"'Possible' Short Sale"

Warning: Use of "May" May be Problematic

For the uninitiated, let me decode "possible short sale":

The odds of it not being a short sale are about as high as the following bad things not having occurred (which is to say, infinitesimal):

"I may have scratched the car." (wife to husband -- or vice versa)

"The disposal may not be working right." (child to parent, after dropping rocks into same)

"We may have lost your reservation." (uttered at the car rental desk)

"The plane may be delayed."

"We may have damaged your one-of-a-kind, antique lamp." (furniture movers to customer)

"Mommie, I think something may be wrong with the goldfish."

The kiss of death?

A "possible short sale" being handled by "an experienced short sale agent."

P.S.: It's interesting how many of the above are travel-related. Hmmm . . .

Home Spotlight: 20xx Laurel

$50,000 Price Reduction

What's the big deal about a $50,000 price reduction?

They're practically run-of-the mill these days, especially in the upper price brackets.

What you don't often see is a $50,000 price reduction off of a home listed for $250,000, like the one shown above.

For the math impaired, that's a whopping 20% (vs. the more typical 3% to 5%).

Located at 20xx Laurel in Minneapolis' Bryn Mawr neighborhood, this 6 BR/4 BA Victorian with over 4,500 square feet is now listed for $200,000, after being reduced $50k on Wednesday.

Compounding the Seller's misery: they paid $560,000 for it just over three years ago (and, no surprise, the Seller discloses that it's a possible short sale).

P.S.: I discuss price reductions in much greater detail in a post titled, "Nurse! I need a price reduction, stat!!"

"Traditional Seller" -- Decoded

Mom, Apple Pie -- and No Banks

Probably the most popular term on MLS at the moment -- right after "mint," "move-in condition," and "experienced short sale agent" -- is "traditional seller."

No, that doesn't mean the owners believe in "Mom and apple pie," dress conservatively (no face jewelry or tattoos), or otherwise have an "Ozzie and Harriet" profile (if you're too young for that reference, think, Phil and Claire Dunphy from Modern Family).

Rather, it means that: a) the Sellers have title to the home, not a bank (it's not a foreclosure); and b) they don't need the bank(s) that hold their mortgage to take a haircut for them to be able to sell (it's not a short sale).

Listings with this language are most common in areas where foreclosures and short sales are dominant, and "traditional sellers" need a way to distinguish themselves.

"Trickle Down Hardball"

Progeny of "Trickle Down Economics"

Want today's housing market -- at least in many locales -- in a (sober) nutshell?

Here it is:

Home Sellers now divide into two groups: those with equity, who can afford to sell; and those who are underwater, and can't.

The ones who can afford to sell, are -- but are having to seriously discount their price to do it.

Those who are underwater need to do a short sale, which for the most part banks are blocking.

When that happens, most underwater homes ultimately become bank-owned foreclosures.

Step 2

Home Sellers who can sell further break down into two groups: those who turn around and buy something else; and those who don't (either because they become renters; move to assisted living, if they're older, etc.).

The former group, having just been on the receiving end of a "hardball market," feel no compunction about playing hardball themselves as Buyers.

So, they do.

They make aggressive offers on the properties they're interested in, and drive very hard bargains.

Multiply this dynamic by millions of Buyers and Sellers nationwide . . . and you've got a pretty fair understanding of today's housing market.

"Always be . . . Selling"

Lockbox Combo as Marketing Tool

After doing a couple thousand showings (and opening that many lockboxes), it's rare that I run into something unusual -- at least that doesn't involve a foreclosure.

But up until today, I can't say that I've ever opened a lockbox where the three letter combination was part of the listing agent's marketing: "Wow!" (no punctuation or exclamation marks).

Fortunately, it was -- "wow," that is (otherwise, it would have begged the unfortunate alternative, "Bow-wow." Sorry).

Realtor Haiku

This could be a trend with legs.

Other suitable lockbox adjectives, depending on the property: "Big," "Hot," and "Hip."

P.S.: Probably the worst last name I can think of for a Realtor these days is "Short" -- because every home they list would, by definition, be a "possible Short sale" (sorry, again).

