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Despite years of promises from the banks and various half-baked government programs that often did as much harm as good, the short sale process remains mired in lengthy processing delays that continue to play their part in hindering the overall housing recovery.  A new survey from Inside Mortgage Finance has just confirmed what those of us in the profession already know; buyers are sick and tired of short sales and their average completion times of 16 to 17 weeks.  Of course this 4+ month average completion time masks a larger truth, namely that many short sale transactions never make it to completion at all.  The reasons are both numerous and complex which include (but are not limited to) difficulty with inconsistent appraisals, the logistics of getting multiple interested parties on the same page, garden variety bureaucratic issues involving mountains of paperwork and most especially the lack of experienced staff in the mortgage servicing industry relative to the size of the task.  First time buyers have been especially discouraged by these frustrations and the survey also documents a significant multi-month decrease in the number of successful short sale transactions attributable to this segment of the buyer universe.  In the Las Vegas real estate market specifically, short sale transactions generally account for 20% of total completed sales in any given month.  This is an absurdly low figure given the severity of residential distress across Southern Nevada and the fact that a much higher 50% of residential properties for sale are short sales.  This means that 3 out of every 5 of properties marketed as short sales never have the chance of successfully closing with buyers taking over as the new owners.  There is prolific belief in the Las Vegas real estate community that most new government programs to boost the real estate market, let alone the economy, will have any positive impact for consumers.  The government and the banks are missing an important opportunity to move the ball forward in terms of stabilizing housing prices through greater short sale facilitation. We are living in a historic time that I fear I will be retelling to my grandchildren just as my grandfather recounted the Great Depression to me…

Will Uncle Sam & the banks help deflate the housing bubble?

It seems increasingly clear that the only realistic hope for the U.S. residential real estate market is the investor buyer. Unfortunately, there is no compelling evidence to suggest that owner occupiers will exist in anywhere near the necessary numbers (for a very long time) to absorb the inventory glut generated by the largest real estate bubble in world history. For those that would venture forth to buy a home for the purposes of building a life within that property, twin challenges of tighter lending standards and difficult appraisal issues have substantially throttled both enthusiasm for the process and the means to fully execute the transaction. Even more debilitating than these logistical and financial impediments is the matter of market psychology. Put simply, lack of confidence in the economic future is crushing the United States economy and by extension the national housing market. How serious is the damage?  A recent Trulia survey concluded that in 74% of major metropolitan areas it is now demonstrably cheaper to buy a home than to rent. When you combine this enticing statistic with mortgage interest rates at record breaking historical lows, one would think that buyers would rush forward in droves. The problem of course is that buyers have to metaphorically “step forward” to buy a home and very few people in today’s economy have the nerve or the inclination to step anywhere. The American consumer is substantially frozen in place and the descending pattern of the Consumer Confidence Index in 2011 bears this paralyzing fact out quite clearly. Recent political events from the Middle East “Arab Spring” to the debt ceiling fiasco in Washington, D.C. have combined with the very real fear of a second recession to cast a pall over the entire country. Knowing full well that it costs them more, people are choosing to rent in droves in order to cope with the terrible uncertainty they feel about the future of the country as well as their own economic lives.

The best hope for the U.S. housing market is for strong investor activity to continue without unnecessary and counterproductive impediments and obstacles, especially from ineffective government programs but also from the decisions made by the banks. The bottom line is simple: the nationwide housing recovery cannot even begin until distressed inventory has been substantially absorbed and no player in the residential universe is positioned to perform that function except cash-flow investors. I can give you as an example the Las Vegas real estate market, which would be substantially devoid of buyer activity if not for the huge influx of number-crunching cash investors seeking to secure properties for consistent and reliable income (roughly 50% of purchases are now ALL cash in Las Vegas). Rental demand is surging nationwide for reasons discussed in the previous paragraph, and nowhere more so than Las Vegas, Nevada. The fact that we have been the foreclosure capital of America for over three years has of itself generated significant demand for single-family rentals as people move out of the home they used to own (usually after not paying for upwards of two years) and into a new home that they need to rent.

