The long and short of a short sale
Letter to the Editor
By Inman News, Monday, May 11, 2009.Re: 'Failed short sales take heavy toll' (May 8)
Dear Editor:
I sold a house on a short sale when this whole epidemic first started. I had a ready and willing buyer for my house, which had a note of $1.05 million at the time -- this was spring 2007.
I had lost my job and had no way of keeping my home, so we listed it at the price owed and didn't get any action for about six months.
Finally, when we listed it for $999,000, offers started coming in at $925,000. The second lender was losing about half of their money, but the first (Wells Fargo) would have been covered. The second had agreed, but Wells Fargo did not respond for four months!
The buyers finally bought somewhere else, and by then it was fall '07. The next buyers to come in offered $825,000. Now the second lender wasn't getting a penny. This buyer ran some inspections and turned up structural damage to the tune of $350,000!
The bank, of course, balked at both the new offer of $825,000 and correcting this purported damage to the structure. This buyer ends up walking, and now with the new report in our hands, we had to show this to every prospect who came in!
The house sold after 18 months for $625,000. The bank lost about half a million dollars on my house alone! This problem is killing the housing market, and I blame the banks.
Joni Cox
Owner
BayAreaHousingGuide.net
Lafayette, Calif.
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Submitted by Tim Burrell on May 11, 2009 - 5:40am.
Maybe I am missing something, but on the first offer Wells Fargo was getting fully paid, if that is what is meant by "fully covered". So, the seller did not have to ask Wells Fargo for anything, just get a payoff statement and close the sale. If I understand what the writer is saying, that Wells Fargo would be fully paid, there was no need to wait for 4 months, as you can get a payoff statement very quickly. If this is correct, this is another situation where the failure to understand how to do a short sale gives the process a bad name. An agent trained in short sales should have closed the first sale. There is plenty of training available. If an agent just wants to learn how to do short sales, they can learn it for free at www.ShortSalesR.us. There are also classes available where agents can get Continuing Education credit, something they need anyway.
I hope this helps.
Tim Burrell
www.CreateAShortSale.com
Submitted by J Philip Faranda on May 11, 2009 - 7:33am.
This speaks to the fact that lenders are their own worst enemy. "Loss mitigation department" is a misnomer- many loss mitigators are loss-enhancers due to all the red tape, slow responses, lost faxes, 45 minutes on hold, and, for a cherry on top, ordering $50 broker price opinions instead of getting an appraisal from a local professional.
After months of extra time on the market, a dead deal or two, and accumulated stress by all parties, the home ends up selling for far less than originally offered, either as a short sale down the road or as an REO. The banks have no one to blame but themselves.
www.jphilip.com
www.WestchesterRealEstateBlog.NET
www.NYShortSaleBlog.com
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Submitted by Caterina Platt on May 12, 2009 - 1:34pm.
I see another trend resulting from these short sales and loss mitigation nightmares.
Buyer's brokers are actually choosing to show the REO down the block offered for $20K more simply due to the unsure offer, time frame for responses, and time frame to close if and when you get an accepted offer.
An example of the loss mit dept's idoicy in a recent conversation with an agent:
2nd position lender was being offered $2k. They stood to get nothing in the pending foreclosure. Rather than accept something, they countered back at $5K and soured the deal altogether. Why? Because the PMI wouldn't pay their claim unless they held out for $5k. Well, the PMI company will now pay the full amount rather than a reduced amount which would have been offset by a buyer's funds. How ludicrous is that??
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on May 17, 2009 - 1:35pm.
Considering this incident took place soon after the peak of the market was reached and at a time when greed was dominating all business (and I use that term loosely) decisions and banks and sellers were still under the impression that it wasn't possible that the price of real estate could now be lower and dropping fast, plus the fact that they were so ill prepared for all that has followed till today (when many are still in denial and ill prepared to handle the short sale and reo transactions), I am not the least bit surprised about the story.
Thankfully, today many lenders and sellers have come to realize that in a down market, time is your biggest and worst enemy. One that erodes and corodes value and distresses the situation more with every passing day.
Today, sellers and lenders for the most part, understand that real estate prices follow the trend of the market and in a down market, the price 3 months from now will be different from today's price.
Unlike 3-4 years ago, when "different" meant higher, today different means lower and so, pricing to sell today at the top of tomorrow's market, is better than trying to sell tomorrow at yesterday's inflated prices.
Today, we are in a Price War and Beauty Contest. Only the best priced home that shows the best will sell first. After all, why should I buy a property needing x dollars in repairs and neglected maintenance when I can buy a similar property, with only cosmetic touchups needed for the same or even lower price.
Buyers are savyy and do a lot more research before making that offer. They can find several choice homes at similar prices and one will have everything done to it - even upgraded and they'll choose this one over any overpriced home, any day of the week.
Besides, why pay $350k for a 3/2 and about 2000 sq ft and self-flushing toillets when the neighbor is selling a similar 3/2 for $299. In a short sale, you may even be able to pick up that home for $250k! Even if you put $50k in improvements and repairs, you'd have an extremely nice, 2000 sq. ft., 3/2 home for $300k!
Besides, because of the competition created by distressed sellers, that $350k home will now be worth a lot more like $250k because of this and other similar short sales and reos selling in the area. Which means, good luck getting $350k for at least 3-5 more years (even longer)!
The good news is that, buyers are finally coming out to buy. Many are looking to take advantage of the tax credit, others because they see we may finally be at the bottom and others, because they realize this is what "investing" is really about. Buy property you can rent and enjoy cash flow and appreciation from over time because rents are finally higher than the mortgage payments on today's prices.
This is creating the "economics 101 effect". As prices have dropped, and people buy, inventories are dropping, eventually causing the stabilization of the market we all seek.
Sellers are not out of it yet. They still can't get $350k for their $400k home in today's market. Now and for a few years to come, they'll get $200-$250k if they're lucky, and until the distress inventory subsides.
Buyers now have a short 3-5 year window in which to buy and accumulate wealth-building real estate. The kind of property true investors seek.
But as news of a bottom continue to come out in the media as they point out all those mustard seeds we are beginning to see and more and more buyers pick out the best investment grade real estate available (leaving only the scraps and less desirable properties for the pros to pick up dirt cheap), reducing inventories and stabilizing prices, those still on the fence about weather now is a good time to make an offer on an reo or short sale better get together with their Certified Distressed Property Expert Realtor and begin planning a strategy based on their wants, needs and long term investment goals.
http://MiamiRealEstateKing.YourKWAgent.com
Certified Distressed Property Expert
Miami-Dade County, Florida.