Understanding Short Sales

A short sale is a sale of a home that is worth less than the mortgage owed.   Because these properties are often listed at a price lower than their values, you may be able to get a good deal, if you have a tremendous amount of patience.   The problem is that the only motivated people in the transaction are the agents and the buyer.  If you decide to make an offer on a short sale, it will generally be submitted by your agent to the seller for acceptance, subject to the short sale lender’s approval.  This can take months, so I tell the buyers, “This will take a lot of time, so don’t call me up, whining about it.”  There really is nothing you can do to speed up their decision.

It is very important to structure the purchase contract such that it gives the buyer an out of the contract if an acceptance is not obtained within a certain time-frame.  Also, it is best to have the different time-frames for inspections, putting the deposit into escrow, obtaining the loan, and so on begin at lender approval of the deal rather than at seller’s acceptance.  We have a very good short sale addendum that is required for every short sale transaction.

It is very important to have a short-sale property inspected by a professional home inspector.  Many times the upside-down seller has not maintained the property.  Very rarely will the short-sale lender agree to pay for any repairs, so it is a good idea to get a contractor’s bid to repair the items so you will know if  the cost is unaffordable.

The short-sale lender will come after the buyer and the agent for money.  One of my buyers said, “Tell them to go pound sand!”  The lender stopped asking him, but then they came after me for some the commission.  If there is more than one lender, the sale is even more tedious.  Unless the lender in first position comes out with what is expected, they will try to cut down on proceeds going to the junior lien holders.

Someone purchasing a short-sale property should just be prepared and patient and don’t get mad (they don’t care!) and a good agent comes in handy, too.

 

Prepare Your House for Sale

Every seller wants their home to sell fast and bring top dollar.  It is not luck that makes that happen.  It is careful planning and knowing how to fix-up your home that will send homebuyers scurrying for their checkbooks.  Here is how to prepare your home and turn it into an irresistible and marketable house.

Disassociate Yourself With Your Home: Remember, once you put your home on the market, it becomes a house for sale-a product to be sold.  You must make the mental decision to let go of your emotions and focus on the fact that soon this house will no longer be yours.  This is an exciting time, and emotions can get the better of you if you do not take the time to make this separation, mentally and physically.

De-Personalize: Pack up those personal photographs and family heirlooms.  Buyers can not see past personal artifacts, and you do not want them to be distracted.  You want buyers to imagine their own photos on the walls, and they cannot do that if yours are there.

De-Clutter: People collect an amazing quantity of “stuff”.  Consider this:  If you have not used it in over a year, you probably do not need it.  If you do not need it, why not donate it?  Remove all books from bookcases, pack up those knickknacks, clean off everything on kitchen counters and put essential items used daily in a small box that can be stored in a closet when not in use.  Think of this process as a head-start on the packing you will eventually need to do anyway.

Rearrange Bedroom Closets and Kitchen Cabinets: Buyers love to snoop and will open closet and cabinet doors.  Think of the message it sends if items fall out.  Now imagine what a buyer believes about you if he sees everything organized.  It says you probably take good care of the rest of the house as well.

Rent a Storage Unit: Almost every home shows better with less furniture.  Remove pieces of furniture that block or hamper paths and walkways and put them in storage.  Since your bookcases are empty, store them.  Remove extra leaves from your dining room table to make the room appear larger.  Leave just enough furniture in each room to showcase the room’s purpose and plenty of room to move around.

Remove/Replace Favorite Items: If you want to take window coverings, built-in appliances or fixtures with you, remove them now.  If the chandelier in the dining room once belonged to your great grandmother, take it down.  If the buyer never sees it, he will not want it.  Once you tell a buyer they cannot have an item, they may covet it , and it could cause the deal to fall through.

Make Minor Repairs: Replace cracked floor or counter tiles, patch holes in the walls, fix leaky faucets and fix doors that do not close properly and kitchen drawers that jam.  Consider painting your walls neutral colors, especially if you have grown accustomed to purple or pink walls.  Take a long, hard look at any wallpapering in the house; if it is too bold in color, it will probably not appeal to most buyers.

Meake the House Sparkle: Wash windows inside and out, clean out cobwebs, re-caulk tubs, showers and sinks and polish chrome faucets and mirrors.  Consider removing window screens while showing the house for sale; this will allow for lighter rooms and prettier views to the outside.  Clean the refrigerator, wax floors and dust furniture, ceiling fan blades and light fixtures.  Hang up fresh towels (bathroom towels look great fastened with ribbon and bows).

Scrutinize: Go outside and open your front door.  Stand there.  Do you want to go inside?  Does the house welcome you?  Linger in the doorway of every single room and imagine how your house will look to a buyer.  Examine carefully how furniture is arranged and move pieces around until it makes sense.  Make sure window coverings hang level.  Does it look like nobody lives in this house?  You are almost finished.

Check Curb Appeal: If the buyers will not get out of their agent’s car because they do not like the exterior of your home, you will never get them inside.  Remember to keep the sidewalks cleared, mow the lawn and paint faded trim.  For a punch of color, plant yellow flowers or group flower posts together.  Use yellow to evoke emotion.  Make sure potential buyers can clearly read your house number.  If your mail box is unsightly, replace it with a new one.

There will be future posts with more tips for preparing and showing your home.

