Most Short Sales are what I call "FAKE listings."
Only 1 in 20 sells.
In
I briefly went over Short Sales when I defined all SOL Homes including REOs, Bank Owned Etc. But Short Sales need more attention, as they are very tricky and misleading.
A Short Sale is a listing for sale that requires "Third Party Approval." That means that 1, or 2!!, banks are owed MORE than the list price.
For Example:
- Home is bought for $500,000 with 5%, or $25k down.
- Home has a $475,000 mortgage.
- Value dropped below $475,000
- If the seller is facing foreclosure, they slash their price for a quick sale
- A Short Sale is attempted at $450,000
- If the bank accepts it, the BANK eats $25,000 (see Phantom tax for Seller)
The Theory Behind Short Sales: Banks would be better off to accept a loss now, versus going through the legal expense of a foreclosure, just to end up selling it for less later. Win win, right? Wrong. Read on.
Bank Trick 1: "Sure, we will consider a Short Sale, IF YOU KEEP PAYING US."
Yep, a bank sees a desperate seller, and a potential $50,000 loss. They then mislead them into thinking that they might consider taking a bath on the deal IF the owner keeps paying their mortgage. The bank then ignores offers for 2-4 months in order to squeeze out another $2,000 x 4 or $8,000 profit. Brilliant. The bank then takes it over after foreclosure and sells it for $10,000 OVER the Short Sale List price. $18,000 better off, NOT doing a Short Sale.
Bank Trick 2: Sometimes the bank has mortgage insurance and it is CHEAPER for them to let it foreclose versus allowing a Short Sale, which is NOT insured.
For example, I was at an NVAR short sale class and a Realtor asked the speaker, "Why after 60 days, calling 2 times a day (120 calls) with a full price Short Sale offer, did the bank not call us back?" The speaker claimed it was due to an overworked staff.
I asked:
- Did they tell you they would consider a Short Sale IF you kept paying $3,000 a month? The answer was Yes.
- Was the home bought with Mortgage insurance? The answer was Yes.
- Bingo! Why eat $50,000, by accepting the low offer, if the bank a) gets $3,000 a month and b) is insured against a foreclosure and NOT a Short Sale.
Another example:
- A seller in Clarendon 1021 tries to sell his property and profit $30,000 at $600k. (Yeah right!)
- Then he drops it to $570,000. No bites, but the foreclosure is pending!
- They SLASH it to $530,000
(sidenote, I get flooded with calls from friend that want to pick it up for a steal at $470,000! I said that it was impossible... since I'd buy if that price was a possibility.) - It sits for another month, then the listing disappears after 100 days!
- A month later it is "bank owned" and listed for $560,000
- It sells for $540,000 in 26 days.
- 20 Active "Short Sales" in Reston (watch out for "Not a Short Sale" listings)
- 73 were Withdrawn, or Expired.
- 3 Under Contract (1 under contract since Nov 2007! Many UC do not close.)
Only 3 sold in the last 24 months. 3 closed sales in 100 attempts!
- Dropped From $480k to $400k, sold at $400k (Full list)
- Dropped from $430k to $400k sold for $380k (5% under list)
- Dropped from $380k to $350k sold for $345k (2% under list)
- 25 Actives
- 37 Withdrawn
Only 3 have sold in ALL price ranges in all of Arlington in the last 2 years.
- Listed at $335k, sold for $335
- Listed at 700k dropped to $620, sold for $600k
- Listed at 480k dropped to $420k sold for $420.
In Alexandria, only 8 have closed in 2 years out of 80 attempts.
(most were at list, or 2% under list, some were $20k over list)
I show this, so you don't think "Wow, they are desperate, we can now lowball. These 3 were the ONLY successful ones. Probably because they gave the bank a real offer.
Ok, so enough already with the War N Peace, what should I do?
Advice for Regular Sellers
- Do NOT blindly compete with a Short Sale. If you get an inexperienced agent, and they see 3 Short Sales in your neighborhood, and they have you compete against these "fake" listings, you can lose $25,000. Hope you "saved a ton" on that agent. (see Realtor Rebates)
- Watch out for the bank tricks to "keep paying." Talk to a lawyer that specializes in bankruptcy to help guide you. They MIGHT recommend stopping payments immediately and saving it up for a rental.
- Use an agent that has completed (as in CLOSED, not listed) at least 1 Short Sale.
- If you have mortgage insurance, be extra careful, the bank might prefer that you foreclose.
- Get bank approval for your list price before listing it. Put in the listing remarks "List Price approved." Otherwise you will get lumped into all the other Fake Listings and ignored by smart buyer agents.
- Avoid Short Sales, or expect to wait 2-3 months and expect to put in 5-10 offers on Short Sales before one is accepted. A Short Sale in my building now has 4 offers. He says he is expecting a reply any day now... sorry, but yeah right!
- Look for Approved Short Sales. Ask if the bank has been contacted and if a price has been approved. Multiply time estimates by 4. Ie. 3 days= 12 days.
- Consider offering near, full or OVER list. What! Over list! Are you nuts! CNN says this is a BUYER's Market! I know it sounds crazy, but if you and your agent see the price is well under your other options... I've said time and time again, I'd rather you pay $10,000 OVER list on a house that is $50,000 under the competition versus "saving" $50,000 on a home that is overpriced by $100,000. Ignore list price, focus on VALUE.
- Focus on Bank Owned. These units get replies in a day or two. (See video of Realtor buying a Bank Owned property)
If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client's "deal" not turn into destroying his own investment).
Sidenote: A home should NOT go under contract until the BANK signs it, but many agents will make this mistake. The seller signing it means nothing, and it should stay on the market as Active.
