Dean Graziosi

It seemed a reasonable solution to an unexpected problem. The most recent homebuyer tax credit required buyers to go to contract no later than April 30^th, 2010.  Buyers also had to close on their new purchases no later than June 30^th 2010.  It all seemed simple enough.

The substantial tax credits, which could be taken in cash and which many purchasers expected to use to offset closing costs, could be collected in several ways.  However, many purchasers were rightfully cautious about the government’s reliability and included contingency clauses in their purchase and sale agreements regarding the satisfactory completion of the tax credit.

Due to legislative reforms that have caused lenders and appraisers to be more accountable, closing dates can no longer be expected to meet a 60-day closing date. Today’s closings take between 75 and 90 days if all goes well.  When there are complications such as improvements required by lenders, closing dates can be even further delayed.

The National Association of Realtors (NAR), the nation’s largest trade organization, threw its considerable weight behind a legislative action to extend the June 30^th closing deadline to September 30^th for homebuyers to retain the original tax credit.

The motion seemed like a reasonable solution to an unexpected problem.  The closing date amendment was added to a tax extender bill presented by Democrats.  In Washington today, the political infighting is characterized by the Senate’s inability to pass the extender bill.

As incredible as it seems, the Senate proposal has been denied.  As a result almost 200,000 sales may not take place.  Most of the purchase contracts included contingencies that if the tax credit was not included in the transaction, the sale was nullified.

Congress’s inability to extend the June 30^th deadline may very well result in 180,000 homes being returned to the already over-flooded marketplace.  Once again, Congress has failed the American public and the American taxpayer.  The homebuyer tax credit was a well-intended incentive program designed to stimulate the real estate market.  Now, it has backfired and will doubtless cause further stress to the housing market. Once again, Congress has failed the taxpayers who elected them.

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Before your short sale is concluded, the lender will require a Broker Price Opinion (BPO) from a broker with whom the lender does business.  This BPO is often a sticky point in short sale negotiations.  Many real estate companies are now pushing for legislation to make short sales even more transparent by requiring a copy of the BPO to be submitted to the seller and the buyer.

A disturbing trend occurs when the lender is actually an active REO participant.  They may not be sincere in allowing a short sale and may actually prefer to foreclose.  The reason is that they believe their internal system will generate a bigger return.  In this case, the lender is not interested in the seller’s release of liability through a short sale.

It is no secret that some brokers are influenced by certain lenders.  The lender can argue with any price opinion and accept or reject the opinion.  The higher the BPO, the less loss the lender will take.

This fact makes it imperative for the investor to have performed their own BPO.  Short sales are about negotiations.  If you have the facts, you can persevere and most likely bring the lender around.  If you know your price is below market value, just accept the fact that it was a shot in the dark and move on.  But, if you can support your offering price with local, comparable sales, you and your seller have the ammunition to fight back.

The seller, who will be left with the scars of the lender’s foreclosure, is entitled to an explanation.  If there is an agent involved, encourage the agent to question the lender.  If there is no agent, contact the lender yourself and pursue a meeting. 

Impress the lender with your thoroughness and make sure the lender understands this short sale will happen in a timely, smooth manner.  Your ability to impress the lender with your credentials is imperative and could well swing the deal. 

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What every investor would love to know is the lowest price the bank will accept in an REO transaction.  In the first quarter 2010, REO’s in the state of Florida sold 37 percent below market value.  Those are numbers that investors like and that is one of several reasons why real estate in Florida is attracting local, national and international investors.

It is critical that the investor relate to the bank’s selling position.  Banks are not in the business of owning residential real estate.  Banks make money by making good loans, not by servicing real estate. 

When a bank takes possession of a residence, the bank quickly begins to incur overhead.  Usually the bank will perform very basic repairs; just enough to make the home safe, then determine a price and turn the property over to a brokerage to sell.  REO’s are sold “as is” meaning let the buyer beware.

The most fortuitous time for the investor to approach the bank is after the bank has taken title and before the property is listed.  The absence of a commission makes the investor’s offer that much more appealing.

However, REO markets are like other markets.  Supply and demand influence pricing.  If the bank holds an inordinate number of properties, they may decide to discount a specific number of their holdings just to reduce their inventory.  Another option is to deeply discount the selling prices for an investor who might take several properties off their hands at one time.

Foreclosure actions are subject to public notice.  Experienced investors have a fairly good idea which banks have excessive holdings.  Credit qualified investors should meet with REO department heads and let their interest in bulk discounts be known. 

Like other events in a real estate transaction, timing can be an important factor.  If your offer on one REO property is not accepted at first, follow the property.  Don’t be afraid to make the same offer if the property has not sold within a couple months.  If the bank was not interested in your bulk purchase idea, keep reminding the department that you are still in the market.  Timing may not be everything, but timing has resulted in good fortune for many investors.

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