It seems to me that this is a golden opportunity for both the government and the banking industry to get behind investors in every way possible since they are the ones that are going to get us out of this bubble-induced mess of historic proportions. Rental investment properties purchased by investors will lead the way to an eventual housing recovery. That process and this particular class of purchasers should be nurtured and protected and encouraged at every turn. The alternative is for the housing market to continue grinding downward in a slow motion death spiral that will most certainly kill off any chance of a broader economic recovery. The stakes could not be bigger or less far reaching for the future economic and social fabric of the country.

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Stephanie Serra specializes in helping cash investors, both U.S.-based and international, acquire discounted residential real estate at the Las Vegas/Clark County foreclosure trustee sale.  She is uniquely positioned in the elite group of less than 1% of Las Vegas REALTORS® that apply their experience as a real estate licensee and permitted property manager to the niche of acquiring properties at trustee sale for either long-term rental investment or short-term flipping.  To contact Stephanie either call at 702-497-7705, email at Stephanie@realtyaccess.net, or Skype at ss3rra.

I suppose we should all be thankful for the recent political ”deal” to avoid a catastrophic default by the U.S. government. The most immediate emergency has been avoided and many are breathing a well-deserved sigh of relief, but the truth is, to a large extent the damage has already been done. Concerned citizens in this country and interested observers abroad were justifiably shocked at how close the political system came to abject failure in the face of glaring national interest. It’s a safe bet that it came as quite a shock for many that a small number of individuals in one chamber of Congress could put the global financial system in peril to a degree previously thought to be unimaginable. This is not the kind of thing people tend to forget easily or quickly, especially when those people happen to be investors with money to allocate. I am referring here to players across the board; from financial officials in China to hedge fund operators in London to young American families attempting to work up the nerve (and the down payment) to become first-time home buyers. This absurd fiscal conflagration burned everyone and will have impacts and consequences well beyond what can be easily understood or quantified.
 
Here in the United States specifically, the debt ceiling debacle only served to accelerate and amplify what I would submit is a paradigm shift in American society that was already well underway. Home ownership has been the cornerstone of the American socioeconomic experience since the 1950’s and the prime driver of consumer consumption, which in turn accounts for the vast majority of domestic economic activity. As much as some people just love their cars, there is simply nothing in the American economic experience to rival home ownership in terms of motivating people to spend their money at any store that has anything for their home. It’s instructive to examine the fundamental psychological basis for this spending activity, the lifeblood of the American economy. Have you ever thought about the standard mortgage as an individual vote of confidence in both oneself and one’s economic surroundings? The vast majority of mortgages are 30 years in duration, which means one is reasonably sure that over the next 30 years the opportunity for personal advancement and asset appreciation are on the table. How many people think that now? It’s very likely that the damage being done by a re-collapsing economy in 2011 combined with the most confidence rattling debate on Capitol Hill in fiscal history have changed the calculus of the American consumer for a generation.
 
When Japan collapsed into its own deep and severe recession as a result of a massive financial bubble, the country experienced what has been dubbed a “lost decade”. Criticism in the west was more than forthcoming as various “world class” economists (the current Fed Chief among them) postulated emphatically that the tragedy was avoidable if only better policy prescriptions had been implemented. So here we are in America in 2011, almost four years since the beginning of our own financially-induced recession, and unemployment is heading back towards 10% while economic growth has all but stalled out. Home ownership rates have already hit a 13-year low and they are most certainly not done dropping, not by a long shot. The ability to save a sufficient down payment in the current economy is a huge challenge for many and excessively tight lending standards merely exacerbate the issue. Las Vegas foreclosures continue to serve as a barometer for depressed consumer confidence nationwide due to the fact that they occur in the very city built on the rapidly evaporating notion of disposable income for the masses.
 