- Updated Correction 2-29-08 I'd like to thank DAAR CEO Jeanette Newton for this correction. I'm excited that she is participating in blogging!
- My above sidenote about when to go Under Contract is 100% wrong. So let me explain... IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.
Here are a sellers' options (please comment if you know of more options) : - 1) A seller can counter the contract and add in a "Kick Out" so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means "there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.")
- 2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the "offers" unsigned to the bank. Why not try and keep your home as "Active" for as long as possible? Some banks will require the seller to sign, so try #3.
- 3) Or lastly, the seller might add "acceptance of the contract is contingent on lender approval." or "contingent upon review and approval of the lender." That one line can keep it "Active." I am not a lawyer, so please verify any additions you make to a contract with a lawyer.
- As a buyer agent I would prefer it to be "Under Contract" if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with "Increase your price $2,000 and we will place it UC/KO."
New Trick: Now that Short Sales are getting a bad wrap, some listing agents are NOT disclosing that it is a Short Sale.
Conclusion: Short Sales suck.
Question: Realtors, should you have a "No Show" policy for Short Sales that aren't approved by the bank? Are they really "for sale" if the owner (the bank) doesn't even know about it? Feel free to just tell your clients "read this blog."
-Written by Frank Borges LL0SA- Broker FranklyRealty.com
(please report typos)
71 COMMENTS SO FAR. ADD YOUR COMMENTS.:
This is an informative and impressive dissertation. Thank you... frankly, I appreciate your time and generosity.
This is an incredibly good snapshot of what we're all facing. Here's my question, if there is no chance of selling the house, why are so many agents flocking to list them? REO's are usually a better deal for the buyer and an easier transaction, but even those have risks with lingering liens and truly as-is in most situations. It's just a big mess all the way around.
Matt,
They take the deals because many agents are starving and they HOPE that they might get a deal out of it. Even if there is only a 1 in 20 chance.
Very interesting. My experience with short sales has been that a lot of agents don't know how to deal with them. They don't understand the process and don't allow adequate time for the bank to examine the offer. The other thing is the banks take so long in processing the offers that the seller has no hope in selling the property before it forecloses.
Lot of great info Frank. 1 in 20 is pitiful. My market is saturated with short sales right now. I guess I need to do little research to see how they are faring.
Interesting stats - and I think you might even be light on the 1 in 20. I think the banks are overwhelmed, and have no idea how to manage the situation. I think they have a problem - they need more people, but how do you justify to your stockholders the hiring of more people for an enterprise that you know is going to lose money?
YAY! Someone said it! We have the same dismal statistics (last time I pulled it was something like 1/17). Even if you have a contract on one you have a 1 in 8 chance of it selling. I am dabbling in short sales as listings and can't stand it. Going back to referring it out to those that deal with them in volume!
Frank, in my broker's class that I just finished, an agent that specializes in foreclosure properties stated that the statistics are that only about 7% of short sales ever reach the settlement table in Virginia. Not a promising statistic for working with short sales.
This is heartening--there's so many short sales in our neighborhood--not a good sign. Thanks for this helpful post--
Frank,
Why should a short sale not be used for a comp by an appraiser? The sale price reflects the value to the buyer and the "short" status only reflects the amount of equity (or lack thereof) the seller has.
-b
Hey B,
Great question!
I have asked an appraiser to chime in on how they view Short Sales.
I believe, but I am not an appraiser, that distressed sales are not indicative of a normal supply and demand sale, or the going price.
I believe they make adjustments for Short Sales, Foreclosures and Auctions.
Also if a home is sold AS-IS, there is an additional $5,000 to $15,000 risk that the buyer is taking, and that might be put back into the equation when comparing it to another home with a normal home inspection.
Thanks for commenting. I'm open for debate on that.
My boss is all gung ho on short sales now (wants us to go to classes, etc.) but when I talked to a short sale "expert" in my area and found out how much work they are I said "forget it!" I could stay home and clean out my messy garage and feel more productive.
Doesn't this amount to deceptive advertising? Should the FTC look into it?
Hey Harriet,
I never really thought about that. I don't know who you would go after.
The seller and agent is disclosing that the listing is a "Short Sale," but the problem is people don't know that means "Fake Listing." So part of the problem is the consumers haven't been taught yet what it means.
Hence spending 4 or 5 hours putting together this post so more people do understand it.
Thanks
Frank
Frank,
I have learned a lot by reading your blog, especially the info on short sales. You are the first person who has explained why the banks drag their feet on these sales. Really appreciate the great info and the fun way you present it. Thanks!
Frank,
Just a clarification on your side note, Bank never signs the contract. They just agree to a short payoff in a statement that specifies the conditions of short sale that seller signs. I just closed one last thursday & next one is closing on wednesday next week we just got the statement today. Our office has closed at least 8-10 properties in last 6-8 months that were short sales.The key is to price the property with in 5-10% below the most recent comps. If you get an offer whcih is below that chances are bank will go ahead with the foreclosure.
I had done short sales in early 90's too. The key is if you have PMI then you are better off working with the insurance company than with the lender because they are the ones losing money bank will be covered for upto 25% of the loss any way ( It all depends on the numbers). The agent should also be prepared to ask the right questions and get all the details before accepting the listing. Listing agent should also order the title work ahead of time so that unexpected liens don't show up right before the settlement (HOA dues,Tax liens etc.)
It is a tedious work but it pays off. Short sales could be better buys than foreclosures if you do home work ahead of time. In this market I will take any property which has a chance of sellimg than over priced listings.
