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I've been more involved lately representing buyers trying to purchase a short sale. 

What a fiasco.  Let's put it in perspective:

Out of the 18,862 active listings of attached and detached homes on the MLS today, 6,757 of them, or 36%, are marked as needing lender or court approval.  There might be 100 that are probates, so the remainder are short sales. 

There are probably another 5,000 that should have marked the box too.

If you are considering buying a house these days, you're going to run into short sale listings - they are everywhere.

Here are some observations:

1.  There is no playbook - we're making up this short-sale stuff as we go.  A point that needs to be addressed in each listing office is what to do with offers when they come in.  I'm not talking about the one I sent in on Sunday that still hasn't been presented, and the "short-sale manager" is now gone until next Wednesday.  That's another topic, about how unmotivated staff people are to process these promptly.

Here's the dilemma - the seller owns the house, but the bank is the decision-maker.  Listing agents who don't have the bank's approval yet are prone to send in to the bank all of the offers received, and let them decide - afterall, it's their decision.  But while the offers sit in a pile for months, buyers are giving up within days or weeks, and by the time the bank gets to them, there are no buyers left.

What doesn't occur to the listing agent is that buyers aren't very motivated to stick around when they are just one of the pack, and can be continuously shopped - and beaten out with no notice.  The listing agent should have the seller accept the best offer in an attempt to keep the best buyer more interested in sticking around to the finish.

When representing a buyer, I want my offer signed by the seller, acknowledging that as long as the bank approves, we get the house.  We're not going to offer as much, and we're not going  to wait around for months, unless it's worth the wait - sign my deal, or no deal.

2.  There is a wealth of opportunity in picking up the scraps left by restless buyers.  I'd guess the average buyer is willing to wait 2-4 weeks to find out if they bought a house, after that, it's too easy to get bored and/or find a better deal.

But how many bank approvals happen in 2-4 weeks? Maybe one out of five.  But think of the advantages to the second buyer:

a. The financial package has already been submitted, so there's a head start. 

b. Plus you'll have a cleaner shot at buying without competing buyers mucking up your lowball bid.

From the listing agent's perspective, selling a short sale is hard enough - having to re-engerize it once the first buyer bails takes a miracle.  A good place for buyers to look for deals though.

3.  A primary goal is to take advantage of the existing lender.  Lenders are using automated appraisals, which don't always recognize all of the benefits like a good view.  They'll send a regular appraiser out too, but if the house is in an area where there are lower sales prices nearby, or no sales at all, then the automated appraisal could be your friend.  If the bank's decision-maker is motivated to move some property and sees a low automated appraisal to use to justify taking a lowball offer, it might be just enough to make the deal.

4.  Another opportunity is a realtor selling their own house.  They usually have all the extras, and because the lenders are paying commissions, it's a chance for them to actually make money.

5.  You have to find a listing agent who knows the game.  Short sales are a chance for the listing agent to earn a commission, that's it.  The seller has little or no benefit, and the lenders don't care either.  I just had one who counter-offered 6% higher than the offer I submitted, after I told him there was no way we'd do it.  What is he thinking??  I tried to tell him that my offer was a great offer - why?  Because it's an offer!  The alternative is no offers, and no commission.

If you consider sending some dough to the seller outside of the transaction to help grease the deal, I could see the logic - wasn't that on the Sopranos?  But it could backfire on you pretty easily, so I wouldn't recommend it.

6.  There is another "investment-opportunity" forming.  People with money, or access to it, are finding delinquent sellers with nothing more to lose, and offering to buy their house based on a super-lowball offer to the lender.  If successful, they then flip the property, and share in the winnings.  If the existing lender can be talked into giving away a property, then that's their problem, I guess.  The lenders with high workloads and weaker employees & systems would be very susceptible, especially around the end of the year.

Add these folks to the investors buying at the trustee sales, and we're going to see many more flippers trying to beat the odds.

Speaking of trustee sales, I did verify that the IRS has a 120-day redemption period.  If you buy a house at the court house steps, don't be installing a pool or any other big-ticket item in the first 120 days.  if they confiscate the house, the IRS will return your purchase money, but that's it.