Demand for owner-occupied housing in the United States is very likely to be stunted considerably for at least a decade going forward. Las Vegas is rapidly becoming a city full of renters and the rest of the country is not far behind. The inventory glut of housing is nothing short of catastrophic on a supply and demand basis, yet few have the “confidence” to make a purchase even if they have the means. The percentage of renting households nationwide just hit a 13-year high (go figure). The broad ranging consequences of this paradigm shift will be studied in economics departments at major universities for many years to come.  So as the demand and ability for owner occupied housing decreases for a potential “lost decade” in the United States one distinct entity will benefit from this downturn…the cash investors.  They are poised to commit disposable funds into highly discounted properties and turn them into working assets by renting to the very individuals who cannot or will not buy.  This scenario fits into the paradigm shift because in some cities housing ownership will become loosely consolidated in private investment portfolios while thousands of individuals who once believed in and lived the “American Dream” will no longer be able or willing to own a home again.  Their opportunity or desire to create a retirement nest egg through home ownership may be permanently lost and this will have adverse economic ramifications for the United States for years to come.

Stephanie Serra specializes in helping cash investors, both U.S.-based and international, acquire discounted residential real estate at the Las Vegas/Clark County foreclosure trustee sale.  She is uniquely positioned in the elite group of less than 1% of Las Vegas REALTORS® that apply their experience as a real estate licensee and permitted property manager to the niche of acquiring properties at trustee sale for either long-term rental investment or short-term flipping.  To contact Stephanie either call at 702-497-7705, email at Stephanie@realtyaccess.net, or Skype at ss3rra.

“Consumer Spending” – what is it? For the sake of this post let’s say that it represents almost 75% of all of money consumers have spent in the U.S. that contributes to our gross domestic product (GDP). What is one of the biggest influences on consumer spending? A wonderfully elusive factor that is so difficult to peg down … human psychology. Economists try to explain the collective psychological mood of consumers with tools and numbers that somehow measure confidence. Needless to say, their efforts seem more like art than science at times. The good news for economists is that our current economic conditions are probably easier to read than tea leaves because of the depth and severity of the recession and the public has no problem expressing their strong viewpoints in actions and words.

While so many speak wistfully saying it will all get better, you don’t have to look far to see multiple opposing forces that are negatively affecting the collective psyche of the American consumer. On one hand, the stock market has been behaving rather well lately, and there has been a clearly measurable boost in consumer confidence data based on the surge in stock prices. On the other hand, the outlook for residential real estate is bleak and getting darker more or less across the country. With the exception of a few localized pockets of relative sunshine, it is reasonable to say that the U.S. housing market is heading for more trouble as we transition into 2011. Last, but definitely not least, the national unemployment rate is still stuck in the 10% range (with little prospect of a quick turn around) and this fundamental economic indicator will surely put a cap on any incremental gains in consumer confidence as we move into the New Year.

It should come as no surprise that I have an ongoing concern about the U.S. housing market … and how it continues to sour the collective mood at such a critical time in our anemic recovery from this deeply damaging recession. Earlier in 2010 the residential real estate market appeared to be stabilizing which gave home buyers, i.e. consumers, a glimmer of hope that we may finally have a modest rebound in both prices and transactional activity. To me, however, this was all superficial as I believe the stability was artificially and temporarily sustained by the federal home buyer tax credit that expired the end of April 2010. Now, as prices start to soften again due to seasonal slowdown and no more federal tax subsidies, there is renewed fear and pessimism forming on the horizon. You see clear evidence of this in the rising inventory numbers for the vast majority of markets across the country because consumers are hesitating to make more and more purchases. What really worries me most about all this? The increasingly bleak housing numbers do not yet reflect the huge blow to consumer confidence caused by the robo-signer foreclosure scandal. While the full effect of this eye-rolling debacle is yet to be measured, even if it turns out to be minor as a practical matter the adverse affects will still influence consumers.

Here we are … back where we started … talking about confidence again …

Those who know me are rarely surprised when I question popular opinion or the “consensus view” on any subject. Sometimes in conversation I will express a counter point only as a joke hoping for a laugh while other times my seriousness can cause jaws to drop. One subject that may not be safe dinner conversation is residential real estate … especially when my fellow diners refer to the latest “consensus view” they heard from a group of economists featured in the latest news cycle. Real estate is my career, I live and breathe it everyday, my experience is rooted with feet on the street in Las Vegas foreclosures and Las Vegas short sales. Believe me, I am bombarded by predictions about the future from pontificators of all stripes and have learned to be suspicious of someone’s proverbial reading of the tea leaves.

