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I want to reach out to the Short Sale community...with handcuffs, a ballgag, and a blowtorch. Mention the term"Short Sale" to any realtor and you will get one of three responses based on their experience or lack thereof.
1. From the Superhero Short Sale genius you will hear "I love SHORT SALES!". Followed by a prolonged verbal wind tunnel of accomplishments that will blow so much smoke up your ass you can signal Indian tribes by farting.
2. The wise, worn and weary Short Sale war veteran who's more shaken than Mel Gibson's cocktail mixer from transactions that lasted longer than their last marriage and were harder to put together than a dinosaur DNA strand. They've felt the brutal mortality of a six month road to nowhere that left their hearts emptier than Bernie Madoff's inbox and their clients more distant than an Ishtar sequel.
3. The "I'll try anything thrice" Short Sale virgin that cocks their head sideways like a dog addressing someone tossing a tennis ball between their hands, and exclaims "I've heard they're relatively simple. Let's go for it!". You can smell the forthcoming singed pom poms before they've even depressed the first fax button.
A Short Sale is when a lender decides to take less than they are owed. Period. End of lesson. If you need more than that, please Google yourself silly.
Consider this wild thought: If your job, occupation, career is that of someone who lends people money, the business model you apply should probably include the ability to collect more money than you leant out. Am I making sense here? It's called a "profit". It's what is typically required to pay worker salaries, prop the bank building doors open, and keep the candy dishes filled at the teller windows.
A Short Sale runs counter to everything a Lender is raised, nurtured, and taught to do. Asking a lender to take less than owed is like asking Rosie O'Donnel to eat just one Pringle. It's a fascinating world and time we live in whereby there is even the ‘idea" of a Short Sale. It defies logic.
"Hey Joe, can you give me $50 if I promise to pay you $25 next week?"
"Uh, say what?"
Of course Real Estate is not that simple. The home loan's connected to the...deed of trust...the deed of trust is connected to the...property...the property is connected to the family...the family is connected to the...pile of debt...and so on and so on.
As a property loses value, so too should the debt against the property? That seems to be the foundation on which the Short Sale concept is built. Imagine if the same logic was applied to the housing market during a real estate escalation boom:
"Honey, the home across the street just sold for twice what we paid!"
"Oh no, our house payment is going to double!"
Yeah, a tad harder to digest the concept in reverse isn't it? I'll leave the philosophical ranting about how we wound up in this mad upside down bank run real estate nirvana for another blog. Today, I want to talk to and about the latest goofball trend in Short Selling:
The ATOM BOMB PRICE DROP.
I awake each day at 4am and rifle through every new listing and every new price drop in the Phoenix metro area. That's typically 1500-2000 listings reviewed before most folks have thrown their first shoe at the alarm clock. So perhaps I'm a bit hyper-sensitive to the unrealistic fantasy price drops that Short Sale agents have been flooding our market with lately. If I want to waste my morning with fantasies I'll play with my dolls.
We discussed how this concept of having a lender take less than they are owed is ludicrous. The lenders do have a choice. They can accept less than owed, let the short sale between the two parties proceed and be on their embittered way a tad lighter in the vault. Or...the lender can foreclose on the house, taking the property in lieu of the debt. In either situation, the lender needs to know how much the property is worth. Even in 2009, property has a value (disregard this statement if you reside in Casa Grande).
This is where a lot of Short Sale agents appear to veer off the road like Ted Kennedy guzzling a roadie on Prom night. That property does have a value, and your advertised price needs to reflect that ‘actual market value', Sir Drops-a-Lot. The latest trend I am witnessing in the Phoenix market is the Short Sale price adjustment that falls faster than Charlie Sheen's pants at a Miss Tropicana pageant.
It's not a race to ZERO!
I watched a well priced $299k home in Chandler drop its price by $50K this morning. The note on the property is $425K. So the road to completion of that Short Sale just got rockier than Marion Barry's nasal passage. If the seller on this property had even the slightest notion that they might walk away from the closing table with a CHECK, I seriously doubt they would agree to a $50K price drop...especially when the latest comps fully supported the $299k price tag. But when it's the lender's money at stake...suddenly that money is about as real as an orange $500 bill.
