Green Real Estate in Idaho

This is a question that I hear quite a bit these days.  The wild misconceptions about the term and the process of the general public is to be expected and is perfectly understandable.  The scarier issue is the lack of understanding by many real estate agents who are unable to set realistic expectations, especially for buyers starting down this path to purchase a home.

A short sale is simply the sale of real estate in which the  proceeds from the sale are not adequate to satisfy the balance owed the lien holder(s).  Let’s look at an example with nice, round numbers.  So a home owner purchases a home for $200,000, & owes the same, and due to whatever circumstances must sell the property.  Based on the market conditions lets say that they market value is only $150,000.  This would be a typical short sale.

One of the problems however is that there are no typical short sales.  Every situation is different from the sellers position to the bank that holds the note.  Some banks have streamlined the process and are able to process and respond to offers in a very timely manner while others can take weeks, if not months, to respond.  Obviously the “Short” in short sale has nothing to do with the amount of time involved in making the purchase.  Usually it’s quite the contrary.

One of the biggest risks to the buyer in a short sale transaction is time.  From the moment you put forward the offer and the seller accepts, you’re under contract to purchase that property.  Unfortunately, in a short sale, you still don’t know if you will be able to purchase the property at the contract price until you receive written approval from the lien holder(s) which can take quite some time.  While you’re waiting you could be missing out on other potential candidates that come and go from the market.  Worst case you spend six or eight weeks waiting for the banks response only to find out that they wont accept your offer price and want significantly more than you are willing to pay.  What other homes did you miss during those two months?

To help lets run through a sample time line based on what I have seen lately in getting these deals together.

• Offer received from the buyer’s agent after hours ( Day 1)
• Review offer and present to client for signatures, prepare necessary addendums and return to buyers agent (Day 2)
• Receive addendum back from buyer’s agent, contract fully executed by buyer and seller (Day 3)
• Prepare packet for submission to bank, let the waiting begin (Day 3)
• Check in with Bank every day for 5 business days trying to confirm their receipt of offer (Day 4 – 10)
• Offer finally received in the system, waiting for a negotiator to be assigned from Loss Mitigation (Day 10 – 15)
• Receive call from negotiator assigned to file, spend several days going back and forth about contract price prior to submission to “the investor” and additional documents to complete the negotiators file (Day 16-19).
• File submitted to the investor, in this case Freddie Mac, for final approval (Day 20)
• Check in every other day with lien holder to inquire on the status of the file (Day 21-59)
• Receive final written approval (Day 60)

As you can see… there is a tremendous amount of hurry up and wait involved.  From the moment this particular offer was submitted to the investor there was absolutely no update on its status or any timeline given for the response.  When the offer was submitted originally I was told that the average response time was 30 days, after several weeks of follow up with no word that average was increased to 45-60 days.

Another item that eludes many regarding list price on short sales is that they are fairly ambiguous.  The list price of a short sale really doesn’t give you any insight as to what the lien holder(s) are willing to accept.  Listing agents are at a bit of a disadvantage in this regard because no bank that I have spoken with in establishing a short sale will give you any indication about what it is they would accept.  The best that you can do as a listing agent is price it at as low as possible while still being appropriate and get an offer you can present to the bank.  One misconception that seems to be very prevalent in the general public is that a short sale can be picked up for just pennies on the dollar.  This is not the case.  The lien holders will not accept an offer of $50,000 on a $300,000 home, no matter how much you wish they would.  Lien holders do not sell short to help out the sellers, they do so if and only if it makes the most sense financially to their bottom line.  There are costs associated with foreclosing on a home and costs associated with taking possession and then re-listing and making it marketable as an REO or bank owned property.  If a short sale can be achieved that outweighs these additional expenses they are more likely to proceed.  If not, the lien holder(s) will instruct the listing agent to counter the offer.  If a buyer can not be found for the short sale before the bank forecloses then the bank takes the home back.

Bottom line, if you have patience, persistence, and realistic expectations you can absolutely find some fantastic opportunities in short sale listings.  If you have a tight deadline to secure a new home and a drop dead date that you have to be moved in then you may want to steer well clear.  It’s just not possible to accurately predict when you might be able to close on the vast vast majority of short sale properties.