“Do your homework!” Isn’t that what we were always told in grade school? Well, school is over, but if you want to understand short sales, the homework is not. Any party interested in buying, brokering, or selling via short sale would be wise to gather some basic information before digging in. For the sake of simplicity, we will look at the necessary steps to a successful short sale through the eyes of a buyer or a buyer’s agent.
The first logical piece of information to dig up is the owner of the property. This may seem like a common sense place to start, but there is a key pitfall to watch out for here. In this turbulent market, numerous “short-sale” specialists have cropped up who claim to negotiate short sales. However, there approach to negotiating short sales does not simply stop at negotiating! Their companies are set up in such a way as to actually take title to the property, promising the distressed seller a quick sale. However, once title to the property has been taken and a sales price has been negotiated with the bank, they will seek to sell the property for more than was actually negotiated with the in order to keep the difference as profit. It is important to be aware of these companies as many, though not all, have found themselves in a very “grey” area of the law and often do not have the true knowledge of short sales to perform their jobs well. A buyer must be cognizant of this as they may be negotiating a third party’s profits!
The second piece of important information is that buyers need to research is the existence of outstanding mortgages and estimation of their balance. This is a crucial factor when buyers proceed to the offer stage of a short sale transaction. For example, if a property is encumbered by a $300,000.00 loan and the short sale is listed for $100,000.00, unless the local market can support that kind of drastic price reduction, the chances of the bank accepting such a loss are highly unlikely. However, if encumbering mortgage is $145,000.00 and the local market shows comparable values at $100,000.00, then the chances of short sale success increase exponentially.
Thirdly, a potential buyer, or buyer’s agent, needs to do some very thorough analysis of the market to see what properties are selling for and what market trends are emerging. This can be very difficult in unstable markets similar to that which we are currently experiencing.
These are just a few of the preliminary steps to building a successful short sale. In the next installment we will explore the initial steps in making an offer on a short sale including pitfalls to watch out for, and tips to give you an edge with the banks!