We’ve been reporting for weeks now that distressed property sales are moving. One component of a distressed sale is the Short Sale. A short sale is when a bank agrees to take less than what is owed on the mortgage so the property owner can afford to sell the home at today’s lower market values. Banks in the past have taken much time to decide and some have been stingy on accepting these deals, for good reason. We’ll come back to the reasons later on.
Many agents have been reluctant to show short sales to their buyers because banks have been declining a lot of these sales. We have a bit of good news to report, and that is short sales are rising. We’re not saying they happen overnight, or that they’re easy. We’re just reporting the fact that they’re happening more frequently now as banks develop systems to more adequately deal with these sales, and they realize they may lose less in a short sale than a foreclosure sale.
As you can see from the monthly chart, Cape Coral leads the county in short sales. All three areas, Cape Coral, Fort Myers, and Lehigh Acres are experiencing an increase in short sales from the banks. Cape Coral had 113 short sales in May compared to 151 in October. Fort Myers had 29 in May compared to 73 in October. Lehigh Acres had 30 in May compared to 49 in October, so you can see a definite increase in banks cooperating in short sales in just a few short months, no pun intended.
Why is it that banks are cooperating more? We’re not exactly sure, however we can speculate that banks have learned they lose less in a short sale than a foreclosure. Real estate agents have also learned what banks are looking for through education and are presenting better packages to the banks, which are key. Perhaps that Tarp money has freed banks up a bit to sell distressed properties. Most likely is that banks have been hiring and training people to deal with the barrage of requests and heavy paperwork load and they’re getting better at dealing with this issue.
Let’s look at some of the reasons banks take so long so we can understand the delays. Banks obviously don’t want to lose money. Banks generally qualify the seller and make sure there is hardship. Being upside down on a mortgage is Not considered hardship. There must be documentation proving the seller’s hardship, and this is why our sellers fill out a complete financial survey that is included in our short sale package to the bank.
The bank also wants to verify that the seller is selling at today’s fair market value, not some super spectacular deal for an investor or relative so they can make money on the bank’s losses. Keep in mind, the bank is taking less, so it is the bank’s loss.
The bank wants to make sure it’s an arm’s length transaction. They don’t want a family member buying it at a discount or an LLC being used as a vehicle to transfer property to a family member at a reduced price so the mortgagee can escape being upside down.
There may be more than one ban involved, and each one has limits on how much loss they will take on the short sale. They will weigh the current loss vs. and anticipated loss they may receive at foreclosure. They may wish to order appraisals before making a decision. We submit a BPO (Broker’s Price Opinion) to substantiate today’s market value with all accepted contracts.
We don’t let our sellers sign more than one offer and submit to the bank due to legal ramifications. And we don’t have our sellers accept an unreasonable offer that the bank will reject, so we do all the homework upfront. Why waste everybody’s time? Because all listings agents don’t do this, buyer agents are skeptical to show short sales and waste their client’s time and money.
Even if the listing agent does everything perfectly, there is no guarantee what the banks will do, and yet there are far too many listings being taken at incorrect prices and inappropriate situations, and that is bogging down the system. This is not the time to just throw something out there and Try because seller is desperate. Decisions made are impacting the buyer and seller’s lives, and a lot of time and energy is expended by all involved. It pays to do things the way the banks require them for maximum results.
If you understand what the bank is looking for, and work with someone who has experience actually selling short sales, buyer agents will be more likely to show these types of properties. Agents are getting better, banks are getting better, and hopefully we’ll see more short sales go through so neighborhoods don’t have to suffer through abandoned properties and all the negatives associated with foreclosures.