What is a short sale?
For those of us that work in the industry we get the jargon and use it with verve, it seems! But the reality is most folks don't understand what short sales are and what their implications are. They just want a Bethesda short sale bargain and they know bargains are to be had in this market. Right?
If an owner buys a house for $500,000 and then needs to sell it but the market says it's now only worth $400,000, they are short $100,000. The seller is still the legal owner of the house and can accept a contract on the house for the $400,000 but they still owe the bank that payoff amount of $500,000. Unless they have cash reserves, they are now short or owe the bank that money.
The bank becomes a third party that has a say in the sale of this home because they have to agree to write off the loss of that $100,000 and agree to the sale of the home. Herein lies the rub...
Guess how many of these the banks are dealing with right now? You got it. So many that their desks are crammed with folders full of requests for short sales that it can take months for the process to work its way through to a final, closed sale. Unless all parties to the transaction are aware of the issues and willing to expend considerable effort to ensure smooth passage many of these sales are doomed from the beginning.
A Successful Short Sale
A successful short sale begins with an understanding of the client's financial situation and the ability to deal with the bank's requirements for submission. This is typically called a short sale package and each bank may want to see the information in a different way. While many homes may be listed as short sales unless the agent is far enough along in the process and has a rock solid connection at the bank with someone who can make a decision about this property, it can become a lesson in futility to try and get that home - at any price or time.
More banks are trying to get these homes sold as a short sale before they have to go through the cumbersome and expensive process of foreclosing and then selling these as bank owned homes. I see more now than I've seen in the past.
The biggest challenge is keeping the buyers in the process long enough for the short sale to occur. The buyers typically bail out long before the bank gives even the first indication that the sale will be approved. And in today's environment, with a tax credit looming at the end of April deadline, there is little room for error. Generally buyers also have a time frame in which they need to move so it's not practical to think of spending 6 months or more waiting for something to happen that may or may not be successful.
It's the what if that makes this a risky proposition for most folks. Once the bank owns it they want to get rid of it fast and generally it's priced to sell. They have the authority in place to sign the documents quickly, make decisions about contracts and get the sale completed much more quickly than in a short sale.
Seems kinda backwards that the same bank that couldn't get its act together to approve the short sale can quickly get rid of property it foreclosed on. But then no one ever said banks were good at real estate.
Short Sale - Worth the Risk?
Bottom line is yes, you can close these sales and I've done so to prove it. But it takes sifting through a lot of property and having many backout plans and options in place to make sure you can get to your final goal in your timeframe. And to answer the question in the title: are they worth the risk?
Only you can answer that for your personal situation. Do you need the tax credit by April? Do you need to move quickly? Can you handle the long wait with no outcome guarantee? Are there other houses to choose from?
If you need help navigating through this, let me know. I can help |