Buyer: “The price on that house is so low, and the house looks so good! Is that price in the MLS for real?!”
ThePhoenixAgents: “Probably not.”
We’re noticing an astounding number of short sale listings in the MLS that are listed for prices that seem too good to be true. Remember what your dear old Mother taught you about things that sound too good to be true: they usually are.
It’s been said here and elsewhere a dozen time before: short sales are not short and they’re rarely sales. It’s estimated that something like 3% of short sales actually ever close.
Here’s a few salient points on short sales. Those in bold are the ones I think make short sales a silly-stupid idea for buyers.
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The sellers’ lender has not seen the list price before it hit the market.
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In fact the sellers’ lender(s) will not talk about value of the home, or discuss completing a short sale until the homeowner sends his/her lender(s) a buyer’s purchase offer.
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For that reason, there is no guarantee that the seller’s lender will accept your offer – even if you offer full list price. Or more than list price.
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The sellers’ lender(s) will probably take about 2 to 4 months to make a decision about the deal. They’re not reviewing the buyer, they’re reviewing the seller.
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Meanwhile the market value of that property is fluctuating. Metro Phoenix is in the middle of the worst price decline in it’s history. What are the chances the value of the property in the short sale is going up?
The points above are those I can easily put a monetary value on. Those below are a little more squishy, touchy-feely sorts of aggravation pile-on’s.
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Buyers’ loan approvals are only good for a few months, so you’ll probably have to re-qualify if the deal is ever approved. Aggravation factor = minor.
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The seller is financially unable to do any repairs to the house. Don’t even think about the sellers’ lender making repairs. They’re writing off a ton of bad debt, so they’re not going to spend money on repairs. Aggravation factor = minor, if you’re getting a really great price. But see point 5 above.
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On the other hand, some sellers are choosing not to pay their mortgage even though they’re financially able. If the sellers’ lender(s) get wind of that, how likely are they going to be to approve a huge writeoff? Not! Aggravation factor = major, because it’s 100% out of your control.
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Sometimes sellers are angry or openly hostile about letting you in for showings or inspections. They are losing their house after all and even if that’s due to their own poor planning, people tend to feel mighty entitled when it comes to their house. Aggravation factor = major, because you’re just trying to look at a house for sale, and you’re being given attitude?!
These are the cold hard fact of short sales: even if you offer more than list price there’s no guarantee the sellers’ lender(s) will accept the deal, because they never agreed to the list price in the first place. While they dither, the property you offered on is losing value daily.
Sounds stupid? It is. That’s why – unless our buyer clients insist on looking at short sales – we prefer not to show our buyers these fake listings.
Heather Barr is a Realtor. She's a chow hound, a gym rat, and a political junkie and a happy workaholic.
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Maybe that would not be such a hopeless experience, if the buyers were educated by their agents what to expect. And the listing agents were doing their job.
I wrote two contracts from short sales in April and still nothing, but it seems that the Prudential agent is doing much better than the XYZ law firm that was assigned to “professionally negotiate” the short sale. At least we are getting the updates! While the “attorney” yelled at me last week that I am asking her too many questions.
What are they doing better that we agents can’t do? What is there to “negotiate”?
Talking about expectations: after the contract is signed by the seller and sent to the bank, the buyer cancels the contract after three weeks, deeply upset that in such a long time they heard nothing…
.. I just wonder what can you tell them? Whom did they hire to be their agent? …
Outstanding post, Heather! Short sales, IMHO, should be banned. Most folks could do better in the Casinos in Vegas. And it’s such a travesty against the public. My question >>> where in the hell is the Dept of Real Estate?
…randy
When they work out, and your client gets a home at a price that you can’t believe then you have a client for life.
The biggest issues are keeping your client’s expectations in check, and making sure the listing agent is making calls to get the deal done.
Heather-
Another great post about the realities of short sales. I try to discourage my buyer clients from considering short sales as well. Will once again direct them to your short sale blog posts!
Finally someone else who agrees with pre-approving short sales before listing.
From both helping buyers and doing BPOs I see the gamut of listings that make me wonder where they pulled the list price from (many times they just list the property at tax assessment).
Once I tell my buyers how a short sale works, many shy away from them or put those properties at the bottom of their list. The other hindering factor I find with many short sales is the listing broker/agent. Many seem to show very little care about their listings (could that be because of the high chance of non-closing?) and how they operate hinders helping the buyer acquire the property especially if its something they REALLY want.
@ Daren – good question. While I’m willing to bet there are some agents out there who merely want a sign in the yard (at any price) to try to find buyers, I think there are other factors in play..
I’ve heard many (short) sellers say the bank won’t start approving a short sale process until they have an offer in hand. If you’re trying to beat out a foreclosure you need to get an offer quickly, what’s the best method for getting a quick offer? A low price!
We’re also witnessing a reduced demand phenomenan. It’s becomming more common to see buyers avoiding looking at short sales all together. Reduced demand forces lower prices – good ol supply & demand economics.
I would love to see a rule where banks have to pre-approve a short sale, including the price, before a home is listed for sale. That would change everything instantly…
So the real question is who is setting these unrealistic prices? At a minimum it seems unethical to set list prices at a point where it’s pretty certain banks won’t accept even a “full price” offer. Seems like the agents setting these prices are really just looking to pick up buyers to make a quick buck. Reminds me of what the mortgage brokers were doing several years ago which is one of the contributing factors to this entire mess…
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