If you think that short sales take a long time and seem to fall through with great regularity you’re not daydreaming. The good news is that faster closings and more approvals seem likely.
New statistics from RealEstate Business Intelligence show that short sales take longer and fall through more frequently than deals to buy lender-owned foreclosures.
- The fallout rate for short sale contracts (47.9 percent) is significantly higher than for foreclosures (16.0 percent) or conventional sales (13.8 percent).”
- Once a contract is signed, it is taking short sales more than twice as long to settle as foreclosures or conventional sales.
RealEstate Business Intelligence is part of Metropolitan Regional Information Systems. In turn, MRIS is one of the largest multiple listing systems in the country. Last year it handled sales worth more than $33 billion, helped more than 43,000 real estate licensees and was active in five states and the District of Columbia so its data can be seen as realistic.
The real estate industry likes to talk about “contracts” but most sale agreements are actually “contingent” agreements, meaning that either buyer or seller may have grounds to cancel the transaction without penalty. For instance, a buyer might back out if an inspection is not satisfactory or financing cannot be obtained.
In the case of a short sale everything is more complicated because there is not only a buyer and seller involved in the transaction but there is also a third-party, the lender, whose approval is required to close the deal.
About the only reason lenders have any interest in short sales is that they might do a lot worse if the short sale falls through and the property must be foreclosed. Figures from RealtyTrac show that lenders typically get $27,000 less with a foreclosure than a short sale.
Better Times For Short Sales
The MRIS figures are notable because they represent what happened during the first half of the year. But now we may see faster closing times and fewer fallouts as a result of new federal regulations that went into effect this summer. As of June lenders are required to respond in writing to short sale offers within 30 days of receipt. After 30 days lenders must provide a weekly update and after 60 days they must get back to buyers and sellers with a decision.
The new timetable should speed short sale transactions and reduce the number of offers which fail. However, the new rules do not create guaranteed sales. One reason is that lenders are not required to give a “yes” decision. The other reason is in addition to the purchase offer buyers must provide a “complete borrower response package.” The clock for lenders does not start running until both the offer and the package are in hand.
It would be surprising if the new federal timetable requirements do not accelerate short sale transactions and lead to more closings. After all, if the new timetable does not encourage lenders to approve short sale offers then surely the thought of an additional $27,000 in losses ought to do the trick.