Short Sales!

At a recent birthday party I was asked the following question:

"I keep hearing about short sales. What exactly are they"

A short sale is simply a property that when all the seller's closing cost, outstanding loans and property taxes are totaled, they exceed the amount of the offer from the buyer.

The seller then has two choices.

They can write a check for the difference, or they can petition their lender to take less money.

The seller writing a check would seem to be an unlikely option, however in a recent MSN article, a borrower's FICO score can drop by over 100 points when a debt settlement takes place. This will, of course, have significant impact on the seller's ability to borrow again in the future and possibly alter the terms of other existing credit right now.

Petitioning the lender for a reduction in the payoff of the mortgage, is the most common approach.

These transactions take much more time than a normal sale, because after the seller approves the offer, the lender must agree to the discounted payoff, and credits or repairs that the buyer is asking for, and other terms and conditions. This process often takes 3-6 months, and many buyers are not willing to wait for the lender's answers, which is often times, NO!

This has been a section of the market that has continued to increase, as property values have continued to decrease. About 12% of Marin County's closed transactions completed in 2009, were short sales.

This is all can be good news for the purchaser, who is not in a hurry. Since many buyers will not consider a home that is a short sale, due to their many uncertainties, the prices on thees properties are usually less than their, non-short sale competitors. Getting a better price on their purchase, is frequently higher up on the priority list, than it was a few years ago.

The short sale dilemma is on the conditions that exist in most real estate markets, that is preventing values from recovering from the decreases they experienced over the past 4 years