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!