The following is a reprint of my column that appeared in Frontiers In L.A. magazine on August 30th, 2010
I’ve been looking for a home to buy for a few months now, with no luck. For now I’m looking on my own, but will hire a buyer’s agent when I get closer to finding what I want. A friend told me that I should check out short sales. What exactly is a short sale, and should I open myself up to considering them? —Sasha, Silver Lake
Oh Sasha. Sasha, Sasha, Sasha. Let me first address something you said in the first part of your question—that you aren’t working with a buyer’s agent. If you are serious about buying, that needs to change now. You do know that the services of a buyer’s agent are free to you, right? They are working on a basis contingent upon your finding a home and going through with the purchase. Their commission is paid by the seller of the property. Do yourself a huge favor and find a buyer’s agent (I can think of one!) to take some of the weight off of you. You have a job. You have a life. You have better things to do than sift through every junky listing that hits the MLS. Find yourself an agent you click with, educate them on what you’re looking for and let them do the grunt work. That way you’re getting 90 percent of the crap filtered out and only getting the cream of the crop. Plus, a good agent who keeps their ear to the ground has lots of contacts and gets information on upcoming listings from fellow agents before they hit the MLS.
Now, on to your actual question. To put it as succinctly as possible, a short sale is when the owner (or “borrower”) owes more on a property than it is actually worth. This is a very common situation that a lot of homeowners have unfortunately found themselves in over the last few years. Let’s say you purchased a home in 2006 for $1.5 million, but now that same house is worth about $1.1 million, rendering you, as we say in the business, “upside down.” Though it’s not always a simple or straightforward process, eventually what one hopes is that the bank (or banks) that holds the note on the property will agree to allow the property to be sold at its current market value. Obviously, the seller loses whatever they have invested in the property, and the bank agrees to absorb the difference between the sales price and what was owed. It’s not ideal. It can be a huge negative on your credit rating and there can be tax implications that I won’t go into here.
For buyers, short sales can be a good resource to find good deals on properties. They are typically (not always) priced roughly 10-20 percent below what comparable standard sales are going for. Believe me when I tell you, more often than not, you will earn that discount. Short sales can be absolutely gut-wrenching. Usually, a home is listed as a short-sale before any effort has been made to get the approval of the bank that holds the note. Once an offer is accepted by the seller of the home, it is then submitted to the bank, beginning an often long, slow process by banks that have no real interest in making decisions in a timely manner. It can and often does drag on for months and months. This is not always the case, and sometimes you’ll luck into a listing agent who specializes in short sales and knows all the tricks to expedite them. Likewise, sometimes the short sale will have already been approved when you are making your offer. The most important thing to remember is that there’s a chance the bank might not accept your offer or allow the short sale to happen.
If you do make a play for a short sale, make your offer contingent on the lender’s acceptance, and give a time frame during which they have to accept or reject the offer. If you are not in a hurry to buy property and have the stomach to wait as long as it takes, then short sales may be for you. The upside is, if you find something else you like while you’re playing the waiting game, you may be able to jump ship and move on to the one that’s ready and available to close.
West Hollywood Stats (single-family homes) as of Aug. 28, 2010*:
Homes for sale: 50
Price range: $489,000—2,495,000
Average price: $1,126,220
Average square footage: 1,662
Average days on market: 80
Single family homes currently in escrow: 17
*Statistics obtained from Multiple Listing Service. Information deemed reliable but not guaranteed.
You can visit my website at jeffersonhendrick.com and search for any properties in the L.A. area.