What about short sales?

Short sales are a very interesting animal indeed. Also known as pre-foreclosure properties, a short sale is defined as selling the property for less than what the underlying liens (mortgages, etc) add up to. Short sales require the seller's bank(s) to approve what is going to be paid out to them, which is less than the balances. Probably about 98% of all homes that are in pre-foreclosure are short sales, because people just don't have equity in their homes.

So with a short sale the owner is still on the deed, not the bank. Here are some tips when dealing with short sales:

• make sure the seller of the home has submitted their short sale package to their lender (usually contains their W2's, pay stubs, hardship letter, tax returns, copy of the listing, income/balance sheet, and these items are usually the minimum needed)
• how long will this lender take to approve the short sale?
• if another better offer comes in do you have the advantage because you acted more quickly, or does the bank take in all offers over time and take the best one when there is a bank approved price? Another way if finding out, is, does the bank want the seller to sign off on your purchase agreement, or do they just say send it in?
• has there been a BPO (broker's price opinion) done on the property yet? A BPO is a valuation done through a separate real estate agent hired by the bank. This will speed things up to a degree, but there is still much due diligence the bank needs to do to come to a decision, especially considering the flood of short sales we are seeing on the market

It is interested to note that currently short sale properties are listed on average for $104/square foot across the valley, yet when they close they jump to $112/square foot. What this tells me is that they when they are put up for sale they are listed lower than they should be. There is no real consensus for determining list price - basically they could be listed for whatever amount the listing agent and seller determine.

What this means to you as a buyer is this: all things being equal, for a 1500 sf home you are going to pay $12,000 more than you anticipated, but here's the real kicker - you won't know until the end of the process. It is not unusual for a short sale to take 3-5 months to close from the time you submit the offer.

Currently short sales represent 22% of all active listings on the market, yet only 11% of all home sales. That would indicate that the clear choice for buyers is either a bank-owned foreclosure (an overwhelming 69% of home sales) or a "normal" sale (20% of sales), most likely due to the pricing challenges and time component involved in short sales.