But after six years, you'd think we'd understand them a little better
For those of you who have ever tried to do a short sale on your home, or conversely, tried to purchase a short sale, you already know the term "Short Sale" has quickly become one of the most oxymoronic phrases of all time. Especially during the onset of the economic crisis and the ensuing chaos which engulfed residential real estate, one could barely determine the difference between a short sale, a foreclosure, a deed-in-lieu or what impact a bankruptcy proceeding had on one's real estate. Even cash investors, who had been waiting for the real estate bubble to burst, were often met with a banking bureaucracy overlaid with a rapidly emerging regulatory bureaucracy and none of the fingers on the same hand (let alone the right and left hands) knowing what the other was doing. Distressed real estate has since become an institution unto itself, and while there are signs of the 'stress' in 'distressed' subsiding, there are still plenty of distressed real estate properties on the market and plenty of confusion surrounding them.
Who represents who, exactly?
Many people still believe that the real estate agent selling a short sale home represents the lender on the home who is 'taking the loss' of the short sale. This simply is not the case for a short sale, though it is true on homes that have already been taken back by the lender and are in the hands of an asset manager of some sort. While the distressed homeowner is not the ultimate decision maker (the bank has final say in offer acceptance), they retain the right to choose a real estate professional to represent their interests in the sale of the home. When a homeowner has obtained the agreement from the bank to do the short sale, the homeowner does submit to their servicing mortgage lender's final decision making, but it is not the lender's choice as to who the real estate agent will be.
What does this mean to buyers interested in a short sale property?
There may be a 'better deal' to be found in a short sale than a foreclosed property, but it's important to know who the players are and whose interests they are serving. Similarly, I'd add new legislation as yet another 'party' to the transaction on top of up to two lenders, the servicing lender who is currently 'holding' the mortgage note (performing service and collection of payment) and the investor lender who holds the financial interest of the note. All these interested parties lead us back to the oxymoron potential of the term "short sale" but doesn't diminish the potential benefit from a short sale as a purchase. Cash investors have lost interest with home prices stabilizing and "real buyers" can still get a good amount of bang for their purchase money buck from a short sale, provided they have the patience and wherewithal to see the transaction through given the inevitable multiple hands in the short sale cookie jar.
When the bank owns the property
Differing from the short sale, when a bank-owned (or "real estate owned" or "REO") property hits the market, the real estate agent selling the property represents the bank. The bank is essentially, the seller, and the listing (selling) agent is representing the seller's (bank's) interest. The plus side, for those of you who are thinking about purchasing an REO property now that cash investors have lost interest, there is one less party in the transaction and ideally a slightly smoother sale. The minus side, it's still a foreclosure property. If you haven't seen one up close, an REO property is generally not in that good of shape, no matter how "marketable" a bank has tried to make it look (or more specifically, required it's chosen real estate agent to make it look). Just know your home inspection dollars as a buyer of an REO property will be money extremely well spent!
Buyers, it's your turn!
The exciting news overall is that buyers, not mass investors, are having their best chance at distressed real estate purchases since distressed real estate came to dominate the residential real estate market. I have a lot more important information on short sales to share with you, the buyer or potential buyer, as we head into the fall and we see the market gear itself more to you, so stay tuned or reach out to me so we can collaborate!
Sylvia Harsin
714-612-5373
Sylvia@sylviaharsin.com
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