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
Bill Nye Realty, Inc.
Licensed in Florida