What is a Short Sale?

A short sale happens when a lender agrees to accept a discounted loan amount in order to facilitate the sale of a property.  In other words, the seller is trying to sell a house that is worth less than what the seller owes on the house.  If there are two loans on the property, both lenders must agree to accept the short sale. 

How is the Listing Price Established?

First of all, unless a bank has agreed upfront to accept a short sale (which rarely happens), no one knows if the lender will accept the short sale.  Even if the property is advertised at a certain price or if a seller accepts a sales price, it does not mean the lender will approve the price.  There are many more hoops and hurdles to jump through before a short sale has approval.

Why are Short Sales NOT approved?

• The price offered was too low.  The lender will order at least one appraisal and possibly several BPOs – broker price opinions.  If the bank thinks it can get more money by taking the house back into inventory, the offer will be rejected.
• The seller did not qualify for a short sale.   If this is the reason the short sale is not approved, the lender believes the seller can still afford the loan. The seller probably wants to unload the loan since now the house is worth less than the loan.  The seller must document their hardship why they can one longer make the payments. 
• The short sale documentation was not complete.  The documentation is monumental – tax returns, profit/loss statements, bank statements, plus much more.  If the file is missing an all-important document, the short sale is not granted.
• Loan fraud.  Several years ago lenders were doing ’stated income’ loans where the borrower merely said their income and the lender accepted the amount.  Now if this same borrower is going back to the lender saying that they do not make the salary as previously stated there is a possibility of loan fraud.  Needless to say the short sale is not approved. 
• The buyer does not qualify.  The buyer needs to be fully approved prior to writing an offer on a short sale property.  Submit with the offer proof of funds, desk-top underwriting approval and copy of the earnest money deposit check.   
• The bank no longer owns the loan.  Many loans have been ’sold off’ and the bank is merely a service provider.  The bank does not have the authority to approve a short sale.
• The loss mitigation specialist for the lender is overwhelmed.  Lenders are overloaded with short sale requests.  Tick off the assigned specialist on the file and guess what – the short sale is not approved.  Oophs. 
• More and more.   This list could go on and on but the above seven reasons will give you, the seller or the buyer, an idea was why the short sale never happened. 

We work with an attorney, Paul Stansen, who assits us when working with short sale homeowners.  Paul can reveiw a homeowner’s documentation and give options for the particular case.

Do you have more questions about short sales?  We look forward to your comments and questions! 

We currently have a seller in Camarillo who is facing this question. 

With this in mind, we posed the question to the Trulia Voices community.  Within 24 hours, we had answers from Realtors across the country.  Their responses varied with ideas, motivation, financial ability, etc., but each answer focused on proper pricing and staging as the two key elements to getting a house sold  whether it was vacant or occupied.

We also found a very interesting article in the Los Angeles Times about selling a vacant house.  Check it out.

Bottomline:  the real estate community is divided on whether a house sells faster vacant or occupied.  We have seen where a seller’s furnishing detract from the house and the house would look better vacant.  We also know that new home builders spend thousands of dollars furnishing models.  If a vacant house shows like it has been abandoned, it is more apt to get a low-ball offer.  On the other hand, vacant houses are easy for Realtors to show and may get more showings. 

We believe the decision to sell vacant or occupied is case-by-case.  We have the experience to guide home sellers according to the current market conditions.  (Our sellers which we mentioned above have decided to stay until their house sells.)

What are your thoughts?  Did you have to move before your house sold?  Did you stage your house?   We would welcome your comments and concerns.