"Last Chance to Buy This House Before the Price Drops Dramatically!"

Houses on the Verge
(of Foreclosure)

As sales pitches go, it's not quite as lame as the infamous National Lampoon cover at right ("If You Don't Buy This Magazine, We'll Kill This Dog").

Still, you wouldn't exactly label as "enticing" a house that sought to attract Buyers with this hook: "Hurry! Act now before the home goes back to the bank!"

That's because homes that go into foreclosure typically fall dramatically in price, usually after an interval of 6-8 months off the market (and the same period of neglect).

Other disincentives: homes about to be foreclosed on frequently already suffer from neglect (who's got money for maintenance?); and, by definition, homes usually get foreclosed on when they're saddled with a too-big mortgage -- an issue that *foreclosure at least resolves.

Most Buyers, rationally, tend to run from -- not towards -- such "opportunities."

*In theory, short sales are the other way that debt-burdened homes can be relieved of some of that debt. In practice, however, banks haven't been willing to do that . . . and something like 75% of all would-be short sales progress to foreclosure.

$700k Below Tax Value

Not $700k -- $700k Below Tax Assessed Value

Where: 1415 June Ave., South Tyrol Hills in Golden Valley

What: 4 BR/5BA home built in 2002 with almost 5,400 finished square feet.

How much: $799,900 asking price; tax assessed value: $1.504M

When: originally listed for $1.679 million in March, 2009

Who: Listed with RE/MAX Results

Well, 1415 June Ave. (pictured above) certainly looks like a deal.

So what's the story?

I haven't been in, so that's a big caveat.

However, the combination of lender approval (it's a short sale), needed repairs, and a hefty tax bill (almost $24k annually, but certain to come down) aren't helping.

Still, I'm not aware of a home sporting a bigger discount from tax assessed value currently on the market in the Twin Cities.

Short Sale Bank: 'No Games'

"It'll Go Fine -- Really"

Short sales deservedly have a reputation for being aggravating time sinks for home Buyers (and their Realtors!).

Even when they work out -- which is less than one-third of the time -- the Buyer can easily wait months for the bank(s) holding the mortgage(s) to agree to take a haircut on what they're owed, clearing the path for a deal. (If they don't -- the usual outcome -- the property progresses to foreclosure.)

In the meantime, many banks continue to collect offers, which they're allowed to do because they haven't finally signed off on anything (the typical short sale purchase agreement contains one or more contingencies, which serve as "outs" should the bank receive a better offer).

The foregoing means that short sale Buyers need to have A LOT of patience, and accept that they can either be "bumped" or have to increase their offer at any time if they really want to buy the property in question.

"Masochism Quotient"

With all that as prelude, I saw the following in the "Agent Remarks" field on a short sale that hit the market yesterday:

Subject to bank approval. Seller will sign only one P.A. & submit to bank all other offers will be back up. Process started with bank. Agent experienced in Short Sales.

Translation: assuming all of the foregoing is true (see, "Experienced Short Sale Agent"), the odds of a deal in this case are a little higher, and the "masochism quotient" for would-be Buyers will be a little less . . . .

Obama Seeks White House "Short Sale"; Creditors Balk

White House "Short Sale"

Washington, D.C. (April 1, 2010) --President Barack Obama today announced plans to sell the White House as part of the government's ongoing efforts to reduce the national debt. However, with an estimated fair market value of $200 million, secured by a $13 trillion mortgage, President Obama acknowledged that, at present, the White House was deeply "underwater."

"We believe it is in the best interests of our creditors -- China, Japan, and various OPEC members -- to reduce the principal balance on the White House, rather than risk an even greater loss by forcing the property into foreclosure," President Obama said.

Representatives of the various creditor governments were reportedly studying the proposal. A spokesman for Chinese Premier Wen Jiabao said, "Before we consider such a dramatic write-off, we, of course, will require the United States to provide a complete and candid picture of its financial situation -- something that it has not offered to date," the spokesman said.

Ross Kaplan, Edina Realty City Lakes, has the listing.

HAFA, HAMP, MHA . . . . Huh??

