The difficulty with short sales

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Buyers always ask me about the opportunity with short sales and foreclosures.  It’s getting to be known by many buyers that a foreclosed property sale is much better than a short sale property.  The reason?  Uncertainty and disappointment.

Depending on the buyer and their sense of urgency, short sales may be something to be avoided.  They can cause a lot of frustration as there are a number of issues with them that make them unappealing.  Here is a list of items that buyers should keep in mind so they know upfront about the pitfalls of dealing with short sales.

  1. The “List Price” likely has nothing to do with the “Sales Price” of the property.  Most of the time, the list price is being set by the agent without the real approver, the bank(s) or lienholder, signing off on that price.  The Listing Realtor is setting this arbitrarily to get an offer.  This value could be put way low to drive a lot of traffic and interest so that the property gets bidded up higher.  Or, the agent could be massaging the price down more gradually.  In the end, though, the price is not set by the actual deciding body.  So, when a buyer is looking at a short sale, I make it a point to comment that even if you offered full price, the offer price may not be signed off on by the actual bank that is facing losing money.
  2. The offer submission and negotiation process is flawed.  In many instances, the Listing Agent plans on submitted every and any offer to the lender, regardless of the timing of those offers.  Their client, the current homeowner, is signing off on everything for submission.  As you know, if the situation weren’t a short sale and was a normal owner transaction, the owner could not be signing off on all offers unless one was a primary and the rest backups.  Coming back to the issue here, this overall situation means that if there is a big gap in time between offer submission (to the bank) and the actual decision, a home buyer could submit an offer at the last minute to win the deal.  Someone who was in early would not get any preference and would only get frustrated.  
  3. There may be more than one bank involved which means that more parties have to sign off on the deal.  The more parties, the less likely the deal goes through.  By the way, the parties involved are: Buyer, Seller, 1st Lender, 2nd Lender (if a second mortgage was taken out), other Lender (if other financing schemes were undertaken), and title company.  
  4. Lots of waiting just to get any kind of answer.  There is a lot of waiting to even get word if the bank(s) will sign off on a lien release to let the home go.  A buyer could wait weeks and months only to find out that the bank(s) didn’t want to do the deal.
  5. Owner issues.  If there are additional circumstances going on with the sellers such as a divorce or just plain denial, a buyer may see delays in cooperation that will be the deal in jeopardy.  The seller(s) filing bankruptcy is one of those.  
  6. The timing is completely questionable from all of the above).
  7. The property’s condition may change in between the time the offer was submitted to when the deal begins to move forward with the bank.  I recently represented a buyer where the seller destroyed the carpet in the house in as little as 2 months time (pets brought into the home when a guest came to stay).  We had to bump the price down $5,000 to represent the fact that the property would need new carpet (destroyed) and now had a major issue that didn’t exist before.
  8. Waiting on a short sale may blind you to other great opportunities that come up.  I recommend to my buyers that are waiting to hear about their offer on a short sale property to keep looking for homes that they might like.  It’s best to have a Plan B.


These are some of the challenges with a short sale that can happen that can frustrate buyers.  I don’t much care for them eiher.  However, some can be fantastic deals for the patient buyer.  But, the road to satisfaction here can be fraught with frustration for the home buyer. 

David - www.LortiHomesArizona.com

Date: Friday, August, 22nd 2008 @ 02:28:04 PM
Views: 374

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