In today’s market, short sales represent about 1/3 of all listings in the market. In this
short clip, industry expert Alex Baglioni explains what short sales are, how is the price
established, how long does it take, the difference between approved and non-approved
short sales, and the problems that normally occur with owner occupied short sales.
Pre-Foreclosure Short Sales
By Alex Baglioni, Certified Distressed Property Expert (C.D.P.E.)
What is a Short Sale?
A short sale is when a bank or mortgage lender agrees to discount a loan balance on a
home due to an economic or financial hardship on the part of the owner. The
homeowner sells the property for less than the outstanding balance of the loan, and
turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such
instances, the lender would have the right to approve or disapprove of a proposed sale.
How does it work?
The seller will hire an agent, and the agent will put the property on the market. Because
the lengthy process, agents often feel the need to substantially discount the price to be
able to attract a buyer willing to wait for the house. The asking price is an arbitrary price
set by the listing agent, no the bank, and is below what the owner owes.
The bank starts the short sale process once there is an offer on the table. The bank will
order a Broker Price Opinion a.k.a. “B.P.O.” The BPO report will estimate market value.
And the loss mitigator, if everything else is in place, will approve the sale at market
Short sale lenght has improved substantially over the past few years. What it used to
be around a year wait, has been reduced to an average of six months. The shortest
time I have seen an “un-approved” short sale go through has been three months, and
the longest 1 1/2 year.
The biggest challenge with “un-approved” short sales from a buyer point of view, is the
“approved” price. If the price was artificially discounted, the BPO will come at market
value. This is when buyer’s get very disappointed. They had been waiting for a very
long time, and now the price is $20,000.00 to $50,0000.00 higher than the agreed
price. There is nothing they can do, and 56% of the time, the buyer walks away.
Now that property becomes an “approved” short sale. But approved for the previous
buyer that has walked away. So the approval process has to start again now with your
name in it. It is substantially shorter time, and the price is approved. Much better than
the previous scenario, and the time frame to close is usually two to five months.
Here are my thoughts about short sales from a buyer’s point of view:
I consider “un-approved” short sales a waste of time for the buyer, the main reason
being the price. If I was buying a home, I would not look into them. Approved short sales
are ok, as long as you do have time, nothing to lose, and patience with the overall
experience. You can not have the need to close by certain time, and it is not a
I usually ask my clients after we have closed on the home if, knowing what they know
now, they would buy a short sale again. More than half say no.
Short Sales–RE/MAX sarcastic funny video