As a matter of fact …

It was widely reported this week that a panel of “elite economists” (no joke) were solicited for their opinions by none other than the National Association for Business Economics. What did they say in their infinite wisdom? US residential real estate prices have already found their bottom and it happened right underneath our noses in the early part of 2010. Wow, who knew? I will finally sleep through the night again. Ah, but wait, it gets better. Our famed economists also predicted that home prices will begin trending upward in 2011, albeit at a very modest rate.

Ok then …

First, before I get into my counter point I’ll offer full disclosure. I love economics, I know measuring and predicting the future is as much art as it is science, and generally economists have a good foundation for their methods and conclusions. However, first among my concerns is that while mortgage money is practically being given away at historically low rates, few people are interested in buying a home and even fewer can qualify due to the stringent lending environment. According to a survey conducted just the other day by Reuters, a whopping 63% of Americans do not want to buy a home at this time, as they are too busy drowning in the current economic conditions. In addition to this, the Zillow Real Estate Market Report released last Friday documented convincingly that home price depreciation across the country is still alive and well … and progressing downward.

***According to Dr. Stan Humphries, Zillow’s chief economist, the data clearly illustrates that a bottom in national home values has not yet been hit and will come later this year or in the beginning of 2011 at the earliest.***

I’ll take his prediction a step further (look out, my inner economist is coming out). In Las Vegas the bottom will not happen until late 2011 at the earliest. The key in Southern Nevada (in terms of a real recovery) is the same as it will be everywhere else across the country … consumer confidence and the health of the jobs market. To paraphrase, it’s the jobs, jobs, jobs, stupid. Neither one of those indicators seem to point to any sign of recovery at the present time, especially in Nevada where we went from having the lowest unemployment for years in the US to having the absolute highest. It is for that simple reason more than any other that I caution both this panel of “elite economists”, and anyone who is listening to them, to hold off on declaring that the US residential real estate market has hit bottom. There are plenty of other shoes that could drop and negatively change our market conditions … so many shoes, in fact, it would make Imelda Marcos proud.

…a common phrase which comes up in conversation when consulting with our short sale clients.  For several months more and more homeowners have come forward gasping for information about short sales…and NOT because they lost their job or their mortgage rate adjusted higher.  While there are still so many challenged with such financial dilemmas, the face of short sellers is truly evolving…increasingly the only dilemma for some is that their home value may NEVER recover during the time they own it.  They are tied to a non-performing, money-sucking asset.  They want to know how this happened to them and what they should do.

THE HOW…

 “Supply Creates Its Own Demand”

For years the Las Vegas real estate market had a steady appreciation rate.  Chatter could be heard among those in the industry speculating that as land became more scarce, property values would increase at a more rapid pace…a classic case of supply and demand.  This environment paused briefly after September 11^th because such a national tragedy created a sense of hesitation in making large decisions and buying a home was no exception.  Then…slowly at first…in late 2002 and 2003 buyers returned in higher numbers, but our housing supply didn’t keep up.  Suddenly, January 2004 hit and buyer demand exploded while the housing supply was simply anemic.  The perfect storm of a seller’s market occurred and some Las Vegas zip codes values shot up by 50% by June 2004.  The measurable peak for most areas didn’t occur until sometime in 2005 or 2006.  For an extended instant, it seemed as if everyone who bought anytime before early 2004 was financially set with massive growth in their home equity.  As for so many who bought after 2004, well, Las Vegas was becoming (and some would say actually is) an eastern suburb of Los Angeles and the higher prices were both justified and sustainable. 

Risks and Rewards

In that long moment of perceived prosperity, who complained?  Did you?  Were you a homeowner who cashed in some equity to buy a car or another home or a pool?  Did you prudently choose to not touch your loan or only refinance into a lower interest rate with no cash out?  Remember, the “free market” – the capitalist system that allows individuals to freely seek a credit card, a car loan, or a home loan – is a system where participation is voluntarily and based on choice.  When you buy a home, you buy into this system, and when the system helps increase your home value, you accept the reward freely, don’t you?

