The short sale, a practice almost never seen in the last 10+ years, is now one any real estate agent, and unfortunately, many buyers and sellers must be aware of. The term "short sale" refers to a transaction in which the net proceeds to the seller is not adequate to fully repay the seller's mortgage. In these instances the seller cannot deliver clear title to a potential buyer without the cooperation of the lender, unless the seller can bring cash from other sources to the table to close, which is rarely the case. In a rising market, even sellers who get in financial trouble can usually sell their property, pay their mortgage and put some cash in their pockets. Now that market prices have declined, short sales are becoming more common.

Aside from the fact that lenders are not eager to agree to accept less than they are owed, what makes these transactions especially difficult is that lenders are often not staffed to handle short sale requests efficiently. Experience has shown that lenders often are unable to respond in the timely fashion that is required in a transaction oriented business, and their bureaucratic structures frequently prevent them from making prudent decisions that are in their own best interests.

Almost anyone who has been in the real estate business through at least one complete market cycle can tell you of a lender who turned down an offer that would have resulted a modest loss, only to have foreclosed, wasted months before selling the collateral for far less than they could have realized months earlier.

Three Suggestions When Faced with a Short Sale

1. Get a seasoned agent, not your sister-in-law's next door neighbor who just got her real estate license. The truth is probably no agent can legitimately claim to be a short sale expert, because there simply haven't been short sales in our market for years, and because lenders are just starting to gear up to handle short sales, and they each will react differently. Nevertheless, this can be a very tricky area, and a thoughtful experienced agent will prove to be valuable.
2. If you are a potential buyer of short sale property, prepare yourself to be patient, this is unlikely to be a normal, timely process and you will want to protect yourself from unnecessary costs and risks that can occur.
3. If you are selling a property and there is a possibility the transaction will result in a short sale, you will be best served by contacting your lender as early as possible to discuss this possibility with them.

Our local market activity level changed little from September. The number of listings declined slightly and the number of sales increased slightly. Still, at the current pace of sales, it will take over a year to sell all the current inventory of properties. This low level of sales is partially attributable to a seasonal slowing down, but more likely a reflection of tightening up in lending practices, and a general mood of gloom and doom in the news about real estate and mortgages.

The most significant development during October was a fairly sharp drop in the median sale price for single family homes in Sonoma County. This may reflect a greater willingness of sellers to align their prices with the current market. These month-to-month changes in the median sale price are notoriously volatile, so it's really too early to draw any major conclusions about the trend line of prices, other than to say the general downward trend continues.