Buyers today have more control over the home buying experience than ever. They choose what they want to see because they have access to property listings online. Yet, very often what they see is not what they get. I get calls daily from buyers excited about listings that are neither actually listed (redfin is famous for this), or still available (taking “back up offers only” shows as “active” in their searches even though it is really in escrow). Which brings us to short sales and the market that we are in today. The purpose of writing this is to let all buyers in every price range know that short sales will make up a large portion of the homes that are available to see and they are the perfect example of “what you see may not be what you get”. In Santa Clarita today, over 40% of the “active” listings are short sales and that isn’t going to change anytime soon. In fact, I fully expect that the type of market we have today will be this way for awhile. Meaning, less than 1000 homes available, 10-15% foreclosure, 35-40% regular sellers, 35-45% short sales. Until there is a solution to the 15000 homeowners in Santa Clarita that are upside down (owe more than their home is worth), to get out from under, expect it to stay this way awhile. So with that out of the way, what does that mean to buyers of short sales? In short, uncertainty and likely frustration unless you know and are prepared for the following;
1. First, understand that the seller is getting no money and likely has little real motivation to be a “good seller”. Meaning disclosures are often not as thorough as they should be, repairs are rarely addressed, attached items that should be left are taken, homes aren’t super clean at move out. Now, good agents ALWAYS caution their short sellers that they have to follow the rules and not do any of the above. Buyers that are prepared for the worst will be less disappointed though if it happens.
2. Short sales are completely unregulated for agents and sellers in how they are priced and basically sold. Ask any buyer who has gone through the buying process in the last 18 months and it is rare that they did not make offers and NOT GET the home. This is true of any home on the market-regular sale, foreclosure or short sale. Buyers will tell you then, it is often a “sellers market” and many of them have been looking and offering for months-especially in the lower price ranges. As frustrating as that is, add to it the uncertainty of the short sale listing. Often the listing agent does not have a “complete package” on the sellers financials, lengthening the process when an offer is received. Often, after months of waiting the answer is “no, the seller does not qualify”. Or, “no, the seller will not cooperate with the lenders terms”. Or “no, the price is too low, but we will accept this higher price.” How frustrating would it be to THINK you have a chance at a property only to find out that “the great deal” you thought you were getting will only occur for thousands more and you waited 5 months to hear that? In fact, the latest trend is lenders approving the short sale but coming back with higher prices than the list price. This week I saw Bank of America counter another agents $730,000 listing with an approval at $815,000. Since my regular sellers compete with that, it didn’t bother me a bit!
3. Sometimes though a short sale does go through at an obviously lower than market price. This happens just often enough to get buyers hopeful that it can happen for them, though that percentage isn’t very high. Because truly every short sale has a different lender or investor behind the loan, you never know why they accept some offers and don’t accept others. Frustrating “regular” sellers will be the competing short sale in their neighborhood at 10-20% lower than their price-that sells. This one reason more than any other is why values will have a hard time rising any time soon. Agents underpricing homes because the seller doesn’t care are not yet held to any standard for pricing. In fact I have written offers on homes for $60,000 more than an offer that was accepted that same morning with nothing I could do to force the agent or seller to consider it. I bet the neighbors wouldn’t like it if I disclosed his business ethics. For buyers this means be prepared for disappointment and an experience that often runs counter to integrity and transparency.
4. In Santa Clarita right now there are 728 homes in escrow that are short sale, many since last summer. That number represents 65% of the homes in escrow. The point is that many of those homes really no longer have a buyer. Buyers of short sales will often put many offers out and simply wait for the first acceptable “yes”. Listing agents will keep processing offers even though the buyer has moved on to another home so that they can get the lender to approve it, then market the home as a “preapproved short sale”. Supposedly with a much shorter time frame to get a “yes”. Buyers are wise to have their agents call on homes in escrow more than 90 days and put a “back up offer” in. It may eventually end up being the offer that gets the house.
5. So why would any buyer put up with long waits, uncertainty and frustration? Simply put, because they want a house! There is still a shortage of inventory. Also, because they think they can get a good deal and even if there are no repairs, a lower price is their primary motivation. Is it worth the brain damage to get a discount? Some would say yes, many say never again. For some buyers a long wait isn’t an issue, for many, they don’t have the time.The point is that the buyer’s agent must ask a ton of questions to really determine what is happening and advise their buyer what to expect. It doesn’t help if the listing agent isn’t experienced or motivated. So with short sales it truly is, “buyer beware”.