With foreclosures hitting record highs all over the country, many homeowners facing losing their home are taking a more proactive route and trying to sell the property before losing it to the bank. Because prices have fallen in most markets, these homeowners aren’t able to sell their home for more then they owe. So in order to sell the property, they must get permission from the bank or company that owns their loan first. This process is called a short sale.
Now, it seems like a great idea. However there are quite a few catches. As I stated, a homeowner can’t simply decide to list their home for less then they owe the bank. Unfortunately, this does happen. Usually the person trying to buy the property doesn’t find out this information right away either. I have heard some horror stories of buyers finding out months later that the home they are trying to buy isn’t actually for sale at that price. Sometimes even the homeowner themselves are a victim (finding out later that their agent didn’t explain all of the details to them).
Another thing to remember about short sales is that the house could go into foreclosure, especially if the escrow takes too long. The mortgage lender could decide to change their mind and complete foreclosure proceedings and list the house on the market again as a bank owned property. The homeowner may decide to file bankruptcy and try to save their home through the court system. Of course, these are worse case scenarios. Short sales also face the same issues as regular sales as well, like passing a home inspection (unless you are paying cash, but you SHOULD have an inspection regarless), etc.
Even when everything is done correctly, a short sale listing can take months to close escrow. Some banks are so bombarded with foreclosures and homes going into default that they may take months to give their approval. Quite often banks don’t have any internal system set up to deal with so many properties going into default. You’re more likely to run into this problem in hard hit areas like the Las Vegas real estate market, the Phoenix real estate market, Tampa real estate market and many other parts of Florida. Purchase contracts seeking bank approval may sit for days or even weeks before someone get around to looking at it. And it gets even worse. If there is more than one mortgage holder on the property, each mortgage lender has to sign off on the sale causing further delay.
This article isn’t meant to scare you away from short sales, but to fully disclose how much they differ from other listings. You can get some amazing deals buying a short sale property, but you must be prepared to wait and possibly not get it. If you are buying a property you intend to live in, you might want to reconsider looking at short sales, especially if you are under a time constraint. Even if you are an investor, you might not want to possibly tie up funds in a purchase contract with so many other properties on the market.
ABOUT THE AUTHOR:
Charles Richey is a blogger and real estate investor in Las Vegas, Nevada. He is also the webmaster for his wife’s website who is a Las Vegas real estate agent with Realty One Group. Together they also author a blog about the Las Vegas real estate market.
{ 35 comments… read them below or add one }
All the reasons above are the reasons a real estate agent should have an investor to work with. The investor has the cash time and know how to complete the short sale ,leaving the agent more time to go out and find that investor more properties. The investor also grants the full 6% commission on the short sale.
Short sales are a complete nightmare if you have a willing qualified buyer. We try to stay clear of them. Especially here in Hawaii since we work with a lot of relocation buyers and they need to know they are going to be able to actually close a home or they will be homeless.
Its pathetic to know that short sale is moving from snail to turtle’s pace. Whatever we have now is good but we are we are still slow
.-= Mack@Las Vegas Real Estate´s last blog ..Commercial Real Estate Bubble =-.
The short sale listings I’ve had have been approved in about 3 months each – with a lot of work, faxing, re-faxing, phone calls and e-mails on a consistent basis – not to mention having to guide sellers through a roller coaster ride of emotions. However, against what I’ve read about recently with Fannie Mae and Freddie Mac rules, Chase Bank reduced our commission. I have to figure out how to fight this as this was a Freddie Mac loan and I don’t think they have a package set up to do so as Fannie Mae does. Of course, we found this out the day prior to closing.
I’ve seen the short sale scenarios play out it two different ways.
The first happened back in Dec. 08 with my buyer entering into the transaction after two previous buyers got tired of waiting for lien holder approval. This one was pretty smooth other than getting the seller to move on time with the wicked winter weather and the holiday week. Unfortunately the buyer closed Dec. 31 and received the $7,500 interest free loan instead of the $8,000 tax credit; couldn’t be moved out till the Jan 2 or the lien holder was going to foreclose on the property.
