A week or two ago, I had a short sale close. If you’re selling real estate these days, you’re selling short sales. About 1/3rd of all listings in the county are either short sales or REOS, and I’ll bet that among properties that are actually selling, much more than 33% are short sales or REOs.
There are many misconceptions about short sales. The first big misconception is that they’re actually short. Alas – they are not. They seem to drag on, and on, and on. Much more often than not, they are torturous. While you can get a good deal on a property by buying it as a short sale, I posit that you are not necessarily getting a “good deal” – you are probably getting a fair deal, given the state of the market.
I don’t want to go into a great deal here about what a short sale is, or isn’t. If you’re interested in learning about short sales in general, I invite you to view my video presentation about Opportunities in the Santa Cruz Foreclosure Market. Or, you can also download my Santa Cruz Foreclosure Report, a 10 page PDF document I whipped up about buying foreclosure real estate in Santa Cruz.
Specifically, I want to discuss this one short sale I closed a week or two ago. A few months back, I got an early morning phone call from a lady who had been using my web site to look at properties and research the foreclosure process. It turns out, there was a condo she wanted to buy in Capitola, but her present Realtor wasn’t too eager, for whatever reason, to write up an offer on a short sale. Did I feel comfortable doing so?
Sure, I said, no problem. In fact, I feel very comfortable writing up short sales. With a short sale, it’s the listing agent that has to do most of the heavy lifting, working with the bank, staying in touch, doing what they can to get the bank to accept the short sale offer. In fact, I don’t take short sale listings. It’s too much work for me, I’ve got my hands full already – so I refer my short sale sellers to a colleague of mine, and that’s his specialty – working with short sales, representing the seller.
We wrote the offer up, a fair bit lower than asking price. We wrote it up at a price that I thought was fair at the time. The listing agent had thought it would be about a month before the bank would accept the short sale price. I knew, of course, that this was just a guesstimate, and it would probably take much longer than that – and I informed my client as much. In fact, I told her it could easily take 2-3 months. Or more. My client said fine, she’d be patient – this is the only condo she wanted, and she’d seen plenty. This was it, and it was worth waiting for.
Which is good, because if you want to buy a short sale, you need to really want that property, and you’ve got to be patient. One problem with being patient in a falling market is is that you watch as all the prices start to decline. You begin to see that other homes are closing escrow for prices that may be lower than what you wrote up in your short sale offer. Zoinks.
And that’s what happened here. My client started to fret – was she getting a good deal? Was she overpaying? Would values continue to drop, and if so, how low would they go? So, we decided to send in an addendum asking for some closing cost credits, which we hadn’t asked for in the original offer.
The listing agent loved this. Ha, just kidding – she kind of pushed back against that idea. She didn’t want to have to try to negotiate a closing cost credit on top of everything else. So, a week or two of tension surrounded this, but eventually the listing agent got behind the idea of the credit, got her client (the seller) to sign the addendum, and submitted that to the bank.
After much hemming and hawing, the bank agreed to the purchase price, plus the closing costs credits – hooray! We were good to go. And here’s where the trouble really started. Once we had an accepted price and terms, we went over to the property so I could do my AVID – my Agent’s Visual Inspection Disclosure. I had never actually been out to the condo yet – but I have been in many other units in this complex many times over the years.
We went there along with a couple of contractors my client wanted to have do some work – painting, installing a washer and dryer in the unit, that kind of thing. One of the contractors helpfully pointed out that the unit had popcorn ceilings – that is, the ceilings were treated with that bumpy white substance so popular in 1970’s construction. “Those are asbestos ceilings,” he said.
Good stuff. Like many people, especially in Santa Cruz, my client has an aversion to all things toxic, especially the kind that are known to cause cancer. There’s a great deal of information on popcorn ceilings, and the health risks popcorn ceilings represent. Apparently not all popcorn ceilings contain asbestos, so you need to test.
So, test we did. It turns out, these ceilings had an asbestos content of 10%, which is very very high. Not good. What most people do is paint over the popcorn treatment, and that seals in the asbestos, and be done with it. My client, however, did not feel that was acceptable, she didn’t want this toxin in her home.
Next came the quotes to remediate the asbestos. We got some quotes for testing and remediation – not too bad, just about $3200. Unfortunately, my client did not have the money on top of everything else to pay for this, nor was she inclined to – she felt “the bank” should pay for this. So, it was back to the listing agent, for another addendum, specifying that the seller would pay for this – which, since the seller had no money, that meant his lender needed to pay.
Another couple-few weeks of drama surrounded this latest development. Eventually, and to my surprise, the short sale lender did agree to pay another $3200 for asbestos remediation. My client arranged with the remediation and testing companies to bill escrow, and off we went, another hurdle leaped.
This asbestos remediation company is a professional outfit, that’s what they do, is remove asbestos. So, it was kind of surprising to find out they had done a half-assed job. In fact they ended up contaminating the entire unit. Wow, what a nightmare. The thing with short sales is, the lender gives short sale approval, with a close of escrow to be on-or-before a certain date – and they typically don’t give you very much time to close escrow once they have given you approval, as was the case here.
To cut a long story short, we were ultimately able, by hook and by crook, to get the unit certified as “asbestos free” in time such that the lender could fund the loan and close escrow in time to stay within the time period permitted by the short sale approval letter. We had to kind of cheat here, actually – my client got the testing company to do a simple field test, because if we’d have had to wait for the actual electron-microscope lab test, we wouldn’t have made the cut-off date. The field test said the unit was clean, the lab test said no – there was another round of cleaning and testing before the unit was actually cleared, but this was several days after escrow had closed.
It looks like we got lucky on another account – a couple of days after escrow closed, the escrow company, Financial Title, shut its doors forever. Another sign of the times. Whew. Dodged a few bullets on this one, rat tat tat.
What a crazy gig, this Realtor bidness. I hope to tale of a Santa Cruz Short Sale has provided some useful anecdotes for you – please let me know if you have any follow up questions!