<p>My real estate agent provided DH and me with about eight possible houses that we might want to consider buying. (Given that our current house isn’t even on the market, I think she’s jumping the gun. Whatever.) Six of the houses are “short sales.” I’m trying to understand them. Here’s what I think I know, plus my questions. Realtors, please chime in!</p>
<p>[This is in Connecticut, btw.]</p>
<p>Apparently in a short sale, the seller is having difficulty making mortgage payments. The bank has agreed to accept an amount less than the amount of the mortgage. This means the house is not in foreclosure and hurts the seller’s credit less than having the bank foreclose on the house would hurt.</p>
<p>I understand that the seller and the bank must agree to the selling price. I understand why the bank must agree – that’s all the money they’re going to get in exchange for the mortgage, which is higher than the selling price. But then why does the seller still have a stake in what the selling price is? They’re not getting any cash or equity out of it, since the full amount of the sale price will go to the bank.</p>
<p>In addition, according my my realtor, while the seller can quickly agree to a sale price, the bank might take as long as six months. Of course banks are large institutions and therefore inefficient but why should it take so long to approve the price? I would think the bank wants to be done with the property as soon as possible.</p>
<p>Finally, and perhaps most important, if getting approved to buy a house at a certain price can take as much as six months, how does the buyer handle this? In the meantime other lovely houses are coming on the market, but the buyer is stuck in limbo, waiting for the bank’s approval.</p>
<p>A friend of mine bought a short sale house in VA. It took a long time…at least six months to get through all the logistics. The bank was very messy throughout the whole process…telling them one thing and then changing it a few weeks later…several times.<br>
Luckily, they owned a vacation home that they were able to move into (after selling their house) while slogging through the process. They ended up with a beautiful piece of property that they love but getting to that point was nerve wracking.</p>
<p>I am not speaking for Ct. But what you describe is correct.</p>
<p>The reason why the bank takes a long time to approve is typically the loan has been sold to an investor group, and whomever represents the investor group has to decide whether they are willing to write off the loss on the loan (loss of principal + interest). Since they bought the loan as an investment with the expectation that it would provide income, they have good reasons not to.</p>
<p>Further, the home has not been foreclosed on, the owner is simply saying that they can’t make payments. The bank has to do a background check on the homeowner to be sure that they don’t really have a few million stashed away and are simply refusing to make payments. By filing for bankruptcy, this information becomes public - but the owners haven’t filed for bankruptcy yet.</p>
<p>The bank has to also determine that the new value is a reasonable price, and the owner isn’t trying to sell it to his friend or his boss at a sweetheart deal.</p>
<p>I tried one short sale. I’ll never try one again because it was a waste of my time.</p>
<p>In some cases, the bank is offering the home owner an incentive of, say $10K plus they don’t owe the back payments. The owners get out with some free money to find another place to live, the bank does not have to go through the long, ugly and expensive foreclosure process, and if they sell short to someone like you, they now have payment resume and are not stuck trying to sell a property for which they have to go through the mortgage process.</p>
<p>I would think one question to ask when presented with multiple possible short sales is exactly how far underwater each mortgage is, then I would focus on ones where the sales price is closer to the amount owed. I don’t know if that information is readily available, but it is a question to ask your broker, at least.</p>
<p>The seller is the one who decides if your offer looks good enough to pass on to the bank. While the bank is dithering about it, if you find something you like better, (or just plain get tired of waiting), you can withdraw your offer. Your agent will take care of the right wording for that. We bought our house last summer in a short sale. It went pretty quickly (offer at the end of May, closing at the end of September). In our case, whenever we wavered, our agent encouraged us to have patience. Many of the contracts she handles take longer. And, of course some do fall through because the buyers do lose patience or find something better, or the bank rejects the offer.</p>
