Not unlike the 80s hit, Star Search, we are looking for a unique shining "star" (aka- home) that dazzles us and makes us happy. This process seems easy to those hanging on the outside, but has proven to be quite a complicated thing. The good news? We are no longer in 2005 where people are snapping up properties at $50K over their market value a minute after they hit the market. It's definitely a buyers market, so we are on the right side of the coin there. So what does a buyers market get you? Generally it would imply that buyers can have their "pick of the litter", but in this case the litter has many runts and is kind of on the small side.
Because banks were handing out loans like idiots to idiots buying properties at $50K+ over their true market value thinking "there's no place to go but up!" (it had been for a few years), we are now in a bit of a pickle and short sales are the new fad. This past weekend we got quite the education on what a short sale really is.
Short sales? Why the name sounds like it would be painless and quick! In reality it's quite the opposite. The short in short sales mean the buyer is short on their loan from what they took out to buy the place and what they are trying to sell the place for today. Let's look at an example shall we?
Idiot A bought home at $450K, Home was really worth $425K, Idiot Bank gave them loan anyway. Five years later, home is now worth $400K and Idiot A still owes the Idiot Bank $430K. They are "short" $30K of the value of their home. They probably could continue to make the payments, but they are forever going to play catch up for the losses (assuming we will not get another boom like our last one). For many, it's just not worth it. For a while many sellers weren't willing to own up to this idea that their home wasn't worth what they paid and so there was a huge disparity in the market. Buyers weren't going to buy at those prices and sellers weren't willing to take a loss. So the sellers held out, but their options did not improve and now the drift in the amount the are "short" has probably increased.
There are short sales all over the place, but the problem with going this option is that you and the seller can't just come to an agreement. By having a short sale the seller is essentially asking for the bank to forgive the difference and allow them to just sell the house for a loss. They don't get a foreclosure on their record and the banks still gets money (although not all of it). Unfortunately, the banks have come under a lot of scrutiny and so this process has been complicated. They have to agree to the purchase price, but often times they are slow to respond, could change their mind, and of course, the seller is more than likely emotionally on edge considering it means their finances are more than likely in ruin. So you as the buyer, who is just looking for a good deal and wants to make everyone happy by making the purchase can quite often become angry with waiting on people and how much they change their minds while being on this emotional roller coaster.
For those of you who know me, you know this is a bad wrong idea. So this narrows our "litter" drastically. On a listing of 30 homes, half are short sales, another handful are out of our real range commute wise, another handful are just on the upper edge of the budget we aren't ready to really consider, and that leaves you with less than a dozen that may or may not work. Did I mention that what you may consider buying is usually snapped up by people who are probably 3 months further down the process than we are? Many of the "good ones" are snatched up within the month.
Right now it feels like we are getting to the buffet late and we are picking through everyones half chewed on leftovers. I am sure once we get going and understand how this process really works and see what our money will buy us, it will be easier to jump on properties. For the time being, I am just happy I figured out short sales are something to stay away from. So we will see how this goes as our home buying journey has begun!!