Tina To's Real Estate Blog

Image by Getty Images via @daylife

Hello my dear readers, please answer the following questions without peeking the answers first.

1.  Short Sale means the selling price is shorter than the seller‘s loan amount, yes or no?

2.  Short Sale takes a longer time to process because it involves more than the seller’s decision, yes or no?

3.  Short Sale requires seller’s lender’s approval and this decision usually means the Bank, yes or no?

4.  The sold price of Short Sale property is lower than the fair market value, yes or no?

5.  Fair market value means the selling price of similar properties sold in similar locations within 3 months, yes or no?

6.  The parties involve in the Short Sale are: sellers, listing agents, buyers, buyer’s agents, seller’s lending institution, yes or no?

Do you get all yes?  So did I before I attended the Short Sales Seminar hosted by Chinese Real Estate Associationof America (CREAA) and presented by Elena Celestine of Bank of America today.

The answer to question no. 3 is no because while most people think that the seller’s bank has the major power to decide whether to approve the short sale transaction, in reality, the bank is only a third party who carry out the instructions from the investors behind the loan.   This also explain the complex communication path.  The listing agent has to negotiate with the “loan mitigation department” of the bank but the assigned negotiator is usually only a middle person and has to pass the information  to the investors.  Therefore, this is an extremely complex negotiation and it is more than what ordinary people think in the communication path.

The answer to question no.4 is yes and no.  Technically all sellers will not want their properties sold below fair market price and so do the seller’s lender.  However, market price is very dynamic and is determined by many factors.  Therefore, not only short sale properties, but all properties can be sold at market price, below market price or above market price.  Basically short sale properties and real estate own properties will involve more than one formal appraisals – one from the seller’s lender and one from the buyer’s lender.

The answer to question 6 is no because at least one more party will be involved, that is the investors.

1. yes    2. yes    3. no    4. yes or no    5. yes    6. no

Image by Getty Images via @daylife

REO  is the short form for Real Estate Owned.  The real meaning is the lenders, usually the banks, have taken over the properties and are actually owners of the properties.  When the properties put up to the market for sale, the lenders/banks had already come up to an agree upon for sale price so usually if the buyers offer the asking price, it will be approved.  However, some lenders/banks will still listen to the sale experts marketing strategy, i.e. to ask for a ridiculously low price to encourage strong competition and thus beat up the sold price.  Anyway, the buyers involved usually can close the escrow within a reasonable time like a normal sale.

Short Sale means even after the sold price of the property is still too short to pay the mortgage.  In this case, the individuals are still owners of the properties and not the lenders.  However, since the homeowners cannot bring additional money to pay back to the bank/lenders, the sold price has to be approved by the lenders.  Since in this case, it is the homeowners who initiated to sell the property to avoid foreclosure, the lenders/banks involved had not yet came up to an agreed upon price prior to the property put for sale in the market, every offer has to be reviewed by the lenders/banks involved.  Thus it usually takes a much longer time for closing.