p>It's no secret that distressed sales are dominating most real estate markets and that most distressed “sales” are short sales.  While short sales are very common on listings, very few actually end up being successful sales, hence my emphasis on the word.  Rather, short sales should really be called short listings, since the ultimate seller, the lender, has very little interest or incentive to complete a sale.

Unlike regular sales or even foreclosed real estate owned by banks (REOs), a short listing does not involve a motivated seller, one of the key elements in any successful transaction.  The nominal seller is ostensibly the current home owner who has lost the incentive, will, or ability to continue making structured payments to the lender on title.  Many eager listing agents, often “certified” to handle short sales, will take on these short listings where the current market value is below the amount still owed to the lender.  In short order, they put together a short sale package for presentation to the lender and prepare to list the property for sale.  Since these listing agents aren't pricing a property for a regular market sale, they just arbitrarily list an artificially low price to attract a buyer willing to go through the process.

Meanwhile, the lender has little to no clue that a short listing is about commence, contently collecting mortgage payments either from the current home owner or some insurance agency like Freddie Mac.  Hence, they're in no rush to foreclose and definitely don't want to touch a short listing and get involved in a lengthy transaction.  Lenders are not staffed to handle these sales anyways, which are about as financially pleasant as the returns department at any department store.  Not only are they not making their anticipated interest returns, they're now spending money to try to minimize the amount of money they're losing on their loan.

On the other side of this ugly situation are the buyers, often first-time buyers.  While seasoned investors are throwing down all cash offers to entice the lenders to deal and have the patience of Job, first-time buyers, and even experienced home buyers, are usually unprepared for the harrowing process of a short listing.  The process is so unfamiliar and alien that most simply can't grasp or manage the challenges, even if their agents had educated them.

So, unfortunately, these buyers go into these great looking deals that appear to be earnest offers to sell, while the actual sales intent is many months away.  Lengthy offers with tedious specialized addenda are submitted into a virtual black hole.  The overwhelmed processing departments of these lenders very reluctantly process the offers, taking months to respond.  And when they respond, they dryly write back the price expected from BPOs or AVMs, which can be 15-25% more than the listed price.  Then, unless the buyers accept the response as reasonable or eventually work out a compromise, they would dejectedly walk away from the deal, having wasted 3-4 months and tens of hours of document preparation and review.

For the fortunate few who get a reasonable approved price from the lender, they can expect to the close in 4-6 months.  And, for the intrepid few who go the distance in multiple rounds of negotiation, the process can take up to a year.

 Considering how time consuming the home buying process is normally, this raft of short listings just leaves most buyers beyond frustrated, making these “deals” not really worth pursuing.