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Redfin Real Estate Forums :
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Short sales
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Short sales
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chrismt62
Contributor
Posts: 33
Registered: 02-06-2008
Message 1 of 22
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I recently had an agent tell me his broker was telling agents not to pursue short sales due to the risk of lawsuits and the banks taking so incredibly long to respond to offers. What type of possible lawsuit would he be talking about or is this just a way for their broker to avoid putting forth a lot of effort for a sale? What amazes me in this market is that I am a true potential buyer with funding, honest down payment and everything, yet the banks seem to be running things now from a purchase standpoint and not too eager to sell anything. You think they would be eager to get non-performing assets off their books, and the monthly carrying costs for these properties alone should be making them re-think their hold-out for inflated prices. Personally I don't care what loss the bank or former owner took since the bank will only write it off against taxes meaning the shareholders take a hit and the taxpayer picks up the slack somehow. For me the price I will pay is all about what I feel was a reasonable appreciation for this particular property over its lifetime taking out the ridiculous and unsustainable double-digit "appreciation" of the last few years. If I were a lender in this market I would want to make doubly sure that my borrower was not only well qualified but also not buying a property at an inflated price where I might risk having to take it back later if the market takes a huge swan dive!
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04-07-2008 08:15 PM
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Re: Short sales
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REHound
Regular Contributor
Posts: 132
Registered: 03-22-2008
Message 2 of 22
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Hi Chris(?)
You might be confused about the different "lenders" and "banks" you speak of. On the one hand, there is the "bank" (a loan originator) that will lend you the money to buy your newly re-priced home. On the other is the "bank" (a loan servicer) that is servicing the note for the seller's leinholder. This "bank" probably has nothing to gain or loose except the fee it is collecting each month for servicing the loan. The looser is the investor who bought the package of loans which includes the loan the seller is not going to pay in full.
So: the reality of what is happening, today, is that most short sales are never completed. Sellers and their agents present your offer to the "bank," and after a mysteriously long period, the response is generally, "that offer is rediculous, we'd rather foreclose and sell the property ourselves." This will generate addition fees for the "bank" and it's affiliates and business partners. Will the "bank" take a loss by this position? No, it the investor will, who likely didn't even know of your offer.
So: back to why your agent doesn't want you to consider, view, or make offers on "short sale" listings? Because your agent and her broker want to show you only houses that are truly for sale and likely to be closeable. It will likely be a waste of everyone's time to show you "short sales." You should concentrate your search on foreclosed homes (for low-price dumps needing work if that doesn't scare you), or sellers who have owned for five or more years and paid less than today's market value.
So: your "lender" looking to see that you don't overpay? It's probably not her money. You, again, will be talking with a "loan originator" who is likely planning to sell your loan to an investor before your first payment is due. The lender will lend based on whatever appraisal you submit; your realtor will suggest an appraiser who's work will support your purchase offer.
Sorry for going on and on. Hope that is helpful.
Jim
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04-08-2008 05:19 PM
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Re: Short sales
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chrismt62
Contributor
Posts: 33
Registered: 02-06-2008
Message 3 of 22
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Hi Jim, Thanks for the feedback and you definitely make some valid points. I knew a lot of these answers but sometimes it is good to hear them voiced by someone else. To say the least this is a VERY frustrating market. I put an offer on a REO over a week ago and finally heard back this afternoon that they are not even going to counter my offer but I free to write a new offer if I desire. The words from the listing agent were "the bank has received multiple offers for much closer to the listing price so they are not going to entertain your offer at this time". Since I was pretty much at the top of my affordability anyway I'm not going to waste my time. I can just wait a year and pick up the same place for $50k less anyway! Why waste my time for a week if they had no intention of going for it? We didn't get an immediate outright rejection and knew there was another offer that had been submitted but to make us wait for a week only to get told to bug off is pretty devious. So far this is the third REO that I have missed out on despite jumping on them as soon as they pop up. I passed on a couple that needed way too much work and were overpriced but some of those have even already gone off the market. I'm really wondering who these multiple offers are coming from, is it really individuals like myself that want a home for our own or is it just a bunch of investors looking to hoard up on rental properties? Of course I will never know but it certainly seems that we may have more of the same old speculation going on again trying to keep prices inflated at their (even now) ridiculously high levels. Anyway enough of my rambling and back to our discussion. Yes it does appear that the short sales are not going much of anywhere. I have also found that some of the agents will change the status to "back up offers accepted" once an offer is submitted for these but there are other agents that are accumulating multiple offers yet still keep the listing as "active". I see a lot of unethical practices going on as well similar to "bait and switch" where the agents list the properties for much less than surrounding units to get multiple full price and higher offers. I assumed (obviously incorrectly) that once a property was REO that it was held by a bank or mortgage company but if it is held by the servicer that could be messy. This ridiculous practice needs to be legislated out of existence. I want to know WHO holds my mortgage, not what group of Swiss investors holds a tiny piece of it along with hundreds of others. Spreading the risk out has created an even greater risk and just more opportunities for the servicers and others to pocket money even when the properties languish unsold and unperforming. What a crazy mess all these financial "experts" have gotten everyone into. I just PRAY that we do not get saddled with a bailout. If we have a bailout I will flat out refuse to buy anything and will rent the cheapest shack I can find, anything to keep from giving these thieves my money. Chris
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04-08-2008 07:47 PM
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Re: Short sales
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BadKittyM
Regular Contributor
Posts: 136
Registered: 04-08-2008
Message 4 of 22
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Don't give up hope! REO properties right now are saturating the markets, from what I hear, see and read. So much so, that literally - there are not enough employees at the banks to keep up with them. It's not that they are ignoring you, but that they are flat inundated beyond the saturation point. A great many are not even listed yet! Believe it or not, a week to get back to you isn't bad at all. Keep putting in offers if you want, but be patient. Hopefully you are not in a situation where you HAVE to purchase a place by x-amount of time.
