• What is the difference between “short sale,” “REO” and “foreclosure”?
Foreclosures, short sales and real-estate-owned (REOs) are all distressed sales but are different from each other.
A property in foreclosure means a notice of default has been filed in the public records. The owner has stopped making mortgage payments and the lender has given notice that unless payments are brought up to date, it will sell the property to the highest bidder.
Lenders can foreclose for other reasons, but the most common is when a borrower is at least two payments in arrears. If the homeowner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain period has passed is to try to auction the property at a public sale.
Not all homes that fall into foreclosure go to public sale because owners have the right to make up back payments up to a point; the time varies from state to state.
A short sale is an arrangement with your lender whereby they allow you to sell the property for less than the amount of the current mortgage. Under a short sale, a lender must agree to accept less than the amount that is owed on the property.
Potential buyers are negotiating a deal with the existing lender to take less than what the lender is owed and the lender is motivated to do so in order to avoid dealing with the cost and complications of a foreclosure. The short sale process can take longer than a traditional real estate transaction.
REOs, or Real Estate Owned, properties are sold through a foreclosure auction and its owner usually owes more to the lender than the market value of the property itself. This is often a barrier to selling the property, and sometimes such foreclosure auctions do not draw any bidders. The title reverts to the financial institution holding the mortgage or lien.
After the bank takes possession of the property, the mortgage loan disappears and the financial institution deals with any items owed by the prior borrower, such as homeowner association fees. The financial institution also tries to get the IRS to remove any tax liens that might exist against the property. The current owners are usually evicted and often damages are repaired to make the property more attractive to potential buyers.
Buyers of distressed properties are advised to seek the advice of a financial and/or legal professional.
• As a first-time buyer, what do I need to know?
Here are 10 rules to follow when buying a home:
1. Stay put once you buy. Commit yourself to your new home for at least a couple of years before making your next move.
2. Money matters. If you are considering a mortgage, shore up your credit and get a copy of your credit report.
3. Get pre-approved. Save yourself the time and grief of looking at houses you cannot afford.
4. Determine how large your mortgage can be. Explore different loan options to determine what is best for you.
5. Decide what (and where) you want to buy. Prioritize your needs (location, schools, amenities).
6. Consider your resale value. For example, even if you do not have school-aged kids, proximity to a strong school district is a good thing.
7. Do your homework. Make a bid based on sales trends of similar homes in the neighborhood.
8. Calculate the hidden costs. Property taxes, insurance, maintenance and association fees can affect your budget over time.
9. Don’t be house poor. Double and triple check to be sure you have not maxed yourself out on the cost of your home and left nothing for maintenance, insurance and taxes.
10. Get help. Consider working with a REALTOR and professional lender to get the most for your money. It pays to have someone helping to look out for your best interests.
• How do I set a realistic “asking price” for my property?
Establishing a realistic asking price for your property is the foundation of a successful sale. Two of the important features of a property listed for sale are price and location, with price being the easiest to change.
On overpriced property is unlikely to sell. In fact, it will help sell other properties on the market that are in competition with yours. On the other hand, a low asking price may create a quick sale, but it will also give you little room for negotiation and may deprive you of the your property’s full market value.
Determining the best listing price for your property involves the evaluation of comparable properties in the local area currently on the market and those that have recently been sold. Current market conditions, financing availability, interest rates and other economic factors also need to be considered.
The Kaua‘i Board of Realtors has access to Hawai‘i Information Services Comparative Market Analysis Feature, which provides all of the available property data to assist you in determining the realistic asking price for your property.
(The National Association of Realtors provided some of response information).
• The Kauai Board of Realtors is a nonprofit organization comprised of 700 Realtors and associates from the bank, mortgage and escrow industry. The board answers reader questions twice a month in the Business section. For more information, visit www.kauai-realtor.com