Tips for Buying a Short Sale?

Although there are plenty of homes being sold through foreclosure, many banks are moving to a mind-set of letting the distressed homeowner sell for less than they owe - known as a short sale. The short sale process is a bit different since the seller is the homeowner and not the bank- meaning the bank allows or encourages the homeowner to sell the property for fair-market-value rather than foreclose on the property. So the homeowner picks the REALTOR to represent them and the homeowner makes the decision as to what offer will be presented to the bank for consideration. If a seller and a buyer enter into a contract, the seller's lender is not obligated to sell unless the seller's lender accepts a loan payoff for less than what is owed. Some buyers flock to short sales in the hopes of snatching up a good deal, whereas others stay away believing short sales are more trouble than they are worth. Ultimately, as the buyer, you can't be sure your short sale transaction will succeed, but you can stack the odds in your favor. Here are some good tips to help ensure your short sale process will succeed.

Hire a REALTOR

We are REALTORS. The word REALTOR is a trademark designation to distinguish real estate agents who are members of the National Association of REALTORS. REALTORS stand apart because among other things we voluntarily pledge to abide by a strict code of professional ethics to protect and promote your interests in the transaction.

Knowledge is Your Friend

A short sale is a new experience for most home buyers, but knowledge of the process is key to success. You should know the pros and cons of buying a short sale. You should also understand the the overall short sale process- what you need to do, how long the process may take, and what the common pitfalls may be. We are a great resource for this information because over the past couple years we've represented both sides of short sales. We continue to update our knowledge base with regards to short sale requirements by many banks. Be careful as there is a lot of mis-information on short sales floating around.

Do Your Homework

Gather and review as much information about a transaction as you can before writing an offer. We can help you identify which properties for sale in the MLS are short sales. We can also get more information from public records, find comparable sales, and other sources and information to determine the likelihood a short sale will succeed. A short sale where the lender will have to forgive the seller with a $50,000 shortfall will be more likely to succeed than a seller with a $200,000 shortfall. A transaction where one lender has to approve the short sale is less problematic than a transaction where there is both a senior and junior lender. Finally a transaction with a sales price at market value is more likely to be approved than a sales price below market value.

Write a Clean Offer

The word "Clean" is the industry jargon for describing an offer to purchase that the seller is unlikely to take issue with. Although the lender must ultimately discount the payoff, you have no purchase contract unless the seller accepts your offer. To get the seller's acceptance, you can offer a good price, demonstrate your ability to obtain financing, and offer other favorable terms for the seller. A clean offer can make a big difference, especially if you are competing with other buyers to buy the same property.

Understand the Timing

The timing of a short sale can be tricky. Things start off slow, but speed up at the end. Once the seller accepts your offer, you may way a few weeks to a couple months for an approval from the seller's lender. As the buyer, other than asking for status reports, it may be difficult for you to speed up the process. Lenders are often inundated with short sale requests. Each short sale request may involve a sizable loan. Before agreeing to give up the collateral for the loan, the lender may take its time to review the seller's financial position, the property value, and the terms of sale. Once the lender approves the short sale, the pace can change dramatically. Because the short sale approval expires within a few days or weeks, the buyer must move quickly to finalize the transaction. to make sure you succeed in your short sale transaction, be prepared to wait a long time for lender's approval, and then perform quickly thereafter. Patience and persistence will serve you well. Although the timing depicted above is a general depiction of the process, many banks are in the process of setting up systems to shorten this process. We keep tabs on the short sale process guidelines by many banks and can provide specific information regarding the short sale timeline based on the lender that holds your mortgage.

Prep as Best You Can

Because of the unique timing, short sale buyers are often uncertain whether to perform on their sales contract before the short sale lender's approval. One one hand the buyer may be reluctant to incur expenses by ordering property inspections and appraisals until after the the lende approves the short sale. On the other hand, if the the property inspections and appraisals are unsatisfactory, the buyer waited all that time for naught. Also, if the processing of property inspections and the buyer's financing causes delays, the short sale approval may expire. The alternative of waiving your inspections may be too risky.

Manage Your Expectations about the Property

In a short sale, the property may be in excelent , or oftentimes, the distressed homeowner may forego maintentance and repairs. As the buyer, you may ask the seller to make certain repairs or do things before close of escrow. But there is a good chance you'll have to take care of those things yourself. A seller generally receives no money in a short sale. Givent the seller's financial situation, the seller may be unwilling or unable to take care of the repair items that you may request. Moreover, the seller's lender who has already discounted the payoff may be unwilling to discount the payoff further to take care of the repair items you requested.

Don't Lose Sight of the Big Picture

Buyers can get so wrapped up closing a short sale that they lose sight of the big picture. Whether it is a short sale or not, buying a home is a serious matter. Be sure you are ready for homeownership by determining the financial, tax, liability, and other legal consequences of your transaction and consult with an accountant, attorney, or other professional as needed. With proper planning, negotiations, and execution, buying your piece of the American dream can be a reality.

Changes in the Short Sale Process

The process, systems and technology used in the foreclosure timeline has been around for many years (homeowners have been foreclosed on long before the housing crisis of 2007 - present), the systems and technology used in the short sale process have been less than efficient. The short sale is a relatively new concept, so the process of selling (and buying) a short sale can be at times difficult. As the short sale process is increasing with popularity among the banks/investors, so to is the technology handling the process.

We started representing both sellers and buyers in the short sale process a couple years ago and have seen a dramatic increase in the efficiency and shorter timelines in getting a short sale closed as banks are making huge improvements in the process.

As part of our commitment to constant improvement in our service, we update our knowledge with regards to both the foreclosure and short sale process. We use this knowledge to help you with your short sale purchase.

If you have any questions about buying a short sale please call us at 707-297-6580.