With about 1 million unsold foreclosures that banks currently have nationwide on their books and some estimated 550,000 likely short sales, it is important to understand some essential purchasing advice for buyers looking to acquire short sales or foreclosures in Phoenix, AZ:
- Don’t bid too low – you are likely to be competing with many investors looking to purchase distressed homes for cash and then rent them. Also, in the case of foreclosures, the lenders have usually already priced their properties at a very fair market value, so seeing multiple offer situations and offers well over list price are not uncommon. For loans insured by the Federal Housing Administration (FHA), lenders can accept no less than 88% of the “as-is appraised fair market value” (broker price opinion or BPO) in the first 30 days of the listing and no less than 84% after the home has been on the market for 60 days or more.
- Don’t expect a lengthy negotiation process – after your initial offer, lenders will typically counter with a final offer or request your “highest and best” offer at that point. “Highest and best” typically means “highest price” you are willing to spend and “best terms” (ie. are you asking for seller closing cost concessions, how far out is your close of escrow or COE, how much is your earnest deposit to open escrow, what is your down payment, etc). The longer a property has been on the market, the greater your bargaining power. So for a newly listed short sale, an offer of 10-15% below list price is reasonable providing you can support your number with comparable properties in similar condition in the immediate area.
- You may prefer an approved short sale – this means the lender has already agreed to a certain selling price. The benefit is the time required to close in this case more closely matches that of a traditional sale or foreclosure. Also a property that has qualified for the Home Affordable Foreclosure Alternatives (HAFA) will move faster because the government has required lenders to respond to the price within 30 days. If you cannot find a pre-approved short sale or HAFA property, look for a short sale with only one lien holder and/or one where the short sale paperwork has been started. Contact me for more details regarding short sales in Phoenix.
- Be certain your foreclosure can be financed – many homes are so damaged that they are not considered livable by a lender. Since you will not be able to get a typical mortgage loan for a property deemed unlivable, you may need to consider the HomePath renovation mortgage (offered only for Fannie Mae foreclosures) or an FHA 203(k) loan, which is available through most lenders and will allow you to finance the required repairs into your mortgage. I have a list of items the FHA property inspector will review to determine if your home meets the minimum property standards for a conventional FHA mortgage. Contact me for information about HomePath and FHA 203(k).
- Remember that your loan approval letter is good for 90 days – the prequalification form (PQF) your lender will provide, which is a must for writing any offer to purchase, is valid for 90 days. It is important to note that some short sales can drag on for longer than this, so you may need to provide the lender with another set of documentation of income and credit. FICO credit reports and scores are only good for 90 days too. You also need to keep in mind your interest rate lock period will not be valid for more than 30 days.