New Program to Streamline Short Sales Debuts April 5

HAMP: Home Affordable Modification Program
HAFA: Home Affordable Foreclosure Alternatives
RASS: Request for Approval of a Short Sale
SSA: Short Sale Agreement
MHA: Making Homes Affordable Program

As far as I know, "Huh" isn't an acronmyn for anything -- yet.

But all the other acronyms are for real.

Beginning April 5, the Obama administration is rolling out its latest program to help especially distressed housing markets.

Called HAFA, for "Home Affordable Foreclosure Alternatives," the (voluntary) program seeks to streamline short sales by dangling various financial carrots in front of lenders.

In exchange, the lenders agree to forego deficiency judgments (the difference between the mortgage balance and what they're actually re-paid), and to expedite their short sale response times.

From 120 Days to . . 10?

So, for example, instead of taking 3-4 months to respond to offers on short sale properties now, lenders participating in HAFA agree to respond in less than 10 days.

But what will their answer be?

One can imagine overwhelmed, bureaucratic banks, facing the new deadline, simply saying "no" when they're out of time to respond.

P.S.: 'HAFA . . . HAMP . . . Hut!" -- also sounds like Brett Favre at the line of scrimmage.

Now that's a Discount!

Was: $1.5 Million; Now: $599k

Where: 142xx Trace Ridge Road in Minnetonka, just west of 484

What: 4 BR/5 BA with 4,650 square feet on a .79 acre lot

How (much): list price is $599k

When: originally listed at $1.5 million in 2005

Who: co-listed by Mark Jelinek and Michael Mohs of Edina Realty (Mark is a colleague in the City Lakes office)

There may be a home on the market in the Twin Cities that's listed at a lower percentage of its tax assessed value (47%) or at a deeper discount from its original asking price (more than 60% off) -- but I'm not personally aware of it.

Two caveats for prospective Buyers:

One. It's a short sale. That means one or more banks have to agree to reduce the mortgage(s) on the home.

Short sales can be a long shot (sorry, bad pun), but if the listing agent has lots of experience dealing with them (Mark does) . . . the odds go up considerably.

Two. At least until a lower purchase price knocks down the annual property taxes, the current tax bill is a whopper (over $16k, about double what would typically go with a $600k house).

Real Estate Bargain Bin

Minnehaha Falls Deal

Where: 45xx 47th South (just north of Minnehaha Falls in Minneapolis)

How much: list price: $224,800; tax assessed value: $379,500

What: 3 BR/2BA 1948 two-story with 2,150 FSF

Who: listed by Almost Free Realty

When: came on market 10/22/09

No matter how cheap the asking price, it's not necessarily available at that price if it's a short sale.

That's because the bank(s) that hold the mortgage are in the driver's seat: unless they agree to accept less than what they're owed, there's no deal. Then, the home progresses to foreclosure.

Which is in fact what happens something like 75% of the time with short sales.

So, what's eye-catching about the home pictured above is an asking price more than 40% below tax assessed value -- plus the fact that it's not a foreclosure or short sale (loudly trumpeted on MLS).

40% Below Tax Assessed Value

Where: 16xx Cedar Lake Parkway (just northwest of Cedar Lake in Minneapolis)

What: 3 BR/2BA Contemporary with almost 3,200 finished square feet.

How much: listed for $320k

When: originally listed in Oct. '08 for $549k.

Who: listed by RE/MAX Results; agent is Michael Kohler

In today's market, it's increasingly common to see homes for sale trumpet that their asking price is below the tax assessed value.

It it is not common to see a home selling for almost 40% -- or more than $200k -- below tax assessed value, as the home pictured above is.

It comes as hardly a surprise, then, that this a short sale.

The home originally listed in October, 2008, for $549k.

"Not-selling-itis"

Resisting Treatment

Imagine you had a medical condition, and sought advice from an expert.

They told you that, while there was a tiny chance that you could spontaneously recover, in the vast majority of cases the condition was degenerative. Meanwhile, there was a medicine available that was 100% effective, albeit expensive.

Would you take the medicine?

The vast majority of people in this situation probably would -- and sooner rather than later (at least assuming they could afford it*).

"Needles in Haystacks"

Now substitute "home seller" for patient, "Realtor" for expert, and "unrealistic asking price" for "medical condition" . . . and suddenly people's behavior changes.

