August 2008

photo credit: TheTruthAboutMortgage.com

I vented about the joys of the short sale last week on Inman News. Yesterday, the San Diego Union Tribune published the story of an East County resident who lived the nightmare, not as an agent, but as a person simply trying to save his home. Sadly, he failed, and his story is so incredible, you can’t make this stuff up.

For those who are rusty on the concept of short sales, we talked about it here. From the CliffsNotes, short sales are sales in which the settlement charges (costs of sale including the pay-off of outstanding loans) will exceed the sale price of the home. Unfortunately, we aren’t seeing a light at the end of our short tunnel; these situations are going to be with us for awhile.

A year ago, we saw agents tending to avoid short sales like that gallon of expired milk. First, the whole idea of negotiating with a faceless lender was daunting; for so many of us who were doing other things during the last down market, the idea of navigating these waters was mysterious, the disclosures ominous, and the shear level of difficulty involved in meeting the paperwork requirements enormous.

Second, an agent takes on a potential short sale listing at great risk. There is no guarantee a lender will ultimately accept a short pay-off and, even if the odds are favorable, the entire exercise often becomes a game of Beat the Clock. As agents, we make the daily calls to the lender begging for action, calls during which we may speak to a half-dozen or more different people looking at different computer screens, each of whom will tell us we will be hearing something in “a week to ten days.” Each new day, we rinse and repeat, but we ultimately have no control over the pace at which they will consider and act on our client’s request. So, often, the weeks become months, the buyer loses interest, and we find ourselves in a position of having to start the process again. And sometimes, it is just too late.

Finally, while most of us have resigned ourselves to short sale listings, both because they are becoming so commonplace that they can’t be avoided and because we feel a social obligation to assist all sellers, even when it is not convenient, comfortable, or even lucrative, agents representing buyers today are running for the hills in greater numbers at the first sign of bank involvement. They are doing this for all of the reasons previously mentioned, and they are doing this because short sales do not pay handsomely. The listing contract can call for a 6% or a 16% commission, but if the bank’s approval after months of time and effort stipulates that I will make $1.95, that is what I will make. We have yet to see a short sale transaction of our own that didn’t involve an arbitrary, eleventh hour pay cut to the agents.

In Phoenix, it seems that even the listing agents are thinking twice about taking on short sale listings. Phoenix is a different market, however. While Jay Thompson cites a 90 to 95% failure rate for attempted short sales in his market, Steve and I are currently (and fortunately) batting a thousand.  But it hasn’t come without a lot of brain damage along the way.

Short sales are, at least for the foreseeable future, going to be a sad reality of our market. If you find yourself in the position of needing to sell short, recognize that the process is complex and potentially lengthy. There may be tax and credit consequences, so it is advisable to chat with a CPA or attorney at the first sign of trouble. Your second call should be to an agent who has some experience with these transactions and is prepared to stand by you throughout the process.

I got a little suspicous when I first posted this Altos chart showing the Market Action Index (less than 30 suggests a buyer’s market, duh) and weekly absorption (homes opening escrow) for Scripps Ranch. Specifically, this data shows Scripps Ranch detached homes going into escrow at a clip of approximately 8 to 10 per week, yet I know that we aren’t closing 40 homes a month.

My own experience tells me why we are seeing a discrepancy; more homes are failing to close once under contract or, as we more commonly say, falling out of escrow.

This morning I took a quick peek into the statistics, courtesy of the Sandicor Multiple Listing Service. I looked at both homes which successfully recorded in July and homes currently in escrow to see how many of these had experienced previous failed attempts.

On the one hand, I expected the data to be worse (more “fallout”). On the other hand, if you have found yourself in that smaller slice of the pie, it’s pretty bad. And, from purely the agent’s perspective, you can imagine how much we love doing everything twice. Again based on my experience, this is partially due to buyer cold feet in an uncertain market but mostly due to the difficulty in obtaining financing in a market where the rules of underwriting are changing as often as a new mother of twins. In recent times, up until about a year ago, failed sales were quite the unexpectedly anomaly. Today, it is important to remember that your home is not truly sold until the Fat Lady gets her County tax stamp.

I need people.
I spent much of yesterday with my head buried in statistics and faced with an ongoing technical dilemma. Admittedly, this kind of work is not very sexy, but then I don’t have “people.” (And, I mean no offense to Cyber-Steve, Master of the Crashed Hard Drive. He just has different skill sets.) Since the breached birth of our new MLS system in May, I have been struggling with a way to easily import market statistics given that they (the perpetrators of Tempo 5) robbed me of my right-click capabilities. So, I started Thursday morning on a mission to right the wrongs, the “wrongs” being my data living under lock and key and a website which has consequently been displaying very outdated real estate numbers for a couple of months.

Skip this part if embedding stuff in web sites doesn’t turn you on.
If you don’t care about the nuts and bolts of my solution, scroll down a paragraph or two; the braver may soldier on. My first thought was to import the data in PDF format. In response to my question of how to embed a PDF on my web site, my bloggy buddies on Twitter quickly responded with the Docstoc and Scribd solutions. These turned out to be the right answers to the wrong question. I quickly remembered that the MLS reports include too many fields which are of no value to my readers, plus they offer the added bonus of getting truncated about halfway across the page when printed to file.

The ease with which I can post and update statistics is of paramount importance. (See “I don’t have people” above.) For this reason, I have always loved the Altos charts for listing activity because, once embedded, they are perpetually updated, kind of like magic. If at some point, I get hit by a truck, or a burning brick for that matter, consumers will have the comfort of at least knowing what the median listing price is for homes in their community. So, my solution for providing homes sales data comes about as close to being magically self-sustaining and worry free as I can get it, with the help of EditGrid.

Here comes the cool part.
Using EditGrid, I created a spreadsheet of homes sold, thirty-days back, for each of six San Diego I-15 Corridor communities. I embedded the spreadsheets in our web site and now, future updates require simply that I update the data on the EditGrid site. This is an example of my handywork:

All of these statistics currently live under the Market Stats button on our web site. I intend to update the data every two weeks or so, which should be quite manageable. Time permitting, I also hope to branch out and add some coastal communities to our list. Maybe this isn’t quite as exciting as, say, doing a load of laundry, but it’s all I’ve got for the moment — until I get me some of those “people.”