That question is asked and answered (to some extent) in a blog post at AgentGenius, which is primarily an agent-to-agent site.
Koenig & Strey agent Greg Viti contends that “there’s no such thing as a ‘short’ sale,” – referring to the often lengthy process of acquiring approvals from lenders and other lien holders.
I’m genuinely at a loss to understand why – except in the case of a truly unique piece of property – a home buyer would actively pursue a short sale. Short-sale buyers are typically entering into an extended, highly uncertain scenario, the outcome of which is that they will have paid a fair market price while incurring far more risk than is involved when the seller is not underwater on his mortgage.
Shouldn’t agents go well beyond what’s suggested in the linked article and require sellers to lock in approvals for a short sale prior to placing the property on the market?
Joe,
You have hit on a key issue. As agents, we would love the ability to lock in short sale approval form the lender(s). As the process is currently structured it is not possible. Yes, I know it is backwards but that is the reality.
Many banks view short sale pre-approval as a scenario where if they approve, they are negotiating with themselves which they won’t do. Most won’t even begin discussion until monthly payments have been missed and an offer has been received. Only then will a file be opened. So how does one obtain an offer “prior to pacing the property on the market?”
Of course the process varies from lender to lender but in most cases it is frustrating for all involved.
Jeff
Jeff,
I think you’ve conceded that the question I posed is answered in the affirmative in a small minority of short sales, i.e. pre-approval is sought and gained prior to taking the property to market. Yes? No?
I also think I have a grasp of what goes on as the process is currently structured and of the endless pitfalls, twists and permutations that are possible.
Let me rephrase my question in a way that bypasses all of the practical difficulties of obtaining pre-approvals.
Aren’t agents who play the game in accord with the prevailing rules – on both the buy and sell side – simply allowing their clients to place reckless bets that the outcomes will be favorable? Answer my question in a real-world context, i.e. that most agents engaged in these transactons have only the dimmest grasp of the issues, resulting in their clients often being misled.
Agents are risk takers, and the successful ones are justly well rewarded for it. How often do buyers and sellers in short sales actually reap the theoretical benefits?
Joe —
can you please do a little explaining of the quote below for the less real estate savvy readers like myself.
“I’m genuinely at a loss to understand why ……a home buyer would actively pursue a short sale. ……they will have paid a fair market price while incurring far more risk than is involved when the seller is not underwater on his mortgage.”
I think you are saying that short sale buyers take the extra risk without reaping any rewards because they will buy from a smart seller (bank, etc.) who will only sell at fair value and non-short sale buyers will have to adjust their price to match the short seller?
I am looking to buy my first home. I have been looking for a basic 2/2 condo in River North since last summer and have until the end of this May. Of the properties I have seen/browsed on-line it appears to me there is HUGE discrepancy in prices between short sales and equivalent straight sales (even in the same building). This discrepancy is even greater for the newer/more upscale buildings. And the prices for straight sales appear to adjust much much slower.
From my perspective as a buyer, I know that I am taking a risk but it appears to me that I get paid for the risk in a form of a substantial discount.
What am I missing here?
Mike
mike,
You’ve got a solid grasp of the issues, at least as they appear on the surface.
The short sale price is not always the price at which the seller can deliver the unit. It may very well be a come-on or “I wish” price. It frequently ends up being higher than stated as negotiations proceed and time passes. The psychology of a short sale is, for many: “I was getting a bargain, I’m deep into this, so I’m willing to come up a bit to make the deal.” Short sales can be messy and the only way to clean up the mess at closing is by someone ponying up cash – while the buyer, seller and broker stare at each other and wonder aloud how to solve the situation. The broker sometimes pays. More often the buyer.
Asking prices on properties that are not short sales are only that – actual selling prices may be the same as or lower than nominal short-sale asking prices. If short sales are setting the market price – and they are, to some extent – sellers have to be competitive if they want to sell. Have you compared actual sold prices on short sale and market deals?
Sub-markets vary. River North may be an instance where short-sale prices are below the broader market. Have you tried making offers at short-sale prices on units that are not short sales? You might find yourself pleasantly surprised.
A short sale buyer also runs the risk that interest rates move against him during the process.
If the clock is ticking on you with a certain deadline of end of May, completing a short sale within that time is dicey.
Have I answered your question or just confused the issue?
Joe,
Learned a long time ago not to take the bate and get in to a comment argument. This post begs for a thorough discussion of the topic.
Short sales require that all parties have a thorough understanding of the process and the issues. An agent that has “only the dimmest grasp of the issues, resulting in their clients often being misled” has no business near a short sale …. or any other real estate transaction for that matter.
Jeff
Jeff,
But you know full well that the majority of agents involved in short sales fit my description.
I agree that this topic can’t be dealt with adequately in this format.