Wow, lots of info here, Frank. BUt I have to agree with a lot of what you say based on my experience. I feel badly for the sellers who ultimately never are able to get their home short sold and end in with a worse credit record due to foreclosure.
The thing is, we have been saying the banks are overwhelmed for a VERY long time, so when are they going to either hire more staff, or get their act together to deal with these issues - it won't get any easier if they move slowly as the list will just get longer. It's very hard to understand why a bank will only review 1 offer at a time when they have multiple offers on 1 property. Look at all the offers, pick the best one and move on.
Jeff
We increasingly encourage our home buyers looking for value to look at bank-owned rather than short sale. The banks may have delays, but nothing like the delays that you see when you need lender approval of a short sale.
John H.
Thanks Sanjeev for the clarification!
This is purely speculation, but I wonder if the banks are dragging their feet on dumping non-performing loans/properties to spread losses over time (quarters, years). They might fear Wall Street more than anything else.
Frank..you are so right....I thought it would be a major faux pau to mention this outloud..but you are only saying what many agents, I have talked to have thought for a long time. I have been asked to list a couple of homes for short sale...but I have declined, would love the buyer traffic, but not enough to take the plunge.....
Konnie "MAC" McKee
This is what happens when real estate agents decide one day they are "short sale experts" after taking a 3 hr class.
We have had NO problem getting our deals accepted. We routinely buy property at 30%-45% below current market value and we're making a killing.
Our hardest task is getting the inexperienced agent out of our way.
Your post has merit in regards to agents I guess, but we NEVER let an agent handle our short sales and we ALWAYS make sure we have a signed contract.
In order to get the big discounts you have to have two things:
1. You MUST control the BPO and substantiate your value
2.Prepare and support a comprehensive short sale package
Otherwise your deal is dead.
What you wroite is a snapshot of short sales trying to be executed by people who have no business trying to execute them.
We have been doing shorts for 5 years...before they became cool and yes, we executed them even in a Seller's market.
I would starve on a 5% closing ratio.
No BS..we close over 80% of the shorts we take on as deals and that's 4-8 closings per month.
Why...because we are the principals in the transaction and the banks we deal with already know we are going to close and we give them the information they need to allow them to accept the short sale.
It would be so much easier if real estate agents would simply get out of the short sale business.
Just got a review on BusinessWeek:
http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/short_sales_why.html
Or
http://tinyurl.com/yunmwr
You are correct Frank. There is a lot of deception taking place with these transactions. However, knowing this, buyers continue to flock to them thinking they will "get lucky." Hopefully, most of these will be finished with by the end of this year.
Good for you Frank on getting a mention in Business Week. Nice!!
Frank, I've done 2 short sales--one representing the seller and one the buyer. They really aren't that difficult, just long-drawn out processes. I'm in Georgia, but I really don't think location is what is important. It's asking the right questions with Loss Mitigation. And Sanjeev is right, the bank signs nothing. You just get this little approval letter outlining what amount must be wired when and to whom for the sale to be approved.
They both took about 65 days.
But, your question was about showing them. Show them only to investors. Only they have the stomach for the waiting game.
Very informative. I just finally closed on my new home that was listed as a short sale on Monday. I originally put an offer in on the place in September. It is now the end of February, so it took almost FIVE months of back-and-forth. Luckily I had 6 months left on my lease at my apartment when I started this process or there is NO WAY I ever could have waited that long. It basically came down to the seller hadn't made a payment in over a year by then and the bank extended the foreclosure date three times before they finally gave up and realized it was their only chance to sell it in this market (Northern CA).
Frank:
This is a great write up.
THANKS,
Billy Burke
I have seen similar comments from realtors in our area, but never explained this well. Nice job!
How about properties for sale that are being advertised as "short sales" but no evidence can be found in deeds etc that shows the loan is actually more than the sales price.
Is the term "short sale" also being used to trick buyers into thinking they are getting a deal just to sell the house?
You know Frank, this comment goes against everything that I thought you stood for:
"If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client's "deal" not turn into destroying his own investment)."
Neighborhoods and deals should be controlled by true market forces, not manipulation. This is no better than fudging the days on the market stat. Plus isn't trying to manipulate an appraiser illegal?
Hey Blogger:
Not sure if I got your question, so I will answer it a couple of ways.
There is not going to be evidence of a "Short Sale" on the deed, as far as I know.
A Short Sale is when
1)a seller knows they can't pay the mortgage and
2) they know it won't sell for the loan amount.
Neither of those get recorded on the deed.
But are you saying that you looked up the deed and it said the loan was for $300k but the "Short Sale" is for $350k? And it doesn't compute?
I don't know. Maybe there is another trust that isn't easy to find in the court records?
But I would see no benefit as a marketing tool calling something a Short Sale when it is not. If anything, the opposite is occuring. Agents are NOT disclosing that they are short sales. They get offers and then they say "we are going to show this to the bank"
So I don't see trickery in pretending to be a short sale.
Hey Anonymous!
Great catch! I'm flattered that you keep track of the blog to get that central theme. Maybe you can help me with a blog slogan.
Also I was going to address your point when I wrote it, but heck, the damn thing was getting kinda long!
You wrote:
You know Frank, this comment goes against everything that I thought you stood for:
"If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client's "deal" not turn into destroying his own investment)."
Neighborhoods and deals should be controlled by true market forces, not manipulation. This is no better than fudging the days on the market stat. Plus isn't trying to manipulate an appraiser illegal?"
End quote.
I have tried to get an appraiser to chime in about Short Sales and Foreclosures. I have asked them "Do you make adjustments for a distressed sale."
I am pretty sure the answer is yes.
