John's Florida Real Estate Blog

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Is the Bloom Off the Short Sale Rose? A View From Zephyrhills, Florida

Sometimes it seems like we are inundated with info on short sales. Office managers, spam e-mails, seminar invitations, and blogs tout their prominence in today's market. But recently I am beginning so see a backlash, if you will, concerning these transactions. They have never appealed much to me, and it appears that to many others the positives of short sales are becoming few and far between. Here are some of the signs that are leading me to this conclusion.

  • Most banks are less than amicable when you have to deal with them and their loss mitigation departments. Some are down right rude.
  • Buyers' credit records are still damaged. And I am not so sure that the damage is not closer to what a foreclosure would cause than we are being told.
  • If a second mortgage is involved the fun can really begin. The company that is second in line knows that they are toast no matter what happens, and many of my colleagues have seen them say NO to some token payment and force the first mortgage holder to go through with the foreclosure process. Lenders do not seem to want to cooperate. Even though they underwrote these subprime loans that now have homeowners in big trouble.
  • In a real estate "Questions and Answer" forum that I participate in, a recent buyer asked if he should be concerned that he had not received a response from a bank concerning his purchase offer, and it had been TEN DAYS! Other agents and I told him, "Count your waiting time in weeks, if not months. Banks take their time when responding to short sales offers!" Be ready to cool your heels. And consider the point that follows below.
  • I have heard that over three-quarters (75%) of these transactions never reach the closing table. How many agents, or buyers for that matter, want to work for weeks and months on deals that will end up costing them money and time they can never recover? Many of my buyers will not even consider short sales and ask me to exclude them from my search results. And these are investors with CASH to spend! But a buyer paying cash is annoyed at being treated like trash when they are ready to fork over hard funds for these properties.
  • Buyers who lock in interest rates will often find that their rate locks will expire before they can close on a short sale, and they may end up paying a higher rate if they finally do close. Short sales can take 90+ days to close. More conventional sales normally take a month or less, if they are being financed. A cash deal can close in a couple of weeks.
  • Insurance binders also have a life expectancy. And here in Florida the rates change as often as an airline schedule. Guess which way the premiums almost always go? That´s right, up. So as the short sale ordeal goes on and on, the buyers have to renew their binders and will likely pay more.
  • How about the timetables for inspections and financing? The long drawn out process of a short sale throws these all off. Why would a buyer want to spend money on inspections or surveys if in the end the offer is turned down? So forget forcing a buyer to get an inspection in 15 business days. You will probably not even have an accepted contract by then.
  • Agents working with buyers dislike short sales and many will not show them. Why? Because the lenders will not guarantee a reasonable commission. The agent has no idea of what they will make until the lender accepts the deal. The seller can say 4%, but it will be contingent on the acceptance of the lender, a third party. Our local MLS had put in place a rule saying that whatever the listing agent put in the MLS, his or her broker would be required to pay the cooperating broker. Now NAR (always looking out for our best interests(?) has said they cannot do this. So our MLS is back to saying they can put in what the seller wants, but must state that it can be reduced at the lenders' whim.
  • Many foreclosure properties are now in the same price range, or lower, as those that are sold as short sales. And these guarantee a commission for the agent and can close within a very reasonable amount of time. Why hassle with a short sale when a quick and relatively easy sale from the bank's foreclosure inventory can accomplish the same goals for both buyer and agent?
  • I have heard agents tell me how WONDERFUL short sales are and that they are the wave of the foreseeable future. But I have also seen and heard these same agents tearing their hair out over the hassles. From what I am observing I do not believe that the majority of them have had good outcomes. Sounds like what one of my friends calls a lot of 50¢ an hour jobs. I do not mind working, and even overworking, for my customers, but ramming ones head into a brick wall is not what I consider productive work.
  • To further demonstrate the agents' AND buyers' distaste for short sales, have you noticed how in many MLS remarks and public ads you see in capital letters the following phrase: NOT A SHORT SALE? Doesn't that speak volumes?

Now I am sure there are agents out there that will tell me they are living "high on the hog" from handling these types of deals. However, it is my opinion that until the lenders start to make it more attractive for agents to handle short sales, their popularity will continue to decrease. At this point I believe that the negatives greatly outway the positives. My personal opinion! Does this mean you should never go after a short sale? Not at all! But consider the points I have given above, do your homework carefully, and be very patient.

