Posted: November 30, 2009 By: Dave Ralston
If you haven’t seen or heard the words ”Short Sale” then welcome to 2009 where up to half of the properties in some areas are short sales. It’s a reasonably new solution needed to help correct our national real estate market and given the alternative of massive foreclosed homes flooding the market with inventory, it does ease things into an economic recovery.
First, here’s a little explanation of a short sale so I can explain where the banks are going with this scenario. Typically, a distressed home owner who is seeking a short sale will be facing one or all of the following conditions:
- The property is in poor condition.
- The property is in or soon will be in some stage of foreclosure.
- The owner is in or expecting to be in financial instability.
- The mortgage amount is larger than the current value of the home.
When the lender is looking at accepting the terms of a short sale it’s based on where the largest financial loss will occur. It’s like triage for which home owner is looked at first by the bank. I’ve been watching the Seattle market’s short sales and foreclosed properties and have noticed a trend. Foreclosures are up and not as many short sales home are closing.
The motivating factor banks use when deciding to accept an offer from a homebuyer on a short sale is bottom line net earnings. The market is recovering and properties are stabilizing or appreciating in some areas. When a bank is likely to accept an offer to purchase a short sale home it’s encouraged to move that transaction to close in a down market. Minimize the loss in a down trending market before more is lost in time. Well things are looking up and banks know this.
Each case is unique, but for the most part I’m predicting a lot of short sales in the near future will not close. A good agent with knowledge and training in distressed properties will be able to tell you if a certain short sale is likely to close, or not worth pursuing. Recognizing the market conditions that banks are using to base their losses on is just one piece of the puzzle in understanding what you chances are for that house.
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So should I stay away from short sales altogether? I have kids and want a larger house but the only houses that fit my criteria and fall in my price range are short sales.
Good question. There may still be a good deal available in a short sale home for you.
It’s important that your agent help you understand what factors may affect the ability of the homes to sell. For example, some homes have been priced extreamly low just to solicit a buyer’s offer. However, the bank may reject the offer or just counter with a more believable price. As the saying goes, “If it seems to good to be true….” The banks aren’t just accepting huge losses and giving the houses away. Before making a decision, it’s best to see the whole picture.
Best of luck to you!