Short Sales. Are They A Good Deal?

So you’re out shopping for a home with your Realtor ® and you want to make an offer on a short sale property. Should you? First let’s discuss what a short sale is. There are a lot of homeowners who need to sell for one of the traditional reasons: Job change, divorce, death in family, or simply cannot afford to make payments anymore. In any case, they can’t afford to keep the house. A couple of years ago this would not be an issue. Put the home on the market and it would sell in a week with multiple offers.

But in today’s buyer’s housing market it’s different. Inventory is very high. Prices are down. In many cases the market value of the home is
less than the loan(s) on the property. So the seller tries to work out a deal with the lender’s Loss Mitigation Department to forgive some of the loan so the home could be sold at current market value. Why would a lender agree? Well, it costs a lender a lot to foreclose on a home. In the end the bottom line may be better for the lender by allowing a short sale and forgive some of the money owed.

So what’s the problem? First of all, the people working the LMDs have no idea what’s going on in every given market. Sometimes they are thousands of miles away in another state. Many times there is no communications with the same lender’s department that is trying to foreclose on the property with the LMD. And the lender won’t consider a short sale until an offer is made on the property. Time is of the essence because foreclosure in many states has a fixed time period. But the LMD’s bureaucratic process has no time period. And every lender is different with different policies. Add that to the fact that many of today’s homes have 2 and sometimes 3 loans and you have a near to impossible situation to deal with. In other words, the people making the decisions have no motivation to decide as a traditional sellers do when selling their house.

As I speak with other local Realtors ® in the Antelope Valley I hear stories about LMD’s not even getting back to counter offer if they don’t like the offered price. People working the LMD’s are just not motivated to act quickly. It’s been such a problem that the local MLS is now requiring marketing remarks by agents listing short sales to begin the public viewable remarks with “This is a short sale. List price cannot be guaranteed” in order to give a true picture of the property, as unwary buyers may not know that their earnest money deposit, held for an extensive time, made on a property that had a list price that was too good to be true, was just that. They’ll soon be canceling escrow and looking
for another home. What are the chances of a short sale closing escrow? We’ll cover that in the next post. Take care.