Welcome to 2010 - "The Year of the Short Sale" For nearly four years, various elements of a perfect storm have been brewing and gaining strength as they have swept across the real estate landscape, leaving the hopes and dreams of home owners in their wake. Entering the New Year, these forces will continue to swirl and intertwine, while the market players continue to react. Look to 2010 to be "The Year of the Short Sale."
- Since the market's retreat began in 2005/2006, lenders were in denial as to the depth and severity of the housing crisis. Foreclosure was used as a threat and a weapon to gain leverage with home owners. Foreclosures are now being pursued only as a means of last resort, and short sales are being encouraged by the lender(s).
- Lenders in second, third and fourth position used their worthless debt as a way to hold up the short sale by not giving their approval. If they were not going to get some money out of the deal, they'd rather hurt everyone else and force the home in to foreclosure. This type of negotiating caused many deals to take months and months to gain approval (I had one take 7 months) before someone caved or the home was foreclosed on. Bigger lenders are now creating policy which defines what they will pay and accept when considering a short sale.
- Home buyers looking for financing found that half the sources of funds had gone out of business, the underwriting guidelines and requirements for obtaining a mortgage had gone old-school and now they would have to do more than "fog a mirror" to get a loan. Home buyer qualifications are now better defined and government insured loans and low interest rates have helped bouy the market.
- For home buyers, and their agents, attempting to buy a short sale was not an attractive option. As the lender(s) dragged their feet, they typically took four-plus months to gain approval and close escrow. As a result, one attempt to buy a short sale was typically enough to deter even the most interested and patient home buyer. "Hurry up and wait" is still the short sale mantra, but there is hope for the future.
- Many home sellers, not fully understanding their options, sat idly by, waiting for their day of reckoning and for the lender(s) to foreclose and remove them from their homes. Now agents such as myself are extending a helping hand to distressed home owners and acting as their advocate to make the best of their bad situation.
- More and more home sellers, who were not in a distressed situation, decided to pull their homes from the markets as they were not willing to compete with the foreclosures and short sales and sell their homes at what they perceived to be give-away prices. Home prices have fallen to a point where home sellers do not casually enter the market and do so only if they HAVE to sell, or have decided to UPSIZE in this down market.
The above elements, and many more, have swirled out of control and have pressured home prices lower and lower for the past four years. Currently, it is not uncommon for 50% or more of the active listings on the MLS to be short sale listings. Time will tell, but analysis suggests the percentage of short sale offerings is likely to continue to grow. Our government is now implementing regulations and attempting to rein in the past challenges by establishing some form of standardization to the process. In the mean-time, 2010 will become the year of the short sale and all participants in the real estate business, buyers, sellers, agents, lenders and closing servicers will be forced to come together, adapt and participate.
What is a Short Sale? A "short sale" is a home sale transaction where a home is sold for less money than what is owed on the mortgage. When the circumstances are right and your real estate agent possesses the expertise, your home can be sold and the lender(s) will agree to accept less money than you owe. (ie., you paid $550k for your home, you owe $495k and your home is worth $400k). A short sale, when properly handled, will not cost you any money, will relieve you from additional mortgage payments, will settle your debt with the lender(s), will help preserve your credit rating and the forgiven debt will not be taxed by the Internal Revenue Service.
A short sale cannot be performed by all agents and requires specialized knowledge and experience. In 2009, 100% of my short sale listings closed escrow and spared my clients from a foreclosure. Short sales can often provide lucrative opportunities for home buyers as well...
Aaron Cullen is a Realtor , Real Estate Broker , and Owner of Brokers Inc. Residential Real Estate.
Aaron lives in Folsom, CA and specializes in representing home buyers and sellers in Folsom,
El Dorado Hills and the Greater Sacramento Region. Having relocated from the Bay Area in 2004,
Aaron continues to work with home buyers in all cities lying between the Bay Area and Sacramento Area.