<p>We looked at several short sales before we bought our current place. VA, not CT. We didn’t try because we were looking for a quick close. A co-worker of my husband’s made an offer on a place we had looked at. Six months later he had still heard nothing from them and withdrew his offer. The realtor told him that the bank will sit on all offers and wait to see if anything better comes along, the price really has little to do with how much they really expect to get for the house.</p>
<p>My brother’s girlfriend bought a short-sale in Minneapolis and it took at least 6 months, too. They were nearly homeless, as their apartment lease had expired and the landlord wanted them out. They were able to convince the owner of the short-sale home to let them move in and pay rent until the bank and investors signed off on the deal. It was scary! BTW, brother said girlfriend has at least $100,000 is student loan debt, but she still qualified for a loan “because she’s still a student, so the loan isn’t due.” She plans on being a student for the rest of her life.</p>
<p>In the FWIW category, the Realtor who’s handling my Mom’s house says that virtually ALL of her sales these days are short sales. She’s very patient … a requirement when it can take months to get the necessary approvals. Her biggest complaint about the process is how difficult it can be to find out WHO needs to sign off! (Her second biggest complaint is how often the WHO changes.)</p>
<p>Bottom Line: When it’s the only game in town …</p>
<p>^We had pretty much ruled out short sales as we haven’t found a house yet and our lease is up in October… but it seems like that’s what most of the options are here, as well.</p>
<p>My W had a listing for one. As the months went by with no offers, the bank let her keep lowering the price.</p>
<p>Finally, she got an offer, about 15% under the original list price. The bank hemmed and hawed, finally decided to order an appraisal.</p>
<p>Wouldn’t you know, the appraisal came in at almost the original list price. The bank blew up the deal and made my W put the price back up to the appraisal value.</p>
<p>It’s never going to sell because no one will pay full price and have to deal with a short sale.</p>
<p>Does one “get a deal” if one is buying a short sale?? Or does the selling price wind up being what it would have been if there were no short sale?</p>
<p>This is Connecticut
A house right near me was a short sale last year. It went on the market 10/10 and under deposit 2/11, back on market, under deposit 6/11 then back on market and finally sold 9/11. I think they got a steal. They purchased $120k below the initial asking price. The zillow (I know this can be way off) value is $100k more than they paid and the taxable value is $175k more than they paid. Compared to recent sales here they paid much less.</p>
<p>The house is in good shape and I think the first two depositers walked due to the delays with the bank. There has never been a foreclosure or short sale in my neighborhood in the last 20 years (and it is only @ 25 years old).</p>
<p>If you have patience I think you can get a great deal - but it is a headache from what I hear.</p>
<p>It’s certainly possible to “get a deal” with a short sale. But the stars have to align just right. The buyer must be motivated, the bank must be motivated, and most importantly the appraisal needs to come in just right (which is most likely if there are a lot of foreclosure sales nearby to act as comps). </p>
<p>It’s probably fairer to view short sales as a technique to avoid an even worse outcome for the homeowner and bank. The prospective buyer is “just along for the ride.” JMHO of course.</p>
<p>If the short sale is a “pre-approved” short sale it can be easier and quicker then if the seller is merely trying to get a buyer before presenting the sale to the bank for approval. Banks still change their mind about the approved price based on market trends and appraisals It can also get drawn out or blown up if there is a second on the property. </p>
<p>Short sales are no guarantee of a bargain either, depending on what the seller owes.</p>
<p>Our realtor got her “Distressed Properties” certification about ten years ago, and has always had a number of clients in that category as well as clients dealing with normal sales. I think that this was a real advantage for us. She had a much more positive attitude about this type of property than other agents we spoke with. Since the properties in our area that were affordable for us were all either short sales or bank-owned, it gave us confidence to work with a realtor who knew that sector of the market inside and out.</p>
<p>Our purchase went quickly in part because there was only one bank involved (many of the short sellers have both first and second mortgages which means two banks), and that bank was ready to deal. Some places we looked at this time last year are still on the market.</p>