You can either catch it on KIRO 97.3 or 770AM this weekend, or listen to their show below or directly via this MP3 file.  You can get every episode of the GeekWire podcast using this RSS feed, by subscribing in iTunes or Zune.

Evaluating a home that is being sold at a foreclosure auction can be difficult, and often requires guesswork. Remember that up until the foreclosure auction, the home is still owned by the individual who is being foreclosed on. The owner controls access to the home, and as you might guess, there may be little or no incentive to allow people into their home. People facing foreclosure may be ashamed, frightened or even angry about their situation.

1. Home is vacant – A home may be abandoned prior to the auction, sometimes just a few days before, but other times may sit vacant for months. If it has been vacant for a long time, the home may be re-secured by the bank who holds the mortgage to protect their investment. Evaluating a vacant home generally involves peeking in windows to get a glimpse of the interior. You may also try to contact any companies that have posted notices on the door.
2. Home is occupied - Can you see the inside of a home that is occupied? It really depends, but in most cases the answer is no.
1. Maybe the home is currently listed as a short sale or was very recently listed. If it remains listed, your agent should be able to show the home according to showing instructions in the MLS. If it was recently listed, a call to the previous listing agent may gain you access, or at a minimum will give you better insight into the actual condition of the property. Previous listing photos can also be a great help in evaluating the potential condition of the interior.
2. If the home has not recently been listed for sale, it is unlikely that there are any photos of the interior, and it is also unlikely that the owners are going to let anyone inside. Folks facing foreclosure are not incented to have their home taken away and aren’t going to take kindly to random knocks on their door. You should be cautious about your own safety before you go trespassing on someone else’s property to attempt to see in the windows.

Let’s say that you are satisfied with the exterior condition of the home, and have enough data about the interior to be satisfied that the property is in reasonable condition. Property condition isn’t the only risk you face in buying a home at the foreclosure auction. You also need to be aware of the condition of the title. There could be liens and encumbrances on the property that become your problem as the new owner. The mortgage being foreclosed gets extinguished by the auction, as do 2nd or 3rd mortgages underneath that one. However, unpaid property taxes, HOA bills or other liens can become your problem as the new owner. At a foreclosure auction, you will not receive a title insurance policy, so you need to do the title research on your own.

Buying at a foreclosure auction can get you a great deal, but involves a significant amount of risk. The actual condition of the property is known to a limited extent, and you are not going to have the opportunity to formally inspect it. In addition to the unknown condition of the property, there can be nasty surprises on title that become your problem. Properties sell for significantly less at foreclosure because of these risks. The educated buyer will do their best to investigate the risks prior to auction, but recognize that in many situations you are left to an educated guess on what the property actually looks like inside.

When a visitor buzzes from the entry, you pick up this handset to speak to them.

But what if you want to see who’s at the door? Well, just pop open the Jetson’s-style monitor! (That is a mini-CRT that pops out!)

Not only do they have a Hobbit door at the entrance, but you can also live on streets like Rivendell Drive or Brandywine Lane.

However, you’ll notice that the homes are a little larger than typical Hobbit size!

It looks like a good deal

Some banks will price their homes at fair market prices and are willing to be patient to maximize their sale price. Other banks want a quick liquidation and will price the home significantly below market value to drum up multiple offers quickly. If you are watching the market and see a bank-owned home that seems to be a real bargain, chances are that 10 other buyers just had that exact same thought. You are likely to face a competitive bidding situation where the price gets driven back up. If you are going to make an offer, work quickly to get your offer submitted so that you don’t miss out on the opportunity.

When do banks respond to offers?

All of the banks that we have encountered facilitate offers on their homes with an online system. The listing agent for the home will review your documents to make sure all of the requirements are there and will submit the offer to a website, usually summarizing the key terms of price, loan, closing date and seller credits so that the bank can review them quickly. Offers are submitted to these websites on a first-come, first-served basis.

How long it takes a bank to review an offer varies pretty widely. Typically we receive a response back in 1-2 business days, but we’ve seen it as short as 4 hours and as long as a week. Typically there won’t be any action during a weekend, but this is not true in 100% of cases. It is important to realize that banks usually don’t respond to your offer directly. They will often use a 3rd party asset management firm to serve as the middleman, and those folks might occasionally work on a weekend to clear backlogs.

The most important thing to remember is that once a bank accepts an offer, any future offers become irrelevant because they have entered into a binding contract. If the bank choose to send a counteroffer, that also means that the first buyer has a binding opportunity to accept the counter, regardless of how many other offers have appeared in the meantime.

Do I need to be the first offer?

Being quick on your offer can help you be the winning bidder in some, but not all, cases. If your offer is reviewed and accepted quickly, you can preempt other bids, but in most cases, the moment a 2nd offer is received, the bank will send out a “call for highest and best” to all previous bidders. Let’s look at two examples.

Example 1

• Bidder #1 – submits offer at 10:00AM
• Your bid – submitted at 4:30PM
• Bank reviews offers at 4:00PM and accepts bidder #1’s offer, leaving you out of consideration.

Example 2

• Bidder #1 – submits offer at 10:00AM
• Your bid – submitted at 4:30PM
• Bank reviews offers at 9:00AM the next day, sees that there are two offers and issues a request for “highest and best offers” to both parties.

