Buying a Short Sale in Gainesville
The Local Short Sale Market
Currently out of over 3,300 residential listings in our area, 381 - or about 11.5% - are short sales. From August 2009 to August 2010, 2,179 residential properties were sold and 381 condos and townhomes were sold. Almost 10% of the condos and townhomes and almost 9% of the residential properties were short sales. The inventory of short sales in our local market is continuing to increase with an average of 50 short sales added every month.
Short Sale Defined
A short sale occurs when it is reasonably believed that the listing price or purchase price of the property may not be sufficient to cover payment of all costs and liens including commissions, taxes, prorations, mortgages and other similar charges. Not all such circumstances qualify for a short sale and only the seller's lender can make that determination.
A successful short sale is contingent upon the seller's lender's approval of the purchase price, terms of the agreement and the settlement statement. The seller's lender must agree to accept a payoff which is less than the balance due on the loan or other debt.
When making an offer on a short sale, you must decide how much time you are willing to wait for the short sale approval. We recommend allowing 45-60 days with the option to cancel the agreement or extend this time period. Keep in mind that it could take much longer and that there is no guarantee of the short sale being approved. On average, our buyers find that it takes about 90 days from the time they submit an offer until it is approved, countered, or rejected.
The lender is not a party to the agreement and is under no obligation to approve the agreement and allow the short sale to take place. Just because the seller agrees to your price and terms, does not mean that the lender will. The lender is not required to consider, respond, or approve an agreement.
An offer has been accepted by the seller and submitted to the lender for approval
What does it mean when the description says "an offer has been accepted by the seller and submitted to the lender for approval?" The Gainesville Multiple Listing Service requires this sentence to be placed in the public remarks when the seller has already signed a contract with a buyer and is going to continue to market the property and accept back-up offers.
Will the seller and/or lender accept multiple offers?
- The seller may continue to market the property and accept and submit multiple offers. The seller may continue to market the property, accept offers, and enter into purchase agreements with other buyers, and submit those contracts to the lender for approval. If a different agreement is approved, your agreement automatically terminates.
- The seller may continue to market the property and accept multiple back-up offers. The seller may continue to market the property and accept back-up offers. However, back-up offers will not be submitted to the lender for approval until your initial offer has failed.
- The seller may not continue to market the property. During the time period that you allow for the approval process, the seller cannot market the property, accept other offers or submit other offers to the lender for approval.
How long does a short sale really take?
Our research indicates that the average short sale in Gainesville and surrounding areas took just over 8 months from the time it went on the market until a successful closing. From August 2009 to August 2010, there were 221 successful short sales closed in our Multiple Listing Service.
The shortest short sale took 15 days. The longest short sale took 2 years and 4 months. The average short sale took 8.3 months and the median was 7.2 months. Again, this is the amount of time between listing to closing. On average, our buyers find that it takes about 90 days from the time they submit an offer until it is approved, countered, or rejected. It is difficult to gather data from our MLS about the time it takes from when an offer is submitted to the lender until the offer is accepted, rejected, or countered. Because most sellers and their agents leave the listings as "active" in the MLS even after accepting one or more contracts, the listings are usually not marked "under contract" or "pending" until the short sale is approved and a closing is imminent.
Are you serious?
We believe the average time of 8.3 months is somewhat misleading; it appears that many listings do not initially go on the market as short sales. Many sellers attempt to sell their homes for enough money to cover the outstanding mortgage(s). After a few months on the market and several price reductions, these listings turn into short sales.
Well I don't mind waiting if I can get a good deal...
Following the same logic, the final sale prices on short sales tend to be lower than both the original listing price and the most recent listing price. On average, short sales sold for 17% below their original listing price and 5% below their most recent listing price. However, when you take a closer look at the numbers, separate from the averages, 15% of short sale listings sold at or above the original listing price and 40% of short sale listings sold at or above the most recent listing price. This can be attributed to the listings that initially went on the market at a below market price with the intention of soliciting several offers and getting the short sale process started as soon as possible. Also, many sellers and their agents will change the most recent listing price to reflect the approved short sale numbers.
The average starting price of a short sale from August 2009 to August 2010 was $223,268, with the lowest priced at $29,900 and the highest priced at $699,000. The average final sale price during the same time period was $184,556, with the lowest selling for $13,649 and the highest selling for $615,000.
What percentage of short sales actually work out?
Although the answer is difficult to obtain given the available data, we believe approximately 40% of attempted short sales result in a successful closing. Out of the 572 short sale listings that went on the market from August 2009 to August 2010, only 221 closed. 157 listings expired and 194 were withdrawn from the market. Despite some listings being double counted if the seller went through several agents or attempts at selling, this is our best guess. Keep in mind that some listings will also go through several offers and several buyers before an agreement is finally approved. Some buyers walk away before closing and some banks have unrealistic expectations. Unfortunately, many unsuccessful short sales result in foreclosure.
When deciding if you should buy a short sale, consider the following:
- The amount of time the short sale could take - are you willing to wait?
- The complexity of the situation - how many mortgages and liens are attached to the property?
- The experience of the buyer's agent and seller's agent - can they keep the contract together?
- The probable final sales price - is the deal worth the wait? Is there even a deal?
As a buyer's agent, we can help you with the following:
- Locating and viewing short sale properties
- Determining a realistic final sale price so that your offer is more likely to be accepted
- Structuring the contract so that your offer is the only one submitted to the lender and that you are protected with several contingencies
- Keeping in touch with the seller's agent so that you know the status of the short sale
- ... and all of the normal closing activities that take place after the short sale is approved