The housing market has shifted yet again, but unfortunately it has continued to shift downward. Today potential house buyers are faced with even more choices when it comes to the mechanics of home buying. It is no longer as simple as the old real estate moniker location, location, location, now house buyers need to learn an entirely new vocabulary and more importantly actually understand what all the definitions mean and how they can relate to and affect their choice of selecting a new house. Here are some of they new house buying terms or more aptly referred to as house buying 2.0.
Over the last two years alone we have a plethora of new terms. In a future post I will give an in-depth explanation to each of them, but for today lets just introduce you to them and how and why the are now part of House Buying 2.0. Here is a quick list: Foreclosure, Short Sale, deficiency, Mediation, As-is, Show me the original deed, Under water, BPO, Cash for keys and Deed in-lieu. There is no doubt that you maybe familiar with some of these terms as they are not used exclusively in just real estate, however even if they did not originate in real estate because of the current housing market we have now shoe-horned them into House Buying 2.0
Before the current housing crisis, you did not often hear the term foreclosure, if you did more than likely it was because some lowly person or company had scammed a bank or mortgage company or they were losing the property due to other unlawful activities. It was almost considered the “black plague” to have your home foreclosed on, very taboo if it were. Today, almost no has been untouched or knows at least 3 or 4 people that have had their house foreclosed. Even people with good paying jobs who can afford their homes are letting the house go into foreclosure just because the house value is so far “underwater” or they know they can buy a better house (usually with cash) at a much cheaper price then they paid for their current home.
The first reason stated (under water) simply means the house is now worth less than what the outstanding mortgage is on the house. This, if the owner stays in the house and wants to try and sell it so that the bank can re-coup at least some of its money is typically referred to as a short sale. It’s the same situation as being under water (actually you must be under water and there needs to be a few other key components in effect) in order for the bank to consider a short sale agreement.
Should they agree to a short sale, you can almost be guaranteed that there will be a deficiency. A deficiency is the difference between what is owed on the mortgage(s) and what the house will sell for. So if there is a $100,000 mortgage and the house sells for $80,000 there would be a $20,000 deficiency. In the old days, just two years ago, a bank would rarely look to the owner for the deficiency. Rather they would, simply send off a 1099 miscellaneous form to the IRS in the amount owed. This in effect was income you benefited from and the IRS would try and collect it from you. That has pretty much changed. The IRS got tried of chasing people with no money (hence that’s why the house was sold as a short sale).
One word of advice if you are going to buy a foreclosure or short sale, there are many, many mechanics that go into the process. You really do need an experienced person (consultant) or agent to help guide you through it. Just because some has a real estate license does not mean they can successfully transacted the deal for you.
A BPO, Short Sale, As-Is and Mediator are all components of a short sale. The BPO (Brokers Price Opinion) is a price opinion performed by 3 different brokers on the same house so the bank can determine the market value and thereby know what to sell or agree to sell the house for.
As-Is well that’s pretty self explanatory. You are buying the house as-is, where is and how-is. The bank (or owner) will not make any repairs or concessions on repairs or credits for repairs. As we get deeper into House Buying 2.0 the banks etc, may state this upfront, however they are increasingly giving in to buyers requests for some repairs and or credits.
Show me the original deed, Cash for keys and Deed in-lieu are all related to a foreclosure. Using these terms at the right time or in negotiations for the stopping of a foreclosure or to purchase of one are key elements to successfully dealing with the transaction, depending on which side of the coin you are in the process. Again, here it is most important to have a skilled and experienced consultant, real estate agent or attorney help you through this process.
The one thing that has dramatically changed in all of House Buying 2.0 is that now it is a much longer process not only for the seller of the house but also the buyer. So patience is now a huge part of House Buying 2.0.