Everyone loves a good deal, and if you can get a great deal on a house – the most expensive thing you will probably ever buy – how fantastic that would be. And many people have found that real estate rainbow in the form of a short sale. But be aware that the inventory of short sale properties is dwindling down fast.

A short sale is anything but short when you are talking about time and effort. However, it is distinguished by the fact that the mortgage lender agrees to take less than the full loan amount that is still owed by the homeowner.  Hence, the lender has allowed the homeowner to short sell the house, and many times forgives the difference of the balance still left on full loan. Many times, the homeowner is trying to avoid foreclosure and just wants to make good on a promise to pay off the house.

Short sales becoming rare

In the years when the mortgage fiasco was at its height, short sales were everywhere making up about 15 percent of the total reported housing sales, according to the National Association of Realtors (NAR). However, that’s not the same story nowadays even though there are still many people underwater with their homes, or those who can’t make their payments because of job loss or other consequences. Also, more refinancing programs have been offered to help people who were hit the hardest by the mortgage bust. If they weren’t able to refinance, some have already suffered foreclosure or just walked away from their property.

According to the most recent data gathered by the NAR, only 4 percent of all home sales were short sales in March, and those sold for 12 percent below market value in March. That means that a house that would have usually cost $200,000 was scooped up for $176,000.

Short sales take longer to close

That discount can be quite attractive to buyers. But buyers beware – short sales are anything but short. To throw in another statistic, the NAR said that those short sales sold in March were on the market for a median of 112 days compared to foreclosures that typically sold in 55 days and non-distressed homes took 53 days to sell.

“There are some short sales around, few and far between, and many times in this area of California, the offers that people make to banks for short sales are being rejected,” says Erica Crittenden, real estate agent at Zip Realty in Huntington Beach, Ca. “It’s sad. A buyer is waiting for months for word from the bank, and then the bank says no. Short sales are dwindling. It’s a cycle that happens in the real estate industry.”

Short sale red tape

She explains that the reason short sales can take months and months is all the red tape that goes on once the offer is made to the bank.

“Let’s say someone is trying to sell their home to Uncle Bob for $150,000 even though it’s worth $250,000. They want to avoid foreclosure, so they want to do it on a short sale,” she says.

As a realtor, she said you go through negotiations with the lender, and they assign a negotiator from the bank. The bank sends out an appraiser to the house.

“Most of the time, this bank doesn’t even know if anyone is actually living in the house anymore or what the property looks like. They don’t know much about the property at all, especially if it’s a big lending company or bank,” she says.

The negotiations of what price the bank will approve can linger on for months.

“Many times it can take 3-6 months, and by the time the bank finally approves a price, the buyers have already gone because they are frustrated,” she says. “As a real estate agent, it’s frustrating, too. If you get a new buyer who likes the property, you have to start the whole process over again. You can’t even use the same bank negotiator for the same property.”

Bank-owned properties

She says the next cycle in the real estate industry is REO, real estate owned. These are properties owned by a lender, usually a bank, after an unsuccessful foreclosure auction or sale. REOs are usually sold in “as is” condition, meaning the bank does not make needed repairs to the property, Crittenden says.

“Those will go away, too. Then it will be just equitable sellers again. Prices are going static again, so that means there will be more inventory. It’s not a normal inventory, but it’s more than we have had in years,” she says.

“I don’t think we will see anyone doing a short sale in about 1 ½ years,” she says. “I’m not taking on any short sales. I’m not going to work for three months and then just to see it get rejected anyways.”