Sunday, January 25, 2009
In an effort to explain what has become one of the most frequently asked questions of the 2009 season: "What is a short sale?", I will attempt as simple and as concise answer as possible with my limited experience in the matter... When the proceeds of a real estate transaction fall short of what is owed on the property, it is referred to as a "short sale". In many cases the lender agrees to reduce the loan balance due to an economic or financial hardship. The owner of the home is still in title, therefore gets to work directly with the real estate agent in order to come up with an asking price which will create activity on the property and encourage offers. What I have found in many instances is, the home is listed considerably less than the agreed "short sale price". In some cases direct negotiations with the lender do not even begin until multiple offers on the home are obtained...and at times the home actually sells for more than the listed price. Most buyers are finding this confusing and are specifically requesting not to be shown short sale listings. As an example, I recently received a call from a prospect inquiring about a listing which was posted on our IDX site. It was a brand new, waterfront home listed below $1 million dollars and when I looked it up I immediately concluded that it was clearly under priced. When I phoned the agent handling the property he told me the home was valued at over $2 million. He also told me that the home already had over 2 dozen offers and that the highest bid was about $1.6 million. I think you can see why, in any price range, the buyers are a bit confused with these marketing strategies. Keep in mind though, it looks like the home will sell, and possibly for a higher price than if they had listed at market value. By the way, the local multiple listing system now has a category whereby agents can search specifically for short sale and non-short sale listings. The most recent search I conducted determined that approximately 12% of the Naples residential listings were categorized as short sale properties. (This does not take into account foreclosures, which will be another blog post). Up until recently, lenders had few guidelines for dealing with the extraordinary number of short sales being requested. The process and amount of paperwork was cumbersome and they were overwhelmed with the amount of time it took. Today we are beginning to see more streamlined negotiations as banks and mortgage companies are developing departments within to handle both short sales and foreclosures. It is still a relatively complex procedure, but in time, and with new legislation effecting short sales, we should begin to see it made easier. Another side of short sale pricing is as follows: Recently my partner Chip sold a home in an upscale country club community which is not as broadly effected by the short sale situation. We negotiated a sale of a home which was originally bought by the present owner in 2004 for approximately $500,000. In 2006 similar homes in that neighborhood sold for over $1 million dollars. The short sale homes there are now listed in the $800 and $900's. Chip's buyer closed for $775,000. The point again is; in many cases, the short sale listings do not always present buyers with the best opportunities. When it's all said and done, it is always your best bet to work with a seasoned real estate professional with local knowledge and trusted experience.