Short Sales - The Truth!

Short sales are at a record high and if you are in a price range under $300k, short sales might be your only option. Are they easy? No. Do they take way too long? Yes. Will you get frustrated? Probably. Is it worth the Wait? Sometimes, yes!

Please see below for answers to all your short sale questions. Remember every bank varies, there is no protocol for short sales, yet. This information is from my experience with short sales from both selling and buying sides of a short sale transaction.

What is a short sale?
Do not be fooled, there is nothing "short" about it. Short sale means that the seller owes more money than the home is currently worth and cannot afford to make the payments anymore. Almost all short sales are homes bought between 2004-2007 in the height of the market.

What is the difference between a short sale and a foreclosure?
A short-sale is a pre-foreclosure process to help the bank avoid the foreclosure process and help a seller avoid a foreclosure on their record/credit. Short sales were orginally created to help truely distressed homeowners who had a legitimate reason they could not afford their mortgage; death, job loss, family issues, etc. The seller must submit a short sale package to their lender explaining their hardship along with bank account info and tax documents.

Why do short sales take so long?
There are several steps to this process: 1. Approval 2. Assign a Negotiator 3. BPO (Property value) 4. Accept an offer/price 5. Open 'real' escrow.

1. Approval. Because this is relatively new, banks do not have enough manpower to accomodate the massive number of short sales being requested by distressed homeowners. The bank must receive the short sale package, review the "hardship" and financial records of the seller and investigate the validity of the hardship claim.

2. Assign a Negotiator. Some banks will not review a hardship package before receiving an offer, which means they could just deny everything (in my experience I haven't encountered this issue yet). Once the selling agent receives an offer that the seller "accepts" they send the offer and the package to the bank. Roughly 2-8 weeks later the bank will assign a negotiator to review the package.

3. BPO "Broker Price Opinion" (Property Value). Because the banks are never in the city in which the property is located, the banks order BPOs from real estate agents who are not involved with the transactions, aka, unbias price appraisals. Hopefully, if the listing agent was acting in good faith and priced to property accurately, these "appraisals" come back with the correct price. This takes 1-3 weeks.

4. Approval. At this point, the bank will approve a price, the "strike price". If the listing agent has an offer at this price, things will move forward into a real acceptance. If the agent does not have this price, or has several offers in similar price ranges they will respond to all offers with a "highest and best". Highest and best offer means that all buyers will need to blindly come in with their highest offer. Every listing agent handles this process differently.

5. Open Escrow. After all parties come to an agreement, 'real escrow' will be opened which usually lasts 30-45 days.

Why don't I just avoid short sales?
In a perfect world I would never deal with a short sale again, but nothing is perfect, especially real estate. I hear several agents tell me "oh, I never show my clients short sales". Well, that makes their life much easier, but I have come to realize a large portion of my clients' price range is consumed by numerous short sales and until they tell me they don't want to spend any time with these properties it is my job to make sure they don't miss out on an awesome home that just might take a bit longer.
In my opinion, 90% of short sales are a nightmare and take WAY too long and can be a dead-end, BUT that means that 10% are successful. Personally, I have dealt with short sales that take forever (one was almost a year) but I have also been involved with a short sale that took less than 2 months from offer to close.

How can I have a positive short-sale experience?
Be patient and understand the process. If you have questions ask!

Jumbo Loan Availability = Jumbo Problem

A study was just released by the National Association of Realtors (NAR) reporting that the limited availablility of jumbo mortgages (loans over $480k) is holding back high-end real estate sales. NAR reports, in today's market, lenders are less likely to loan to jumbo-borrowers even with good credit scores and large downpayments than they are to smaller-scale borrowers with lesser credit and a higher loan-to-value ratio.
Jumbo loans, even to well-qualified buyers, are carrying a much higher interest rate than smaller loans which is leaving ready, willing and able buyers sidelined or resorting to smaller cash-only purchases.
At the top of the market in 2006, jumbo mortgages were at $480billion and now last year (2008) are down to $97billion.
This inavailability of financing is keeping the mid/high-end real estate market from its turn-around.

Meanwhile, while much of the high-end inventory is becoming stale, low-priced homes and condos are selling at record rates. It appears that lower priced condos [under $225k] and houses [under $300k] have hit rock-bottom or are very near, especially in costal areas. Of course, the biggest battle in this price range is the monumental number of short sales, many of which have multiple offers and sometimes an unethical process. Unfortunately, it does not look like short sales will be going away anytime soon.

If you have any questions about short sales or the short sale process please look at my short sale post or email me-- I am here to help.

Is the Real Estate Market Getting Better?

It looks like the housing market MIGHT be improving. In March San Diego county’s median price was $285,000 which was unchanged from February and up $5,000 from January 2009. The number of home sales has skyrocketed to 3,020 up 43% from a year ago which is the biggest increase for any March in five years per DataQuick.

Sales are improving due to current low prices (stemming from the foreclosure market) and because interest rates on loans are MUCH lower than they have been in years. In March 2008 the average mortgage payment was $1,841 compared with $1,074 in March of 2009. In the low-end market [under $300k] prices are speculated to be at or near rock bottom, but in the high end, further price declines are expected.

DataQuick reported that for all of Southern California housing sales VOLUME was up 52.1% from March 2008 while PRICES were down 35.1% and the median price of $250k was unchanged from February. This has been the trend for the first quarter of 2009.

According to the San Diego Union Tribune, analysts still caution against declaring an end to the four year housing slump in which the local median price has fallen 45% from the peak of the market in 2005/2006 and 28% in the past year. The prediction is that May and June may still be troubled months despite the summer typically being known for bringing a better market.

Another positive sign is the housing inventory [number of homes for sale] has decreased 26% from a year ago and is the lowest since 2006 per the San Diego Association of Realtors. This will hold true to the supply and demand theory, since the supply is low eventually the demand will increase and with the demand will come a change in our market. But remember, whether we are at the bottom or not, the turnaround will not be overnight, prices will not shoot up, they will level for awhile and then slowly increase.
There are still a number of foreclosures, in February 51.1% of all resale homes were foreclosure properties. These foreclosures are still driving down the median home price and are a heavy competition for all ’regular’ traditional sellers. The biggest issue with these foreclosures is they are often under-priced, exciting buyers, leading to multiple offers and a bidding war which can leave a buyer paying too much. Are foreclosures a good deal? Usually, but if the price seems too good to be true, it often is.

Sales of the higher-priced homes remain sluggish primarily because many of these sellers are not willing to price their property realistically and compete with the foreclosures. Loan availability is also more difficult in the higher price range. Judging from past declining markets we have found that high-priced homes, in general, don’t come down nearly as much as lower priced homes and condos. In this declining market, more so than usual, buyers want a steal of a deal and want that ‘foreclosure price’ even with traditional sellers.

If you have any questions or would like more information please do not hesitate to ask, we are here to help!