Recently I have had several clients ask me “What’s A Short Sale?” That phrase is beginning to pop up a lot more these days. When you see “short sale” it means that the price that is currently presented as the listing price is actually less than the amount that the seller owes to the bank. This means that when a buyer submits an offer, the seller and the seller’s agent have to present that offer (along with a pretty intense financial package regarding the seller’s current situation) to the bank. The current lien holder (the bank) will then review the entire package and give a response to the offer.

Typically the houses that are listed as short sales denote that in the marketing remarks. “THIS IS A SHORT SALE~BUYER MUST USE SPECIAL SALE CONTRACT, FORM 2176 RIDER & HAVE PRE-APVL LETTER~ALLOW 2 MONTHS TO CLOSE~CITY INSPECTION BY BUYER” Other times, the fact that it is a short sale is only disclosed in the Agent Remarks.

From the buyer’s perspective negotiating a short sale can be a very trying experience. Typically on a residential sale, a buyer submits an offer and hears a response from the seller within 24 hours. On a short sale, however, it could take several weeks to hear back from the lender. Occasionally (and preferably) there are times when the seller or seller’s agent has contacted the bank and prepared all the required documentation in preparation for a contract. In those cases, responses come a lot quicker. However, more often then not, the banks won’t really take part in the process until there is an offer to be considered.

3919 Shaw is one example of a short sale. It is a beautiful house. The woodwork is in great condition and there are many system updates. At it’s current list price it is quite a deal, considering the house next door sold for 215K last fall. 3919 Shaw needs a some TLC but for the right person it could be a very sound investment and very livable home.

Patience pays in short sale transaction.

This is probably one of the most informative articles I have read in a long time about the state of the real estate market. It’s dense but well worth the read. The overall tone is optimistic. The bit below in italics is verbatim from the the article. I thought it was interesting that a clear distinction was drawn between our current crisis and The Great Depression.

Today’s housing bust IS unique in U.S. economic history. It began in good, not bad, economic times, and has proven to be national rather than regional in scale, with markets around the country detonating like Chinese firecrackers between early 2006 and mid-2007.

With the benefit of hindsight, one can discern a concatenation of developments that made the latest cycle almost inevitable. In the aftermath of the 2000 stock-market bust and the 2001 terrorist attacks, and amid heightened fears of deflation, the Federal Reserve drove short-term interest rates to near-historic lows and flooded the nation’s financial system with money. Cheap funding spurred a surge in home-buying, and drove the home-ownership rate to a peak of 69% of all U.S. households by 2004, up from 64% a decade earlier.

Prices in many areas began to go parabolic in ‘04, at the time the Fed began to raise rates. Affordability became a problem in some markets, and cash-out refinancings began to slow. On Wall Street, however, where the securitization of mortgages had become a huge profit center, the demand for new mortgage product was unrelenting. Mortgage brokers and other loan originators were also getting rich off the business, and thus were eager to oblige. By 2005 the mortgage industry had began churning out new “affordability” products that featured low “teaser” rates in the early years of a mortgage to keep monthly payments low. Long-sacrosanct down-payment and family debt-to-income requirements were jettisoned. Other products enabled borrowers to repay interest only in the early years of a loan, while so-called option ARMs added the unpaid portion of monthly interest to the principal balance.

Come 2006, many lenders were scraping the bottom of the barrel to find new borrowers, some of whom, by fibbing about their annual income and net worth, often with the connivance of mortgage brokers, secured “liar loans.” As greed gave way to fraud, both borrowers and lenders came to believe that ever-rising home prices would cure any defects in the underwriting process.

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According the article, home prices are expected to steady by year end, with the pace of foreclosures slowing shortly. The feeling is that most of what was destined to foreclose has already done so and the banks have taken their biggest lumps already.

A couple things that I am taking away from the article:

1. If you are looking for a deal make one now.
2. If you are investor or have a desire to be a landlord it is probably a good time to investigate some rental property because lending guideline are going to tighten up and banks are going to become much more strict in their underwriting process. This will mean there a fewer people out there able to buy for themselves and more people out there looking to rent.

On that note, check out 3215 Gravois and 3880 Juniata.
Both are excellent rental properties.

This first one deals with foreclosure buses, a tour arranged outside of Cleveland that takes prospective buyers on tours of foreclosures. Immediately following this is a story of “Foreclosure Behind Las Vegas Gates” on one of the hardest hit cities, and how it effects gated communities.

This week’s real estate column in the WSJ written by Peter King focuses on energy costs. Where Utility Bills Are Low discusses three locations in the US with the lowest rates for kilowatt hours. Of the three locations mentioned, Fort Wayne, IN, Lincoln, NE, and St. Louis, MO, St. Louis ranks the most affordable at 5.5 cents per kilowatt hour.

The article featured the Mississippi Bluff Town Homes for its St. Louis example. Thanks to the information provided in the article it was interesting to compare taxes as well as energy costs. Taxes on a 500K home is Fort Wayne were approximately $8000 a year, for 200K home in Lincoln taxes were approximately $3000 annually. The Mississippi Bluffs Town Homes were estimated at 1% of the value, approximately $4000 a year making St. Louis real estate even more affordable. (Note: the developer of Mississippi Bluffs was just approved for 10 year tax abatement on the first 4 units, tax abatement on the remaining units is pending.)