Wednesday, April 23, 2008

Buying A Short Sale? Think Again…

If you are planning on buying a short sale, you might want to re-think that plan. According to an article in Reuters, real estate agents across the country are calling the short sale system broken. Lenders have unreal expectations of property values, and even if their values are in line with the market, they are often so overloaded with properties that dealing with them becomes impossible. From personal experience I’m going to have to agree with their assessment.

On the surface short sales appear to be a win-win-win strategy for the seller, buyer and the bank, yet trying to complete one tends to be a losing proposition. Until lenders change how they manage their short sale process investors are probably better off spending their time and efforts elsewhere. Don’t get me wrong, money can be made in short sales, but the time and energy taken to complete these deals can be better used on other investment opportunities which are just as good, if not better.

I have personally gone through the short sale process in order to buy one of my investment homes, and I can say it was the most stressful deal I’ve ever been a part of. Dealing with the lender was a complete nightmare, and the deal nearly fell through at the last minute. I would say that the time and effort I put into this one investment deal was at least double the time and effort required for a typical deal, and the profit was basically the same. I tried it once, and I’m not going back--I recommend you do the same. Unless you have some relationship with a lender that gives you an advantage over the average Joe, buying a short sale just isn’t worth the effort.

1 comment:

Byron T. Rodriguez said...

As a licensed California Realtor, reading this Reuters article pretty much sums up the sad state of affairs that we are all in. No doubt about it, the short sale process is in fact broken (I've been saying this for a while now) and unless the lending industry as a whole has a more 'standardized system' of the short sale approval process, all the distressed properties that go into default will unavoidably become REO's (Bank Owned). I'm certain that is welcomed news to the lenders and well as their shareholders.

The lending institutions have a standardized process for loan originations based on Freddie Mac and Fannie Mae guidelines. There is no reason why the short sale approval process and guidelines can’t be made in similar fashion. Lenders have loan officers that originate loans in their local markets and for the most part work closely with Realtors, together they have their fingers on the pulse of the local market. Who better to prescreen and review short sale offers to in order to determine their viability than loan originators? The benefit to this would include loan officers getting a seat at the table that would allow them to compete for the potential home buyers business, which if successful would assist in mitigating some of the lender’s loses from the short sale.

If we as Realtors could figure out a way to get this subject of the lender’s failing short sale approval process on prime time television (on the national level of course) and on every news network/outlet in order to pressure the lending institutions along with our state & federal government officials to acknowledge, address, and correct the flaws in the current approval process it would be a step in the right direction.

Couple the a) housing problem with the b) ever weakening dollar and the c) soaring crude oil prices (according to the 1 year projection is at $153.15 per barrel, and is currently trading at $119.48 per barrel as of April 22, 2008) and I don't think it takes a degree in economics to figure out that things are going to get very, very ugly very, very quickly. If the U.S. economy goes in the toilet, China's manufacturing & exports will be negatively affected, and the chain reaction from there can be endless. One can see how this can and will adversely affect the global economy.

I don't mean to be pessimistic but it's hard to see a silver lining around this cloud considering the number of home owners and buyers being affected by the big 'glitch' in the system. I don't even want to think about what the market is going to look like when we're faced with all the Option ARM's that are scheduled to reset in 2010 & 2011.

We're in for a long and very bumpy ride.


Byron T. Rodriguez
EXIT REALTY (Huntington Beach, CA)