Short Sales: Are They Worth the Trouble?

For anyone who has braved the housing market in the past four years, short sales have become synonymous with high risk and high reward. But with so many discounted properties on the market today, are they really worth a buyer's trouble? Maybe — if you have a lot of time and a strong stomach.

Yes, you can get a below-market price, says Dallas Realtor Loni Parmelly, who specializes in short sales, but it's going to take patience because these deals are slow and difficult.

Unlike foreclosures, in which the owner has walked away and the bank is looking to unload a vacant — and sometimes, vandalized — property, a short sale isn't a distressed home that will sell at a rock bottom price. The homeowner is underwater (meaning he owes more on his mortgage than the property is worth), and he has a financial hardship such as a job loss. But to limit the damage to his credit rating, he has agreed to stay in the house (often continuing to pay his mortgage bills) and to help sell it, at which point the bank has agreed to eat the loss. According to RealtyTrac, short sales typically went for nearly 10 percent less than the market price in the first quarter of 2011. (Foreclosures sold at a 35 percent discount.)

What makes the transaction tricky for the buyer is that you're negotiating not only with the homeowner but the bank — and that creates three big headaches:

1. It takes a long time.

Normally, when you make an offer on a house, you'll hear back within days, or even hours. But banks move very slowly these days because their representatives are overloaded with cases. You might wait 30 to 60 days for a response, perhaps longer if there's a second mortgage on the property and therefore a second bank. The total process can easily take as long as six months from start to finish. "For someone moving a family or relocating for a new job," says Parmelly, "that kind of timeline is incredibly difficult."

2. Your offer can't be contingent on selling your current home.

Banks generally won't accept offers on short sales if they're contingent on selling your current house to get the funds you need. "Even if the buyer is already under contract, there are just too many things that can go wrong," says Parmelly, "and then all the dominoes fall." So unless you're a first-time homebuyer, you don't need the equity from your current home, or you're a real estate investor, it's unlikely that you can make a short sale work.

3. It's an as-is sale.

Banks also typically won't consider short-sale offers that have inspection contingencies in them. So you can either do your inspection before you make your offer — which would mean spending $500 to $1,000 on the outside chance that you can make a deal (and less than a quarter of short-sale offers lead to a purchase ) — or do what most people do, and go without an inspection.

As long as you're prepared for these hurdles, you may just land yourself a bargain. But make sure to work with a veteran Realtor because you want someone who knows the ins and outs of the process and can protect your interests throughout the negotiations. And since short sales aren't necessarily identified on Realtor.com or the part of the MLS data sheet that buyers see, always ask your agent whether any house is a short sale before bothering to look at it.

Then, if you fall in love with a house that's a short sale, get yourself a mortgage pre-approval — another short-sale requirement — and make a lowball offer. Sometimes you can do that without putting down any money, but if the bank requires a deposit, have your Realtor put language in the offer letter stating that if you don't have a response by a certain date (perhaps 60 or 90 days out — however long you feel like you can wait), you have the option of retracting the offer and getting your deposit back. That gives you an out, just in case.

When the bank finally replies, it will more than likely counter with whatever value its appraiser gives the house, says Parmelly. "Offer them 15 percent less than that," she says, "and see what happens."

About Ady Simion (Realtor and Public Notary)

Ady Simion was named in the Top 1% of all agents for NRT LLC a subsidiary of Realogy that operates a variety of real estate offices under brands such as Coldwell Banker, Sotheby's International Realty, Century 21, The Corcoran Group, and the technology-based brokerages ZipRealty and Climb Real Estate. NRT has 787 offices and 47,000 sales associates. Selling and buying property can be very stressful but with the right agent it can be profitable and a fun experience. Ady is also a Notary Public and being a people person he wants to help negotiate for his clients making their transactions as smooth as possible. Ady’s goals are simple: He wants to be the best source of information on the Los Angeles area Real Estate market, as he assists clients through each transaction with care and professionalism. He is proud of his large referral base of clients who have placed their trust in him over the years. Why him, when there are so many good people out there?!?! • Sellers will have their property exposed to the largest team of sales professionals in the world by far. Coldwell Banker Agents sale more homes than anyone else. • Buyers will have the opportunity to view more properties exclusively. • And most importantly when you hire him you get a whole team working for you not just “only one person”. Ady Simion started his Professional Career as an Insurance Agent, and then mastered the Mortgage Industry focusing on helping buyers and sellers achieve their life dreams. He now is an Agent with the Largest Residential Real Estate Company in the nation and the world, Coldwell Banker, at the Pasadena office which is the leader in the areas in which he specializes. After finishing College Ady has consistently been a Top Producer in every office/business he worked at. He speaks English, Romanian and Spanish. Real Estate is constantly changing and working with an agent that has been involved in the Real Estate buying/selling process most of his life is always beneficial for clients. Call, text or e-mail him or just stop by to say Hi and ask any real estate questions you may have.

Posted on August 24, 2011, in Uncategorized. Bookmark the permalink. Leave a comment.

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