Even some tax records say if a transaction was not normal.
My job is to do everything possible to save my client money and value (now and in the future). If I help somebody buy a place for $25,000 under "market," I want to make SURE that the appraiser sees that it is a short sale.
I'm for Full Disclosure and I want to fully make sure the appraiser knows it was a distress sale. I HOPE they will take that into account, but I can't promise anything.
It is up to them to decide. My job is to make sure they see it with an ALL CAPS alert. And no, I don't think a $400k Short Sale (as-as, no electricity, a flooded basement, with 6 months of hassle and 4 higher offers that fell out of contract) should be seen equally to a $450k similar home.
Therefore, not a TRUE comp, but maybe a comp... with adjustments.
Also not only do appraisers look at it, other BUYER AGENTS look at it. And again buying something with NO ELECTRICITY (which is sometimes the case) will result in a lower price to account for the "what if the HVAC is broken" and therefore not a true comp.
Thanks for the catch! Hope you will continue to post comments. Please let me know if this answer was insufficient.
Wow, lots of great info here Frank. Unfortunately much of it is FranklyInaccurate. Case in point: "Bank trick # 2". MI companies will pay a claim on a short sale but they must approve the terms.
That's a good explanation Frank, but I still don't agree with this part of the statement: "NOT TO BE USED AS A COMP."
Why? During the run up when people were adding closing costs to the price of houses as a new list price when the contracts were written was anybody marking the MLS with statements such as "NOT TO BE USED AS A COMP"? No, they were using these 100% financed number games as comps, which helped send prices into orbit.
What's good for the ride up is good for the ride down too Frank.
Hey Anonymous #2,
Pretty funny.
Never thought of it that way. In 2005 (when I gave out tshirts saying "I just bought a house during the 05 Housing bubble)
I did get a place bid up from $499,000 to $600,000. Yes $101,000! So maybe I should have put "NOT TO USE AS COMP, BUYER WAS CRAZY AND BID UP DURING ESCALATION DAYS"
But the difference is who I represent. I don't represent the buyer in that above example.
But if I was about to help a buyer across the street, I might change MY bid up listing to say "Attn: Appraisers and Agents, this property was bid up by 8 agents by a great listing agent, do not expect this run up again."
Or at least a "Call Listing Agent for details on this unusual sale."
Anything to help my client, not other people's clients. As long as it is legal and in my opinion ethical.
As for disclosing the run up, who else gave their clients "I bought in the bubble tshirts" and they were fine with it. They bought the home to live in for 10 years.
Also some of these people locked in at 5%. The difference between that and 6.5% today is HUGE. Yes their $700k home may now be worth $650k but they pay $10,000 less per year in mortgage, so that helps some. Not 100%, but some.
Dear FranklyIncorrect,
Why post anonymously? Can't we all be friends? At least give me a fake name... like Rex. When I was 15, a friend of mine was an employee at an Ice Cream store and used Rex as his fake name.
Too much info?
Anyhow, thank you for your decent opinion.
Yes of course a Mortgage Insurance company might agree to a settlement. I had never thought of that!
But, and correct me if I am wrong, the default insurance contract does not cover Short Sale sales.
By default, if a Short Sale occurs, they will not pay out.
I guess if you are smart enough to ALSO contact the MI company (how you would know that one exists is beyond me)... I guess I hadn't thought about that. I guess they could be pursuaded.
"Dear MI, you will lose $100,000 if this goes to foreclosure. Will you take a $80k loss now"
Yes? Ok, let me now go ask the bank.
Pretty smart! If you have months and months at your leisure.
Still, I believe the post is true that the MI might be why the bank doesn't care to deal with you. They get insured on that deal, so why not answer the other 382 calls first for other Short Sales?
Thank you for contributing. I hope you will sign up and keep tabs on me!
I am going through a short sale now. I'm a buyer. OLP of the house 200k when it was reduced to 170k I put a contract on this property for 165k. This was ***Nov 7th 2007***. And as of today still no word from the bank. oh yah..when they wanted to void out the home warranty and reduce the agents commission..they got in touch with us. I've had 3 closing dates 12/28/07, 1/15/08 and 2/25/08. Now i found out the offer will be sent to the BPO ???? The only problem i have with this experience is the lack of communication and in my case lack of knowledge on what i was getting into. I think if the banks take a more professional attitude and have a definite process and an occasional update maybe the transaction will go smoother. If the offer is to low they should inform you within 2 weeks not 2 months. I cant imagine having money (an offer)on my desk for 3 to 4 months and complain that I'm not making any money. The kids and i are being strong and patient and i hope the sale goes...4 months and counting.
Great reading, Frank! Thanks for putting it together.
NEW RECOMMENDATION
I have an idea.
How about some suggestions for reducing Fake Listings, which don't help anybody.
Something that NVAR, the Northern Virginia Association of Realtors, can do is pressure MRIS (which hosts the local MLS).
While MRIS recently posted a new rule requiring you to disclose that it is a Fake Listing (I mean Short Sale), why not take it a step further?
Why not require the listing agent to obtain something from the bank. Something that at least proves that the bank has been notified. I'm not talking about getting bank approval , just NOTICE would be a great start.
Otherwise you get listing agents that wait first for the contract and then they say "ok, let me start approaching the Bank." Give me a break.
NVAR should lobby for this.
Frank
Updated Correction 2-29-08 I'd like to thank DAAR CEO Janet Newton for this correction. I'm excited that she is participating in blogging!
My sidenote about when to go Under Contract is 100% wrong.
So let me explain... IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.
Here are a sellers' options (please comment if you know of more options) :
1) A seller can counter the contract and add in a "Kick Out" so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means "there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.")
