The Fallacy of Short Sales in Key West

A couple of days ago the Key West Association of Realtors held a lunch hour lecture on Short Sales. The attorney for our association conducted the lecture. There were about 110 Key West Realtors in attendance.

There are a significant number of active short sale listings in our market. There are so many short sale offerings that the Florida Association of Realtors and the Florida Bar Association have adopted a Short Sale Addendum that is to be attached to an Exclusive Right of Sale Listing Agreement when a short sale is offered. The form defines a short sale this way: A short sale generally occurs when the Seller's net sale proceeds after payment of customary closing costs from the sale of real property are insufficient to pay outstanding mortgage and /or other lien(s) in full at closing. Typically, a short sale seller is in default of loan or lien obligations and is able to document the financial inability to meet ongoing repayment obligations.

The Association's lawyer cited one ominous statistic that only 18% of the contracts between sellers and buyers actually close (lender approves the mortgage release at a discounted payoff). Assuming his statistics are correct that means that 82% of potential short sales do not close.

I have been promoting short sales in Key West as buying opportunities, and I think they still are. But I may have mislead potential buyers into believing that just because a property is offered at an attractive short sale price that some lender will actually approve a discounted payoff. It is not that simple.

I found a very well written blog on this subject and I hope you will read it. Short Sales - A misnomer AND a Marketing Ploy. The blog and the comments point out all of the downsides to a short sale.

I think Short Sales are a marketing tool, not a panacea, especially in Key West. We have a lot of properties on the market right now because many second home owners and investors are walking away from properties, and short sales are one method of marketing those properties.