In Example #1, the first bidder wins because they acted quickly and the bank responded quickly. In Example #2, which is more typical, the order of offers received is not relevant because the bank will evaluate both offers before responding.

Call for Highest and Best Offers

Banks are not foolish about competitive bidding scenarios. They know that they have underpriced the home and want to give an opportunity to all bidders to raise their offers. By issuing a request for “highest and best offers” to all competing bidders, they give everyone a chance to revise their bid by a new deadline, usually a day or two later. This also gives more time for even more bidders to come forward.

In this scenario, you are not likely to know anything about the other bids. In fact, if the other agents are cagey about it, they will hold their offers until right before the deadline so that they can’t be shopped against others. It is unnerving, but all you can do is decide on what you feel is fair to pay for the home. Put your best foot forward and hope for the best. Make sure that you hit the deadline named, otherwise your offer may not be considered.

Don’t assume that you are being told the whole story by listing agents

Listing agents who represent hundreds of bank-owned listings often can’t keep all the details straight for every property. They also likely employ a staff of assistants who may be receiving offers and uploading them to bank websites. If your agent was just on the phone with the listing agent who said “we don’t have any offers yet,” that may not be true. One of their assistants may have received and uploaded an offer recently, making it available for the bank to review and accept. In this case, every hour that passes is a chance where you may miss out on the opportunity to bid.

Tips for timing your REO offer

1. Submit your offer as quickly as possible for a REO property that you are interested in. Generally every hour that passes is an hour that someone else can bid and have their offer accepted before yours.
2. The exception to this is when multiple bids have been received and a “call for highest and best offers” has been issued. Banks will not review any offers until that deadline is reached, and it can pay to hold off on submitting yours until the deadline so that it cannot be shopped against other bidders.

Housing prices fluctuate based on a complex mix of job growth, population growth, interest rates and consumer sentiment. Layered on top of that is a large percent of pre-foreclosure and foreclosed inventory. But at the core, it is an exercise of supply and demand. Less buyers than sellers, and prices have to decline in order to spur demand. If the supply of housing shrinks and the buyers are still out there, competition and buyer frustration will eventually drive up prices.

I took an in-depth look at the number of active listings and closed sales in King County for the last 11 years.

Statistics not compiled or published by the Northwest Multiple Listing Service

The top line in this chart represents the number of active home & condo listings in King County each month. You’ll notice that the chart bottoms in December and peaks every summer in an identical pattern every year. The inflation of the bubble is also readily apparent, with suddenly declining inventories in 2004, which remained low until 2007. The burst of the housing bubble is also clearly visible, with a dramatic increase in active listing inventory starting in May 2007. (In hindsight, this all looks pretty obvious, but it took almost another year for the price declines to take hold.)

The bottom line in this chart is the number of closed sales for homes & condos in King County each month. You’ll see that closings climbed to 4000 homes a month during the summer of 2004-2006. Once consumer confidence tanked, the number of homes closed sank to roughly half of those numbers during 2008-2011.

What is most interesting about this graph is the distance between the two lines. During the boom, the number of closings was very close to the number of active listings. Homes would sell as soon as they were put on the market. In 2008, the gap between active listings and closed sales became enormous, with over 16,000 active listings against 2000 closings per month, driving prices lower.

Since the worst of the market in 2008, active inventory has been on a steady decline, with levels now down to where we were in 2007. 2011 also posted some very modest growth in the number of closings. If you have been a buyer in the Seattle area during 2011, the lack of inventory was probably apparent, as homes in popular areas have been harder to come by.

At the moment, we are finally entering a territory where the number of active listings is in better balance with the actual buyer demand. How prices will behave with this diminished supply is not entirely clear at this point. Increased competition for a smaller inventory will put upwards pressure on prices, but that will be counteracted by the distressed property liquidation that is still underway. Both short sales and bank-owned homes will continue to drag on home prices.

Also, it is important to point out that King County is actually a huge market area. It is useful to look at these statistics for the entire county, but recognize that inventory, demand and prices vary considerably throughout the county. Popular urban neighborhoods have fared quite differently than some suburban and rural areas.

The pattern of new listings is remarkably consistent from year to year. There is a spike of new listings in January as the holidays end and the new year begins. New listing volume peaks roughly between the months of May-June of each year, with strong listing activity from March-August in most years. Listing volume gradually declines in September-October and then dramatically tails off in November and bottoms out in December. Looking at the last decade, the number of new listings that come on the market in December is 50-70% lower than the peak activity in May-June.

A few more interesting notes on this chart. You will see a big spike of new listings in March-April 2010 as sellers attempted to take advantage of the home buyer tax credit. The sudden shift downwards from 2008 > 2009 clearly shows the lack of seller enthusiasm for trying to sell their home.

2011 has been particularly slow for new listings, and I anticipate that when December numbers come out, the number of new listings for this month will likely set a decade-long low. Obviously the population has continued to increase in King County during the past decade, so it is a very telling story about how fewer people are currently attempting to sell their homes.

For buyers looking to purchase a bank-owned (REO) property, you need to be aware of contract terms that attempt to make the buyer pay these taxes. While not the norm across the bank-owned homes I have seen, we have seen this from two different banks recently.

