Short Sales a Great Option? Maybe...

A very popular alternative to foreclosure is the short sale. A home is subject to a short sale when the lending institution (bank) maybe willing to accept an offer on a home that is less than what the current owner owes. On most of the newer homes built in the past 5 years or so the costs for banks on foreclosures usually runs round 30% to 40% of the current balance owed. The costs for the bank adds up as weeks become months without seeing incoming payments. If the property goes through the entire foreclosure process to auction then they are looking at more than 180 days. Factor in advertising and the risks of receiving even lower value or no offers for the home and you can see why they may take $220,000 on a balance of $240,000 to move the home quickly.

The Treasure Valley area is seeing plenty of short sales lately more so than foreclosures. As buyers continue to search for what can be a great deal in today's market they often encounter multiple offer situations. My wife's colleague had put in 2 offers on short sale homes in Tuscany Village in Meridian only to be rejected on both due to higher offers.

Here's one scenario that I think is worth reviewing. Say you find a home that you absolutely love and the asking price is $220,000 based on a short sale subject to bank approval. Have your agent run the comparables for the subdivision based on the recently sold homes to see the value. Next have your agent call and see if offers currently exist on the property. If no offers have been made and the property is already under value by 10% or greater consider offering close to if not asking price. I know it's tempting to offer an even lower amount but what usually happens is the bank will reject the offer, wait for another offer to accept or worst stall for a few weeks until other more reasonable offers arrive and accept one of those or issue multiple counter offers. The more realistic the offer the greater the chances are for success.

To further review the short sale process here are some points to consider:

• Short Sales
  • The Good
    • Could purchase a home for less than market value (possibly 10% to 20% under comparables)
  • The Bad
    • Working with banks may take long time to get back with you. It can be typical for a bank to take 2-3 weeks to respond to your offer.
    • May have multiple offers in which they counter all parties and price becomes closer to market value or possibly higher
    • Fast closes are not the norm as it usually takes 45 or 60 days so if you're in a hurry it's probably not the way to go
  • The Ugly
    • These properties are usually ‘As Is" so it's important for your agent to know the proper phrasing to use when writing the offer pertaining to inspections. Ensuring your safety and that you have a possible exit strategy goes a long way and can save you thousands of dollars and headaches.

The past 2 weeks I've made several calls on behalf of my clients on short sale homes they were considering purchasing. In all cases where these homes were under current market value by 10% or greater multiple offers were received. It's important to be ready to act fast. A few things to consider doing include receiving automatic email so that you see the property right as it becomes available. This way you can view the home with your agent quickly and make a fair offer. Also noteworthy is that with these short sales approval letters are due with the offer to purchase the home. Meeting with a lender in advance and obtaining this approval letter for your agent to present will be very important.

Let us know if you have any questions or would like to see the Treasure Valley short sale listings.