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Short Sales and Phantom Numbers

April 29th, 2008 categories: Tampa Real Estate, Tampa MLS, Tampa Market Conditions, Short Sale Information, Tampa Home Buyer Tips

By now many Tampa home buyers are aware that purchasing a pre-foreclosure property is not all that easy. Short sales, or short listings, as they should really be referred to, are abundant across the Tampa Bay area. A short sale listing is a home for sale for which the listed price will not be adequate to cover the seller’s loan payoff(s) and other related costs of selling.

Once it is obvious that the seller can no longer make payments and is facing foreclosure, most sellers will begin dropping the listed price of the home to find the sweet-spot (a moving target these days), the price in which a buyer sees value and finally makes an offer. I call it the phantom number, because that’s really what it is. For many short listings, it has nothing to do with the market value of the home. It’s simply a number dropped low enough to entice a would be buyer to make an offer (market value?). The seller signs off on the offer and presents it to the note holder, and pleads a hardship case. The bank, or holder of the note, solicits an independent opinion of value, and makes a decision to either approve the sale, or counter the buyer’s offer with a higher number.

Quite often the bank comes back with a number that was much higher than the listed price or, phantom number. The bank has to consider many factors, including estimated market value, payoff on the loan, the costs involved in the sale, etc. The bank, in trying to mitigate its losses, will attempt to get the highest price possible.

So many would-be buyers are getting frustrated by waiting months for third party approval, only to find out the bank wants an even higher price than what was listed. The phantom number effect. A disclosed bait and switch? Is it fair to list a home for sale at a short number without first getting the bank’s approval? Banks most likely don’t want to approve any number until an offer is presented and a clearer picture of the market is available. Sure, the fact that the listed price will be short has to be disclosed. Our MLS requires certain language be included on the listing:

Listing price may not be sufficient to cover all encumbrances, closing costs, or other seller charges and sale of Property at full listing price may be conditioned upon approval of third parties. Call for details.

And there’s also a disclosure for buyers to sign that includes the language:

1. You may not simply “walk away” from a contract which is subject to lender or third party approval - you will become obligated to perform under the contract from the date of its execution until the lender or third party disapproves the contract or a term in the contract permits either the seller or buyer to terminate.
The lender or third party is under no obligation to consider, respond to, approve, or disapprove your contract within any specified period of time.
It is possible the lender may elect not to approve the contract, in which event you will not be able to buy the property at the listing or contract price.
At the time the seller enters into the contract with you, the seller may not have been informed by the lender:
(a) what an acceptable purchase price may be, or
(b) that the lender would participate in or consider a potential Short Sale offer.

So buyers beware. That number may look great, but chances are you’ll not even get a response, much less approval. Every situation is different. Some lenders respond quickly, some short listing prices have already been approved. But the fact is, lenders would rather not have to foreclose on the property and attempt to auction it if they think they can do better by letting the borrower sell it short. Short sales are being approved. Let’s face it, market values have declined. So anyone who purchased near the top of the market in 2005-2006, and did not put 20% or more down, is most likely upside down. Likewise, anyone who refinanced in that time period, and tapped out their equity, most likely owes more than it’s worth.

So understanding the circumstances, the processes, and the fact that the list price is just a phantom number, can go a long way in reducing the frustration factor for would-be short sale buyers.

Did you know?

There are 707 MLS listings tagged as “Pre-Foreclosure” in the City of Tampa (as I type).

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This entry was posted on Tuesday, April 29th, 2008 at 4:07 pm and is filed under Tampa Real Estate, Tampa MLS, Tampa Market Conditions, Short Sale Information, Tampa Home Buyer Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “Short Sales and Phantom Numbers”

Susan Hilton - Texas Aggie Realtor [May 6th, 2008]
It is so sad when agents spend their time, the seller’s time and the buyer’s money working on a short sale without all the facts. Yet at the same time lenders won’t always give you an answer on what the property may be sold for until they have an offer to consider. Seems like it doesn’t matter what we do it is wrong or not quick enough.

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