The Washington law that governs this excise tax is clear. WAC 458-61A-301 states that “The tax is imposed upon the seller.” In a normal transaction, it is not even a point of negotiation, as it is an expected and customary selling cost borne by the seller in Washington state. However, there are banks out there adding this seemingly innocuous term to their contracts: “Buyer to pay any transfer taxes.” Guess what, if you agree to that on a $300,000 home, your costs have just gone up by $5,340.

Can banks even do this, given the law in our state? Well, most terms of a real estate contract are negotiable, and the state ultimately doesn’t care who pays them, as long as the tax gets paid. If you or your agent are asleep during your negotiation, you can easily get stuck with this tax.

If you are negotiating on the purchase of a bank-owned home, this is one instance to get out your black marker to cross out this term and insist that they change it. Remind the bank that the tax is by law the responsibility of the seller here, which may differ from transfer taxes in other states. The unfortunate part about banks that take this stance is that they may still try to treat the excise tax as a “seller concession” and negotiate less because of it. IMHO, that is not right, but it is what it is, so buyer beware.

One of our favorite neighborhoods in Seattle is Madrona – a quiet neighborhood with classic craftsman homes overlooking Lake Washington. Madrona also has a vibrant business district. This weekend, the Business Owners of Madrona are hosting Very Merry in Madrona – a holiday community event designed to promote local businesses.

In conjunction with this event, local real estate agents are banding together to host open houses for their Madrona listings. This is a great way to sample what living here would be like. There are 14 total open homes. We will have our Madrona listing at 1715 37th Ave open – we invite you to stop by and support local businesses!

Friday, Dec 2 – 4-6 PM
Saturday, Dec 3 - 1-3 PM

3008 E Olive
1433 Madrona Dr.
1110 29th Ave
1715 37th Ave
1412 Grand Ave
1635 34th Ave
1711 Madrona Dr
121 32nd Ave E
3761 E Columbia
603 35th Ave
1710 37th Ave
1555 Grand Ave
3701 E. Marion
3510 E Schubert Pl

Call us at 206-462-6200 if you’d like to tour this home in person.

Visit msnbc.com for breaking news, world news, and news about the economy

1. The scammer finds your home for sale online on any one of hundreds of site. They copy your photos and marketing description.
2. Scammer posts a Craigslist ad using your address and photos, saying that the home is for rent, usually at an eye-popping, unbelievably low rent.
3. Scammer says to contact them via email, claims they are out of the country, and want you to fill out an application and send them a deposit and first month’s rent.
4. Renter believes what they are being told and sends their rental deposit to the out-of-country contact, who takes the money and is never heard from again.

I’ve even heard of this being carried a step further, with a scammer actually meeting someone at the property to collect a deposit, but obviously that is a far riskier scam to involve a local person who can be identified and caught by police. Most of them simply try to get you to send money overseas. I just responded to one, pretending I was a renter, and got the following response.

Thanks for your email and interest in renting my house..I am John Rasmussen  the owner of the house you are making inquiry of…Actually I resided in the house with my family, my wife and my only daughter before and presently we have moved out due to my transfer from my work now in Warsaw,Poland. Presently my house is still available for rent, (rent already includes utilities).More so Now, i am currently in the (West Africa) for an international Christian follower’s crusade..Pls i want you to note that i spent a lot on my property that i want to give to you for rent,so i will solicit for your absolute maintenance of this house and want you to treat it as your own, It is not the money that is the main problem but i want you to keep it tidy all the time so that i will be glad to see it neat when i come for a check up.I also want you to let me have trust in you as i always stand on my word. Me and my wife bought the house when we got married. When we left the state I had a thought of selling the house so I have to look for an agent, after getting one, we got a deal but later my wife advised against that. I reasoned with her and accepted her advise. So I contacted the agent back and requested for my keys and documents. Later we decided to  have the house rent out, we would have give the same agent this job also but the truth of the matter is that the agent would want to handle it professionally and the occupant may not be able to reason along with him later. If you notice, you will discovered that the price we are offering is far below standard price, this is enough for you to know that we are not after the rental fee but the  absolute care for the property. The house include the utilities like Heat, A/C in wall/window, Hydro, cable, Garbage Disposal, Fireplace , Fridge, stove, Dishwasher, Dryer, Breakfast Bar, Dining Table and Sofa Set,Refrigerator,Canopied deck overlooking nature.,internet access e.t.c. because of this reason and more we need a responsible person  that can take very good care of it as we are not after the money , but want it to be clean and for you to take it as if it were yours.

The rent is: $800
Security Deposit: $600
For this 3Bedroom Home.
Pets Allowed:Dogs and Cats.
Available :Available Now for move in.

SO IF YOU ARE REALLY INTERESTED I WILL WANT YOU TO FILL THE RENT APPLICATION FORM BELOW.

