The Distressed Sales Crisis – the Challenge and the Opportunity

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As foreign investors from far away India and China flex their brawns and cash reserves to buy investment properties in the United States the real estate market seems to be ready to move on from the doldrums … Here in the Bay Area with Spring the bidding wars are on in many neighborhoods and qualified first-time home buyers who were considering FHA loans are being jostled out of potential deals. Banks are ready to even go the extra mile for these attractive foreign clients to offer loans for non-residents buyers.

Warren Buffett ‘s words that he’d buy a couple of hundred thousand homes if he could figure out how to manage them  seems to be echoing the sentiments of many out there – especially parents and family of Non Resident Indians . Apart from the global cues, Real Estate largely is a local event and with Facebook about to go IPO there is another layer to the interest and excitement in the greater San Francisco bay area. Even enterprising college students would like to invest in a cash flow positive investment property if they could. And since gifts from family members are often a permissible part of down payment, a larger number of younger players are entering the market than ever before.

Today as foreclosures and short sales pepper the market in the US, the gap between prices in Bengaluru and Bay Area seems to have narrowed. Global citizens straddling India and the US are more tempted to have a second home in a different nation – talk about diversification! With the higher propensity towards savings that marks the Indian domestic market many have the down payment reserves needed to seed the great American Dream. The relatively streamlined purchase process here in the US also helps, especially for cash buyers.

Yes many are perhaps still not familiar with words such as short sale or foreclosure but these are words that so many at the heart of the crisis are still not clear about.  As a first generation Indian immigrant working in the real estate sector in the Bay Area – I’ve worked largely with technology sector workers in the Bay Area … And till lately I assumed, somewhat naively, that most people I knew were weathering the challenges in the real estate market better than the rest of the nation. Till a friend called and mentioned that her friend had been evicted and needed information on a shelter – I realized that it had hit far closer to home than I had realized. From what I heard – there was prolonged unemployment that the home owners battled and yet they were unable to get the help that might have helped them from the stress of eviction.

Short sales, a situation where the seller’s lenders agree to accept a lower offer price than the total amount due for a property, have been part of the market for some time now. Yet the nature of the transaction has changed significantly in the course of the last year – the wait period has reduced somewhat for approval from seller’s lender. In most cases buyers still have to wait more than a month at the earliest, but with limited inventory in popular areas patience does seem to be a virtue that most buyers are willing to acquire! Yet what touches me most is the human aspect of the transaction … buyers realizing that it can’t be easy for the sellers to part with their house! At the same time it might just be the best option at that point … it could be a death, or divorce, or unemployment … it could be any challenge that makes the financial commitment of the monthly payment too stressful.

Lenders, in case a homeowner defaults on payments, go through a legal process through which they can sell the property to recoup costs – this is known as foreclosure. If they are unable to sell the property at a foreclosure auction the property becomes an REO, Real Estate Owned – these are often lucrative investment opportunities for investors, both local and global. But beyond the transaction dynamics it’s the human cost that’s probably most expensive.

This is a crisis that hasn’t left any community, any neighborhood untouched. I still remember an Indian-American homeowner mentioned how they had had to outbid several offers to get the home they wanted in one of the premier school districts. They paid far higher than asking and enjoyed their home for several years. But despite those happy memories the mortgage was too much for her as college bills piled up and she became a statistic in the crisis. I can only hope that homeowners in distress situation do try to find out their options. In fact as a nation it might help us to talk more openly about the challenges and the opportunities of this crisis. And as realtors we are here to support and help realize the great American Dream in every way possible!

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