Back in 2003, when I first got my real estate license, times were good. The prices of homes were going up, sellers were getting a great return on their investment, buyers were getting homes with ‘no money’ down and life was wonderful. But as everyone now knows, the housing bubble has burst and we are all left to pick up the pieces.
The first clear sign that the real estate market was tanking was the rash of home foreclosures. There have always been foreclosures but not in the sheer volume that we saw in 2008, 2009 and forward. In some areas of Metro Atlanta, whole communities were going under. New construction halted as we were seeing builders go out of business and their home inventory go into foreclosure.
But foreclosure is a “no-win” for everyone. The homeowner looses their homes, ruins their credit and is left to face the devastation that comes with it. Every homeowner in the community is affected by their neighbors’ foreclosure in the loss of property values and community cohesiveness. And finally, the lender looses in attorney fees, loss of value in the home, cost to resale the home and so on. The only winner that emerged in the foreclosure arena were the homebuyers with credit good enough to purchase. As with any crisis there is a silver lining and great home deals are the silver lining now.
Then along comes a different solution. What if the homeowner could sale their home prior to foreclosure and work out a settlement with their lender? Everyone knew that property values were declining so fast that virtually all homes sold today that were purchased in the last 5-10 years would sell for less than owed on the mortgage. That is the definition of a short sale. Sounds like the perfect solution… the homeowner agrees to sell the house for as much as they can reasonably get, the bank agrees to accept less for the outstanding mortgage than is actually owed and foreclosure is avoided. Everyone wins… sort of.
Not so fast. Initially, the banks were not really on board with short sales. First of all, nobody knew what the heck they were. The banks were not staffed to handle any type of short sale volume or answer questions, Realtors were not prepared to facilitate a transaction between the homeowner and the bank and the buyers were not willing to wait until everyone figured this out.
It has taken a couple of years until everyone involved in a real estate transaction – homeowner, lender, realtor, buyer and attorney – has come to a clear understanding of how to complete a short sale transaction. All of the major banks are fully on board and many offer training to the real estate community. There are reputable companies offering comprehensive education to Realtors who want to offer short sale services to their sellers. The most recognized designation is the Certified Distressed Property Expert or CDPE.
Short sales are now the new norm and in some areas are surpassing foreclosures in volume. It can be a win-win for all parties involved but there are pitfalls for both buyer and seller. I will discuss those in subsequent posts.