How many Flagstaff homes are available for short sale? That may depend on how you define “short sale.”  Until recently, few people had even heard of a short sale, and now I get calls weekly from people asking to buy one. The reality is that only about one short sale per month succeeds in the Flagstaff market – or so it has been for the last six months. An article online at CNN.com explains why these sales are so difficult and why you need a real estate agent who knows what he/she is doing if you want to go after one. As an astute homebuyer, it’s important to consider short sales as part of the market available for you to feast upon right now, but be prepared!

First, a definition: A short sale occurs when the mortgage holders agree to discount the loan balances for a seller who owes more on mortgage loans than the home is currently worth. Short sellers are likely to still be living in the home and may be maintaining it. The CNN article says that short-sales are likely to be in better shape than foreclosed properties. In my experience with Flagstaff homes that may not be true. It depends on the level of distress of the homeowner.

As the CNN author says, “before you get too excited about buying a short sale, know that they generally aren't, well, short.” The work involved in obtaining the seller’s lenders’ approval for the sale can cause the process to drag on several months longer than a normal home sale. With a well-prepared, persistent agent, that time crunch can be relieved.

Some buyers and Realtors^® don't want to deal with short sales. Right now, there are 39 Flagstaff homes advertised as short-sale offerings. If you're willing to brave the intricacies of the process, you may land the home you always wanted in a short-sale transaction. Remember, however, that the banks are looking for market price, so while you may realize some discount, it’s not going to be astronomical – at least not so far in Flagstaff. Looking at the seven short sales that have been completed in Flagstaff in the last six months shows prices that seem to be right about at the level of other sales, some of which, of course, have been bank-owned properties.

If you find that you like a Flagstaff house that is listed as a short-sale, be prepared for what you're getting into before you make the offer. Your real estate agent will be dealing with several parties: the sellers, their agent and the sellers' lender (or lenders). Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, the bank’s negotiators are flooded with short-sale offers and are understaffed because banks have been laying off employees. If you're moving or selling another property, don’t expect a smooth transition to a short-sale home. You may want to give more weight to other alternative homes as you evaluate your choices if a quick moving date is important to you.

Find the right real estate agent to represent you. Lenders will try to make Realtors® who work on short sales take a hit on their commission, so some real estate brokers may not even want to show you the listings. Make sure you are employ your agent with a written agreement that commits them to show you everything that you qualify to buy. But before you employ them, make sure your real estate agent will be up to the tough negotiating task ahead.

To reduce your risk of delay, you may want to avoid homes with two mortgage liens. Having to negotiate with two lenders can greatly increase the amount of time it takes to complete the deal. Even though the second mortgagee is likely to get nothing if the home forecloses, they are loath to cooperate in short sales that give them nothing in return for their forgiving the loan.

Also consider avoiding homes where the seller has other offers. That's because if another offer is pending, the lenders may instruct the seller’s agent to hold off on submission of other offers until they decide on the first offer. (Even if the second offer is better – who said the process is rational!)

In Arizona, there is a special addendum to the form Realtors® should use to make offers on short sales. This addendum will protect you from having to spend money on inspections until you know whether the lenders will accept the transaction. Make sure your agent knows about it and uses the “Short Sale Addendum” to the standard Residential Resale Purchase Contract. Your real estate agent will use the resources of a good escrow officer to put together a preliminary settlement statement on the form expected by that banks and which should demonstrate why your offer to should be accepted.

Once you get a response to your offer from the lenders, there may need to be more negotiation. Your agent should run current market comparables – the market may have changed in the weeks you’ve been waiting for a response.

I’ve successfully played the “good guy/bad guy” technique in cooperating with a seller’s agent to make a short sale work in the Flagstaff market. That may not always be the right approach, but you should make sure that your agent knows how to do it if necessary.

Ultimately, it’s in your interest to consider Flagstaff homes that are offered as short sales, but remember that your goal is to get a home, not to get a “short-sale.” If the deal offered doesn’t work for you, walk away – there are a lot of fish in the Flagstaff pond of homes right now.