Short Sale Tales
As housing bubble, mortgage crisis, subprime loans and foreclosures are top of mind and in the news, a new term creeps up in the housing buzz: short sales. Short sales are an alternative to going into foreclosure for a homeowner in trouble. Short sales can be an opportunity for a homebuyer to cash in on a deal. A seller makes an agreement with their mortgage bank to accept less than what is owed on the home and the home buyer saves a bundle in the process. By accepting this offer, banks are able to avoid a lengthy and costly foreclosure process with the seller of the home that cannot cover the difference.
Sound confusing? It is. And its not a very easy and recommended process to go through from what were hearing, at least if you want to get into a house anytime soon. Heres what were hearing on the street about short sales. Heed caution and have patience when considering a short sale, and be sure to have an experienced realtor on your side.
Heres a story from Linda, a Northern Virginia Realtor about a townhouse in a hot DC suburb when her client was ready to put a bid on a short sale property she liked. The next day we met and she wanted to see it one more time and then she was going to sign-off on everything. We get to the property and we discover that the lock box is missing and there are "shiny" new locks on the door!
I had spoken with the listing agent several times that week with different questions we had. He had told me that all the paperwork had been submitted by the owner to the bank in order to get the short sale pre-approved. In fact, they were supposedly only less than 2 weeks away from having it all finalized. Well, the bank had decided to just foreclose and had taken possession of the property. They didn't even tell the listing agent! So, the listing has been pulled and we have no idea when it will reappear or what the price will be. Unfortunately for the listing agent he was also informed that he would not be the listing agent when they were ready to release it again.
Thats a lesson learned the hard way not to fall in love with a short sale home. Its not a sure thing until the bank signs off and youre signing the closing papers. Today, this realtor asks key questions to the selling agents about the short sale status and generally just moves on. She advises her clients not to go after a short sale that is not yet approved unless they have months to wait.
Its not all gloom and doom though. Short sale homes do get sold says Sheila, another Virginia realtor. I settled on a short sale toward the end of the 2007. Currently, I have two short sales pending bank approval (they have been pending for more than 2 months). I have settled on 4 or 5 bank owned properties so far this year. In all of the cases, I am the buyer's agent - not the listing agent. She did mention though, they are all horrible to get settlement on, so it can be done, but its not a quick and easy process. Once the offer is placed you have to go through the seller, middle man company that the banks hire, the bank, investor and mortgage insurance company.
Short Sale Saves the Day
Joe, a successful Virginia realtor tells us a story of how a short sale saved a house from auction at the eleventh hour. The house was going to auction in 3 days. I told him I would do my best for him to prevent that situation and I came up with a pricing strategy and marketing plan for the home. In 3 days I received multiple contracts on the home and was able to postpone the auction date with the bank several times throughout the sale of this home. We successfully negotiated with 2 banks (a senior lien holder and a junior lien holder) and finalized the sale of the home in less than 90 days.
He goes on to tell us Short sale can be great. We are in the generation of instant gratification. The hardest part is keeping the attention span of the buyer for 60 days. This story goes to show that with patience, persistence and realtor expertise on your side, a short sale can do the job to help a buyer save money, help a seller avoid foreclosure, and appease the banks by relieving them of the long foreclosure process.
The Sunny Side of Short Sales
The grass can be greener when youre getting a deal. Steve Campot, a real estate broker tells us about a short sale he closed on a luxury home in northern Virginia. Originally the home began as a hopeful $1.5M listing, being a brand new, never lived in luxury 10k square foot home. After several price drops, the home builders bank eventually accepted a bid of $1M, and the property was sold. That same broker also bought his own townhome as a short sale by offering a 70k less than list price.
One trick of the trade most dont know is that if a home up for short sale has two mortgages on it, once you get through the primary bank, the secondary mortgage holder will generally take just pennies on the dollar, as little as $5k. This happens because if the home goes into foreclosure, the secondary bank generally gets nothing, unless they try to sue for it, so a short sale situation where they can get something is the lesser of two evils for them.
The broker also mentioned that investors should look at short sales as an opportunity for investment. Though investment shouldnt be mistaken with flipping this is not the market for that sort of behavior. Short sales are a good opportunity to invest in acquiring rental properties to buy and hold.
So buyers beware, and be patient, and investors stay tuned to listings as opportunity is knocking.
Find out more about understanding short sales.