Fort Lauderdale Real Estate | Short Sales
One of the questions I get asked the most by buyers is the difference between a short sale and a foreclosure. I wanted to give an explanation of both of them. Buyers should not be discouraged by either of these. Short Sales are defined here and Foreclosures will be in another blog post.
Short Sales
Short sales are still owned by the seller, but the bank or lender would be accepting a price lower than the loan amount left on the property. They have not gone through the foreclosure process yet. The seller puts their property on the market for sale with a Realtor usually at market price. The realtor sets the price for the short sale, not the bank. The banks (lenders) usually will not even talk to the seller about a short sale until an offer has been submitted to them. Since the Realtor sets the price for the short sale, we usually price the property at market value comparing to closed sales in the neighborhood or condo building. If we don’t get any offers on the property, then the price is lowered every 1-2 weeks or so until an offer is received on the short sale property. The offer is signed by both the buyer and the seller. Please note that you DO have a signed contract. The contract is just contingent on the lender approving the contract terms and price.
Once a short sale offer is received by the lender, they go through the their long process (usually 2-6 months) to evaluate the seller and their finances. The seller has to prove hardship to the lender, either their income has been drastically reduced or loss of job or spouse. The seller cannot have any investment accounts, CD’s, etc.. If they did then they would have to cash them in to help pay for part of the remaining loan. The buyer has to be patient during this short sale process since it does take so long just to get an answer on the buyers offer price and terms. The lenders are getting better at this with shorter cycles, but still not where you can get an answer within days in most cases.
Since the Realtor sets the price on a short sale, the bank may not agree with the price. After the lender receives the offer, they order a BPO (Brokers Price Opinion), which is really a price analysis of the property and the surrounding area. If the price of the short sale offer received is too low compared to the BPO, then they will counter offer with a higher price. Buyers need to understand that the price you see in MLS for the property, may not be anywhere near the price that the lender is willing to accept on the short sale. If the Realtor lowered the property drastically below market value just to get an offer in front of the lender, then the lender will counter offer usually around market value or possibly a little under, according to their BPO (Brokers Price Opinion).
Buyers that have the time to wait, can get great deals with short sales. Please remember that short sales and foreclosures are not the only way to get a great deal in our market. There are regular sales in our market that are priced right by private individuals who understand the market and do have to compete with these short sales and foreclosures, so they price their properties accordingly.
Dale Palmer is a Certified Distressed Property Expert (CDPE). I understand and can help with the short sale and foreclosure process with buyers, please feel free to contact me at 954-895-8999 or email me at Dale@DalePalmer.com