Part 3: What's a "Short Sale"?

I'm sure you've all seen the term "Short Sale" being screamed at you from Real Estate signs and websites. But if you're a newbie like we were you're probably not that clear on what it is so let me explain it as I understand it.

We all know what a foreclosure is; for some reason, whether it be an owner in financial straits or just someone who's irresponsible, a bank takes possession of a house. And, of course, we know what a straight sale is: an owner selling a house outright. Well, a short sale falls between these two sales and, I can't stress this enough, a MAJOR pain in the ass for your agent and you.

This is the way it was explained to me: If you're about to be foreclosed on and you still owe $400,000 you can make a deal with the bank and list your house for less with the hopes of a quick sale and when you get an offer the bank still has to approve the final sales price. Now, this gets even more complicated if you've taken out two or more loans from separate banks because they each have to sign off.

At the very beginning of our house hunt the fourth place we looked at fell into the short sale category. It was a very cute house perched on the side of a hill in a great neighborhood of Glendale. The house on Plamer Ave was listed at $349,500, the very top of our budget, but we loved the area and the house so we submitted an offer for $355,000 and our hopes soared. Our agent tried to temper our excitement and warned us that short sales could take weeks, if not months. But, she encouraged, if we were patient we could, in some instances, actually outlast other bidders that had submitted higher offers. YAY! We're patient, we can do that!! HA!

For the first week we were excited. My wife had her doubts about the size of the bathroom as it was tiny tiny tiny, but all in all we were positive. I daydreamed about how I'd set up the back yard, about how I'd set up a photo studio in the garage.

At the beginning of the second week my wife saw another great place, not far from Palmer. We called our agent and set an appointment to see it on Sunday, an hour before the open house. Wait, I asked, can we actually put in offers on two different places at the same time? Yep.

Now this house, perched on a hillside with a fantastic view of the Angeles National Forest was stunning, absolutely gorgeous. The living room was large and open and had a gas/wood fireplace. It had a big master and a smaller second bedroom and one and a half bathrooms, yes one and a half bathrooms. It had a deck that stretched from the living room all the way to the master bedroom. From that big deck some stairs decended down onto a small yard, perfect for a table and chairs.

"I WANT IT!" I exclaimed. And since it's listed for just $259,000, we can over bid and be sure to get it, right? WRONG. We submitted a bid for $310,000. $50,000 over asking price was sure to be enough, right?

Well, this was a preapproved short sale and in two days we had our answer; the top 4 bids got a counter offer from the bank and we weren't even close. Weren't even close? But we were $50,000 over the asking price. We bid almost 20% above what they asked for. SON OF A....!

We later found out that the house sold for $365,000. A HUNDRED and SIX thousand over asking. We started to get annoyed, but at least we still had Palmer. I'm sure we'll find out about that soon.