Short Sale - Owner Motivated
By David A. Podgursky • Nov 12th, 2008 • Category: Featured Articles, Market Commentary, Short SalesI am so tired of reading this in listings. Of course the OWNER is motivated… they have to be motivated to undertake a process that will leave their credit in ruin potentially for YEARS. The Owner is walking away from their HOME and accepting as much as a 250 point derogatory on their credit. People who have built and safeguarded their 700+ credit scores will fall into the 400s and have trouble RENTING, buying cars, getting and keeping credit cards (yes, some credit cards will revoke your card privileges after such a dramatic problem)… but OWNER MOTIVATED means Nada in a Short Sale… the OWNER has nothing to do with it.
What I would like to start reading is:
- BANK Motivated
- Bank will work each offer in order
- Guaranteed, In-Writing 72hr decision
- Tenants ready to move ASAP (why sellers are signing 1yr leases is beyond me…)
- Guaranteed closing within 60 days (30-45 would be too good to be true)
- Bring your FHA Buyers (haha…I’m reaching now)
Recovering in this housing market is possible…but with all the distressed properties out there creating enormous inventories, BANKS are going to have to start figuring out how to abbreviating this process.
Right now, a potential buyer of a short sale gets to follow this process:
- Find and fall in love with a house in the neighborhood that they’ve been watching for a year
- Write an offer with their Realtor
- Sign the Short Sale Addendum allowing the bank to take their sweet time
- Learn that they may need to guarantee their Realtor’s commission because the bank may up and decide not to honor the listing agreement’s commission guarantees
- Put the offer in anyway & Wait…
- Find out they were the first offer and the bank typically takes 4-5 offers & Wait…
- Find out that the seller has not completed all of their paperwork & Wait…
- Find out that the house next door which is more desirable sold for less than their offer without a short sale…start hating their Realtor
- Find out the Bank has sent out for 2 appraisals on the property & Wait…
- fast forward 3 months… there are two offers on the table and the seller has moved out and turned off the power, removed the appliances and left the windows open during rainy season…
Does this sound like fun?
Well…this is how it works…note I have still not shown a conclusion.
What usually happens is that the buyer cancels their offer and gets their money back. The bank still waits for more offers. When the Bank gets their obligatory 4-5 offers then they take the top two and encourage a bidding war…
Then a magical 4-5 months later, the Listing agent calls the Buyers Agent to tell them that the bank never cancelled the contract and wants $20,000 over list price which is way over budget.
Tips to remember to avoid this mess:
- People in this market are getting good DEALS…but STEALS are few and far between.
- Often the List Price and Sales Price have nothing to do with each other… The bank has a number of factors they use to set the bar on what they will accept and they usually don’t factor in what Buyers think they’re worth since they’re "Distressed". Banks want Fair Market Value for their Short Sales
- The Bank has no motivation to take the additional costs of a Foreclosure - so waiting for it could take a while… and if they won’t take those costs, why would they want to essentially take them off the sticker price?
- Short Sale does not mean VALUE. Just like a Bank Owned - they may have significant deferred maintenance and cleaning up necessary to get them ready to inhabit.
- Often the BEST VALUES are Conventional Sales with a seller that either has a low mortgage or the cash to come to the table.
- Realtors that PUSH Short Sales are not necessarily understanding the process themselves… and how does that help you, Mr./Mrs. Buyer??
- Short Sales are more geared towards Investors than Homebuyers because Investors can afford to wait and already have factored in the costs of fixing a distressed property.
David A. Podgursky is a Broker Associate for Boca Executive Realty - www.bocaexecutiverealty.com. As a resident of Lake Worth Florida, David succeeds in assisting Buyers and Sellers with their Residential and Commercial Real Estate needs in Boynton Beach, Lake Worth, Greenacres, Delray Beach and Boca Raton Florida.
David is a Florida Licensed Real Estate Broker and Mortgage Broker making him uniquely capable of offering Full Service Real Estate Services to his clients.
From assisting a first time buyer in determining how much they can afford to analyzing an investment for a high end investor to helping a baby boomer decide the best property for their retirement in Sunny Florida, David Podgursky is the Boynton Beach/Lake Worth Realtor to call first!
(561) 504-6949 cell * davidp@bocaexecutive.com
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David,
I have to agree with you that the words “Owner Motivated” mean nothing when we’re dealing with a short sale.
In today’s market it would be ideal for a listing to say “Bank Motivated,” but that is just so rare when dealing with the larger institutions.
The professional short sale agents know how to actually get banks motivated and make sure that offers don’t take so long to get accepted. The real problem is the agents who have realized that short sales “are the business” and have gotten in without any training or education.
I have to disagree with your statement that short sales are for investors.
For the most part short sales are better fit for retail buyers who want to purchase a property at fair market value, or at least that’s the way it is here in Orlando. The weak link in this process is a buyers agent who does not properly prepare their clients for the long wait and the hurdles that come with short sales.
A few key questions buyer should be asking their agents are:
1. Have you ever done a short sale?
If the answer is no, then how could this agent know the process?
2. How many short sales have you sold?
If they’ve never sold one then they are better suited to show you homes that are not in any stage of foreclosure.
3. Have you talked to the sellers agent?
If your Realtor hasn’t spoken to the sellers agent before having you write an offer, they are not doing their job. A simple phone call can reveal plenty of information as to the status of the short sale, whether or not an appraisal has been done, and if there are any other offers.
As a real estate broker with a professional short sale team I think short sales can make great deals for buyer who are properly prepared and educated on the short sale process.
For an investor, I’d say stick with REO’s because you get answers quicker and there are plenty to chose from.
Jonathan Rivera
Owner/ Broker
R-Homes, LLC
Orlando’s Leading Short Sale and Foreclosure Specialists
David,
The short sale market creates a great deal of pain for all parties involved. The sellers are nearly forced into it (or at least feel as though they are), the buyers are way off base on what to expect for response time and final approved price. The mortgage company negotiators are…..well, I can only assume that they are heavily medicated. Then there are the realtors who I counsel on a near daily basis just to keep them from chewing on a gun barrel from the stress.
The log jam is definitely with the banks though. They have got to get a grip on the realities of the market and hire more people and train them better. Great post.
Steve
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