RENT APPLICATION FORM.
FIRST NAME:__________?
MIDDLE NAME:__________?
LAST NAME:__________?
PROFESSION:__________?
PHONE:
(CELL)PHONE__________?
(WORK)PHONE__________?
(HOME)PHONE__________?
KIDS_____ (YES/NO), HOW MANY________
PRESENT ADDRESS: _____________________
CITY: _______________
STATE:______________
ZIP CODE: ____________
HOW LONG? ___________IF RENTING
WHY ARE YOU LEAVING__________?
IF THIS HOUSE IS BEING GIVEN TO YOU,
HOW LONG DO YOU INTEND STAYING? ____________?
WHEN DO YOU INTEND MOVING IN?______________?
IF YOU HAVE A PET,
NAME OF PET: _____________?
KIND OF PETS: _____________?
HABITS
DO YOU SMOKE ______________ ?
DO YOU DRINK ______________?
DO YOU WORK LATE NIGHT?____?

Looking forward to hearing from you with all this details so that i can have it in my file in case of issuing the receipt for you and contacting you…Await your urgent reply so that we can discuss on how to get the document and the keys to you,please we are giving you all this based on trust and again i will want you to stick to your words,you know that we have not seen yet and only putting everything into Gods hands,so please do not let us down in this our property and God bless you more as you do this…The house is available for rent at the moment so you are free to move in as soon as you wish to. Feel free to get back to me for more information and arrangements on how to get the keys and other necessary documents delivered to you. The house will be available for rent for a period of 5 years so you have a choice of deciding how long you intend staying there…

How to avoid these Craigslist scams

Selling your home does involve publicizing it broadly online. A home for sale without pictures and a description online is a home that is not going to sell in today’s marketplace. The scammer’s ability to find a picture or description has little to do with whether you post your home on Craigslist or not, as there are literally hundreds, if not thousands, of sites where your home listing will appear.

As a seller, you and your agent must remain diligent. If the home is listed for sale, many rental inquiries will actually be directed toward the legitimate agent. When such an ad is detected, use the tools on Craigslist to flag the post, and visit the Craigslist page about scams for various ways to report it. You can usually get the ad removed quickly.

As a renter, mostly you need to use common sense when renting a home.

1. If the rent looks too good to be true on Craigslist, it is. No one is going to rent a luxury home selling for $900k for $800/month.
2. If the landlord cannot meet you in person to take the application and show you the home in person, be wary. There are legitimate out-of-country owners, but they should be able to have someone local show you the home and take your application. That local representative should be easily contacted and identified in some reputable way, and make sure that you have real contact information for them. A local representative who meets you at the home, but does not have keys to get inside is another red flag. There is no scenario where you should make application or deposits on a Craigslist rental without seeing the interior of the home or apartment.
3. Overseas landlord requests a wire payment or Western Union deposit. Common countries include Nigeria, Romania, UK, Ukraine, Spain, Italy, Netherlands, but it could be anywhere. Once you wire money, it is gone, so be cautious and make sure you are not sending money before actually ensuring that the rental is legit.
4. If you find that the home advertised for rent is also listed for sale, call the local real estate agent to inquire about the rental. The scam will be revealed quickly.

This is one of those topics where the answer differs from state-to-state, as closing procedures and customs vary pretty significantly. We’re in Washington state, so if you live elsewhere, check with local real estate professionals for how it works in your area.

In order to get possession of the home that you are buying, the transaction must be closed. In fact, if you read the standard NWMLS contracts that are used in most transactions, possession of the property transfers to the buyer at 9PM on the closing date, offering some time for the sellers to finish their move-out on closing day. If you close at 4PM, you can receive keys at 9PM.

One of the biggest misconceptions among buyers in Washington is what constitutes closing. Many think that once they give their money to the escrow company and buyer and seller sign their paperwork, they own the home. That’s not the case, as signing and closing are two different events here. Closing means that the seller has delivered the deed to the property to the buyer, and funds are disbursed according to the contract. You won’t get handed the deed, as the other important piece of the process is to let the world now that the sale has occurred so that the property can’t also be sold to someone else. This is done by recording the deed at the county recorder’s office. Closing occurs when the deed is recorded at the county and recording numbers are available. (You can actually watch for this in real time on the King County Recorders site.)

In most instances, signing takes place a day or two before the actual closing, and the additional time is used for final documentation review by lenders. Once the deed (and your mortgage) is recorded, you own the home. If the home is vacant, customarily your agent can pass you the keys at any time after recording. If the seller is in the midst of final move-out, they may take until the possession time in the contract to pass you they keys.

In your contract negotiations, you can agree with the seller for early or late possession. The seller may need an additional day or two to close on their next home and move out, or perhaps the buyer is trying to get early possession to facilitate their own move. In general, we recommend strongly against early or late possession agreements of any sort. Early possession by the buyer can have disastrous consequences if the sale fails. We’ve had multiple clients get the keys a day or two early, move their stuff in and then have their sale fail and have to move out. Sellers in this scenario are faced with the unappetizing prospect of having to evict the buyer. More importantly, you don’t own the home, so what happens if a seller enters the home and takes your stuff? Or what happens in a fire or flood? The seller’s insurance covers the home, but not your belongings. There is a lot of liability to early possession, and we don’t recommend it.

Delayed possession is more common, giving the seller additional time to facilitate their next purchase or move. It does introduce similar sorts of risks, since the home you own is occupied by someone else, and what happens in a disaster? Allowing this is more of a judgment call, based on the seller’s situation. If a seller has lived in the home for many years and you see how they cared for it, there isn’t a high likelihood that they are going to damage it or leave you with an unwelcome surprise, but offering an extended possession time without a formal lease agreement can be a bad idea.

