Tips on Buying a Short Sale Home
There are many horror stories on the issues that arise when trying to buy a short sale home. Many times the stories are unfounded and are generated by agents that do not understand the short sale process and getting the system to work properly.
A short sale listing, is a home that is being sold for less than the value of the outstanding mortgage, or shortage. The process will start a couple of weeks prior to the home even being listed on the market, as the listing agent needs to sit with the sellers and make sure all avenues are taken to avoid a negative response from the banks.
For the buyer of a short sale listing, a certain degree of patience is required in addition to an appreciation that the home will be selling as is. This is always the case as the sellers not only do not have the funds to continue paying their mortgage, but also not enough money to do repairs, simple or otherwise. The big advantage is that a buyer will get a home within market value, or sometimes even lower without having to wonder what may have happened to the home if it were foreclosed and possibly vandalized.
A simple conversation between the listing agent and buyer's agent will allow all to get an understanding of what has been done to get the property owner and the bank on the same page.
Just because the property has been identified as a short sale doesn't necessarily mean that the buyers' low ball offer will be accepted by either the sellers, who have first review of the documents, their agent, or the bank. The fact that the bank will accept the shortage, doesn't mean they are agreeing to bargain basement pricing.
Once the offer and all documentation have been submitted to the bank, the bank will then arrange for an appraiser to go out to the home and get an independent evaluation and sometimes even send out an appraiser. Once this documentation is returned to the bank, and all is acceptable, then the bank will expect a quick resolution to the sale.
A buyer on a short sale must be careeful about makig cintigencies in their contract that they will not process their part of the transaction, including inspections until after the bank makes their position known. This could result in them losing the deal, as a bank response to a short sale is not unlike the bank's response to a foreclosure in that they will not allow the deal to extend beyond a 30 day window. They then need to move without hesitation once the release is given.
In a conventional home sale, the buyers make contingencies with time-lines that begin once the contract is signed by all parties. These time-lines allow for the mortgaging process and home inspections and takes a transaction out from 30-45 days. With a short sale, it would be wise to add at least 3 weeks to that time-line, assuming the listing agent has done their advance work properly.
A short sale can be a great deal for all involved, as the seller gets out from under their obligation with minimum liability, the buyers get a home in good condition at a discounted price and the banks do not have to worry about having the non performing assets on their books.
Short sales transactions are not that difficult if all know the issues up front. As with any real estate transaction, the buyer needs to have their finances all resolved in advance, and a pre-approval letter is the ultimate.
If you're thinking of buying a short sale property in Central Connecticut, call me for assistance at 203-206-0754.
If you think you need to sell your home as a short sale in Central Connecticut, call me for a meeting.
Short sales do work and I know how to make them work!
Tips on Buying a Short Sale Home!
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Ed Silva RE/MAX Professionals, www.edwardsilva.com 203-206-0754
Good explanation of the process. May we soon return to normal.
It's hard to imagine any Realtor can avoid a short sale in this market. Both agents need to do their homework prior to a short sale.
Ed -- We can greatly diminish the amount of horrible short sales by having them handled by agents experienced in the process -- both sides. IT makes a difference when the process is carried out efficiently with the listing agent on top of the sale and the buyer's agent managing expectations.
Ed, every buyer needs to read this. Great explanation on how a short sale works.
Ed -- this is an excellent post regarding short sales and what to expect. I make things such as the home inspection date running X days from the date the buyer receives written confirmation that the short sale has been accepted. Sometimes it take more than 2-3 weeks .....
Hi Ed, This is an excellent introduction to Short Sales with good examples of how these Short Sales work best. If reasonableness prevails, all parties will likely be satisfied and get to closing..
Ed, great post on explaining short sale. And, I believe, Short Sales are here to stay - if not forever, at least for a while.
Ed - Very nice job on this post.... and yes may we come back to some sort of normalcy in the near future.....
Ed, all parties to a short sale need to know it won't be a 24 hour answer. The banks/mortgage companies/assets manager are simply overwhelmed with the volume. The key to a short sale is knowing that it's not a "typical " sale. You put it out there well. The more peole understand some of the step involved in a short sale, the sooner this will all clear out.
Ed - I feel that knowing the structure of a Short Sale is good to know. It's sort of like when a buyer client asks you about a fsbo property. You may not want to do it, but incase you're asked to... at least you'll know the nuts and bolts about it.
