Lots of clients who are beginning the process of buying in Los Angeles are always interested in two things….foreclosures and short sales. Everyone has undoubtedly heard the guy bragging at the water cooler about his short sale purchase. Well, I have a saying….no one can afford to drink at the water cooler. The reason is because you almost always are only get titillating, misleading, partially true and partially omitted stories. The truth about short sales in Los Angeles makes it easy to see why they are a headache and often do not offer much more than a market deal.
So lets get started with the basics. A short sale occurs when the value of a property has fallen below the amount that the bank has loaned on the property. Often the owner of the home is unwilling or unable to continue with the payments and wants to sell the property, but the proceeds will not even pay their loan back, let alone give them any of their investment back, so they are stuck. Their only option is to either pay the bank the difference between the sale price (minus selling costs) and the loan amount, or to let the bank foreclose on them and take back the property. However banks don’t WANT to take back properties. They have discovered that they can save money if they work with the homeowner to market and sell the property and accept less money than they are owed, or accept a “short payment”. This is where the term Short Sale originates from.
Now that we know the dynamics of it all, let’s ask ourselves a couple questions. In a short sale, who is actually controlling the sale of the property? The answer is the bank. They are also controlling all of the negotiations and the sales process. Lets think to ourselves what type of business banks are in…..the financial business. And what type of entity are banks? The answer of course is corporations. They are huge corporations. In this transaction they will be losing LOTS of money but trying not to.
So if we are looking at buying a short sale, we know that we will be negotiating against a huge corporation that specializes in finance that is trying to mitigate their losses. Now, as formidable of a negotiator as you are (and I know you have negotiating prowess beyond the common man) I am still going to bet that the bank is better at it. I am also going to bet that they do everything they can to stack the deck in their favor. And I am also going to bet that the price they get on that house, while substantially less than their loan amount, is NOT necessarily substantially below MARKET in that area.
So, yes the bank can be losing one, two, three hundred thousand dollars, but the truth of the matter is that the BUYER is not getting very much of that. What they are getting is an EXPERT seller who protracts the entire process in order to benefit themselves and maximize their value while giving the buyer as little control, guarantee, or warranty as possible. Who would ever choose a seller like that? Not me.
Do you know who we’d like to choose to sell us their house? The seller who has a LOT of equity. The little old lady who just moved to a nursing home with no loan on the house, or the heirs who just inherited their moms house with no loan, or the all-cash owner who is forced to sell, or the empty nesters who have owned for 20 years and need to downsize. Lets contrast these with a bank…..none are professionals, none are corporations, none are financial specialists or institutions, none are taking a loss, and everybody has profits/cash to negotiate with. I always tell my clients, you are way more likely to negotiate $50,000 of value out of Joe Home-Seller than Bank of America.
Jason Reitz
Broker and owner of Rock Real Estate in Los Angeles (www.Rock-RealEstate.com).
