The vast majority of residential sales occurring in South Florida right now are Short Sales and REOs. Most properties listed on the MLS at current market prices are actually Short Sales, and most of the remainder are REO's. In a normal market, Short Sales are almost non-existent and REO's are few, but always around and always in demand.
So what are Short Sales and REO's?
A Short Sale is a situation where the Owner of a property is trying to sell it for less than they owe on it - And not pay the difference themselves. The owner wants the Lender (or Lenders) to agree to 'eat' the difference between what the Owner owes and what they are able to sell it for in the current market.
Many property owners, including many would-be investors who bought property during the land rush that they couldn't afford, hoping to flip it quickly for an easy hundred grand, are now finding that they are stuck with a property that is worth half or less than they paid for it 3 years ago, and are unable to afford the payments, sell it, or even rent it for enough to cover the mortgage, taxes and insurance.
So basically, they want out and they want the lenders to take the hit. In order to compel the lender to accept a Short Sale on a property, a detailed package of information must be submitted to the Lender's loss mitigation dept., often with one or more offers on the property, along with complete financial information on the Owner, history of marketing efforts, BPO (Broker Price Opinion) and other documents.
Many current buyers are being lured into the market now because prices have dropped so dramatically over the past year that homes and condos are now becoming affordable again to many people who had been priced out of the market just a couple of years ago. A large number of these buyers have been enticed by the apparent bargains of properties listed at very low prices, only to discover that they had to wait anywhere from 4 weeks to 4 months for a reply to their offer, during which time other offers may have also joined the fray, and ultimately to find that the lender came back with a counter offer that was not only significantly higher than their offer, but higher even then the asking price!
How can a Lender reply with an offer higher than the asking price? Because in most of these cases, the Listing Agent never bothered to find out what the lender would accept before listing the property in the first place. They simply made up a very low price to attract offers, then hoped to send them in to the lender to wait and see what happens a couple of months later - wasting everyone's time and efforts.
Consequently, there are many buyers that have been out trying to purchase a property for 6 to 8 months, have had multiple offers submitted, have spent time and money on inspections and other expenses, and have still never had an offer accepted - even when making full price offers on listings.
There are many other potential problems with Shorts Sales as well, especially if there are tenants currently occupying a property.
Short Sales might be more appropriately called Long Sales, or Long Shot Sales, because in most situations, there is nothing Short about them.
There are, of course exceptions. Those infrequent occasions when the Listing Agent (or someone they hired) has already gone through the process of obtaining an acceptable price and Short Sale Agreement from the Lender, but unfortunately, those properties are in the definite minority.
REO's on the other hand, are properties that have already been foreclosed on and are in the "investor's" possession. This investor can be a bank, or a PMI (Private Mortgage Insurance)company, or FHA, or VA, or Fannie Mae, or Freddie Mac, etc. It is the entity that was the actual mortgage holder on the property, which is often Not the Bank that payments were being made to, or that handled the foreclosure and possible prior Short Sale negotiations.
REO's, in contrast to Short Sales, are priced close to what the Investor/Bank will accept and you will never get a counter offer higher than the listed price, unless there are multiple simultaneous offers that create a bidding situation. Also, you will typically get an answer on an offer in 2 to 7 days, instead of 1 to 4 months.
If you're out looking for a real estate bargain, look first for REO's. In most cases, Short Sales should be considered as an option of last resort.
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