Short Sales Are "Fake Listings." Only 5% Close!

Update 3-19-09: This post is OLD. See new Post from 2-09 Short sales are closing, if done correctly. They can be the best “deal” (I hate saying “deal”). The post below is still great background info.

Update 1-22-09: Still reading this #1 blog post on short sales for a background on the process? Well it was written over a year ago. Short Sales are now closing MUCH more frequently in SOME areas (an 0 in areas like McLean). Subscribe to this blog for I plan to run some numbers on the % that are closing. My guess is the range is 1 in 3 (vs 1 in 20) before. However closing rates can be as high as 80% if your buyer agent asks the listing agent these questions: Top 10 Short Sale Questions.

(Update 6-16-08: This post was written on 2/08, this marketplace is changing ever month. Make sure to subscribe to the blog to get updated on the marketplace, like an upcoming post on more Short Sales starting to close.)

As of 2-08, most Short Sales in Northern Virginia are what I call “FAKE Listings.” (note that this is Virginia, every area is drastically different)

Only 1 in 20 sells.
In Arlington only 3 have sold out of 65 attempts.

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:

  1. Home is bought for $500,000 with 5%, or $25k down.
  2. Home has a $475,000 mortgage.
  3. Value dropped below $475,000
  4. If the seller is facing foreclosure, they slash their price for a quick sale
  5. A Short Sale is attempted at $450,000
  6. 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:

  1. Did they tell you they would consider a Short Sale IF you kept paying $3,000 a month? The answer was Yes.
  2. Was the home bought with Mortgage insurance? The answer was Yes.
  3. 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.

She was pissed. She realized that she had been “had.” But this goes on ALL THE TIME. It can take MONTHS to hear back.

Another example:

  1. A seller in Clarendon 1021 tries to sell his property and profit $30,000 at $600k. (Yeah right!)
  2. Then he drops it to $570,000. No bites, but the foreclosure is pending!
  3. 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.)
  4. It sits for another month, then the listing disappears after 100 days!
  5. A month later it is “bank owned” and listed for $560,000
  6. It sells for $540,000 in 26 days.

The moral here is banks are not dumb and the market isn’t so horrible that they will take all these lowball offers. They sold it for $10,000 OVER the previous list price (which probably had lower offers).

Short Sale Statistics:

Reston homes from $300k to $400k.
– 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!

  1. Dropped From $480k to $400k, sold at $400k (Full list)
  2. Dropped from $430k to $400k sold for $380k (5% under list)
  3. Dropped from $380k to $350k sold for $345k (2% under list)

Arlington Short sales.
– 25 Actives
– 37 Withdrawn
Only 3 have sold in ALL price ranges in all of Arlington in the last 2 years.

  1. Listed at $335k, sold for $335
  2. Listed at 700k dropped to $620, sold for $600k
  3. 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

  1. 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)

Advice for Sellers Facing Foreclosure

  1. 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.
  2. Use an agent that has completed (as in CLOSED, not listed) at least 1 Short Sale.
  3. If you have mortgage insurance, be extra careful, the bank might prefer that you foreclose.
  4. 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.

Advice for Buyers looking for a “steal” (see “deals” post)

  1. 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!
  2. 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.
  3. 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.
  4. Focus on Bank Owned. These units get replies in a day or two. (See video of Realtor buying a Bank Owned property)

Advice for Buyer agents & Listing agents

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 as of 2-2008: Short Sales in Northern Virginia 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

Please report typos.

p.s. See Washington Post Article on Short Sales

  • 20
  • February
  • 2008

119 Responses to “Short Sales Are "Fake Listings." Only 5% Close!”

  1. FRANK LL0SA Va Broker- says:

    Hey Jeff, email me directly.

    Banks don’t give a Rat’s… about any deadline.

    You should also be actively looking around.

    Hope you are represented!

  2. George E Lohr Real Estate says:

    Jeff our office have done short sales almost exclusively for the last two plus years. We currently are negotiating with Countrywide on nine different properties and have closed 3 with Countrywide since the beginning of the year. The average close time with a Countrywide short sale is about five months. About midway through last year they mandated that their negotiators could have no more than four hundred files. Well guess what? When all their negotiators have four hundred files they will not assign anymore files to a negotiator. We have four right now that have been up to them for over two months and have yet to be assigned. My advice is if you love the house stick with it to the end and if you are just looking to buy a deal stay away from Countrywide short sales.

    Frank is also right that you cannot bully the lenders. They follow the golden rule…….He who has the gold makes the rules.

  3. Yuri Plotnikov says:

    Great Blog!!!
    I have just closed my personal Short Sale in Darnestown, MD with Wells Fargo (2 loans). Took me 10 months. Walked away from over 310k in negative mortgage equity (some bad credit will stay with us for a few years, but we have saved all our assets). Over 10+ yrs in mortgage industry for me and MBA in finance for my wife paid off.

    Can be done…got to have correct information and be relentless and know how to work with your bank/s.