2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the "offers" unsigned to the bank. Why not try and keep your home as "Active" for as long as possible? Some banks will require the seller to sign, so try #3.
3) Or lastly, the seller might add "acceptance of the contract is contingent on lender approval." or "contingent upon review and approval of the lender." That one line can keep it "Active." I am not a lawyer, so please verify any additions you make to a contract with a lawyer.
As a buyer agent I would prefer it to be "Under Contract" if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with "Increase your price $2,000 and we will place it UC/KO."
What terrific information to share with my buyer clients! I've always given them information from my perspective but never had statistical information with how often these supposed "short sales" actually close. I love your updated suggestion to have MRIS bear the responsibility of setting standards by which listing agents must provide evidence (perhaps to their brokers?) that the listing is an ACTUAL APPROVED short sale. There are so many listing agents who haven't got a clue and haven't even taken step one to contact the bank to begin the process. Pathetic!
Hey Frank...there is no future in short sales...there is money to be made in dealing with the homes early in the process. But if the home is too far upside down..then the only way to deal in this market is wait till the bank takes it..At least then you know you can make a deal...I was working with investors, all cash, and the closing rate was not happening..we find better deals on distressed up to date properties, short sales are a waste of time..Our statistics that I can find show that less than 80% of the short sales are closing prior to auction...and most of these have to extend the auction date while the lenders drag it out..
I have stated this before....why waste a good ready to go buyer, or investor on a short sale..With the amount of inventory out there, go make a good offer on something that will close now.
Good post..looks like a lot of work,, good for you
Very good post, thanks for the info.
That was a VERY good post! Quite a few of the SS we list never close. Our success rate is only 42%. But the time put into them is worth it to get it done for the Sellers we are successful for!
>>> Our success rate is only 42%.
Matt if you are closing 42% that is doing pretty well.
The problem what I have seen with most short sales is that the agent never gets bank approval before advertising it as a short sale! It has to be done before they start advertising it!
Jim,
Most of the banks never approve a short sale prior to having a contract. They start working on it only after you have a contract and they look only one contract at a time. Some banks are very cooperative and will work with you from the beginning, We have closed quite a few as long,as the buyer agent understands the process & explains it to buyer the time frame and everyone is kept in the loop. The main criteria is the list price & offer should not be a a ridiculous low, that some newby investors are looking with out working the numbers.
Good info, you are right there are few that will ever make it to closing but the more pressure and statistics that come out the more pressure the investor markets will put on improving these numbers.
But 1 small FYI, Short Sales in excess of 10% of value are more costly to a lender than foreclosure. It also effects their write off. Short Sale is a loss, a foreclosure is a devaluation of earnings that is written off as a pre-tax loss and does not effect Earnings Per Share...
Frank,
Look at it like this.
If you are the second mortgage bank and an agent comes to you asking the 2nd mortgage holder
to write off $40,000 of the 2nd and the first mortgage (me) to write off $20,000 for a total of $60,000 on a $350,000 house would it make business sense for you?
No if you are in the 2nd position and only maybe for me as the first position Lender.
See the cost of a foreclosure is around $40,000 per unit on average in fees and write downs.
The second mortgage (you) will most likely buy out the first position lender (me) and foreclose taking the PMI payoff and writing off the losses as a pre-tax expense that hits your bank P&L below profits not effecting Earnings Per Share
If you as the second lender simply take the $40,000 loss by choice it hits your Earnings or profit line as reported to your stock holders as it was your choice to take the loss.
Also many PMI companies will not accept a claim from a Short Sale based on a number of criteria making the loss greater.
Loan Modification is the way most Lenders are going. Today I presented a Loan Mod for Countrywide to a homeowner
That went from a 9.75% ARM on the 2nd and a 7.75% First to a 8.25% Fixed Rate on both, that lowered their overall payment by $295.00 per month and keeps them paying their mortgage. After 12 months of on time payments CW will re-fi them
for an even lower rate if available as long as the homeowner continues to pay all their bills on time.
No foreclosure and a new loan that comes out of the non performing portfolio and frees up $225k CW can loan again in 90 days. That is good for ALL of us over the long term.
Paul Moye, Broker, ABR, GRI, e-PRO
More on short sales:
raincityguide.com/2007/12/13/should-you-buy-a-short-sale-property/
or
www.tinyurl.com/37bxv3
Great post Frank. I have been fighting with my local MLS and Board of REALTORS for months about this issue. We have a very serious issue going on with unethical treatment of these listings in North East Florida. Up to 44% of the listings currently in our MLS are short sales. It has created a false market in our area. I will be focusing all of my blogging on "Fake Listings" for the next few weeks. I am trying to bring awareness and educate our community and fellow REALTORS about this problem...all they see is the ability to price homes at rediculous low prices as loss leaders and then advertise them through REALTOR.com and other third party sights to drive traffic to them. Our MLS even refuses to police the agents in our area that have received and submitted several contracts to the banks but still are actively marketing the property. What is going on down here is just wrong. I despise unethical, ignorant lazy REALTORS and my area is full of them.
You blog is right on and very entertaining with tons of excellent information...keep up the great work.
Thanks Frank for the insight into the meltdown mess we’er in. Here is another problem that goes to the pain fake listing of SS inflicts on people other than Banks and Realtors. My company provides information for residential real estate closings and when a title company gets a SS contract to settle we get a rush order. The problem is we do the work before the bank agrees to the sale and if it doesn’t close we have to eat it. It’s hard enough to keep alive when your business is down 70%, it adds insult to injury to not even get paid for the work you do. Full disclosure would make a big difference any attempt to cover up the true nature of a transaction effects people involved in the process other than “my clients”.