The second short sale closed in Aug. 09. The buyer entered contact in Apr. and didn’t receive any news from the lien holder till July. By this time the buyer was sick and tired of the listing agents and the lien holder for the negotiating tactics and poor timeline schedule but he stayed in the transaction and got a great deal.
I counsel against the short sale due the problems and uncertainty of the transaction.
.-= Toby Barnett´s last blog ..Snohomish County Lot Sales for the 3rd Quarter of 2009 =-.
Sure a short sale can take a long time to complete. One of the biggest problems that I am seeing is that there are inexperienced agents trying to jump on this bandwagon and they don’t have a clue what they are doing especially on the listing side. This makes it even more frustrating when the experienced agents have to basically do the work of both agents, everything except communicating with the bank that is.
Short Sales are tough in our area because no one knows where they stand. We may have an accepted contract but neither the buyer or the seller really know if they are going to close. We are doing them but not because we want to. In some cases it is our only choice.
Great article touching on some of the various challenges associated with short sales. The more parties involved (meaning if there are multiple lien holders against the property i.e. 2nd mortgages, judgment liens, etc), the more complicated and longer it can take to try to get the deal worked out. Many months can go by with no resolution. So while short sales may represent a potential opportunity, you need to have the staying power to be able to last until it gets worked out – and be able to to move on to something else if it doesn’t.
The maddening thing for me is when I call in to talk to the mortgage company and they tell me they didn’t receive the offer, or ask for my contact info over and over. Surely, emailing a group of documents over would be more efficient then having me FAX the documents over and them tell me that they only got part of it, etc. Why are they refusing to embrace new technology?
.-= Scott Hack@Oldham County Real Estate´s last blog ..Google PowerMeter and T.E.D. =-.
Looking through the multiple listings in South Florida, we find that close to one third of homes listed are in short sales. Las Vegas, which underwent a boom and bust cycle similar to that of South Florida, is also awash in short sale properties.
It would be nice if it was mandatory to disclosure ‘third party approval required’ to the public through IDX solutions. It was only recently that the NWMLS made it a field in their system.
.-= Toby Barnett´s last blog ..Snohomish County Lot Sales for the 3rd Quarter of 2009 =-.
@ Toby Our MLS which is the Mid Florida Regional now has a required field to state if is a short sale or bank owned, or neither.
@Scott I don’t understand either You would think email would be the method of choice since it does leave a paper trail and is so much easier now.
@Jennifer Yes some short sale deals are much more complicated than others when there are multiple lien holders.
@Phenix Short sales are a crap shoot, you just never know with them. I agree.
@Mack It sure makes things complicated when the agent is inexperienced, We just closed a big short sale deal but was lucky enough to have an experience agent on the listing side working it.
@Judy I think that just recently passed maybe it hasn’t taken effect yet? I am not sure let me know how you make out if you pursue it.
@ Toby – agreed. Our IDX doesn’t have any either. So, there isn’t any real consistency in verbiage amongst agents to make it easy to identify all of the properties that may be short sales.
.-= Jennifer@Louisville Real Estate´s last blog ..2009 North Oldham High School Tis The Season Artisan & Spirit Fest =-.
Whenever I run into short sales I try to run as fast as I can in the opposite direction. Many potential home buyers have no clue as to how long the process can usually take and exactly what the bank is willing to take – assuming they don’t take the house to foreclosure.
The other part of this is that most listing agents have no clue as to what the bank needs in order to approve a short sale at any price – the documentation from the home owner, Broker Price Opinions (BPOs) and much more. As a result there is a ton of inventory on the market that won’t sell. People will still be put out of their homes and their credit ruined. It’s very sad and not something to be entered into lightly.
.-= Ken Montville – The MD Suburbs of DC´s last blog ..What Do People Really Care About in a Realtor? =-.
Dan_N – Fannie Mae created rules about commissions being cut with short sales on 3/1/09 and Freddie Mac started them on 8/20/09. The fact that my commission was cut just last week shows that those new rules are not being followed.
