National Housing Market Outlook

Short Sales Are About to Increase

October 1, 2009
Get ready for the short sales. According to a Treasury spokeswoman, Treasury officials will soon announce a $2,500 subsidy ($1,000 to the servicer and $1,500 to the seller) to encourage short sales as a way to clear the excess inventory. The fees are designed to help compensate the servicer for the extra effort, and to incent the seller to be cooperative and leave the home in good condition. Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure.
To date, short sales haven’t been particularly effective for a variety of reasons, including:
  1. Banks have been slow to approve the high bid, particularly when it is below the last appraisal in the banks’ file.

  2. Realtors typically don’t want to deal with all the extra work involved in a short sale.

  3. Buyers typically don’t want to deal with the length of time involved in a short sale, which can take 4 to 5 months because of the bank bureaucracy.
Nonetheless, we expect short sales to increase if the Treasury department is offering incentives to encourage them, and as banks and realtors figure out how to work together. The following post card highlights a real estate agent’s success selling homes from $372,000 to $567,000 below the loan amount in San Clemente, California. He has completed 50 short sales thus far.
Short sales have developed a bad reputation as frustrated buyers have had limited success. We’ll see if the Treasury can change this, but we are skeptical.
Nonetheless, we suggest that you prepare your business for increased short-selling activity.

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