Short Sales and REOs from the Buyer’s Perspective

by Jay Thompson on September 16, 2008 · Comments

in Phoenix Real Estate

Time -- Short sales take lots of timeSometimes I think Heather Barr at NorthPhoenixAgent.com has access to my article drafts. But given that I don’t have drafts, it must be coincidence. Or maybe it’s just that brilliant minds think alike…

Today Heather penned a great article, Not What It Seems, about the trials and tribulations of short sales in the Phoenix real estate market. She points out that buyers making offers on short sales are negotiating now for a home they may or may not own in some undetermined future. Heather concludes that REO (Real Estate Owned, Lender/Bank Owned, Foreclosures — whatever term you chose) properties are a more logical road to travel down due to the vast uncertainties of buying short sale properties.

Over the last several days, we’ve had a client involved in both a short sale and an REO property that illustrates the often ridiculous time periods involved in short sales and why home buyers may just want to consider a lender owned property vs. a short sale listing.

These dates are real. . .

May 21, 2008: Buyer places a very strong offer on a short sale listing in Maricopa. How long ago was May 21st? That’s one day shy of seventeen weeks. 118 days. Hillary Clinton won the Kentucky Primary that day, making it her fifth win in seven contests. Baseball season was just underway.

Fast forward to today, Sept 16, 2008: The buyers are still waiting to hear from the lender if the offer they made seventeen weeks ago will be accepted.

A lot can happen in seventeen weeks.
Just ask Hillary

118 days is a long time to wait to find out if you’ve bought a house.

September 10, 2008: Last Wednesday. Six days ago. Growing weary, the buyers submit an offer on a REO property.

Fast forward to today, Sept 16, 2008: The lender accepts the offer. Closing is slated for 23 days from now.

Less than 30 days after submitting an offer on a lender owned property, the buyers can be moving into their new home.

So unless you have either 1) a ton of time to sit and wait; or 2) the patience of Job, you may want to give serious consideration to avoiding attempts to purchasing a short sale. There are plenty of REO properties to choose from. Just be aware that in the current Phoenix real estate market, REO listings can move very quickly and often have multiple offers submitted. If you think you are going to get an REO by offering 70, 80, even 90% of the listing price, you will more than likely be out bid. Often times the winning offer is over the list price. Banks are utterly detached emotionally from their listings. They know what they need in regard to price, and they like quick closes. Unlike a human seller, a bank will probably not counter your low-ball offer, they will simply move on to the next offer in the stack.

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  • This has been my experience as well, Jay.

    I will say, however, I am working on an REO sale that started as a short sale offer back in March. Bank wouldn't take it. Bank finally foreclosed and put it on the market, but at a price we would not pay. We submitted the same offer three times... and finally have it under contract - but the asset manager has failed to get signed documents in time for the closing in each of the last six weeks... so we extend and extend and extend...

    Given the choice, I will always go for the REO.
  • I have to add one thing to this. Not only has a lot changed for Hillary in those 17 weeks, a lot has happened in the real estate and financial markets. Guidelines may change and some lending institutions are disappearing altogether. Why roll the dice for 17 weeks on a 'maybe'?

    REO's are often some of the most aggressively priced homes on the market if you are really looking to actually move into a home and get a good value. I have also had good luck with traditional sellers that price it right because they are motivated to really move their home. Sometimes that's the best 'deal' out there.

    <abbr>Linseys last blog post..Mortgage Market Week in Review</abbr>
  • I've read that short sales take a lot of time, but I have never realized how long just a portion of the process can take.

    As you mentioned, if time and patience are on your side, waiting on a short sale may not be a bad idea...I haven't met a home buyer yet that could wait so long to find out if a home was theirs.
  • Jay, I have similar bad experiences working with buyers on short sales. Seems like everyone wants them along with REOs, but don't really understand the difference. They've been hyped as "good deals". Once and awhile someone gets lucky with a short sale purchase, but the odds are against it.

    <abbr>Rod Rebellos last blog post..August 2008 Tempe Condo Sales</abbr>
  • I cannot agree more. I work mostly with buyers and now all of them are after REO. (buying either for primary residence or an investment) How surprised they are once they realize there are 5 offers on the house. Cash offers are common. If you need financing when should you lock the rate?
    Once we put an offer on SS, we do not stop looking for a home often end up purchasing a REO.
    Now.. I have only one SS listing.. what should I tell the buyers, callers? : )

    <abbr>Joanna | Central Phoenix Real Estates last blog post..Getting to Know Phoenix Historic Neighborhoods</abbr>
  • I think success with short sales depends a great deal on the listing agent. I prequal the listing agent now before showing a short sale. If they don't know the answers, I'll tell my client it is not worth while to look at, they may consider waiting for the foreclosure.
  • The realistic traditional seller counseled on the importance of a honest and complete seller's disclosure is always the home with the best deal. Short sales are tough right now because you have everything bundled into securities with nearly know knowledge of what security is carring which home loans. This leads to inability of finding out who needs to sign off on the deal. The SNL crisis was so much easier to handle.