About CC&R’s

CC&R’s, or Covenants, Conditions and Restrictions, are legal limits of usage that can be placed on a piece of property.  Ordinarily when we think of CC&R’s we think of a condo complex, but believe it or not, some cities have homes associations.  When you are purchasing a property in California, you will receive a Transfer Disclosure Statement(TDS) from the seller of the property and one of the questions on the TDS is, “Is there a Homeowners’ Association which has any authority over the subject property?” and another is, “Are there CC&R’s or other deed restrictions or obligations?”  When the buyer sees on the TDS that the seller has said yes to these questions, he should request that the title company provide a copy of the CC&R’s with the preliminary title report. 

California Law allows that either the association or an owner in a common interest development may file a lawsuit asking the court to enforce the CC&R’s.  The law currently requires, with some exceptions, that either the owner or the association must offer to engage in some form of alternative dispute resolution process before filing a lawsuit.  You may wish to consult wth an attorney who specializes in this type of law if you are faced with or contemplating an enforcement matter.

When the rules are broken, penalties might include fines, forced compliance, or a lawsuit by the association.  For example, if an owner attempts to sneak in a large dog into a condominium unit despite a rule specifying a maximum weight for pets, the owner may be forced to get rid of the dog as well as pay fines or face a lawsuit if necessary.

In Citizens for Covenant Compliance vs. Jared A. Anderson, the California Supreme Court concluded that recorded CC&R’s are enforceable even when they are not mentioned in a purchaser’s deed to the property.  As long as the CC&R’s are recorded prior to the execution of a purchase agreement, they are enforceable, even if a misdrafted deed fails to mention them. 

I would like to share one of my recent experiences with CC&R’s of a condominium association.  I was showing townhouses in a popular development in Rolling Hills Estates.  My clients wanted to purchase a townhouse and rent it out for a couple of years and then retire there.  We found a unit that they liked and wanted to make an offer on.  Lo and behold, the CC&R’s required that the owners could not rent out their unit until they had lived there for at least three years.  Well, of course, that sale did not occur. 

Another thing to be aware of is that some of the CC&R’s were written in the 1920’s or 1930’s and some of the restrictions are now illegal.  One of the cities in which I sell property has CC&R’s and a Homes Association.  The restrictions were composed when the property was initially developed and because the developers did not want little cabins or mobile homes on the lots they were selling, there are restrictions about what can and cannot be built.  There are different architectural zones with height restrictions, lot coverage restrictions, and so on.  The CC&R’s also state that if the owner violated the building directives, the Homes Association can require that the owner tear down the structure and if the owner did not, the Association would tear it down and charge the owner for the cost of demolition.  The Association no longer does this but it is still in the CC&R’s.  I recommend that people who are purchasing in that city pay a visit to the Homes Association for clarification about any of the restrictions they may have questions about. 

The upside of CC&R’s and the Homes Association is that no weird construction or unsightly exteriors, like bright neon paint and zero-lot-line structures, are allowed.  This city is beautiful and property values are the most stable in the Palos Verdes area. 

 

Avoid Costly Mistakes When Selling Your Home

MISTAKE 1:  Putting the home on the market before it is ready.  Most of the time this happens because the seller gets impatient or is a procrastinator and has pushed himself up against a moving deadline without getting the pre-sale work done.  So, the home goes on the market with the horrible carpet or it is being painted while it is on the market.  Presentation is everything – so get the work done before advertising the property for sale.

MISTAKE 2:  Over-improving the home for the neighborhood.  This happens with additions, bump-outs, and upgrades that make the home stick out from the competition so much that it is an anomaly, instead of a nice addition to the community.

MISTAKE 3:  Pricing the home based on what a seller wants to net. This pricing strategy will inevitably end in failure. Sellers can control the “asking” price, but they do not control the “sales” price; the market does. It does not matter what the seller wants. The price is determined by the black-and-white, matter-of-fact reality of the current real estate market.

MISTAKE 4:  Hiring an agent based on non-business factors.  Make sure you are hiring a professional with a proven track record in your neighborhood.  It might be nice to put your largest asset in the hands of your nephew who just

got his license, but make sure he has a mentor to keep your deal from going south.

MISTAKE 5:  Making the home difficult to show.  Requiring the listing agent to be present for all showings complicates the process of showing a home to prospective buyers.  Some buyers’ agents will bypass your home if it involves coordinating an appointment according to the listing agent’s schedule as well as the buyers’ schedule and their own timetable.  Also, most agents show a number of houses and it becomes difficult to time the showings.  Consider having a lockbox installed; they can be timed for certain viewing hours and are extremely secure now.  I recommended to one seller that he leave a special greeting on his answering machine.  His message went like this, “…if you are an agent and would like to show my home, please leave your name and phone number and come on by and use the lockbox between 8:30 and 5:30 today.  If you need to come later, let me know the approximate time and you are welcome to show my home.”  This made the agents feel comfortable, we had a slew of showings, and the home was sold within a few days.

MISTAKE 6:  Getting emotionally involved in the sale of the home. This is one of the biggest challenges home sellers face when putting their house on the

market. Once you decide to sell your house, it’s no longer a home, but a commodity. It needs to be prepared as a commodity, marketed as a commodity, and priced as a commodity. It does not matter what you want, only what the market will bear, in regard to pricing your home. People are going to come in to kick the tires, so to speak, and you should not get emotional about how they may or may not appreciate the nuances of your home.

MISTAKE 7:  Trying to cover up problems, or not disclosing them.  A rule I like to follow is:  If you think a certain disclosure will be a deal-breaker, be sure to disclose it!