Costa Mesa's Neighborhood Blog

Why are Orange County Short Sales Often Priced Lower than Other Homes?

 

A short sale occurs when the seller sells his home and he owes more to the bank than the home is worth and cannot or chooses not to make up the difference to the bank from other funds.

 

I had a seller ask me the other day, why are Orange County short sales often cheaper than the regular houses?

 

There are a few reasons that Orange County short sales might be priced less than other "standard" sales.

 

First - The seller may need to sell the home and/or get an offer quickly.

If the seller has not made a payment in several months or longer, the bank may have started foreclosure proceedings.  If the seller is facing a foreclosure sale date soon, he may choose to price his house signficantly below market value to try and get an offer quickly to prevent the foreclosure sale.

 

Second - The seller may want price his home low to get several offers and/or start a bidding war. 

Sometimes pricing a home well under the market value will result in several buyers making offers and driving the price higher than it might have if it had been priced at or just below market value.

 

 

These reasons beg another question.  Are short sale prices "for real"?

 

This is a hard question to answer as although the seller sets the price for the home, it is the bank that will make the final decision on whether or not to accept the offer, and the bank is unlikely to accept the offer if it is significantly beneath the fair market value for the home.

For more information on this, please see wannabe Orange County home prices.

 

If you are interested in buying or selling an Orange County short sale and want a real estate broker who has successfully closed several Orange County short sales, please give me a call 714-319-9751.

Please see below to hear from a successful Orange County short sale seller.

 

Originally published at Orange County Short Sale Prices.

What Will It Cost Me to Short Sale My Orange County Home?

 

Though you may want a clear cut answer, the true answer is, "It depends."

 

It depends on your hardship, your financial situation, whether your loan was used to purchase your home or if the loan is a refinance.

 

Although there are many variations, this post will discuss the most common scenarios.

 

In most Orange County short sales, the bank will pay a large majority of the closing costs for a short sale, incuding the real estate agents' commission.

 

 

 

 

 

Costs Most Commonly Paid by the Short Sale Lender

• Real estate agent commissions
• Seller's title insurance
• Seller's escrow fee - though they often limit the amount
• Termite inspection, though often not repairs
• Past due real estate taxes - as long as they are not too old
• A small amount to the second mortgage

 

Items Sometimes Paid by the Short Sale Lender

• Termite repairs
• Past due HOA - Homeowners' Association - Dues
• Home Warranty for the new buyer
• Buyers' closing costs

So, when might a seller have to pay some of the costs of a short sale?

• The short sale lender may not be willing to pay as much to the second lender as the second wants, and someone needs to pay it - however, the seller might be able to negotiate this with the buyer if the seller has no money, and the buyer is getting a good deal and has the cash.
• Past due HOA dues - sometimes the amount can be negotiated with the HOA, and the buyer or seller can pay or share these if the short sale lender will not pay them.
• The short sale lender may require a cash contribution or a promissory note to approve the short sale.  Though I have had many banks ask for these, they seem most adamant about wanting a contribution when the seller has refinanced the house and taken out cash during the refinance.

We have completed a large percentage of short sales where the sellers paid no money to close the short sale.  We have had a few where the seller needed to bring a few thousand dollars to close, and in one case the seller had to bring a good amount of money to be released from the deficiency the second mortgage could have received.  Even in this last situation, the short sale seller contributed less than 25% of what they would have had to pay just for the commissions in a traditional sale.

 

If you need to sell your home and you owe more than it is worth, don't decide not to sell it just because you think that you will have to pay all of the closing costs of a traditional sale. In many cases, there are little or no costs to the short sale seller when you do an Orange County short sale.

 

If you have questions about doing an Orange County short sale and whether or not you may qualify, please give me a call at 714-319-9751.

How to Torpedo Your Orange County Short Sale

 

Almost 1/3 of the homes currently for sale in Costa Mesa are short sales. 

 

In Huntington Beach, nearly half of the homes in escrow are short sales.  This is a problem that isn't going away any time soon, and for some people it is part of their daily reality.

 

If you have to do a short sale on your Orange County home, there are several things you can do to torpedo your sale.

 

1.  Don't Pay Your Homeowners' Association (HOA) Dues.

 

- Many of the lenders won't pay past due HOA dues, and the short sale can't be closed without bringing the HOA dues current.

- If you can, keep your HOA dues current or plan to bring money to close to pay for them.  Sometimes the lender will pay them, sometimes the buyer will, and sometimes we need can succesfully negotiate the amount, but late HOA dues can torpedo a short sale on your Orange County home.

 

 

2.  Cash out your 401K

 

- Most lenders consider money in your 401K, IRA or retirement accounts to be "untouchable" money, money they won't usually require the seller to contibute to the short sale.

 

- However, if you cash in your retirement account, the bank will consider it fair game for contributions.  So, if you don't want to contribute your retirement to your short sale, don't cash it out during your short sale.

 

3.  File Bankruptcy

 

- Many banks will not agree to a short sale while you are in active bankruptcy.

