Last summer was to be the summer my wife and I would devote to our
first home. By May we entertained romantic notions of weekend work
parties with friends and family. By June we fancied ourselves qualified
to polish the diamond in the rough, to grant a neglected home a vision
of its former luster. We pined for pride of ownership, for a yard and a
garden, for freshly painted walls. We even chose the colors. Like many
first-time buyers eager to take advantage of plummeting prices in the
East Bay, we were grateful just to be in the race and figured, perhaps
naively, that little could stand in our way.
When we found the perfect North Oakland Craftsman in mid-June and
placed a competitive offer, we thought our dream wasn’t far off. In
short order, our search would reach its inexorable conclusion. At
least, we hoped it would; we’d already been looking for nearly a year
and were growing somewhat thin on patience. That was last June. Here we
are eleven months later, still entertaining the same romantic notions,
planning the same improvements, and settling on the umpteenth color
scheme. Little could anyone have predicted that after all this time
we’d still be striving for the same property. But it’s a great home at
a great price — nearly $200,000 off its 2007 peak — and
we’ve had no choice but to wait. Like many other disenchanted yet
persistently hopeful homebuyers, we owe this to the beauty of that
cruelest of misnomers, the short sale.
It’s nearly impossible to shop for entry-level homes in the East Bay
without stumbling across short sales, a designation given to listings
where the owner owes the bank more than the home is worth, but hopes to
avoid foreclosure. They’re increasingly concentrated in neighborhoods
like West and East Oakland, where homes have lost a lot of value and
left previously solvent homeowners underwater. According to data from
the Contra Costa Association of Realtors, short-sale closings in
Oakland jumped in early 2009, from only three in April 2008 to 21 last
month. A steady rise in newly pending short sales, including 94 in
Oakland last month alone (out of 458 across Alameda County and 978 in
the entire East Bay), suggests a hum of short-sale activity leading
into the future. A line of bright-eyed young homebuyers will surely
follow, perhaps to experience some of the same frustration my wife and
I have enjoyed for nearly a year.
Short sales take far longer than traditional sales and foreclosures
for two reasons. First of all, there are more parties involved: the
buyer, the distressed seller, and the overwhelmed bank —
sometimes two banks, if a second mortgage exists. Second, the bank must
approve the seller’s request to short sell and avoid a credit-killing
foreclosure, and isn’t always willing or able to do so in any sort of
timely fashion. It is real estate’s perfect storm, a formula for
crossed wires and chronic delay, where a single form or phone call can
take two weeks and every error takes twice as long to correct.
But Realtor Sarah Arnold, who has extensive experience working short
sales in Oakland — last year they accounted for the majority of
her sales — says the average wait time these days from offer to
approval is sixty to ninety days. That’s two to three months. Not
eleven.
“It’s unheard of that it’s taken that long,” she told me, though
perhaps not with the gusto I’d expected. When my wife and I first
placed our offer, we knew the transaction would be classified a short
sale and that it would be up to six weeks before we received a
response. I remember cringing like a kid being told Christmas would
come a month and a half late, but figured we could bear to wait.
“Half the battle is going through the bureaucracy,” Arnold
elaborated. Departments within a bank can get their wires crossed.
Paperwork can sit neglected on desks for weeks. Agents on both sides
can be left out of the loop. “There’s a lot of timing issues, a lot of
frustration, and a lot of time-consuming work from the Realtor’s
side.”
Then why bother? For sellers under financial duress, it’s a far
better option than foreclosure. While foreclosures can ding a credit
score by 200 points or more, short sales tend to cause a drop of only
100, said Arnold. Likewise, she added, a foreclosure or bankruptcy can
forestall future home ownership for up to eleven years, while the
impact of a short sale is only about two years.
For patient buyers, a short sale spells a small price, at least
versus a traditional sale. Compared to foreclosures, though, they’re
not always bargains. On one hand, the process of foreclosing alone can
drop the price of a home significantly. On the other, East Bay Realtor
Albert Bernardo stresses, the buzz around foreclosures and the relative
ease of snatching them up can lead to bidding wars that push prices
well above asking. “If you really are not in a hurry and you want a
good deal, stick with short sales,” he advised.
In our case, the first eight months of delay were due to a
cornucopia of complications and frequent lapses in communication. By
the time we finally made it to escrow and completed an appraisal, the
house had lost $60,000 in value. So we submitted a new offer and
restarted the process. We’re now three months along.
Perversely, every short-sale horror story is unique. Sylvia Jimenez
didn’t have to wait as long as some to finally close on her home, but
she experienced an equally common twist: The short sale she’d bid on
was foreclosed upon before she could close the deal. The Oakland home
had two mortgages from two different banks that refused to cooperate
with one another. The first bank issued its approval, but when the
second bank didn’t file the proper paperwork, the first decided to
foreclose. Jimenez scoured listings every day until the property
reappeared a month later as a foreclosure, made an offer, and ended up
buying it for $50,000 less than her original bid. “It was a huge,
drawn-out ordeal,” she said, but at least the ending was happy.
Short sales aren’t easy on the seller side, either. Angela
Dean-Baham and her husband, Nick, went through three rounds of
potential buyers before finally releasing their Oakland hills home to
the fourth. Thanks to a second mortgage and plummeting home prices,
they owed $620,000 on a home they’d bought four years prior for
$518,000: the perfect setup for a short sale. The first buyer became
impatient with the long wait and pulled out. The second disappeared for
unknown reasons after the Bahams accepted their offer. The third deal,
with an investor, died of complications. The Bahams stopped making
payments to compel the bank to take them seriously and finally made a
deal with the fourth buyer, selling their home for $450,000 nearly six
months after they’d put it on the market.
None of this is cause to write off short sales. Even when paired
with a hearty side of frustration, they can be an economic boon to both
buyer and seller. They demand patience and a sharp eye for market
value, but with good luck and a proactive seller’s agent, the
experience can be almost tolerable. “This is the market, and there’s no
way to make it easier,” said Bernardo. “But there are ways to get a
great deal.” Today’s record-low interest rates will only make those
deals sweeter. Just don’t come crying if you have to wait a few
months.
