What About Foreclosures?
Foreclosures, oh, foreclosures. The media makes it sound so simple and abounding with bargains. Here is what I know.
It is better to get a house before it is foreclosed. Bad things happen to vacant properites: vandalism, mold, decay of various sorts; and foreclosed properties can sit vacant for a year or MORE. Still, there are some “deals” out there that are bank-owned properties. Just have thorough inspections, and don’t expect perfection — you aren’t paying for it!
You might also want to consider buying a short sale, but realize this process isn’t for the faint of heart or those who need to get into the house in a specific time-frame.
A short sale occurs when the homeowner owes more that the property is currently worth. If mortgage modification isn’t an option, then a short-sale is a very positive alternative to foreclosure for the owner.
In a short-sale, the home is sold with the lender agreeing to take less than the outstanding loan amount due (hence the term “short” sale). The owner walks away with no proceeds, but the debt is also usually forgiven. A foreclosure has much more severe credit repercussions as well as tax and deficiency liability for the homeowner.
In a short-sale, the homeowner lists the house with a Realtor, and then the agent and the seller work together to get the bank to take less than is owed on the property. If there are two mortgages or multiple lien-holders, the process becomes even more complicated. Sometimes negotiations with the bank are handled by an attorney, and this can be well worth the attorney fees as they have a higher success rate with the banks. The buyer may be responsible for attorney fees or the bank may pay them.
Banks will sometimes take 20% less than is owed, and fortunately, the process is becoming somewhat more streamlined with more banks willing to agree to a short-sale. Still, the process can lengthy and arduous, and not for every buyer, but it can result in a great deal. There is more you would need to know, but that is it in a nutshell. It is important to realize that you can be negotiating in good faith on a short sale, and at the last minute the bank can decline it or the house can go into foreclosure and you are out of luck.
These short-sale listings will be in the MLS along any normal listing meeting your criteria, but they should say in the comments “subject to bank approval” or “short sale.”
When foreclosure procedures actually begin, a listing should note that it is in the foreclosure process. Buying one of these can be tricky as it can be foreclosed at any time, negating any offers or contracts on the property.
Once the property is actually foreclosed upon, it goes to the “courthouse steps” for auction. There may be some deals to be had there, but many don´t sell there as the starting bid is usually what was owed on it, and that is often more than it is worth today. (I am in no way involved in that process. You can find properties going to auction on www.buncombecounty.org).
So then, the properties that don´t sell at auction go to the bank´s REO (real estate owned) department. The bank then lists it with a real estate agent, and those listings will show up in MLS along with the regular listings. These don´t end always as great deals, though they can be, because by this time the bank has in the property what was owed plus 30 – 50k in expenses involved in the foreclosure process. However, I am seeing better deals on REO properties as the banks become more motivated to get rid of their vast real estate inventory!
I do work these properties if they are listed in the MLS. I do not list bank-owned properties (that is really an area of specialty), but some of my associates do so exclusively. I do list short-sales (occaisonally) and understand that process, but I do not have access to properties in default or going to auction “on the courthouse steps” (check the county clerk’s office for foreclosure auctions).
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Working with Real Estate Agents
The following is the text of the brochure provided by the North Carolina Real Estate Commission explaining how Real Estate Agents in North Carolina operate. It is required to be presented to all prospective clients at first contact and must be signed by them for the agent’s file.
This brochure explains that Real Estate salespeople in NC can work in the capacity of seller’s agent, buyer’s agent, or dual agent.
When buying or selling real estate, you may find it helpful to have a real estate agent assist you. Real estate agents can provide many useful services and work with you in different ways. In some real estate transactions, the agents work for the seller. In others, the seller and buyer may each have agents. And sometimes the same agents work for both the buyer and the seller. It is important for you to know whether an agent is working for you as your agent or simply working with you while acting as an agent of the other party.
This article addresses the various types of working relationships that may be available to you. It should help you decide which relationship you want to have with a real estate agent. It will also give you useful information about the various services real estate agents can provide buyers and sellers, and it will help explain how real estate agents are paid.
SELLERS
Seller’s Agent
If you are selling real estate, you may want to “list” your property for sale with a real estate firm. If so, you will sign a “listing agreement” authorizing the firm and its agents to represent you in your dealings with buyers as your seller’s agent. You may also be asked to allow agents from other firms to help find a buyer for your property.
Be sure to read and understand the listing agreement before you sign it.
Duties to Seller:
The listing firm and its agents must
- promote your best interests
- be loyal to you
- follow your lawful instructions
- provide you with all material facts that could influence your decisions
- use reasonable skill, care and diligence, and
- account for all monies they handle for you.
Once you have signed the listing agreement, the firm and its agents may not give any confidential information about you to prospective buyers or their agents without your permission so long as they represent you. But until you sign the listing agreement, you should avoid telling the listing agent anything you would not want a buyer to know.
Services and Compensation:
To help you sell your property, the listing firm and its agents will offer to perform a number of services for you. These may include
- helping you price your property
- advertising and marketing your property
- giving you all required property disclosure forms for you to complete
- negotiating for you the best possible price and terms
- reviewing all written offers with you and
- otherwise promoting your interests.
For representing you and helping you sell your property, you will pay the listing firm a sales commission or fee. The listing agreement must state the amount or method for determining the commission or fee and whether you will allow the firm to share its commission with agents representing the buyer.