The Market Giveth and the Market Taketh 

In late 2006/early 2007 the Las Vegas real estate market stalled, then with each surprise revelation of the lending and financial systems, the market dropped.  With each adjustable rate mortgage adjusting higher, increasing numbers of homeowners could not refinance because their home values dropped below their loan amounts.  Eventually foreclosures came on like a torrent and some home values appeared to measurably decrease in only 90 days by as much as 20%.  Suddenly, the housing supply exploded and buyers tippy-toed under cover…they didn’t want to be exposed to the uncertain mess that seemed to pervade our economy.  When this first wave of homeowners lost their homes – and the machinations of some “too big to fail” institutions did just that…failed – the system that all other homeowners bought into erased the equity and home values they took for granted.  The risk was exposed.  Who’s fault was it?  While that has been, and will continue to be, a source of study and debate, homeowners still look at us and say, “It’s not my fault…I have a good job…good credit…I pay all my bills…I have a great loan…I bought my home before the huge rise in prices…why do I have to pay for other people’s bad loans and bad decisions?”  In the most direct way, fault has little to do with it.  Remember, the markets giveth and the markets taketh.  Once you buy into the market – into our “free market” financial system – you are by nature a participant.  The rewards are easy to accept, and the risks, a potential outcome few are guaranteed to avoid. 

THE ACTION…

The bottom line – currently in Las Vegas home values have decreased to levels not seen since the 1990’s, and in some areas, arguably since the 1980’s.  As a result, most Las Vegas homeowners have no equity in their home or are upside down.  If you need or want to get rid of your home, regardless of your motivation or financial situation, you must first determine your current home value.  Referencing the taxable value from the Clark County Assessor’s Office give a clue as well as online resources such as Zillow.  Your best reality check, however, will always be a market analysis created by a REALTOR®…from someone who lives and breathes the local real estate market full-time.  If your REALTOR® confirms that you are upside down, then you need to work with them, your accountant, and an attorney or qualified advisor to determine your best course of action.  Ultimately, you are looking for the best of the worst options – short sale, foreclosure, and/or bankruptcy.  Get used to associating these words and concepts in the scope of your life and your reality.  The sooner you understand which option be applies to you, the more proactive you become, the better off you will be in moving forward towards your future.

Are you considering a short sale?  Do you want to know how much your home is worth?  Contact Stephanie at 497-7705 or stephanie@realtyaccess.net to proactively investigate options for your future.

 Click here to view the embedded video.

“Is this house for rent?” 

At least once a week I get a phone call from someone who drove by one of my listings and wants to know if the house is for rent.  My answer is always, “No, the house is for sale.”  As the conversation develops I find out that the caller is being evicted from their current house because the bank took it back from the landlord.  The same landlord that had been collecting rent for the last 6 or 7 months without paying their home mortgage.  The same landlord that forgot to tell anyone else who mattered.

Kicked to the Curb 

The renter is simply blindsided.  Someone posts a notice at the house giving the renter as little as a week and as much as a month to move out or they will be evicted … kicked to the curb.  Yet another victim of “foreclosure” or ”the credit crunch” or “mortgage crisis” or ”real estate bubble” or ”insert-your-favorite-phase-here”… and they didn’t even own a home.

How to Find Out if a Las Vegas Home is in Foreclosure Online

In reaction to this preventable and exasperating situation I decided to put together a tutorial to help anyone find out if a home is going into foreclosure in Las Vegas.  This video demonstrates how to use the Internet to look up foreclosure information in Clark County, NV with as little as a property address.  Please watch it and pass it on.  I know that it will help a lot of people.

Featured blog post links:  

• Clark County Assessor’s Office
• Clark County Recorder’s Office
• Google Video:  How to Find Out if a Las Vegas Home is in Foreclosure

Las Vegans look around you. In many neighborhoods you could throw a boomerang and it will fly by several for sale signs before it comes back to you. Do one of those for sale signs belong to you? If yes, then there is a 1 in 5 chance that you are selling your home as a short sale.

Can Homeowners Afford to Sell Their Homes As a Short Sale?

