Short Sale Experience – A Client’s Perspective

The lengthy amount of time required to close short sales is frequently mentioned in posts and comments on this blog.  At the risk of stating the obvious, much patience is required on the part of all involved parties.  At the moment, I am involved with four short sales: two where I am the listing agent and two where I am representing the buyer.  These current transactions, plus the ones I have previously closed, have accustomed me to the challenges and frustrations encountered by short sales.  However, I must remind myself that my clients have no such familiarity with the ordeal.

The following piece was sent to me by one of the buyers I am representing in a short sale transaction.  In it she describes her experience being part of a short sale transaction.  And because she is a frequent reader of this blog, she felt like sharing with all of you.

The first part was sent to me two weeks ago.  I received the update this afternoon. 

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Short Sale Experience….ongoing

My husband and I moved to Reno a little more than a year ago. After taking a quick look at the housing market, we soon found amazing lease/rental deals on very nice houses, and so we chose to lease for a year. We have watched the market over the past year and have read the comments on this blog on a regular basis. The postings seemed prescient to us and this turned out to be true. We decided to start officially house shopping in March when our lease went month-to-month. Since we felt like we could trust Guy to give us the straight story on local housing, we chose him as our realtor. What a strange ride this has been.

I think that my husband and I make a very decent salary between the two of us, but when we plugged in our price limit and search criteria to the fancy MLS tool that Guy uses, we came up with surprisingly few hits. We ended up looking at a lot of pricey disappointments. We decided that we were going to have to expand our search from our desired areas and look at the burbs. Although we love nice lots, unique houses and short commutes, we had to change our expectations for Reno home ownership. We finally found a nice house in a cul-de-sac with a decent-sized lot at a very manageable price and made an offer. It was a short-sale. “So what”, we thought. That was 7 weeks ago.

Our offer was instantly accepted by the owner and the MLS listing was changed to “Pending Sale”. We were excited about moving. We soon learned that the owner had approved several other offers that remained active as well as ours and then the status on the MLS changed several times to different variations of still available – I was too confused to accurately relay what happened there. The realtor for the owner was “very excited” about our offer and we were told that escrow had been opened and we would be closing in 3 weeks. Wow – great! But still no accepted offer from the bank (Countrywide) and therefore no money for escrow, based upon Guy’s clever offer-writing abilities. Several weeks passed with no real news and we had to extend our offer.

To shorten a long story, we didn’t close in 3 weeks. I don’t know what happened with the so-called escrow. Our weekly Tuesday updates are usually just the lack of a phone call or e-mail. Countrywide did get an appraisal done and the file was supposedly with a committee, but we are still just as close as we were 7 weeks ago. When we submitted a second offer extension with wording about our looking at other houses and making other offers, we were told that it would go into the file, but no one would countersign it. Our offer sits there with the others, that have been submitted many more months than ours, and the bank has gone through at least three different people overseeing this case file.

We continue to look at houses that come up with our criteria, we are seeing more and more short sales, notices of default, and the like. We made an offer on a NOD recently. That realtor says that she is taking our offer to the bank. Whatever. House shopping isn’t what it used to be.

Update – 2 weeks later:

We have spent the past nine weeks watching asking prices in the neighborhood of our shortsale dropping steadily while NOD’s and foreclosures multiply. So we started looking around at other areas of town again and just got more discouraged. We would spend the same amount of money on a lesser house anywhere else we go and who knows how low prices will go in any neighborhood as many areas still seem over-inflated. So we were just about ready to call it quits for house shopping for this year when what happens – the bank actually came back and accepted our offer. We are going for it and I can’t really give a good business reason for us to take this house – I certainly don’t know how low the market is going. As of right now the price per square foot on this house is more than reasonable and the house is great. I think that we were fortunate to ride the market down to where it is now by leasing and watching. But we all need a house that is our own now – especially the kids. We are still living out of boxes with storage lockers in two towns because we don’t have enough space and dare I mention the white carpet in a rental house with kids, pets and messy hobbies (ack).

So now we go on to the next tricky phase of this current housing market and that is the financing. On to escrow we go – for real this time it appears.

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About Guy Johnson

I am a licensed Nevada REALTOR® living and working in Reno, Nevada. Give me a call at 775-722-4011. My team and I will be happy to assist you with your real estate needs.
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9 Responses to Short Sale Experience – A Client’s Perspective

  1. Avatar Rose says:

    Congratulations, I guess. Your statement that you can’t really give a good business reason for you to take the house seems indicative of a lot of ambivalence.

    I hope you intend to own this house for many years. 2500 or so REO properties in the pipeline does not portend the market bottom any time soon. 75% of all sales being foreclosures or short sales does not portend the market bottom any time soon. 5% of houses selling does not portend the market bottom any time soon.

    I find it curious that the lure of home ownership is pulling you into an obvioulsy unenthusiastic decision. What happened to the days when buying a house was an occasion of great joy?

    But the best of luck to you and I wish you much happiness in your new house.

  2. Avatar KingBud says:

    Thanks for sharing the story.

    I agree with Rose, you don’t seem to be enthusiastically entering this transaction. I wonder if you’re concerned about over-paying for the home.

    I wonder if perhaps you might be better off continuing to rent for the next couple of years, or perhaps structuring your purchase as a lease-option.

    With a lease option, if the price of your new home goes down significantly the next couple of years, you at least have the option of not purchasing it such that you can either negotiate a lower purchasing price down the road or find another home in Reno that is more reasonably priced.

