This week I've been immersed in short sale information from classes, consultations to consumer. Short sales get their name from the value of home being "shorter" (think less than) the amount owed on the mortgage.
A short sale comes into play when the homeowner finds it necessary to sell his home, but does not have the cash to pay the difference to the mortgage company after his home sells for the current market value.
In some instances the value of the home is worth less because the homeowner purchased it at the top of our market. He may have paid too much for it at that time or over-improved it along the way.
Many homeowners find themselves in a short sale position not so much because the neighborhood has devalued, but because they put nothing down on the house and the property has not appreciated enough to cover the selling expenses.
Back in the days when buyers had to pay a down-payment on a mortgage, that down-payment was often the same amount the homeowner would need to pay when they went to sell. At least then the homeowner had some equity in the home, even if it was their initial down-payment, they were than able to use that to meet sales expenses.
Lately we have seen many people purchase homes with no money down. None. Nada.
Zero down loans really spoiled us. The sting is now felt when the homeowner has to sell and the values have been static or worse yet, declining in the neighborhood. The homeowner who was poor to begin with, now finds himself unable to come up with the cash to sell the home.
So he asks the bank to take less.
This week I've been drowning in short sale properties. It seems they are everywhere. I heard a statistic from a short sale accommodator that 65% of our Denver real estate inventory consists of short sales. This is 6 1/2 out of ten properties we show we will have to deal with the uncertain
From a buyer's perspective a short sale is not a bad thing, unless the buyer needs to have a specific date to count on to close.
Short sales do not provide that luxury. In fact closing on short sale property has about the same odds as winning the lottery.
OK, I made that up.
You probably have a better chance at winning the lottery than getting a return telephone call from a lender handling the short sale.
That my friend is the truth.
According to the local title companies only 30% of the short sales on the market ever actually get to a closing table.
One would have to assume 70% go into foreclosure.
With odds like that, short sales are the best deal for people who really don't need to buy a house.
The prime candidate for a short sale property is a wholesale investor who has time to fiddle around waiting for an answer (this is MONTHS not weeks my friend.)
Other candidates are people who have a place to live and don't care or rather won't stress out about not getting a professional response from the bank.
So, if you are a bargain hunter and have the time, money and luxury of waiting do so. Just remember if you are the lucky bidder, oh yes I said bidder! Short sales don't "close the gate" after a bid/offer is recieved on the home. They continue to collect bids until they finally review the file.
That's when the telephone rings and you are told, "We have 10 bids on 29 Main St. You need to resubmit your HIGHEST and BEST bid and we will get back to you."
No folks, I'm NOT making this up.
It is how business is being done right now. Get used to it. Ask around. You will hear more horror stories than I care to relate here.
Should a family relocating to Denver purchase a short sale?
That depends. Only you the transferee can answer that question. Based on the above information, you will need to tell me.
Can You Live with the consequences?
- Uncertain date for closing
- Uncertain actual price. The advertised list price is 99% of the time an educated guess. The seller and the listing agent set the price without the bank's approval. The actually sale price could and may be different
- The property is sold "as is." That doesn't mean a buyer can't inspect, they can and should. What it means is whatever you find will be your issue and your issue alone when you are the winning bidder. Make sure you can live with the consequences.
Are there good deals out there?
Yes, but be sure to use the right numbers to determine your deal. Factor in rehab costs. Factor in a little extra fudge when you find yet another thing that needs fixing.
Know the neighborhood.
Don't run all over town comparing homes in a price range. Pick a neighborhood and judge the value based on that neighborhood. Review the numbers don't take someone's advice based on what the house sold for once upon a time. That measure is only good for conversation. It's trivia.
Good sold comparables come from finding similar homes, in same neighborhood, same style, same quality construction within 6 months or less.
Compare apples to apples and you should be ok.