This past week I received multiple offers on one of my bank owned, REO properties in Big Bear.  The first offer to arrive was a full price offer with the buyer getting a loan.  The buyer was putting 20% down, was pre approved by a local lender in Big Bear, and showed proof of funds for the amount of money he was going to put down.  Generally speaking, that’s a pretty strong offer.  The next offer to arrive was a cash offer for far less than the asking price.  If you were the asset manager of this REO property, what offer would you take?

To make a long story short, the asset manager was much more interested in the cash offer than she was the offer with a loan.  After going back and forth with a couple of counter offers, the cash offer was accepted.  The asset manager could have received more money had she gone with the offer with a loan, but she chose to take cash.  Why do you think she did that?

Most buyers and sellers are not aware of the changes put into place for appraisers.  As of May 1, 2009 most appraisers must comply with the rules and regulations put forth by the Home Valuation Code of Conduct or HVCC.  In the past, the mortgage broker would simply call his or her favorite appraiser to do the appraisal for the new loan.  With the new rules put into place by the HVCC, the mortgage broker must now submit the appraisal order to an Appraisal Management Company (AMC).  It is the AMC that then orders the appraisal from a pool of appraisers.  Now this idea may work well in Victorville or San Bernardino where you have blocks and blocks of tract homes.   But when you try to this in Big Bear, it doesn’t work.  To start with, you want an appraiser who has Geographic Competence for the area that he is working.  Bring up an appraiser from Moreno Valley who does not have Geographic Competence for Big Bear is a disaster waiting to happen. 

Geographic Competence means knowing the difference between a cabin in Sugarloaf and a cabin in Big Bear Lake.  Geographic Competence means you know the difference in value between a cabin in Erwin Lake and Big Bear City.  After all, they have the same zip code!  Every day I hear stories from Realtors in Big Bear telling me how the appraisal came in low on properties.  These are homes that the realtor has multiple comps to support the value of the listing.  These appraisals are coming in low because the appraiser doesn’t have Geographic Competence.

With the new rules put into place by the HVCC, it is no wonder that sellers are more inclined to take a cash offer for less than the listing price over a full price offer with a loan.

In closing I want to state this as simply as I can.  CASH IS KING in Big Bear!

Like so many people in Southern California, you have no equity in your home and you can no longer afford to keep it.  Your first option is to walk away from it and let the bank foreclose on you.  Your second option would be to deed the house back to the bank in lieu of foreclosure, or you can try and sell your house as a short sale. As the first two options are self explanatory, I thought I would discuss with you how the short sale process works and what to expect.

When you speak to a listing agent about the price that they want to place on your home, don’t get hung up on the difference between what you owe on the property and the price that is being placed on it as you put it up for sale.  Remember, you are upside down and the house is not worth what you owe on it.  What IS important is that the price that is being asked is a price that can be supported with current comparable sales.  In most cases, the bank won’t do much of anything without first presenting an offer.  So, pricing it right is the first step.

When the offer comes in, you as the seller will sign off on the purchase contract just as you would in a normal sale.  Once you, as the seller sign off on the purchase contract, you now have a legal contract, subject to bank approval for the sale of your house.   What happens if a better offer were to come in a month after you signed off on the first offer?  This does happen from time to time and in fact, it just happened to me.   As your Realtor, I have an obligation to present any and all offers to you, no matter when they come in.  Does this mean that you should cancel on the first offer and go with the second one?  The answer is NO!  You have a legally binding contract between you and the first buyer for the purchase of your home.  The best thing to do is to place the second offer in a back up position in the event that the bank doesn’t like the price offered on the first offer.

While the short sale process takes time, the process is not that complex.  Every bank is different as to what they want, but besides the offer, the bank will need a hardship letter from you.  The hardship letter must describe why keeping the house will be a hardship on you.  They will also want some additional financial documentation.  This is all gathered by your Realtor and sent in with the offer in what is called the Short Sale package.  Once the lender receives the Short Sale package, it is scanned in to the system and assigned to a negotiator.  While that doesn’t sound like much, there is normally two to three weeks time elapsed between the time you send the Short Sale package in and you get to speak to your negotiator.

Once the negotiator has been assigned to the Short Sale, the first thing that they are going to do after reviewing the paperwork is to find out what the actual value of the property is.  This is done by either hiring a Realtor to do a Brokers Price Opinion (BPO) or by hiring an appraiser.  This can easily take another two weeks to get completed.  Once this is complete, the negotiator can then determine if the price being offered is at or above the value of the house.

If the value of the house and the offer are very close, then the negotiator will approve the short sale and the escrow can then be opened.  I have had some short sales that I have been able to complete in eight weeks and I have had others that took well over three months.

If you plan to get involved in a Short Sale, as either a buyer or seller, you must be prepared for a long haul.  Another thing to remember if you plan to get involved in a Short Sale is to make sure that your Realtor has a lot of experience in Short Sales.  If you are looking to sell your home as a short sale, ask the Realtor that wants to list the property how many short sales that they have listed and sold.  If you are looking to buy a short sale, ask your agent how many short sales he has closed for his buyers.