    Nevertheless, good luck 🙂

  3. Avatar smarten says:

    Thanks for the story Guy.

    Since you’re representing buyers on short sale listings Guy, a question. Can’t you secure the banks’ consent ahead of time to a short sale at a specific price before listing one of these properties? I understand it might take you 7 weeks to get an answer which delays your listing the property for sale. Or you may get an outright “no.” But when I submit an offer and the seller accepts it, I’d like some assurance that we’ve actually got a deal. I think it behooves everyone for you to get the bank’s consent before as opposed to after the fact.

    And for what it’s worth, I never would have perpetually extended my offer as did your buyer. You’ve got x days to accept and that’s it – short sale or not.

    Thanks Guy.

  4. Avatar NAS says:

    Have to agree with Smarten. This is not a seller’s market.

    What kind of negotiating empowerment does a buyer have consenting to an open ended deal? If I buy a car, at an agreed price, and the dealer holds the option of raising the price and delivering when they get around to it? Think about it.

  5. Avatar Dave says:

    I would avoid shorts sales and pick the home up later as a REO. It’s quicker, safer and less stressful for all.

  6. Avatar Jean says:

    Hello,

    I don’t have a short sale story, but our experience is just as interesting. My husband and I have been watching the Reno-Carson market for the past 18 months, as we are retiring soon and plan to move to your area from the Seattle area. We also noted the falling prices in Reno over the past year, found a re-sale home in Carson City in March, and put in an offer about three weeks ago on the property. We were pre-approved for a second home mortgage, as we aren’t quite ready to move to Nevada. We had no intention of renting the home to others, but to fix it up over time until we moved there.

    Our offer was accepted. Everything has been moving through escrow quite nicely, and I was told last week on June 2 that papers would likely be signed by June 13. Lo and behold, our mortgage broker called us on June 4 to inform us that Fannie Mae changed second home mortgage rules effective June 1 that disallow second home mortgages to individuals who already own one investment property in the same city (we already own one rental house in Carson City, which we would love to sell, but not in current market conditions). We were advised that we would qualify for a non-owner occupied loan, but at 2 percentage points (and $500 per month) more. Our mortgage broker has since located an interest-only 5 year adjustable loan for us (again non-owner occupied) that would bring the payment near to what was originally projected, but this experience has caused us to be re-thinking everything. Maybe we will need to look in Reno, which I assume would qualify under second home mortgage rules as being a different city.

    Another interesting development is that the bank is now asking for another appraisal on our desired Carson City property with the provision of more comparables. The property two weeks ago appraised at approximately $40,000 more than the agreed upon purchase price. Since the market has been so sluggish and nothing in the vicinity has sold, the first appraisor had difficulty in finding even one comparable for the property we are interested in, which is located just outside the city limits. Finding more comparables will be quite challenging, because there just aren’t any.

    I guess the road to buying and closing on any home these days is full of unpredictable pitfalls.

  7. Avatar Guy Johnson says:

    Smarten,

    It has been my experience that getting a bank to consent to a specific sales price prior to receiving an offer is nearly impossible. In fact, as we have seen with my client’s account of her experience, even after receiving a bona fide offer, the lender often takes weeks (or even months) to make a decision one way or another.

    When I take a short sale listing, about the only thing the bank will tell me is “call us when you receive an offer”. The lender performs little, if any, work upfront. Much of this approach is due to the enormous number of these short sale cases sitting on their desks (or so I am told).

    Only after I present them with an offer does the bank start the valuation and decision-making process. I provide them with comparables and whatever other market data they request. They often solicit BPOs (broker price opinions) from other agents, and they almost certainly pay to have an independent appraisal performed. Meanwhile all other parties to the transaction simply wait. Expiration dates on offers are meaningless to the lenders. If and when they finally approve an offer, they usually ask “is the Buyer still interested or have they moved on?”

    That’s the listing side. When I’m on the selling side representing Buyers, I approach things a little differently. Namely, I place various provisions in the Offer contract to protect my Buyers and to not have them wasting valuable time while waiting for a response from the lender. For example, something like:
    “Acceptance of this Offer by Seller and Bank shall not be binding unless and until it is subsequently re-signed by Buyer within [x] days of receipt of Bank acceptance and returned to Seller or Seller’s agent.”

    Additionally, I don’t want my Buyers tying up their earnest money deposit in escrow while awaiting the lender’s response, so a clause like: “Earnest Money Deposit to be held uncashed with Buyer’s Broker until written Bank approval of Offer and Acceptance, and then deposited with [title company] within [x] business days of written Bank approval” takes care of that.

    Similarly, it is a good idea to state that inspections, appraisals, due diligence, etc, will not begin until AFTER bank approval.

    In this way, my buyers can make simultaneous offers on as many short sale properties as they like, and then sit back to see which lender acts first.

  8. Avatar Tony Sena says:

    Talk about an awesome detailed account from you client! Short Sales are such a roller coaster ride and you never know when the ride will be over. All we can do as real estate agents is keep our clients informed and preach patience as we wait for the banks to make decisions.

  9. Avatar Barlow says:

    I made an offer on a short sell. The Seller accepted the offer and now I am waiting for the bank to respond. The bank has 45 days to respond and I have decided to buy something else. Will I get my earnest money deposit back. My contract states the title company will hold uncashed until acceptance. However they have cased the check.

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