As we mentioned in our article on Florida Foreclosures, the bursting of the sub-prime mortgage bubble resulted in a sad and regrettable reality as the state of Florida topped the list of states with the highest rates of foreclosures and short sales. The situation has been dire for many homeowners over the last many years as they were forced to lose their homes.
Although the climate has changed dramatically as of 2016, we would be remiss in our duties as agents and brokers, if we didn’t highlight the investment opportunity presented by these types of sales.
O Fortune, Fortune! All men call thee fickle
While the opportunities in this sector are still present, and in many instances a great way to achieve value, it is important to understand both the intricacies and the process of Florida short sales if you are going to go this route.
It is also critical that you have an excellent agent representing you, one who understands fully and completely the tricky nuances of the distressed property sale process.
In Florida short sales the local knowledge and experience of your Realtor becomes even more important; in fact, it’s critical to the success or failure of the deal. Your choice of agent will ultimately determine whether or not you get your home. They need to have the experience and skill to know exactly the true value of the property, and what it’s worth to you.
For our business and any small business with integrity, it’s all about the people you have onboard and the relationships you build. Nowhere is this more true than in a short sale situation.
Foreclosure vs. Short Sales: What’s the Difference?
The key difference between a short sale and a foreclosure is that in a foreclosure the bank takes ownership of the property and forces its sale to recover losses. A short sale, on the other hand, is a delicate negotiation between the property owner and the bank or lender to recover as much as possible from the property’s sale to be paid towards the loan owed to the lender.
So What Exactly is a Short Sale?
A short sale, or deed in lieu of foreclosure, can be defined very simply: where the property sells for less than is owed to the bank. This becomes an option when there is a hardship that requires the sale of a property and the homeowner does not have the ability to pay the difference between the net proceeds from the sale and the amount owed on the mortgage.
Essentially, the Buyer is asking the lender to accept less than is owed on the property and forgive the borrower the difference on the loan, agreeing to a “short” payoff. This decision is down to the lender and it requires a lot of paperwork and appraisal to get that decision made.
The Big Benefits of a Short Sale
- For the Seller: a short sale allows for the avoidance of foreclosure and the resulting negative credit implications and in many cases the absolution of the money owed to the Lender that is in excess of the proceeds from the sale of the property. (Amount owed on Loan – proceeds from the sale after expenses = shortage that Seller wants Lender to forgive).
- For the Lender: a short sale allows the lender to avoid the extra and often exorbitant costs associated with the foreclosure process.
- For the Buyer: a short sale can provide for the opportunity to purchase a home at or below market value. Another benefit to the Buyer is that short sales are generally owner-occupied and, therefore, the property tends to be in better condition than a bank-owned property.
The Process of Florida Short Sales
- The first step in the process of a Florida short sale is to determine if the process is appropriate for you as a Buyer. Because a short sale requires negotiation and the approval of multiple parties, the process can take some time. Thus, as a Buyer, you need to have both patience and flexibility.
- The second step is to consider your financial situation. When a short sale, it is important to have your finances in order as the lender will be more likely to accept a cash offer that gets the property out of their way quickly and easily. Otherwise, you should be approved or at the very least pre-approved for financing before you even start.
- The next step is to find a Realtor who has experience dealing with Florida short sales. Realtors who specialize in pre-foreclosure properties are often able to negotiate a favorable short sale price with the lender as part of their strategy.
- Once you have a Realtor, the process of making an offer on a short sale is very similar to making an offer on any property. The principal difference is the length of time before the offer is approved.
- The Seller will generally respond to your offer within a few days, although the Seller’s acceptance is still contingent on the Lender approving the “accepted price.”
- Getting approval from the Seller’s lender is the part of the process that creates uncertainty. Typically, all parties to the transaction are asking the Lender to agree to release its lien on the property so that it can be sold even though the sale price will not generate enough monies to pay off what is owed on the loan. The critical part for the Seller is that she is released from any further liability to the Lender even though the sale of the property does generate enough money to repay the loan in full.
- The property then must be appraised and all of the relevant parties must negotiate the terms of the sale.
- Once the Lender accepts your offer, the rest of the process moves forward as would any Florida property purchase.
We detail what you need to know about standard property purchases in our article “Your Ultimate Guide to Buying Florida Property in 8 Easy Steps.” Please visit this article for more information on completing the property-purchase process.
An Example: A Short Sale We Listed…
To illustrate the challenges in dealing with Florida short sales, we share the story of a property we had listed for two years in a depreciating market. Initially, we had a buyer willing to buy the house for $1.2 million, but the lender was not ready to accept it.
Fast forward 15 months and the lender took 280,000 dollars (23 percent) less. Why? In this case, the first Buyer was ready willing and able, the Lender had all of the required info to make a decision, the appraisals supported the offer, but the Lender was not ready to take the loss on the loan and release the Seller (Borrower) from any further liability.
15 months later we worked with a negotiator at the same lender with years of experience who is paid for performance. The difference: We went from contract to closing in 60 days for 280,000 dollars less. Like all things in life, a short sale is all about the people. In this case, the Lender actually wrote off (took a loss on) the additional $280,000 and released the Borrower from the additional monies.
Our Advice For Anyone Looking For a Short Sale Property?
Florida short sales can go through as quickly as 60 days, but more typically take up to six months. The buyer has to be prepared to wait out the process as the bank and the seller hammer out the details of what the lender is prepared to accept.
Get the Right Realtor
Like any real estate deal, a short sale is all about the people. Make sure your Realtor has a lot of experience with Florida short sales. An experienced Realtor will keep the deal on track by being persistent and negotiating constantly with the lender or seller’s agent. That relationship is absolutely critical to the success of a short sale. Your Realtor also needs to have intimate knowledge of the local market to know the true value of the home.
Don’t Count on a Short Sale
The percent of Florida short sales has decreased dramatically since 2009/2010. While there are still opportunities, they have become much less prevalent. On one hand, that means fewer “deals” to find, but on the other hand, it is a signal that the local real estate and local economies have experienced a solid recovery.
Because the Florida real estate market is currently strong, it is even more important to make sure that you have a qualified Realtor advocating for your best interest as you explore the possibilities available for your glorious new Florida Home!