“I’m seeing lots of ads touting short sales, most of which seem priced pretty well. Are they good investments?”
***ANSWER:
[NOTE #1: I’m repeating a question/answer on short sales from July as too many people are still futilely trying to buy homes that are short sales and will never close.]
[NOTE #2: a short sale is when someone is selling a property with a loan(s) that exceeds the property value and the owner doesn’t have funds to cover the shortfall. For a sale to happen, the bank must agree to take a loss, which they may do if they believe they’ll otherwise have to foreclose on the property.]
I’m seeing too many clients being drawn like moths to a flame to short sales that will NEVER close.
Why won’t they close?
It’s a long answer, so bear with me…
If you’re trying to buy a short sale property, you must wait 2-12 weeks after the offer is accepted to see if the bank will approve their loss.
With plenty of homes to choose from in today’s market, why would you be willing to wait that long?
You guessed it: to get a bargain.
And that’s why many agents are pricing their short-sales low, often unrealistically low, in order to generate offers.
But banks are not in the business of losing money (at least, not on purpose). So they won’t agree to a price way below market value. Maybe a little bit below, but not much.
So you have what I call the “Short Sale Catch 22”:
It must be a bargain to attract a buyer. But banks won’t agree to a bargain price.
So the only short sales that get approved (I’d guess 25% of them) are where either:
- the bank gets a low appraisal and agrees to a low price, OR
- the buyer is willing to pay close to market value
The upshot is that most short sales are pipe dreams. And unless you’ve got a lot of time to dream, I wouldn’t waste your time.