    <abbr>Jamess last blog post..The Web’s Best WordPress Plug-ins List!</abbr>
  • I wonder why short sales are generally marketed as "opportunities" by real estate agents when the only opportunity seems to be wasting time for you and your clients.

    btw Jay, do you have any idea why I can't use the new comment and keyword luv but comments this way don't get blocked by akismet.
  • Great article as usual Jay.

    I have nmy agents staying away from short sales if at all possible. They are a night mare and usually not a good experience for your buyer.
  • Jay Jay Jay....Thank you so much for this blog. I have been telling exactly these things all along. BUT, they see the stinky and usually trashed REO, then they see the lived in SS...they are emotionally attached to the nicer SS prop! As far as the REO's..they still think they can low ball them! I educate them over and over that the banks are already at bare bones prices...I even show them the tax records at what the bank paid for it, they still don't get it...I guess after losing a few they WILL get it! this blog will help them see that I am not yanking their chain. Thanks
  • It’s the same thing here in Tucson, on a short sale no one cares if the buyer buys the home. The seller has no control over it their not making mortgage payments, the banks don’t technically "own" the home yet, so usually nothing happens. Most buyers don’t realize this they think there are all sorts of wheels turning in the background and everyone is working to allow them to buy a short sale and that is not happening at all. Buyers should just stick with REO/Bank Owned homes, if they actually ever want to move into one.
  • Howard -

    For KewordLuv to work, you have to enter "Howard@Charleston Real Estate" (no quotes) or Howard@Whatever you want in the name box in your comment. I edited your comment above, and it is working. As for the CommentLuv, I suspect that the plugin can't pick up comments from Point2 blogs.

    All -

    I agree that an individual seller, who is truly wanting to sell, is in most cases the best one to buy from. By "truly wanting to sell" I mean they are realistic about pricing, and prepare their home properly.

    So many think they are going to get "steals" from short sales and REOs. That really isn't the case. (Always. There are some great deals on REOs out there, but the same can be said for human owned properties).
  • With the recent banking crisis and massive influx of foreclosures and loan mods being pushed to the desks of the bank's employees who handle approval of many of the items in a short sale process, it's taken MUCH longer than it typically has.

    My neighbor went through a short sale a few years ago when the market was less hectic on the banking side, investor came in and offered cash, bank took a few weeks to accept, and then the process went through very slowly.

    I've talked to a few who have gone through the process (or tried to before they were eventually foreclosed on) now and short sales have been hail mary's for those hoping to avoid foreclosure. There was simply too much work and paperwork for banks to efficiently handle.

    Even back when, in the aforementioned story, I couldn't imagine a typical buyer taking part on the buying side of a short sale. Too much documentation, too much red tape, and likely too much inexperience on both the buyer and agent's sides. Not many agents know the pitfalls that can kill a short sale.
  • I would have to agree that in regards to the current real estate market and the economy, a buyer may easily get a great deal from an extremely motivated seller (and there are MANY out there) rather than to going through the headache of a short sale. There are many desperate sellers in the market place today, who seem very willing to come way off their asking price. It appears that negotiating with a motivated seller will more than likely get buyers the deal they've been looking for while avoiding the hassles of a short sale.
  • I have always wondered which is better than the other - although i know it ultimately depends on circumstance. Thanks for your personal insight!
  • Short sales are a pain. Have a few offers that have been out there for going on 6 months now. Typically we don't see and an answer until just before the home is going to foreclosure sale. Until then the bank drags their feet.

    <abbr>Ken in Elgins last blog post..Arlington Heights Market Update (9-11-08)</abbr>
  • I wonder why more homeowners aren't making the *tough* call to their lender to modify their loan and stay in their home rather than trying to get off the hook by attempting a short sale that generally hasn't been all that successful for those who have tried that approach.

    And Jay, thanks, but I think it's the p2 platform that is the problem but my website and blog are too well established so I'll have to make do by commenting the "old fashioned way".

    At least, you know my name isn't Charleston :)
  • Short sale...The oxymoron of the decade. Never short and rarely a sale.
  • A nice article but i too somewhat feel that real estate property always stands more logical than short sale one. May be uncertainty is the prime reason.
  • @Amy Jones - That’s a good one

    @Everyone - I have noticed that there are a few agents that do very well at listing and closing short sale properties. I am wondering if all of us as agents should stop complaining about what a small percentage of these homes get sold and start finding methods to help out the real estate market by getting these properties closed. This would reduce the amount of heartache for the home owners, it would reduce the loses that lenders are taking thereby increasing the number of consumers that can get good loan terms, it would improve our communities by reducing the number of places for squatters to hole up, and it would stabilize the market helping our sellers get their homes sold. I really do not see the government straightening this mess out and the lenders are overwhelmed with losses preventing them from having enough personal to handle these files in an efficient manner. Maybe we need to go the extra mile and find ways to make it easier for the overwhelmed loss mitigation specialists to turn over their unwanted inventory. I would like to hear others opinions and suggestions on how we can accomplish this task.

