report typos)

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Buying A Foreclosed Virginia Home? Beware of Bank Addendums & $3,000 Hidden Fees

So you are buying a Virginia bank owned property, and REO or a Short Sale? You need to understand the various bank addendums that accompany them, or you might miss a $3,000 hidden fee.

But first, a quick background. Agents that are members of NVAR, and are REALTORS, use a 15 page contract that was painstakingly created by lawyers and a contracts committee. They try to design it as evenly as possible with several "fill in the blanks." Local Realtors receive hours of training on these standard contracts. While a client might want to also have the contract reviewed by a lawyer, there is some comfort knowing that it everyone uses the same contract and was written by lawyers with a neutral bias.

But when you buy a bank owned property, you start with a standard contract, but then the bank sends their oftentimes non-negotiable "bank addendum." I can't blame them. Sometimes the decision maker is in another state and dealing with hundreds of offers. Any small change in contract terms might require bringing in lawyers etc. They would rather take a lower price, but leave their terms untouched.

The addendums are heavily 1-sided FOR the banks and since every bank has a separate bank addendum, there is currently no training for REALTORS, (I proposed an NVAR class to fix this) so that they can better understand them.

Here are just a FEW of the things you should know about bank addendum contracts:

1. Addendum means "Everything in the main contract is nullified" if the addendum covers anything already in the main contract. So if your main contract says you get a walk through, but the addendum says "As-is," the addendum wins.
2. Some bank addendums are written nationwide and ignore local laws. Local laws DO supersede these contracts, so therefore sometimes there are terms in them that are not enforceable.
3. Watch out for hidden new fees. One of the agents that I work with had their main contract agreed to, but the addendum needed to be signed. The addendum sneakily (is that a word?) shifted a $3,000 tax to the buyer. Hello! That is real money, don't just sign it.
4. Most addendums are more "AS-IS" than the regular contract. The bank would rather take less and be done with nickel and diming. This is fine, as long as you realize and are ok with this risk
5. Most addendums allow the bank to cancel the contract all the way up to the close date. Yep, they can walk, sometimes for a $1,000 fee or sometimes with no penalty. If they get a higher offer, or whatever, they can break the contract. Again, this might never happen, but you need to know what COULD happen.
6. Bonuses to use their title company. In Virginia the buyer is legally allowed to pick the closing company. But oftentimes the bank wants their company to do the closing (in part because they share in the revenue) so they offer a $1,000 incentive. On something like a bank sale, with the former owner losing their home, I would want MY title company to tell me everything is all clear.
7. Termite provisions are stuck. Normally the seller pays if there is termite damage. The addendum shifts the risk back to the buyer. I'm not talking about the $35 inspection, I'm talking about repairs.
   

Does anybody else know of details that are hidden into these addendums? Again, there are dozens of variations, so make sure you review it carefully and have a lawyer review it.

Make sure you work with an agent that has done some of these deals and can guide you through the higher risks, but which oftentimes comes with lower priced bank homes.

Written by Frank Borges LL0SA- Broker FranklyRealty.com

Don't miss the comments and discussion by other agents with other bank experiences. And please report typos! Keywords: Arlington, Fairfax, Alexandria, Manassas.

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Freeze Interest Rates? Bankruptcy to Profit?

On the heels of our discussion about legislation to remove the Phantom Tax associated with short sales, (see my quote in the Washington post on Short Sale) there is also legislation out there to freeze Adjustable Rate Mortgages for homeowners.

I have the following questions, maybe you know the answers:

1) Will it only help those facing foreclosure, or will everyone that locked into a 2% teaser rate get the benefit of a 4-8% reduced rate. On a $300k house, this comes to up to $24,000 in savings per year! The plan calls to help 1.2 Million distressed homeowners.

2) Who pays for this? The banks already have calculated expected earnings based on the rate jumps. Do we expect the banks to just eat it? Or does the government write the banks a check?

3) If a $300,000 house increases in value to $400,000 in 4 years, after the government gave some a $96,000 bailout, will they be allowed to take that $100,000 profit?

What I MIGHT be able to understand is a Minimum Payment Option, but the unpaid balance be paid at the end, when the house is sold (like a minimum payment on an Option Arm).

