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Short Sale: Often referred to as a sale when the buyer is upside down…but what it really means is that the net proceeds (after commissions, escrow, etc) from the sale of the home are not sufficient to pay off the loan balance(s). The bank(s) must consent and approve these types of transactions. They can often take 90 days or more, depending on the bank. If you are the buyer, be prepared to be patient. Banks are not efficient participants in short sales. Some are worse than others and have well earned reputations as being very, very s-l-o-w.

Foreclosure/REO: A property owned by the bank and now being sold by the bank. It was obtained by the bank through foreclosure or a Deed in Lieu of foreclosure. Generally these types of sales require special addendums. Often the bank will require the buyer to engage in verbal counter offers and to sign the banks addendum paperwork before the bank/seller will sign or confirm anything in writing (a you go first approach). These deals often are structured “as-is”. See my last blog post for a discussion of “as-is”.

Standard Sale/No special conditions: Real estate the way it used to be sold. No bank consent or ownership. Just a standard sale. Make an offer, its accepted or rejected, and move forward. Yes, despite the media hype, there are still plenty of these types of sales. Those who bought before 2006 tend to have equity. In the MLS listing, look for the word “none” under “special conditions”. If so, you’ve got a standard sale.

Probate. This is a sale that is triggered by the death of the owner. Depending on if the deceased owner had a will and what that will said, it may require court approval. This is typically a relatively simple process. You submit an offer (just like on any other transaction) but acceptance may be conditioned on probate court approval. This can often be obtained rather quickly and painlessly…but there are always exceptions.

Relocation/Relo sale: This type of sale occurs when an employee has been relocated by his employer to a new area and the employer offers a relocation package or relocation benefits. The employer uses the services of a relocation company to facilitate the sale of the employee’s home. The relocation company may offer an incentive (equal to a small percentage of the purchase price) if the employee arranges for the sale of the property (hires the real estate agent, obtains an offer) and sells it within a certain, limited time frame. If the sale does not occur during this incentive time frame, the relocation company handles the sale. This type of sale may require you to sign additional paperwork, but otherwise it will seem like a standard sale.

Want info on another type of sale? Just drop an email, call or post a comment.

Happy home shopping.

-m

This four letter, two word phrase only takes up a tiny bit of space on the real estate purchase contract but it carries a big legal punch. It generally means you, as the buyer, take or purchase the property in its current condition—as it currently exists. It also typically means that the seller is not providing any representations or guarantees about the property. In simple terms, you get what you get and the burden and risk (with some exception) is on you to figure out what you are getting.

Most foreclosures, also known in the industry as REOs or Real Estate Owned, are sold by the bank to the buyer “as-is”. Why? The bank usually has very limited knowledge about the property. Unlike a traditional home sale where the seller knows about the history of the home (what repairs were done, what needs to be done), the bank in a foreclosure has acquired the property as a result of a default under the loan. The bank does not know the history of the property.

So how does the as-is play out? In a traditional (non-foreclosure, non-short sale) transaction, after the buyer performs the home inspection, the buyer has the opportunity to submit to the seller a list of requested repairs (thoughtfully called, the Request for Repairs). The seller may make some or all of the repairs and the buyer has the opportunity to either move forward or reject the deal based on the seller’s response to the request.

In a foreclosure (and often in an “as-is” short sale), the buyer also performs a home inspection. However, since the property is “as-is” the buyer does not submit the Request for Repairs. At this point, at least theoretically, the buyer may either move forward or reject the deal based on the results of the inspection. By stating that the sale is “as-is” the bank is taking the position of “take it or leave it.”

Are there practical exceptions to “as-is”? In my experience, absolutely! One is termite. Since the buyer’s lender will require that the home have a termite clearance before escrow can close, the seller is typically willing to do the Section 1 (active infestation) termite work—or at least to provide a credit for a portion of the work. I have found termite repair and treatment is the most common exception to “as-is”.

Two other exceptions are health and safety items (think things like mold) and lender requested repairs. When a home inspection uncovers a potentially serious health or safety hazard, I have been able to convince the bank the make these repairs. If the lender is hesitant, it can be helpful to remind them that if they do not make the repair, they will be legally required to disclose it to the next buyer (despite the “as-is” clause, the bank does need to disclose what it does know). Trust me, the bank does not want have to disclose something like mold to the next buyer that comes along.

Although this article is not a comprehensive treatment on the implications of the “as-is” clause, it does give you an idea of what you might expect to encounter in an “as-is” foreclosure purchase. If you want more detailed information or have any questions, please give me a call or drop me an email.

-m