Thursday, November 18, 2010

"Show me the short sales....I want a good deal!"

I have had a number of potential buyers come to me recently and ask for me to show them short sales.  When I ask them what they are looking for, they generally say, "a great deal."  Sometimes they have stories of friends who got some fantastic deal on a short sale.  I then proceed to tell them there are great deals with homes that are not in the short sale process and could we consider them as well?  I then explain that sellers of non-distressed homes are impacted by the pricing of short sales and foreclosures and have often lowered their price to compete with homes in their neighborhood that may be distressed.  I further explain that short sales are not for the faint of heart.  While most say they are patient people, without fail, every buyer I've worked with in a short sale has been frustrated with the process.  A buyer can write an offer for more than list price and still not hear for months from the bank whether or not they will accept the offer.  Why is that?  It is in fact the Realtor, not the bank that puts the list price on a home.  After an offer has been secured, the bank will look at the offer which is likely well below what they are owed, order a BPO (broker price opinion which is a market analysis), then process the offer.  Each investor on the loan requests different information, so while one deal can sail through in a month, others can take typically up to 9 months and recently I heard of one that took over 2 years!

 What often happens in short sales is that buyers lose hope, give up and walk away to find another home.  In fact, one lender told me it takes 2 to 3 buyers to close a short sale, largely because the buyers walk away.  Often buyers walk away just weeks before a decision is made on an offer.  Then the Realtor puts the home back on the market and tries to secure another offer, hopefully one that will "stick."  The short sale process is not for someone who needs to be in a home by a certain date and is ideal for someone renting month to month or even a person who is living with someone without a lease.  I had one recent college grad who lived with his parents purchase a short sale listing.  It was the perfect scenario in that it did not matter when he moved and his patience paid off with a really great deal. 

I've had questions from buyers on the list price of short sales.  They seem to be such a great deal, and often sell for more than asking price.  Why is that?  A Realtor is working against the clock trying to bring the bank an offer before the home goes into foreclosure.  If that happens, the home comes off the market, a new agent is assigned, and all deals that were written during the short sale time period go into the waste basket.   The price on a short sale must be competitive and often are a bit below market value.  When buyers come to me and ask what they should offer on a short sale, I'll do a market analysis which often leads me to say, "If you bought this home for sticker price, you'd be getting a great deal."  But other agents are telling their buyers the same thing, so as with all negotiations, the best offer wins.  It is unfortunate when working with a buyer who feels he can't pay full price for psychological reasons....they are not likely to have their offer accepted.  Sometimes when a buyer puts in a full price offer, the bank will counter with a higher number.  This surprises some buyers, but shouldn't.  Remember, it is the Realtor, not the bank, who puts a list price on the short sale.  They are fishing for offers and want to get as many as possible in a short period of time to keep the home from going into foreclosure.  So if you make an offer on a short sale and the bank counters with a higher number, do not be surprised.  The bank is trying to recoup as much money as possible, because they are taking a loss in a short sale. 

If you have time and don't mind a test of your patience, consider looking at short sales, but please, not to the exclusion of other non-distressed sales or even foreclosures on the market.  There are great deals to be had in every type of sale. 

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