There are very few short sales in the Washington DC and  Bethesda real estate market compared to other parts of the US but they do come along on occasion.  However, in the coming year, the market is expected to see increased short sale listings throughout the country.  In 2011, short sales were in short supply due to the robot-signing legal issues but now the banks have settled with the Federal government so they are finally loosening up their tight grip on the inventory and simplifying the process somewhat in order to encourage buyers and agents to make offers.  Understand, however, that if you are thinking about trying to purchase a short sale assuming you can find one, it is a very different type of sale than the traditional resale model.  There could be several parties involved and issues that are unknown to the buyer and buyer’s agent can affect the outcome of the final transaction. Short sales are subject to third-party-approval by the lenders/lienholders so the path, timing and outcome can be completely unpredictable.

As an extreme example, I personally represented the buyer in a short-sale transaction that went on for months and the bank insisted on negotiating a sales price at the last minute that exceeded the ratified contract amount and the appraisal value by 5% so the buyer would have been paying ABOVE the ‘retail’ market value.  This was an astonishing eye-opener about how illogical the short sale process can be depending on who is handling the transaction for the lender.   In this case, there were two lienholders who had to agree on the terms and the one in the second position insisted on receiving a certain amount that ended up killing the deal.

Short sale approvals usually take approximately 60-90 days from ratified contract plus 30 days to closing.

The many layers of getting a short sale approved typically includes the mortgage insurer, an end investor  like Fannie Mae or Freddie Mac as well as the loan servicer, which means it has to go through three different processes and a fourth if there is an additional lienholder from a second trust etc.   Buyers need to be prepared to wait at least 60-90 days for an approval and then another 30 days to go to settlement.  Banks are promising to shorten the timelines but all you need is one slow party in the mix to tie up the entire process.

Banks expect to sell for a slight discount from market value

The bank will usually be willing to negotiate from the list price (assuming they have already bought in to the market value), but will not reduce the price dramatically.  Some experts suggest that short sales are typically 10-25% under market value whereas REO (foreclosed properties) are generally discounted much deeper. In January of 2012, a home sold via short sale sold at a 21 percent discount on average nationwide compared to the average price of a non-distressed home, according to RealtyTrac.  So buyers  may be able to get a reasonable deal on a short sale, though it will not be, in most cases, as much of a deal as on an REO foreclosed property.   Plus short sales are typically sold in better condition than an REO so buyers of foreclosed homes can look forward to major renovations and repairs in most cases.

Short sales are very challenging for the parties so agents on both sides need to understand the process and be prepared to work diligently

With this type of transaction it takes a very experienced agent on the listing side as well as the buying side.  Both the buying and listing agent need to have ample experience dealing with these types of transactions, or buyers can be tied up in a contract for months that never gets to settlement. There are several different types of short sale processes and each bank is different so it takes a real professional to keep the transaction on target.

Most short sale homes are sold strictly “As Is”

Although there are some exceptions to this rule, generally short sales are sold “as-is” and no repairs will be made … period.  In fact, the bank will often require both the buyer and the seller to sign an addendum that states the fact that it is being sold in ‘as is condition’.

These are just a few facts for buyers who are considering the purchase of a short sale.  Those who have the patience  may be able to get a great home at a discount but be prepared for delays and potential disappointment.

For anyone who is considering the purchase of one of our wonderful homes for sale in Bethesda or anywhere else in the US, and even those  of you who own but have not bought a home recently … it can be somewhat to very overwhelming trying to understand the entire process. The answers to questions about how to go about owning Bethesda real estate that were once easy to answer are more complex and convoluted these days given the various rate and financing plans, how credit scores affect your interest rates and eligibility, and so on.  Simply asking … how much can I afford and how much down payment am I going to need results in a wide range of answers.

These and other important questions are presented in simple terms in the following infographic that was provided by the lender The Provident Bank of NJ.  This “Path to Owning a Home” lays out in simple steps the various stages in the process of buying a home as well as takes into account several key things to consider as you begin the path toward becoming a homeowner. These steps are based on a pretty typical scenario. However, if a potential buyer were to have cash and assets in addition to annual income, of course that person could qualify for a higher loan amount than without additional assets, etc.

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How is the Bethesda real estate market and surrounding areas currently doing?  Just ask some of the leading economists about the current state of the real estate market and where it is heading.  According to the National Association of Realtors (NAR) Existing Sales Report released last week. sales were down 2.6% from the previous month. However, the monthly variations are not what determines where the market is going. In the same report, NAR also explained that sales WERE UP 5.2% over last March’s numbers. When assessing the direction of the markets, the experts consider the key underlying data that truly determines where the market will be heading over the course of the next several months.

Here are the most recent conclusions of several leading housing economists..

Paul Diggle, property economist, Capital Economics

“March’s decline in existing home sales probably reflects the normal month by month volatility rather than renewed underlying weakness. The increase in households’ confidence in the outlook for the housing market, coupled with a gradual improvement in the pace of the economic recovery, should drive a rise in home sales later this year….It is possible that the pattern within the quarter has been driven by the weather, with falls in the most recent two months reflecting a degree of payback after January’s gain.” 

Doug Duncan, chief economist, Fannie Mae

“Conditions are coming together to encourage people to want to buy homes. Americans’ rental price expectations for the next year continue to rise, reaching their record high level for our survey this month. With an increasing share of consumers expecting higher mortgage rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that homeownership is a more compelling housing choice.”

