Is this what you’re thinking? Did a friend, or a friend of a friend get some great deal of 50 cents on the dollar or even less? Are they bragging about how lucky and smart they were? Are you in a panic that you’ll be left out?
There are lots of stories and rumors. But what is reality?
Reality is that YES, prices have dropped, but not at a consistent rate across every town, neighborhood and block. The law of real estate is still, “location, location, location!” The prices in West Los Angeles, Culver City and West Hollywood have softened, but not to the extent as many locations in the San Fernando Valley, and especially not as severely as the Santa Clarita Valley, Antelope Valley, and Riverside and San Bernardino counties.
Are there deals? Yes, but what does that mean? How do you get your hands on them?
First of all, foreclosure is a complicated process that takes several months and once completed, ends up with the home on the auction block. Realize that when buying a home at auction, the buyer must often bid against “professionals” – savvy investors, or their representatives. Buyers must pay on-the-spot a minimum of 10% cash, with the remainder to be paid “in cash” within a very short period of time. Financing is not usually possible and the Buyer cannot see the inside of the home before becoming the owner. Inspections are not allowed prior to making a decision. There is no right of rescission; no changing your mind.
If a home is not purchased at auction, it reverts to the bank and becomes an REO, or “real-estate owned” by the bank, bankowned. At that point, the home is usually put on the market with a licensed Realtor chosen by the bank and posted to an MLS (multiple listing service). Often, REO homes are a wreck. The previous owners may have left bitter and took it out on the house. Banks will do the absolute minimum to prepare the home for sale, often leaving it to the listing agent to do some cosmetic improvements and be reimbursed through escrow. Needless to say, that agent won’t be investing a lot. Furthermore, there are no warranties or repairs, and no termite tenting or repair. Can these homes be great deals? Yes, but you will have to do a lot of work on your own and you are getting the left-overs.
The best deals that can be made today are on short sales. Short sales take place when the current owner is at a financial impasse and is having difficulty making their mortgage payments, or has already stopped paying and has received a “notice of default”. At the same time, the homeowner is paying a mortgage on a purchase price that is higher than the current market value of the home. A professional, licensed Realtor, contracted by the owner approaches the bank and requests a “short sale package”. As part of the process, the owner must prove financial hardship to the bank. The Realtor will list the property to obtain the best price possible in the current market.
There are clear advantages of purchasing a short sale over a property at auction or an REO. First, you are generally negotiating with a homeowner who still lives in the property and has taken care of it until now. Next, financing is readily available most of the time and you may be able to negotiate on some repairs. Lastly, banks do not want to be in the real estate business. They want to be in the money business. It is their desire to avoid foreclosure with the expenses attached to it – such as attorneys and serious property repairs on a home left vacant for a long period of time.
So where are the homes for $50,000 or $75,000? Let’s be realistic, those times in Los Angeles were over 30 years ago. They do exist in some of the outlying areas mentioned earlier in this article. Can you find a one million dollar home for $750,000? Yes. Can you find a $485,000 condo for $250,000? Yes.
Just remember that loans are harder to come by today. Down payments as low as 3-1/2 percent are possible, but your credit/FICO scores need to be high and you need to be able to prove you can make the payments. Full doc loans are the only ones funding.
Whatever you decide to do, real estate is the best proven building block to wealth and the most emphatic fulfillment of the American Dream.
For further information, please feel free to call me at (323) 559-4422. Michelle Menna