"Just because the property has been identified as a short sale doesn't necessarily mean that the buyers' low ball offer will be accepted by either the sellers, who have first review of the documents, their agent, or the bank. The fact that the bank will accept the shortage, doesn't mean they are agreeing to bargain basement pricing."
It is important to note that the lender will approve a short sale a certain percentage below their BPO results. So a buyer who makes contact with the seller will be in a better position to negotiate a low purchase offer than a buyer's agent approaching the listing agent. Once the purchase contract is approved between the buyer and seller, it is important that one of the agents meet the BPO and show the low comps to the BPO agent. If the BPO uses the low comps and your offer is within the investor guidelines (each investor is different and MI makes a big difference), then the short sale is usually approved.
If a listing agent allows a buyer to do a home inspection, get a mortgage commitment, etc after short sale approval then they are really just asking for trouble and are doing a very poor job representing the seller.
My buyers typically hang in there on short sales or dont try for them at all just based on knowing this process and deciding if they want to saddle up for the long haul.
I find that one of the biggest misconceptions some buyers harbor about a short sale lies with finding defects or problems with the home during the home inspection. They wrongly believe that it's OK to ask the seller to pay for them and the bank to authorize those repairs. They don't seem to realize that short sales are generally sold AS IS -- if there is any extra money floating around, the bank wants it.
Ed, it sounds to us like a buyer or seller would be wise to check out an agent that knows about short sales before involving themselves in one. You obviously know much about them and have the experience to make the transaction a smooth one. You should be their agent of choice. Congratulations on the feature for this short sale topic, it was well deserved.
Elizabeth - Comment #14 - It is wise for the listing broker to get it inspection at the time of the listing and come up with a high bid to repair the property. That bid then is given to the BPO and the bank. The bid is then used to offset the BPO and lower the purchase price. The same goes with termite and a preliminary title report.
Great tips! Knowing the structure of a short sale is very important
David, it will be a while before any sense of normalcy returns, unfortunately.
Ellie, some agents are reluctant to even show a short sale, and this cheats their buyers who may have more patience than the agent
Barbara, knowledge and an understanding of the process always makes it flow smoothly
Kay, thanks, it's a flow that has worked for me quite well.
William, they require patience and perseverance on everyone's part. Most of the answers to the questions I get are within this post.
Praful, short sales will be here for good, hopefully their numbers will decrease and some stability will take over.
Bob & Lisa it wil be greatly appreciated when it returns.
Juli, it will take time an das some of the reluctant agents get on board at least with the process it will come sooner than later.
Diego, managing a FSBO can be a bit easier as the banks isn't directly involved, just an over stated seller.
Satar, on my last shprt sale, the BPO agent never called either myself or the buyer's agent but it did prevail.
Bill, you are right as the time-lines after acceptance are quick, and I made a correction to that effect.
Chuck, the ones that hang in there are the one's that get a good deal.
Elizabeth, it is an issue as there is no extra money involved and it will have to be sold as is. Some buyers still think that they can get repairs as the sellers are still there, but they seldom have any money.
Hi Al & Peggy, this is not something you have up there and that's not a bad thing.
Satar, I use the deficiencies in a home as the basis for a lower price, all documented with photos and estimates, which makes the bank's job easier. Some appraisers wil also make those notations on their report
Thanks for stopping Benjamin
"Satar, on my last shprt sale, the BPO agent never called either myself or the buyer's agent but it did prevail."
It must have been a drive-by. In those instances, the repair estimates work like a charm!
Good summary and points to keep in mind Ed ! - ... 50% of my sales were short sales last year, so these are familiar tips, and good for those clients and agents needing advice!
Hey, Ed! I am still a short sale virgin. Can't believe it. But I've found one that Dick and I might want to make an offer on, so I have to read up on them. And are you saying they are, um, risky?
This is a great post and I am going to reblog it since the information needs to be shared!
I came over via Barbara-Jo's reblog, and I am glad I did. Very smart post. Thanks, Ed.
Ed, nice post! Patience of short sales can not be emphasized enough.
Short sale investing is important as it will allow you to purchase homes a price which is below average with a promise of high returns as well as quick profit. You have shared great information on how a short sale works. I enjoyed the blog. Thanks!
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