The Scoop on Short Sales:
â€œShort Salesâ€ are real estate listings that are trying to be sold for less money than what is owed on the property. The current owner has a loan (or loans) on the property that exceeds the listing or sale price.
On the surface, the property seems like a really good valueâ€¦ almost too good to be true. The enticement of the possibility of purchasing a property for less than market value certainly seems very appealing. It is natural to get excited about getting a great deal when purchasing real estate.
So whatâ€™s the downside? Unfortunately the downside is that Short Sales rarely mature to an actual sale. When you understand the dynamics of what has to happen, it becomes easier to understand why Short Sales hardly ever work out. Essentially, when an offer is submitted to a lender for Short Sale approval, the lender is put in the position of determining if they are willing to take less than what they are owed (a LOSS) to release the mortgage lien from the Short Sale property. Because the lenders often have an appraisal in the file that is higher than the offer price (because an appraisal was needed in order to fund the loan(s) to begin with), they are typically very reluctant to take less than what they are owed. The decision is further complicated when there is more than one loan on the property (i.e. a first mortgage plus a second mortgage, or home equity line of credit). Negotiating Short Sale acceptance on two loans is extremely difficult, if not virtually impossible.
Another dynamic that plays into the Short Sale dilemma is an interesting bit of information that an attorney recently provided at a conference I attended. Amidst all of the lending turmoil going on in the market right now, lenders have to be very careful to keep their assets in line with their debts. It is important to know that when a lender transfers interest or releases their loan, they are accountable immediately for the gain or LOSS. This means that if they agree to accept a Short Sale, they have to account for the LOSS on their books at the time of closing. Losses are not a good thing for lenders in this marketâ€¦ in fact, losses are precisely the reason why so many lenders are closing their doors and going out of business. According to the attorney presenting at the conference, it benefits the lenders to let the property go to foreclosure, and take the property back as an ASSETT, vs. having to report the property as a loss on their books. In theory, it is better for the lender to sit on the property, hoping that the market will get a little better so they can recover their loss, or at least break even on their loan, thereby not resulting in accountability for a loss.
The most frustrating component of a Short Sale, is that the majority of the time, the lender will not even respond to Short Sale offers! Instead, many offers continue to accumulate on the Short Sale property, of which each Buyer hopes to result in a great deal for the Buyer, and which the Lender hopes will be close to, or above the amount they are owed. There is new legislation that was passed in January 2008, and further revised in April 2008 (Oregon), that provides that Agents must disclose Short Sale â€œlanguageâ€ in such listings. Unfortunately there are many agents that donâ€™t follow the rules too closely. If you would like to read more about the summaries, you can see more at http://www.Vandervest.com/shortsalesummaries.pdf.
I am happy to further discuss how a Short Sale transaction may or may not work for you. It is a complex phenomenon new to the industry, and never before seen by most homeowners or RealtorsÂ®.
Real Estate Broker / REALTOR
RE/MAX Equity Group, Inc.
9790 SW Nimbus Avenue
Beaverton, OR 97008
888-864-6789 Ext. 4973
Short Sales can be a bit frustrating, but the frustration can be worth it to get a great price. You agent should be in continous contact with the bank. Many agents have limited experiences with short sales. Don't be affraid to be the squeeky wheel. Sometimes you have to push a bit to get what you want.
I am curious to know if someone from the Bank got back to you about your interest to buy the property and if your transaction was finalized. As you may have experienced short sales are not really short but long term sales... a result of the waiting process that takes to finalize these transactions. if your has not been successfully completed just keep going there are many other homes available; foreclosed, existing homes or new homes at very good prices. Your realtor can better attest to that and provide you guidance for you to decide the best course of action for you and your family.
You experience, sadly, is common. The bank's are overwhelmed with short sales and the process is lengthy.
Don't pay anyone any money other than the closing agency (lawyer or escrow), or buyer's inspections.
At the risk of "hijacking" your question, when you were considering the house, did your Realtor explain the short sale process? I'm seeing a lot of questions on Trulia like yours--first time homebuyers who somehow have ended up trying to acquire properties via short sales. That, frankly, is the last thing I'd want to subject a first time homebuyer to. And I'd be interested from feedback from Realtors and other homebuyers on whether the process of a short sale (the unpredictability, the lengthiness) was explained to them.
I'm also wondering about your reference to "Short Sale Headquarters." That's a rather odd website without any real contact information. And I'm concerned that the site says: "Congratulations on considering this great value! As a savvy home buyer you certainly realize that the best buys available today are most likely to be in short sales. All costs, fees, commissions, payoffs, etc. are subject to the lenderâ€™s approval. We have found that your offer will have the highest chance of being accepted if you go ahead and present it with the buyer paying the $2500.00 fee to Short Sale Headquarters as part of the buyer's closing costs."
Kay: Did you pay these people $2,500?
The buyers got the best price in the area and the banks have rid themselves of a non-performing loan. Keep the faith...it's worth it!
It is not unusual for a negotiator to be working with as many as 300 files at one time. There is no guarantee on when to expect a response, regardless of when the appraisal is done. Set your expectations that it will take a l-o-o-o-n-g time before you get an answer.
In the meantime, continue to look...you may find other properties that are not short sales or foreclosures, but that are on the market at reduced prices competitive with those short sales/foreclosures. These will be easier (or at least won't take quite as long to hear back from) to work with, you have room to ask for credits, repairs, etc.
And....think of what kind of loan you are getting. Typically, short sales/foreclosures are sold AS IS, and the lenders don't give any credits back. If you're getting an FHA loan and you're asking for 3% credits towards closing costs, for example, don't expect to get your offer accepted.
Take care, and truckloads of good luck to you.