Some home sales may call for a little bit of flexibility in when possession is transferred, but anything beyond a few days should be formalized with a lease agreement to avoid disagreements and clarify liability between the short-term tenant and landlord. Very short-term leases may not have any rent associated with them, but anything beyond a week or two should involve negotiations of rent payments to take care of your holding costs.

Lastly, we’ve seen instances where buyers, in cooperation with their agents, snag a key from the keybox prior to closing and begin moving in or even doing work on the house! Sellers will want to make sure that their agent remains in control of the keys until closing has occurred, as there is no scenario where allowing the buyer’s contractors in the home to do work is a good idea when they don’t own it.

• ACTIVE – The property is actively listed for sale and available for offers. Agents are supposed to change the status within a day when they accept an offer, but occasionally a house may be pending before the status is changed from ACTIVE.
• CONTINGENT – The home has accepted an offer from a buyer that is contingent upon the sale of their home. Because it is not a sure thing, the home remains actively listed and available for offers, as other buyers can submit an offer and potentially bump the first offer if they can’t waive their sale contingency.
• PENDING INSPECTION – The seller has accepted an offer from a buyer and that buyer is still in the “inspection contingency” phase of the process where they are inspecting the house for defects. Inspection results and negotiations do fail on a fairly regular basis, so there is still a reasonable chance that the buyer may back out.
• PENDING – The buyer has cleared the inspection contingency and is proceeding towards sale. There is still a chance that the sale will fail on some other contingency like the buyer’s financing or a review of the HOA, but the percentage of homes that fail once they are pending is fairly low.
• PENDING FEASIBILITY – Similar to Pending Inspection, but most often used for properties that require extensive feasibility studies for future construction. Feasibility studies can take weeks or a year, depending on the scope and complexity of the property. Failure rates for this status are mixed, and you have to have a long attention span to continue watching the property.
• PENDING BACKUP REQUESTED – The seller has an accepted offer for purchase, but is nervous that the current buyer may not follow through. This indicates that the seller would like to have backup offers in hand in case the first buyer backs out. Definitely worth paying attention to these and submit a backup offer when the seller doesn’t believe that the initial buyer will perform.
• PENDING SHORT SALE – A new status that is very similar to Pending Backup Requested, but specifically for short sales. Short sale approval times are quite long, and the failure rate of offers is very high, so this is an indication that the seller is encouraging backup offers in case the current one backs out.

Many of the publicly available websites do show homes in “pending” status, but sometimes the description is more generic than the statuses above. Your agent can help you identify the exact status in the MLS if you are watching a particular property and are interested in being a backup bidder.

Also remember that accepted real estate offers are binding contracts which means that you cannot purchase a home in pending status until the initial buyer backs out for some reason.

We're sorry, but we couldn't find MLS # 282939 in our database. This property may be a new listing or possibly taken off the market. Please check back again.

I recently attended a seminar on short sale properties put on by Chase, where they described the approval process in more detail than most consumers (and their agents) ever think about. The real reasons that it takes so long are that there can be multiple decision makers behind the scenes. Let’s take a look at the main reasons that short sales are so slow.

Seller information packet delays

To sell your home as a short sale, you must apply for it as the seller. You can’t just say “I owe more than I can sell it for, let’s do a short sale.” To formally begin the approval process, the bank or banks must receive a complete application packet from the seller, in addition to the offer. This includes a hardship description, tax forms, pay stubs, etc.

Short sale sellers are notoriously slow at submitting this information, and the process doesn’t actually start until it is submitted. It could take weeks for the seller to get them everything they need, so if you are trying to buy a short sale, make sure that your agent pesters the seller to get this done in a timely manner. Nothing will happen with your short sale offer until this is complete.

Delegated authority

Just because you pay your mortgage to Bank of America does not mean that they own the loan. In fact, they are likely just servicing the loan on behalf of loan investors like Fannie Mae, Freddie Mac, or other mortgage investment funds.

When a large bank is servicing a loan, it is given “delegated authority” to make decisions on a short sale. The investor on the loan will say “If you get a short sale within this price range, go ahead and approve it. If it is out of that range, send it to us and we’ll decide.” Each loan investor has different documentation and approval requirements, so the bank has to submit to them for a decision.You may or may not be able to find out exactly who owns your loan, though even if you do, it is unlikely that you will be able to contact them to expedite their decision.

2nd mortgages and liens

If there are two mortgages on a property, the second mortgage holder must also approve the short sale. Usually the amount they are owed is being totally wiped out, but the practice right now is that most of them will allow a short sale to proceed with some token payoff of the 2nd lien. Could be something like $5000 or 10% of the unpaid balance. Sometimes that will match what the 1st mortgage is allowing, and sometimes it will not.

Other liens can also be problematic and require negotiation during a short sale approval. If there are tax liens, utility liens, contractor liens or other private party liens, those parties must agree to release their interest in a property for a successful sale to occur. Many will agree to negotiate, but this adds time to the process.