My understanding of the proposed solution:

1. 2005 purchaser pays $300,000 for a home. 100% loan. 4% rate, that adjusts to 7% in 2007.
2. 2007, the government (or the bank) covers for the 3% difference ($9,000 a year)
   
3. 2010, if the seller can sell for $330,000, after 3 years of government subsidies totaling $27,000, they PROFIT $30,000

My proposal:

1. 2005 purchaser pays $300,000 for a home. 100% loan. 4% rate, that adjusts to 7% in 2007.
2. 2007, the government (or the bank) covers for the 3% difference ($9,000 a year)
   
3. 2010, if the seller can sell for $330,000, after 3 years of government subsidies totaling $27,000, the payback the subsidy for a PROFIT of only $3,000
   

BOTTOM LINE: While a measure like this might help distressed homeowners, I can see many situations where this might result in a near bankrupt homeowner suddenly PROFITING $30,000 from taking out a risky loan. That doesn't seem right.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

(please report typos)

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My Quote in Washington Post Elaborated: Pitfalls of Mortgage Cancellation Tax Relief Act, H.R.3648

Below is my quote in today's Dec 7th 07 The Washington Post story, "Those Who Avoided Risk Call Plan a Raw Deal"

• [Lead up to quote; red emphasis added]... The aggravation has been building for a while and stretches beyond the agreement announced yesterday. For instance, under one congressional proposal, there would also be a break for "short sales" -- that is, when owners sell a home for less than is owed on the mortgage and the lender forgives the difference. Now, the amount that's forgiven is regarded as income, and the seller owes tax on it. The proposed legislation would forgive that tax.


• [My quote] Without the threat of the tax, sellers might not be as reluctant to consider a short sale, said Northern Virginia real estate broker Frank Borges LLosa. He predicted the number of such [short] sales could double.
  
  Maybe Congress should allow a 50 to 75 percent break instead, he said. "I am not saying not to help out these people," LLosa said. "It's very sad. I have spoken to people who have lost their homes. I just don't know if a bailout is the right thing for the marketplace as a whole."

I've discussed Short Sales previously in "SOL" Homes: Virginia MLS Foreclosures, REO, Short Sales Defined, but here is a quick recap:

Short Sale: Usually a Realtor MLS listed house that is heading toward foreclosure. The deal requires 3rd Party Approval (the bank) because the seller is trying to sell for BELOW the loan amount and is hoping that the bank will approve the deal, and eat the loss. Only about 5-15% actually get to closing since banks oftentimes say, "no" (blog post coming soon on this, so make sure you subscribe Update: Here it is).

Example of a regular Upside Down Sale: (loan amount is over the sales price)

1. 2005, $500k home was bought with a $475,000 loan and $25,000 cash (5% down).
2. 2007, home price drops to $450k.
3. To sell at $450k, seller must bring a $25k check to closing.

Example of a Short Sale:

1. 2005, $500k home was bought with a $475,000 loan and $25,000 cash (5% down).
2. 2007, home price drops to $450k.
3. To sell at $450k, they show the contract to the bank and ask for a short sale approval.
4. Upon rare approval, the bank eats the $25k.
5. Seller still gets a taxable 1099 for bank's loss, also called Phantom Income (at least for now).

• The benefit for the seller is not having a bankruptcy and or foreclosure, which is worse for their credit.


• The benefit to the bank can be lower foreclosure, legal and remarketing costs.

For those that they can't afford an Adjustable Rate Mortgage that is resetting much higher, this can be the savior, with the exception of having to deal with the Phantom Tax. But now the "Mortgage Cancellation Tax Relief Act, H.R.3648" wants to remove the 1099 tax bill.

This sounds great and dandy for a polititian to "keep from kicking people that are already down," but if you remove the penalty for doing a short sale, this will lead to... MANY MORE short sales.

More Virginia short sales will drive down prices, thus hurting others in financial trouble, and their neighbors that didn't buy risky loans.

And regarding any legislation to FREEZE rates for distressed homeowners, Freeze Interest Rates? From Bankruptcy to Profit?

-Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos)

Sneak Preview: My next blog post will talk about FAKE Short Sale prices, and how you can lose $10,000 as a seller competing against these oftentimes fake listings, and how only 5-15% ever get to closing.

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Buyers! Don't Skip Photoless Listings. Save $15,000

Punchline: Buy homes with No Additional photos= Save $15,000 on a $400,000 house.

Buyers LOVE seeing tons of photos for each listing online. I think Realtor.com said that listings with multiple photos get seen 6 times more than listings with 1 photo. The tendency for buyers is to see a photoless house and think it is garbage and skip to the next listing, when in fact it might just be a sucky listing agent or a foreclosure with an underpaid agent. (see the Arlington foreclosure Megan bought, it had no extra photos and she almost skipped it)

I've vented previously about Sucky Listing Agents that use free "drive-by" high school photographers to post one default photos on the MLS. Well sucky listing agents are GOOD for buyers!

Fewer photos= Fewer showings=Fewer buyers= LOWER PRICE!

