Short sales may sound so two years ago, but they are still a reality in today's real estate scene. Since the Great Recession hit and housing prices took a nosedive in many markets, short sales have become a more common approach for purchasing an abode. And while the DMV market wasn't slammed like other areas of the country, short sales shouldn't be ignored when looking at the local market. Compared to a few years ago, the number of short sales continues to decline and are about 10-11% of total real estate transaction volume. Though the volume of these types of sales differ across the region, inner Beltway PG County definitely tops the list. About 25% of total sales are short sales in PG. But before we get to the numbers, click through for more details on what a short is and isn't.
So what exactly is a short sale? First, it's not a foreclosure. Though considered real estate cousins, short sales and foreclosures are distinctly different. Foreclosures are properties being sold by banks. Short sales are properties usually sold by owners where the price of the property doesn't meet all the financial obligations for that property. Now lenders prefer short sales to foreclosures because the cost and time required for a short sale is typically less than for a foreclosure. But a short sale is still not quick with 90-120 days from start to finish being the norm in some areas. The DMV seems to be a bit quicker since it's about 80(ish) days for a short sale to make the switch from listed to sold. That may be due just to the general tight inventory in the region, so buyers will take what they can get.
So why would an owner decide to short sale instead of having the home going into foreclosure? To have a short sale, the seller must have no equity, i.e. the owners must owe more on the home than it's actually worth. To figure out the owner's equity, the costs of selling the property should be included in the calculations. Compared to a foreclosure, a short sale allows the original owner a bit of control during the sale process instead of relinquishing control to the bank and potentially mitigates the overall impact on his or her credit score. Though some sources say the impacts on credit scores between a foreclosure and short sale are minimal with both approaches hitting a credit score by 100 points or more. But no matter what route a seller takes, it's on the seller's credit report for seven years.
While the process will vary slightly based on location and what bank is used, for a seller to get everything in order to list the house for a short sale, the seller will need:
· Several years of W-2s,
· Several years of tax returns,
· Recent payroll information,
· Bank statements,
· Seller's hardship letter,
· A variety of other documents.
From the buyer's perspective, a short sale could potentially be a good deal. Optimal word is potentially. The ask price of the home will typically be lower than asks in the same neighborhood. Often that list price is low-balled to get buyers interested in the property in hopes of bidding up the price. (Just like in the regular real estate market.) But that lower price comes with its own costs: time and aggravation. During a short sale, the seller's bank also needs to approve the final offer for the home. Therefore, the buyer is really subject to the bank's negotiator and not the actual seller. Now we know that banks and sellers have different incentives and timelines. It's up to the buyer and the buyer's agent to play those to his or her advantage.
For buyers who are set on pursuing the short sale route, use an agent that is familiar with the short sale process. Because it ain't the same as a traditional real estate transaction. Zillow, for example, has a list of agents that specialize in short sales, and there are well north of 400 agents on that list. So if that's what you want to purchase, be forthcoming with the agent so he or she can be better prepared for the process.
And once a buyer has decided a short sale is the right way, and he or she has an agent ready to go, here's just a few of the many steps in the short sale process:
· Bank receives the short sale and a bank negotiator is assigned for the sale,
· A second negotiator may be assigned for the sale depending on the selling situation,
· The file is reviewed and the bank asks everyone to sign a specific affidavit,
· If everything goes according to plan, the bank will issue a short sale approval letter.
So the short story on short sales is this: The seller is often in dire financial straits but has the wherewithal to continue to (for the most part) control the sale of the house. It's not a foreclosure, but it's on the path to potentially becoming one. For a buyer, whether or not buying a short sale is a deal, well, that depends on the buyer, seller, and a host of other factors.
· Short sales in region decline, but process still can be daunting [WaPo]
· Speeding Up Short Sales [NYT]
· Zillow Real Estate Agent Reviews [Zillow]
· Short Sale (real estate) [Wikipedia]
· Foreclosure [Wikipedia]
· Is It Better To Buy a Short Sale or Wait for the Foreclosure to Happen? [About.com]
· Why Do a Short Sale? [About.com]
· The Complete Short Sale Process [About.com]