REThink Real Estate
REThink Real Estate
Q: In the last six months we've made all-cash offers on two short sales, and both times they fell out: the first one because the lender wouldn't accept the appraised value -- the combined outstanding balance on the first and second mortgages was $655,000, and it was listed at $395,000.
We offered $375,000, but four months later we haven't heard anything, and the current tenants were trashing the house and yard. We asked to see inside again, but they refused so we pulled out.
On the second property, the owner refused to sign our offer and claimed he was going to declare bankruptcy and force the lenders to evict him. It was also a short sale. Should we avoid all short sales or is this just bad luck? --Mike
A: I feel your pain. A close relative of mine is trying to buy multiple short-sale properties with all cash, to serve as investment properties. He's been investing in real estate for nearly four decades, and is literally outraged at how difficult it is to buy these properties.
He just closed escrow on one, more than 180 days after he made the offer to buy it, and was driven to distraction at the way the home's condition had deteriorated in that six months. It sounds like you can relate.
And, unfortunately, as he tells me these very long tales of woe, ranting about how crazy it is that the bank waited 167 days (to be precise) on his offer, then asked him to close the deal in 10 days, the best I can muster up is a sorrowful head-shake and an "I told you so."
That should help shed some light on one of your questions, as the trials and travails you've been experiencing are absolutely par for the course when it comes to short sales. With that said, though, some do close, and there are a number of things you should take into account before giving up on them entirely.
1. It is tempting to avoid short sales, but that can be tough. A huge number of the homes on the market in some areas are short sales, and often they are in better condition than the bank-owned homes in the neighborhood. Additionally, depending on how many distressed listings are on the market, "regular" equity sales are sometimes priced higher (fairly, in many cases, as buyers don't have to deal with the drama) and are so desirable in some places that they elicit multiple offers and overbidding.
Now, if you have an urgent need to buy or to move in, you probably do want to avoid short sales -- clearly "short" does not refer to their escrow length. (The "short" in short sale actually refers to the net sales price: it is "short" of what the buyer owes his or her various lenders.) But otherwise, it can be tough to totally avoid all short sales, especially in markets or neighborhoods where many homes are underwater.
For example, if you're looking at homes built circa 2006 in Las Vegas, the listings available to you are almost exclusively REOs (bank-owned properties) and short sales.
2. Target short sales that have a higher-than-average chance of closing. What you can do, though, is avoid becoming embroiled in short sales that have very little chance of actually closing.
There are two quick shortcuts to know which ones have a shot. First, if there are two or more mortgage lenders involved, the chances the deal will close decline significantly. Is it impossible? No.
But it becomes much less likely, as first lenders often want every cent they can get and will authorize only a few thousand dollars to the second lender, and second lenders may feel they can collect more than that if the house forecloses.
3. Prioritize short-sale transactions in which the listing agent has a prolific track record of getting short sales actually closed. The listing agent -- more than you, your agent or the seller -- has the most ability to actually interface with the bank, and the extent to which the listing agent is on top of it and knows how to manage the ad nauseum back-and-forth with the bank (or not) can make a massive difference to the chance your deal will succeed.
Talk with your own agent about which local agents are short-sale savants, and push their transactions higher on your list (even if two banks are involved, as many experienced short-sale agents can handle even those toughest of situations).
Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
What's Your Home Worth?
How to break into luxury real estate