Yes, there are quite a few people who have been waiting for the market to take this turn, that are also out there putting in offers on REOs. I am not...yet. The market is going to drop even further; like, a lot further. Recent projections, coupled with recent press releases indicate that we have not come close to the bottom, regardless of what agents and brokers might want you to believe. So, have fun looking. What I have done personally, is devote a tabletop to our real estate hunt. One pile is 'looked at and didn't like', one pile is looked at, liked but overpriced, another pile is 'yet to see.' In the liked pile, I subdivided by those places that have been on the market longest, REOs, and listed under 60 days. I check back in on them all about once every two weeks to see what - if anything - has happened with them. When something we truly would be happy with drops within our pre-determined level we are willing to pay for the property, then we will make an offer.
Don't worry too much about the proposed bailout - check yahoo news for the latest. I don't know what sort of property you are looking for, but Bush's proposed bill will ONLY assist low and middle income persons facing foreclosure...and it does not use taxpayer dollars to do so. There's a good article on yahoo news today about it. Most of the sub-prime ARMs have already gone belly up, and are too far into the process (or past it) for this "bailout" to affect them at all. There will be PLENTY of REOs to choose from, judging by what I see.
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04-09-2008 09:25 AM
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Re: Short sales
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chrismt62
Contributor
Posts: 33
Registered: 02-06-2008
Message 5 of 22
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I tend to agree that it will go lower overall. The problem I face is I am already looking at the low end of the market in OC ($190-$250) so when a well priced REO comes around they get snatched up fast. I see one now that will likely go with an investor since it would make a great rental property but resale potential to an individual later would be limited since it is close to a busy street. I actually do need to move on something soon or else sit tight and wait it out for 6 months to a year while I pay rent on a new apartment somewhere. Keep the comments coming! chris
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04-09-2008 11:55 AM
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Re: Short sales
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Anteater
Regular Contributor
Posts: 492
Registered: 03-20-2008
Message 6 of 22
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Hi Chris,
If you *really* have to move soon, then I would recommend making offers that are about 88% off asking, and work your way up in negotiations to about 90%. If you start too low, you'll get rejected from the start. But don't start too high if you want to save some money. You'll probably find something around a 90% discount. Also, if you find something that you can comfortably afford with a good, fixed-rate loan, and think you'll be fine staying there for a few years, then go ahead and take the plunge. Let's say the $200K home drops another 25%, that's "only" $50K. It won't feel good but it's not a financial disaster. It's not like losing 25% on a $500K home ($125K loss). Besides, while a $500K home may drop another 40% to $300K, I doubt a home already at $200K is going to drop as much. That would be $120K, which seems awfully low even for the low end.
You'll have to figure out what your monthly payment would be at current prices, vs. in another year when home prices (and your monthly payments) would be lower, and see how that compare with renting for another year. Moving itself can be expensive, with moving costs, storage, new furnishings, etc.
I think those "investors" will be losing money. It's dangerous to be flipping right now, with prices dropping faster than they can renovate. As for rentals, I think the only investors making money are those who paid cash or a large down payment, so the rental income will at least cover their monthly expenses.
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04-09-2008 01:58 PM
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Re: Short sales
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REHound
Regular Contributor
Posts: 132
Registered: 03-22-2008
Message 7 of 22
Viewed 3,488 times
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Chris, Kitty, and Ant,
You are all right about the current frustrations of the market. Still, it is a good time for the conservative and patient buyer. As to timing the market perfectly: only 5 years after purchasing can you know for sure. As for getting a "good enough" deal, now is a "good enough" time.
