Is the listing price of a home always the price? Not if it’s a “short sale” situation.
A new sales strategy, born of the short sale phenomenon, has been rocking the real estate industry, creating false hope for potential buyers, confusing appraisers and generally wreaking havoc with what should – for the common good - be an orderly market.
Just what is a short sale? It’s when a house is listed for sale for less than its mortgage amount. Real estate regulations/laws require that this be disclosed in the listing. In a standard “non-short” sale, if a buyer comes in with an offer that is full price with no contingencies, the seller must accept the offer or be liable for a penalty. But, by disclosing that the sale is a short sale, the seller is let off the hook. Why? Because in a short sale situation, the bank holding the mortgage must approve the sale.
So, what’s the latest wrinkle in this world of short sales? Sellers are offering their homes at ridiculous prices, hoping to attract some attention. Buyers, sniffing an unbelievable deal, make offers. The seller rejects them, even if they are higher than his/her listing price. The buyers become emotionally involved in the house, offer a little more and then a little more.
At Newport Cove, our waterfront community on Illinois’ Chain O’ Lakes, we are in the midst of one such situation. A house originally listed for $999,000 was reduced to $385,000 a few days ago. In big letters the listing sheet said “SHORT SALE.” A price of $385,000 for a waterfront house in a premier community is an unbelievable deal. And, yes, it’s too good to be true.
In a matter of days, the seller has received three offers, each significantly higher than the new listing price, and has rejected all of them. Now, the price is being bid up to what the market might and should bear.
But, even if the seller and one of the potential buyers agree on a price, that doesn’t mean the house is sold. The bank holding the mortgage must approve the sale. According to realtors certified in short sales, Chicago area banks typically are not approving offers for less than 85 percent of the mortgage amount. The approval process tends to be a long one, sometimes more than a year.
Although the house now for sale at Newport Cove is not owned by the development, but by one of the community’s residents, the Newport Cove sales office has been inundated with phone calls from potential buyers, many disappointed when they learn that the house cannot be bought for anywhere near the current asking price. These callers feel this is a dishonest marketing tactic – a bait-and-switch sort of thing. And, although the tactic is legal, we agree. It’s a flim-flam way to do business.