Mortgage Insurance (PMI)

Many loans may have a mortgage insurance policy against them. As a consumer, this is where you pay Private Mortgage Insurance (PMI) as part of your monthly payment to protect your lender in the case where you default. Sometimes there are hidden mortgage insurance policies that your lender took out on your loan behind the scenes to protect themselves.

If there is mortgage insurance on your loan, the mortgage insurance company is yet another party that must approve the short sale, since they may be paying a claim to the lender because of your default. More approving parties = long processing times.

Tips for a faster short sale approval

There are strategies that can help expedite the approval of a short sale. The most important one is to make sure that the seller is motivated to provide the required information to the bank quickly. This means that the short sale approval packet is submitted with, or shortly after, the completed offer. This also applies during the process. If the bank wants more information (pay stubs, bank statements, letters, etc.) provide it as quickly as you can. Complaining about or fighting their requests isn’t going to help. They need the documentation for a reason. The same applies to anything requested from the buyer. If the bank wants documentation signed, every day it takes you to respond is a day further away from an approval.

Going into a short sale, you also want to understand how many liens there are against it, as this can have a direct impact on how long the process takes. One or two mortgages are commonplace, but if there are other liens, you need complete visibility on what those are and the likelihood that they will release the lien.

The process remains bureaucratic, and big banks remain overloaded with short sales, but approval times have improved and banks are motivated to successfully approve short sales, rather than foreclose on the home. Whether you are a buyer or a seller, working with a real estate agent who has a track record with short sales can make the process go smoother.

Fair Market Sale

Most sales are between two private parties represented by two different real estate agents. You submit an offer to the seller’s agent, who then calls back and says “I just got another offer in addition to yours. We’ll be reviewing tonight, so let me know what you’d like to do.” First reaction from most buyers is “This feels like a bluff. The real estate market isn’t that great, so I don’t believe there is another offer. I want to see it before I raise my bid.” Let’s look at why that likely will not happen.

I’ve seen competing offers hundreds of times now, and I can say that the ethical and savvy listing agent will not play this game. One, they are legally and ethically bound to be truthful in their dealings. More importantly, play out the scenario if they are lying. They tell you there is another offer, you get cold feet about competing and remove your offer. Now they are left without their only legitimate buyer. A few days go by and the lie is revealed since the property isn’t under contract. The seller’s pricing position with you, their only legitimate buyer, has now been seriously compromised by the fib. I suppose there are some bad apples out there who might try this approach, but I find that even the fast-talking slicksters know better.

Why can’t the listing agent send offers to other buyers to confirm their existence and details? Buyers don’t authorize sellers to publicly air the details of their offer, and as a buyer, you don’t want to be shopped around. If you are in legitimate competition, you don’t want ANY details of your offer shared with competing parties. It has the potential to be used against you. Even confirming the existence of your offer with a competing agent could lead their client to act faster than you, and you lose the house. Mum’s the word.

Escalator Clause

Using an escalation clause in your offer is one instance where proof of a competing offer must be provided. An escalation clause says you’re willing to pay $XX more than the highest offer, up to a limit of $YY. Well, to invoke that clause, our MLS contract requires the seller to provide proof of the next highest offer.

Bank-Owned Homes

Bank-owned homes or REO properties have their own unusual procedure. A handful of banks use auction-style websites that let you see the current highest bid, but that is not the norm. Many bank-owned properties are priced aggressively to elicit multiple bids. If you think it is a good price, there are likely 5-10 other folks who feel the same way.

Most banks do have a “highest and best” procedure. If they receive two or more bids before something has been accepted, they will send a form back to you that says “We have multiple offers. You’ve got until 5PM tomorrow to send us your highest and best offer.” The request for highest and best offer is generated by the bank or their asset manager, not the listing agent, so funny business is unlikely. They are swamped with hundreds of these properties, and don’t want to waste a minute more than they have to on each one.

Can you find out anything more about your competitors on a REO bid? Not likely. Many REO agents are overloaded and notoriously hard to reach. If you do reach them, about the most information you are likely to get is an offer count. “I’ve got 10 offers, submit your highest and best. click.” Maybe you’ll get a bit more like “offers are well over list” or something like that, but many times you are on your own.

Dealing with that uneasy feeling

It is unsettling for buyers to have to compete with a nebulous competitor, and the desire to see proof of your competition is certainly understandable. But all of these competing interests aren’t likely to share their details with you. Besides, you don’t want your details shared if you are really competing.

Some listing agents will give guidance about how strong the other offer is, home many offers there are, or what the seller is looking for. Usually the answers are somewhat vague, and your agent can help you to probe and read between the lines. Other agents will be tight-lipped and you won’t know a damn thing about your competition.

Between you and your agent, you need to take your best guess on what someone else might be willing to pay based on neighborhood data, time on market, quality of house, etc. From there, figure out the most you are willing to pay for the home and stick to it. Don’t let your competitive side get the best of you, and remember there will always be another house to bid on.

You can take part in a a neighborhood bungalow tour, attend a lecture, purchase some neat furniture, tile or lights, and talk with interior designers and architects who specialize in the Arts & Crafts era.

The event is happening at Town Hall in First Hill from 10AM-4PM on Saturday and 10AM-4PM on Sunday.

