About Short Sales
What is a Short Sale?
A short-sale occurs when the individual selling the property is selling the property for less than what they owe for the property. This means that after the seller agrees to the price, the lender must also agree to the price. Despite what anyone might try to tell you, that’s the only difference between a short-sale and a normal sale.
If you’re in a hurry don’t even consider a purchasing short-sale. Short-sales work best for investors who have no emotional attachment to a property. Short-sales work well for investors who won’t need to live in the home. Short-sales don’t work well for home-buyers who are on a schedule.
If there are multiple offers on a property, walk away. If you make an offer on a property with multiple offers there are only two possible outcomes:
- You waste your time pumping up the price for someone else;
- You paid more than anyone else. If you paid more than anyone else, you didn’t get a bargain. If you paid retail for a short-sale, you paid too much.
Find out if there are multiple offers or worse yet contracts before you even look at the property. It’s maddening and I wish the associations would do something but too many properties that are listed as “active” aren’t really active. There is no sense looking at something that isn’t for sale.
Here are some of the many pitfalls of a short-sale.
Time to close
Short-sales take a long time to close. Although lenders are getting better in short-sales, they are notorious for making slow decisions when negotiating. I had a client who agreed to pay cash and purchase a short-sale in 3 days. The seller accepted the offer but the lender took 4 months to agree to the offer. When buying a short sale, you have to act quickly. After you act quickly, you often have to wait a long time.
Multiple offers
Short-sales often involve competitive buying. That is to say, there are multiple offers on the property. Despite what you may have heard about this being a buyers’ market, there are ALWAYS buyers who are interested in something for nothing. In addition the Northern Virginia economy has not been impacted the way places like Detroit affected by the recent economic news. In Alexandria, in Arlington and anywhere near the metro, there are many folks who want to buy homes. Homes that are nicely priced, in good condition and in good locations are selling quickly.
The property isn’t available
At one time, fully two-thirds (maybe more) of the short-sales listed for sale right now … ARE NOT AVAILABLE. This is perhaps the most maddening part of short-sales as a considerable portion of my day is spent sorting through properties that are listed as ACTIVE in the MLS but they are in fact not on the market. MRIS has started cracking down on this, why are these properties listed for sale when they are active?
The simple and sad answer is that many agents who are selling short-sale properties don’t understand there aren’t any special rules for short-sales. If a property is offered for sale, the agent has a duty to the public in addition to his/her duty to his client. His duty to the public and Fair Housing Laws require that he promptly present any offers to purchase to his client. If the client agrees to the offer, but the caveat that the contract must be approved by the lender, that contract should be listed in the MLS as under contract with a kick-out. Most agents these days leave the property as active, wasting the time of buyers and agents everywhere.
Often, a selling agent continues to list the property as active because it is not uncommon for a short-sale buyer to back-out after the purchaser finds out just how much hell they’ll have to suffer to get a bargain. The selling agent might not be aware that listing this property as active in the MLS is unethical, but the selling agent certainly does not care if you waste your time trying to buy a property that has already sold.
In some cases, an unethical selling agent wants to continue to market the property even though the property is under contract. This way the selling agent can get a couple of back-up offers in case the first contract blows up.
The counter
The last and worst part of a short-sale is the bank’s counter. The lender will only counter-offer after the buyer has invested a lot of time and effort negotiating the deal. After months of waiting and waiting the bank will finally respond with a price that is five or ten thousand less than the market price of other homes currently for sale. Yes, it’s a bargain but at what price.
You can use tools on our site to search for short sales. If you have the time and patience, you might get lucky and score a real deal!
