We could write volumes on short sales and how they work, but this post is more of a gut-check for those of you considering making an offer on a short sale. While short sales can offer reduced prices for those willing to work through the wait and slower paced process of these transactions, they can also be a nightmare for those who are not prepared for them. Knowing a few important factors when considering purchasing can help alleviate and avoid some of the stress and mis
What is a short sale?
A short sale is an arrangement between the owner of the home and the bank that allows the home owner to sell their house for less than they owe to the lender. By selling the home the owner comes up “short” of what they owe the lender and the lender agrees to take less. Short sales typically occur because either the home owner has fallen behind in their payments (and is in risk of foreclosure) or they are underwater in their mortgage and can not sell the home for what they owe the lender.
Purchasing a short sale.
Purchasing a short sale usually takes longer than your average 30-45 days. Just getting an answer to your offer can take weeks (we’ve even seen months). Short sales are not for buyers who need to move right away, rather they work best for people who can afford to be flexible in their eventual move date.
The most important thing to remember in a short sale is that there is a reason it is being sold this way. The owner probably does not have money to make repairs or do anything outside of sell you the home. They are trying to move out of a tough situation without moving all the way to foreclosure, so don’t expect much from them in terms of financial help when making an offer. Stick to a strong offer and your experience is likely to flow a little smoother than most.
Questions to ask about the short sale.
Buyers are advised to err on the side of caution when looking for short sales. Often, homes are listed as short sales prior to bank approval of the sale. Since the bank must agree to the sale (they are taking less money after all), they must sign off in order to make the sale happen. What price you see in the San Antonio MLS may have not been approved by the lender yet – agents often will enter them in with an idea for the price, but if the bank doesn’t agree to that price, you’re just throwing guesses out there to find the correct offer price. Have your agent check with the listing agent to see if it is a bank-approved short sale. Having the approval up front will help streamline the process and move it toward closing quicker.
Ask the listing agent if the seller will be taking any cash from the lender upon closing. Lenders have offered incentives to some borrowers to short sale their home rather than move to foreclosure. These incentives help the bank avoid the costly process of foreclosure. If the seller is taking a cash incentive, it may help in negotiating any possible repairs or seller concessions. Knowing something like this can be an edge up for a potential buyer, so make sure you’re doing your homework (your agent should be doing this for you).
Expectations in the short sale.
Expect red tape and delays. Expect a few headaches. Don’t expect to find the deal of a lifetime – they’re not as common as people would like to believe. Don’t expect to get extra help from the seller for repairs or closing costs. Expect the bank to take multiple offers – especially if the home has just recently arrived on the market.
If you’re thinking of selling your home via a short sale, talk to someone with experience. Question your agent about their experience and successes with short sales. As they are a specialized field within real estate, not everyone knows the ins and outs of them. We often work with a dedicated short sale negotiator when we list short sales. By teaming up with someone who deals with the lenders day in and day out, our agents are able to focus on marketing and selling the property instead of being on the phone all day with the lender. Teaming up in such a fashion proves to be valuable to both the client and the agent, so consider finding a similar situation to help you navigate your short sale.
image courtesy of roland