Foreclosures aren't being given away

I've been working with several buyers lately interested in foreclosures. The buyer's assumption going in to the process is that because the properties are foreclosures, they can be bought for pennies on the dollar. Unfortunately this isn't the case. At least not in Myrtle Beach.

I think the main reason for this idea is the old saying that 'banks don't want to be in the property owning business'. And that's true. But to take that idea and stretch it to assuming that banks will sell property for pennies on the dollar is a big mistake. I should also point out that maybe banks in Toledo Ohio or Scranton Pennsylvania, just for example, might be willing to do this, but not in Myrtle Beach SC.

To demonstrate this fact I looked up all foreclosure sales on our local MLS. I simply determined the difference between the asking price of the property and the final selling price. I then totaled up the percentage differences and divided that sum by the number of entries. I'll be the first to admit I'm not a statistician, but I think the formula gives a pretty accurate answer. The results were not surprising to me, but they might be to buyers.

For the month of January 2009 (Jan 1-Jan 31) the average difference between asking and closed price was...... 4%. That's right, banks on average sold property for only 4% less than they began the process with. For the last quarter of 2008 (Oct 1- Dec 31 2008) the average difference was 5%.

Now we all know about the people who said they got a great deal on a foreclosure. Some folks claim up to 50% off. A couple of points to consider. People have a natural tendency to exaggerate. And while it is possible that some limited cases were extreme discounts, the average is clearly not that high.

Another point to reflect on. Most properties that sold at big discounts were probably severely distressed. By that I mean the property was in a condition that most people wouldn't want to buy into. Investors and people with a lot of experience in rehabbing properties would find this attractive but the average buyer would be in way over his or her head.

Gives you pause for thought, doesn't it? By the way, I also found several instances where the final sale price was actually HIGHER than the asking price!! Why? Probably buyers became involved in bidding situations while the bank sat back and watched the offers rise. That's a good sign for the housing market. Every property has a natural point at which it is priced correctly. That is priced for the market. Sometimes multiple buyers become aware of the property at this price and multiple offers appear.

So, what's a buyer looking for a bargain to do? Your first step should be to get pre-approved by a bank for a mortgage. Next, contact a Realtor and explain to them what you want to do. When a Realtor learns you're pre-approved for financing he'll know you're serious about buying. Once you've consulted with the Realtor about what you're looking for he'll go to work for you and find you the great deals you want. But don't blame the Realtor if the banks aren't willing to give the property away for the discount you think is appropriate.

If you're interested in buying property in the Myrtle Beach SC area please contact me and I'll be happy to discuss your ideas with you.

Why is earnest money important in a real estate purchase?

An earnest money deposit submitted with an offer to purchase real estate might seem like a simple matter. In fact it's a very important statement. For many buyers the only real concern is to make the deposit for as little as possible and to make sure they can get it back. But to sellers of real estate an earnest money check represents an intangible. It represents commitment. When the time comes to give the Realtor the earnest money deposit check people often begin to squirm. When asked "how much should I make the check out for" they seldom agree with the answer. Why? Because they only see the check as a way to lose money. In fact, it's a way to guarantee a purchase.

Think about the average buyer making an offer on a condo. Of course they want to buy the condo for as little as possible. No problem there. The Realtor representing the buyer should be trying to achieve that very goal. So the buyer assumes something like $100 or $500 should be OK. Not OK. Here we have a lack of commitment. There's no real 'skin in the game'. My rule is 2% of the offer price.

Back to the condo buyer . For a condo on which we're offering $300,000 against an asking price of $425,000 a check for $500 is not realistic. We should be submitting a check for $3000.

Buyers should realize that a seller who accepts your offer to purchase is taking their property off of the active market. The seller is taking the risk that a better buyer might come along while the property is tied up in a contract. A better buyer who is willing to pay more, pay in cash and eliminate the possibility of the deal falling apart due to financing or both.

The seller wants to make sure you aren't going to back out of the purchase. The best way to do that is to have your commitment. Nothing says 'commitment' in a real estate transaction like money. You've got to have something to lose that makes the idea of walking away from the transaction out of the question. The only thing with that kind of power is money. Your money. At risk.

Now, we're not talking about transactions which don't close because of something beyond your control. If the financing has been addressed properly in the contract and you can't obtain financing to close the transaction your earnest money will be returned to you happily. If the home burns to the ground before closing or the termite inspection discovers a termite problem you won't have any trouble getting all of your money back. In fact, if the contract was constructed correctly there's virtually no chance you'll lose your earnest money deposit. If you don't feel confident that your Realtor will protect your money you should find another Realtor.

By the way, earnest money is one of the most common problems that occur when people buy property from a seller directly without a Realtor to protect the buyer's interest. The buyer or the seller (usually both) are not educated as to how to make a contract that protects both of their interests. In the event the transaction doesn't close the seller often keeps the earnest money and the buyer doesn't have any protection.

But, if you decide a week before closing that you can't afford the home or would rather buy something else, you're going to lose your escrow deposit. As you should. In a case like this you're making a decision not to abide by the contract you signed and you have no recourse to your earnest money. There's a very simple way to avoid this problem. Don't ever make an offer to buy a property if you're not 100% serious about buying it.

When I act as a seller's agent and receive an offer to purchase with an inappropriate earnest money deposit I recommend to the seller that the contract be returned requiring more money. The seller will usually accept this recommendation. If the buyer refuses to put more of his money into the deposit my sellers will usually reject the offer. Why? Experience has shown people who don't make a 'good faith' earnest money deposit don't close deals. 'Good faith' here means an escrow deposit of 2% of the offer price or more.

If you are dealing with an ethical Realtor who is acting as your agent in the purchase of real estate your money will be protected. Consider his or her advice. If you're unsure about the agent contact the state real estate oversight commission and the local Realtor association. Both will be happy to tell you if the Realtor is reputable. A special note here about those real estate agents who work 'on-site' in the models of home builders. You should know that they represent the seller. No matter how nice they are they are employed by the seller/builder and are obligated to look after his interests, not yours. Some of them will be willing to accept designated agency in your transaction. If they will not you should get a Realtor from a general brokerage to represent you in the purchase.

New DUI laws in SC

South Carolina is getting tougher on drunk drivers. New laws went into effect this week. These new laws require larger fines, longer jail sentences and even the use of breathalyzers connected to the ignition of cars.

The law also created a 'tiered' system of punishments for people convicted of driving under the influence. The state's legal limit for intoxication is .08. The tiers take affect at levels .10 and .16. People above these limits will receive harsher penalties than others.

The new laws work like this:

First time offenders who are convicted can receive jail time up to 90 days at the court's discretion.

Drivers convicted of a second offense will lose their license for 1 year. Jail time is left to the discretion of the judge. The court can impose jail for a second offense from 5 days to one year. To get the license back after suspension the second time offender must pay for a breathalyzer and pay to have it installed in their car. The system also requires a $90 per month fee.

The breathalyzer will prevent the car from starting if the person blowing into it has a blood alcohol content of .02 or higher.

Third time offenders will be fined from $38,000 to $63,000. They can also receive jail time of 60 days to 3 years.

Those convicted of a fourth offense don't have many options. No fines but jail time from 1 to 4 years.

A lot of people don't think the breathalyzer works. Here's a statistic for you. Arizona began requiring the use of breathalyzers on ignitions of cars driven by first time offenders in 2005. DUI related deaths there have dropped 50%!! I'll take that kind of performance any day.

Let's face it. Myrtle Beach is widely regarded as a party town. But for those who don't know when to stop life is going to become very uncomfortable.