Falling Short.

Short Sales. Those two words have single-handedly changed the way we operate our businesses (both personally, and on a corporate level). Some of us, (myself included) think short sales can be a great option in this market. I, of course, recognize that these types of homes are not for everyone, but overall, wouldn't steer away from showing them. As a friend of mine put it today "short sales are the new market." Whether we like it or not, it's happening. We need to embrace, understand and adapt to avoid extinction. (How "Animal Plant" of me, right?) While I know quite a few agents who avoid short sales like the plague regardless of the inflated commissions offered, (*The bank has more wiggle room to offer higher commissions. As opposed to the standard 2%, you may find them offering 3.5%) I truly feel they are doing both themselves and their clients a disservice. They are significantly limiting their inventory by not showing majority of what the current market has to offer. Am I saying it's a good idea to show short sales to buyers who clearly don't qualify to buy one? Obviously not. However, I do think we need to expand our thinking when it comes to options for our clients.

I think before any further discussion is had, we need to acknowledge that maybe not everyone knows what a "short sale" is. A short sale is a "pre-forclosure." Let me guess, not sure what a pre-forclosure is either, huh? Great. According to Wikipedia, a short sale is "a sale in which the proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers." Basically, a bank (the lender) is willing to take less for a property than the seller owes. Hence, "short" sale. They are literally falling short on the proceed amount. For obvious reasons, most sellers prefer this option (if they qualify for it) over foreclosure. While both negatively impact your credit, you will be eligible to purchase a home again in two years, as opposed to the 5 year restriction of a foreclosure. Don't get me wrong, neither are fun. It's really a matter of the lesser-evil, at this point.

There are obviously some notable problems with short sales (there wouldn't be much of an argument if there weren't problems, right?) The biggest problem I find is the element of "the unknown" throughout majority of the transaction. The buyer, seller and brokers have little to no control over anything that may occur. The bank's the head honcho, we just follow suit. Aside from the process (usually) taking 6 months or more, the bank can pull out at any time. Meaning, you can be in contract between yourself and the seller, and the bank can still reject your offer. The deal can die at any moment, and you can't do a damn thing about it. If you're making one of the most important purchases of your life, I'd venture to guess you wouldn't want to gamble your money like that. Another issue is that the bank isn't required to see all offers, and they will most likely, not counter. Because short sales are being called the quote unquote "good deals," all buyers want in. Most short sales have multiple offers on them. (I'm personally waiting to hear the results of an offer a buyer put in on a home that had 44 offers on it. We are "in contract," but it means absolutely nothing until the bank accepts). The bank has so many options at their disposal, that they have no need to counter. Additionally, the bank does not allow you to change your offer once it's submitted. The bank sets a cut off date for offers, and then selects the best choice from what they have. The only time a bank will counter is if it comes down to two similar "deals," and they want to push one off of the fence. Then, and only then, will you get a counter request from the bank. Lastly, banks prefer all-cash buyers (don't we all?). They have the foresight to know that some of today's mortgaged buyers, will become tomorrow's short sale sellers. At this point, it's really hard to negotiate a short sale deal without a substantial down payment and liquidity. I'm not saying it doesn't happen, but it doesn't make the deal easy. While all of you first-time buyers may not "mind" the idea of purchasing a short sale, the bank minds the idea of you.

Well, now that I've spouted off all the negatives, let's look for some positives, shall we'll? As mentioned before, short sales are a great option for investors/all-cash buyers. In the scenario that you have the cash ready, willing and able, the bank (most banks) will accommodate by closing quicker. Remember, they want to get rid of the house just as much as you want to purchase it. The bank is taking a loss merely by approving the short sale, in the first place. The quicker they sell it, the better. I'm not saying short sales can't be an option for a mortgaged buyer as well, but right, they will have to meet very stringent qualifications. Another great thing about short sales, is that you're getting a house at true market value. The bank has nothing to gain by overpricing a home. Keep in mind, short sales are different from foreclosures. You're not going to get a $2,000,000 property for $999,999. It's not happening. However, because the bank/seller wants to get rid of the property, they more often than not, price to sell. Something that's nice about a short sale vs. foreclosure is that the owner is still very much involved in the sale. While they may not be making a profit, they're also not being evicted from their home and then having it published in the local paper (Short sales allow the seller to maintain anonymity. Where as a foreclosure is public record). In laymans terms, short sale sellers are less pissed off. As a buyer, this will greatly benefit you. Short sales and foreclosures are both sold "as is." Because the short sale seller is less agitated, there is less of a chance that they've destroyed the property. Hence, benefiting the buyer.

The Moral: Short sales are unavoidable. Eventually, we will all be in a situation where either we personally, or someone we know is dealing with one. We need to be prepared, and really take the time as agents, buyers, sellers, investors, whatever...to educate ourselves on what's not-so-slowly becoming most of our market. There will always be "regular" sales, but I think if we looked at current market data, we'd all be amazed how "regular" sales pale in comparison number-wise to short sales. We're at a point in our market that these properties need to sell. If they don't, we will stay in this rut we've been in. We won't be able to produce more "regular" inventory without successfully selling off the bank-owned properties. Short sales are here to stay, are you?