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You may have called on a home for sale on the Monterey Peninsula by now and been told it is a “Short Sale” or a REO property or a Foreclosure.  Well, a short sale is a home where the current owner owes more on the loan than he/she can sell it for in the current market. Rather than let the home go into foreclosure, they try to negotiate with the bank to take less than the full amount of the loan.

You may wonder why the heck would the bank agree to this?  The bank does not want the property back. They may already have a number of foreclosed homes.  Agreeing to a short sale may be better for them financially than taking the home back thru the foreclosure process.  If the home is listed, the agent will try to negotiate with the bank on the sellers behalf. In some cases (more often now) a third party will negotiate with the bank.  This person may have experience negotiating with the bank so getting a short sale approved is then more likely.

If you are looking to buy - short sales can be frustrating, but they can also be an opportunity.  Look for short sales where there is a professional negotiator handling the process.  And look for properties that already have approval for a short sale from the bank. 

An REO property in many cases can be easier than a short sale.  REO means Real Estate Owned - as in owned by the bank. The property has already gone thru the foreclosure process.  The banks want to sell these properties as fast as possible.  In Monterey County the highest number of foreclosure, or Bank owned properties are in Salinas and Seaside, CA.  There will be more paper work involved in the process, but buying an REO property can be a good investment.

I love it when the buyer/flipper tells you their budget.  It looks like they pick the amount they want to spend.  Take for instance the one with the “Not So Silent Partner”.  They decided they should/would spend $25,000.  First huge mistake they did not get a pest control & Structural report.  They bought a foreclosed property owned by bank and bought it “as is”.  Well buying it “as is” doesn’t mean you close your eyes and just hope everything is ok! Hey if there are more problems you can use that to help you get a better price.

They ran into a mold problem among other things. This would have been noted on an inspection.  Just walk thru yourself and look carefully and they should have seen the mold.  Next if you see a significant amount of mold, wear a mask or other breathing apparatus.  Open the windows, bring in an air purifier.  This buyer/flipper got sick and lost a number of days work.

There are better things to use than a solution of bleach.  Go to a hardware store and get something specifically for mildew removal.  The mildew came back, the future buyers didn’t!

Get estimates of all major repairs and renovations.  Then it is not a big surprise to find out your new flooring is going to cost you $13,000!!  That’s a big clue you won’t be able to stay within a $25,000 budget.  Get estimates for appliances.  Get estimates for all major building materials.  Total it all up - including labor and that’s the start of your budget. I would then immediately add on at least another 10% for unexpected expenses.  Do the same with your estimate of time. If you think it’s going to take 60 days, add another 10% or 6 more days to your time line.

The guy had it half right when he said he was going to “turn & burn”.  I’m sure the investor is still feeling that burn.  I feel alot of sympathy for that investor!  Mr. Flipper turned down a less than full price offer.  He has time invested but the investor has money and is probably the one making the payments each month it isn’t sold.

At the close of this show, the home had been on the market several months with no other offers.  Mr. Flipper started another house flip.   Sure feel sorry for that investor - the previous one and the new one!