San Diego Real Estate Professionals at eXp Realty

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In my last post I talked about San Diego foreclosures and the process for buying foreclosure properties. This time I will discuss short sales and the process of buying short sale properties in San Diego.

A property that is sold as a “short sale” is one where the seller owes the bank more than the current market value of the home. The owner/seller has to agree to the sale, but so does the lender(s) who hold the mortgage(s). In some San Diego zip codes about half of the homes for sale are short sales.

The biggest problem with short sales is that the industry average is 1 out of 10 short sales actually close. The reasons are many, but it is usually because the listing agent did not understand the short sale process or properly qualify the seller before listing the short sale.

Property Condition – Similar to foreclosure properties, many SHORT SALE property listings are in poor shape because the seller is in financial distress. Remember, to get a short sale approved the seller needs to have a zero balance in their bank accounts. Missing fixtures and appliances and deferred maintenance are to be expected. And again keep in mind that FHA loans are not available on properties that have permit or code violations, safety or health issues, or for properties without structural integrity.

Buyer Beware – The same warning stated above also applies also to short sales. The seller may not disclose all defects in the home, and the home may have been improperly or insufficiently maintained. It is critical to have a professional inspector thoroughly evaluate the property condition, and even then the inspection may not identify all defects. And although the seller has a legal obligation to disclose any material defects, there is little chance of collecting money in any legal action against a financially insolvent seller.

Pricing – Sometimes the list price of a short sale may not accurately reflect what the bank or lender will actually approve. Some San Diego real estate agents put very unrealistic prices on short sales in order to attract more home buyers prospects (hard to believe, isn’t it?). Other agents may lack experience or have insufficient knowledge of current market values. Either way, it’s hard to give much authority to the list price of a short sale property.

Getting an offer accepted – As with foreclosure properties, banks do not like to counter-offer back and forth with short sale buyers. The banks will usually request that buyers submit their highest and best offer the first time. Other times they merely ask the listing agent for the highest and best offer if multiple offers have been received. The banks give preference to all-cash offers and offers with large down payments. They consider the bottom-line price minus any closing cost credits or repair requests. They do not like to pay for home warranties, and sometimes will not pay for termite reports or work.

Timing – When you submit an offer for a short sale property, don’t expect to hear back from the listing agent or seller anytime soon. It takes an average of 6 months and often up to a year or more to get a short sale approved in the current San Diego real estate market.

3 Responses

  1. It’s interesting to read about the similarities – and note the differences – between our short sale markets. In our market (Madison WI and Dane County overall), many of the short sale properties are in incredibly good condition. This has resulted in quite a few speculators and flippers entering the market. In addition, a lot of the banks seem to be getting better – namely a lot faster – at approving short sales. Rather than waiting several months, the last few short sale transactions I’ve been involved in (on the buy side, at least) have been approved in just a matter of a couple of weeks. Yesterday we obtained approval on a short sale in under one week! That was a record. It’s true in our market as well that most short sale properties are considered “as is” sales. I did have one bank-owned property (admittedly, not quite the same as a short sale) where the bank had to step in and do some repairs, however. The pipes had burst since they had bought the property back so it was on their dime to get everything working again so my buyers could complete their inspection. In another case there may be some money for repairs due to a pending insurance claim on homeowner’s home insurance policy. Lastly, our short sale pricing – like your’s – does represent some amazing deals. Prices here also also tend to be vastly under market in order to attract buyers. I, for one, will be happy when these types of properties start to disappear from the market, however. Although it makes the buyer very happy when they land one of these great deals, the low prices tend to negatively affect the values of other properties in the neighborhoods where the short sales occur and that can be a very destructive thing for buyers and sellers alike. For example, even though we are not seeing decreased median prices in our area (despite lower volumes), appraisers are now labeling all homes in Dane County as being in “a declining market”. This is undoubtedly due to the existence of short sales. This has the effect of constraining who can purchase the property (once labeled this way it is nearly impossible to obtain FHA financing), resulting in a kind of “poisoning” for that particular property. It also makes it more difficult for sellers of non short sale properties to get fair market value for their home. It’s also interesting to note that in Madison, the City Assessor’s Office ignores short sales for the purpose of determining a property’s assessed value (on which our property taxes are based). This seems to be a crazy double-standard and really goes to show you how confused and confusing the current housing market is!

  2. I appreciate your comments. What tool are you using for bookmarking? Yahoo? Google? Let me know your page names and I’ll bookmark you back. Thanks for sharing our San Diego real estate information!

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