Lamorinda Foreclosures, Short Sales, and the Perils of of Buying “As Is”…

Lafayette Foreclosures, Lafayette Short Sales, Orinda Foreclosures, Orinda Short Sales, et al…

OK… now that I’ve got your attention, let’s talk about a subject that seems to be coming up more and more as we move into the heart of the 2010 market. We are fortunate to live in an area where foreclosure properties represent a very small subset of our overall market. Clearly their is some “shadow inventory” being held back by the banks, but it now appears that they will slowly “meter” the inventory onto the market, as they are doing in the commercial sector where they have much greater exposure.  At present, there are only 7 REO/bank-owned properties on MLS in Lamorinda.

Even with these types of properties being such a small minority of the overall market, they seem to have sparked the interest of many, along with Lamorinda short sales.  For those who are not clear on the difference between these two types of properties, a foreclosure property occurs when the owner defaults and the bank takes back the home as an asset on their books.  A short sale occurs when the owner is attempting to get the lien holders to agree to some discount on what is owed on the loan, in exchange for getting the property off of their books.

Neither of these property types ensures that the buyer is getting a “bargain”.  In fact, the best “deal” that I’ve seen in the past 6 months was in Lafayette where an out-of-area agent SUBSTANTIALLY  under-priced a property that garnered 14 offers.  Even with the over-bids, the property sold for a minimum of 15-20% below market value.

In most cases, foreclosure buyers are purchasing “as is”.  In other words. its the old Latin saying of “caveat emptor”… buyer beware. Since the bank has never “lived” in the property, their disclosure obligations are limited to any knowledge they may have of the property, and they have no duty to disclose knowledge that may reside with the former owner-occupants.  To cut to the bottom line, a foreclosure buyer will need to depend solely upon what is discovered via inspections.  There are numerous precautions about buying “as is”, and they should be factored into the risk of buying a property on this basis.  What appears as a “deal”, may not be.

Short sales are another interesting item in today’s market.  Many of the homes being offered on this basis have more than one lien holder.  Both must agree on what they will respectively accept upon sale, and that agreement is NOT a foregone conclusion. Recently, there was a $2M+ home on the market in Lafayette via a short sale.  An offer was received in the low $2M range, but the lien holders could not reach agreement on the sale and their respective allocation of proceeds.  As a result, the property is now in foreclosure and will probably garner far less when it is finally sold.

You’ll sometimes see the price on short sale properties move up and down as offers are received on the property and rejected, thus prompting the listing agent to try and “signal” what the lien holders will accept.  Another $2M+ home from our Lafayette real estate market closed recently after months of being on-market and having the price adjusted up and down numerous times before an acceptable offer was received.  In the end analysis, I think the home sold at fair market value and no “bargain” was had by the buyer.

So, if you start down the road of seeking a “bargain” with a short sale or foreclosure property, do it with “eyes wide open”.  It’s not a recipe for instant equity gain, and there are inherent risks and frustrations in the process.  Never give up your right to inspections, and make sure you are choosing quality inspectors, engineers, etc.  If you see yourself as a “control person”, then buying a bank-owned property is probably not for you.  The bank will control the process, and to them, you’ll just be a slip of paper in a big stack. Most times, your best “deal” is buying a quality property from the “regular” market in a quality location that will be in high demand when you eventually seek to sell it.  From what I’ve seen thus far in our Lamorinda real estate market, most of those “deals” aren’t within the foreclosure or short sale pool.

2 thoughts on “Lamorinda Foreclosures, Short Sales, and the Perils of of Buying “As Is”…

  • lamorindalover
    March 10, 2010

    just wondering…
    which property are you referring to with the out of town agent that sold for a 15-20% discount with 14 offers? very curious…

    thanks, and keep up the strong work!

    • March 10, 2010

      Thanks for the compliment. In order to avoid the small risk that someone might feel as though they sold their home for far less than it was worth, or that they were poorly represented by their listing agent, I’ve emailed you the specifics of the transaction directly.

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