In a short sale transaction the homeowner is not allowed to make a profit. With the price point set below what is owed on the mortgage, this makes sense. The fact that the homeowner cannot sell for a profit is probably one of the main reasons the house is being sold short.
Selling a short sale can be difficult due to the fact that the bank may not exactly "rush" the short sale approval. And even if they do move fairly quickly on the approval of a short, the closing timeframe will still take a while. Sometimes the bank does not even approve a short sale. A majority of potential buyers do not want to wait for something that may not even materialize. They will look at non-short homes.
Basically, a home in short sale is a distressed property, at least to my way of thinking. In most cases, the homeowner is behind on payments, and needs to get out fairly quickly. When a homeowner gets behind on payments, the condition of the home is usually not at a high level.
Enter the investor. These are the folks who are not afraid to take a risk and wait out the bank. They will make an offer, if approved, buy the place, and then fix it up for a quick sale. Even though they buy it at a distressed sale price, they will usually sell it at a nice retail price after it has been spruced up.
The homeowner gets out of their burden. The bank is rid of the carrying costs. The home gets fixed up. The retail price for the area goes up, and the potential buyer does not wait for a short to get approved.
Fannie Mae lobbied hard for a new law that will go into effect on Jan. 1st. Buying a short sale and then selling it at a higher price will become illegal. That ought to help our slow markets.
Any input? Am I offbase?