For the last several years, if you were looking for residential real estate and wanted a “deal” you thought a short sale or REO was the way to go. In fact, a new industry for agents was created just to serve short sales. Agents were taking classes to become “Short Sale” specialists, there were so many. The Government also got involved and set guidelines for short sales. So, are short sales really all that great and are they still in abundance?
A Real Estate Short Sale is defined as: Any sale of real estate that generates proceeds that are less than the amount owed on the property. A real estate short sale occurs when the lender and borrower decide that selling the property and absorbing a moderate loss is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure (Investopedia).
No doubt there can be some good deals found through the short sale process, but as the buyer/investor, you need to know what you are in for.
Here are just a couple of stories that will give you a glimpse at the negative side of a short sale.
“I will never ever go through a short sale nightmare again in my lifetime,” said buyer Lynn B. Her dream short-sale fell through when the seller cancelled without telling anybody, they refused to move out and wouldn’t even come to the door. This, after Lynn, with all her belongings in a trailer, traveled 1000 miles for her final inspection and move in. She, of course, had some legal recourse, but who knows how long that could take.
Christine tells how “my broker negotiated with the bank and owner for 5.5 months. The stress on both of us was incredible, the deal fell through. The idea of starting that process all over again is unbearable.”
What are some of the things to look out for if you are going to continue down the short sale road?
- Understand that short sales are often priced ridiculously low, and banks aren’t going to accept an offer at the asking price or lower. They are priced that low for a couple of reasons so that the listing will receive multiple offers, and also to get the property into escrow to stop and/or postpone the trustee sale.
- Ask how many loans are recorded on the property. A second or third mortgage lender will receive peanuts as compared to the first. These other mortgagors can really stall the process.
- A completed and complete short sale package is one of the big keys to a successful closing. Two things to watch out for; does the listing agent have a successful record of closing short sales and does the seller understand what is necessary to complete the package for the bank.
- Must qualify for sale under the MHAA (Making Homes Affordable Act).
- Having a licensed negotiator is a great way to go. The negotiator is delegated with the responsibility of processing the short sale. A good negotiator will be properly licensed with the DRE.
Short Sales are not for the faint of heart as you can see. The process has been streamlined somewhat over the last five years but there are still a lot of things that can disrupt the process.
There are still plenty of short sales available. One of the things I’ve seen is that often it is good to be a backup offer on a short sale, if you have the time and are happy with the home. Backup offers are often easier to get through the process because the initial offer already did most of the hard work and now they just want to get the deal closed.
A knowledgeable Broker/Agent will be your best shot of getting through a short sale with as little headache as possible.
Our Professional Real Estate Investor class starts in February – class is every Thursday from 2-5 PST. Join me live or recorded.