Denver Short Sale Advice:
Homes selling as short sales in the metro Denver area are very common. Most buyers aren't aware of the difference between buying a short sale home and any other type home on the market.
By definition Short Sales are homes where the seller is upside-down with their mortgage. The reason being upside-down could stem from many factors. Typically it is because the home was purchased at the height of the real estate market when values were higher. It could be the seller has refinanced and taken out equity in excess of the home's value. Whatever the reason the seller now needs to sell and is doing so by asking his mortgage company to participate in the sale by making up the difference in what is owed and what the home is now worth.
Why would a bank take less than what is owed?
The answer is a matter of economics. Short sales are a way a bank can benefit in the long run. If the seller defaults on the loan the bank ends up with a foreclosure which is much more costly for the bank.
What should a buyer of a short sale be prepared for?
Short sales differ from "normal" sales in that as a buyer you negotiate with the seller of the property who in turn negotiates with his mortgage company. The process is NOT a short one!
Buyers who need to be in a home by a specific date should not count on short sale contracts happening on time.
Are there benefits of purchasing a Short Sale?
In a word, yes. But short sales are NOT for everyone. To purchase a short sale one needs to be very flexible on a move in date. It also helps to have a lot of patience and to work with people who have been trained and have experience negotiating with lenders.
In the end, if one has the time, patience and can move quickly when the deal is approved, you stand to purchase a home that is slightly under the value of others in the neighborhood.
Typically a short sale is a home that is still occupied by the owner. It stands a better chance of being in good condition, as compared to a foreclosure that may have been vacant for many months.
Common Pitfalls of Short Sales
Untrained agents will price a short sale so low that it will attract offers. The reason they do this is to get the transaction started. For instance if the short sale mortgage is a VA, the transaction cannot be input into the system until there is an offer. Getting an offer is the first step in getting started.
Sadly that price may not be the price the VA mortgage holder is willing to accept, which means the first buyer will either have to raise their agreed upon price or walk away from the transaction.
The seller and the listing agent set the price without a blessing from the bank (except in FHA Short Sales). Then when the bank comes back with an offer that is higher, the buyer feels as though they have been subjected to a "bait and switch" technique that is unethical and illegal. This is the system we are required to work under. Without guidance from the bank, it's hard to know in advance what they will be willing accept, so the whole transaction is worked in reverse.
Other pitfalls arise when the transaction is being handled by untrained agents or 3rd party companies. I'm not saying all are bad, but as with any business there are good ones and not so good ones.
Personally I had a bad experience with a 3rd party company last year. They came to me with the referral for a condo to sell which I did quickly. The nightmare began when the 3rd party company stopped communicating with me. It made me look bad to the selling agent who brought the buyer, I was rendered helpless! Eventually the 3rd party company moved away in the night! The telephone number was disconnected and I no longer had a contact. No deal, just a pile of unless paperwork for a sale that was never consummated.
Since then I have taken matters into my own hands and now have organized a Short Sale Division in my company that takes care of all contact, communication and negotiation. This way I take responsibility for making things happen. When something isn't happening I know it's not for me not trying!
Short Sales Buyers and Sellers are Protected in Colorado
Because of the nature of Short Sales, in Colorado we have a Short Sale Addendum that is part of the Colorado Contract. It provides an escape for either party or any reason. Gulp. Yes, a buyer or seller can withdraw from the contract if the transaction is not working out for them.
A seller may opt to do this if the bank requires them to make up the deficiency for the sale. In this case the seller may just tell the bank to take the property back.
For buyers who only have so much patience or time, they may decide they just can't wait any longer. When that happens they can opt out of the contract.
In Summary of Short Sales for Buyers
Be prepared to wait for a response. Having an open mind and no particular deadline is the best way to go.
Enlist the aid of an experienced Colorado broker who has been to the Short Sale closing table before. Communicate with them on a weekly basis, not daily. If you don't have the patience, don't play the short sale game.
If you do, more power to you. There are plenty of very nice homes available for you to seek out.