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Taking the Short Sale Plunge

Short sales seems to have taken our local real estate market first by a drip, then a drizzle, and now by that proverbial storm!  When they first appeared on the market, it rather seemed as though we'd see spatterings of them, but in reality, they were the occasional exception to the rule.  Some would get contracts, but for a fairly long time anyway, the odds of getting them to close were very small.  As a matter of fact, I've rather likened them to the "vaporware" we used to hear about so long ago.  For those not familiar with the term, Wikipedia describes it as follows:

"Vaporware is a term used to describe a product, usually software, that has been announced by a developer during or before its development and, therefore, may never actually be released. The term is usually applied to products which fail to emerge after having well-exceeded the period of development time that was initially claimed or would normally be expected for the development cycle of a similar product."

The analogy to Short Sales in real estate is really pretty striking.  A home goes on the market as a Short Sale with the owner having every honest intention of getting it sold.  In fact, they have a very strong sense of URGENCY to get it sold since more than likely they are in financial distress...perhaps even on the brink of foreclosure.  So, when they put the home on the market, in order to substantially increase the likelihood of getting a contract, they often price the home substantially below comparable homes in the area.  After all, particularly when there is a glut of inventory on the market, price will drive the offers.  That all sounds well and good...except for one thing:  the owner of the home may not actually have the full authority to sell it!  He can only sell it IF his mortgage holder/s permit it!  What makes matters even worse is that those mortgage holders will not tell an owner whether they would accept a short sale before the owner gets a contract on their home ... and in fact are taking a minimum of weeks, but more generally months ... sometimes many months ... to tell the seller whether or not they will agree to the short sale.  This leaves buyers and sellers alike dangling in mid-air wondering whether or not they really have a deal.

One of what I'm certain is an "untended consequences" of this short sale phenomenon is that it grossly distorts "perceptions of value" for lenders, agents, and appraisers...but mostly for buyers.  Buyers see a pricetag for a phenomenal home that appears to be in their price range, and wonder why, then all the other homes in their price range don't measure up.  The reason is simple:  the short sale home's very low price is an appealing inducement to get a buyer to accept the substantially increased risk that the transaction will never close (that's the "vapor" part of the comparison!) 

Now, in the summer of 2009, short sales still represent high risk, but the reality is there are more and more of them on the market, and more and more of them are actually reaching the closing table.  That being the case, many agents around the country who had, while the numbers of "shorts" were still limited, avoided getting involved, are now in the process of jump-starting their understanding of the process.  Admittedly, I'm one of those agents having just leaped, head first, into a well-orchestrated effort to help a long time client through the painful process of shorting her home.

Short sales are tricky, to be sure.  But in embarking on this journey, I've learned a few things that I thought might be helpful to you....whether you're a homeowner who may also be facing this process, a buyer considering the purchase of a short, or even an agent who is also taking the plunge. 

  • Before beginning this process, it's critical to remember that, despite the name, the only thing Short about the Short Sale process is amount available to pay off the mortgage/s.  The process is, in fact, long...taking weeks, even months, to simply find out whether the seller's lender/s will agree to take less than the mortgage payoff/s
  • If there is more than one lender involved in the short sale, the risk of not closing will likely be amplified
  • Most sellers' lenders will NOT answer any questions as to whether or not they will agree to a short sale until there is an actual contract on the property
  • If a short sale is contemplated, call the seller's lender/s to find out EXACTLY WHAT DOCUMENTS they will require.  Typical are:
    • Seller's Authorization to Release Information which will name any and all individuals who the Seller Authorizes to speak with their lender/s on their behalf (seller's agent, attorney, etc.) 
    • Seller's "Hardship Letter" describing in detail why it is not possible for the seller to close on their sale and satisfy existing mortgages
    • Seller's monthly 'budget'
    • Seller's employment verification (if still employed)
    • Seller's tax returns for the last 2 or 3 years
    • Seller's bank statements for the last 3 months
    • Seller's pay stubs if still employed (number required varies)
    • Copy of Listing Ageement
    • Copy of MLS printout
    • Complete Comparative Market Analysis (CMA) on the property (though the seller's lender will likely also order Appraisals and/or Broker Price Opinion (BPO) in addition
    • Marketing history on the property
    • Detailed offer history
    • Copy of Buyer's preapproval letter, commitment letter, proof of funds if cash transaction
    • Copy of Sales Contract with all riders, disclosures, and addendum
    • Copy of Earnest Money deposit
    • Estimated HUD1 to give lender/s an idea as to how much they can expect to receive from the transaction
  • Communication is CRITICAL...that means communication between the seller's lender/s and whomever is "managing" this process (generally, the seller's agent); it means communication between the seller's agent and the buyer's agent; it means communication between the buyer's agent and the buyer.
  • Buyer contemplating a short sale must be PATIENT, PATIENT, PATIENT.  Though there are occasions when a short sale can close in a reasonable (60-90 days from date of contract), those are HIGHLY UNLIKELY.  Prepare to wait 2-4 months before knowing whether the seller's bank will permit the sale to go through!

