A Short Course In Short Sales

Photo of dilapidated homeShort sales can be “a deal” (sometimes) or your worst nightmare (lots of times).

There are lots of moving parts and most of the time the people who are most interested in making it work — the home seller and home buyer — have absolutely zero control over the outcome.

What Is A Short Sale?

A short sale in real estate is when a home owner needs to sell their home. The only problem is that the market value of their home or what the home can realistically sell for is less than what they owe on their mortgage. The home owner is “short”.

In some rare cases, the home owner has enough money in reserve to be able to pay off the mortgage at the time of settlement. This usually happens when there is really only a small amount of difference between what the bank wants plus the cost of selling the house and what the house will sell for.

Most of the time, there is a big gap. Usually it’s in the tens of thousands of dollars and I’ve seen home owners that have a mortgage well over $100,000 more than the market value of the house.

As a result, the bank gets involved. They’re the ones that are going to take a big hit on the mortgage. A big loss. Banks don’t like to lose money.

The Short Sale Process

I’ve never taken any of those specialized courses about working with distressed properties. There are a couple of good programs. The Certified Distressed Property Expert (CDPE) course is the big one.

Here it is, in a nutshell: The home owner contacts a listing agent to put his home on the market. After some research and looking over the physical condition of the house, the Realtor lists the house for sale. An offer comes in from a prospective home buyer who would like to own the house.

So far, so good. Just like normal.

Here is where it gets crazy.

Once the offer has been accepted by the home owner (a no-brainer), he lets the bank know. The bank must approve the sale because they’re taking a big loss on the mortgage. Remember, banks don’t like to lose money.

It’s The SELLER That Gets Scrutinized Not The Buyer.

In a “normal” sale, it would be the buyer who would need to prove their financial ability to make the purchase. In a short sale, it’s the seller that gets put through the wringer. Banks will want to know every tiny detail of the seller’s financial affairs and, most importantly, why they don’t think they can continue to pay the mortgage or pay it off, in full.

This sometimes takes between three to six months.  I had a nice lady call me the other day wondering why the short sale she was trying to purchase has taken a year with still no end in sight. She wasn’t even my client. She was just looking for answers. Unfortunately, those answers are hard to come by.

Three Things You Need To Purchase A Short Sale

  1. Money
  2. Time
  3. Patience

You need money to buy any house. It doesn’t matter if you pay in cash or you get a mortgage.

The time and patience parts are what most people lack. They think that “short sale” either means it’ll take a short time or they can buy it for a hugely discounted price. Neither one is true.

The banks really don’t do well with short sales. They have people who:

  • lose files
  • get reassigned to another department or job
  • get sick
  • go on vacation
  • quit their job
  • are incompetent

Even if the you get lucky enough to work with one person at the bank, the seller may not be in a cooperative mood. They need to supply the bank with all the information they want or the bank may not approve the sale. If the bank does not approve the sale, there will be no sale.

Short Sale Negotiators

There are these things out in the world called “short sale negotiators”. These folks are contacted by the Seller since it is the Seller who needs to get the bank approval and it is the Seller who needs to negotiate getting out of their mortgage.

There are a lot of scam artists in the world. People who will charge the seller a whole bunch of money to negotiate with the bank on their behalf.  The seller really shouldn’t have to come out of pocket for a short sale negotiator.  Many title companies have now set up special divisions within their company to do nothing but handle short sale negotiations. They typically get paid at settlement either through the bank or through the costs of settlement which is shared by the seller and buyer.

The thing to remember is that even the best and most reputable short sale negotiator can only do so much. The bank is where the big bottleneck is and they really don’t have the incentive to move things along. Sure. Eventually, that house will end up in foreclosure and the bank may lose even more money. They really don’t seem to care.

Is There ANY Good News?

Well, the good news is that the housing market is starting to recover.  Many of the home owners that have been underwater for years are now going to be in a position to sell their home in the “normal” way without having to get the banks involved. There may still be a little while before short sales totally disappear but there is cause for optimism.

My take: If you’re underwater in your home, hang in there. Continue to pay your mortgage. There is light at the end of the tunnel.  It’ll be a lot easier selling your house without having the bank involved.

 

 

About Ken Montville

Ken Montville is a Realtor® and Associate Broker with RE/MAX United Real Estate in the beautiful Maryland Suburbs of Washington, DC. He has been selling nice homes since 1999. Way back in the 20th Century.

When Ken Is not doing the real estate thing he can be found all over social media in places too numerous to mention and he listens to jazz, reads a little (mostly non-fiction), hangs out with the Rotary Club of College Park, MD and can be found blogging at MDSuburbanHomes.com