According to the latest statistics from Realty Trac, short sales rose 15% in the last quarter of 2011 over the previous year. Short sales comprised 10% of all homes sold in Q4 of 2011 and REO, or bank owned, sales dropped 12% over the same period. These statistics point out that the banks have become much more aggressive in pursuing and allowing short sales. In fact, the process has become much easier and quicker over the past year. That’s good news for sellers facing foreclosure and presents great opportunities for buyers in the future.

According to a recent article in Yahoo Finance, “short sales are starting to become the preferred method for banks to dispose of properties in default. In short sales, borrowers who owe more on their mortgages than their homes are worth agree with their bank to sell their homes at the lower market value. In return, the bank agrees to absorb the loss.”

“Short sales have become a more attractive option since all parties agree on the terms, leading to fewer legal issues, said Daren Blomquist, RealtyTrac’s director of marketing. During the quarter, the average short sale sold for $184,221, while the average foreclosure sold for $149,686. And banks typically don’t have to spend a mint maintaining a short sale home like they do a foreclosure, where they have to pay more in legal fees, property taxes, maintenance and insurance,” said Blomquist.

“During the fourth quarter, it took an average of 308 days, to complete a short sale. Foreclosures, meanwhile, can take years to complete. And, quicker approvals mean fewer buyers get discouraged and withdraw their offers. Some banks even pre-approve prices so deals close very fast,” added Blomquist.

There are some challenges when buying a short sale and it’s important that buyers understand them. Here are some of the issues you’ll face when purchasing a short sale:

1. There’s Nothing Short About a Short Sale - In our experience, the average length of time it takes to complete the short sale transaction is about 4 months. It’s important to consider the length of time it will take when buying a short sale. Buyers need to be patient and understand that there are many twists and turns involved in the process. The paperwork involved in a short sale is lengthy, the bank will require an appraisal, and investor approval can take several weeks. Be patient when buying a short sale. If you’re in a hurry to purchase a property, then a short sale is not for you!
2. It’s a Fixer Upper - A short sale is sold “as-is”. This means that the seller (the distressed person selling the home) and the bank will not make any repairs to the property. So, if the roof leaks, the microwave blew up and the carpet is stained, they’re your responsibility. Buyers need to consider the cost of making repairs to the home. Typically, these repairs include new paint, new carpet or flooring, drywall repair, and other standard maintenance items. You must consider these costs when buying a short sale.
3. Paperwork - The banks demand a lot of paperwork from the seller and from you as the buyer. As a buyer, be prepared to provide the bank with your name, address, phone number, and the first five of your social security number. Also, the banks will typically ask you to sign an arms length affidavit. This states that you have no relation to the seller and that the sale is an “arm’s length” transaction. Also, understand that the distressed seller is also required to provide a great deal of documentation to the bank. They have to provide bank statements, tax returns, pay stubs, etc. The collection of these documents can take the listing agent, or short sale negotiator, time to collect these. It’s important to understand the process so you do not become impatient and walk away.
4. Inspections - I always advise my clients to obtain a home inspection from a licensed home inspector when purchasing a short sale. I believe this is a critical inspection because you want to know what you’re walking in to. Keep in mind that the sellers have been in default for some time; sometimes up to, and longer than a year. Many of these people face financial hardships and simply do not have the money to properly maintain the property. Since you are buying the property “as-is” you must know if any of the critical (and very costly) systems are functioning properly. These include the air conditioning and heating systems, water heater, garage door and window functions, etc. The average home inspection (in the Palm Springs area) costs about $275. It’s money well spent to avoid costly repairs in the future. It’s no guarantee, but it will give you some peace of mind that the major systems in the house are in good repair.
5. Your Offer is a Balancing Act - The amount you offer for a short sale property is a critical decision you’ll need to make. In our market, inventory is low, and good properties move quickly. The listing price of a home is not a guarantee that the property will sell for that amount. It’s critical that you discuss a buying strategy with an experienced Real Estate professional who has experience buying and selling short sales. Make sure you ask your agent if he or she has been successful in selling and buying short sales. The amount of your offer is a balancing act and you don’t want to offer too much and you don’t want to come in too low and end up as a fourth back up offer either.
6. Don’t be Discouraged if You’re a Backup Offer - In our experience, the first buyer is usually the first to walk away from the transaction. If you’re a second or third backup, be patient. Chances are you’ll be in first position if you hang in there!
   
