A Short Sale, Anything But Short

The first time I heard a buyer say they thought a short sale was someone who needed to sell quickly (in other words, they thought the sale would happen in a short period of time), I giggled a little. When I thought about it, I could totally understand the thought pattern. The reality is nearly the opposite....a short sale can be anything but short!

The term actually refers to the current owners needing to sell and being "short" the funds it will take to pay off the lender. So, the current owners need to negotiate with their lender an alternate repayment plan or forgiveness of the remaining debt. In today's market, banks are doing anything to avoid foreclosures, so we are seeing more and more short sales approved; very often with full debt forgiveness to the sellers.

This is truly a win for the sellers. Sure, their credit takes a hit. But, their bank accounts and immediate financial future is far better off than if they were to go through a foreclosure. And, it is expected that many of these sellers will be eligible for purchasing again in the not so distant future.

Buyers, on the other hand, need to be willing to stay the course, and hope for the best. There are opportunities and risks.  Be sure you understand them.

Because in many segments of the marketplace today, most of the available inventory is short sales, I am going to try to break down this very complex process so you're better equipped to consider buying or selling in this kind of a transaction.

Stay tuned to http://www.therealestatewhisperer.blogspot.com/ in the coming days.

UPDATE: Read "The Long and Short of a Short Sale: Part 1 , Part 2 ,  Part 3 , Part 4 and Part 5" by clicking on the light pink links.

* * *

Post written by Vicky Chrisner; Keller Williams Realty

http://www.vickychrisner.com/

Questions and comments can be posted here, or for more privacy, please feel free to email me: VChrisner@KW.com

The Long and Short of A Short Sale, Part 1

In general, the following is the process of a short sale. There are many variables due to specific lenders, particulars of the parties involved and the heavy influence of third party negotiators and/or the involved real estate agents. * Regardless of the path taken to get to this point, the sellers eventually decide that attempting to negotiate a short sale with their lender(s) is their best option. Lenders will not approve a short sale until there is a contract in hand. * The homeowner contacts a real estate agent. Not sure how to screen an agent for this process, the homeowners generally pick the first person who says they can help. Sometimes this works out fine; other times it does not - but we'll cover that in a later post.

* Because there is often a race against a clock to prevent foreclosure, the agent should see this as a firesale and market the property agressively, at a price they hope will quickly attract buyers; but the agent should be careful not to market the property too low, as the goal is to procure an offer that the lender will approve. * An offer, or multiple offers, are received. The agent should assist the sellers with reviewing and negotiating the contract, and should be sure to include a contingency addendum that provides for "third party approval", namely approval of the lenders. * An offer should be ratified. * Contract now in hand, the listing agent and sellers put together the required information for the seller's lender, and forward the package to the bank. This package includes seller's financial information, bank statements, paystubs, tax returns, a "hardship letter" explaining how the seller got into this mess, and why they need help getting out of it, the ratified contract to purchase the home, a Comparable Market Analysis of the property estimating fair market value, and other things that may help to persuade the bank to approve this short sale. * The bank receives the package, distributes it to the right department, and the file is assigned to a negotiator at the servicing bank. * The negotiator reviews the package, and may return it in its entirety to the seller because it is incomplete or the seller does not meet the requirements to qualify. Or, the negotiator will move it to the next phase. * A BPO (Brokers Price Opinion), appraisal, or both, are ordered for the property. * Once received, the bank has a third party's impression of the fair market value of the property. The negotiator can "counter" the offer on the table (if they feel the ratified contract is too low), can reject it, or can recommend it for approval. * Once the negotiator can recommend the package for approval, it is submitted for another layer of review, where it goes through a similar process. If it is not approved, then it will be sent back to the negotiator with instructions to counter or reject the offer on the table. * This negotiating process may include negotiating the sales terms (usually price) and/or negotiating for additional payments from the seller, either at the table or over an extended period of time, post sale. * There may be multiple layers of approval, especially if losses are significant for the bank. Also, many times the servicing bank is not the investor. So, once the servicing bank makes a recommendation for approval, the investor(s) will also need to make the same recommendation. They may or may not request additional BPOs or appraisals. Each additional layer of review increases the time the process takes. Each item that must be negotiated also increases time frames. Once the bank agrees to the short sale, a letter is sent to the seller outlining the terms of the sale that have been agreed to. Then, and only then, can settlement take place. For buyers, this process is a big "hurry up and wait" experience, and then more rush to get to the closing table. Generally, banks require closing must happen inside of 30 days from the date of their approval. Because of the time involved, many buyers fall out. They become disenchanted with the process and move on to another home. For this reason, many short sale listing agents prefer to have a few back up offers in place. The trick here is getting the back up offers to have the same price and terms as the original. Also, if primary buyers drop out because of lack of interest, you can be certain that secondary buyers are even less attached to the home. In my next posts, I will break down concerns buyers and sellers face and how to minimize risks and make the most of these types of sales. Stay tuned.