- If they do agree, it may require that your trustee and/or judge must agree to the short sale.

 

- The bank may choose to file a Motion for Relief from Stay to take your home out of the bankruptcy and remove bankruptcy protection, which will allow it to sell the home through a foreclosure regardless of the bankruptcy.

 

- If you can avoid filing a bankruptcy during the short sale process, it will increase the odds that your short sale will be successful.

 

 

4.  Keep your home poorly

 

- Buyers will judge your home based on several things including price, location and condition.  If your home is poorly kept or is not show ready, they may not make an offer on it even if it's well priced.

- So, keep your home show ready so that it competes well against other homes for sale.

- A little time spent now keeping your home nice will make it more likely that it will sell close to fair market value and thus make a successful short sale more likely.

 

5.  Use your home as an ATM machine

 

- If you pulled money out of your home to pay off debt, buy cars, take trips, etc., it may be harder to obtain a short sale. 

- If the loan is not "purchase money" ( the loan used to buy the house), it is more likely to be a recourse loan (meaning the lender could get a deficiency judgment against you for the amount they don't recoup from the foreclosure). 

- If the lender can get a deficiency judgment, they may be less inclined to grant a short sale, particularly without a cash contribution and/or a promissory note signed by the seller.

 

 

This is not an exhaustive list of things that will torpedo the short sale of your Orange Count home, but it will give you some idea of the problems you face when short selling your home.

 

If you have questions about short sales or about options to short sale, please contact me at 714.319.9751.

This is not intended to be legal or tax advice, nor am I advising you do any of the above items. The above is simply a discussion of items that may cause a short sale to fail. Please consultant an attorney and/or accountant when considering a short sale and/or facing foreclosure.

 

 

This advice is so important.  Orange County short sales are difficult to get approved and closed without adding additional hurdles to the situation.

Why do so Few Orange County Short Sales Close Compared to the Number in Escrow?

 

It's no surprise that there are a lot of homeowners who are upside down (owe more than their home is worth) in their homes right now. 

• Median home values in Orange County are down 40% from just a couple of years ago. 
• Many people bought their homes with little or no money down.
• 6 of 10 Orange County homes purchased in 2006 are upside down

The result, along with the economic troubles, has been that many homeowners have the need to sell their homes but cannot pay off the loans because of the current value of their home.  This results in a short sale.

For more information on Orange County short sales and foreclosure options, please see Short Sales and Foreclosures in Orange County.

 

What is interesting to me are the number of homes in escrow that are short sales compared to the number of homes that have sold in a month that are closed short sales.

In examining this, I looked at Huntington Beach.

 

In November:

• 126 homes sold in Huntington Beach, 16 were closed short sales. 
• Of the 126, 15 were bank owned foreclosures. 

None of this may be very surprising, but what I find interesting is the comparison to homes in escrow (a buyer and seller have entered into a contract to buy/sell the home).

During this same time:

• 306 homes in escrow. 
• 155, or more than half were short sales. 
• Only 18 of the homes in escrow were bank owned foreclosures. 

This is not a one month oddity, I see similar numbers going back over the past several months.

In looking at this, it appears that a bank owned foreclosure is likely to close escrow, while only a very small percentage of the short sales will close.

Why is this?  There are likely several reasons:

1. It can take months for a short sale to be approved by the bank and close, so there may be a glut in escrow.
2. A bank may not approve a short sale, so it never closes.
3. The buyer may become tired of waiting for a bank approval so the escrow doesn't close.
4. A bank owned home is truly "for sale."  The bank wants to get it closed, and it does not require a third party to agree to the sale.

Given this, should you consider buying or selling an Orange County short sale?

For sellers whether or not short selling your Orange County home makes sense depends upon your individual situation. 

For buyers, buying an Orange County short sale may mean getting the right home at the right price, but the buyer needs to be willing and able to be patient.  If you have to move in the next 30 to 60 days, a short sale is probably not the right home for you.

 

If you would like to receive my e-book with more information on short sales and foreclosures, please e-mail Me!

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About the author: Christine Donovan is a California Residential Real Estate Broker with experience in assisting clients buy and sell residential real estate.

Are you upside down in your home? Do you owe more on your Orange County home than it's worth, and you don't know what to do? Are you concerned about making your mortgage payment? Contact me at christine@donovanblatt.com or 714-319-9751 to discuss your options.

Want to buy a home or to list your property for sale in Newport Beach, Costa Mesa, Huntington Beach or Orange County? Contact me at christine@donovanblatt.com or 714-319-9751 to learn about our system which will make your buying and selling experience easier.

Disclaimer: All information in this blog is deemed reliable but is subject to change at any time and is not guaranteed to be accurate nor are there any warantees either express or implied. This blog is not intended to offer any legal, tax or other advice.

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Copyright © 2009 by Christine Donovan, All Rights Reserved.  Why do so Few Orange County Short Sales Close Compared to the Number in Escrow?