Unconventional Sales

Short Sales – Foreclosures – Auctions

Once upon a time people learned I was a Realtor and would say, “here let me open the door for you.” The year was 2009, and the Great Recession was a real depression if you were at ground zero in the real estate business in South Florida, like I was. I had a flashback to that time this week as a client insisted on a short sale, foreclosure, or auction only. The weird trio of alternative sales. People think they will get a “deal” but usually it’s not the case at all.

Back to my flashback, I remember once being so short on cash that I filled up part of a tank of gas with ten dollars in quarters, and having to wait for a commission check to clear before paying for a needed doctor’s appointment. Keeping our home was the win back then. Many didn’t.

February 28th 2006 was the zenith of the market. I remember finalizing a deal on a 2,500-square-foot single-family home, all original, for $666,000 (talk about a bad omen) where we got three offers and that was the best we could do. My seller was a Realtor up in Canada and I told her that parts of the market were acting funky. That same property sold for $480,000 in 2014.

There were warning signs before. A plumber I knew had purchased four properties to flip. There were countless like him. Investors were buying homes sight unseen and financing them with pricing above market. I would give a CMA on a home in a new country club community, only for the sellers to tell me that their friends they played Mahjong with had purchased two homes and made $200,000 each. Now they wanted to do the same but, since they were more knowledgeable, they wanted more money. Assignments were big. People would purchase a home and sell it while under construction for a profit.

Finally, a lady called me and wanted to see a home. I met her and she never looked up at the house. She wanted to pay a high amount for it. I told her that if you flip it, there is carry cost, commissions, and closing costs. You are well behind the 8 ball unless you quickly get 10% more than its value now. She scolded me and told me she just took a real estate course and knew what she was doing. I couldn’t represent her in good faith.

The world changed that April. I’d usually put 10–15 under contract and I had one that month. Then in 2007 I learned a whole new vocabulary and three selling options I had never experienced before. It was like meeting three new cousins.

Short Sales

The weirdest cousin was the short sale. I just made a moaaaannning noise while writing this. Short sales were that bad. The first one I had started at $1,150,000. At some point it morphed into a short sale, which was the first time I ever heard the term.

The first offer we received needed to be accompanied by a boatload of financials that the seller had to fill out. We faxed over something like 80 pages. I waited on hold for three hours to make sure they received it. They did—but wanted me to send everything over again and mark “offer submitted.”

I said, “Can’t you just take what we sent?”
“No sir.”
“Agghhhhhhh!”

We went through six offers. In some deals, the buyer got tired of waiting. In others, the buyer bought something else while we were waiting. Sometimes the bank rejected the offer for being too low. Finally, we got one accepted after working on it for four months—but our seller decided not to sign off on it and just wait to be foreclosed upon. Quadruple Agggghhhhhh! It was eventually foreclosed on for something like $475,000.

Short sales were everywhere—from new construction to the ritziest country clubs. You could rent a home in Mirasol for $2,500 including golf membership.

Buyers would say they wanted a short sale. I would say, “Would a home that was just a good deal suffice?” The perception was that short sales were wonderful deals, but that was not always the case at all.

For those of you who don’t know what a short sale is, here’s a little Short Sale 101: A short sale occurs when the homeowner who has a mortgage(s) owes more on the house than the value of the house, and does not have the means to pay it back. Sometimes there is one lienholder, and in other cases there can be a multitude of lienholders.

At the height of the Big Short market there were so many short sales that it wasn’t uncommon for it to take 6–9 months to get through the paperwork backlog. I wouldn’t take a short sale unless the seller would hire a short sale processing company to assist with the paperwork, and I had to make sure the seller was motivated enough to clean the house and fill out the necessary paperwork. Not an easy task, because sellers were depressed, didn’t have the means to clean the house, and the last thing they wanted to do was pay a short sale processor. But if I got them to do so (and I probably sold a hundred short sales), it made the success ratio very high.

Short sales confused the market, and I think lowered prices more than they should have. The problem was that sellers didn’t care what price it sold for, so they would put super-low prices on properties. Buyers would see these and be tempted to buy those, and pass over properties that were not short sales. However, the prices were subject to third-party approval.

The bank needed to make sure that:

The price was within market threshold; and
The seller really didn’t have the means to pay.

Often the price that the bank(s) came back with was higher than the prices agreed upon. Many deals fell apart right then and there. Also, sometimes the paperwork showed the buyer had money hidden away or assets like a boat that could be sold off—and deals were denied for that reason.

Furthermore, because nothing was hard on the contract until 10 days after the inspection period (which didn’t start until after everyone signed off once third-party approval was accepted), buyers would back out or made so many offers they never told the listing agent they bought something else! And even if they did the inspection, deals would fall apart during the inspection period because the house wasn’t kept up and the seller had no means to pay for the repairs. Appraisers were in high demand and would travel sometimes from Miami or Orlando and had no clue about the house. They would often overvalue the home. Often I literally would change my puffing descriptions in MLS from, “Stunning view from this great room open plan and stainless steel appliances in gourmet kitchen” to “Fixer upper with partial side canal”. Kitchen appliances AS IS. Create your own vision!

Foreclosures

Foreclosures ran rampant as well. I looked into this world once and said no thanks. The listing agent had to do mass bulk business and pay to fix up the properties. Foreclosure prices would be listed below market, and the bank would then negotiate. People always wanted to come in below asking and it was a battle to get them to submit at list price or above. And the house would always sell 10-20% above list because it was listed too low. In addition, foreclosures were never taken care of by the owner before they were evicted. Often, they would be so angry, they would get revenge by booby trapping the house and filling up pipes with oozing material. Mold was constantly rampant because the owner stopped paying the air conditioning and never fixed anything up. Some tried buying directly from the courthouse. They had no idea what they were doing and took risks with clouds on title. A mess.

Auctions

We saw a lot of auctions back in those days, mostly on high-end properties as the seller had to pay for the auction. The problem with auctions is the reserve—and if the property doesn’t get enough, the seller can choose not to sell. Last year we had a client who wanted to do so, and the auction did not work. We sold it a few months later for a higher price than what the auction brought in.

All three of these methods are tempting for buyers, but often the homes sold this way had problems and were more of the C-D-E properties that needed to be fixed up. They often did not have good views or floorplans and needed work.

Short sales, foreclosures, and auctions can be tempting—but like kissing cousins, not something you should look to do.