Therefore, DO NOT skip photoless listings. I know it is a pain (also a pain for the buyer agent, which should be making a photo album for each viewing), but take the extra effort and potentially save $15,000.

I painstakingly reviewed 268 Sold listings in Fairfax since 5/1/07 from $400k to $500k.

24% had NO ADDITIONAL PHOTOS!

This is embarrassing! Also note that 57% of FORECLOSURES, Bank Owned, REOs etc had no extra photos.

Only 12% of agents posted the maximum 20 photos. This amazes me (FranklyRealty.com Requires All 20). Note that the local MLS just went to 30 photos, and now they are free. So if the $12 was too much for your agent, now they have no excuse.

I also found listings with more photos sold faster (duh). Here are the photos to Days on Market (DOM, not the champagne) analysis:

• 1 Photo = 70 DOM Avg
  
• 6 Photos =40 DOM
• 16-19 = 36 DOM
• 20 MAX= 32 DOM

The Closed NET Price as a % of the Original Price also showed a direct correlation.

I scrubbed the data to find the REAL Original price. I manually adjusted the 20% of listings that were relisted (see my best of 2006 blog on MLS DOM data fudging), and I adjusted for seller subsidy.

Listings with fewer photos sold for less.

• 1 Photo= 91.2% of Original Price
• 6 Or more= 95% of Original Price
  

Therefore on a $400,000 home, Photoless listing sells for 3.8% LESS.
(Now one can argue that a sucky listing agent also might suck at proper pricing, but come on, you get the point)

Bottom line for Buyer: Just like I've said staging gets you MORE $ for your listing, the opposite is true for buyers. Buy unstaged homes (see Don't Buy Staged Homes) when you can and consider the poorly marketed homes to get a better deal.

Bottom line for Sellers: Duh, at the very least, make sure your agent puts a ton of photos.

Bottom line for Agents: Keep up the bad work, it makes me look better.

Share this blog post with a friend. Make sure to sign up for this blog (upper right of the page Blog.FranklyRealty.com) as next week I'll show more of the data and how Days on the Market correlates to price. Also more on DOM-M vs DOM-P Relisting tricks.

- Written By Frank Borges LL0SA Broker FranklyRealty.com

Please report typos!

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Arlington Foreclosure (REO), Realtor Buys Her Bank Owned Home

Buy like a Realtor!

This post is a link to a 6 minute video showing the process involved in buying a Bank Owned Property in Arlington Virginia, by a Realtor. Megan Buckley, a Realtor with FranklyRealty.com, recently bought her REO home in South Arlington. It was bank owned.

Foreclosures aren't as frequent as people think in Arlington, and I still suggest looking at everything, but it is possible to get one for a deeply reduced price versus the previous owner's purchase price.

Highlights from the video:

• Don't ignore homes with 1 or no photo. Poorly marketed homes get seen less, and therefore sell for less.
  
• 13 page Bank Addendums, how one sided they are.
• How much the property was previously purchased for, what it listed for, the price drop etc.
  
• The condition of this already foreclosed home. Several families lived in this one home.
• How she negotiated and beat out 3 other offers (after a drastic price drop).

For more on definitions about different types of Foreclosed homes or SOL homes.

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don't like looking stupid. If you like this post, sign up for new posts, use the form on the right of the page.

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Virginia Foreclosures! The new FEVER!

The FEVER was lost for two years, but it's BACK!

My Virginia Real Estate blog showcases the trends before you ever knew they existed. This is a new trend, and it is on fuego. Problem is, is it real?

The message is slightly different, but the bottom line is still there: Buy Foreclosures, Flip and Get Rich!

In the past it was Buy New Construction, Wait a Month, Flip and Get Rich. (see my post on Taxi Drivers pooling their money during the top of the housing bubble)

This technique is also known as the Greater Fool Theory. If you can buy it low, and sell it to a greater fool thinking he can do the same, you will profit. Rinse and repeat until the world comes crashing down like a pyramid of cards (oh and it did for some).

So now I see people wanting to rebuild the pyramid, and they want in on the ground floor.

When five people say to me within 2 weeks "If you hear of a place that is a steal, let me know, I might buy it."

Sorry, but if it is that much of a steal, and I hear about it first... You won't buy it because it will be sold. To me.

The problem is 50% off steals don't exist. See the post on Parkside Alexandria Auctions starting at $225,000!!!, but ultimately they got bid up to an unflippable (word not recognized by MS Word) market price (see Virginia Auctions Results Show post).

This new breed of wannabe opportunists think that the market is dead and nobody is buying... but THEM of course!

