Saturday, October 4th, 2008 at 11:50 AM
Long Sales
We call them short sales because the sellers are short on dough to close the deal. But out of respect for the buyers who have to endure a grueling process not of their own doing, let’s change the name to LONG SALES.
Everything about short sales is long. It takes awhile to:
1. Find a decent one.
2. Get in to see it, because occupants have very low motivation.
3. Get an answer to an offer that’s been presented.
4. Get the bank to respond and approve.
It’s only after these four things take place that the buyers get the assurance that they might have found a house to buy. The next three steps (home inspection, loan approval, and appraisal) don’t begin until the short sale is approved, so the uncertainty for buyers lasts for months – and months.
Add to the mix the fact that many listing agents are marketing themselves as ‘short-sale experts’ and pulling all kinds of tricks. Many are putting ultra-low list prices on them, causing a bunch of offers to flood the fax machine. Then they get around to completing the sellers’ financial package and send the whole kit into the lender for approval. But doesn’t the lender start to question how legitimacy of the price when there are 5-10 offers? If the banks are willing to just give the houses away, then this MO will work. But it seems to me that the bank clerks are going to object to a low price when there are a bulk of offers, especially if they are over list price.
The other tactic is to send in the financial package first, and include a bogus offer so the bank gets working on approving it. This is where some flippers are getting involved – send in a low offer and go looking for a buyer who’ll pay more. It’s a touchy transaction, but I just closed one this week that went OK, because it was a win-win for everyone. Well, a win for everyone but WaMu, who lost around $400,000, but it was all legal.
I have another one in escrow where WaMu approved eating $450,000, and that’s after National City said goodbye to all but $4,000 of their $350,000 second!
What can buyers (and their agents) do to help reduce the agony? There is no obligation required from the buyers until the bank approves the long sale, so consider the following:
A. Make a lot of offers.
B. Ask if the seller is going sign the winning offer, and consider other offers as back-ups.
C. Ask if the listing agent will mark the listing as pending, to squash other interest.
D. Keep looking for other houses.
As a buyer, that’s about all you can do with long sales – or avoid them altogether. But they are going to be around for a long time, so we might as well learn to deal with them.
Next spring should see quite an upsurge in buyer activity. I don’t know if it’ll translate into closed sales, but after another dip in prices in 4Q08, a new president, and hopefully the Chargers coming off a Super Bowl victory, buyers are going to be more and more curious to see if there are any deals to be had.
Finding a deal on a long sale is hard, especially when there isn’t much limit on how low an agent will price them. Pick through the listings that have been on the market for a long time and aren’t mentioned as a short sale. Many agents don’t know how to break it to their sellers that they have to lower their price, and a low offer might be better than no offer if foreclosure is their only other option.
The sale I have pending where we are getting the lenders to forego the $800,000 was an expired listing. The seller was content to get foreclosed on, and WaMu was going to take it back and try to sell it for much more money. But with a compelling case on the value, and a little luck, you can get a good deal with a long sale.
Keep looking!
Posted on Saturday, October 4th, 2008 at 11:50 AM in Short Sales | 20 Comments » | 
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“C. Ask if the listing agent will mark the listing as pending, to squash other interest.”
The CAR Legal Dept. says if the owner has accepted an offer it must be marked pending regardless of whether the bank has responded or not.
Short sales with approved listing prices move quickly and they are becoming more common. Those that are just winging it get the sit and wait treatment.
® | October 4th, 2008 at 12:25 pmI disagree. If the offer is accepted pending lender approval and the agent uses a short sale addendum the property should not be put pending. If you are going to tell the buyer to keep writing offers on other properties, its only fair that the seller be allowed to keep actively marketing the property also. Where I agree with Jim is that the listing agent should commit to the offer they accept and consider all others back-ups until that buyer walks or closes escrow.
Short Sale Buyer (at least I'm trying) | October 4th, 2008 at 1:23 pmThis is the CAR legal take on when short sales are required to go pending:
“One other short sale MLS issue that frequently rears its head in this market is when to change the listing status from active to pending or some other intermediate status. A seller may have accepted a buyer’s offer, but the parties then have to wait–often at great length–to hear back from the lender to learn whether the lender has approved the deal. In the meantime, the lender may require the seller to continue to solicit other offers. Legally speaking, however, once an offer has been accepted and signed by both buyer and seller, a contract has been formed. The contract is contingent upon approval of the lender, but there has still been “acceptance” by the parties which is what triggers the requirement to change the status of a listing in the MLS. While this requirement can be frustrating for the parties in the short sale context, to do otherwise would be misleading, as there is, in fact, an accepted offer in place for the property. ”
http://www.car.org/legal/mls/mls-short-sale-reo-issues/
® | October 4th, 2008 at 4:12 pmThanks for the input.
We were discussing this at length this week, and examining the short-sale addendum. I don’t like the way it’s written because it is too vague on this topic.
I’ve always understood that once the seller signs, a binding contract is formed. Listing agents who are unwilling to have their seller sign an offer are doing them a disservice. Buyers aren’t going to hang around forever, and these are going to take longer and longer.
Jim the Realtor | October 4th, 2008 at 4:59 pmIt’s not clear to me why sellers bother with a short sale. Does it relieve them of the unpaid balance any more than the foreclosure process? Is there any difference in IRS and/or CA FTB treatment of “forgiven” debt short sale versus a foreclosure? Does it leave the sellers with markedly “better” credit if they stiff the bank through a short sale instead of foreclosure?
Otherwise, it would seem to be a better deal to just ride it out with all that free rent, until the Sheriff finally shows up.
