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Short Sales
BUYING A HOME
The biggest problem with purchasing a home that is being sold short can be the attorneys and agents who are involved in the transaction. As short sales have become increasingly prevalent, many agents and have attorneys have come to the realization that if they don't do short sales, they eliminate their abilty to participate in nearly half of all transactions.
With this realization has come a huge problem. Real estate agents and real estate attorneys are starting to tout themselves as "short sale experts" with little knowledge of the process. While short sales aren't rocket science, they do take practice as well as a understanding of the process. The process is detail-oriented and the smallest mistakes can lead to delays that can run weeks or months.
If you think you may be interested in purchasing a short sale, make sure that your agent has experience with these transactions. And before you make an offer on a short sale, it is perhaps even more important that you confirm that the seller's agent and seller's attorney know what they are doing.
Are Short Sales A Good Deal for a Buyer?
It is important to note that while the general public tends to believe that a "short sale" will be a "good deal" for a buyer, whether a sale is "short" has more to do with the equity position of the property's owner than it does to value. Here is an example of how this plays out:
Deal 1: Current owner paid $200,000 on June 1, 2009 -- putting 5% down and borrowing the remaining $190,000 based upon two mortgages. Today, the owner is selling his home for $175,000. Because the seller still owes $184,000 and this amount is more than what the sale is expected to generate, this sale will be a "short sale". With two loans to be settled for less than full value, the buyer can expect to close in anywhere from 60 to 180 days. This lengthy time
will be dependent on the seller returning requested information and the seller's lender making a final determination as to acceptable terms surrounding the sale.
Deal 2: Current owner paid $200,000 on June 1, 2009 for an almost identical unit -- using cash to finance the transaction. Today, this owner is selling his home for $150,000. There is no mortgage against the property, so the sale is conventional and not "short". The buyer can purchase this property for $150,000 and expect to reasonably close in 45 days if they are procuring a loan. The 45 days is a function of how long it can take a buyer to get a loan
approved and is largely depending on how cooperative you are, as a buyer.
In the described scenario above, the non-short sale might be a better deal for a myriad of reason, including that the price is lower and the closing date might be considerably sooner. It illustrates how a short sale may not always be the best deal -- though it could be.
One of the upsides to buying a short sale is that a lender will usually focus on the objective value of a property, whereas in a conventional sale a seller may use emotions to determine their own perception of value -- regardless of whether it comports with the current market. Unless there is a tax consequence, a seller who is participating in a short sale usually does not care about the selling price provided that their future liability is eliminated (i.e., that the lender waives their right to pursue a
deficiency).
Is The Price of a Short Sale Really What I'm Going to Pay?
Maybe. And maybe not. There is no penalty for sellers and/or their agents for advertising properties for an amount less than what the third-party lender who must approve the deal will be willing to take. It is important to ask whether the price is an "approved" one (which would suggest that the lender is actually willing to take the advertised price if such an offer is received).
I Found A Short Sale and Am Now Being Told I Have to Pay a "Processing" or "Expediting" Fee. Can You Explain?
When a short sale contract is being negotiated, a seller's agent may spring onto the buyer that the buyer will be required to pay a "processing" or "expediting" fee to a third-party company. There is both good news and bad news if this happens.
Good News: Being told this upfront means that the seller's agent or attorney is knowledgeable enough to know that they either can't -- or won't -- do the short sale by themselves.
Bad News: You are paying for the seller's agent or attorney to escape from most of the time-consuming work. To offset this, you need to calculate this cost into what you are paying to determine if this is the right "deal" for you. It is also important to note that there is some debate about the legality of a buyer paying fees for the seller -- even if disclosed on the HUD.
Buying a short sale can be an incredible opportunity to buy a home at a low price. But using an inexperienced agent can be a costly mistake.
To see which homes are being "sold short" in various Chicago areas, you can click here.
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