Northern Utah Homes & Real Estate Blog

As the market continues to soften across the Wasatch Front, more and more distressed properties are coming on the market.  Recently I’ve had a surprising number if inquiries about “short sales”.  So I did a little research and found that just  in the last 14 days, 48 New Short Sale Listings came on the market between Salt Lake, Davis and Weber Counties. 

Most people understand the basic concept which is that the property is being sold for less than what is owed to the bank; and in some cases, substantially lower.  Most lenders have what’s referred to as a Loss Mitigation or REO (Real Estate Owned) Department .  The sole purpose of these divisions is to facilitate the proper handling of the bank’s current and upcoming inventory of Real Estate.  And it’s the responsibility of this department to decide whether or not it would be wiser to allow the sale of a property at a price less than what is currently owed.

Due to the current market conditions, banks are becoming increasingly more cooperative with sellers and agents in negotiating these transactions.  These lenders understand that if they must foreclose on the property, ultimately it will cost them far more than if they cut their losses now.  Especially as the national trend of home values drops month by month.

However, it’s not all a bread in a basket with short sales either. 

• First an application and proper documentation must be submitted to the bank before they will even consider the seller as a candidate.  In most cases, the seller must demonstrate hardship and prove their inability to continue paying their mortgage. 
• Almost every bank requires that the seller work with a real estate agent to process their short sale.  If approved, then it is the agent’s responsibility to adequately market the property and generate a ready willing and able buyer.
• Once the offer is negotiated with the seller, it is then submitted to the lender for approval.  Often the bank’s main discriminating criteria is their bottom line.  Unfortunately, this is where the process can become a bit tedious and frustrating for the buyer.  It’s important you understand that when negotiating a short sale, it can take between 3-6 weeks just to get a response from the bank.  That’s right, just a response! 
• At this point they may either accept, counter or reject the offer.  If accepted, then for the buyer it would continue as a normal transaction and could close within approximately 30 days.  If countered, then it becomes a negotiation and could delay even longer.  And if rejected, well, then it’s just rejected.

My first experience ever with a short sale actually turned out to be a pleasant one.  I was fairly new to real estate but had already worked a with a couple investors helping them find flip properties, but now it was time for me to invest a little.  

I came across a property that seemed to priced extremely low and in the remarks stated “Subject to bank approval”.  I didn’t really understand what that meant so I asked the listing agent.  And even then I was still a bit confused but didn’t care much as long as I got the property for the price I wanted.

Uniquely, in this situation the bank had already approved the short sale.  Prior to me, he had it under contract with another buyer.  And because it took so long to get a response, the buyer bought something else.  So for me the waiting period was minimal.

It turned out great.  I purchased the property for $56,000.  Invested about $8,000 in remodel and sold it in 60 days for $86,900 minus closing fees and real estate commissions.  Needless to say, I liked short sales.