The ins and outs of short sales
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7/5/2009 - 7/5/09
The real-estate market does appear to be picking up. However, much of the activity has been centered around short sales and foreclosures. Realty Trac, the nation's largest on-line source for foreclosure-related information, reports that one in every 374 U.S. housing units received a foreclosure filing in April. Here in Santa Fe county, there are 94 bank-owned properties available and 203 properties in default, which might be short-sale opportunities. While these properties can represent significant savings for the buyer, there are potential pitfalls.
A short sale happens when a seller must sell his property for less than what is owed the lender. This is typically caused by a financial hardship combined with declining home values. These scenarios can be tricky and a buyer must be extremely patient when pursuing a short-sale situation. Despite what the seller agrees to accept for the property, the contract must be approved by the lender(s) who may have a different opinion on the matter. Lenders require substantial documentation from the seller in regards to their personal finances plus extensive paperwork showing an earnest attempt to sell the property with a Realtor for market value. Approval can take as long as three months in some cases and success in not guaranteed.
The U.S. Treasury is offering new incentives to lenders to approve these short sales and to do so in a more timely fashion. The short-sale option saves the seller the negative impact to his credit made by a foreclosure and saves the lender a great deal of money spent in the judicial process of repossession. If you are a buyer looking into a short sale, my advice is to work with a Realtor who has experience with them, have your financing in place prior to making an offer, and be patient with the process.
According to the FDIC, American banks held more than $26 billion in repossessed real estate at the end of 2008. Foreclosures are currently a fact of life and this segment of the market will continue well through 2012. Fortunately, in Santa Fe, this sector continues to stand at less than 1 percent of our overall market, and I am amazed by the number of buyers seeking these properties over turn-key homes discounted over 20 percent in need-to-sell situations.
Bank-owned properties or REOs (real estate owned by the lender) are properties that have been repossessed or received as a deed-in-lieu-of (foreclosure). The lender will typically sell these homes on the open market but the Buyer Beware caveat is extremely important here. The lender typically has very little information relating to the property and these houses are usually sold "as is." There will be no seller's disclosure and it is imperative that the buyer have all the necessary inspections to assess the true condition of the house. Even new properties that have been foreclosed upon have their fallbacks, typically lacking appliances and other items required to be complete.
Short sales and foreclosures can be a great opportunity for first-time homebuyers and others looking to purchase a house with a little bit of equity in their pockets. These homes represent discounts of 5 to 20 percent but require patience, thoroughness, and even additional funds to make them habitable.
If you are a ready buyer in today's market, be certain to look at all the homes available, and don't wait for the so-called bottom. Opportunities await you now, so get going!
Melissa Pippin-Carson is an associate broker with Sotheby's International Realty. Contact her at 984-5128 or mel@pipstips.com with your questions or suggestions.
