Have you ever seen a real estate listing that said "subject to bank approval" or "short sale"? This means that the list price of the home is less than the amount owed in mortgage(s). If it sells, the bank will be "shorted" on the loan, not to mention that the sellers will lose any equity they once had in the property. A short sale is an alternative to foreclosure, saving the bank the money and hassle of the foreclosure process, and -- hopefully -- is less detrimental to the sellers' credit. The sellers must be in default on their loan -- have missed several payments -- in order to qualify for a short sale.
The main difference between a short sale and a normal transaction is that the sellers AND their lender(s) have to sign off on the purchase contract. Because there are so many homes in pre-foreclosure, most banks are swamped with short sale offers -- picture some harried bank employee with stacks of 20-page offers on their desk. It can take weeks to even get an answer back on an offer, and sometimes many months to close. Plus, the homeowners may have mixed feelings about the transaction because they will not be getting a check at closing. Patience and persistence are the names of the game.
So, why would anyone want to buy a short sale? For starters, they can be a bargain. Take, for example, a short sale on 15th Street in North Boulder that closed on the last day of 2009 for $595,000. The 5-bedroom, 3-bath home built in 1993 sits on a large, almost 15,000 square-foot lot. Even though property tax assessments are no substitute for appraisals, considering this home was assessed at $815,500, I think it's safe to assume the buyers on this deal got a six-figure discount on this home.
Another short sale example is a Kalmia Court 2-bedroom, 2-bath condo that sold last summer for $278,000, compared with two comparable sales in the building of right around $300,000.
However, not all short sale opportunities are created equally. Buyers need to look carefully at the condition of the home, and the limits of their patience, before considering a short sale. Also, be sure your buyer's broker is on-board and knowledgeable about short sales. Banks sometimes reduce the commissions, meaning your broker may be less than enthusiastic about showing you these homes. Be open with your broker and discuss other options for compensation if there is a short sale opportunity that you don't want to miss out on.
Still confused? Please feel free to call me at 303-449-2959 and I can explain the process further.
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