A common tool for real estate investors, the 1031 Tax Deferred Exchange allows the investor to defer capital gains taxes on their investment properties if those gains are “re-invested” into a “like-kind” property. This is a wealth-building tool that ultimately gives you 15-35% more cash to put towards your next investment. This tax deferral is what allows investors to build bigger and bigger portfolios.

The 1031 Exchange is not a tax avoidance mechanism, rather it is a way to defer tax on your gains until you eventually sell or downsize your investment portfolio. When used correctly, it is an excellent mechanism to keep your money growing out of the reach of Uncle Sam.

The Code

Internal Revenue Code (IRC) Section 1031 – allows an owner of property held for productive use in a trade or business, or for investment, to defer payment of taxes on gain realized in the sale if they exchange for like-kind property. The tax is deferred (but not avoided) by transferring the basis in the relinquished property to the replacement property.

The Basics

Again, this is a tax benefit for investors only – and the exchange cannot be used for properties you intend to live in. Two categories of property qualify for exchange treatment:

• Property held for investment, or
• Property held for productive use in trade or business

Examples include:

• Commercial property, such as office, manufacturing, rental
• Vacant land
• Apartment buildings, duplex/triplex/fourplex, rental homes
• Mixed use (investment & personal use)
• Agricultural land

NON-Qualifying properties include:

• Property held for personal use – this may include a second home or vacation property
• Property held primarily for sale – for instance a rehab or “flip” property

How it Works:

1. First step – You should speak to your tax or legal advisor to understand the benefits as they relate to your specific circumstance. This is not a strategy you want to goof up, as the tax consequences can be severe.
2. Consult a 1031 Exchange Company – you will want to have them on board to facilitate the transaction and they can work hand-in-hand with escrow.
3. Start looking at exchange properties. Given the very short timeframe of an exchange, you will need to start shopping exchange properties as early as possible. You don’t want to sell your investment and then run out of time to find its replacement, as you’ll be stuck with a fully taxable event.
4. Understand the three basic rules, or risk paying capital gains taxes:
   • Use all the cash in the exchange account to acquire the replacement property
   • Have equal or greater debt on the replacement property
   • Purchase only like-kind properties
5. You must have exchange documents drawn up PRIOR TO CLOSING the sale of the relinquished property – or the sale will be fully taxable.
6. Your exchange funds can only be used to pay for:
   • Earnest money deposits for replacement property
   • Replacement property
   • All typical and ordinary closing costs (although there may be rules about using funds for appraisals and loan fees – check with your exchange facilitator.)
7. There are set timelines that must be adhered to. The clock starts ticking the date the relinquished property closes with the new buyer.
   • 45 day rule – the Exchanger must identify the potential replacement property(s) within the first 45 days.
   • 180 day rule – the Exchanger must acquire the replacement property within this period of time. (This timeframe could be shortened if your tax return is due within this time span.)
8. There are some very specific rules around identifying your “replacement properties” – with both how many to select and how to select them.
9. Keep all your records and consult a CPA at tax time. This is not like buying your house, where you toss your closing documents in a drawer and forget about them. Accurate record keeping is essential to maintain your tax-deferred status, and tax return preparation becomes non-trivial when you start introducing 1031 Exchanges into the mix.

It’s best to consult your real estate agent or 1031 Exchange Facilitator with specific questions. We recommend Exchange Facilitators or Investment Property Exchange Services as trusted Exchange companies.

We get their dislike of short sales. The process can be slow and maddening, and the percentage that actually close is still much lower than a regular home sale. We actually write lots of short sale offers that don’t pan out. But they couldn’t ignore the numbers. In King County, there are 10,789 active listings at the moment, 2,034 of which (19%) are short sales. I’m guessing that other markets may even have higher percentages.

The change is good for their customers, but if you are in the Seattle area, findwell remains a better choice if you are considering buying a home that is a short sale. The obvious reason is that if you use a Redfin agent to buy a short sale, their commission rebate goes from 50% down to 15%, presumably because short sales are more of a hassle. That means if you are buying a $500,000 home, your commission rebate is $2,250, with Redfin taking $12,750 for their services. We’re sticking with our 50% rebate on short sales, and for the exact same $500k transaction, your rebate would be $7500 if you use a findwell agent, a $5,250 difference.

Our approach is that we want to charge a consistent fee for our services and expertise, whether or not a property is a short sale. Are short sales a hassle? Yes, but no more a hassle than some other “regular” transactions. We’ve had some hair-raising fair-market and bank-owned transactions that easily consume more time than a short sale, and we’ve had some extremely painful short sales as well. Is a short sale worth a 70% increase in our fee? No way. I challenge the math that leads them to come up with such a big difference in their fees.

We’ve always supported short sales, whether you want to view them or write offers, but frankly we’ve been at it for 3.5 years longer than they have. We know the time and effort it takes to successfully get through a short sale and have the experience needed to guide you through any scenario that you encounter.

We’ve always respected what Redfin is up to, but if you are looking for an agent to help you with a short sale in the Seattle area, drop us a line. You’ll be happy that you did.

I should start by saying that there are three main types of home sales on the market today. One is a fair market sale from a private-party seller. You may also encounter distressed properties that are bank-owned or short sales. Negotiating on a bank-owned home or a short sale are different animals that deserve their own unique approach.