They are the brilliant ones alone buying at the bottom. Did you know that Parkside got 1500+ registered buyers to walk their community? All looking for what was quoted to be a "once-in-a-lifetime opportunity." 1500 people trying to buy from people down on their luck. You are not alone.

So back to these 1,500 people.

What are they doing? They are wasting their time and the time of their Realtors (not me, I just send people to this blog post).

Many Realtors are using foreclosures, short sales, bank owned properties, REOs as bait to bring in clients, hoping that a few will settle for 2-5% off instead of 50% off.

Even this post was written to be picked up by Google for people looking for "Fairfax Foreclosed homes" stuff. The difference is, I'm telling them it does NOT exist (well maybe in Herndon). So if bargain buyers contact me, most likely we will all be on the same page, that I can help you get the best "deal" possible (see:"Buyer's Market?" No Such Thing As a "Good Deal") but don't have unrealistic expectations.

When my termite guy's (not a profit sharing ABA) wife stumbles upon my Parkside $225,000 Auction blog (along with a poker buddy), you know it's a trend. So this post was written just for her. (NOTE FOR REALTORS: this is why blogging is efficient. Write it once, and post it, with no need to repeat yourself. Oh how I plan to link to this post in the future, and you can too.)

Foreclosures sound great, but aren't nearly the deal of the century, 50% Kmart blue light special that many think they are.

Buying and fixing up properties is a real, but tough, business. There is no get-rich-quick system that I know of that works. And if I did, I probably wouldn't tell you. I would just do it and get out of residential real estate. If you become a flipper and are going to buy a run-down property and fix it up, you better know what you are doing. And in a slow market, you better leave room to sell it well under market, otherwise you'll follow the market downward.

And as for people looking to buy their own home to live in, and solely looking for Arlington or Virginia foreclosures, you will most likely be sadly disappointed. Yes you should add them to your search, but they are infrequent and many are fake. Yes many "short sales" or "3rd party approval" listings are fake, but not all.

An upcoming post will get into how Short Sales only close 50% of the time. Also an upcoming post showing how one of my agents bought HER own home from a bank. So make sure you sign up for this blog via email at blog.FranklyRealty.com in the upper right corner.

- Written by Frank Borges LL0SA= FranklyRealty.com

(please report typos)

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"SOL" Homes: Virginia MLS Foreclosures, REO, Short Sales Defined + Email Alerts

Newspapers are filled with talk of the flood of foreclosures, but none that I have seen have taken a step back and defined all the different industry words for my new industry word: "SOL" (S* Out of Luck) Homes (tm), and how to buy them. 2-3% of MLS listed homes are SOL in Northern Virginia. Can your agent find them?

It might seem odd that I'm writing about how to buy foreclosures listed on the MLS since some might have just finished reading my article Attn. Market Timers! The EXACT Best Day to Buy!

Well SOL homes can get you a 5-15% discount* if you

1. Know how to search for them, AND
2. You have patience
3. You aren't picky!
4. Fully understand the risks of buying "as is"

* Side shout: BusinessWeek did a great job in their article This Old Foreclosure Buying directly from a bank avoids some risks, but don't expect a steal They both dispelled the 30-50% pennies on the dollar mentality people equate with foreclosures and how foreclosures of a year ago are different today, they no longer occur mainly on courthouse steps. They use the MLS)

So, let's go over the SOL terms:

• Pre-Foreclosure: term used by agents or sellers that are in the process of being taken to the courthouse steps since they have defaulted on their mortgage (didn't pay it). They want to sell the property before it gets foreclosed on, and oftentimes before it is taken over by the bank. Banks sell them on the MLS through Realtors (learn how to find these later in the article). Here are some examples of Fairfax Pre-foreclosures on the MLS.
  

• Foreclosure: Technically a foreclosure is a house that is being auctioned off at the courthouse steps. Many people use this word incorrectly to represent a house that is in Pre-foreclosure, or has already been foreclosed on and taken over by the bank (see REO).
  Traditional foreclosures aren't occurring on the courthouse steps as much (see BusinessWeek Art) since the amount owed (the starting price for the auction) is TOO HIGH. So when the minimum price is too high on the courthouse steps, the banks take them over and sell them on the MLS through Realtors. (learn how to find these later in the article) Here are some examples of Arlington Foreclosures on the MLS and don't forget Realtors that can't spell and leave off the E in "forEclosure": Virginia Forclosures

  
  

• Short-Sale: Usually an MLS listed house that is heading toward foreclosure. The deal requires 3rd Party Approval (the bank) because the seller is trying to sell for BELOW the loan amount and is hoping that the bank will approve the deal, and eat the loss. Only about 5-15% actually get to closing since banks oftentimes say, "no" (blog post coming soon, so sign up). For example, a $500k home was bought with 100% financing. If the market price is now $450k, a seller can a) bring a $50k check b) try a short-sale c) let the bank foreclose. With a short-sale, the bank eats the $50k. Note that the seller still gets a taxable 1099 for the difference (at least for now). This process is seen as being better for the seller's credit vs bankruptcy and foreclosure. The benefit sometimes to the bank is lower foreclosure costs and re-marketing hassles.

