Domiciles in distress

By Sandy Kaduce, Associate Broker, Gallery Homes Real Estate | Jun 16, 2010

I alluded last month to the fact that in April, 30 percent of home sales in Mukilteo were short sale or bank-owned transactions. These sales are being seen not just in the lower price ranges but in those where one might not typically expect to see them.

Recently, when comparing homes of a certain type, I noticed an interesting pattern.

Priced at the lower end were bank owned and short sale properties. At the higher end were some extremely nice homes that sell for significantly more. There wasn't much in between.

This trend says something about the current market. It says that one way to generate a sale is a low price. There are a lot of bargain hunters out in the market now, and bargains to be had. It also tells us that very nice houses can still sell for a good price.

The challenge comes for those homes in the middle – moderately nice and moderately priced.

 For them, finding a buyer is more challenging. This market demands that a home be the best value in order to sell. Best value might mean least expensive, or it might mean significantly nicer than any of the competition. But either way, you have to stand out.

Let's talk a little bit about short sales. Nationwide, as many as 30 percent of homeowners have a mortgage that exceeds the market value of their homes. As a result, short sales are becoming more commonplace in all price ranges. Owing more than market value doesn't necessarily indicate a short sale unless the seller lacks funds to pay for the difference. If funds are lacking, bank approval is required and this is when things get challenging.

Banks don't like to lose money, so getting them to accept less than they are owed is not easy. Sellers need to prove that there is a reason, such as job loss, divorce, or other hardship, why they are unable to pay.

Each bank handles short sales slightly differently, but the process is often similar. Sellers must prepare a short sale package that proves hardship and provides financial data to back up their case. The bank makes efforts to ensure that the offer that has been made to them is the best offer they are likely to get and to verify the facts that have been presented.

Often, banks ask buyers to increase their offer. The bank may even deny the sale entirely. Banks may also ask a seller to promise to pay back the deficiency amount by other means.

In a short sale, the bank is in the driver's seat – not the buyers, sellers or agents. Negotiating the process takes time, so they are definitely not for the buyer that has to move in within 30 days. But they can make sense in some cases, and there are a few general rules that can help both buyers and sellers increase their odds of completing the sale.


Both parties need to be pre-qualified before embarking on a short sale. Most buyers these days are pre-qualified or pre-approved for their financing, but with a short sale, the seller also needs to be pre-qualified to ensure a reasonable chance of closing. For instance, the seller should have a hardship situation that will be acceptable to a bank, and should have already started working on the short sale package.

Buyer pre-qualification for a short sale mostly revolves around ensuring that their situation and expectations coincide with the likely delays involved with buying a short sale. Is the buyer able to wait for this sale to close or are they likely to balk at a closing that is more than 60 days out? If the buyer can afford to be patient then there is a better chance that the sale can happen.

Short sales are complex, but in the right situation they can benefit both buyers and sellers. In the wrong situation they can be an expensive and time consuming exercise in frustration. To minimize frustration and unexpected consequences, seek the advice of a knowledgeable attorney or REALTOR regarding whether a short sale makes sense in your individual situation.

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