A few years ago, very few people, including real estate agents, had heard the term “short sale”. With the growing foreclosure rate, short sale is now a well known term to both real estate professionals and many consumers.
A search of the Pensacola MLS shows that in February of 2012, of 3511 residential homes for sale on the Pensacola real estate market, 594 are short sales or foreclosures. That amounts to 17% of the homes on the market. Contrast this figure to the data on the original publication date of this article back in March of 2008. At that time, of 6693 residential properties for sale, 417 were short sales or foreclosures, or 6% of the properties on the market at that time. You can see that there has been a drastic increase in short sales and foreclosures over the past 4 years as a percentage of active listings for sale.
For statistics on Pensacola Foreclosures and Short Sales from March 2010, see the article Pensacola Foreclosures.
For those not familiar with the term “short sale”, think of a short sale as a pre-foreclosure sale. You are purchasing from a very motivated seller who needs to sell to avoid foreclosure. And you are negotiating with a motivated lender who wants to get their money, but doesn’t want to own a home.
For the lender, foreclosure can be an expensive proposition, due to the fact that many buyers owe more on their home than the home is worth. The lender has to pay all the legal fees process the foreclosure through the legal system, and then turn around and pay all the fees related to selling the home. For these reasons, banks are often willing to accept less than is owed on the home just to avoid losing more money on a foreclosure.
But how good of a deal can you really get buying a short sale? And if you are a seller, what are the chances of getting your bank to accept a short sale? Are the banks really motivated to sell at a discount?
The answer to these questions is that “it depends”. Every bank is different, and every situation is unique.
I read a post on the real estate site Active Rain regarding experiences that many agents were having with short sales. I wanted to share assorted quotes from this post with my readers so everyone could see the reality behind short sales, which are often advertised as the way to get properties dirt cheap in this market. These quotes are from the author of the article and from agents who left comments. The bank names have been removed.
- “I realize that many agents are struggling with short sales right now. Because the system is screwed up, and some banks in particular are almost impossible to work with. Bank staff are overworked, probably underpaid and buried in paperwork. I tell my buyers to throw out the short sale listings they get from me, because they’re not worth the effort. Buyers can purchase a home that comes with warranties, where sellers will pay buyer’s closing costs and the price is comparable to a short sale, so why bother pursuing what is guaranteed to become a headache without resolution?”
- ” I have worked with some great asset managers, some of whom I actually have a real, on the phone conversation with once a week. They all say the same thing — handling 750+/- files, buried in the paper, and depressed when they look at their voicemail because they know they can’t possibly get back to everyone on everything. “
- “I have a short sale with BANK since last October. They finally approved the primary loan 2 weeks ago…the second loan is still pending. This has been six month’s…my buyer is ready to forget it. “
- “Here in Florida many of us agents have been throwing cash and buyers at the short sales to no avail. There are not enough processors. What I am being told is that they cannot find enough “qualified” people to make decisions and that the board of director’s only meets once or twice a month to make these decisions. “
- “I know an agent here who had a great offer on a short sale – it was almost full price, or “retail” as she said. The servicer for the lenders took 90 days to respond and by then the value of the property had fallen 10% and the buyers did not want to buy at that price any more. The delay cost the lenders $50,000. “
- BANK “refused an offer at $462k with the seller coming in with an additional $2000 and willing to do a promissory note only to foreclose and have the bank’s real estate agent list it at $454k. That really baffled me.”
- “I recommend anyone considering getting into short sales contact their attorney first to see what they could be held liable for. And please, inform your sellers to first contact an attorney and try to work out a deed in lieu of foreclosure before agreeing to take a short sale listing. Short sales should be the last effort before foreclosure…not the first step.”
- “I suggest you take your ready and willing buyers to very motivated listings that are ready to close NOW…My time is too valuable to work with a known 80% failure rate….The only ones making any money in the actual short sales end of the business are the seminars and books & CD sellers on EBAY. “
- “I currently have an bank owned property here in Florida. I have two offers sitting on the table for it and the bank still has yet to respond. I call the asset manager 3 times a day and he tells me the same thing, “still waiting to hear if the bank approves it”.This is Karl writing again. The previous paragraphs were quotes from the other thread. So what is my point in sharing these messages? Think twice before going after that super deal on a short sale. It may end up being an unproductive and stressful waste of your time and energy. I’m sure there are a short sale success stories where buyers ended up with a great deal on a property, but just beware that it may not always be that easy to get a property below market value through a short sale.
Real estate agents now have a much better understanding of short sales than they did back in 2008. And they have experience working short sales, so it is more likely that short sales will get to closing. However, I would still heed the advice of the agents comments above and be wary of the short sale. And real estate agents also need to be wary of giving advice on short sales. Agents are now being sued for providing what can be considered legal advice to clients regarding short sales. See Hey Short Sale Expert…Do You Have a Good Lawyer?
Related Articles On Pensacola Real Estate News: