Short Sales vs. Foreclosures

Let me tell you ... getting over a major heart attack takes time, as I am discovering. I get tired easily, and lazy even more easily.  But I do have to make a living so I'm back.

People seem to be confused about short sales and foreclosures.  The concepts are rather simple; their impact on the real estate market are profound.

A short sale real estate transaction involves a property that is worth less on the market than what is owed.  People who owe more on their home than what it is worth are said to be "under water."  When someone under water puts their home on the market for sale, the transaction constitutes a short sale.  

There is absolutely nothing short about such a sale.  Short sales usually take at least four months to complete, and often much longer.  Most homeowners do a short sale to avoid foreclosure, although the impact on their credit scores is almost as devastating. Since the lender is going to lose money on the deal, it has to approve the short sale in the first place.  Most lenders won't even begin to approve the short sale until their is a legitimate offer to purchase.  After the bank approves the short sale, then the actual deal is negotiated as it would be in a traditional real estate transaction.  It is important to remember that the homeowner, not the bank, is still the legal owner of the property.

A foreclosure, on the other hand, involves a property that has been seized by, and is now owned, by the bank.  The bank is the seller of the property.  Consequently, foreclosed properties can close escrow within the usual 30 to 45 days.  

Chatsworth, like every other community, has its share of shortsales and foreclosures on the market.  Currently, there are 48 short sales on the market in Chatsworth. There are 16 foreclosures that are currently for sale in Chatsworth.

It is believed by most experts that distressed properties, including short sales and foreclosures, are a major drag on current property values.  These properties constitute, in most cases, a majority of transactions in any given month. Consequently, homeowners who actually have equity in their homes who are trying to sell their homes have to compete with distressed property owners, and consequently, have to sell their homes at discounted prices.

It is widely believed that until the inventory of distressed properties are cleaned up, property values will continue to be, shall we say, depressing.  Even here in Chatsworth.

And that's enough to cause anyone to have a heart attack.