Your post is right on the money about short sales. There's so much misinformation about the subject out there. It's nice to read when others in real estate get the real picture.
HI, Please Help!
Here's the situation:
We are trying to buy a short sale home. Offer was submitted Jan.28th 2008
Offer was for 405k.
Home owner paid 485k. 2years ago
1st mortgage owed is 420k (sheriff sale amount)
2nd mortgage 107k
We were told 3 weeks ago this was a done deal by the dual agents listing and representing us.
We closed March 25th on our current home and need to be out soon.
The sheriff sale ends April 9th 2008 and then foreclosure.
One bank the (1st lender) approved and signed purchase agreement therefore our loan was originated for this home. We had a closing date scheduled for April 1st and the Realtor canceled. 2nd lender asked for an appraisal last week and the value came in around the low 400's.
Realtor states this will go through but we are stressed and losing our minds!
He states he is awaiting the approval from 2nd lender and hopes to get the signatures this week and plans to close this Thursday or Friday. He of course said he already had this approval 3 weeks ago and, thus we closed on our home.
What are the chances of us getting this? Is this situation likely to proceed with foreclosure even though one lender approved the offer? What can I do to get answers?
He will get nothing once April 9th hits and it goes into foreclosure right???
Please help with some insight to this awful situation!
Hey Jennifer, I will try my best. I will go down your email blow by blow.
> Here's the situation:
We are trying to buy a short sale home. Offer was submitted Jan.28th 2008
>Frank> In Virginia there is only a 5% chance of this closing. I don't know where you live, but I'm sure
Offer was for 405k.
Home owner paid 485k. 2years ago
1st mortgage owed is 420k (sheriff sale amount) 2nd mortgage 107k
>Frank> 2 mortgages is even harder than 1 mortgage. So here the 2nd bank has to accept $7k and lose $100,000? Doesn't seem likely. They probably have insurance that would cover them and it would make more sense to foreclose.
We were told 3 weeks ago this was a done deal by the dual agents listing and representing us.
>Frank> Bad news. You need somebody representing YOU. So sick of buyers thinking that buyer agents suck and are worthless. This is the 3rd situation I have seen like this in 3 days. I guess we as Realtors have done a piss poor job explaining why you should have a buyer agent.
We closed March 25th on our current home and need to be out soon.
>Frank> This is suicide! Selling one house to move into a Short Sale? Wow. I guess you never read my blog, or didn't know how bad short sales are. And your Dual Agent gave you "yes" service.
The sheriff sale ends April 9th 2008 and then foreclosure.
>Frank> I don't get it. Do you mean the place that you are buying? I will assume yes. That means the Short Sale is off the table.
One bank the (1st lender) approved and signed purchase agreement therefore our loan was originated for this home. We had a closing date scheduled for April 1st and the Realtor canceled. 2nd lender asked for an appraisal last week and the value came in around the low 400's.
>Frank> You should have been told that a contract is worthless until signed the ALL parties. I am surprised the lender even started doing ANY work without a signed ratified contract.... Let me guess... you used the lender recommended by the Dual Agent?
Realtor states this will go through but we are stressed and losing our minds!
>Frank> What will go through? You told me the place was slated for foreclosure on April 9th? That doesn't seem likely that you can stop that foreclosure with banks being as slow as they are.
He states he is awaiting the approval from 2nd lender and hopes to get the signatures this week and plans to close this Thursday or Friday. He of course said he already had this approval 3 weeks ago and, thus we closed on our home.
>Frank> I would IMMEDIATELY start looking for another home. If you lender is all ready, they might be able to do it in 2 weeks.
What are the chances of us getting this?
>Frank> I don't know the exact situation, but I would say it looks VERY risky. You might consider moving into a month to month place so you can breathe. Juggling 2 places is bad enough, but juggling into a short sale is crazy.
Is this situation likely to proceed with foreclosure even though one lender approved the offer? What can I do to get answers?
>Frank> Absolutely. The 1 lender means nothing. You have to have BOTH.
He will get nothing once April 9th hits and it goes into foreclosure right???
>Frank> "He" as on the listing agent? You are correct. So if you look at it purely from his viewpoint, it is 100% best for him to drag you along as far as possible in that 5% hopes that it closes. Why tell you there is a chance of not closing if that will make you walk
Please help with some insight to this awful situation!
>Frank> Hope I was of some help.
Frank, I know you probably do not have time to answer all queries, yet some may be in a similar situation to mine. I live near Ft. Lauderdale. In my subdivision there are 300 similar townhomes. 15 are currently for sale,8 are short sales ranging from 220 -270k, 6 are listed at 2007 prices of 330-390k and there is mine (not a short sale) at 275k. Your post encouraged me to think we could get more for our house, yet in the past three months 0 homes in our neighborhood have sold. Within a 4 mile square radius of our house there were 500 homes for sale and only 12 sold last month. This makes me think I do need to have a price point somewhat close to the short sales, if we really want to sell. Though only 5% of short sales close it appears that in this market only 2% of anly listings close. Any advice for this sort of distressed market situation?
"Get bank approval for your list price before listing it."
1st off, many banks won't do anything without a fully executed offer. 2nd, getting bank approval from a few lenders that do this on a price is counter-productive in a declining market. You'll likely be locked into a price that is too high if it sits on the market for any length of time.
You have made some excellent points, but you have over-generalized quite a bit too. Each lender is different and in many higher priced markets, few short sales have pmi issues, so that changes the dynamics as well.