  Examples of "Short Sales" in Alexandria on the MLS. Note that some listings say "not a short sale," they will come up in an MLS keyword search.

• REO- Stands for "Real Estate Owned", but it really means Bank Owned. I guess buying a B.O. house wasn't too appealing. These are homes that were already "foreclosed" on. Nobody bought them on the courthouse steps and the bank took it over and is attempting to sell them, usually (but not always) for a discounted price.

  Examples of REO Bank Owned in Virginia on the MLS
  

• Bank Owned (same as REO)
  
• Third Party Approval- If you see this in a listing, it is probably a Short-Sale and it is warning the agent that some extra paperwork and time will be required.
  
• Auctions, "Buyer's Premium": Some auctions require a 2-10% "premium" be paid on top of the winning bid. So if you bid $500k, you have to pay $550,000. In my opinion, it is a marketing trick that auction houses use to trick sellers by saying "you pay nothing, the buyer pays our commission." Just make sure you do the math, your NET is what matters.

  Examples of listings with the word auctions in them: Virginia Auctions on the MLS
  

• Auctions, "Reserve price." Sometimes this is also a marketing trick. I have seen $700k listed houses have a $690k reserve. They get people at the auction all excited to get a deal. The auction ends and they say, "sorry you didn't meet the 'reserve price', here, how about a counter?" Sounds like a trick to find out who might be remotely interested in the property.
  
• Auctions, "No Reserve." If you are an Ebayer, you know what this means. The product will be sold, no matter HOW low it goes. If you see "No reserve," it MIGHT be what I call a REAL AUCTION (send it to me, I'd love to see it)

Auction disclaimer: I am not an expert when it comes to Auctions. I still have yet to see ONE "real auction" in Northern Virginia. I think they don't exist, but I can be proved wrong if you'd like (have at me in the comments section).

Dealing with SOL property are a PAIN. Expect counters to sometimes take several days, and sometimes months!

And an SOL home is NOT necessarily a better deal. Somebody might have paid $500k for it with 100% financing and the list price might be $480k as they feel the waters. I saw one short sale in my building that started at $600k (they paid $590k). It was overpriced, so it sat. Then the seller/bank got serious. They did a drastic drop to $530k. It sold for full price (while I had 4 people come to me wanting to offer $480k, and they missed out). This was 1 of 2 best priced units in the building over the last 2 years. Another short-sale came on and was sold in 4 days, so if you want these, be ready to act FAST.

So how many of these are there EXACTLY on the MLS?!

Homes that are SOL can be found by having your agent search the Realtor Remarks for keywords, or try it yourself on the new keyword based FranklyMLS.com: REO, foreclosure, bank, pre-foreclosure, foreclosed, forclosure*, short sale, auction, third party, 3rd party. *9% of the time this word is misspelled!

In Arlington:

• Today there are 287 MLS homes $400k-$500k. 10 (3%) are SOL (Arlington SOL Homes)


• Today there are 223 MLS homes $500k-$700k. 10 (2%) are SOL (More Arlington MLS SOL Homes)

Update to article: I thought I'd run some data from Woodbridge. To my amazement 35% were SOL! This blows my mind!

In Woodbridge

• Today there are 273 MLS homes from $300k-$325k. 97 (35%) are SOL!

MORE DATA ON 6 NOVA AREAS: 48% of MLS homes are SOL (Foreclosure etc) in Herndon ($300k-400k)

This is shocking!

If you do plan to buy, you need a good agent to know when to spot a "better deal" (remember I don't believe in "good deals" until you sell your place. See "Buyer's Market?" No Such Thing As a "Good Deal")

NEW SYSTEM TO FIND SOLs: MLS EMail alerts.

Have your agent sign you up for alerts based on your price range, area AND these SOL keywords in the Realtor Remarks (different than the Public Remarks). If your agent can't do it, have them email me, I'll show them how. If you don't have an agent... (sorry I tried to hold off as long as possible) welcome to FranklyRealty.com . I'll set it up for you.

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-Written by Frank Borges LL0SA Virginia Broker FranklyRealty.com

Ps. Please send typos and corrections. Disclaimer: Data gathered from MRIS's MLS database. Distressed homes

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