Nothing Short about Short Sales

The following was a post we did in February of 2009. Not much

has changed in 1 year.   We are expecting the government to start incentives

to banks and second mortgage lenders to encourage the short sale process

instead of  waiting for foreclosure.

Benefits:

1. House usually sells for a higher price
2. Credit of the seller is not affected for as long
3. Neighborhood is not affected as adversely

The term Short Sale has nothing to do with the time it takes to close

this type of transaction.  It refers to the money the bank or mortgage holder

will receive from the sale of the property.  The closing will be “short” of the

funds that the seller owes on the mortgage. In other words, they are upside

down: they owe more than the home is currently worth.

Since we don’t live in a past world where the home “was” worth more or

a future world where it “may” be worth more,  this is the sad financial

situation many reluctant  home sellers find themselves in today, selling at

a loss. It doesn’t make for happy campers.

The Short Sale scenario usually doesn’t have anything to do with

greed or mismanaging money.  Many of the cases we see are typical families

that bought a home, fixed it up a little, and then got a job transfer, had a job

loss, a divorce, a family death or illness occurred which drastically changed

their financial situation.

What the falling prices on homes does is trap the homeowner.

He can’t sell it for what he paid for it—— he has to take a loss, go bankrupt,

or lose his credit rating.   How many people have equity in their home, or

savings, or a 401K they can borrow from to pay their losses?  We see that

occasionally, but it is not the rule.

The banks and mortgage companies are in a difficult situation.

They are going to take a loss, no matter what happens. The object is to stall,

wait, and negotiate until they get the best outcome they can for their company’s

bottom line.  Okay, companies stay in business by minimizing losses.

But, and this is a big but, stalling, and prolonging these transactions

until the potential buyers walk away is hurting everyone.  Delaying a month,

two months, three months on answering a decent real estate offer hurts the

bank, the seller, the buyer, and the real estate agent.  This kind of time lag is

typical of short sales.  I have heard getting these transactions to close as

compared to  ” trying to land a 747 on a blade of grass. ”

Real Estate agents don’t like to get involved in these transactions

because they are prolonged, messy, tons of paperwork, many, many frustrating

phone calls, and at the end of the transaction, the bank or mortgage company

will typically “short” the commission the agent has worked for. This is another

sticky wicket because the contract is with the seller, not the mortgage lender.

So, this has to be negotiated again, if you are fortunate.  If not, you take what

they will give you.

Short Sales are becoming a much more common transaction as

banks are deluged with foreclosures and calls from homeowners requesting

help.  The recent * Recovery Act may be a relief valve, allowing some people

to reduce their mortgage, save their credit and their home. The first week of

March the US government will tell us what the parameters of their plan are

going to be.

*We have seen little effect from the Recovery Act yet.

Make sure your agent has the experience and knowledge to get you

through the minefield of short sale negotiation, if you are buying

or selling.

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The authors of the this blog write about Grand Rapids Real Estate, the Greater Grand Rapids MI area, and what it is like to live in West Michigan. Grand Rapids Michigan is a vibrant, growing metropolitan area with a diverse business community, great medical research & services, numerous universities, plus lively arts and entertainment of all kinds.

We believe: Grand Rapids is a Great Place to Live!

Westbrook Realty Grand Rapids MI Real Estate

Contact Terry   616-292-7263

Wearing the Black Hat or the White Hat in Real Estate today?

You know the saying about good guys finishing last, well, I’m not so sure.

This recent scenario is pretty typical of a dilemma the real estate

agent faces every day.

I recently went on a listing appointment. It was a referral from a very happy

past client, the home was about 6 years old, professionally decorated and

had many extras. A very nice house to have listed.

EXCEPT…the seller didn’t want to move right away, they wanted to

list this spring and move in November.

I did my CMA and told them their price would be around $300K as the BEST

possible outcome.  The house next door just sold for $270K and

they included a $10K item of furniture to seal the deal!

I was firm about my price, but I conceded we could start at 310K or 315K,

if they wanted to test the market for a few months.

They interviewed two other agents who had also been recommended.

They went with the agent who told them it would sell for $330K. That is what it

is listed for on our MLS now.

Real estate agents have to make a decision at the presentation.

Do we want to buy the listing at the higher price and deal with a disappointed

seller for 6-15 months?

The other option is to be firm and if the business comes your way it will be

salable and you will get paid for your efforts.

I recently listed a home for the correct price and it sold in three

weeks for full price.

If I had been the Good Guy wearing the White Hat and agreed to

their $330K price, I know I could have gotten the listing. Then during

the 5-6 months when they weregetting really serious about selling, we

could have lowered the price and it would eventually sell, maybe by

spring 2009.

What is the right thing to do?

Telling the seller the truth cost me a listing??           Yes.

My Deduction:

Listening to the client —+— Motivation —+ — Price

All of these go hand in hand to come to an understanding

with the seller. I wasn’t patient enough to offer the option of setting

a higher price and waiting with them to realize their price was unrealistic.

This has been the case with so many listings over the last year and a half.

So I suppose I’m wearing the Black Hat in this Situation.

Or will I be wearing the Black Hat when I list at their price and

it still hasn’t sold in 11 to 12 months?  You betcha.

I will be the one who has failed to sell the house even though

the sellers set the price.

Copyright by Terry Westbrook 2008

Contact me: 1-888-240-1968 x 0 toll free

Grand Rapids Real Estate ~ Westbrook Realty

Email: terry@TerryWestbrook.com