Typically a homeowner’s last-ditch effort to unload their property before entering foreclosure, a short sale involves the seller’s accepting an offer for less than they owe on the house. And according to Zillow, the Seattle, Tacoma, and Bellevue region has the fourth-highest rate of short sales among house purchases in the country—only Lincoln, Nebraska, and San José and Santa Clara, California, are higher. Gordon Stephenson, a co-owner and managing broker at Real Property Associates says the majority of short sells he’s seen lately have been in Snohomish, Pierce, and southern King counties.
Stephenson has been working with a buyer who’s trying to snap up a short sale property in Lake Forest Park. It’s a four-bedroom, 3,000-square-foot home that sold at the peak of the market in 2007 for $900,000—an inflated price by Stephenson’s estimation. “From my assessment of it at the time, I might have given it a valuation of $775,000,” he says, “so $900,000 was an eye-popping number.” The original buyers borrowed 80 percent, or $720,000, but when they were no longer able to afford the payments and had to relist the house last winter, it had plummeted in value. Stephenson’s client offered $500,000 in December, but because the lender would be taking a nearly quarter-million-dollar loss on the transaction (after factoring in real estate agent fees and excise tax), the new buyer was still waiting to see if the deal would go through in the middle of February.
And that’s the catch with short sales: The seller’s lender must agree to the shortfall, which in even a stable market can take two months. But lately, Stephenson has seen the process take as long as six months. “If you really want to own a home and you want to own it in the next 60 days, you’re not going to be assured of that in buying a short sale,” he says.
If you’re shopping for a short sale, you’ve definitely got your pick of properties in this market. Buyers who are in no rush may be able to negotiate 5 to 10 percent off the market value (let’s be honest, sellers don’t care what they get in this situation because it’s all going to the bank anyway, and the bank is motivated to agree to the deal instead of entering a much more costly foreclosure). But buyers have to ask themselves whether that price cut is really worth it—especially when housing prices may very well drop more than 10 percent while they wait for the deal to close.