Foreclosures and Short Sales 01-09
With the economic uncertainties, foreclosures and short sales have become a factor, though small, in the Smoky Mountain cabin market. As of the first week in 2009, there are 3,616 active residential listings in the Great Smoky Mountain Assoc. of Realtors MLS. Of these, 1,048 (29%) are second home/rental cabins. Of the cabin listings, there are 9 foreclosures (.0086%) and 25 short sales (2%).
I think everyone understands foreclosures, but short sales may be unfamiliar to some. A short sale is where a borrower is having difficulty making their mortgage payments and the lender has agreed to consider, under certain circumstances, to allow a property to be sold for less than is owed and to accept that lesser amount as payment in full for the mortgage.
In reviewing these 34 listings, it is obvious why most of these properties are available at a reduced price. Quite frankly, in the best of times they were poor decisions and with the challenging conditions we are currently facing the only way they will sell is at a discount from their original purchase prices. Even though the discounts on these properties range form 20% to 40+%, the majority of them would have, at best, marginal investment potential. However, a few do have good investment potential for a patient buyer who is prepared to act quickly, have more direct involvement in the cabin’s preparation for rental and in some cases, has a lower aversion to risk than my average client.
Patience, preparation and increased buyer involvement are required for foreclosure or short sale purchases for the following reasons:
1. You must be prequalified for a mortgage and include a commitment letter from an approved lender at the time you make your offer. This is an absolute requirement.
2. Once you have made an offer, it will likely take weeks to get a decision from the lender who must approve the sale (as opposed to a few days in a standard transaction where lender approval is not required).
3. Even if your offer is accepted, the lender may, for ANY reason, nullify the transaction, with no buyer recourse, up to the closing.
4. Once you have closed, you will have to completely furnish the cabin. This is not just an upgrade but complete, including appliances, furniture, electronics and décor as virtually all foreclosures and short sales come unfurnished. The typical Smoky Mountain cabin is sold completely furnished. You will also have to arrange for your furnishings received and set up in the cabin, a service most management companies do not offer.
Because of all of these uncertainties, it is understandable why many agents are not thrilled to deal with these types of transactions but if you’re game I am too. I am not trying to discourage anyone from perusing one of these opportunities but I do want you to be knowledgeable and prepared if you choose to do so.
If you’re interested, email me and I’ll send you a list of what’s available as of the day of your request (as these can change daily) along with my recommended choices.