This blog was written a couple of years ago by our agent Andrew Trammell, but the content is still as relevant as ever so we decided to bring it back to answer a question that we continue to get asked a lot being in the real estate industry: short sales… to buy or not to buy?
Even with an improving market, foreclosures and short sales continue to be hot-topic items in real estate. While the Nashville real estate market has been improving vastly over the past year, it still seems that to some extent, no neighborhood is exempt from the buyer’s market seen in the last couple of years, where discounted home prices seem to be the driving factor that causes a quality home to sell quickly.
However, a short sale, albeit a discounted price, is typically anything but a quick transaction!
“What is a short sale anyway?” If I had a dollar for every time I get this question I could take a longer vacation in the off season! My initial reaction, I admit, is to cringe.If this person is a buyer with a goal to purchase a home within the next six months, my first thought is often to do anything I can to avoid having to deal with a short sale transaction. But instead, I take a deep breath, give them a look of sincerity and explain the following…
A short sale is a listing being offered for sale by an owner who, due to the negligence of not making mortgage payments over the last year or more (granted, some people lose their jobs), is facing foreclosure and is trying to sell his/her home at a price that is less than what is owed on it. This hypothetical sale would be a loss to the bank who owns the loan and would ideally allow the seller (and the bank) to avoid the foreclosure process all together. The reason I say this is a hypothetical sale is because all too often, the seller — and Realtor who are marketing the property — have not completed their homework to alert the bank of what they are attempting to do. Even if they have gone through the proper channels, the entire scenario has to be approved by an executive manager at the bank whose job description most likely does NOT include signing off on losses!
Essentially, a short sale seller is offering you their home at a price that is below what they owe on their mortgage, which is not fully approved by their bank, and for all intensive purposes, is not their home to sell in the first place since they haven’t been paying for it! Now, the kicker for you, Senior Buyer, is that you have to sign a contract with this seller to even get the process started; obligating yourself to both the time and red tape involved in completing the process for as long as it takes the seller’s agent to get a response from the bank acknowledging that there is a contract on the home.
During my time has an agent, I’ve seen this process take months! And did I mention the seller has priced his home BELOW what is owed on his mortgage? So, don’t be surprised if his bank tries to negotiate a higher price with you even after you have a signed contract up front!
Whew…..see why I cringe when a potential buyer asks me about short sales?
So, do I discourage all buyers to walk away from short sale scenarios? Absolutely not. That is, unless they have a desire to close within the next 30-90 days.
My experience is that short sales are typically for emotionless buyers who have all the time in the world to sit and wait and get zero positive feedback in response to their offer/contract. These shouldn’t be buyers looking to re-locate on any type of timeframe, nor should they expect to receive much joy or excitement from the process of closing on their home. Short sales are hard work and frustration from start to finish! Have you ever tried reasoning with a stubborn teenager who just wants to be locked in his room with the music blasting? You get the picture. The bank you have requested this discounted deal from is in no hurry, nor do they take pleasure in completing such a transaction.
Is it worth it in the end to get a good price on a home? Maybe. I always encourage my buyers to allow me to show them similar homes in the area that are for sell by “real live” sellers, who have priced their homes aggressively and can actually sign the dotted line themselves. I enjoy helping buyers accomplish whatever process they set out to pursue in real estate, but I couldn’t sleep at night if I didn’t give fair warning to all that short sales aren’t always what they’re marketed to be.