Short sale and foreclosure property always seem to catch people's attention. The idea of really getting a "steal" on property peaks investor and home-buyer interest. While a short sale can be a great deal, there are a few things to consider before you go searching for that "steal".
First we should define a short sale. A short sale is a sale of property in which the sale price is less than the value of the loans against the property. Short sales can be initiated by the seller (property owner), but must be approved by the parties with loans which are using the property as collateral. The purpose of the short sale is to try and sell the home before it is foreclosed upon (lenders tend to lose more money in a foreclosure sale than a short sale).
The parties on the selling side are losing money in the deal. The seller is losing whatever equity they had in the property (unless they got in with some type of "exotic" loan with no money down or cash out at the original loan origination (in this event the seller may not be losing real money, but is still damaging their credit)). The lien-holders are losing whatever money that was their original loan less the sale price. Secondary lien-holders stand to lose nearly all of their loan amounts. All of these parties have to agree to take their losses. None of them wants the loss and few of them want to admit they made a bad loan. The loss that a 1st mortgage holder is willing to accept is generally about 20%-40% (they usually stand to lose as much as 60% in a foreclosure). Second or junior lien-holders also have to approve the sale. If in anyone's judgment the sale price is too low, they can refuse or send a counter-offer back to the Buyer.
Timing may be the most confusing and frustrating issues that short sales present. Unlike a normal offer and acceptance type of negotiation, once the offer has been accepted by the seller, the contract must be approved by all parties holding liens on the property. These parties do not respond in a timely manner. There is often quite a bit of bureaucratic "red tape" to get through in approving a short sale and just finding the correct representatives that can approve the sale can be very frustrating. And while this process may take months (this is not an exaggeration) for the "third parties" to get approval back to the buyer, they will then ask for a closing within days.
This timing issue means that as a Buyer, you need to keep from getting emotionally attached to the property and have no need to move quickly into owning the property. On the other hand, the Buyer needs to be able to move very quickly through their due diligence, evaluations and approvals as the third parties may ask for the sale to close within 10 days of their approval (in a "normal" sale this would be a 25-30 day process).
Another curve that is thrown into the short sale is that the seller can (and will) keep marketing the home while the Buyer's offer is awaiting approval in hopes of another or better offers. So it may be months before you find out that your offer was bettered by someone else and you should have been trying to find something else instead.
Buying a home can be very stressful and buying a home in a short sale situation is even more stressful. That being said, there are some short sale properties available in the Park City area (though not nearly as many as in areas where the housing market is "depressed") and they may represent a good value for the Buyer. If you want to know more about the short sale process and whether it is an option that works for your Park City real estate needs, contact us at www.YouInParkCity.com
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