A great article about the short sale process, which should be called a long process!
I have had a good number of astute real estate professionals recently ask me "why aren't your pendings closing?" on my market reports!
Here is just a peek at some market reports for one specific area (June, July and August Respectively):
What you are seeing here is that the Pendings (red) has been gaining ground and the Sales have been slowing down (green). This doesn't make sense with rising pendings, you should see rising closings.
There several very good reasons and I am here to explain why this is going on.
When I got my license here in 2005 our 30 pending to close ratio was a good 60%. Now (with market conditions) you have to use 60 day pending to close ratio (even with cash, HOA demands can clog up the system!) Our current 60 day pending to close ratio is a dismal 27%!
Here are the challenges:
Short Sales: Our system is bottlenecked with short sales. The "short" part of a short sale doesn't mean it is a short escrow. It means that the seller is seeking lienholder 3rd party approval to possibly forgive part of the loan or make it a "short payoff" upon successful contract and close. These things can take a LONG LONG time for approval. I would say 3-6 months is the "norm" depending on the lienholder. Sometimes the approval process is shorter, sometimes longer! Short sales have a pretty dismal list to sale history (although I feel this is changing at this VERY moment!) You can view my last short sale market report here and I make clickable links to the last short sale market reports. You can go back years and see that the closes have always been dismal. You can also view the graph to the right of this paragraph and note the green (solds). Very small sliver that never really changes from month to month.
Inventory Reduction: As our "sellable" inventory (mostly REO) plummeted at the beginning of the year, (due to high buyer interest, low interest rates, moratoriums, etc), more buyers entered into short sales so we started seeing this curve:
As you can see I circled when the dispairity began to take shape between pendings (red line) and closings (green line).
Financing Issues: We are constantly subject to new underwriting guidelines and changes. Buyers are now asked to clarify more and more issues that have to do with their financials, et al. If you ever see anyone that can close an FHA loan in less than a week, they are probably a liar (not saying it can't be done but it is highly unlikely.) More government backed loans are being used these days and RISK FACTORS are taken into account with underwriting due to the high amount of foreclosures.
Title Issues: Distressed properties may have fines attached to the title from the HOA or city or county. These need to be cleared and can sometimes take a while.
Property Stolen at the 11th Hour: Yep, property is getting stolen in the 11th hour which can hinder the house's financing status. Yesterday this just happened at one of my escrows that was due for it's final appraisal reinspection and ready for docs around the end of the month. This is the third time it has happened to me in the last year and I am not a "big time" agent. I will have another post about this coming out later today or tomorrow.
That's just a small synopsis on what is going on! If you are considering buying a home in our market you may want to interview your Realtor closely to make sure they have been working in this market and can effectively deal with the challenges that you will face. There is NOTHING "NORMAL" about a transaction these days! Here is an ongoing series I am building to give buyers an idea of what is going on with the different types of transactions and the challenges each type presents in this current market!