Instead of responding rationally to overwhelming evidence that their home is overpriced for current market conditions, they opt to wait -- hoping for a stronger market, a needle-in-a-haystack buyer . . . or both.

Unfortunately, like the aforementioned, hypothetical medical condition, time is your enemy when you are trying to sell an overpriced home.

By the time the patient is resigned to taking the medicine, the chance for a "cure" may already have been squandered.

*Of course, just like some patients are willing to take medicine but can't afford it, some home sellers know that their home is overpriced, but can't afford to reduce it -- because they owe more than its fair market value.

Then, they either need to pursue a short sale, whereby the bank(s) reduce the mortgage amount, or, failing that, contemplate defaulting.

Name Games, Cont.

'Non-Distressed,' 'Unforced,' 'Optional'

A continuing thread on this blog has been the so-far lurching efforts to label key features of today's economic landscape ("We Have Some With Ham, Too")

So, while it's certainly not a household term yet, "The Great Recession" looks increasingly likely to be what we collectively call what's happened the last two years or so (vs. the more unwieldy, "The Worst Recession Since the 1930's").

On the real estate front, the industry still hasn't agreed what to call a "normal" sale.

Of course, until recently, that's what the vast majority of residential housing transactions were.

However, the last year or so -- longer in places like AZ, FL, and So. CA -- the market has been dominated by so-called lender-mediated sales.

These include both foreclosures, where the bank has title, and short sales, where the homeowner still has title, but needs the bank to reduce the mortgage balance to be able to sell (in the majority of cases, the bank(s) refuse, and home progresses to foreclosure).

Locally, Realtors have been using the term "traditional" sale to describe a plain vanilla deal with no lender in the mix.

Elsewhere, popular synonyms include "non-distressed," "unforced," and "optional" sales.

You can see why there's no consensus yet . . .

Short Sale -- 1 Yr Anniversary

Where: 41xx Pillsbury Ave. South, in Minneapolis' Kingfield neighborhood

What: 3BR/1BA, two-story built in 1910. Condition: rough

How much: asking $155k

When: originally on market Aug, '08

Most homes, when they don't sell, eventually drop their price.

Not this one.

After coming on the market exactly one year(!) ago at $150k, the Seller raised their price this June, to $155k.

Why?

It's a short sale, unless the owner gets $155k.

Yup, after almost a year on the market, the asking price went up, presumably because the owner's mortgage balance did, too.

Which captures at least one of the problems with short sales in a nutshell:

Too often, the asking price has nothing to do with fair market value, and everything to do with what the Seller owes the bank(s).

Showing "Short Sales"

Phew! And That's Just to Take a Look . . .

With a "traditional sale" (no bank involved), here's how Realtors set up a showing:

You call the listing agent's front desk, request the showing, and wait for a confirmation with showing instructions, i.e., lockbox code, alarm location (if any), etc. (Realtors can now submit showing requests online, as well).

In a "short sale," the bank is owed more than the home is worth, so has to give its approval before a sale can be consummated.

Given the long time lag involved, it's not unusual to have multiple prospective Buyers submit offers that may or may not have already been accepted, subject to the bank's approval.

Most Realtors don't want to waste their or their clients' time showing such a home.

To find out the "short sale" home's status prior to requesting a showing, here's the recommended protocol (courtesy of the MN Assn. of Realtors):

When offers have been received and submitted to the seller for consideration, but the seller has not accepted any of the offers, that is not a mandated disclosure. However,when setting up a showing appointment, if the buyer agent or the facilitator working with a buyer is concerned whether there are outstanding offers on the property, the agent should inquire of such from the listing agent. Or, when presenting an offer to the listing agent, the buyer agent or facilitator should inquire if there are any outstanding offers on the property. When asked, REALTORS®, with the authorization from the seller, shall disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose, if asked, whether such offers were obtained by the listing agent, another licensee in the listing firm, or by a cooperating agent. The listing agent cannot lie, and if the seller has instructed the agent not to disclose the existence of multiple offers, the agent should respond by saying the seller has not authorized him/her to disclose that information. It is important to remember that a multiple offer situation is not a mandatory disclosure; rather it is up to the buyer agent or the facilitator to make such an inquiry.