@Dan_N the NWMLS also has the short sale/reo/third party approval fields but that information does not get to the public. Those fields are still only visible to agents but I think it would help if the data was relayed to consumer. Many people get disappointed when a house is price low and only to come and find out it is a short sale.
.-= Toby Barnett´s last blog ..Snohomish County Lot Sales for the 3rd Quarter of 2009 =-.
Short sales are a nightmare for buyers, but they are extremely helpful for the home owner. Having a short sale on your credit record compared to a foreclosure is night and day. Great information!
We can filter the results here in the MLS. I think there is a lot of confusion among buyers about short sales, hence this post. They can be a great deal, but you MUST be prepared to not get the property and to wait.
.-= Charles@Henderson Real Estate´s last blog ..First Time Home Buyer Tax Credit Extended =-.
Here in Bali Indonesia, we still safe doing the real estate investment. Hope the crisis will not effected the industry to much.
.-= Kirstin@Bali Accommodation´s last blog ..Villa Senang / 3 Bedroom Deluxe =-.
Isn’t that the truth. They ought to rename them to “Complicated Sales” or something, the name Short is just so misleading…
All the reasons above are the reasons a real estate agent should have an investor to work with. I think there is a lot of confusion among buyers about short sales,and Short sales are a nightmare for buyers, but they are extremely helpful for the home owner.
You mentioned that sometimes RE agents don’t fully explain what is going on. Are you saying that buyers sometimes have their own agents and rely on the listing agents information?
Short sale homes have some great deals to offer but the negative impact of these are frustrating to both realtors and buyers. It is common nowadays because of the value of houses are weakening.
I’ve noticed in our community, that foreclosures have increased and rent has decreased. I’ve asked around and instead of selling short, many homeowners facing foreclosure are renting rooms or half of their homes to get rent money to help with the mortgage. For some people this makes sense.
According to this situation, the only option for the people is to own their completely and only then they could sell their houses for better price. Other way is not to take homes on installment basis.
You’re right, short sales can really be a terrible experience and a lot of work. At the same time, I’ve seen some go pretty quickly and painlessly. It all depends.
it sounds unbelievable to think that even after the carnage witnessed in the US property market, and the ensuing collapse across a number of well established financial firms, there is still no transparency in property transcations? surely regulators have to step in and sort this?!>>
I did a short sale on my house earlier this year when I needed to move to take care of my father who has a long list of health problems. I think I got lucky that it only took 3 months.
.-= Mical Johnson@TampaSEO´s last blog ..Fortune 500 company or Online Scammer? =-.
Short sale buyers need to have a lot of patience and need to be prepared to start over depending on the bank’s response.
With all the “short” sales listings in the real estate market is there much demand for real estate agents to manage these properties for lease or rental instead? If the owners can’t sell them for what they owe on them could they possibly lease them for at least what their payments are?
I originally thought rental prices would go up because so many former home owners are being foreclosed on; however, landlords are telling me that rental prices are actually going down because owners who can’t sell are becoming unwilling landlords.
.-= Joseph @ Crown Moldings´s last blog ..Good Millwork: Handcrafted Wood Exterior Shutters =-.
Short sales are extremely helpful for the home owner. Having a short sale on your credit record compared to a foreclosure is night and day.
I agree with @Toby that consumers using an IDX feed should be able to see the fields identifying the property as a ’short sale’. It never ceases to amaze me how the MLS aviods transparency with end-users!
Maybe one day it will all come together. One thing that has recently changed on our IDX feed is that now foreclosures can be separated from regular listings. But nothing regarding short sales.
Hey Toby, Yes now our Idx has both a short sale and foreclosure field and tells the visitor if it is a short sale or foreclosure.
That’s very true Sam. If you’re short, don’t do short sales. They take a verrrry long time! Not to mention all the work you do in the process, following-up and what not. I don’t even know if they’re worth it half the time to tell you the truth. What is the longest short sale anyone has ever had to deal with? This should be good.