Sellers of short sale properties have a lot of details to keep track of just to get their home sold. In a normal market a Seller typically has the luxury of just trying to keep their house clean for potential buyers. Today, many Sellers who are stuck doing a short sale find that a presentable home is the least of their concerns. They are faced with the prospect of working with their lender(s) to literally “qualify” to sell their home at a loss, which is no small task. In addition, until only recently short sale Sellers had another scary prospect to add to their nightmare…income taxes. Since the IRS considered the net loss on the sale of the home as income, short sale Sellers weren’t sure if they could afford the sale of their home. Why? If they didn’t already have the money to cover the financial loss when the house sells, many won’t have the money to pay the consequential taxes later.

Doing the Short Sale Numbers

Here’s a common example of the total potential loss a short sale Seller’s lender(s) may take on just one house. Let’s say the Seller purchased their lovely new home in November 2006 for $320,000 and their lender(s) gave them a 100% loan. It’s in the neighborhood they wanted to live in and the new home builder offered them so many upgrades, incentives, and closing costs the Seller thought they got a great deal.

Fast forward to October 2007, not even a year later, and the Seller is now getting a divorce, lost their job, got a job transfer, or had unexpected medical bills. Suddenly, they can’t afford to pay their mortgage and want to sell the house. When they approach a REALTOR® to list their home shock sets in because they learn that current market value of their home is around $225,000. In addition, the total costs and fees that a seller typically would pay to sell the home is around $15,000.

What happens if a buyer offers $225,000 for the home? The math looks like this — take the offer price of $225,000 and subtract what is still owed on the loan, $320,000, and so far there is a loss of $95,000. What about the $15,000 in closing costs? Well, someone has to pay them to complete the deal so now the loss increases to $110,000. This is the dollar amount that the IRS may consider taxable income for the short sale Seller.

Ouch.

Mortgage Forgiveness Debt Relief Act of 2007

Well, in between all of the presidential debates and political posturing that seems to infiltrate every inch of media, in December Congress finally implemented a plan for you short sale Sellers. In fact, amid the anxiety and frustration you are experiencing in trying to sell your home, Congress has delivered potential relief to your situation.

What did Congress do? They delivered the HR 3648: “Mortgage Forgiveness Debt Relief Act of 2007″ to President Bush and he signed it into law. Here’s some key language that will positivley effect most short sale Sellers:

“… a bill that eliminates the income tax on mortgage debt forgiveness on primary residences for people in financial hardships and lowers the amount of a gain made through the sale of most non-primary residences that is not subject to income tax.”

Why should a short sale Seller care about this new law? Starting January 1, 2007 homeowners who successfully sell their primary residence homes now will not have to pay taxes on that $110,000. However, for property owners who are selling an investment property or second home as a short sale, the rules haven’t changed. Upon sale the lender(s) will still report the total dollar amount of “forgiven debt” to the IRS and send the Seller a 1099 documenting the finanical deficiency. When its time to do taxes for that calendar year the Seller will have to add that “forgiven debt” on top of their actual income and pay federal income tax for the total amount.

Again, ouch.

Get Professional Advice

Essentially, Congress and President Bush are showing concern for homeowners while telling investors that they are on their own. If you believe that you are somehow effected by this new law, positively or negatively, make sure you seek the assistance of a qualified CPA or tax attorney to get advice about your specific financial situation.

Dunkin Donuts is invading North Las Vegas and all of the recent transplants from back east just couldn’t be happier. According to some, many of us Westerners and Nevadans just don’t know our donuts. To them, Krispy Kreme donuts are bad and Dunkin Donuts are not just good, they are nirvana. Of course, from my perspective as a native Westerner and Nevadan, it looks like to me like they are just pushing some sort of legal addiction.

When a Dunkin Donuts devote’ describes their love for the coffee or french crullers it is as if they are going into a trance. Their facial features relax, their eyes look off in the distance, and their voice softens as if they are talking about passing through the gates of heaven. In reality they are just going through the 24 hour Dunkin Donuts drive through, which to them is apparently close enough to heaven.

So far in my house Dunkin Donuts does, in fact, get 2 thumbs up for the coffee. However, we have a split vote when it comes to the donuts and I am declaring my continued bias for Krispy Kreme. I hope my real estate clients from back east will understand. As an olive branch to the Dunkin Donuts devotes’ who have been going through withdrawals since they moved to Nevada, I have provided an interactive North Las Vegas Dunkin Donut Locations map.