The sellers of the property in a Short Sale get nothing but the headache of processing the paperwork mound, unfurling themselves naked financially to all involved, and their Grand Prize is an all expenses delayed kick in the ass with a kink in their credit and a bitter taste in their mouth. Do not pass Go, no not collect $200.
They've lost their dignity and their equity. They are not concerned about anyone else's. Their agent however...yeah you Realtor...you have an ethical responsibility to be forthright with all parties involved. That includes the bank. That includes the price.
Short Sales are like defusing a bomb. There is the right way, and then there is the Jackson Pollock ‘Ode to the Blue Wire' wall splatter way. Dropping the price far below market value may seem like an ingenious way to make a property more attractive. It's the perfect bait for Short Sale virgin buyers that haven't tumbled down the rabbit hole on previous Short Sale excursions. "It's cheaper than market value! Wow! Let's make an offer!"
Whoa...hold on there Savvy Shopper. Let's back up the tape to the term "value".
Over the upcoming three month course of the transaction the bank is going to hire people other than the listing agent to determine the current value. That "threw a dart at the number board" price figure the listing agent posted is gonna fly like a beagle at Bank HQ. The bank is going to want to see comps. Their profit margin is getting voluntarily shot in the head to complete this deal and there will be an autopsy performed.
Most short sale transactions drag on longer than Tony Danza's career. So you, Short Sale listing agent that prices below market, are enticing all parties involved into a trek across a very long and hot desert with a half filled canteen. Nothing succeeds like a planned failure. What is the logic behind baiting an offer with a sales price that's got as much hope of success as Clay Aiken opening for Metallica?
The bank will determine the "Fair Market Value"...and if that value's not within the same universe as your "bait price", that deal's deader than a Ramones reunion.
The appropriate way to process a Short Sale is a strategy that has more wrinkles than John Madden's testicles in a steam sauna, so we'll delve into that on another day. The appropriate way to waste everyone's time and effort in a ridiculous pricing strategy that has as much chance for success as Joe Biden at a Spelling Bee is to under-price your Short Sale listing so you are guaranteed a low ball offer that defies justification.
Look, Short Sale listing agent, your product is inferior. Your transaction is more challenging than buying a bank owned property, yet it comes with the same As-Is appeal. All parties involved have to throw down with 100% effort, hang on by their fingernails as the transaction spins down an endless vortex of time, and all involved must hold onto that barely visible sliver of faith that if the stars align, the bank succumbs, and the property stays intact there is a one in ten shot at pulling this transaction off.
Phew! I am glad I'm not you. No wonder you are so eager to discount the price.
Now try that with your fee.
Life is short, unless you're pursuing a short sale property. I am just asking for some pricing discipline in the rank and file of Short Sale agents. As someone who has to filter your fantastical price drops out of my daily shopping bin, I need your help. Though you and I both know that the price you just dropped sub-market is a piece of cheese seeking a careless mouse...the average consumer is watching the market too. They might just think your price is real, and thus consider the rest of the market inflated. Everyone seeks the lowest common denominator in a down market. You are IT.
By shamelessly slicing the legs out from under your own listing, you drag the entire market down. Bravo!
Until the day comes that the MLS system leaders finally realize that Short Sales belong in their own market, not intertwined with actual sellable real estate, we will be forced to follow your lead over the cliff. I understand the peril you are in. I know what it's like to be softened by the teary confessions of a seller whose equity has evaporated, who are wedged under a blanket of increasing debt, haunted by threatening calls from their lender, and they look to you with big teary eyes and an extended hand pleading for help...
I learned three words that will help you when confronted with this situation:
"You are screwed."
And from that moment on you can have an actual, REAL, conversation with them, avoid fantasy land expectations and prices, and maybe do us ALL some good.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.