Agents should not take a short sale if the seller has not first gotten legal and tax advice and no short sale should ever close with the docs reviewed by an attorney.
Hey HIlton,
8 Short Sales, wow.
Well first you have to find an agent that can tell you whether short sales are actually closing in Florida. In Va they don't.
If they do NOT close, then there is no need to compete against them since they are fake.
Think of it like an Ebay Auction. If you have a $10,000 car for sale, but somebody else has the same car that "Starts at $2,000" but has a unknown "reserve amount" (meaning you don't know the real price it will sell for), you aren't going to drop your car to $1,999 right?
So your house is $275k, while all the other real listings are $330-$390k? Wow. Then it sounds to me like it is the market, NOT your home.
>In the past three months 0 homes in our neighborhood have sold.
This is kind of good news. If even 1 had sold and they did NOT buy your place, that is worse. If NOBODY is selling, that means you aren't necessarily doing anything wrong, but the market blows. You can market your house, but you can't market "buy in florida!"
> Within a 4 mile square radius of our house there were 500 homes for sale and only 12 sold last month.
Great research! While that is 2%, keep in mind that is in 1 month. My stats were for the year. So your 2% x 12 is 24% vs our 5%. Now what you need to do it CLOSELY look at those 12 last solds. What did they have that you didn't have? Who was the buyer agent? Ask the buyer agent "Did you come to our listing, how did it compare?" You can get amazing insight from this time consuming research.
Also look to see if those 12 were bank owned, or short sales.
As for you doing everything necessary, have you done the following:
1) Staged the house, including some minor remodeling? See my blogs on staging.
2) 20-30 WIDE ANGLE photos including a collage for your first image.
3) Put in the remarks "NOT a short sale, no approval necessary"
So your bottom line will be to look at those other sales and see what they did to sell their place.
Frank
Hey Bob.
You quoted me as saying:
"Get bank approval for your list price before listing it."
Your comment> 1st off, many banks won't do anything without a fully executed offer.
My reply> I agree with much of what you said. However SOME banks ARE giving approval on prices, as in REAL prices that will sell. So I do still think that every short seller should TRY and get some approval. As for this process making the values worse, I disagree. The approved short sales are where the bank says up front "We will take $400k." What is the point of trashing a marketplace at $350k if the bank will only take $400k?
Also I realize that not all places have PMI, and would really love to get an anonymous post from a banker as to their true motivations for letting some of these go into foreclosure (and buying them at the amont that they are owed in foreclosure so the previous owner has NO FURTHER OBLIGATIONS to the bank*" (* get that verified by a lawyer, I am not a lawyer)
Yes each lender is different. It would be great if somebody blogged about the differences.
Frank,
I think you are letting your own bias drive the information that you provide with such conviction. One can always find information to support their view of the world, no matter how outlandish it may be. I would be very careful about how you choose to present your information. It tends to come across as the gospel and will mislead a lot of folk that are to lazy to be thorough in their own investigation into the value of short sales, or the lack there of, depending on the particulars of each persons situation. You have made no mention at all about the real value to the home owner a short sale has the potential to provide, in regards to their credit rating and ability to purchase a home again in the future. There has been lots of talk of how big a drag short sales are for everyone involved, with little recognition that at least for the seller this might be the very best option available to them and most certainly better than foreclosure. I am very glad you care enough about this topic to have a blog about it but please don't think you have all the answers! To lump all short sales into your " FAKE LISTINGS " category does our industry an injustice and does nothing to improve the quality of these listing nor does it really educate our fellow Realtor's as to the proper way to execute this option to our client successfully. Your definition is just catchy and shows off your bias glaringly. How many agents out there take listings way above market in the hopes that they can beat down the seller over the course of the listing? Are these " FAKE LISTINGS " too?? You clearly don't like short sales so my advice is don't do them. Leave them to those that can do them properly. How about less bias and more open dialog.
Hey Kip,
I thank you for your comment. I hope you will read my other posts and call me out on each and every bias that you might see.
Yes, using "Short Sales are FAKE LISTINGS" is a catchy headline. If I said "Short Sale info" I doubt we would be having this much needed conversation.
Yes, I have a bias against short sales since they waste my time, and my client's time. I can see how that can be seen as lazy, but when you see the nightmares that I see with buyer's expectations being so high and then watching them crash. And if you read a previous poster, they are soon to be HOMELESS because they sold their place and were waiting for their Short Sale purchase to close.
As for it being better for the seller, heck yeah!
If they can be that 5% and make it happen, sure. A seller makes the bank eat $100,000. And as a new bonus, recently legislation was passed that removes the Phantom Tax that these people were supposed to receive on that money. Can you say FREE RIDE!!
Also, yes it is much better than foreclosure in regards to the seller's credit... and ability to buy again.
(SIDENOTE: But wait a second. The banks make sure that you have NO assets before they approve a short sale. So why the heck do we want these people buying a property any time soon?)
Yes it does help with interest rates on credit cards.
Also it might inhibit your ability to rent if your credit is messed up, and that can be very serious.
What I thought I did in my post, or in the comments was to tell the sellers how to do a Short Sale PROPERLY so that they have a chance. I'll repeat it here:
1) Contact a lawyer. There are MANY bank tricks to get you to keep making your payments. Some say "we will consider a short sale if you keep paying" while other banks say "we can't consider a short sale until you miss X payments."
2) Contact the bank and see if you can at least get the process started. Use a Realtor that has closed at least 2 or 3 of these (ie NOT ME).
3) If you put a price that is TOO low, the banks will reject it, so you might be better off putting a price that is the lowest in the market (against NON short sales) and INCREASE your chance of the bank accepting the offer.
