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Short-Sales – Short of Spectacular

August 25, 2007 by Lucas Lechuga

Everyone has heard that short-sale and foreclosure listings have increased dramatically in the past 12 months. I’ve found that, as of late, two to four new short-sale listings will appear in the MLS for each neighborhood in Miami per week.

I’m a huge fan of foreclosures but not such a big fan of short-sales, as of right now. I think in about six months things may change, however. I’ve found that the big banks just aren’t ready to play ball yet. Maybe they are just too optimistic about the state of the real estate market. Within the past two months I presented two offers on short-sale condos that were about 15 percent under the lowest comparable sold sale in the building. Both were rejected and the banks countered with figures that were very close to what they were owed. In both cases, what they were owed was much more than what had recently sold in those two buildings.

Banks need to realize that lending practices were lousy, at best, in recent years, and that what is owed to them is a pipe dream. Prices have already come down 20-30 percent from the height of the market here in Miami and Miami Beach. Many project that prices will come down even more. Yesterday, someone emailed me that “Your first loss is often your best loss”. I feel that more banks need to think along these lines. The banks ready to play ball now will be much better off than those holding out for greener pastures. As the saying goes, “Greedy pigs get slaughtered”.

From my experience, however, it does seem that the smaller banks do understand the state of the market and are more willing to negotiate terms. Perhaps, it is not their understanding but rather their eagerness to stay afloat. I think in the next six months, as pressure is added by stockholders, big banks will be much more favorable in their attitude towards short-sales.

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So who at the bank exactly makes the final decision on the offers that are presented on the short sales? It seems fair that a broad swath of discretion is allowed these account managers whose primary task (I would think) are to clear the bank’s books of these properties in order to avoid carrying costs (and the bank becoming a landlord). You would think that if such discretion was vested in individuals, these people would be reading the writing on the wall (not to mention the Herald’s near-daily stories on the dismal state of the condo market).

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