Celia Chen, senior director of housing economics, Moody’s

“The residential property market is recovering, as the factors underlying demand and supply strengthen. Even after accounting for unusual seasonal patterns brought on by the unusually warm winter, conditions have not been this strong since the government ended homebuyer tax credits in 2010.”

Mark Vitner, senior economist, Wells Fargo

“Existing home sales dropped 2.6 percent, but are up 5.2 percent from a year ago. While existing sales are down for the second consecutive month, we are likely continuing to see payback from increases earlier this year. That said, we could see one more month of disappointing data, but we still contend the recent declines are not indicative of the trend. Stabilization will become more apparent once we return to normal weather.”

Mark Fleming, chief economist, CoreLogic

“Since the peak in home prices, mortgages rates have declined and affordability has risen dramatically. Housing affordability is at levels not seen since prior to the early 1990s …While real estate professionals often say that “now is a good time to buy,” it is clear today that April 2006 was probably not a good time to buy, while now may well be the time.”

Investing in the housing market was once practically a no brainer. Through the downturn, however, many of the fixed  assumptions about housing — that property values would  always rise and equity would naturally grow — became variable, leaving many consumers questioning the extent to which the real estate market was a good investment option for them, or if now was the time to purchase that new home they have always wanted. It also opened the door to years of negative housing headlines in the media, some of which continue today.The reality, however, is that the indicators we examine to determine the health of the housing market are gaining  momentum. The employment picture is improving, consumer  confidence is increasing, mortgage rates are low andhome prices in much of the Mid-Atlantic region have stabilized. These conditions may add up to opportunity, which is why so many qualified buyers, sellers and  investors are looking to evaluate their own equations in the context of the market as it exists right now.

Still, we’re finding that although  the recovery is well under way in  many regions, the mainstream  media has been somewhat slow in reporting the full story. A home purchase for most of us is, first and foremost, a place to live, raise a family and be part of a community. But it’s also an investment that requires  careful consideration as it offers an opportunity to build long-term equity. Being able to read between the headlines may present a  homeownership opportunity unlike any we have seen for  generations, so it’s important to recognize the headlines that  support thegreen sprouts we’re experiencing in the economy and in the housing market.

THE ECONOMY IS GROWING

In the early months of the year, we’ve seen consumer confidence gain strength and reach levels we haven’t seen for some time. Improvement in the job market is the primary driver in boosting consumer confidence, and we’re likely to see an upward trend as companies continue to expand and add more people to the payroll.

A recent Associated Press survey of leading economists points out that experts believe the unemployment rate will fall from its  current level to 8 percent by this fall, and will likely dip even more by the end of 2013.

Since last summer, the U.S. Labor Department reports that  employers have added more than 1 million workers to their  rosters. The economy is showing green sprouts in other areas as well — industrial output jumped in the early part of the year, car sales are booming and many experts agree that the housing  market, in many parts of the country, has turned the corner.

HOME PRICES ARE RISING IN SOME AREAS

Most of the time, when we read headlines about sinking home values, we’re absorbing national numbers that incorporate the hardest-hit markets in the country. The reality is that home  prices in many areas of the Mid-Atlantic  region have seen prices stabilize —  and even increase in some areas.

To get a clear picture of home prices in your market, it’s best to evaluate  local-level data. At Long & Foster,  we believe that better market data  results in better buying and selling  decisions, which is why we provide hundreds of publicly-available reports each month to take housing data down to county and neighborhood levels. A professional  Realtor® can provide a detailed assessment for your home or one you are considering buying.

NVENTORY IS AT MULTI-YEAR LOWS

Throughout much of the Mid-Atlantic region, buyers who have perceptions of the housing market based on national headlines and reports are finding themselves facing  an unanticipated situation — a narrow selection of  inventory from which to choose. All of the major  housing markets in the Mid-Atlantic are currently experiencing  lower inventory levels than we’ve seen in at least two years — longer in some markets.

For people who have been putting off selling their homes for an opportunity to move up to a bigger or nicer house, the current  situation may present a good reason to reevaluate their options. Currently, many sellers can offer their homes to willing buyers  in the market and move up to homes while prices are still  moderate, but this window of opportunity may be quickly closing as the recovery takes a firm hold.

RATES WILL NOT STAY THIS LOW FOREVER

The Bethesda real estate market is in full swing this Spring and homes are selling fast and furious in many areas.    More and more experts are weighing in with positive projections about the national real estate market for 2012.   Our local area continues to outpace the nation and median prices are starting to climb in certain neighborhoods.   Historic interest rates are attracting buyers as consumer confidence rises.   Read what some of the national experts have to say …

Jamie Dimon, JPMorgan Chase CEO

“I believe we’re very close to the inflection point. People look at prices that are still coming down but all the other signs are flashing green… You could come up with a pretty bullish case (for housing).“

Frank Nothaft, Freddie Mac chief economist

“Even the housing market is showing some signs of shaking off the depression-like conditions that have plagued it for much of the past few years.” 

Goldman Sachs Group

“Stabilization in U.S. housing fundamentals is creating an attractive investment opportunity. Many of the ingredients are in place for continued improvement in housing.”

Lawrence Yun, NAR chief economist

“If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”

However, upward pressure on rates that is expected to continue for the foreseeable future may present a near-term opportunity to take action on a housing-related decision before inching rates make a significant impact on your monthly payments. As this chart provided by the Mortgage Bankers Association highlights, qualified buyers have a near-term opportunity to take advantage of current rates before the projected increases.

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