Short sales sound like a dream come true for those who can qualify for a mortgage to buy one, but are they hype or hope? I lean towards hype.
Short sales take longer to get to settlement. After weeks and weeks of negotiating the deal, once a contract is written with the owner/seller, it has to go to the bank for “3rd party review.” This can take weeks and weeks in itself, sometimes even months. Then when the bank/3rd party accepts the offer, then the mortgage application process can start in earnest. When the loan is approved, you will usually find that the title search and escrow process also take longer.
I have also found many of the Realtors who represent banks in short sales are not the top producing Realtors who are the most experienced. Some Realtors who specialize in short sales are either overworked, or are simply lacking in basic business skills. For example, I have a mortgage client buying a short sale, I needed to talk to the listing agent on the property who represents the bank, and his website is down, his voice mailbox is full, and his emails bounce back. He is literally unreachable!
Some Realtors won’t even work short sales because it takes too much work, for the same pay as a regular sale. One real estate company I know of, RedFin, publicly states it is their policy not to work short sales at all. They run a business, and don’t see short sales as a good profit margin business. They know that some short sales never even close, after weeks or months of waiting and hassle. They also know the chances of a client getting a short sale contract through are slim. On their website, when a home comes up on a search that is a short sale, they state: “This home is flagged as a short sale. We’re sorry, we don’t tour or write offers on short sales in this area because of the slim chance that you’ll get the home.”
And from a buyer’s standpoint, is it really a bargain to get a 20% – 30% discount on the price of a house, that then may need 10% – 15% in renovations and work? Is the small discount leftover worth the hassle, uncertainty and delay? It apparently is for some, not for me.
However, I can counter all of the above and say that I have seen successful short sales that result in a good deal for the buyer. The process may have taken only a moderate time frame, and the house may have not needed much work at all. I have seen these success stories in person. I just wonder if they are the exception to the rule. The marketplace in many areas does need to clear inventory to get back to a stable market, so short sales have an important function. My point is that the process is frequently poorly executed by many parties involved. As usual, ask a lot of questions, and demand excellence.