on Friday, January 29th, 2010 at 7:38pm.
Patience is the Secret to Short Sales
Do you know how a real estate Short Sale works? It happens to be the number one song on the real estate top 40 chart, but not everyone listens to real estate radio every day and so the topic of Short Sales is still new to many.
A Short Sale, in real estate, is when a property is worth less than what is owed to the bank. If the home is sold for current market value, then there will still be a debt owed to the bank, known as a deficiency after the sale. In order for the sale to proceed, the lender and all other lien holders will need to approve any offer that is made before the property can actually close. The work involved in getting approval for a short sale varies from bank to bank and from one bank rep to another, but it is always a substantial effort with the odds running against being successful.
For the seller, short sales can provide a substantial benefit. The seller’s credit report may read something like this: “Agreed settlement short of full payment,” which is much better than, “Property foreclosed.” However, for buyers the months of uncertainty are unbearable and many buyers will just walk away frustrated, usually to look at properties that are not tied to third party approval.
Because of this, I always discourage buyers from chasing Short Sales. I’ve heard the hype that a good Short Sale expert can find a buyer the deal of a lifetime. However, in truth this is rarely the case. Trust me; banks are no more motivated to give you a good deal than any other seller. They don’t give properties away for less than they are worth – and the mere fact that a property is no longer worth what is owed does not qualify it as a bargain.
A loss to the bank also does not define a good deal for the buyer; it only means that the buyer probably paid market value on that property. That isn’t to say there are no good deals from Short Sales, but any property can be negotiated to be a good deal if the seller is willing and the buyer’s agent is skilled. It is much easier to work with a seller who is motivated to sell than it is working with a bank that is trying to hold down their loss.
The fact is, I’ve made creative deals for my buyer clients that rival any Short Sale out there. In most cases, there is simply too much good inventory to justify chasing a short sale. Too often they result in buyer clients that are bitter and unsatisfied after months of empty promises from overworked bank representatives.