Home short sales are not short

According to a recent Sun-Sentinel article, only 2 of 10 short sales are completed. And almost a third of the 24,000 homes listed in Broward County are in short sale. Closer examination will show that the highest percentage of short sales is found in homes priced below $300,000. Unfortunately, that’s the place most people want to be.

Short sales can net the new homeowner a bargain home, because short sales are usually priced below market value in a neighborhood. However, because of the length of time that banks have to consider offers, the price you pay may end up being more than you expect.

When you sign a contract to purchase a home that’s in short sale, there are a number of addenda (additional documents) that you will have to sign. Among them is one tells you not to expect a response for at least 45 working days. That’s about 9 weeks. And that’s the minimum. You may find yourself waiting for several months for a bank to make up its mind.

But there’s more. All sales agreements require a signed contract between buyer and seller. Unfortunately, in the case of a short sale, the seller has no real control over the disposition of the home. The bank has the final say. So you will sign a form that says that there is no binding contract without third party approval. This document also states that the third party to the deal (the bank) has the right to continue to market the property in order to obtain additional offers.

This addendum also informs you, the buyer, that your offer will be compared to all the offers that come in. At a certain point, the bank will decide who wins. Here’s a hint to all of you out there contemplating buying a short sale or a foreclosure: cash wins. If your cash offer is ridiculously low, it won’t work. But if you’re fairly close to the asking price, you will trump someone with a solid credit record who needs a mortgage to purchase.

If no cash buyers appear, then the buyer who puts the highest percentage down on the property, and comes in at the highest price, is likely to get the property. As I have noted on previous occasions, if a short sale property is particularly desirable, there are likely to be bids above the asking price, and the bargain factor may begin to erode somewhat at this point. This is known as a bidding war, and this event is taking place more and more often in this evolving market.

This is all legal and above-board, and it is all spelled out, or should be, in the contracts and addenda you are likely to sign as a short sale bidder. There is, however, an item that is also legal, but totally unnecessary, that many buyers may now find they are paying for if they are the winning bid. This is called a discount fee, and it is paid to a group that refers to itself as a processing company. This short sale fee may run anywhere from $2500 or more.

It is usually a realtor who has figured out this great idea (great for them, that is) for increasing their profit on short sales. The disclosure form says that they are taking care of large amounts of paperwork and negotiating tirelessly on your behalf. It may state that the realtor makes use of this processing company for short sale work and that it has an interest or ownership in this company. This is all out in the open.

But this additional short sale fee is entirely unnecessary, because title companies, who make their money legitimately from title searches and title insurance, will do the same work at no fee. The home owner decides which title company to use, thus assuring the title company of income.

Most short sale listing agents will work with a title company, because these real estate agents feel they are sufficiently compensated by the commissions they earn. They also understand that an additional $2500 or more in expenses may price many buyers out of a home. And, more important, they are concerned with maintaining the good name of realtors.

There are thousands of homes for sale in Florida that are currently in short sale. Their conditions may vary from move-in to mess. If you are a home buyer with a great deal of patience, and you don’t have to move by a certain point in time, then a short sale may be perfect for you Just be aware of the possible pitfalls that lie ahead.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 – 213-6139
www.MarcJablonHomes.com