first time home buyers

First Time Homebuyers Going to Extremes Part Two: Getting Lucky at an REDC Auction

After months of looking for a property for my client, who was looking for a condo in the San Fernando Valley, we were both starting to lose hope in making the impending deadline for receiving federal first time homebuyer assistance.   When his purchase offers were not completely ignored by REO listing agents (despite the fact that he was offering well above asking price), they were rejected in favor of all cash offers.   We learned that his favorite property (which had been listed on the MLS) was put “on hold” by the listing agent, after he had already made an above-asking price offer on the property.   A little investigation revealed that the property was now due to be sold at an REDC auction in early August.  I had hoped that the bank would still consider our offer during the 3 weeks we had left till the auction; for some inscrutable reason, this didn’t happen, and the Bank never bothered to even respond to the offer.

So we went to the auction,  after having made sure we had done all the preliminary requirements posted on the auction website (pre-registration; pre-viewing the properties, etc.)  Arriving at 8 a.m. at the LA convention center to the sound of some blaring pop music, there was a carnival-like atmosphere, missing only popcorn and pompom girls.  We took our seats and waited.  Under the terms of this particular auction, some properties are cash only, but most can be financed. The properties are flashed on a big screen.  You need to have a good strategy for the property you want to bid on: once you get the bid, you are generally “stuck” with the property or you’ll lose your earnest deposit.

Before the auction started, there was a quick rehearsal of the bidding process: a fast-paced process with the auctioneer raising the bids as fast as he can.  Once the highest bid is reached, the auctioneer will either acknowledge that the bid is accepted, “closed”; or “subject to”.  “Closed” means that since the bid didn’t meet the (hidden) reserve price, it is rejected.  “Subject to” is a kind of limbo — it means that the bid will be submitted to the seller who has up to two weeks to accept, reject, or counter the bid.

When our property came on the screen, we were both feeling a bit nervous; but my client was able to ultimately win the bidding war!  Better yet, the deal was accepted on the spot (and was not “subject to.”)  We were then ushered into a back room where we had to pass the approval process, and were able to consult with three different lenders on site.  At that particular auction, REDC wants you to take the conventional loan route, since the properties are foreclosures and might not pass the FHA inspection.  Additionally, the escrow has to close in 45 days, and there is a penalty of $150 each day for missing the closing escrow date.  Once we got the green light from the banking tables, we were rushed to the escrow table where you pretty much sign and initial paperwork until your hand is aching!  Forget about any contingencies (e.g., loan, inspection, etc.) and you have to pay many costs that a seller would normally pay for in a non-auction context.  Further, you are committed — no matter what — so make sure you have done all the prep work well in advance.

In the end, my buyer had to go to extreme measures to secure a property — the advantage to him of the REDC auction was that the property went to the highest bidder, and the trump card normally enjoyed by cash buyers disappeared.

Finally, the question on everyone’s lips: did my client score a “deal” at the auction?  In purely financial terms, the answer is “no”.   With all of the competition, he was forced to pay pretty much the market price.   (On top of the bid price buyers are subject to an additional 5% or $2,500, whichever is highest and the buyer is on the hook for all inspection costs and pretty much all closing costs!)  However, my buyer was able to compete on par with every other bidder, saved himself months of frustration, and scored his absolute no. 1 favorite property.  All in all, it was a good deal for him, under the circumstances.  Now he can move forward and start thinking about what furniture to buy with his tax credit!

Do you need a Realtor® to purchase a property at a REDC auction?  If you can find someone willing to help you (the commissions are razor thin), you will likely be better off, as your Realtor® will be able to provide with some comparative market analysis for each property you have in mind, and can help you devise a strategy so that you don’t get lost in the somewhat confusing process.   (In addition, should you chose to use a Realtor®, you will be entitled to the C.A.R. H.A.F. Mortgage Protection Program).

first time home buyers

Where Cash is King, First Time Homebuyers are Going To Extremes

In order to secure their first home in advance of the impending deadline for receiving federal first time homebuyer assistance, San Fernando Valley buyers are being forced to take extreme measures.  Why?   The vast majority of suitable (i.e., affordable) properties are bank owned and are receiving many, many offers.  Worse, a large number of these properties is ultimately being sold to all-cash offers from investors.   Few first time homebuyers can compete in the dog-eat-dog world of all cash offers.

I recently was helping a first time home buyer looking for an affordable condo in the San Fernando Valley.  My buyer had a FICO score over 750, steady employment, no loans (!), and downpayment money in the bank; he is technically the perfect candidate the Government had in mind when they allowed FHA loans for be written with as little as 3.5% down.
While the tax credit and FHA financing news is good, the reality on the ground is grim for first time homebuyers.  My buyer was stymied in his initial attempts to secure a property using FHA financing for several reasons:

- As noted, most of the REO properties he wrote an offer on ended up selling to cash buyers, or at least those with substantial down payments.
- The FHA guidelines are pretty strict when it comes to appraising the property.  The property has to be in decent shape, and, for instance, an illegally converted garage is a big “no-no”.
- Due to recently changed appraisal guidelines, appraisals are tending to be the conservative side, which means if you bid high (with multiple offers, you pretty much have to) and your offer is accepted (lucky you!), deals can fall by the wayside.

At the end of the day, my buyer had to go to an REDC auction.  More about that adventure in my next post.

first time home buyers

Number of Woodland Hills Homes In Escrow up 55% over last year

It appears that home buyers have finally been coming out of the woodwork lately. Looking only at single family detached homes in Woodland Hills, the number of properties going into escrow has been leaping recently. The latest figures from SROAR comparing May 08 to May 09, show an increase of 55% of such homes going into escrow. I would not be surprised to see this trend continue, at least if the interest rates stay relatively low (and they still are, even after the latest uptick).

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