Dual Agent
You may even permit the listing firm and its agents to represent you and a buyer at the same time. This “dual agency relationship” is most likely to happen if an agent with your listing firm is working as a buyer’s agent with someone who wants to purchase your property. If this occurs and you have not already agreed to a dual agency relationship in your listing agreement, your listing agent will ask you to sign a separate agreement or document permitting the agent to act as agent for both you and the buyer.
It may be difficult for a dual agent to advance the interests of both the buyer and seller. Nevertheless, a dual agent must treat buyers and sellers fairly and equally. Although the dual agent owes them the same duties, buyers and sellers can prohibit dual agents from divulging certain confidential information about them to the other party.
Some firms also offer a form of dual agency called “designated agency” where one agent in the firm represents the seller and another agent represents the buyer. This option (when available) may allow each “designated agent” to more fully represent each party.
If you choose the “dual agency” option, remember that since a dual agent’s loyalty is divided between parties with competing interests, it is especially important that you have a clear understanding of
- what your relationship is with the dual agent and
- what the agent will be doing for you in the transaction.
BUYERS
When buying real estate, you may have several choices as to how you want a real estate firm and its agents to work with you. For example, you may want them to represent only you (as a buyer’s agent). You may be willing for them to represent both you and the seller at the same time (as a dual agent). Or you may agree to let them represent only the seller (seller’s agent or subagent). Some agents will offer you a choice of these services. Others may not.
Buyer’s Agent
Duties to Buyer:
If the real estate firm and its agents represent you, they must
- promote your best interests
- be loyal to you
- follow your lawful instructions
- provide you with all material facts that could influence your decisions
- use reasonable skill, care and diligence, and
- account for all monies they handle for you.
Once you have agreed (either orally or in writing) for the firm and its agents to be your buyer’s agent, they may not give any confidential information about you to sellers or their agents without your permission so long as they represent you. But until you make this agreement with your buyer’s agent, you should avoid telling the agent anything you would not want a seller to know.
Unwritten Agreements:
To make sure that you and the real estate firm have a clear understanding of what your relationship will be and what the firm will do for you, you may want to have a written agreement. However, some firms may be willing to represent and assist you for a time as a buyer’s agent without a written agreement. But if you decide to make an offer to purchase a particular property, the agent must obtain a written agency agreement. If you do not sign it, the agent can no longer represent and assist you and is no longer required to keep information about you confidential. Furthermore, if you later purchase the property through an agent with another firm, the agent who first showed you the property may seek compensation from the other firm.
Be sure to read and understand any agency agreement before you sign it.
Services and Compensation:
Whether you have a written or unwritten agreement, a buyer’s agent will perform a number of services for you. These may include helping you
- find a suitable property
- arrange financing
- learn more about the property and
- other-wise promote your best interests.
If you have a written agency agreement, the agent can also help you prepare and submit a written offer to the seller.
A buyer’s agent can be compensated in different ways. For example, you can pay the agent out of your own pocket. Or the agent may seek compensation from the seller or listing agent first, but require you to pay if the listing agent refuses. Whatever the case, be sure your compensation arrangement with your buyer’s agent is spelled out in a buyer agency agreement before you make an offer to purchase property and that you carefully read and understand the compensation provision.
Dual Agent
You may permit an agent or firm to represent you and the seller at the same time. This “dual agency relationship” is most likely to happen if you become interested in a property listed with your buyer’s agent or the agent’s firm. If this occurs and you have not already agreed to a dual agency relationship in your (written or oral) buyer agency agreement, your buyer’s agent will ask you to sign a separate agreement or document permitting him or her to act as agent for both you and the seller. It may be difficult for a dual agent to advance the interests of both the buyer and seller. Nevertheless, a dual agent must treat buyers and sellers fairly and equally. Although the dual agent owes them the same duties, buyers and sellers can prohibit dual agents from divulging certain confidential information about them to the other party.
Some firms also offer a form of dual agency called “designated agency” where one agent in the firm represents the seller and another agent represents the buyer. This option (when available) may allow each “designated agent” to more fully represent each party.
If you choose the “dual agency” option, remember that since a dual agent’s loyalty is divided between parties with competing interests, it is especially important that you have a clear understanding of
- what your relationship is with the dual agent and
- what the agent will be doing for you in the transaction.
This can best be accomplished by putting the agreement in writing at the earliest possible time.
Seller’s Agent Working With a Buyer
If the real estate agent or firm that you contact does not offer buyer agency or you do not want them to act as your buyer agent, you can still work with the firm and its agents. However, they will be acting as the seller’s agent (or “subagent”). The agent can still help you find and purchase property and provide many of the same services as a buyer’s agent. The agent must be fair with you and provide you with any “material facts” (such as a leaky roof) about properties.
But remember, the agent represents the seller-not you- and therefore must try to obtain for the seller the best possible price and terms for the seller’s property. Furthermore, a seller’s agent is required to give the seller any information about you (even personal, financial or confidential information) that would help the seller in the sale of his or her property. Agents must tell you in writing if they are sellers’ agents before you say anything that can help the seller. But until you are sure that an agent is not a seller’s agent, you should avoid saying anything you do not want a seller to know.
Sellers’ agents are compensated by the sellers.
SUPPORTED CHARITABLE ORGANIZATIONS
Margaret Vestal
North Carolina Licensed (226935) Real Estate Broker®
RE/MAX Executive • 301 College Street Ste 130 • Asheville, NC 28801
