When clients search for homes on public websites like Realtor.com and others, they naturally select the best values which, unfortunately, frequently turn out to be short sales. Short sales can be problematic for buyers and in the article I will explain why.
The problem with short sale properties is the short sale process itself. The short sale process starts with the owner completing a detailed submission package. Part of the seller's submission package is your offer. Once the seller has your offer (including the Purchase Agreement Short Sale Addendum) the package is submitted to the lender(s) and the wait begins. In some cases, the wait can be 9 months or more before you even hear from the bank whether the short sale will be approved. But, just because the short sale is approved, that does not mean that the terms or price specified in the purchase contract are what the bank will accept.
For some, the wait would be OK if they finally got the home. However, you have no assurance that the short sale will complete and you will get the property. In a majority of the cases, either the home goes into foreclose and is sold at auction or the bank does not approve the short sale. But, suppose you were willing to take the chance and wait.
If the seller receives another offer on the property, the must present it to the lender(s) and you might find yourself out-bid despite having waited for months.
Suppose the short sale was approved. Now we are at the third problem. While the seller selects the buyer, the bank sets the price and terms. What does this mean? The seller's agent, in an effort to get an offer, frequently lists the home at a price well below the market value. Banks know this happens so they reserve the right to change the price and terms. So, you could wait for many months only to have the bank raise the price above what you are willing or able to pay and have the deal fall apart after months of waiting and you have to start all over again.
How can the bank do this? Part of any short sale contact is a short sale addendum to which you must agree acknowledging the power of the bank to have final approval, to set the sale price and to set the terms. Here is the short sale addendum used in Las Vegas.
Q: Do any short sales work?
A:I handle short sales in conjunction with a law firm. and the answer is yes. And, those that go through a law firm that specializes in short sales have a very high rate of close. But, in general, only about 15% of short sales in Las Vegas are successful.
Q: Are short sales getting easier for buyers?
A: Yes. Recognizing that short sales were not working, the treasury department recently announced a program called HAFA. HAFA is very promising and may make short sales viable for buyers. Some of the key advantages of the HAFA program are that the bank agrees to a price up front, before the home goes on the market. Plus, the process is relatively short; maybe 3 months. Unfortunately, this is a very new program and currently only about 25% of mortgages qualify for HAFA.
Q: Aren't short sales the best buys?
A: No. The list price and even the contract price does not matter. The bank will change the price to what they perceive is the highest and best price the property will sell for in the current market. So, even though the listing price is great, the sales price will be increased to market value; banks never give anything away.
Q: If the bank will increase the purchase to the market value, what is the advantage of short sales to a buyer over REOs?
A: I know of no advantage.
Q: How many short sales have you made offers on?
A: A lot; more than 100, less than 200. Zero have completed despite clients waiting months. Sometimes the property was foreclosed upon, sometimes the bank denied the short sale and sometimes the buyer just could not wait any longer and bought a non-short sale property.
Q: Why would the listing agent list the property too low if the bank will raise the price and likely kill the deal?
A: If the short sale is approved by the bank but the current buyer falls out, another buyer can usually be substituted. So, the seller is not dependent on your offer; any offer is needed to get the short sale approved and then they will market the home at the right price and the substituted offer will frequently be approved in 90 days. Your offer is only needed to get the package submitted, not to actually sell the property.
Q: Do you handle short sales?
A: Yes, but my methods are different than most. I work with a law firm that exclusively handles short sales. I market your home and I start with a fair market value; not a low ball. The law firm handles the complete short sale including getting a release form future judgment (the lender(s) have 6 years after the short sale to file). For more information on short sales and my process see this page.
Contact me if you are considering buying or selling Las Vegas real estate. You will be glad you did.
...Eric
Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Email: EricFernwood@gmail.com
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