While a short sale can be a "lesser of evils" for a seller who must sell, and can represent great savings for a buyer, both come at very high risk.  And many agents simply don't want to "get involved" in short sales, either as listing agent or buyer's agent ... in great part because the risk of doing considerable work, expending considerable time and resources, with the prospect of not getting paid at all being so high (since only about 50% of the short sales actually close) than with a "normal" transaction, it's certainly understandable. 

The short sale is part of our current market reality.  The more we all, sellers, buyers, and agents alike, understand the process, the higher the likelihood everyone involved can make more prudent decisions and in fact become part of the solution.  Hopefully, this information has been helpful!

Is Your Agent REALLY Working for You????

An interesting email arrived this morning from my profile on one of the online services I use.  It was fairly anonymous simply saying that a prospect wanted me to email them about the sale of their home as quickly as possible.  It gave no information other than that, but since consumers tend to want their annonymity, I decided to respond courteously and offered to assist.

The prospect replied me very quickly, but only said "I have a contract with remax but they have not shown the house.  I thought that you might have a buyer.".

Interesting.  There was no mention as to the COUNTRY, let alone city or area where the house was, price range, type of home....absolutely nothing.  After all, these online venues are global.  Again, though, it did occur to me that people often do make assumptions, and not knowing what the writer had BELIEVED she had furnished me when she submitted the online form (sometimes it's easy to think the website itself is supplying a certain amount of "content" to the person you're writing to...so it's best not to be too quick to judge), again I responded.  In that response, though, was information that you, too, might find helpful.  One thing is true of real estate (as it is of nearly any other industry) people simply don't know what they don't know.

So, here begins our discussion in response to her request

K,
 
When you say "they" have not shown the house, I don't know who you mean.  When I list a home for sale, I make sure the owner understands Home for salethat the listing agent's job is not to SHOW their home....it's to aggressively market the home to expose it to agents (whatever company they represent) and qualified buyers (whether already working with an agent or not).  I NEVER commit to personally showing their home (though I often do because of inquiries from signage, from my various websites, from my online "presence" on places like Yahoo, ActiveRain, Point2 syndication, Zillow, Google, Craigslist, Twitter, Trulia, Facebook, LinkedIn, Realtor.com, to name just a few).  I invest a great deal of time and resources in getting "found" online...which obviously means the homes I market are getting found as well.
 
Something else I think it's important for today's sellers to understand.  Yes, the real estate market is down in our area, but houses ARE selling.  But surprisingly SHOWINGS are down from what they had historically been.  The reason is simple....it hasn't been all that long ago that when a buyer wanted to see a home they had to schedule an appointment with an agent to show it to them...because that was the ONLY way to see the inside.  Today, with the preponderance of photos online (in our MLS, we're allowed to have up to 9 photos including the exterior front, and we can also have virtual tours...the one I personally use permits up to 50 images whether stills or panoramas) many buyers are viewing the homes that interest them online, rather than making appointments to see them.  And they're not just getting the photos...they're seeing the locations, they're getting demographics, they're getting school information, etc.  The bad news is that not as many people are trapsing through your home.  The GOOD news is NOT AS MANY PEOPLE ARE TRAPSING THROUGH YOUR HOME.  On the other hand, THOSE THAT DO SEE IT IN PERSON ARE MOST LIKELY MORE SERIOUS BUYERS!  They've generally already seen your home online and LIKED IT enough to want to see it in person! 
 
My suggestion would be to speak with your agent...find out what they're doing to MARKET your home, to EXPOSE it to the real estate community and to potential buyers.  The fact that they personally are not showing it is of little consequence in my opinion.  Now, if they are also not aggessively MARKETING it for you...that's a different matter.
 
