The Dreaded Short Sale

In real estate, there are many types of sales passing through the industry. Foreclosures, short sales, REO's and For Sale by Owner (FSBO) are just to name a few. Of the list, there is one sale that sticks out like a sore thumb. This, by all definitions, is the short sale. There has been a lot of hype and controversy surrounding the short sale in general. As a buyer, they are not the best way to go, and below are some reasons why.

A short sale is a home or property that has started the foreclosure process. It is in the first of three stages in that process.

1. Pre-foreclosure
2. Foreclosure
3. Bank Owed, or REO

During a pre-foreclosure, a bank is demanding the full amount of the home in order to keep it from proceeding to the foreclosure auction, the second stage. During this first stage, pre-foreclosure, the bank sees it in one way; they want to get their money for the property. For the most part, they do not want the property back. Here are the reasons why:

1. They are not making interest on it
2. It is an additional expense on their part for upkeep
3. They have to hire an outside company to now sell it

This is where the short sale comes in. During the time a short sale happens, the seller is eager to get the property off their hands, and the bank wants their money. The short sale is an agreement that tries to appease both sides to reach an agreement. The problem with a short sale is this: although the seller might sell low and not make a profit just to release them of the liability, the bank is losing profit. Usually, the bank is not willing to let a property go less than 20% of the loan on the property. In most cases recently, this can pose a problem. A couple years back, prices for homes were astronomical. They have since bottomed out and now working to achieve a certain balance.

When a buyer purchases high, it is almost impossible for them to sell low; In this case, extremely low. Even at 20% of the loans amount, the value of the home in the current market cannot compete. The current market is seeing homes the lowest it has been in decades. Being that there is an overabundance of homes on the market, a short sale home has a very slim rate of success.

This is where potential buyers get the short end. They see a low price in the MLS offering a great, brand new home for a very low price. The fine print says, pending bank approval. Unfortunately, these are price points the realtor picked and the bank has not even seen. When the realtor puts in the low price, the bank will deny the offer. This means, the buyer either needs to raise their price or walk away. If the buyer chooses to raise their price, this could be back and forth for months to come. Even after months of negotiating, the deal could fall through the cracks. At that time the buyer, realtor and seller have all wasted valuable time.

Before getting into a short sale deal, consider these points and make an educated decision. Although short sales can yield good return on investment and deal, it comes with a price whether monetary or time.

Learn more about the Anchorage Alaska Real Estate market or search Alaska Homes For Sale on Ryan Tollefsen's Alaska Real Estate web site.

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