The term “short” in “short sale” refers to the sale price of the property falling short of what is owed on its loan. But if it were to mean the amount of time it takes to complete such a sale, real estate experts agreed it more accurately would be called a “long sale.”
“Most buyers expect to hear if their offer has been accepted after a day or two, but with short sales, it’s not uncommon to wait one to three months,” explained Steve Campot, a broker with SGC Real Estate in Ashburn, Va.
Once a contract is signed, a short sale typically takes more than twice as long to settle as a foreclosure or conventional sale. A normal real estate transaction is conducted between property sellers and buyers, but with short sales, the banks and other financial institutions that hold the mortgage — credit unions, insurance companies, note holders — all must sign off on the lower price.
The time and logistics of this process are so staggering that nearly half — 48 percent — of all short sales in the mid-Atlantic region do not close, according to a recent report from RealEstate Business Intelligence (RBI), a subsidiary of the Metropolitan Regional Information Systems that provides real estate data, analytics and business intelligence.
Many real estate experts pegged the height of real estate pricing to around 2004 to 2005, saying that many properties bought during that time frame would have to be categorized as distressed and sold as short sales if put on the market now.
“In the less desirable neighborhoods farther out, like Prince William County, you see a lot of short sales,” Mr. Campot said, adding that this is not the case for desirable, close-in neighborhoods, including Vienna, North Arlington and Potomac.
RBI data backed up this assessment, listing these four outlying areas as having the highest number of short sales: King George County and Manassas Park City in Virginia and Prince George’s and Frederick counties in Maryland. The four areas with the fewest short sales were Arlington County, Fairfax City, Alexandria and the District.
Stephanie Corley, a Realtor with Re/Max 100 in Dunkirk, Md., explained that in short sales, the sellers have to ask the bank to take an offer that is the current market value of the home, not what is owed.
“In some cases, that difference can be $100,000; for higher-end homes, it can be as much as $200,000,” she said.
To make a short sale easier and faster, Ms. Corley recommended giving the listing to a Realtor who is a certified distressed property expert (CDPE). Preparation for this certification trains Realtors how to present an offer to the bank and teaches them how to get the bank moving quickly on it, she said.
“Some lawyers are advertising to handle short sales, and they charge $1,200 to $2,500. There’s no need to pay a lawyer for this when a Realtor can do this for you for free,” she said, adding that in short sales, the bank pays all closing costs and Realtor commissions.
Mr. Campot advised that sellers of a short-sale property hire a professional short-sale negotiator.
“These folks work for the title companies, and their fee is typically $1,000 to $1,500,” he said. “The banks often pay this fee because it’s so much easier for them to deal with the negotiator rather than the homeowner. They know who to call and how to speed up the process.”
The first step in the process is that the sellers must notify the bank that they need to sell the house and must do a short sale, Ms. Corley said.
“The bank will then instruct you to download a short-sale package, and that’s when you find a Realtor to help you with the paperwork,” she said.
The paperwork comprises three months of bank records, the last two months of pay stubs, the last two years of tax forms, a letter of hardship and an explanation of the need to relocate, an authorization letter that allows a Realtor to be the negotiator, as well as three sold comparables and three comparables of similar properties currently on the market. Once all the paperwork is in, the next step is to submit a buyer’s offer to the bank.
“If it’s sat for three months or so, you need to resubmit all the paperwork because it must all be up to date,” Ms. Corley said.
Mr. Campot pointed out, however, that some banks won’t even talk to homeowners about a short sale until they already have a buyer’s offer in hand.
“It might make more sense to first talk to a Realtor who specializes in short sales and get the house on the market and have an offer to take to the bank before submitting all of the paperwork,” he said.
Katie Wethman, a Realtor with the Wethman Group at Keller Williams Realty in McLean, pointed out that another way to speed the process is to comply with all requests from the bank.
“When they tell you they didn’t receive a piece of documentation you sent, just send it again,” she said. “They have a pile of work to do, and if you decide to take a stand and make them do any extra work, they’re just going to move on to the next one on the pile.”
For many short-sale sellers, one of the hardest parts of the process is parting with assets to help pay down the shortfall, Mr. Campot said. “So if you have $50,000 in life savings, the bank wants that to go into the mortgage,” he said.
Perhaps the biggest misperception is that a seller must be behind two or three mortgage payments before the bank will allow a short sale, Ms. Corley said.
“That is a myth. You only have to prove hardship,” she said. “You’ll hurt your credit rating if you purposely skip your mortgage payments.”
In general, a short sale can hurt an individual’s credit rating by 50 to 100 points, Ms. Corley said.
“But if the wording in the approval letter [from the bank accepting the offer] says that the loan is satisfied in full, you won’t take that hit,” she said. “It’s a good idea to consult with an accountant to make sure that the wording is correct and that the debt is forgiven; otherwise, the bank will try to collect the difference.”
Mr. Campot added that it’s also a good idea for sellers to consult an accountant about the tax repercussions of a short sale.
“In some cases, they can be severe,” he said. “If you can swing it, it’s often better to rent [the home out] than do a short sale.”