What is a Short Sale?
Do you know what a short sale is? You hear about it all the time in the news. Your friend just scored a super deal on a short sale. A stranger once suggested to you to never ever make an offer on a short sale. I get asked about short sales a lot and as much as I despise providing generalized answers to some of the most pressing real estate questions, my answer often is “I can’t tell you concretely until we get into one.” No, it is not a trick statement or sales strategy of a real estate broker; plain and simple, every short sale is different. And even within the contract, there are obstacles, complications, disappointments, and pleasant surprises that come up in a short sale transaction.
According to Wikipedia, “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.” A homeowner for some reason is struggling and unable to continue their obligations will seek to do a short sale on their property. This is a proactive option by the homeowner in which they are actively working with their lender to accomplish the sale of their home and is an alternative option to a foreclosure.
How does short sale work? Is short sale worth the wait or time? What is the success rate? Short sales got a lot of home buyers excited because you will see really low priced short sale listings but the prices are usually not approved by the bank yet and the listing agent is simply dropping prices until they get an offer. People thought this was the way to purchase real estate for dirt cheap and that wasn’t the case.
The homeowner may have already missed couple of payments or they may have not yet. In order for them to do a short sale, they have to submit a short sale package to their lender along with a hardship letter explaining as to why they are resorting to a short sale. During this process, the home is listed for sale and the waiting game begins for a serious and willing buyer. More often than not, the lender will not look at the short package until they have an offer on the table. However, depending on the bank and/or circumstances, we have been seeing more “approved” short sales in the market; which is a case where the lender had looked at the package, checked on the market value of the home, and decided to approve a certain price point. In this case, the short sale transaction can be smooth with faster closing. We will continue to see more approved short sales and improved processing time since foreclosures are time consuming and costly for the bank along with the reality check of deteriorated home values.
Before making an offer on a short sale, I educate my clients regarding short sales and what they are getting into. Once they have understood this and are motivated and willing to take on the challenge, I will evaluate the potential for closing by asking a lot of questions and thoroughly interviewing both the listing agent and the mediator. Are the agents involved experienced in short sales? Who is the mediator? A mediator is the buffer between the seller and the seller’s lender who will be the representative for the transaction. Who is the lender? What’s the bank’s history on short sales? A good candidate for a short sale would be a buyer that currently does not have a home to sell. With unpredictability of a short sale, having a home to sell while trying to time a short sale closing can be challenging and is a great source of stress, headache, and heartache.
The success rate of short sale transactions is less than 5% nationwide! They are not easy to close and most of them don’t close because of the painstakingly slow process and other miscellaneous reasons. The real question isn’t so much how long but will it close? Every short sale is different because a lot of factors come into play for every transaction. Having said that, two of my last transactions were short sales and I have successfully closed on both. One in 45 days and other in 90 days. You can talk to a lot people and they will tell you that is almost unheard of. It can take up to 6 to 8 months. The short sale that I closed in 45 days, the homeowner was extremely proactive and already started the process and had the lender approval. Ironically, we didn’t close in 45 days because my buyer’s lender, Bank of America, does not close a purchase in 30 days. The other short sale, we had an awesome team of both experienced listing agent and buyer’s agent (me), serious seller wanting to successfully accomplish the sale, experienced third party mediator, and a willing buyer who I represented in the sale. Ironically, the seller’s lender was Bank of America, and the transaction was pretty smooth for the most part. If nobody knows what they are doing, it will never close. But if everyone involved knows what they are doing, like in both of my cases, then it will.
Short sale is a popular real estate term and you will hear about it even more. It is a topic of big concern for homeowners worried about the deteriorating home values in the midst of all these short sales and foreclosures in their neighborhood. It is a topic of interest for many homebuyers weary of the painstakingly time consuming, tedious and unproductive process with pitiful record of closings. With so much conflicting information out there, no wonder people are confused by short sales. Every market is unique with each bank with their own process and procedures; you need to make sure your Realtor has the experience and expertise in doing short sales in their market in this current real estate condition. You want a deal but you want a home you are happy and comfortable with. I can help you find a good home, strategize offers, and help determine if the numbers makes sense and if the house works for you.
ABOUT CHRISTY KIM