For more information on this topic, or if you would like to contact me, you can call me at: 813-783-4444 or e-mail me at: www.jelwell.century21bnr.com

John Elwell - REALTOR

CENTURY 21

Bill Nye Realty, Inc.

813-783-4444

Licensed in Florida

 

Comment balloon 3 commentsJohn Elwell • August 01 2008 12:52PM

Comments

John, you make some valid points. However, if a short sales are handled properly, they can be a very good source of income. I agree that the banks are not friendly toward real estate professionals. They should, in my opinion, be kissing our butts for disposing of their problem loans.

 

The problems you describe all seem to be caused by agents who don't know how to handle the process from beginning to end.  An experienced short sale Realtor knows that there are 3 steps to the process.

 

1. The initial interview - This determines if the property is eligible for short sale marketing.

2. Pricing and marketing the property properly.

3. Negotiating with the 3rd Party Lender.

 

Once the property goes under contract, the process is typically 6 - 8 weeks.  Paperwork the bank requires must all be sent with the contract and correct. Some of the problems you describe are caused by incomplete paperwork, which causes delays.  If the property is accurately priced reflecting current market value, the BPO and/or appraisal will reflect that.  Banks don't want to foreclose the property. They will usually have a policy regarding paying real estate commissions that can be determined up front. Once approved, they will also give a time frame to close, usually 20-30 days. Inspections can be performed during this time. However, I market properties AS-IS and suggest the buyer inspect prior to writing an offer.

Posted by Kevin Batdorf (Kevin Batdorf (Batdorf & Associates, Inc., St. Pete, FL)) about 11 years ago
Sincere congratulations, sounds like it is working okay for you. I am also sure that if one is lucky enough to work with a smaller lender rather than one of the giants, service relations might be much friendlier. But I can tell you that from what others are telling me around the country and what I have run into myself, with the larger companies this is frequently not the case. And the agents I know do know the process well. 2 months is still a long time for a lender to drag things out. The lenders are the roadblock that agents are just tired of trying to deal with. If we had a decent market, my guess is that short sales would languish since agents would not feel forced to accept them in order to survive the poor housing market that now exists. A big part of the problem is communications with the lender. I know agents that have tried over and over and over with no success to contact someone, anyone at the bank. (yes, they had permission from the homeowner that had been sent to the lender before they called). I am glad you are having luck with these, but I truly want no part of them until the banks clean up their acts. At this point I see no indications that they are making any progress in this area. The fact that attorneys are trying to get us to refer sellers to them so they can help the process along says a lot about how difficult the banks are making the process. I am doing much better with foreclosures and my conventional sales, and with fewer ulcers since I gave up on short sales. My buyers are much happier as well since they can get foreclosures for the same money or less nowadays. My buyers and I just got tired of being circus monkeys and jumping through hoops for banks, that unlike your experiences, frequently do not commit to a commission until the process is well along.
Posted by John Elwell, You Deserve a Full-Time Agent, Not Reduced Results (CENTURY 21 Bill Nye Realty, Inc.) about 11 years ago

Hi John.  I'm sorry to disagree, but I have been a short sale specialist for over 4 years now and I have no problems with them that some persistence and hard work doesn't solve.  Are they the easiest transactions? No, far from it.  Do I sometimes dream of sending Donald Trump into some lenders' loss mitigation departments to tell the whole office "You're Fired!"? Yes.  But I still do them, I do them well and am rewarded for my work, both financially and by the great feeling I get from helping people facing the prospect of foreclosure.

Many agents who seem to have the most frustration transacting Short Sales are agents who like simple and more easy, traditional transactions.  There is nothing wrong with that, but a Short Sale has never been that (at least in my experience) and will likely never will be.  I have seen them, first hand, literally save homeowners from foreclosure and allow them to get on with their lives in a way that they would otherwise not be able to. So while I may work harder for less money than I make in easier transactions, I sleep well at night knowing that because short sales exist that I can make a difference in my clients' lives.

Posted by Steve Shatsky about 11 years ago

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