View Larger Map

Please remember to drive and drive safely while you are loaded up on caffeine and sugar.

With the proliferation of distressed home sellers in the Las Vegas real estate market REALTORS® are adjusting to a new reality — a buyer’s market. Is this really new news? Las Vegas REALTORS® have had since spring 2006 to adjust so what in the market is “new” to them? In the simplest terms, SHORT SALES.

FACT:
In the Las Vegas Valley 1 in 5 homes for sale are now Short Sales.

Diamond in the Rough

As a reminder, the term “short sale” basically means that a homeowner is selling their property for less money than they owe on their home loan. The “short” (or discount or loss) must be absorbed by someone. If the homeowner doesn’t have the assets to cover the short, then their lender (or lenders if there is more than one) must agree to take a loss. Ouch.

Let’s look at a real world example. Recently, I found a 1,800 sqft home for one of my buyers that was built in 2006 and had been barely lived in. The sellers originally bought it only a year ago for $307,000, but months later they had to relocate to California. In order to compete with their builder who is still selling homes and other sellers in their neighborhood they had no choice but to sell their house for less than they paid for it or as a short sale. Guess what price they agreed to sell it for? $205,000. Wow! So who’s going to take that $100,000+ loss? Their lender…as long as they agree to it and they probably will.

Now, do you think that short sales a good source for home deals in the Las Vegas real estate market? Absolutely, yes. Do REALTORS® understand how to effectively represent their buyer or seller in a short sale transaction? Some do, some don’t. Before 2006 short sales in Las Vegas were rare so very few REALTORS® have much experience handling them. Thankfully, those REALTORS® who are new to short sales will get up to speed as they get more education and more experience handling short sales for their clients.

Contracts 101

In an effort to help that learning process, I want to correct a few misconceptions about handling short sale transactions that have come to my attention.

1. A short sale contract is not a real contract until it is approved by the seller’s lender.

In other words, some REALTORS® believe that a short sale purchase contract is not really an enforceable and valid contract until the seller’s lender approves it. Guess what, gang, this is not true. In fact, once the buyer and seller sign a contract it is an actionable, legal instrument. This is no different than any other transaction. Remember that virtually all real estate purchase contracts are contingent on the buyer getting final approval and funding from their lender so they can even buy the home. When dealing with a short sale you are simply adding another contingency based on the seller’s lender approving the sales price (and their financial loss). In both cases, the lenders don’t sign the contract to make it enforceable, only the buyer and seller.

On the flip side, if either the buyer’s lender or seller’s lender do not give final approval, this action alone does not cancel the purchase contract. Since the buyer and seller are the only parties involved in the purchase contract, they must be the ones to decide to renegotiate or cancel the contract in writing. This is truly Contracts 101.

2. Escrow does not have to be opened until the lender approves the contract.

Oh really? Where in your purchase contract is this stated? REALTORS®, if you are using the Greater Las Vegas Association of REALTORS® Residential Purchase Agreement (or GLVAR RPA) as your purchase contract without changing any terms, YOU MUST OPEN ESCROW. On page 10 of that contract you sign your name to the provision stating that you will open escrow and deposit your buyer’s earnest money deposit within 1 business day of contract acceptance. Of course, all terms in the GLVAR RPA contract are negotiable, including this one, as long as any changes are in writing and agreed to by both the buyer and seller.

If your goal is to not deposit your buyer’s earnest money deposit until the seller’s lender gives final approval for the purchase price, then simply write this into the purchase agreement upfront. You can still open escrow with just the purchase contract to move the transaction forward.

Help the Seller’s Lender Say, “Yes”!

Okay, so why take the time to highlight these two points? Why should anyone really care to split hairs with these technicalities? Because the seller’s lender cares and they have the last word on making the deal happen. They consider the purchase contract to be valid. They expect escrow to be opened and the earnest money deposit to be deposited. Do yourself a favor and meet or exceed their expectations. With their support the buyer gets the deal they hoped for and the seller gets to move on from their house (and possibly foreclosure).