Short Sale 101

You see them everywhere, SHORT SALE, signs or in advertisements. Essentially a short sale is trying to sell your home for less than you owe, and having the bank agree to accept less than owed. After two years of heavy short sale activity, buyers and buyer’s agents continue to veer away from short sales. Long processing times by banks make it difficult for any buyer to hang on to the hope this approval will come. Generally this leads to the home being foreclosed on, driving the market further down.

Why do so few short sales go through? Is it the banks? Is it the buyers? Is it the Realtors?

Maybe the answer is all of the above.

With the banks, most first mortgages are actually cooperative, if they feel the home is bing sold within 92% of its value. Their problem is it takes between 90-120 days to get an approval. The bigger set-back is with the second mortgages. Due to their Mortgage Insurance requirements, they do better on the foreclosure with an insurance claim, then they do accepting a short pay-off.

Buyers are hurting short sales by not having the patience to wait for the approval from the bank. By the time the bank approves the deal, many buyers have bought another home. Most people need a place to live now, or need to move within a certain time frame. Open ended deals just lead to buyers finding another home.

Realtors are hurting short sales in two ways. One, by pricing homes way under market value to attract a buyer, only to have the bank reject the offer and two, by detouring their clients from buying a short sale. Who can blame them, with only a 20% success rate!

Unfortunately, these short sales are hurting everyone as they drive prices lower than, REO, bank owned homes, would have sold for.