Short Sales can be a very good solution for homeowners in a tough situation, however, more often than not I see buyers and sellers getting very hurt through the process. The following article does a good job at describing the short sale experience.
3 tips for a successful short-sale purchase
REThink Real Estate
By Tara-Nicholle Nelson
We offered $375,000, but four months later we haven’t heard anything, and the current tenants were trashing the house and yard. We asked to see inside again, but they refused so we pulled out.
On the second property, the owner refused to sign our offer and claimed he was going to declare bankruptcy and force the lenders to evict him. It was also a short sale. Should we avoid all short sales or is this just bad luck? –Mike
A: I feel your pain. A close relative of mine is trying to buy multiple short-sale properties with all cash, to serve as investment properties. He’s been investing in real estate for nearly four decades, and is literally outraged at how difficult it is to buy these properties.
He just closed escrow on one, more than 180 days after he made the offer to buy it, and was driven to distraction at the way the home’s condition had deteriorated in that six months. It sounds like you can relate.
And, unfortunately, as he tells me these very long tales of woe, ranting about how crazy it is that the bank waited 167 days (to be precise) on his offer, then asked him to close the deal in 10 days, the best I can muster up is a sorrowful head-shake and an “I told you so.”
That should help shed some light on one of your questions, as the trials and travails you’ve been experiencing are absolutely par for the course when it comes to short sales. With that said, though, some do close, and there are a number of things you should take into account before giving up on them entirely.
1. It is tempting to avoid short sales, but that can be tough. A huge number of the homes on the market in some areas are short sales, and often they are in better condition than the bank-owned homes in the neighborhood. Additionally, depending on how many distressed listings are on the market, “regular” equity sales are sometimes priced higher (fairly, in many cases, as buyers don’t have to deal with the drama) and are so desirable in some places that they elicit multiple offers and overbidding.
Now, if you have an urgent need to buy or to move in, you probably do want to avoid short sales — clearly “short” does not refer to their escrow length. (The “short” in short sale actually refers to the net sales price: it is “short” of what the buyer owes his or her various lenders.) But otherwise, it can be tough to totally avoid all short sales, especially in markets or neighborhoods where many homes are underwater.
For example, if you’re looking at homes built circa 2006 in Las Vegas, the listings available to you are almost exclusively REOs (bank-owned properties) and short sales.
2. Target short sales that have a higher-than-average chance of closing. What you can do, though, is avoid becoming embroiled in short sales that have very little chance of actually closing.
There are two quick shortcuts to know which ones have a shot. First, if there are two or more mortgage lenders involved, the chances the deal will close decline significantly. Is it impossible? No.
But it becomes much less likely, as first lenders often want every cent they can get and will authorize only a few thousand dollars to the second lender, and second lenders may feel they can collect more than that if the house forecloses.
3. Prioritize short-sale transactions in which the listing agent has a prolific track record of getting short sales actually closed. The listing agent — more than you, your agent or the seller — has the most ability to actually interface with the bank, and the extent to which the listing agent is on top of it and knows how to manage the ad nauseum back-and-forth with the bank (or not) can make a massive difference to the chance your deal will succeed.
Talk with your own agent about which local agents are short-sale savants, and push their transactions higher on your list (even if two banks are involved, as many experienced short-sale agents can handle even those toughest of situations).
If you trail through the history of foreclosures, the majority of time you will find a failed attempt at a short sale. It’s almost hilarious to read through them. I came across two examples of this just this week.
The first home valued at $300,000 attempted to short sale at $280,000. Failing to receive an offer they continued to decrease the listing price. They finally receive an offer for $260,000, however when the bank finally responds they reject the offer stating they will only take $280,000. Very little time goes by and the home falls into foreclosure. Soon the home, which is still in meant condition, is purchased for a grand total of $195,000! True Story! You can bet those buyers were heart-sick to find that the very same house they lost out of a short sale for $260,000 was purchased out of foreclosure for $65,000 less.
The second home valued at $275,000, short sales at $250,000 the bank rejects an offer of $230,000. Long story short the home forecloses at $205,000. This home has just been recently appraised at $275,000.
The biggest lesson to be learned from short sales and foreclosures is that they require work.
So if you’re looking for a good deal, be ready to either pull out your hammer or your patience.