Short sales and other lies

Smallblue I find that I have to explain the difference between a short sale and a foreclosure rather often.  In the MLS the homes that are on the market and are short sales will have words like "subject to bank approval" in the public comments.  These homes are not bank owned.

What is a short sale? It is when the bank agrees to accept less money than what is owed on the home.  The sellers still own the home and get the money by selling it.  The offer is subject to bank approval. The home owner also has to approve the offer.

What is a foreclosure?  It is a bank owned home.  The owners did not pay their mortgage, and the bank went through the foreclosure process and now owns the home. Home owners associations can also foreclose on condos and so can the county if the taxes are not paid.

When a seller lists a home they agree to a certain price for it and put it on the MLS.  In the case of short sales the seller has agreed to a certain price and put the home on the market.  When an offer comes it is subject to bank approval. The "loss mitigation" department at the bank has to get a price opinion on the property and then who ever is in charge of the file has to get approval before the offer can be accepted. That means that the price you see on the MLS may not be what the bank will accept. We don't know what the bank will accept.

The person who has the file usually has a few hundred other files on his or her desk, and it is just a file. Buyers can wait 30 to 90 days for any kind of an answer.  I wrote an offer on a short sale a few months ago. I was told that it would all go very quickly. I figured she had never listed a short sale before or that she was lying. It took eight weeks to get an answer and the answer was no.  During that eight week period the bank received other offers but I was told there were no other offers each time I asked. Another couple got the home for the same price that my buyers offered.

Sometimes with the short sales the home is listed for one price but the bank has not agreed on that price. Sometimes they list it for a low price and collect offers over a period of months.  Usually the buyers give up long before they have that yes or no answer, and sometimes the home is foreclosed on while we are all waiting for the answer.

With foreclosures buying them isn't always easy but it isn't as hard as buying a short sale. A foreclosed home is already owned by the bank. With the short sales only about half of them ever get to the closing. Some end up in foreclosure long before they close even though they have offers on them.

With the short sales I would rather not even show the properties to buyers, in fact in most cases I say no.  That might not seem unfair to the sellers but most of my buyers can't wait 90 days for an answer and they end up withdrawing their offer and we go house hunting again.

I have represented sellers on short sales too and I won't do it again.  There are short sale experts around and I am happy to give them the business.  They have teams of people and usually have one person who does nothing but negotiate with the bank. It is a full time job.

Foreclosures are different.  The homes are already owned by the bank.  I have sold a few of them this year. Each transaction has been far more work than buying a home from an individual seller but they have all worked out.

A couple of years ago I wrote about how banks can't sell real estate. They are selling some of it now, they own so much if it I guess they had to sell it.. . but they are still not very good at it.They are big companies and they don't really care about each property not like the last owner did.


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9 Replies to “Short sales and other lies”

  1. Thanks for the very clear distinction.

  2. Short sales…in my experience, they are stessful for all involved whether you are representing the buyer or the seller. I have been in both situations and both are difficult.

  3. Thanks Teresa for this article. I have read so many blogs, articles and discuss about this. It’s the first time someone have explain so good what “short sale and foreclosure” is and the different between them. We don’t have this system or similarly over here in Spain.

  4. I completely agree. Short sales seem to be doing more damage than good. They take forever and they bring more stress to both parties than satisfaction.

  5. Good information regarding the distinction. I get the question all day long and people still don’t understand what I am telling them.

    And don’t get me started on banks! Whenever I had to deal with them, I’d call them repeatedly and would be reluctant to ever get a response. I didn’t feel too bad about it, I knew half the banks out here in California had all the government agencies running through their books.

    I did however feel bad for their clients and the irresponsible lending that they were doing with their money.

    Anyhow, keep on with the good topics, I enjoy your blog.

  6. Much thanks for a well written article. I will never forget sitting at a restaurant with my client who was crying because we had been turned down on a full price offer on a short sale. She did not get it and frankly I was perplexed. Never again.

  7. teresa boardman says:

    Yes it is heart breaking.

  8. Great informative article! I have listed a short sale for a friend and it has been a terrible decision! I am right there with you on passing that business to the short sale specialists!

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