Short Sale Pricing...
How do the agents price the short sales? Is the short sale price an accurate price for the home? Not always! This is how it works...A seller contacts their bank and tells the loan office that (for some reason) they cannot continue to make their house payments but they cannot sell the house either; the mortgage owed on the house is above any price that the seller could expect to get in the market. What next? Well, if the seller has enough money in the bank to pay the difference, the house is sold and the seller writes a check to the bank for the difference.
This is generally not the case with short sales. If the seller cannot afford the mortgage payments, they usually don't have the excess cash in the bank to write a check for the difference. In this case, the house will be sold "short" of what is owed. So, what price does the agent or owner list the home for? Does the bank tell them what they will accept for the house? Not usually. At this point, the bank does not own the home - the seller does. The bank has no interest in paying for appraisals on a property that is not currently in possession of that banking institution. The bank will not make a commitment to a price for that home - but will tell the seller to try to sell it and then bring them an offer.
So, the seller puts the house on the market and the real estate agent (usually) helps them determine the market value of that home - so they can come up with a list price. When an offer is received on a property, the seller may negotiate or the seller and agent may submit the offer to the bank for review. When the bank is presented with the offer, they will then decide if it is an acceptable offer or decide what they are willing to take. The bank begins negotiating with the buyer. The "approved" sale amount is not necessarily determined by what is owed; it is more a factor of what the homes are selling for that are comparable to the short sale property.
This process can be very lengthy especially if there is more than one mortgage on the property (and more than one bank involved). In the case of multiple mortgages, the second and third lien holders often times have to release the obligation so that the seller no longer owes them the loan amount. Sometimes these lien holders do not release the loan and require the buyers to pay the extra lien prior to closing. The price listed may or may not reflect this extra buyer cost!
In this market, we are not getting as many offers as we need for all the short sales available so the sellers get ancy and the agents drop the prices hoping to encourage offers. The prices on these homes look too good to be true and they often are! I saw a home go on the market for $450,000 when the market value was in the mid $600's - just to get an offer and start the bank process. Once the bank responds, the agent adjusts the price to reflect a more accurate amount that the bank would be willing to take. This method causes a "clog" in the short sale evaluation system at the banks because very low offers that will never be accepted by the bank are sent through the system taking up the time of the bank processors. These processors may have many non-viable offers on their desks which require their time to process - even if the outcome is not favorable for the buyer and the seller.
Often times the list price on a home looks too good to be true - and often times it is! If the house is not priced near market value - priced lower in attempt to start the bank evaluation process, the buyer can be very surprised by the counter offer. With the condition of the markets and the number of homes in short sale, we can expect more difficulties with the short sale market. In a meeting with the local property appraiser a few months ago I learned that the appraisers office does not have a firm grasp on how they will handle the short sales and how, in the long run they will play into the property values. He said he just does not know what to do as more and more short sales come on the market.
We have heard many times in our lifetime, "Buyer Beware". The short sale market is just screaming this warning. The good thing is that many real estate attorneys are prepared and know how to handle these short sales.
In addition, HUD has announced a plan to help homeowners that are upside down on their homes. Please visit the HUD website for additional information.
For more information, go to www.mlegac.com
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