    One of my tips – if you do other banking with your mortgage servicing institution (checking / savings / direct deposits, etc.) switch banks before starting your Short Sale…

  4. Pa Real Estate says:

    Some really great points. Especially about mortgage insurance. That is a very true and valid point and often overlooked. Mortgage insurance can throw a wrench in the works.

  5. Revive says:

    Interesting read, I work in the Real Estate industry in Colorado, short sales have almost taken over the market. It’s near impossible to find a home under 200k that is not a short sale. It’s frustrating for so many because of the low close rate and problems that arise from these homes.

  6. Anonymous says:

    Hello all

    I’ve been following this blog for a couple of months now and I thought I’d tell you my short-sale story. Cutting to the end of the story – my short sale was approved after six long months (but two weeks after sending my assigned negotiator a thank you note and an unsolicited $200 gift – Bribe)

    First some background about me and my situation. I’m not a realtor or agent I’m husband of a wife with an extra home. I married the love of my life in July 2007. My wife owned a house, I owned a condo and we had been living together in the condo since 2005. From 2005 – 2007 we listed the house with three different MLS agents and rented it twice on our own. Our experience with the Real Estate agents was less then positive and the rentals covered only about 50% of the monthly cost. The mortgage on the house has solely in my wife’s name. She owed about $190K to Wells Fargo and had PMI on the loan. After speaking with a Real Estate attorney and an accountant we made a decision to stop paying the mortgage and pursue a short sale or deed-in-lieu.

    We had nothing to loose. We each make over $110K annually ($220K combined) we could afford to continue making payments on the house. However we didn’t want to be landlords and we don’t want to pay a lot of money to dump the house. In preparation for a foreclosure we had been filing taxes separately and kept he name off our assets. If the bank comes after my wife for the “short” amount we were advised we should be able to negotiate for pennies on the dollar and my credit would remain unharmed.

    In September 2008 we signed a listing agreement with Allen, a Century 21 Real Estate agent recommended by our Real Estate Attorney. We listed the house for $170K with the expectation that if we sold we would be bringing a check for about $35K to the closing. The house did not sell; in November 2009 we stopped paying the mortgage and submitted an application to Wells Fargo for a deed-in-lieu. In December 2008 after Wells Fargo did 2 BPOs the Deed-in-Lieu was rejected saying “it was not in Wells Fargo’s best interest to approve” and that we should lower the asking price to $120K for a short-sale. Within days of lowering the price we had an offer for 6% less then the asking price of $120K.

    Wells Fargo did two more BPOs on the Short Sale offer and in March 2009, more then 100 days after the offer was made, Wells Fargo approved the Short Sale. To our disappointment the Buyers Real Estate agent informed us she unilaterally returned the deposit to the buyer and helped them purchase another house. So we had an approval but the buyer reneged.

    Miraculously Allen our agent found another buyer within 48 hours. This buyer agreed to the asking price without any additional concessions. We mistakenly thought Wells Fargo would jump at this approval because they had already done all the work and approvals and this was a better offer for them. Unfortunately Wells Fargo treated this as a brand new offer and restarted the BPOs and PMI approval process again. Coinciding with the short sale approval Wells Fargo started foreclosure proceedings and scheduled a sheriff sale.

    As a last ditch effort to get the Wells Fargo negotiator to pay attention to our offer we Federal Expressed a package. A $200 Visa gift card and a hand written thank you note for all the “hard work” she had been doing to process our short-sale application. She sent back an acknowledgment of the thank you note and miraculously our application was approved two weeks later.

    My bottom line advice is… Make sure every piece of paperwork is submitted timely and accurately. The seller’s Real Estate agent will have to do real work for months. They will have to follow up with the bank at least twice a week and keep the buyer updated on status. Lastly, nothing worked better then the bribe!

    On a positive note for Allen our Real Estate Agent. He acted as both the seller and buyers agent and Wells Fargo paid him the full 6% commission.

  7. […] In case you are new to the world of home shopping, there is something called a Short Sale. You need to read the details on my post: Short Sales Are “Fake Listings.” Only 5% Close! […]

  8. […] wrote about my distaste for Short Sales (aka Fake Listings), and how only 5% close in Northern Virginia (as of 2-08, but that might be […]

  9. […] yesterday. For instance, under one congressional proposal, there would also be a break for “short sales“ — that is, when owners sell a home for less than is owed on the mortgage and the […]

  10. I am a realtor in Michigan. I have been doing short sales for 7 years but only recently (within the past year and a half) started specializing in them due to the overwhelming need in the Detroit Metro Area.

    Although there are pitfalls in doing short sales and they are labor intensive, I have a 99% success rate in getting them done. I have only had one short sale I was not able to close this year and that is becuase there was a third party contractor lien on the home that the bank wouldn’t pay, and the owners wouldn’t either.

    The trick for me is getting an offer and treating it like any other deal: seller signs the contract and the house goes ‘pending’. I educate the buyers agent that it could take 2-4 months (this is my average, some lenders are quicker) and as long as I communicate with the buyers agent on a regular basis, things run pretty smoothly.

