As the economy continues to grow at a snail’s pace, and unemployment remains high, there continues to be quite a few Short Sale offerings in Marin, especially at the $400 to $800K level. There always seems to be more activity at these affordable price points and a lot of my buyers continue to want to investigate buying one of these “short sale” properties.

But does one really want to get into contract on a short sale?

First off, let me define what a short sale is: When unfortunate circumstances hit a home owner, they may not be able to make high house payments on their home for a number of reasons, and they discover they are “upside down” on their loan (meaning if they try selling it, they will owe more on the remainder of the loan than what the home is currently worth). When a lender, such as a bank, allows a property to be sold for less than the remaining balance on a mortgage loan, it is called a short sale, not a foreclosure. Unfortunately, on average, homes dropped around 30% in value between 2008 and 2010. This is a reality.

Here’s the real issue though, before you consider jumping into one of these contracts. Although things have gotten better, lenders continue to have a deluge of foreclosed property and short sales on their books. It can take anywhere from several weeks to perhaps a year for a lender to agree to a short sale offer. If there is a second lien, where the home owner used their home value like a piggy bank to take out additional money to either fix it up, buy a new car, or go on an extravagant trip, then it will take even longer, and there is a likelihood that it may not ever close, as the second lien holder might not agree to write off the loss they will take. It could then just go into foreclosure. Meanwhile, during this grueling process of uncertainty, and trust me every short sale is grueling, the buyer probably has seen many great properties come on the market and get sold while they are waiting for their “ultimate deal,” which may end up falling through in the end. There is nothing that says the lender will accept a low offer under market value. If the home looks like it is of greater value after a BPO (Broker Price Opinion) then the bank could say no, or ask the buyer for additional money. It’s never for certain.

What kind of shape are these great “Short Sale” homes in?
You have to remember, if the current owner doesn’t have the money to make the house payments, then they rarely want to invest any additional money to keep up the maintenance. In many cases, the seller is angry about losing their home, and they have pulled out all the home appliances, wiring, and light fixtures and left the place in shambles. Sometimes it could take a minimum of $50,000 to $100,000 or more just to get the home back in a livable state. I’m not talking about perfect shape with remodeled bathrooms and kitchens, but a livable state with remodeling costs not even in the picture. I’m not saying that the home isn’t a great value, but the buyers really need to have a contractor come in and give them a good estimate on work desired prior to jumping head first into one of these “Sale” properties. Buyers might find, if they had just invested a little more into a house that is livable, they wouldn’t be faced with a huge outlay after the sale closed.

Short Sales are not for the feint at heart, and they really deserve the slogan “BUYER BEWARE.”

Posted by:  Rick Smith