As 2010 yielded its reign to 2011, I blogged that little would change this year in the Las Vegas real estate market. So far, this has held true. Prices have continued to bump along the bottom, with little to notice one way or the other. The long-predicted wave of foreclosures has (still) yet to materialize (it will not). And, as I have written many times, short sales continue to dominate the market. Las Vegas has become, by many measures, the short sale capital of the United States. And believe me: this will not change any time soon.
Due to the complexity of the short sale process, and the staggering amounts of time and stamina required to process one from the real estate professional’s standpoint, it seems as though many agents simply cannot see the process to fruition. A paycheck at the end of the rainbow is far from assured. More short sales are being completed by a small number of those who “can”, and an intolerably large number of attempted short sales are resulting in foreclosure by those who “cannot”.
I began saying a couple of years ago in my training classes that agents who are unsuccessful with short sales will not be around in our industry for long. That seems to be the case. Since short sales have become more prominent and ubiquitous, more agents have attempted to handle them. No surprise there. But frankly, the results have been disappointing.
The National Association of Realtors says that the success rate for short sale listings is around 18 percent. Not good, to say the least. After all: a distressed homeowner turns to us to get him out of a bad situation, and if we are unsuccessful at doing that, his short sale ends up in foreclosure, an unacceptable outcome. So why is this happening?
One of the main reasons, as I have already stated, is the inability of agents to handle short sales. Even those files that are successful take months of wrangling and negotiating, and often require that we sell the same property more than once. Short sales are a minefield of obstacles and a maze of hurdles, often perched precariously on islands in rocky waters that cannot be navigated by mere mortal man.
Another reason for the high failure rate is the fact that in many short sales, agents are battling not just lenders, but HOA boards, law firms, collection agencies, mortgage insurance companies (MI), appraisers, investors and other interested parties. Often, when homeowners are unable (or in more and more cases, unwilling) to pay their mortgages, they do not pay their HOA assessments, water/sewer/garbage bills, or property taxes, either, resulting in still more liens against the property that must be settled prior to short sale completion.
BPO’s frequently kill short sale prospects, too, when inexperienced BPO agents are sent out into the field to ascertain current property values by lenders cheaping out on real appraisals. Then, lenders rely on those values as if they are etched in stone. Consequently, unrealistic BPO’s trigger higher lender counteroffers, followed by buyers dropping out of the process. Then, most of the time that was remaining for the agent to complete the short sale has been burned, and it can easily result in the property going to auction before the procurement of another buyer.
Another problem with short sales is the lengthy approval process. Lenders often send files from department to department, with little if any communication between them. Files can go from one work group to another; from the short sale department to the HAFA department and back again; from the lender to the investor; from the lender to the MI company; and around and around and around. With all of this confusion and duplication of efforts, it’s no wonder that short sales take so long. And every day that passes increasingly puts the entire transaction at risk, as the buyer grows more and more impatient.
But there is another reason why short sales fail. And that is a lack of cooperation on the part of the homeowners. It’s bad enough that we need to battle the banks and all the other situations that I previously mentioned, but in some cases, we also need to battle our own clients. This is a strange, curious thing that I have witnessed lately. I have seen sellers argue over listing and contract prices, which is nothing short of baffling since they cannot leave the closing table with any proceeds any way. I suspect it’s really because these homeowners don’t want to leave their homes at all, and have only turned to the short sale process as a way of delaying the inevitable. Maybe they feel that the more they cooperate, the faster the process will go which means the sooner they have to leave their homes. But their nutty reluctance usually sends them right into an auction, followed by a very public eviction.
I have seen sellers refuse to provide the financial documentation that their agent needs in order to process the short sale submission. Still others act as impediments to showings, thereby cutting the process off at the knees before it even begins. Recently, I experienced a homeowner who already had been served a Notice of Default take a three-week vacation, refusing showings while out of town. As if there was any time to be squandered! Some sellers have been so caught up in the emotions of the diminished value of their homes and their own financial situations that they refuse to agree to price adjustments even when the market mandates so. I heard another seller say that he would not accept offers from agents who work for a particular real estate company (one of the largest in Las Vegas), because he had bad experiences with that company in the past.
This is part one of a two-part blog. Part two will be posted soon. Please subscribe to be sure not to miss it.