Rising Short Sales on the Market, and the Challenges they present
It’s no secret that short sale listings have drastically increased in very little time. This increase can be blamed on a number of factors: rising unemployment, decline in home values, resetting ARMs, and the list can go on. What ever the cause, it appears as though Short Sale listings are going to be around for some time to come, and both consumers and agents should be aware of the challenges associated with them.
Short Sale Defined:
Before addressing these challenges, I should first summarize what a short sale is. A short sale is a real estate transaction in which your lender(s) agree to accept less then what is currently owed on the mortgage. This option benefits both the borrower and the lender because it less costly for the lender then a foreclosure, and it is typically less damaging to the borrower’s credit then a foreclosure. In most cases (but not all), the difference owed is forgiven by the lender.
Challenges:
There are several challenges when dealing with a short sale transaction, but probably the biggest problem is the inexperience that most Realtor’s have in short sale transactions. Although we have seen short sales building up over the last 3-4 years, there were only a small percentage of us that really embraced short sales as a primary source of business. In fact, the bulk of agents (and in some cases entire companies) avoided them all together due to the amount of work and frustration involved in these transactions. With the recent increase in Short Sales coming on the market, these agents now have no choice but to become involved in the short sale transactions. The main problem is they jumping into the pool without learning how to swim first.
Second to inexperienced agents, is the lack of consistency amongst lenders. Although there are some documents that are required by all lenders, each lender tends to have their own additional requirements or lender specific processes. This becomes an even larger problem if there are multiple lenders involved in the short sale. By contacting the lenders in advance to get the lender specific requirements, agents can avoid a huge delay down the road.
In addition to these problems, lenders have also had a hard time keeping up with increasing short sales coming onto the market. This has lead lenders being under-staffed with employees that lack proper training themselves in the entire short sale process. This lack of training and limited staffing has lead to lack of proper communication from lenders, inaccurate valuations of properties, excessive delays, and in some cases even lost documentation (I can personally vouch for all these problems).