Yesterday, I took a short class with ORTC on the topic of short sales. It's a relatively recent occurence for the Kauai real estate market. It was good to review some of the consequences when a seller is in a short sale. As you probably know, a short sale occurs when a seller owes more the property is worth, has no cash to close, and the lender will accept less than what they are owed. Especially when buyers have leveraged their way into a 2nd home on Kauai, and borrowed against the home to improve it, its a scenario we're likely to see more of in this market.
If you are representing the seller, we need:
The full cooperation and trust of the seller; need to prepare them for what the lender may require.We need to ask direct questions like:How much do you make? How much do you owe? Who is on title with you. We need the complete,big picture of what is going on. It's a good idea for the seller to discuss the short slae with their accountant as the lender’s forfeited amount may be considered capital gains by IRS.
How upside down are they? What’s the property condition. If the seller has other real property, or retirement savings, that may be taken into consideration by the lender.
I'm sure in larger mainland markets, short sales are a common phenomenon. When i checked this morning in our Kauai MLS, Hawaii Information Service, there were 14 listings posted as short sales. There may be more that are not noted as such, but some properties may become short sales by the time they receive an offer. It's important to know that a great deal of patience is involved. We recently had a short sale in our office where the buyer had offered over 26,000 more than the appraised value of the 3 bedroom home on one acre, and it still took Countrywide more than 2 months to respond.
I'm curious to know if you've had to deal with short sales and what the recent disposition of the lender's is regarding agent commissions. From yesterday's class it sounded as if the agents are generally expected to throw money into the deal to make it work. Given the timeframe of the short sale, the delicacy of the emotions for the sellers, and the possible complications and demands from the lenders, it seems that an agent would earn MORE not LESS money when overseeing and managing this type of transaction.
Buyers who are looking for deals on Kauai real estate and the opportunity to purchase below market seem excited at the possibility of a short sale, but I do not think most buyers really understand the complexity of the deal and the time it can take to actually close on a property.
Bottom line is that we need to raise our awareness and be as thorough as possible when representing buyers or sellers, to make sure that we hedge our bets for success.
Ron Margolis, RA, CDPE, ABR Hawaii Life Real Estate Services 808.346.7095 email: email@example.com