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Updated about 4 years ago, 11/17/2020
Thoughts on Short Sales
I've come across several properties that are short sale on the MLS. Could anyone provide me with their own insight or knowledge of these in terms of pros and cons or the general process? Thanks in advance!
-Alex
Generally speaking a short sale is defined as when there is more money owed on a property than that properties value. The lien holders agree to take a loss and want to get rid of the property. There were a lot of short sales in 2008-2009 when the housing market crashed.
Pros:
- Less competition
- A lot of short sales are good value add deals.
Cons:
- Usually sold as is.
- Getting a short sale approved usually takes a long time (I know it doesnt make sense why they are called short sales...)
- Most lenders prefer all cash buyers
Yes they have a dumb name. Its anything but short. Even though I offered full price on one after 2 months I backed out because it was still pending....
@Sean McDonnell Thank you Sean! This really helps. I appreciate your response!
@Aaron Barber Wow, that is really unfortunate! So best case scenario is if the bank has already approved the short sale, correct? I saw one of these on the MLS that stated the property was available to close immediately, so I'm assuming that's already half the hurdle?
@Alejandra Tapia Short sales are called "short" because the lender isn't getting full repayment, so they're coming up "short". In terms of how long they take to close, they're exactly the opposite!
If a short sale is presented as "bank approved price of $XXX,XXX", you can still offer less but the bank has said that number is one they'll accept. If there's a price that the bank has not yet approved, it could just be a shot in the dark. Those will often include language in the listing that says "lender approval required" or "third party approval required".
Banks typically are not very cooperative or easy to deal with. They'll set up all sorts of hoops for you to jump through RIGHT BLOODY NOW, but when you want answers from them, don't hold your breath. They'll get back to you when they feel like it.
The last short sale I did took 9 months. I've heard other Realtors say they've seen them go out to 3 years.
In my last one, the first lien holder was BofA and the second was Chase. BofA agreed to a price of $399,000 and Chase agreed to $3,000, which came out of that $399,000.
As we were getting close to closing, BofA pushed the closing date out 5 different times without discussion or explanation. And at the last moment, Chase changed their mind and said they wouldn't settle for $3,000 - they demanded $8,500 to release their lien.
Normally, you would think that you would add the additional $5,500 to the loan, but if we did that, BofA would just take it because they're in first lien position and were still coming up short. My buyers had to bring that $5,500 in cash to closing to pay Chase.
In this case, it worked out. My buyers were not selling their primary residence as part of this transaction. They were going to rent it out after moving into the short sale property, so the closing date wasn't an issue like it would be for most buyers. They also had the $5,500 available and it was still a decent deal even with the added cost, so we actually ended up closing.
A newer trend I saw in Massachusetts is for the attorney who is negotiating the short sale to require a $5,000 fee at closing for his services. I saw one last year where the attorney demanded his $5,000 fee UP FRONT and was not refundable if the deal didn't close. Thankfully, these trends have not caught on in Maine where I now practice.
On top of all that, short sales are often abandoned. That presents its own set of problems, especially if the utilities are turned off. Mold, basement moisture that rusts the breaker panel, inspection difficulties, etc. Sometimes the copper has been stolen and the property vandalized. Some will allow you to reactivate utilities at your expense, some will not.
I've even see a few where the home is occupied and there are no interior or exterior inspections allowed.
Bottom line: If you don't mind the significantly increased hassle factor, uncertain closing dates and final price, you'll love short sales.
Originally posted by @Alejandra Tapia:
@Aaron Barber Wow, that is really unfortunate! So best case scenario is if the bank has already approved the short sale, correct? I saw one of these on the MLS that stated the property was available to close immediately, so I'm assuming that's already half the hurdle?
Not really, the one I was looking at was already approved by the bank. They just took forever. Maybe they will be quicker since they state the property is available to close immediately. But I wouldn't hold my breath...
Just go into it with the idea its going to take at least 4-6 months to close. Then if its less, you will be pleasantly surprised.
#3 Foreclosures Contributor
- Paradise, CA
i'd be curious how you could tell it was a short sale based on an MLS listing. does it actually say in the listing, "short sale".
@Ron S.properties listed on mls in CA will say short sale if they are a short sale. The listing agent is required to tell potential buyers when the sale of the home is a short sale. A house might be listed at a certain price on a short sale and the bank has to approve it. The bank might not approve the listed price so the buyer needs to be aware of that.
#3 Foreclosures Contributor
- Paradise, CA
Originally posted by @Gordon Cuffe:
@Ron S.properties listed on mls in CA will say short sale if they are a short sale. The listing agent is required to tell potential buyers when the sale of the home is a short sale. A house might be listed at a certain price on a short sale and the bank has to approve it. The bank might not approve the listed price so the buyer needs to be aware of that.
I did not successfully articulate my point, which was, until you go through the bank approval process, how would you know it's a short sale that you can call a short sale on MLS.
Typically in the MLS you check a "special listing condition" that states if it has a NOD recorded or if it's a short sale. You tag listings on the MLS as short sales if the property has no equity or if it will be submitted for short sale review with the servicers.
Most servicers quote 45-90 days for a decision and then you have the closing period. So they take about 3-4 months if things move smoothly. They could be shorter, but often are longer, depending on the complications of the transaction such as; How many liens are on title, how cooperate are the seller/borrower(s), and what does the banks value come back at, etc.
A short sale does not mean it's a good deal. It just so happens that sometimes you get good deals on short sales. Many times you do not.
@Alejandra Tapia
I have processed a ton In escrow. Message me if you want to chat about them!
@Charity Skore Thank you, Charity! Much appreciated!