Smithers | October 4th, 2008 at 6:22 pmMe neither.
A long sale is good for one thing – an opportunity for a realtor to earn a commission.
If the property happens to be a good one, it gives the buyer a chance to move sooner, rather than later, and possibly getting a decent price if the bank rolls over.
Jim the Realtor | October 4th, 2008 at 7:00 pmIt’s funny how things work out, in the last week my agent had 2 calls from short sale listing agents from offers I had submitted 4 MONTHS AGO asking if I was still interested because the bank is ready to move on my offer. Of course I told my agent to tell them to pound sand, because I have long since closed on a property, and asked my agent to throw in a parting shot that if the process was not so slow, they would have had a buyer. The slow machinery is sooooo stacked against a deal succeeding, it is a couple degrees away from “why bother”…just let it foreclose.
Rudy | October 4th, 2008 at 7:17 pmHere is another interesting blog post by a local realtor (in Virginia) about short sales in that area:
http://blog.franklyrealty.com/2008/02/va-short-sales.html
Dwip | October 4th, 2008 at 7:21 pmI’m all for realtors getting their commissions, but that happens whether by “long sale” or by foreclosure listed by bank. I would have thought that the only time realtors aren’t in the mix is with a trustee sale at the courthouse steps – BUT you have proven me wrong based on your past posts, as you are out there earning a commission even in that process.
So, the whole thing should be commission neutral(?) There’s gonna be a new buyer, sooner or later.
Smithers | October 4th, 2008 at 8:09 pmOne other thing a short sale does for the buyer is that they can get a disclosure statement from the occupants, right?
When you buy a REO, the bank will just tell you they are exempt from any and all disclosures, since they never lived in the house.
Simone | October 5th, 2008 at 8:25 amDisclosures are pretty much useless, except perhaps as a way of saving a buyer the expense of inspections by making it possible to exclude a home from consideration before making an offer. Unless sellers are dumb enough to omit something that is documented in some previous inspection report, the chances of ever proving they knew about it are pretty much nil.
We never saw a short sale or REO during our house hunt that we thought worth making any effort on, but if I had to choose one or the other I’d rather be trying to deal with someone who was actually authorized to make one.
GeneK | October 5th, 2008 at 11:32 amAnother trick by listing agents is including a 4% commission offered to the buyer’s agent, knowing full well the lender will never go for that. The less-experienced agents think they’re in for a big payday, only to be disappointed.
Jim the Realtor | October 5th, 2008 at 11:58 amWhat would be the benefit of doing that? Putting aside the fact that I wouldn’t make an offer on a short sale at all, if I did sign such a contract and the lender rejected it because of a clause in the *listing agent’s* terms, that would be a red flag to me that I couldn’t rely on *anything* the listing agent said and I would just walk away even if my agent was willing to accept a lower commission.
I expect everything that is stated in a sales offer, including real estate listings, to represent terms that everyone on the seller-side of the deal is prepared to accept; otherwise, the offer is nothing but a lie, everybody associated with it is pond scum and I am out the door and will consider no future offers from the same seller or agent. If I discover that my agent knew about the situation and failed to advise me of it, than he or she is history as well.
GeneK | October 5th, 2008 at 12:24 pmHoly cow! $750K of loan forgiveness!! This makes me want to pull the rest of my money out of WaMu. Or get to know their REO people really well
Perhaps we might need to look at San Diego once again. I like my current job, but I don’t like the Bay Area prices. Even at 30% off peak, it’s still too high for what you get.
incessant_din | October 5th, 2008 at 12:37 pmLie? It’s just a WAG by the listing agent, with no idea if they can deliver the goods.
I think some of these guys are doing the ultra-low pricing just to play big shot, and toy with the agents. They get to play God with the offers that come in, and submit the ones they deem worthy.
Don’t be surprised if we see more disgust for long sales among buyers (and buyer’s agents) in the coming months/years.
Jim the Realtor | October 5th, 2008 at 12:38 pmAbout short sales… We have looked at a few, but the other thing that really bugs me is the potential for an angry move-out. We have seen a couple REO in pretty bad shape. At least you can see what you’re getting. As for short sales, I have seen a few where the people did not look like they were ready to leave. Still some stages of grief to go through. Unless you really get a sweetheart deal, it’s a big risk, I think. But maybe since they are getting out of it without a foreclosure, they’ll be happy to get out with some of their dignity left.
Any thoughts?
incessant_din | October 5th, 2008 at 12:42 pm“Lie? It’s just a WAG by the listing agent, with no idea if they can deliver the goods.”
If the listing agent tells me this up front, fair enough. Otherwise, lie is in the eye of the beholder, and in this case, I am the only beholder whose opinion matters.
GeneK | October 5th, 2008 at 12:55 pm“Unless you really get a sweetheart deal, it’s a big risk, I think.”
The only way I’d even consider it would be if the house in question was my one-of-a-kind dream home and I knew I’d never get a chance at one like it again in my lifetime. Haven’t seen one yet in any of the listings here.
GeneK | October 5th, 2008 at 12:57 pmChargers??
CA. real estate isn’t the only one who’s gotten beat down by “flippers” if ya know what I mean…
DAve | October 5th, 2008 at 8:44 pm“I have another one in escrow where WaMu approved eating $450,000, and that’s after National City said goodbye to all but $4,000 of their $350,000 second!”
Jim, how much was the initial purchase price? if it was a $5 million property, not a bid deal. if it was a $2 million property and the bank agreed to a $800k haircut to avoid foreclosure, that’s huge!
ocrenter | October 5th, 2008 at 8:57 pm