As to whether I personally might have a buyer...since I know nothing about your property, there would be no way for me to tell.  If your home is listed, feel free to give me your address or MLS number.  I'll take a look...and if it appears to be something that might fit the needs of any of my buyers, I'll certainly bring it to their attention.

Please understand, my intent, once the consumer indicated her home was listed, was not to interfere with her listing agreement with her broker.  That's a clear violation of our Realtor code of ethics.  However, I also realize that some agents simply don't take the time to explain things to consumers (at this point, I had no idea who the agent was, let alone how thoroughly things were explained to the seller), and, just as important, sometimes consumers are bullheaded and simply don't want to listen to the very people they are entrusting with one of the largest transactions of their life!  That, I've simply never understood1

At any rate, another response followed giving me some basic information about the property, including an MLS number.  Curious, I looked up the listing.  It had decent (not great) photos, and a virtual tour (sort of), but of course I don't know what other (if any) exposure it was getting.  However, it had only been on the market 3 weeks, already had one price reduction, but what interested me most....NO KEYBOX.  In our market that's considered a no-no, so I did follow up with one more response...

Took a look at your listing.  I noted that you have no keybox.  Frankly, you're shooting yourself in the foot by making it more difficult for agents to show.  Right now [city name] has 20 single family 4 bedroom homes under $400k, only 3 of which have contracts on them.  If an agent has a lot of homes to show a buyer (and they're generally looking in more than just one town) and limited time in which to show, one way they make their decision is by how difficult it is to show a property (unless they have a VERY high level of confidence that that particular house will be perfect for their buyer, the more difficult to show, the more likely it will be eliminated).  If you want your home shown, make it as easy as possible to do so.  By the way "mls listed" is bare minimum...find out what ELSE is being done to market your home.

Getting a home sold is a partnership!  It takes a collaborative effort between a seller and their broker, each with the same goal in mind!  It also requires active communication!  As far as anyone can tell, this seller's agent might well be doing everything they can to market this seller's property ... but if the seller doesn't know that, it's easy to believe that "nothing" is being done.  My suggestion ... if you're a seller and your agent is not communicating with you, pick up the phone!  If they don't respond, contact the managing broker.  Particularly in this market, you should expect nothing less!

Open House in Addison on Sunday

June 2009
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Addison, DuPage County  -  We invite everyone to visit our open house at 136 S Michigan on June 21 from 1:00 PM to 4:00 PM.

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Single Story For Sale in Addison

View from Street

• 1,111 sq. ft., 2 bath, 3 bdrm single story - MLS® $184,900

 -  This solidly built all brick ranch with a full finished basement has been home to countless wonderful memories...kids growing up, parties with friends, moments shared. Now it's your turn! You'll love the spacious rooms. And while there's carpet over most of the home, it covers quality hardwood floors. Two of the three bedrooms (since family has grown) have been re-purposed for changing family needs. One is now a TV room, while another serves as a formal dining room.

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Posted by Judi Bryan | 0 Comments
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Single Story For Rent/Lease in Carol Stream

738 Gary - Exterior View

• 2 bath, 2 bdrm single story "2nd Floor Ranch Unit" - MLS® $1,295 USD Monthly

 -  Freshly painted and immaculate with towering vaulted ceilings in the living area as well as both bedrooms...this rental is perfection! This 2nd floor unit overlooks mature evergreens and has a beautiful water view. With a unique and versatile floorplan featuring bedrooms separated by the living area, this unit works well for a variety of living arrangements...including singles or family arrangements as well as "housemates". Don't miss the floorplan attachment! The kitchen is fully applianced, and there is also in-unit laundry for your convenience!

Situated in the popular "Legends" complex in Carol Stream, you'll enjoy the full-featured clubhouse with indoor pool, workout center, hot-tub, and rec center...and you'll also love the convenience to shopping, trains, and expressways.

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Posted by Judi Bryan | 0 Comments

2 Story - Very Private, Walk to Train Location - Roselle

Exterior
Beautiful, Near-Town Area...GREAT BUY!

• 2 bath, 4 bdrm 2 story "Traditional" - MLS® $275,000 - $50,000 PRICE DROP!!!!

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Posted by Judi Bryan | 0 Comments