I’ve received a sprinkling of new buyer calls looking for Emerald Coast short sales. You know, the typical, “Find me a deal“, “I want a distressed property”, “Do you have any short sales?” etc., without any other criteria. These Emerald Coast short sale buyers ask the same thing they did ten years ago, when the market here was full of short sales. They thought then that they’d get a bargain, and they think that now. You couldn’t really get a bargain then, and now, short sales are practically non-existent.
Let’s start with some background. What is a short sale? A “Short Sale” is when the lienholder/mortgage holder agrees to accept a payoff for less than the mortgage balance to allow the sale of the property. Otherwise, the property could not sell with an existing lien to a new owner. The lender could forgive the entire shortfall, as well as pay the seller’s closing costs, including the Realtor fee. The loss is either completely written off by the lender, a payment arrangement, which could be in the form of a promissory note, is made with the borrower (their borrower is the seller), or a lump-sum for a potentially lesser amount is agreed to (cash contribution). The short sale lender may also seek the deficiency from the borrower after the sale.
Why weren’t Emerald Coast short sales really “bargains” a few years ago? Lienholders did appraisals on the mortgaged properties to ensure they were not being undersold. They would only accept pay-off proceeds calculated typically as a percentage of appraised value. And believe me, it wasn’t 50% off of appraised value! It could have been 85 – 95% of appraised value. Calculate the wait time and uncertainty of even getting a short sale approved, would-be investors didn’t really make out like they thought they would. (The same is basically true for a foreclosure, give or take).
Nowadays, there aren’t really any Emerald Coast short sales. Why? Equity. If a homeowner is in financial trouble, and needs to sell his property, he could do so without a needing to do a short sale because of equity built up in the real estate. Prices have risen in the Destin, Niceville, Fort Walton Beach and Santa Rosa Beach, Florida areas as much as 40 – 100% in the past three years! The median sale price on the Emerald Coast was $295,000 in April 2020, the median sale price grew to $445,000 in March of 2023.
Now, home price growth is down a bit, to about 1%-4% up from last year (depending again on the micromarket – some areas are higher). So, hypothetically, if the market flattens or even decreases a few more percentage points, only owners who bought at the very height of the market (say a couple of months ago), who have a financial hardship (medical bills, job loss, death of breadwinner, divorce, relocation), could possibly be in a short sale situation because of an equity crunch.
Trends in favor of possibly, (maybe, could be), declining prices on the Emerald Coast are:
- Increased number of properties for sale (up 135% from a year ago)
- Fewer pending sales (down 30%)
- Longer days on market (33 vs. 6 days a year ago)
- Higher interest rates (6.4% vs. 2.75%)
- Month’s inventory has tripled, from 1 month to 3 months (that’s the amount of time it would take to sell all the inventory at the current rate of sales)
There was only one instance in the last year where I spoke with an owner from another part of Florida who was facing negative equity. His property had decreased in value because of a foundation issue. He did not have equity to sell without, in his case, doing a type of short sale called a “VA Compromise Sale“. But that is rare in this market. For now.
Looking forward, I won’t rule out Emerald Coast short sales returning. No one can predict future prices. It doesn’t seem likely, but if so, there probably wouldn’t be many. And if there were, rest assured, dozens of buyers would be scrambling to get a “deal”.