I vented about the joys of the short sale last week on Inman News. Yesterday, the San Diego Union Tribune published the story of an East County resident who lived the nightmare, not as an agent, but as a person simply trying to save his home. Sadly, he failed, and his story is so incredible, you can’t make this stuff up.
For those who are rusty on the concept of short sales, we talked about it here. From the CliffsNotes, short sales are sales in which the settlement charges (costs of sale including the pay-off of outstanding loans) will exceed the sale price of the home. Unfortunately, we aren’t seeing a light at the end of our short tunnel; these situations are going to be with us for awhile.
A year ago, we saw agents tending to avoid short sales like that gallon of expired milk. First, the whole idea of negotiating with a faceless lender was daunting; for so many of us who were doing other things during the last down market, the idea of navigating these waters was mysterious, the disclosures ominous, and the shear level of difficulty involved in meeting the paperwork requirements enormous.
Second, an agent takes on a potential short sale listing at great risk. There is no guarantee a lender will ultimately accept a short pay-off and, even if the odds are favorable, the entire exercise often becomes a game of Beat the Clock. As agents, we make the daily calls to the lender begging for action, calls during which we may speak to a half-dozen or more different people looking at different computer screens, each of whom will tell us we will be hearing something in “a week to ten days.” Each new day, we rinse and repeat, but we ultimately have no control over the pace at which they will consider and act on our client’s request. So, often, the weeks become months, the buyer loses interest, and we find ourselves in a position of having to start the process again. And sometimes, it is just too late.
Finally, while most of us have resigned ourselves to short sale listings, both because they are becoming so commonplace that they can’t be avoided and because we feel a social obligation to assist all sellers, even when it is not convenient, comfortable, or even lucrative, agents representing buyers today are running for the hills in greater numbers at the first sign of bank involvement. They are doing this for all of the reasons previously mentioned, and they are doing this because short sales do not pay handsomely. The listing contract can call for a 6% or a 16% commission, but if the bank’s approval after months of time and effort stipulates that I will make $1.95, that is what I will make. We have yet to see a short sale transaction of our own that didn’t involve an arbitrary, eleventh hour pay cut to the agents.
In Phoenix, it seems that even the listing agents are thinking twice about taking on short sale listings. Phoenix is a different market, however. While Jay Thompson cites a 90 to 95% failure rate for attempted short sales in his market, Steve and I are currently (and fortunately) batting a thousand. But it hasn’t come without a lot of brain damage along the way.
Short sales are, at least for the foreseeable future, going to be a sad reality of our market. If you find yourself in the position of needing to sell short, recognize that the process is complex and potentially lengthy. There may be tax and credit consequences, so it is advisable to chat with a CPA or attorney at the first sign of trouble. Your second call should be to an agent who has some experience with these transactions and is prepared to stand by you throughout the process.