"Short Sale!" These words fill buyers with giddiness and glee as their hopes rise for getting a great distressed home priced at pennies on the dollar. The sad truth is that these type of sales are the worst run transactions in the market today. A short sale is supposed to be understood as the lender allowing the homeowner to sell the home for less than the mortgage owed on the home in return for the homeowner staying current on his mortgage without suffering bad credit once the sale goes through. The problem is that the lender rarely allows the home to be sold for less than what is owed, and worse yet, not even the listing agent knows what the bank will accept.
Take the following example: John owes $800,000 on the home but can not afford to make payments much longer. Unfortunately, the market has declined and John will not be able to sell the home for even $800,000. The bank "allows" John to go through a short sale to get rid of the home for "less". John hires an agent and the agent is not informed by the bank what the listing price should be - so in an effort to help John move the home quickly, the agent lists the home at $750,000. A buyer offers $750,000 and the agent happily informs the bank they have a sale. However, the bank does not respond to the offer for 30 days, and finally, after a month of waiting, the bank says, "No." The buyer is shocked and argues, "But you listed it at $750,000 and I accepted!" Unfortunately, the agent is helpless to respond because ultimately it is the bank that decides whether or not to accept the offer. Six months later and 3 rejected offers after, the home goes into foreclosure and the bank takes ownership. Crazily enough, the home is then put up for sale by the bank for... $750,000.
There is nothing more frustrating and fruitless than attempting to negotiate a short sale if you're either the buyer or the seller. Banks appear hesitant to budge beyond 5% from what is owed on the mortgage and would rather just foreclose. So if you see a short sale posted for a beautiful unit at Eastern Columbia, Elleven, 1100 Wilshire or Biscuit Company Lofts, take a step back a deep breath, and ask yourself, are you ready to go through with the ordeal? My advice is that in today's market, there are just as many fetching REO homes such that pursuing short sale homes is unnecessary.