    So, I don’t agree that short sales are ‘fake’ listings. In fact, in our market, if you don’t list short sales, you are missing out on a hug portion of the business out there!

  11. donna hartman says:

    We have been waiting 6 months for bank to reply. But we were told we could move in rent free until bank got around to us. Who do I need to send the gift cards to? We are not trying to get a deal or a steal. We just like the house and its setting very much.

  12. Kimberly says:

    The whole thing just feels dirty! I tried for a year to short sale my home with a realtor and a professional short sale company. I thought I had everything covered and was well represented. We got 3 deals to the table, met all bank requirements (they even squeezed me for an extra $13K that we didn’t have) and everytime they just got too busy to deal with processing the sale!! I wish I had thought to try a bribe. We have lost everything and now have more credit card debt than we can ever pay back just trying to hang on. The banks aren’t really interested in closing a short sale. They threw up every road block – which we fully, accurately and on-time completed. We had verbal approvals, written agreements and could never get them to come through!

    We actually had a deal on the table and they foreclosed on the house. They even foreclosed on the house without any notice to us or anyone representing us. We were shocked to hear that the house was already gone.

    Bottom line….the banks don’t care and they are certainly not going to help you!!

  13. Short Sale listings are closing right and left if you are able to provide the Lender with the appropriate information in a concise Short Sale Package. If often helps to have a working relationship with a Negotiator (preferably Stage 2 or higher) to be able to expedite your files through the Lender’s approval process.
    It is all about getting the Lender the appropriate information early in the process to avoid a long drawn out transaction. If your Short Sale package is missing docs then it is literally put on the bottom of the pile, and wont get out from the bottom for a very long time.

  14. anonymous says:

    I really appreciate this post my husband and I should have looked at this article back in April. Apparently 7 months ago we put in an offer for a short sale in Centreville,VA and we’re still waiting on approval. It is very frustrating because our agent says the person who is selling the house is still missing documents. He used to rent the house to three college kids i know because when i went to see it I could just tell and he is Korean so I’m not sure he knows what he needs. The house is owned by Freddie mac and Chase and we honestly want to pull the offer but I’m not sure if its a good idea considering we been waiting forever and hope to qualify for the $8,000 tax credit although it doesn’t seem to be going towards us getting that much needed money. Our agent also knows zero about short sales she only deals with foreclosures so she is as lost as we are not very firm. Another downside to this is foreclosures in the areas we want to live in are slim to none. Please if anyone can give us advice we’d appreciate it!

  15. john says:

    1 in 20? Yikes? I would say if an agent knows what they are doing, 60% will close. 5% is a joke. There are 3 primary problems short sales. 1) The real estate agent. This person barely passed the state exam. However, they did a good enough listing presentation or they are personal friend of the distressed home owner to get the assignment. 2) The lenders first line of defense. This person was probably working at McDonalds or Wal Mart last week and probably coudnt even fill out ther W9 right. 3) The second lien or Mortgage Insurance company. I am not even going to comment…

    The head of the Defaut Division w/ Freddie Mac personally told me that “Short Sales are low hanging fruit.”

    Short sales are not hard, they are just a lot of work and they need to be negotiated by someone who has an education level greater than the 8th grade… It is all about the listing agent and their ability to be agressive but curtious and be able to sell all parties involved.

  16. Jerry says:

    I’m going through a short sale process, initiated the bid on the property as right at the listing price inorder to avoid the back and forth with the mortage companies. I thought I did all my homework and obtained financing upfront, so my only issue was obtaining the sellers mortgage companies to agree to the price. Well after 3 months, the sellers agent said that “Bank of America gave their approval and that the 2nd mortgage – Citibank was on board to receive only 3K”. When this was conveyed to my realtor she informed me that we were good to go. Now we are suppose to close in 2 wks and I am informed today that the sellers realtor never obtained Citibanks approval of the sale. So here I am, already gave notice to be out of my residence by the end of the month, have a uhaul rented for next weekend, have family coming in from out of town to help move, scheduled vacation days to take off from work. And all I got from the realtor was if I can’t come up with the difference then the deal is off. Isn’t the sellers agent responsible to truthfully represent if she had approval and not wing in in the hope of obtaining approval? Any advice from the experts on what my next step should be? Thanks, Jerry

  17. says:

    If you have something in writing that indicates that the Listing Agent said Citibank approved it, when in fact they didn’t, then have the difference come out of the listing agent’s commission. Or find a way for the seller to cough up the money. Otherwise they face foreclosure.
    Also try contacting their broker.
    Just keep in mind, that this is typical for Short Sales. You are being compensated for buying the property for $30,000 under market. Consider that your consolation for the hassle.
    Good luck

  18. […] written a lot about Virginia short sales (don’t miss the older “SS 101” post) and a year and a half ago came up with the 1st MLS search that would scrub short sales […]

  19. Tara Nagelhout says:

    Gosh, since about 70% of mine close, some agents out there must be closing negative numbers.

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