Again, thanks for calling out my biases. Usually I like to give a "MY BIAS ALERT" in my posts. I'll try and do that more next time.
Thanks
Frank
Frank Buddy.......
It's all good we all have bias. That's what makes the world exciting.
So why don't you clarify, for your viewing audience, what your intention/goal is here with this blog. The lions share seems to be devoted to dissing the short sales option for people. Lots of "FACTS" being thrown out there with very little substantiation. I would like very much to know where you have found reliable nation figures on the percentage of short sales that actually closed. Truthfully I would love to have that data for my own presentations. Also what exactly do you suggest home owners do if they are in the position, for what ever reason, of no longer being able to make their payments and cannot keep their home, in this current market? Wait for foreclosure? I am speaking of the people that have exhausted all other options. If you want the blog to discuss whether folks should be made to pay the piper for their poor decisions should we not include the banks, our government and our fellow Realtors as well. We are all guilty of taking advantage of the market of the past few years with no thought of paying a piper. Be honest with yourself as to what drives this blog you have created so that it can bring out the information that is truly helpful. If it is to just be here for people to rant about the sucky state that the market is in and how hard it makes it on everyone, then let's be open out it. Thanks again though for providing a space for discussion.
P.S. Come Frank three generic helpful hints amongst so much damning information.........
1) Even most Real Estate Attorneys don't know how to put together and see through to the end a short sale deal but yes taking to Attorney is always a wise thing. The banks will most defiantly take a short sale if it is better for them than foreclosure and in many many cases it is because they are having to hold at minimum three times the value of the non-preforming asset in reserver. This does not get talked about enough.
2)The Bank accept for a very very rare few will not even talk to you until you have a signed deal. You are totally correct though that it is a waste of time to hire and agent that has not worked or closed any short sales.
3)Now your talkin!! Price... Well duh almost as much a given as location, location, location!! If you are not priced right, your house will not sell, short sale or not. Here again the reason to have a seasoned agent that has worked short sales for years and has worked them in this current market.
4) I know you only had three but I thought I would add the only one you really needed to put up there in the first place. Vet all people that will be helping you with your short sale. Attorney, Accountant, Realtor. Don't just trust that they are short sale experts/specialists. But by all means get professionals in your corner and quick before it is too late!! Short sales are complex, time consuming and require vast quantities of patience. Same goes for buyers interested in short sales as well. You need to work with an agent that will prepare you for the long haul that is the short sale.
Short sales are NOT "fake listings" !!! You all must get in to reality and realize that A. 2 out of every 5 lisitngs is distressed in some form today and B. the banks don't approve a short sale deal with out an offer. They must be listed in order to GET an offer. And yes... wait, I'll break out my violin and tissues for you buyers agents, it might take a little bit of time. But ours are happening in 30 to 60 days and at good discounts of 15% to 20% of coservative value. Agents who don't know how to do them need to quit screwing it up for those of us who do. To everyone else as long as your dealing with a listing agent who knows what they are doing your deal can get through. Everyone will win: your buyer gets a great deal, you get a commission, and a seller is saved from foreclosure. It simply is the way it is and a sign of the times. Reo's are no cake walk, Plus todays buyers want it all, a house for a steal and don't want to wait. Give me a break. If you have a buyer consdier yourself lucky. Just let them know on short sales they must be flexible on closing date and negotations. If they can't be: don't offer on short sales, just go pay retail from a regular seller. Just have them call you not me when they get transfered next year and find out it is not worth what they paid.
Hey Tracey,
Thanks for contributing.
What area are you in? In upper Northern Virginia, my stats show that they do not close. I would suppose it is possible that it would be different in other parts of the country.
As for banks not considering prices until they get an offer, I will disagree with that. All banks have different rules.
Frank
In response to your "Bank Trick" of the bank trying to squeeze more money out of the owner by way of more monthly payments, the banks actually will not talk to an owner about a short sale or consider a short sale offer until they are at least 90 days behind on their payments.
Hello Lindsay,
I think you missed what I was saying.
While MANY banks have a policy to not talk to an owner until they have missed payments. I have come across instanced where they do the exact opposite.
They lie to the homeowner and lead them on, and ultimately don't allow the Short Sale, but they pocket the extra payments.
So I am just saying to watch out for the bank that says they will consider a short sale IF you keep making payments. There is a good chance that it is a trick to get more payments out of you.
In my Short Sale class, exactly that happened. A listing agent had a client, the bank said they would consider a short sale ONLY if they didn't miss a payment. A contract came in, and 60 days later, the bank never returned phone calls.
Frank
Lindsay,
I love being right.
Did you WSJ article today:
www.tinyurl.com/5al27j
Look toward the end where banks say they will talk to lenders that haven't missed payments.
Frank
Great Post! I was just talking to another agent on my team yesterday about this. I think MRIS (the local MLS board for those unfamiliar) needs to address this in a bad way.
If we are going to be dealing with this type of market for years to come (especially out here in Prince William County) there really needs to be a category in the MLS -- actually, two -- one for "Unauthorized or Unapproved Short Sales" and "Approved Short Sales," the later having been approved by the bank(s).
Because closing ratios are so piss-poor for short sales precisely because most haven't been approved by the bank, we need an easy way to weed these out for our buyers.
There should be a category reserved only for bonafide short sale listings which banks have agreed to and signed off on the listing price IMHO.
Unbelievable........
For those of you buyers agents out there that don't like the short sales for you and your clients, there is a simple solution. Simply DO NOT SHOW THEM! Whether you all like it or not, sort sales are here to stay for the unforeseeable future. These are th