In a word, short sales occur when the proceeds from the sale of a home are less than the balance owed on the mortgage loan. Usually, the lender must agree to accept the lesser price to push the deal through to completion. While they can be reluctant, banks and lenders increasingly do so, figuring it’s a better deal than foreclosing. Still, getting lenders to agree is akin to a root canal — it’s painful and can take a long time to close (as long as four months in many cases).
Even so, short sales are on the rise. Bank of America (Stock Quote: BAC) estimates that short sales requests doubled from 2008 to 2009. In Las Vegas alone (a city hit hard by the housing bust) short sales accounted for 22% of all home-sale closings by the end of 2009.
That’s up from 8% at the beginning of that year. So what is the NAR’s take on short sales?
The association lists six “temptations to avoid” for real estate agents involved in short sale deals. A quick look reveals that there is no shortage of land mines for sellers and buyers to negotiate when considering a short sale deal.
According to the NAR message to its real estate member base, those “temptations” include:
1. Standing in the way of home-retention efforts. The lender's first responsibility is to help owners who want to stay in their home do so. If the lender approaches them with a good-faith effort to modify their mortgage, let them out of the agreement.
2. Embellishing the hardship letter. Real estte agents are supposed to help clients be as accurate as possible when they describe their degree of hardship to their lender. Helping to prepare a letter and other documents that aim to mislead or obfuscate is never justified.
3. Shopping the buyer’s offer. Short sale transactions require too much of a commitment on the buyer’s part to try to get a better deal for your sellers at the last minute. If a buyer has made a good-faith effort to offer market value, don’t seek higher offers.