“Ready, Fire, Aim” — Short Sale Version

by Ross Kaplan on April 22, 2014

The Role of the BPO (“Broker Price Opinion”)

When someone owes $250k on a home currently worth $200k, arguably they no longer own the home . . . their bank does (or, at the very least, the bank calls the shots).

So, it would seem smart to find out what the bank is willing to sell the home for before putting it on the market.

fire aimBut, that’s not how short sales work.

Rather, first the owner and listing agent set the home’s asking price, and negotiate a sales price with a Buyer.

Step #2?

Forwarding the deal to the lender (or lenders), who then orders what’s called a BPO (“Broker Price Opinion”) — essentially, an appraisal for purposes of a short sale.

“Johnny-Come-Lately”

It’s the BPO that putatively tells the lender(s) what the home’s fair market value is — and whether to ratify the Purchase Agreement that the owner has accepted (which also means writing off a chunk of the owner’s mortgage).

The catch:  many would-be short Sellers initially listed too high, and as a result their homes have languished on the market and suffered serial price reductions.

Meanwhile, the housing market overall has been improving.

By the time the bank orders the BPO, there can be a gap between the home’s now marked-down price and prevailing prices generally.

Short Sale Pros & Cons

What happens then?

The BPO comes in above the negotiated sales price, the bank rejects the deal and/or counters higher, and the frustrated Buyer — who may have waited months to hear from the bank . . . walks.

That’s why short sales are high-risk undertakings, and not for the impatient or faint of heart Buyer.

On the plus side:  when they go through . . . they can be (very) good deals. 

See also, “Short Sale Scuttlebutt:  Odds of Success Now Decreasing“; “Perils of Overpricing Even (Especially) in a Rising Market”; “Short Sale Denial, Short Sale Semantics”; and “Trying to Get Buyers to Bite on Short Sales (Cont.).”

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Child Issues (Allergies) . . . or House Issue(s)?

by Ross Kaplan on April 21, 2014

Seller Disclosure Yellow Flags

“Because of the extreme allergies of the seller’s daughter, PLEASE no food or drink in the home during showings.”

–Agent Remarks, MLS

When I showed the Golden Valley home with the disclosure above last year, my “Realtor antennae” immediately went off.

yellow_flagThat’s because I knew the Seller had been in the home a relatively short time, and had extensively remodeled the home prior to moving in (the home had been seriously neglected by a previous owner, and in need of major rehab).

I shared my concerns with my Buyer, who ultimately bought another home in a location they preferred.

(Conspicuously) Odd Showing Instructions

So, what happened to the home with the allergic child?

Someone else bought it, and — according to my sources — ultimately had to do extensive mold remediation after moving in.

No word on whether they pursued the Seller for any disclosure-related issues.

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“Are YOU Doing an Open Today??”

by Ross Kaplan on April 20, 2014

Wrestling With Realtor Guilt

Just like it’s always a good time to buy, some Realtors (and Brokers :-) ) say it’s always a good time to hold an open (house, that is).

Like today, Easter Sunday.  See, “Open Houses on Easter Sunday.”

closedI disagree.

Realtors need down time and family time, too (and dare I say, “spiritual time”).

As for any Realtors who feel strongly otherwise, here’s how to stop them in their tracks:  ask them, “are YOU doing an open today??”

That is, if they’re around:  when I got to the Edina Realty-City Lakes office a few minutes ago (almost noon) to do some quick paperwork . . . one other agent (out of 70) was in, and the lights were still off.*

If you’re in the Twin Cities, enjoy the beautiful day!

*For the record, all major real estate offices are closed today.

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May Closings & (Minnesota) Property Taxes

by Ross Kaplan on April 19, 2014

But First . . . a Brief History Lesson

I don’t know about other states — I’m only licensed to sell real estate in Minnesota — but here, residential property taxes are due twice a year:  May 15 and October 15.

May 15Those non-randomly chosen dates stretch back to when Minnesota’s economy — like practically every other state’s — was agrarian-based.

The two times a year farmers predictably had money were in the Spring, before they’d planted; and in the Fall, after they’d harvested.

Tax collectors — no dummies about such things — realized that those were the best times to dun its citizens for property taxes (note:  the May 15 payment covers the first half of the year; the October 15 payment the second half*).

Debits and Credits

Which leaves the more contemporary question, “if you’re selling your house in early (or late) May, do you pay the first half property taxes?”

The short answer (or at least mine) is, it depends on whether the Buyer’s lender is escrowing (collecting in advance) for it.

October15That’s usually resolved by a quick call to the Buyer’s closing company.

Generally, though, the safe guidance is to tell Sellers closing before May 15 to pay their first half property taxes, those closing after . . . not to.

Settling Up at Closing

Either way, the federal closing statement (called “the HUD-1″) should reflect a pro rata adjustment between the Buyer and Seller.

If the Seller paid the first half taxes, they’ll get a credit for the May – June 30 portion corresponding to the new owner’s time in the home.

If the Buyer escrowed the property taxes, the Seller’s net proceeds will be debited (subtracted) for the interval between January 1 and the May closing, when the Seller still owned the home.

*Calculating pro rata property taxes for closings on (or close) to June 30 and December 31 is easy:  they should be zero (or very small).

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Open Houses on Easter Sunday

April 18, 2014

The Case For — and Against In a microcosm, the considerations for doing an open house on Easter Sunday are the same as for deciding whether to list a home during a traditionally slow time of the year (like around the holidays). Here’s how the arguments shape up: Pros: –Not much competition from other open […]

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The Significance of “Saved” Searches on MLS

April 18, 2014

Liking the House . . . But Not the Price What do Buyers today do when they like a home — but not the price?  (ditto for their agents). They save the search on MLS. That way, they immediately know if/when there’s a price reduction. See, “Who’s Watching the Listing?” “The Ayes Eyes Have It” […]

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Guess Which Neighborhood — And How Much

April 18, 2014

Test your knowledge of the Twin Cities housing market, and answer the following multiple choice question: Where is the to-be-built home pictured above and below located — and what is the asking price? A. Edina’s South Harriet Park neighborhood; asking price: $1.2 million. B. Edina’s Morningside neighborhood; asking price:  $875k. C. Between Diamond Lake and […]

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“Realty Alliance Sales Award”

April 18, 2014

Top 1% of North America Realtors I confess:  I regard (at least some) sales awards the way I do compliments:  you wonder what the ulterior motive is. In the case of sales honors, they’re often quickly followed by a solicitation to market said award, either by licensing it, advertising it*, or sometimes literally just framing […]

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