The tale of the Trojan Horse recounts the story of a huge wooden horse constructed by the Greeks in order to lull the Trojans into a false sense of security. Inside this wooden horse were hidden Greek warriors, and as the Greek army pretended to sail away from the city of Troy after a ten-year war, the supposedly victorious Trojans pulled the Horse into their city to celebrate their victory. But that night, the soldiers inside the Horse crept out of hiding, opened the gates to the city of Troy allowing the Greek army to enter and destroy the city. Guess what. The Trojan Horse is back, only this time it comes disguised as the real estate short sale.

Short Sales are the trojan horse threatening the destruction of the housing market. I never thought that I would come to that conclusion but a look at the statistics are both shocking and revealing regarding short sales and what they’ve done to the housing market here in my home town of Grants Pass. Our local market area has currently a total of 1240 properties that were listed in the month of June, 2010. During that 30 day period we sold 84 properties, we had another 84 go pending, and 34 more became contingent sales. That’s not bad but by no means good. The amazing part is that short sales represented 10% of the total inventory for sale and yet out of over 100 properties that were listed as short sales, there were only 4 that actually sold. That’s a mere 3/10 of 1% of the total activity in the market. Sadly, short sales are influencing the price of all the other properties in the market, contaminating everything around them because short sellers have no stake in the outcome of the sale.

Let me explain. In order for a realtor to have any success in stopping a foreclosure with a short sale, the realtor must bring an offer to the lender and request a short sale due to the market conditions. To do this most realtors know that since the seller is getting nothing out of the sale the realtor can and will price the property below any of its competition even to the point of absurdity. The goal is to get the property under contract and then apply for a sale “Short” of what is owed on the property. Typically, the lender in the end will not accept this low-ball offer and after a lengthy process, the lender will counter the low-ball offer with a price the bank thinks is the true market value. The true market value these days is always greater than the buyers low-ball offer, but now we have to deal with buyers that have it in their minds that the seller agreed to a price, the bank took months to research what to do, so that original submitted price must be in the realm of reason. The result is months of wasted time and a buyer who almost always walks away from the sale due to the frustration of waiting for a simple yes or no answer. The evidence has become very clear: short sales very rarely work and yet the buyer-side of the distressed housing market routinely uses them as evidence of competitive pricing. They are influencing the price of the entire market and directly influencing pricing in the foreclosure market much to the detriment of all property owners. Everyone is left standing on the sidelines watching their values being diminished by the very nature of the short sale process to the point where no one is winning. It has become a lose – lose situation and the biggest losers of all are the property owners.

I called this short sale strategy a “Trojan Horse” because short sales lead property owners into a false sense of security under the delusional belief that they are going to get a resolution to their late-payment situation that is more satisfactory than a foreclosure or just waiting out the market. The outcome is almost never what they expect because it offers an artificial rescue from a situation in which most cases the property owner should be given every chance to ride out the market and regain equity. If these facts were shown to every short seller, and if they were told that they could have a temporary reprieve from crushing payments until their finances improved, the lenders, property owners, and housing market would fare much better.

It is my belief that any “easy out” allowing someone to dodge the consequences of their financial commitments promotes greater fiscal challenges in the future. That does not mean that lenders and the government shouldn’t encourage modifications of loans and forbearance during a bad economy or even during individual emergencies. But the evidence is clear that short sales are the bitter pill that once swallowed, only makes the patient more ill. When all of us, including government and business leaders, collectively recognize that a crisis in our personal and financial lives presents an opportunity for growth and happiness instead of victimization, then we will make better policy and fashion better business plans.

Short sales are clearly not the way to solve our problems.

Michael Masters, broker, RE/Max Ideal Brokers, Inc.
A Socially Conscious Real Estate Consultant

     

More on Topics: Bank of America, Estate, Foreclosures, Market, Oregon, Real, Real Estate, Sale, Short, Short Sale, Short Sales And The Trojan Horse, Southern, Southern Oregon, Southern Oregon Real Estate, Trojan, Trojan Horse

Tags: Bank of America, Estate, Foreclosures, Market, Oregon, Real, Real Estate, Sale, Short, Short Sale, Short Sales And The Trojan Horse, Southern, Southern Oregon, Southern Oregon Real Estate, Trojan, Trojan Horse

This entry was posted on Wednesday, July 21st, 2010 at 9:00 am and is filed under the category Grants Pass Real Estate, Green Real Estate, Michael Masters, Real Estate, Southern Oregon Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.