San Diego distressed home buying requires special knowledge and patience
by Brian Flock
If it’s not common knowledge already, I’ll announce it now: short sales and foreclosure home purchases in San Diego County require a special tact and patience in order to purchase successfully. Full stop.
This truism applies to both buyers and the agents that represent them in a home purchase.
The National Association of Realtors reports that these distressed properties have been accounting for about a third of national sales recently and this percentage is significantly higher in San Diego County where a dizzying number of homes have more negative equity than the national average.
Commercial tools for tracking troubled properties are available to consumers and agents starting at fees of around $50 per month. Yet there is a distinct difference between having loads of data and successfully purchasing a home in the complex world of real estate.
Distressed short sale and foreclosure properties differ from a typical real estate listing in several ways:
· The majority of these distressed properties are the feared “shadow inventory” that has banking and government officials scrambling to find measured solutions—along with wringing their hands in private.
· The real estate often arrives into the market by non-traditional methods. Banks have asset managers and loss mitigation experts to manage and dispose of properties. These managers are so overwhelmed that it is currently impossible to predict how a particular distressed home will be released to the market. Managers only talk to a handful of real estate brokers and virtually zero consumers.
· There is little (or no) room to negotiate non-cash concessions (such as repairs) from the seller. This can rule out VA loans, non-conforming loans, and buyers without substantial cash. (One notable exception is buyers who utilize an FHA 203K loan.)
· The southern California multiple listing service (MLS), SANDICOR, recently added a special listing status for short sales and foreclosures. (Yet recall that the vast majority of distressed properties are NOT yet in the MLS.)
The good news is that the government is taking notice and realizes that the Making Home Affordable (MHA) program (i.e. simply refinancing at lower interest rates) will not work for many situations.
The Federal Housing Administration’s commissioner, David Stevens, recently commented that “… the MHA program will not reach every at-risk homeowner or prevent all foreclosures… the Foreclosure Alternatives program that will provide incentives for, and encourage, servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) of foreclosure.”
Forthcoming proposals from the US Treasury may motivate lenders to streamline the short sales process.
How is a buyer to identify appropriate distressed properties?
One way is to go solo, paying the $50 per month to companies such services as ForeclosureRadar.com and RealtyTrac.com. With some experimentation and configuring, you can get alerts on changes in specific properties. Note that these alerts almost never include photos other than satellite images of the neighborhood so don’t expect to know the current condition of the home or its décor.
Another option is to form a relationship with a trusted agent who understands the inner workings of these tools and have that person set you up for alerts conforming to your needs at their expense. That person can also do the leg work of photographing the property, interpreting the data, and getting additional facts from local title companies.
Either way, you’ll find yourself making an offer to a real estate professional when the property ultimately comes to the open market.