I have had MANY people asking me, "What is a short sale?". To save everyone some time, here is a concise description of what a short sale is and what you need to know about them.A short sale is ideally a "pre-foreclosure". This means that if the listing agent is educated, the property will be "distressed", the seller will have not been paying his mortgage, a Notice of Default has been filed on the property (NOD), and the seller should have a good reason why he has not been paying!
(on a side note, I have access you HUGE consistently updated lists of NODs, NOTs, and other preforeclosure info available, just ask)
Once the owner of the "distressed" property realizes that they may lose the property, they decide that they want to sell it before it goes to foreclosure.
The problems?
1: They owe more on the mortgage than the property is worth
2: Even a competitively priced property will not sell quickly in this market
The solutions?
1: Have a Realtor put the property up for sale at less than market value
2: Attract a large amount of attention and offers, usually above your very low asking price
3: Go to the bank whom you owe money to, show them the offers, and ask them to accept one and forgive the rest of the debt
The problems with the solutions?
1: Banks have a huge deluge of these types of offers coming in, and they may take months to respond to the offer, if they do at all
2: The seller gets to spend less time in control of the property in contrast to a foreclosure
An example:
You owe $100,000 on a home. In the recent downturn, the homes value slips to $50,000. You lose your job and cannot pay the mortgage. You call me and tell me your problem. I say, "I have the solution for you! Instead of letting the bank foreclose on you, let me sell your home first."
So we put the property on the market for $40,000. This is below market value, because we need to sell fast and you won't get any of the profit anyways. We show the home 30 times in 10 days, and get 10 offers. The highest offer is $45,000.
I submit a lower offer to the bank, one at the asking price of $40,000 because I don't want the bank to counter the $45,000 offer with a $50,000 price! The bank doesn't say anything to me, the listing agent. I call them, email them, hound them from all sides. Finally, 2 1/2 months later, the bank calls me and says they want to counter the $40,000 offer with $45,000.
I call the person who wrote the offer, but they already bought a house. So, I counter the $40,000 offer with $45,000. They decline because the price of the home has dipped to $40,000 during the time they were waiting, and we all just wasted 3 months of our lives trying to save the bank some money. By the way, the house gets foreclosed the next day.
How do you profit from it?
1: Write a full priced offer on every well priced short sale that you see.
2: Be patient
3: Do not become attached to the idea of owning ANY of these properties because the likelyhood that you will actually close escrow on one is exceedingly low
4: Be persistent by following up
5: Be patient
6: Submit piles of supporting documentation with your offer to verify your strength as a buyer such as your FICO score, proof of funds, preapproval letter, letters from relatives with back up funds, ect.
Realistically, short sales are not an easy way for anyone to make money. Not for the listing agent, not for the buyer, and certainly not for the seller. Everyone involved will feel short changed by the end of the transaction. You will have spent way too much of your own time looking at properties and writing offers by the time you close escrow.
In my own recent housing search, I wrote seven offers on short sales over six months ago. I still have not heard back on a single offer! In the end, all you are doing is saving the bank a couple of bucks which they apparently don't care enough about to respond promptly to your offers. Easier money is to be made with true foreclosures and traditionally marketed homes.
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