Short Sales Good for Seller and Lender, Not Buyer
The L.A. Times real estate section on Sunday included a feature about short sales, which, according to the story, have increased dramatically in the last year — to “at least” 1,956 this year, compared to “at least” 31 the year before.
In a short sale, an owner who is upside-down on a home attempts to persuade the lender to allow the home to sell for less than what is owed. Sounds like a good deal, but in reality, the short-sale buyer often gets the short end of the stick.
Once sellers have an offer, they must assemble a package to present to the bank, including a “hardship letter” explaining why they had to put the house up for sale — loss of employment, a spousal death, a divorce, a disability or a mortgage resetting, for example — and asking the bank to accept a short sale, according to a Countrywide spokeswoman.The sellers also must provide income verification, their most recent bank and income-tax statements, the listing history of the house and other documentation. Then comes the wait. And frequent follow-up calls to the bank to make sure the file isn’t buried.
While the buyer waits, and waits, interest rates can go up, other homes can sell, and better deals can be missed. Meanwhile, the short-sale seller and lender have little to lose, because the alternative is usually foreclosure.
Short-sale buyers might think they’re getting a bargain, but in reality, foreclosures are usually far better deals. Foreclosures almost always cost less than short sales. Also, because they’re already owned by the bank, there’s little or no red tape involved. And, as with regular MLS listings, buyers have room to negotiate.
You know short sales must be problematic if real estate agents don’t want to deal with them, even in this market. Pam Kennedy, a Whittier agent quoted in the article, sums up the sentiments of many agents: “I avoid short sales and advise buyers to avoid them. They are miserable.”
One thing the story doesn’t mention: Many homes currently on the market are potential short sales, but they aren’t listed as such. Some distressed owners are putting their homes on the market, hoping to entice a buyer. If they find one, they’ll then present the offer to the bank as part of their petition for the short sale.
It’s not hard to spot these hidden short sales. In Redfin, look at the sales history. If the asking price is less than its most recent sales price, the owner is upside-down, and chances are it’ll be short sale.
Bottom line: Short sales take a long time, and they may not be worth the wait.
Recent Redfin posts:
Short Sales Often Not Quite So Sweet
More Mixed-Use Development in Glendale: Here, and Now?