Free Money for your Home Purchase!

Would you like to receive an extra $10,000 towards your home purchase? Move quickly. Special funds are available for qualified buyers (income must be below 80% of the median income for the area). The fund will match your contribution 5:1. That means if you put in $500 (the minimum investment), the fund will contribute $2500. If you put in $2000, the fund will contribute $10,000. The only catch is that you must own the home for 5 years or you will have to pay these funds back. Once you own the property for 5 years, the debt is forgiven. As you can imagine, this money runs out quickly; and only select lenders have this fund available to them in LIMITED quantities. Please note this is in NO WAY tied to the tax credits being offered by the federal government right now, although there are some great programs allowing bridge loans to use those funds up front, as well. Please call me for details.

Vicky Chrisner

Keller Williams Realty

www.VickyChrisner.com

703-669-3142

No More Houses For Sale?

On the 10th of each month, MRIS (the MLS for the Washington DC Metropolitan Area) publishes market statistics by region, county and zip code.

Each month, I pull them up, review them, and sometimes incorporate information about the market into my blog. Recently, however, I haven't done that so much. That's because I don't feel like the stats really show what's going on. There's one exception: Listings.

The number of listings is DOWN. Way down. Our inventory is so low right now. At some price points (generally, under $400,000 except for the condo market), it's creating a feeding frenzy among buyers. First time home buyers, investors and relocation buyers are chomping at the bit to get into a nice affordable home here in Northern Virginia.

Stastics like Days on Market, or Available Inventory are very misleading. This is because of how distress sales are being handled in the marketplace.

REOs are frequently on the market for a few days, maybe a week or 10 days at most, and then the bank will choose an offer and "accept it". At that point, the home is no longer available to new potential buyers. However, the contract is not ratified, it's still in process. Therefore, the home still shows like it is available on web sites and in the MLS. But, it's not. It usually takes 1-3 weeks before you see these listings updated as "under contract" in the MLS system. It results in the MLS showing the number of marketing days as 14-30 days when really it was 7-10.

Short sales are even worse. Many times, they are not marked as under contract until the bank has approved an offer. This can take months - several months. Meanwhile, the seller has a ratified offer, and often has several back up offers sitting on their desk; and the home isn't really available for purchase by a new buyer. I mean, would you want to be the 10th back up offer?(Learn more about short sales: http://therealestatewhisperer.blogspot.com/2009/04/risks-of-short-sale.html) This results in the MLS reporting 90-200 days of marketing time, when in fact, the seller had 2 or 3 offers within a week.

When these two things are happening in half of the sales in the market place, it creates misleading information. So, it makes it difficult to report with accuracy.

Some days I am pouring through the listings, looking for homes to show to buyers that are "really" available. After scouring through 20 or more listings, reading through all the comments and calling the listing agents for more information, I sometimes come up empty handed. I have actually had to call buyers and say that there are no available homes that fit their criteria.

Imagine that! The national news media is saying that it's a buyers market, and their real estate agent is saying there are no more houses for sale?

If you own a home that should sell for $200,000-500,000, and you've been wanting to relocate or move into a larger home in this area, the time to consider this is NOW. At higher price points, there is still more inventory. So, you can sell your $300,000 house in Loudoun and move to a $500,000 home in the very same area and take full advantage of the seller's market and the buyer's market.

* * * * * *

Curious what you're home should sell for? You can get an idea by ordering a free automated snapshot at http://www.20175homesales.com/; which will tell you what homes in your neighborhood are selling for, but pay no attention to the "days on market" or even the list price - look at the sold prices.

Even better, call me and let me prepare a personalized market analysis for you. We really need more houses to sell, so I do hope to get your call soon!

Vicky Chrisner

Keller Williams Realty

703-669-3142

VChrisner@KW.com