As a home buyer, you may feel emboldened in today’s slower housing market. Negative reports in the news lead you to believe that there are deals to be had for aggressive negotiators. Friends and family may offer up a variety of semi-educated advice about how to take advantage of the situation. Our experience with hundreds of offers over the past few years has shown that overly aggressive up-front offers may reach a dead end, or backfire on you in later inspection negotiations.

When we represent buyers, our job is to get the property at the best possible price. That obligation is balanced by a competing factor, which is that we also must help you to actually get the property under contract. Having seen hundreds of deals over the past few years, I can say with quite a degree of certainty that extreme low-ball offers are not the path to success with private-party home sellers. A very low offer from a buyer with a large range of negotiability is almost certainly going to get a worse result than a more carefully thought out offer that involves less negotiation. Here are some of the emotional factors that may drive how a home seller negotiates with you.

1. Attachment to the home – Never underestimate a seller’s personal attachment to their home. If they’ve lived in it for years, brought up children there or celebrated other major life events in the home, parting with the home can be difficult. Many sellers have a conscious or subconscious desire to see the home passed to someone that they feel good about. They may make this judgment based on the offer terms you are presenting.
2. I’m offended – I’ve seen some of the most rational, data-driven creatures come totally unglued when presented with what they feel is an unfair offer. Sometimes they legitimately get their feelings hurt, as they perceive their home value differently than you do. Many times they just don’t think you’re a serious buyer. (Clearly you are, if you spent the time to write up an offer.)
3. My home is better than the neighbors’ – This is a tough one, particularly in fairly homogenous neighborhoods. Sellers may perceive their yard, lot location, or the finishes of their home as wildly superior to their neighbors. All you can do if offer up your own opinion and analysis of competing properties, but some gaps simply can’t be bridged. A private backyard may be worth $20k to one buyer and nothing to the next.
4. I just spent $50k on upgrades, so my house is worth $50k more – Recent upgrades were likely costly, and their memory is fresh in the seller’s mind. New countertops or updated bathrooms do legitimately add value to a home, but not on a dollar-for-dollar basis. Other upgrades like a new roof or siding may simply be maintenance items that add no measurable value to the home. They simply make the property sellable. Try to step back from debating the value of individual upgrades and focus on the overall price of the home and how it relates to similar sales in the area.
5. I just lowered my price – There is a totally predictable psychology at work when a property is first listed and each time the seller makes a price drop. Negotiability in the first few days or couple of weeks is definitely limited. Low offers have a greater chance of success with properties that have been at a particular price point for long periods of time.
6. Get to the point – Most sellers do not relish negotiation. It makes them nervous and uncomfortable. Craft an offer that will get you to your desired result in 2-3 steps at most. Any more than that, and I can almost guarantee that a seller will begin to feel that they are being taken advantage of or that they are being nickeled and dimed.
7. Don’t forget about the inspection – Unless you are buying a brand-new home, you are going to be worried about repair and maintenance items that show up during your home inspection. Buyers want perfection, and long-time home owners recognize that every older home has issues and ongoing maintenance items. If you beat a seller down too hard on price during the initial negotiation, there is not going to be anything left to give if your inspection turns up issues that you want fixed. We find that inspection negotiations can often be more contentious than initial price negotiations.

You should always try your best to negotiate a great deal on a house, but if you can put yourself in the seller’s shoes for a moment and acknowledge some of the emotional factors driving their decisions, you will craft offers that have a better chance of success. Nothing here says that you should overpay on a house, and if all of the data tells you are overpaying, sometimes letting more time pass is the only solution that is going to get the seller in a frame of mind where your offer can be successful.

IRS Summertime Tax Tip 2011-15, August 8, 2011

The Internal Revenue Service has some important information to share with individuals who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home.

Links:

• Publication 523, Selling Your Home ( PDF)
• Form 5405, First-Time Homebuyer Credit and Repayment of the Credit ( PDF)
• Form 8822, Change of Address ( PDF)

Watch for your Official Property Value Notice in the mail for your home.

You will notice the dates that the county uses for their value assessment. This year’s notice is what the county thinks was the fair market value of your home as of January 1, 2011 (July 31, 2011 for remodels and new structures.) The value is calculated based on the sales of comparable properties. The value they determined in January 2011 will be used to calculate your property taxes that you pay during 2012, but the actual tax rates are to be determined.

Depending on the age, configuration and additions to your home over time, the county assessed value may be highly accurate or wildly inaccurate. I don’t know many people who would want to appeal a low assessment, as that would effectively raise their property taxes. However, if you believe that your home was assessed for too high of a value, you must take action now to file an appeal.

Your appeal is due to the King County Board of Equalization by July 1, 2011 or 60 days after the mailing date on your Property Value Notice. I received mine on August 4, so mine is due by Sept 23. If you miss the appeal deadline, you must wait another year for the next cycle, so take action now.

In developing your appeal, you can tap the expertise of a local real estate agent to help you develop evidence of comparable sales prices. We do this all of the time for clients who have bought a home with us to help them through the process.

Here are links for counties in the Puget Sound area to help you with this process:

• King County Assessor – Value Disputes
• Snohomish County Board of Equalization
• Pierce County Board of Equalization
• Thurston County Board of Equalization
• Kitsap County Appeals