7. Be Patient - This is the BEST advice I can give you when buying a short sale. As I mentioned, there are many twists and turns, paperwork gets lost, distressed sellers are slow to provide critical data, etc. But, a short sale may provide you with a wonderful opportunity to purchase a great home for less than you can imagine. Be patient, be strategic and don’t get too attached to the property. If it’s meant to be, it’s meant to be. Good luck!

Mark and Pam Wasserman are short sale specialists with Keller Williams Realty in La Quinta, California. Mark Wasserman represents buyers interested in purchasing distressed properties. For more information, please visit our website at www.teamwasserman.com, or contact Mark at 760.397.3270.

Click Here to Read the C.A.R. Press Release.

Click Here to Read an Informative Fact Sheet About the New Bill From the C.A.R.

Read the full text of the article in the LA Times.

Banks do not want your home! Banks are much more aggressive in allowing short sales because it allows them to sell your property without having to foreclose. Foreclosures are expensive for the banks. They have to maintain the property, pay the taxes and HOA fees and fix anything that is broken.

Dani Babb is a real estate expert. In this video, Dr. Babb discusses the advantages of short selling your home. Please call or email me if you have any questions at 760.219.3964 or pam247re@hotmail.com.

“Pending home sales have improved in the last couple of months and the next few months should bring continued gains,” said C.A.R. President Beth L. Peerce. “So much depends on the direction of the economy going forward. As for the makeup of the market, distressed sales continue to be a significant part of the market with the split between short sales and REO sales varying greatly across the state.”

The total share of all distressed property types sold statewide was unchanged in June from May’s revised 47 percent. The share also was unchanged from a year prior. Of the distressed properties sold statewide, 19 percent were short sales, a decline from last month’s share of 20 percent and last year’s share of 21 percent. At 27 percent, the share of REO (real estate-owned) sales was unchanged compared with May, but was up from 25 percent reported in June 2010. Non-distressed sales made up the remaining share of home sales in June at 53 percent, unchanged from both previous month and year.

“We view the upward movement in the July HMI as a correction from an exceptionally weak number in June that was at least partly attributable to negative economic news and the close of a disappointing spring selling season,” said NAHB Chief Economist David Crowe. “The strong rebound in sales expectations for the next six months likewise marks a return to trend. Basically, the market continues to bounce along the bottom, with conditions in some locations beginning to improve.”

Two out of three of the HMI’s component indexes rebounded in July from declines in the previous month. The component gauging current sales conditions rose two points to 15, returning to its May level, while the component gauging sales expectations in the next six months rose seven points to 22, which is where it stood in April. The component gauging traffic of prospective buyers held even with the previous month, at 12.

Regionally, the HMI posted a three-point gain to 14 in the West, which includes California.

Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.

Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

This law is fully set forth as Senate Bill 458 (Corbett) at www.leginfo.ca.gov.

According to an article in the LA Times, homes sales rose 7.3% in April. It’s the second solid monthly gain since a steep drop in February. All four regions saw increases, led by a 15.1% gain in the West.

Home prices in 20 major U.S. cities declined 1.1 percent in February, according to the Case-Shiller home-price index released by Standard & Poor’s.

Prices rose in one of 20 cities — hard-hit Detroit — in February on a monthly basis. Over the past year, only Washington, D.C., has seen prices advance. Prices fell 3.3 percent year over year in February, compared with a 3.1 percent drop in January.

The 20-city index is slightly above its April 2009 trough, meaning that home prices have retreated almost completely from the gains they posted from May 2009 through June 2010. A drop below the April 2009 level would put housing in a double-dip downturn.

The Coachella Valley’s housing market as a whole will not double-dip, said Patrick Veling, CEO of Real Data Strategies, which analyzes Southern California real estate data. The double-dip nationally will “be based on median price and will be specific to certain submarkets,” he said.

From its peak, the home-price index has dropped 32.5 percent, S&P said. The 20-city index is at 139.27; its low point, in April 2009, was 139.26.

National housing has been plagued by issues that have created a Gordian knot for the sector.

On the supply side, an oversupply of distressed properties is pushing prices down. There are also worries of a so-called shadow inventory of homes that sellers and banks want to list, but are waiting for the right moment to do so.

On the demand side, many consumers still have difficulty qualifying for mortgages, though rates are low.

Economists say a healthy labor market could help cure these ills, but that market has been struggling as well.

Read the full article.