If you want to buy a house in Las Vegas, be prepared to be patient.
Short sales, which can take up to a year or longer to close, have soared to record levels in the valley. They now account for almost half of all home sales and show no signs of slowing.
In a short sale, lenders agree to sell a house for less than what’s owed on the mortgage. Buying one typically involves mountains of paperwork, repeated phone calls with bankers, back-and-forth letters with sellers and other seemingly endless frustrations.
The rising short-sale rate comes amid plunging sales of foreclosed homes, which once were a big source of local inventory. But just because short sales now dominate the market, it doesn’t mean they’ve become any faster to process.
It still can take six months to a year — if not longer — to complete a deal.
Las Vegas broker Beth Ellyn Rosenthal of eXp Realty said short sales now comprise 70 percent of her deals. She tells clients that buying a house is a roller coaster ride, but if they’re patient, they’ll eventually close the sale.
“It’s a torturous process,” she said.
Smaller banks that have paperwork in order can complete a short sale in as little as 30 days, Elite Realty agent Kolleen Kelley said. But in general, short sales take much longer. More typically, they get bogged down when third parties like second mortgage lenders or mortgage insurers have to sign off on the deal.
Despite the headaches, many buyers don't shy away from short sales. Almost all of the homes listed for sale in Las Vegas get multiple offers.
Cash investors are behind most of the deals. They look for cheap homes to pick up in bulk to rent out for profit.
“With inventory as low as it is, people are getting whatever they can,” said Kelley, the Greater Las Vegas Association of Realtors’ president last year.
Short sales accounted for a record 46 percent of all home sales in the valley last month, up from about 27 percent a year earlier. The previous record was 44.8 percent in September, according to the association.
Because the valley is filled with so many underwater borrowers, whose debt exceeds their homes’ value, the trend is expected to continue.
About 63 percent of valley homeowners with mortgages were underwater in the third quarter of last year, according to Zillow. Las Vegas had the highest rate of underwater borrowers in the country during that period.
Meanwhile, foreclosures made up just 9.5 percent of all sales in the valley last month, down from more than 50 percent a few years ago. The drop is due largely to Nevada’s “robosigning” law, which took effect in October 2011 and forces banks to provide more paperwork before seizing a house. Violations can lead to criminal or civil penalties.
Bankers want to unclog the massive pipeline of homes awaiting foreclosure and are discussing how to tweak the law in the coming months, when the Nevada Legislature is in session. But until changes are made, banks will continue to pursue short sales instead of foreclosures, real estate agents said.
Short sales are cheaper for lenders, partly because people still live in the homes and keep them in better shape than empty foreclosed houses, said Dennis Smith, founder of Las Vegas' Home Builders Research Inc. Bank-owned homes often get vandalized, raided by thieves or left in various states of disrepair.
Under government pressure, banks have been forced to improve their processing, Smith said, but it’s still a frustrating system for buyers, sellers and real estate agents to navigate. Each major bank has its own requirements for short sales, and there is no uniform set of paperwork.
On the upside, most Las Vegas brokers now have become short sale specialists, Smith said.
“They have to be,” he said. “If they’re not, they’re not going to be in business.”