    <abbr>Jamess last blog post..Articles for the Houston First Time Home Buyer</abbr>
  • I would love to close more short sales but what I see as the biggest issue is how slow the bank responds. If they could expedite the short sale process then many more would close. I always remind buyer agents that short doesn't mean how long it takes to close. Here in Austin my team works with many short sales and we seem to have more success when we get an early offer that starts the ball rolling but most of the time that offer never is completed due to buyer frustration and its the 2nd or third offer that is accepted and closed. The 2nd offer is generally quicker because all the stuff the bank has to do is alredy done from the first offer. We try the set expectations early but many buyers get fed up with the 8-10 weeks these sales can sometimes take to complete.
  • Short sales are a lot of work and if it weren't for the tough times we are experiencing and the need for business it wouldn't be my first choice for a listing. I have learned how to work these types of sales out of necessity as have many other agents. It seems like the bank could come up with a more stream lined way to complete short sales.
  • Well I am wondering if there happens to be some things that we as agents can do to expediate the process for the lenders. If those in default have risen to 3-4% of homewoners then it is easy to see how the lenders would be unable to afford to hirer more people to handle these cases. Since they are unable to hirer more personel then it seems like those handling the files are just over burdened. That being the case and our line of work entails getting properties sold I would say we need to find ways to pick up the slack. There is just know way for them to speed up the process and from the few I have done I notice that many times it isnt the lender holding things up it is PMI companies. I know that these transactions are a complete bear but we have got to find a way to see that more of them get completed if we do not this stuff will drag out for years. As more lenders fail credit will get tighter. This is not a good scenario for anyone. Lets work on ideas of how we can assist our over burdened team mates instead of just complaining about them. The lenders ultimately want the same things that we do. So, lets help them get it done.

    <abbr>Jamess last blog post..Articles for the Houston First Time Home Buyer</abbr>
  • Usually, I give the listing agent a mini interview prior to submitting offers on the short sale homes that my buyers are interested in. This seems to help, but my batting average is still very low regarding these transactions. When you get one to go through it's almost like winning the lotto.

    I guess the silver lining is that if the home goes to foreclosure, you have a chance to snatch it up when it gets relisted as an REO.
  • Great article, will show this article to my buyers. They all read the news and figure they can 'steal' a short sale or reo. Seems like by the time you fix them back to an acceptable condition, you didn't get such a great deal anyway. It's hard to convince some buyers of that however until they go thru the process. I am still working on a ss we wrote last May! I read that less than 20% of short sales actually come together and close.

    <abbr>Nates last blog post..Two story Chaska home for sale!</abbr>
  • Lisa in CA
    Very interesting article. In the process of BUYING a short-sale (ha!). It's been in the works since June 22nd and we got the notice Sept. 11th that it'd be going to auction on Oct. 1st (yep, next week). We've been working like dogs to try to get the lender to postpone.

    It's just insane to me that people like us, who are putting a LOT of money down, are being put on the back-burner by the lender. Don't they WANT the $$? If this house wasn't so perfect I think we would've said the heck with it a loooong time ago. :(
  • Lisa,

    You're mistake is that you're thinking rationally. Why would you want to do such a thing? :-)
  • We're seeing a lot of the same issues here in Kentucky. Banks seems to be tightening up dramatically on price/terms. If its not darn close to a full price offer with favorable terms, many times it just gets rejected and they just wait a few weeks or even months for something that they consider acceptable to come in.
  • The banks want the most money they can get for any home now. Considering they are one of the main reason homes went way up in price and now down you figure they would learn they can not inflate a home price but they still want to. If they just moved as many of the homes off thier balance sheet and started lending to people who qualify for a home in that price we would all be better off. Waiting that long for offers show they do not want to get rid of the homes they still think they should make the money.

    <abbr></abbr><abbr>Chris´s last blog post..georgia local phone service provider</abbr>
  • I made an offer on a short sale 10 months ago and the home has still not closed escrow. We educate our clients now about the pitfalls of short sales all the time. Bank foreclosure homes that I am writing offers on have multiple offers in Long Beach now more then ever. It is crazy.
  • caroline
    Just wondering how it's going in the Metro Phoenix area lately? I have a Realtor that told me that short sale homes are closing much more quickly after an offer is presented... I have a REALLY nice big house in a great neighborhood in the up and coming Queen Creek area that I'm going to have to short sale because of my husband’s work (or should I say lack of work) in the auto industry. No work = No pay. And now medical bills are pilling over $12,000.00 as of late. We have 3 children all under 13 and can no longer make the bills. We've tried to work with the bank and are over $80K upside-down. They got their bail money, but don't want to part with it!!! They only let us cut our first mortgage payments in half for 6 months and tagged the balance on the end of the loan. They are also so generous that they are ruining our credit in the process by reporting the payments as late and majorly "dinging" our FICA score...by screwing up our credit. We used the second mortgage as a down payment on the house to make it look as if 20% were being put down, not as an equity line or anything like that. We could afford our home for the first 20 months. Then no one was buying any work that was needed on their cars/trucks since the economy crash. My husband is a Master Auto Tech for Toyota. He gets NO guaranteed hours... He only gets paid on the work he completes. No work = No pay..... We also pay for our own medical insurance. Not to mention the now piling credit card debt just to buy groceries and pay co-payments for the doctors......

    WHERE THE HELL IS OBAMHA NOW???!!!
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