As you are discovering, investors (me included) have re-entered the market. I say investors, those in it for the long-term income. Speculators and flippers, especially those who have to borrow lots of money, will not see 2005 opportunities for a long time yet. At the present time, that entry-level condo will not rent for payments, but a cash buyer will get a 4% return after expenses. Compared to T-Bills or stocks, not bad.
I think it's like 1983 or 1994 all over again: Prices are not at historic lows, but closer to low than high. Anyone who bought then saw values bounce down, then up, but mostly up.
Best of all, QUALIFIED buyers can borrow money really cheaply today. I expect, after the election, to see interest rates raise to stop the dollar's slide against inflation and euros/pounds. How high? My first home (1984) came with a mortgage of 12 1/2%, and that was with the builder's buy-down.
So make that offer (85%?), and enjoy the freedom of ownership. Although I'd like a responsible tenant, don't become mine by waiting.
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04-14-2008 07:17 AM
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Re: Short sales
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Fitz
Contributor
Posts: 16
Registered: 04-14-2008
Message 8 of 22
Viewed 3,454 times
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chrismt62 wrote:
I recently had an agent tell me his broker was telling agents not to pursue short sales due to the risk of lawsuits and the banks taking so incredibly long to respond to offers. What type of possible lawsuit would he be talking about or is this just a way for their broker to avoid putting forth a lot of effort for a sale?
Hello,
I can share with you several examples of short sale shenanigans:
- A fellow agent submitted a full price offer and has not received a response in over 4 months.
- A fellow agent procured his own Buyer (creating potential dual agency) and the offer has not been responded to going on 3 months.
- A fellow agent submitted a full price offer, no response after 2 months, property went to auction, THE BANK OUTBID ALL OTHER BIDDERS AND THE FINAL SALES PRICE WAS $110K OVER THE LOAN AMOUNT.
There are some success stories with short sales, but they are few and far between. The examples I've provided above hopefully illustrate why a Broker would advise against pursuing short sales.
Re:You think they would be eager to get non-performing assets off their books, and the monthly carrying costs for these properties alone should be making them re-think their hold-out for inflated prices.
Every sale plays a part in determining market value and if the banks were to unload their non-performing assets at less than market value, it would negatively affect the value of the properties in the same tract/neighborhood . The bank may very well have several more loans in the same tract/neighborhood and are in no hurry to lose money by selling at a huge discount, establishing a lower market value which affects all of their other holdings.
The ratio of getting a short sale offer accepted is approximately 1:5 (20%).
There are no regulations on the time periods in which the banks grant a decision for offers received on short sales, nor do they have to grant a decision altogether. This puts a tremendous amount of stress on Sellers, Buyers, and Brokers.
Hopefully we will soon see a mandate for banks to respond to short sale offers. Until then, there are sweeter deals to be had in the resale & REO market.
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04-14-2008 12:20 PM
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Re: Short sales
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Observer
Newbie
Posts: 3
Registered: 04-16-2008
Message 9 of 22
Viewed 3,316 times
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Hi chrismt62, We are in the same boat. If we withdraw our offer, do we lose the earnest money put up? I would rather get a definitive "no" so I can move on mentally or get the green light so I can move to close. As for Fitz's question, is this just a way for their broker to avoid putting forth a lot of effort for a sale? I do think it is pretty clear that agents' incentives are far less with this sales. this brings up a major beef I have with buyer agents. The job of buyers' agents is (a) to get me the best price possible, (b) find out all the nokes and crannies and offer me as much advice on these as possible, and (c) to be the person running the logsitics and being the front-person to get the deal done. I am no expert, but on the six RE deals I have been involved with within the past few years, I knew more about the transaction than he/she did. Also, they did not really drive hard bargains. They did not point on negotiation poitnsm, but rather offered up boilerplate suggstions. FInally, their macro knowledge was either quite limited or appalling. What they were good with was processing. Hardly the stuff of 3% in commissions!! I do not want to blanket criticize an entire profession, but the industry is only beginning to recognize that many more consumers are more knowledgeable and sophisticated than agents and thqat agents need to raise their game and get more real time.
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04-16-2008 02:00 PM
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Re: Short sales
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Fitz
Contributor
Posts: 16
Registered: 04-14-2008
Message 10 of 22
Viewed 3,308 times
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Observer wrote:
Hi chrismt62, As for Fitz's question, is this just a way for their broker to avoid putting forth a lot of effort for a sale?
A tactic lenders use for short sales is to price the property noticeably low in hopes to attract multiple offers. They often have very little, if any, regard for Buyer or Seller and will hold the property for as long as they deem necessary in order to get their price.
Some types of Buyers get super stressed when they don't receive a response from the Seller in a matter of days (sometimes even hours), imagine that same type of Buyer having to wait months for an answer? If you can't imagine, the Buyer is freaking out.
Contrary to cynical opinion, some Realtors will try to spare the emotional turmoil a short sale can put on Buyers.
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04-16-2008 05:17 PM
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