By SARAH MAX
OCTOBER 13, 2010, 1:45 P.M. ET
Barbara P. Fernandez for The Wall Street Journal
Justin and Rebecca Rakitin are finally moving into their townhome after nearly a year of wrangling.
When newlyweds Justin and Rebecca Rakitin starting shopping for their first home in the Fort Lauderdale, Fla., area last year they assumed the process would be quick and easy, with a $8,000 first-time buyer tax credit at their disposal and 'For Sale' signs littering every block.
In fact, most of the listings in the Rakitins' price range were either foreclosures or short sales, where sellers were asking for less than they owed on their mortgage. After seeing some "really nasty" foreclosures, says Ms. Rakitin, age 27, the couple decided to stick with short sales.
In November 2009 they found what they wanted–a three-bedroom, two-story townhome that sold for about $300,000 in 2007, listed for half the price. Worried that other buyers would pounce, they offered $165,000. The sellers quickly accepted.
Then the waiting game began.
Once relatively obscure transactions, short sales have become the norm in many hard-hit markets, representing roughly a third of properties for sale in Nevada, California and Florida, according to estimates from the National Association of Realtors. Though most buyers don't actively seek short sales, they're an opportunity to buy property that's generally in good shape and priced 10% to 20% below market value.
While foreclosed properties typically see bigger discounts, short sales have one distinct advantage: "They have the cooperation of the owner," says Lance Churchill, an attorney and president of Boise, Idaho-based Frontline Real Estate Education Group, which offers training to real-estate agents and investors, in Boise, Id. That's particularly germane now. In recent weeks, four major mortgage servicers have halted foreclosures, as questions over improper documentation have arisen. Sales of foreclosed property are also being put on hold and buyers are wary of getting into the market. (More: Evicted Family Breaks Into Their Former House)
Of course, short sales have problems of their own. Because a short sale results in a loss to the seller's lender, the deal can't go through without a blessing from the bank. Typically that doesn't happen until after an offer is made, says Rick Sharga, a senior vice president at RealtyTrac, which tracks foreclosure and home sales data and sells it to investors. "The bank may not even know that the seller is attempting to short sale the house," he says.
The government's new Home Affordable Foreclosure Alternative program promises to streamline the process with preapproved short sales. Still, it's not uncommon for buyers to spend three to six months, or longer, in real estate limbo. "As a buyer, you're stepping into quicksand," says Lawrence Duffin, a partner with Taza Systems, an online portal that banks, agents and investors use to track distressed property. For a short sale to make sense, he says, the house "has to be aggressively priced or exactly what the homeowner wants."
Last year, Nikolai and Jeanny Vinogradov set their sights on a luxury condo development in downtown Seattle when prices began falling within their reach. Mr. Vinogradov found a 900-square-foot one-bedroom that sold for $497,000 in March 2007 and was initially listed as a short sale at $430,000. In no rush to buy, the couple kept tabs on the listing–getting preapproved for a loan with 20% down in the meantime. When the price was reduced below $400,000 last September they offered $350,000 and then waited seven months for the seller's lender to sign off. "It was long and painful, but we were patient," says Mr. Vinogradov, an investment management associate. "In the end it worked out amazing for us."
Because there are any number of factors that can influence the timeline, "knowing the dynamics of the situation is key," says Kirk Russell, a broker with John L. Scott in Seattle. For example, things can get complicated when one bank services a loan and another one owns it, if mortgage insurance is part of the picture or if more than one lender has skin in the game. "Second liens are notorious for screwing up short sales," says Mr. Churchill.
Such was the case for Rakitins. While the seller's two lenders wrangled behind the scenes, the couple waited nearly a year, renting month to month. Just this month, the couple finally closed on their townhome–hours before the home buyer tax credit expired. "Our [agent] kept us on alert about what came in the market," says Ms. Rakitin, who works in public relations for the travel industry. "But they were all short sales and we didn't want to start the process over again."
Given all the nuances of these deals, buyers considering short sales should work with agents who have experience navigating this murky territory. If time is of essence, avoid short sales altogether or at least stick with listings whose prices have already been preapproved by the bank. "If you're fortunate to follow up on a deal that fell apart, you might be able to come in and close in 30 days," says Mr. Russell.
When making an offer, do your own homework. Just because a short sale is priced at a steep discount relative to where it last sold doesn't mean it's a great deal relative to the current market. Conversely, some agents will underprice a listing in the hopes of sparking a bidding war, says Mr. Sharga.
Of course, the highest bidder doesn't always win. "Banks want to see a clean offer with solid financing and no contingencies," says Mr. Churchill. Buyers who've been preapproved and bring hefty down payments to the table or can pay cash tend to get first consideration. And don't expect the bank to bend over backwards making repairs; most sales are as is.
After moving to Sante Fe from Colorado in 2008, Scott and Margaret Newman put an offer on a three-bedroom, two-bathroom short sale. "They acknowledged the offer and then it went dark," says Mr. Newman, a fixed-income portfolio manager, who after two months found another home and pulled out of the deal. "The whole process was so nontransparent; I don't think I'd go through that again."
Write to Sarah Max at Sarahvonmax@gmail.com
No comments:
Post a Comment