The Truth About Buying Short Sales:
the Good, the Bad and the Ugly!
Short sales are here to stay for a number of years. Short sales comprise from 40 per cent to as much as 80 per cent of listings in some San Diego and Riverside County areas. Listings that are not bank owned or a short sale are so unusual that agents make a big deal of the fact they have a conventional listing by a regular private seller.
What is a Short Sale?
A short sale can occur when the seller owes more than his /her home is worth. The seller asks the lender to sell their home and take less money for the home than the loan amount and call the transaction “settled” on one’s credit. It will affect a person’s credit, but not as badly as a foreclosure, which stays on 2 credit report for 7 years. With a short sale, at least the borrower tried to settle the debt rather than just walk away.Short sales will continue to predominate in the market for a variety of reasons. Loans continue to adjust upward, and surveys show that more and more people are walking away from their homes. Such behavior is becoming more socially acceptable as the economy worsens and the practice becomes more common.
Buying Short Sales...
I have mostly steered my clients away from short sales, since there are problems inherent in buying them. The short sale process can last as long as 9 months or more or as little as two months. Many short sales never sell as a short sale and they go into foreclosure.Success of a short sale depends on the lenders involved and how efficient they are in handling short sales. It is easier if there is one lender rather than two. Previously, lenders were much better set up to handle foreclosures, which tend to sell more quickly than short sales.
Lenders are finally figuring out that it is less expensive for them to sell a home as a short sale than as a foreclosure. Often there are still people living in a home when it is undergoing the short sale process, and they are still taking care of it. If the home goes into foreclosure, some owners take appliances with them and the homes don’t show very well. Lenders have to spend money repairing homes and managing them after the long foreclosure process.
Urged by President Obama, lenders are getting much more efficient at handling short sales, thus saving money.
Still another problem about buying a short sale is that it depends on the listing agent’s skill at handling the short sale. To make a short sale work, they have to evaluate whether a client is eligible for a short sale and prepare extensive paperwork (known as the package) required by the lender in a timely manner. It also depends on the agent’s skill at negotiating with the lender and, most importantly, keeping in contact with short sale buyers so they don’t “go away” and find another home.
I have written many short sale offers and never heard from the agent again. Such behavior does not promote having buyers stay with the short sale process. Their agent tends to move on and find them another home. That is what I did with many buyers.
Most buyers don’t have the stomach for this process, but the best buys are often in short sales these days if the buyer has the stamina to hang in.
I am open to leading my buyers to short sales, especially given the shortage of saleable homes, depending on my evaluation of the listing agent’s skill and follow-up.
If you are thinking of buying a short sale, please call us and we will help you along every step of the way.
Click here for information about selling as a short sale.
