By Leon d’Ancona
In many U.S. MLS territories, last month distressed sales represented an alarming per cent of total sales. For example, in Las Vegas, September had 35.4 per cent of its sales in distressed properties. In Phoenix this total was 46.8 per cent (see graph).
While I am keenly cognizant of the human misery of those who are truly distressed, there is a relatively new phenomenon called “jingle mail” where people are sending their lenders the keys to their home and walking away. (The mail jingles with the keys in it). Their attitude is: why pay for a home that is worth less than I paid for it?
That is the reason we are seeing the unusual increase in distressed properties. My American real estate professional clients refer to these homes as being “upside down”. For many of these professionals the problem is not getting listings, but bringing them to fruition, while assuming the role of social worker. Still, this activity bodes well, as homes are selling and activity begets activity.
We are truly blessed in Canada, not to be sharing in the U.S. experience. The difference between us and our neighbours stems from a wise Canadian notion that you actually have to qualify to get a mortgage.
As I write this, many recently unthinkable things are happening around us, and financial headlines are becoming truly unbelievable. I am not one to panic, and believe that “patience is the big sister to wisdom”. But as 95 per cent of all Canadians live within 155 km of the U.S. border, at the very least we should understand what is happening to our American neighbours.
The two most common ways to end owning your home in a distressed situation are foreclosure and short sale, which is when the proceeds from the sale are less than the balance owed on the properties. Money from the sale goes to the lender.
Until the market catches up with the inventory, short sales will be very much part of the real estate markets in the U.S. If you are not attuned to short sales, here are eight reasons why short sales make sense:
1) Sellers can walk away from the property without having to pay the lender the balance owed.
2) Sellers suffer no foreclosure, and few legal hassles.
3) Sellers are spared the traumatic experience of being chased out of their home.
4) Sellers need bring no money to the closing.
5) Sellers’ terms are negotiated as to price and terms, rather than a judge deciding the terms of the sale.
6) Unlike in a foreclosure, sellers pay no legal fees.
7) Lenders would much rather do short sales than foreclosures, because the lender frees up his non-producing money. That’s why financial institutions much prefer short sales to foreclosure, which can drag on and on.
8) Sellers have a good chance they will be able to purchase another home very soon instead of waiting for many years.
I heard from one of my Phoenix friends that after he negotiated the short sale of one home, he managed to buy a lesser home immediately after the sale.
Last month 2,936 real estate professionals in Phoenix took part in the sales of distressed properties with an average price of $173,227.
We all should be grateful we live in Canada!
Leon d’Ancona B.T.L., M.T.L., RRESI, is president and founder of IMS Incorporated, and creator of REality, an online service used by franchises, brokers and agents to improve their bottom line. Author and writer, he is a regular speaker at real estate gatherings throughout the continent, and is well-known for his entertaining, illuminating presentations. Email: [email protected]
