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It is Not Always Better For a Bank to Do a Short Sale

By
Real Estate Agent with Elizabeth Anne Weintraub, Broker DRE #00697006

foreclosure over short saleIt is rare for me to lose a short sale due to valuation. So, I'm not even certain that when a bank rejects a short sale due to value whether the bank really prefers foreclosure. Because sometimes the bank prefers to foreclose. Doesn't matter what the price is. I know that concept is difficult for some people to wrap their heads around, as I hear over and over from agents and buyers that it's better for the bank to do a short sale, which is not always correct. Well, it's correct that I hear it. The premise, however, is what's wrong.

It's not always better for the bank to do a short sale over a foreclosure. Must have been an eager short sale agent fresh from certification who designed that marketing. The statement is echoed everywhere like a mantra: it is better for a bank to do a short sale. Baloney. Agents should stop repeating this lie.

Get one thing straight. Banks are under no obligation to consider a short sale much less grant a short sale.

I can say this, though. Buyers who step up to the plate and offer the asking price of my Sacramento short sale listings stand a very good chance of closing escrow. That's because the sellers and I review the comparable sales the same way a BPO agent will do it. And it's the BPO agent's advice that the bank typically relies on for value. If a buyer lowballs that price, well, the buyer gets what the buyer gets. Which is generally nothing.

Sometimes, I go back and track the homes that fell through the cracks -- the short sales the banks rejected. 100% of the time the bank has sold that home as a bank-owned home for less money than the bank was offered as a short sale. Is the bank stupid? No, the bank is not stupid. The bank did not want to sell that home as a short sale. The bank made more money selling it as a foreclosure. Just because you and I can't see the profit doesn't mean it does not exist.

Photo: Big Stock Photo

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Elizabeth Weintraub is co-partner of Weintraub & Wallace Team of Top Producing Realtors, an author, home buying expert at The Balance, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown, Carmichael and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Call Elizabeth Weintraub at 916.233.6759. Put our combined 80 years of real estate experience to work for you. Broker-Associate at RE/MAX Gold. DRE License # 00697006.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of RE/MAX Gold. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

Comments (6)

Jeanne Dufort
Coldwell Banker Lake Country - Madison, GA
Madison and Lake Oconee GA

Wise words - and one I counsel my short sale sellers.

Dec 03, 2010 02:29 AM
Kathryn Maguire
GreatNorfolkHomes.com (757) 560-0881 - Chesapeake, VA
Serving Chesapeake, Norfolk, VA Beach

Excellent post!  And it definitely flies in the face of the mantra that many agents repeat ad nauseum regarding short sales and foreclosures.

Dec 03, 2010 04:20 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

"The bank did not want to sell that home as a short sale. The bank made more money selling it as a foreclosure. Just because you and I can't see the profit doesn't mean it does not exist."

And therein lies the crux of the problem.  If the govt bailouts didn't make foreclosures more profitable for the banks tha doing a short sale, then we would see more short sale approvals - PERIOD!!! 

Dec 03, 2010 05:03 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Elizabeth - In the fairytale factory of my mind, banks would make the determination early on, which was best for them to do - short-sale or foreclosure.   

Dec 03, 2010 09:39 AM
C Tann-Starr
Tann Starr & Associates, Inc. - Palm Bay, FL

Donne, that makes a lot of sense...

Myrl, I have watched agents short a property without even trying for a market or under market value sale.

Elizabeth, there was a YouTube showing how banks got paid through the mortgage insurance and foreclosure sale. I wish I could remember which channel it was on...

Dec 03, 2010 05:44 PM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you

Hi Jeanne: Most banks are open to discussing a short sale, but it's got to make financial sense to the bank to do it.

Hi Kathryn: Agents do repeat the mantra, and it makes them sound really stupid when they say it.

Hi Donne: The bailout was surely profitable for the banks. I don't know about consumers.

Hi Myrl: Yeah, fairytale is right. That's gonna happen when we get hover cars.

Hi C: How nice to see you. I've seen a bunch of videos and read plenty of material that indicates there are many, many ways for a bank to profit from foreclosure.

Dec 04, 2010 02:49 AM