With foreclosures up 42 percent nationally in the last two years, according to RealtyTrac.com, many buyers today are taking advantage of an opportunity to get a property for less than the market rate. Some of the "deals" however, can come with some treacherous penalties if you're not careful.
The sellers market -- at least nationally -- has been over for about 20 months now and buyers who were waiting for the bottom need to come out of hiding, liquidate their investments and come to the table with a good contract that can garner them equity in a home as they walk in the door. Prices have stabilized, interest rates are still low (but not for much longer, according to some), and sellers are now willing to help with closing costs.
Buyers can determine if they're getting a good deal by looking at the numbers locally and then even on a more granular level by talking with a Realtor in your area who can give you the last two years' numbers on sales of your target property.
What you're looking for is a comparison of month-to-month, year-over-year numbers, i.e., July this year compared to July last year. Then you want to take a look at each month's sales numbers over the last 13 months - July '06 through July '07. What's the trend for the prices? What has been the trend for seller subsidies, etc.
You'll also find more homes on the market for foreclosure and short-sale. I've dealt with the difference of the two, so I'll not revisit that topic. Simply search RealtyTimes.com for "short sale" and there's plenty of research for you.
What I want to warn you about this week are the penalties involved for buyers of the above described properties that are only uncovered in the fine print of the addendum that you'll receive with the bank-owned property.
Read it. Read it. Read it.
I was reviewing a contract for a colleague the other day when we discovered that if the buyer did not settle on the contracted date, then the buyer would end up paying a per diem penalty of $100. (In plain-speak, that would mean a $100 per day penalty until they settle.) This is a penalty even if the seller gave permission for the buyer to postpone settlement for a few days for any reason.
This was an addendum not part of the usual contract used in our area -- which is what you'll find across the country. The banks/lenders selling their own inventory will let you use the customary contract from your local Realtor association, but then they tack on a huge addendum that, many times, eliminates many of the buyer protections that were laid out in the previous contract. To get the "good deal" the buyer must agree to the addendum before moving forward. Thus Buyer Beware.
The per diem clause is one Realtors really need to be aware of. It's not the same from bank to bank. The per diem penalty for another contract I saw the other day, did not stipulate a set dollar amount, rather 1/10 of 1 percent of the sales price. In this case, it was $392 per day. That means if you postpone for 10 days, the buyer would have to come up with nearly an additional $4,000 to settle.
What do you do? First of all -- don't put yourself in a situation where you don't have enough time to settle and get all the financing, inspections, HOA disclosures, etc. done in time. I've seen some contracts where the buyer wanted to write such an enticing contract, that they agreed to a contract that really couldn't be performed on time, thus kicking in the per diem penalty.
Remember, we're not in a quick-settlement environment any longer -- so give yourself some time to get everything performed in the contract and allow time for things to mess up. That would be at least six weeks minimum.
