Buying a home being marketed as a Short Sale can be a hassle, so why should you consider it? Mainly, it boils down to the bottom line that you will get the property for a substantial discount. Short Sales can be a great opportunity to find your new home at a competitive price, and it could also be a major headache that lasts for months. It is important to have a good understanding of the factors that lead to a successful Short Sale to make it an enjoyable and profitable experience and, more importantly, you must have patience!
A Short Sale is an attempt by the current owner to sell a home in lieu of the bank taking it back through foreclosure proceedings, thus partially salvaging their credit rating and lifting the burden of heavy mortgage debt. The entire Short Sale process hinges on the hope that the bank will take a loss now, approve the sale, and eliminate the costly process of foreclosing, clearing, and reselling a home. Obviously, this is a big hope on behalf of prospective homebuyers as well, and they need to understand some things in order to lessen the chance for disappointment of an unapproved Short Sale.
The Short Sale process is different than a traditional purchase in that the lender (not the homeowner) makes the final decision on which offer to accept or reject. Here are a few things you should know:
1. You Need An Experienced Realtor – A Short Sale is one real estate transaction where you really need to get help from an experienced real estate agent. Not all real estate agents know how to handle a Short Sale, so you want to make absolutely sure you consult with one who can demonstrate special Short Sale training, a successful track record, and who has earned the designation of Certified Distressed Propety Expert (CDPE).
2. Sales Price Is Usually Set By Agent & Seller; Not the Bank: The agent and the seller determine the initial sales price, and it is reduced on an aggressive basis in order to attract buyers. The bank is normally unaware of the asking price; however, the bank has the final say in what an acceptable offer will be. Since the bank has the power to ultimately accept or deny offers, their lack of price awareness often leads to the process taking longer than anticipated. The bottom line is that the buyer needs to remain positive and patient throughout the entire process, sometimes even for months.
3. How Many Mortgages Are On the Property? If the seller has two mortgages and they are with different banks, it is much more difficult and time-consuming for the Short Sale to be approved. This is something the agent or the buyer cannot control; it simply depends on the willingness of the bank or banks involved. While the reasons are beyond the scope of this outline, buyers should know that when the seller has one loan with one bank, the Short Sale often becomes more buyer-friendly. A savvy Realtor can let you know this type of information.
4. Lowball Offers Get Slow Or No Response: Remember, the bank is typically unaware of the pricing during a Short Sale, and when lowball offers stream into the bank they are often scoffed at and rejected, giving the prospected buyers little or no feedback. Surprisingly, it may also take painstakingly longer to hear back from the bank even on good offers because of their high volume of transactions that they are inundated with these days.
5. Agent Must Check Comparables Before Submitting Offer: The selling agent must be sure to check recent home sales in the area to give buyers a better idea of the properties that are selling. This will give the listing agent and the seller appropriate grounds for an asking price that will more likely be approved by the bank. Checking comparables will also give the buyer a better knowledge of what price homes in the neighborhood are selling for, and ultimately make them a more informed homebuyer.
6. Keep Your Options Open: Short Sales aren’t necessarily “short.” It can sometimes be a very long process, so don’t get your hopes up for just one property; keep your options open and continue to actively look at multiple properties. Buyers must remain optimistic; the right property will come along. In most areas, it is completely legal and risk-free to have multiple offers at any given time; however, you must have proper contingencies in the offers so you are not liable in purchasing more than one property!
7. Some Sellers May Not Qualify For A Short Sale: Sellers that own multiple properties or have a large net worth or other assets will probably not be eligible for a Short Sale. In some cases, the seller will be asked to pay the difference in the sale. The seller might even be required to sign a promissory note from their lender stating that they will pay back all, most, or some of the debt. This has virtually no effect on the buyer as long as the seller cooperates.
8. “Approved” Prices Are Quickest: It is important to remember that Short Sales are not always timely; however, making an offer on an “approved Short Sale” can be a quicker process. An “approved Short Sale” has a price that has already been given the green light by the bank. This could be due to the fact that another interested buyer made an offer that was approved, but didn’t end up purchasing the property. These types of Short Sales are more highly desirable with a quicker turn-around time.
9. Banks Want Strong Buyers; Strong Offers: The bank has all the power to approve a Short Sale. The bank can pick the most appealing buyer, which may mean different things to different banks. Some banks may prefer buyers with large down payments, while others just want the highest price regardless of down payment. Many buyers want to know if they will get a deeper discount for an all-cash offer. This is very hard to predict and you will never really know until you make an offer.
10. Property Sold “As Is”: If there are improvements or repairs that are required on a home in order to get a loan, it is unlikely that the bank will agree to do any. (In this case, we suggest a loan program that will include repairs, etc. such as a 203K program.) These properties are normally sold in “as is” condition. The bank may agree to some sort of credit, but the buyer must take the responsibility of fixing anything that is broken or needs repair. The banks do not want any contingencies, including home inspections, so we suggest completing the home inspection before the bank approves the short sale.
11. You Must Close On Time: When you get the bank’s approval, it will include a date on which the Short Sale approval expires. During a Short Sale, there is no leniency with the closing date, as there is in a traditional sale, and exceptions are rarely made. The buyer must close on time. Because of this, it is important to take care of all loan paperwork and inspections right away. We advise buyers to be extra prepared and try to have their loan finalized a few days in advance of the closing date. If there is going to be an issue that will prevent closing on time, a request for an extension needs to be made immediately. If the request is made early enough, many banks will grant an extension, but don’t just assume it will happen.
We hope that these Tips will help you to remain positive and optimistic throughout the process. If you are interested in purchasing a short sale property, please call us at 301-717-7071 today!