Got all that?

Phew! (or as the natives say, "Uff-dah!")

You can navigate all that . . . or you could show another home (I hear that there are plenty for sale these days).

"Experienced Short Sale Agent"

Short Sale Agents Try to Reassure

With short sales* proliferating the last year or so in the Twin Cities, short sale nightmares have, too.

The most common complaints: endless delays, no communication from the bank(s), Sellers who don't tell Buyers about accepted offers even as they solicit more (since they're all subject to bank approval, there's no risk of selling the home multiple times).

To counter the fear that any deal will be a time-wasting quagmire -- and otherwise reassure would-be Buyers and their agents -- more and more listing agents (representing the Sellers) are now promising that they're "experienced short sale agents" on MLS.

Which begs the question: are they?

It's certainly not hard to find out.

You simply go to the MLS database, find the agent's ID, then run a search on "closed sales" with the agent's number.

So, what did I find when I checked out the "experienced short sale agent" listing a home my clients viewed last weekend?

The agent had closed a career-total of three properties, all condo's, none of which were short sales.

*A short sale is a home where the owner owes more on their mortgage than the home is currently worth. To sell, the bank(s) holding the mortgage must agree to reduce the principal that is owed.

"Non-Traditional" vs. "Regular" Sales

"We Have Some With Ham, Too"

One of my favorite Mad Magazine cartoons shows a food stand advertising every kind of burger known to man: 'Buffalo burgers,' 'Chicken burgers,' Turkey burgers,' 'Veggie burgers,' and on and on.

The caption: 'we have some with ham, too, but we don't know what to call them.'

In that vein, the real estate industry is struggling to come up with a name for plain, old, non-lender-mediated sales.

As you may or may not know, "lender-mediated sales" -- namely, foreclosures and short sales -- have devoured the market in many locales the last six months or so.

For now, the preferred label for everything else: 'traditional sales.'

What were the runners-up?

"Regular" sales? "Normal" sales?

P.S.: my clients (and neighbors) know that I have a penchant for quoting Mad Magazine. In fact, another cartoon was the inspiration for my license plate.

It shows an overbearing, 50-ish guy with too much chest hair and bling (not me, I promise) trying to entice women back to his yacht with the cheesy pickup line, "I named it after you."

Sure enough, the last frame cuts away to a yacht with the license plate, "After You."

My car's license plate reads, "MY RLTR" -- as in, "there goes . . . my Realtor."

"Not a Foreclosure," Translated

"Not a Foreclosure! Not a Short Sale!"

Sellers don't usually start out proclaiming what they're not. But this isn't a usual market.

In some Twin Cities neighborhoods, the normal ratio of "traditional" sales relative to lender-mediated sales (foreclosures, short sales) has inverted. Furthermore, many Buyers have come to associate lender-mediated deals with extra risk and hassle.

So, to avoid being lumped in with the bank deals, more Sellers are trumpeting their non-bank owned status on MLS.

Translated, here's what they're really saying (or trying to):

--If you make an offer, you'll get a prompt response (1-2 days, vs. one week or more).
--The Seller is willing to vouch for the condition of the property; provide the standard Minnesota disclosures; and comply with any applicable municipal inspection requirements.
-- The home has been fairly priced -- not 30% under market, to foment a bidding war, or 30% over, because that's what the Seller needs to pay off their mortgage.
--You may write an offer using the standard Minnesota Purchase agreement forms and addenda (vs. using custom, bank-required forms with untested terms, Buyer booby traps, etc.)
--If you reach agreement on terms with the Seller, then find legitimate issues during the Inspection, you'll be able to negotiate an accommodation with the Seller (vs. taking it or leaving it).
--If you have questions about the property or its status during the course of the deal, the listing agent (representing the Seller) will actually return your phone calls and email's.
--The Buyer will be able to use their own title company (vs. the bank's), to check on outstanding liens, taxes, city assessments, etc.
--At the end of the process, the Buyer's Realtor won't have to fight to collect the percentage commission advertised on MLS.

I could keep adding to this list . . . but you probably get the idea.