About one year ago I wrote a blog that I asked every buyer that we worked with to read. It was designed to let them know–in no uncertain terms–all the problems for a buyer pursuing a short sale. Essentially I wanted them to understand the difference between a foreclosure and a short sale, with the message being foreclosure “good”, short sale “bad”. Foreclosure “good” in the sense that it had one owner (a bank), one decision maker, was vacant, the price was real, and you could get an answer in typically less than a week to an offer. Short sales, at the time were none of those things.
Today, short sales are still a real problem. They often have more than one bank with a lien on the property, the sellers are often in the property with no real motivation to properly disclose or take care of the home, and answers to offers still take months and often result in a “no”. The biggest problem remains pricing. Buyers do not understand that it is very common that an agent will price a property artificially low to generate calls and offers. This price sometimes has no basis in reality, it was decided by the agent and the seller (who sees no proceeds when it sells, and they usually leave it up to the agent) and is very often much lower than a bank will accept when they do their appraisal. This obviously has and will continue to confuse the public because a buyer using the internet to look up proprty has NO IDEA which homes are “regular sales” and which are “short sales”. So good information and education about short sales–for buyers and sellers that compete against them–remains one of the most important areas to discuss in Real Estate.
So what has changed?? As much as anything it is an industry attitude toward short sales. 2008 was such a devastating year to Banks and loan servicing companies that they now realize that selling a problem asset (that’s what they call “homes”) PRIOR TO the foreclosure process is MUCH LESS EXPENSIVE than going through the foreclosure process and potentially dealing with evictions, further decline in value, dead lawns and everything else that is part of taking the property back as an REO. In fact, in meetings that I have had with several large Banks there is an industry wide push toward “preapproved short sales” in which the appraisal is done by the Bank, the owner is evaluated for the short sale (it’s kind of like a reverse loan application–the seller proves that they CAN’T afford the home), and an agreement is reached BEFORE the home is put on the market. This type of “new short sale” will hit the market this year with a couple of pilot programs and if it helps the lenders reduce losses, expect the whole industry to follow.
In the mean time short sales continue to confuse the public. One of the biggest problems is that appraisers now use them as competing listings when they do appraisals, EVEN THOUGH THE LIST PRICE MAY BE MUCH LOWER THAN THE BANK WILL ULTIMATELY ACCEPT. For example, I sell a property for $435,000 which represents market value for a nice Valencia home. The appraiser actually can make adjustments for condition (usually poor) for the closings in the neighborhood which are often most, if not all, foreclosures. The problem comes up when some agent that will likely never sell a home in that area again, and has no regard for property values prices a model match at $349,000 and the appraiser uses that as a “competing listing”. This happens almost every week and is making it difficult for buyers to get loans when the property doesn’t appraise, even when I have multiple people making offers at market value. Hopefully the “preapproved short sale” with a guaranteed, confirmed price will help eliminate confusion in the market place. In the mean time we deal with the system–as confusing and frustrating as it is–for short sales. The Banks are improving their response time and multiple lien holders do seem more open to “working it out” so that the property can sell “short sale”. If you are a buyer though, it’s probably best to stay away until your agent tells you, “the bank has approved this price”. Until then it’s a time consuming crap shoot.
Posted by nealweichel 