By Rick Gibson
“If we all did the things we are capable of doing, we would literally astound ourselves.”– Thomas Edison
This quote may be an unusual introduction to short sales, but it’s fitting. Many people do not understand them, are afraid to admit it and avoid what they don’t understand. By acknowledging you are not alone if you do not understand short sales, and that you are not “supposed” to understand them, is the first step. Then, see that short sales may be a great option for you, and not something to avoid or fear.
A property being “sold short” means it is being sold for less than the seller owes to their lender. So, when sold,
there will be a “shortage”. Lenders prefer short sales over foreclosures since they lose less money and it can help decrease vacant properties.
The lender is the real decision maker, even though it is the seller who hires the Realtor®, signs the listing and the sales contract. The seller cannot make any profit, though in some cases is given moving expenses as an incentive to keep them from abandoning the property, or taking the fixtures and appliances.
Fundamental to accounting, but a mystery to some, is that “losses must be offset by a gain,” so you may hear lenders send an income statement to sellers for the amount the lender loses when they approve a short sale (the difference between what it sold for and what was owed). You may have also heard the seller is then responsible to pay taxes on that “income,” even though the seller did not make any money. Hearing things like that and not understanding them causes people to postpone taking action and regretting it later. Consult an accountant to confirm that, for a limited time, you are able to waive liability for taxes on this “income”.
If you are in debt and need to get out of a property, now is an opportunity to start over. If you are not in debt, but have property that is harming you due to its value, you may be a candidate for “strategic default” and should consult an expert quickly. I strongly suggest if you are a seller and are considering your options, meet only with a Realtor® who is a Certified Distressed Property Expert (CDPE). This means the Realtor® has specialized training, and you are more likely to understand your options, minimize stress and find success.
Some Realtors® negotiate their short sale contracts themselves; others hire a firm that represents them and the seller in lender interactions. Personally, I recommend and hire experts to negotiate with banks to cover this critical task, and stay focused on obtaining contracts and managing the process. I would similarly not be my own dentist or lawyer.
Buying short sales is a risky if you are looking for a primary home, unless you are okay if it does not succeed. The process can take a while, and has its problems. For my clients, I generally recommend short sales to investors more than to my buyers who are
emotionally involved or relatively impatient. It can be slow, but this is changing quickly and for the better. Lenders are receiving criticism and new guidelines to speed up the process, and the market is in a clear trend towards more short sales and less foreclosures.
Regardless of whether you are a buyer, seller or are considering buying or selling, don’t be afraid to ask
questions. Short sales are here to stay and may be a tremendous opportunity to get out of debt at a time when there are few down-sides.
Now is a time of change and opportunity and, as Thomas Edison expressed so well, we are capable of many things. Learning about our options now and taking action can greatly enhance our lives.
Rick Gibson is a Realtor®, Re/Max Preferred and Managing Member, Gibson Group Property Management, LLC. He can be reached via email at [email protected]