Are Short Sale Prices Too Good To Be True?

Are you a home buyer who is currently considering the purchase of a home listed under the terms of a Short Sale?  Were you lured into making an offer by the incredible price?  If so, you may want to be sure you’re fully aware of what may happen considering you’re about to purchase such an amazing deal. 

You won’t have to pay any more than the list price.  Sometimes a real estate agent will leave their buyer with the impression that if they offer the advertised list price, that’s the price that that the buyer will ultimately pay. 

If the price sounds too good to be true, it probably is.  Any buyer should be acutely aware that in the event of a Short Sale, neither the seller’s real estate agent nor the homeowner(s) will be the authority that determines the final sale price.   The final approved sale price will ultimately be determined by the lien holder(s) who grant the final approval of the sale.  Be sure that as a buyer, you’re willing to pay what the lien holder(s) determine to be the fair market value.  Short Sales typically fall apart because an insurmountable gap develops between what the buyer perceives to be a fair price and what the market has determined to be a fair price.   Be sure to consult your agent and be sure your purchase offer is within at least 5-10% of the current market value.  All Short Sales that closed within Central Ohio in 2011 (on average) had a sale price within 93% of their original list price.  Data Source:  Compiled using available CBR Tempo Short Sales statistics for 2011 .

Why do Realtors underprice Short Sales so dramatically?  Answers to this question may vary greatly. The most common reason for underpricing is because everyone is working feverishly to insure that the seller’s property doesn’t go through foreclosure.   Remember, sellers are normally attempting to complete a Short Sale because they can no longer afford to make their monthly mortgage payment.

The agent said that the Short Sale has been “approved” at a specified price.   Who approved the sale price?  That’s an excellent question.  This is typically lingo for, “we had a previous offer and that deal fell apart.”  As a Buyer you should never consider any Short Sale price a slam dunk unless you have it in writing and you’re sitting down to sign the closing documents.

There is no such thing as a “Standard” Short Sale.  It’s important for any buyer to grasp the concept that a Standard Short Sale does not exist.  There is no industry standard for how Short Sales are handled.  Each lending institution has their own set of rules, guidelines and procedures.  Both the buyer and the buyer’s real estate agent are at the mercy of the lender, the seller’s real estate agent and sometimes the seller when it comes down to timelines and the management of the Short Sale process.  Only 25 percent of Central Ohio Short Sales that were listed in 2011 actually made it to a successful closing.   Data Source:  Compiled using available CBR Tempo Short Sales statistics for 2011 .  The reasons why Short Sales don’t close are too numerous to count.  Many times it’s the terms of how PMI (private mortgage insurance) is paid out, other times the failure may be due to an inept selling agent or reluctant seller.  Whatever the case, let it suffice to say, make sure you go in with your eyes open and ready for anything when attempting to purchase a Short Sale.

Seek out professional and experienced help.   Make sure that all real estate agents involved in any Short Sale are experienced in handling such matters.  Consider hiring an attorney prior to submitting any offer for a Short Sale property.  There are many possible outcomes when it comes to dealing with Short Sale properties.  Education and hiring the appropriate experts to help you through the Short Sale process can greatly increase your chances for a successful Short Sale closing.

Information deemed reliable but not guaranteed.   Prepared by: Greg Watson Copyright: 2001 – 2012 by Columbus and Central Ohio Regional MLS

For additional information about Short Sales contact Greg Watson of Signature Real Estate.

By: Greg Watson