A little while back I promised to write an entry on buying short sales. I have many clients who have the notion that they want to buy their next or first home this way, and these days my first conversation with potential buyers always includes a discussion of these types of sales. Last time I took a peek, there were approximate 800 single family home listings in the Santa Maria area, and about 40% of them were short sales or at least potential short sales. So, the current market for homes in Santa Maria and Orcutt is inundated with these listings.
First things first. What is a short sale? A short sale listing is one in which the owner owes more on their loan than their house is currently worth. And, due to any number of factors, they are trying to sell their home. Many of the current short sales are caused by a home owner’s interest rate adjustment making payments unaffordable. Other homeowners could make their payments but they must sell because they have to move (due to job transfer, etc.) and they cannot currently sell their home for what they owe. Even others are simply walking away because they do not wish to make payments on homes that are not worth what they paid for them. When it is apparent at the outset that a home will not sell for what the homeowner owes it is listed as a “short sale.”
Typically, when I’m showing potential buyers homes in Santa Maria and Orcutt they fall in love with a short sale. Many of the short sale listings in Santa Maria show very nicely, especially when you compare them to similarly priced foreclosed and bank owned properties. In a short sale situation, you have a motivated seller in the home and they present the home very well, as compared to a bank foreclosure where appliances may be missing, carpet is stained or torn out, projects unfinished, or even apparent deliberate damage inflicted by a homeowner who was unhappy about losing their home. So a short sale can be a great bargain because they may require less repair for the same price as a foreclosure. But as with most things, the details make the difference.
How is buying a short sale different from buying another home? A short sale contract, if accepted by the seller, will be conditioned upon the seller receiving approval from the bank. That is the tricky part. Obtaining bank approval can take 3-4 months. And, at the end of that 3-4 months the answer can be “no,” and the bank can just proceed to foreclose on the property (where a Notice of Default has already been filed), or they can request more money from the potential buyer (even though the seller has agreed to a lower price), or the bank can throw a wrench in the works by demanding more money from the seller’s other resources or assets in order to make up the difference between the loan balance and the offer.
Once an offer is accepted by the seller, and presented to the bank for approval, the bank will conduct its own appraisal and solicit broker price opinions from other local brokers to make sure that the offer is in line with the market. But even if they agree that the offer is fair, the bank will still try to get the seller to assume a note (debt) for the difference between the offer and what that seller owes on the property. Ultimately, the seller and the bank may not be able to agree to terms, and bank approval will not be obtained. And while all of this is being negotiated, the buyer must simply just wait, often hearing nothing in response for weeks at a time.
It is very difficult to wait through this process because of the obvious uncertainty involved. I usually advise Santa Maria buyers to write on short sales when this is the ONLY house they want and they want NO OTHER. Because it takes that type desire to make it through the process. Santa Maria short sales may also make sense if you are buying a home for investment, and you are not waiting through this process to move into the home. Most buyers simply can’t deal with the uncertainty, they want to know when they can schedule movers, when they can lock their interest rate, and most of all, they want to know if they have a deal or not. Waiting 4 months and getting a “no” for an answer is exhausting to most, and during that time most buyers usually find another home that they would like to pursue.
There is some advantage to trying to pursue short sales as the Santa Maria real estate market currently has a shortage of inventory, in my opinion. Believe it or not, I have plenty of buyers who can’t find anything they want to buy! This is because they’ve ruled out short sales and overpriced listings, and bank owned properties that are priced correctly are receiving multiple bids. Sometimes, by focusing on a short sale they are able to get a home in good condition that they like without having to compete with so many other buyers.
The current market for short sales in Santa Maria and the surrounding areas is complex. I would be happy to discuss the best approach to finding the right home for you here on the Central Coast. Please feel free to give me a call at (805) 878-9879, I make a point to be directly available to my clients. Also, feel free to search for properties on my website.
Tni LeBlanc, JD, M.A., e-PRO