Real Estate Short Sales Explained
November 20, 2009
Real estate short sales have become more common in the tough housing market of the last few years. A short sale is an attempt to sell a home instead of the bank taking it back by foreclosure. This sale can partially salvage the homeowner’s credit rating and lift the stress of large mortgage payments. If you’ve been house hunting over the last year, chances are you’ve run across at least one piece of real estate classified as a short sale.
The entire process of the short sale is based on the premise that the bank will take an immediate loss, approve the sale, and eliminate the high expenses of foreclosing, clearing, and reselling a home. This is a big chance that the prospective home buyers are taking. There are some things that they can do to in order to lessen the chance for disappointment of unapproved short sales:
The price is set by the agent & seller, not the bank:
The agent and seller often set a low asking price in order to attract buyers. The bank generally has no knowledge of the asking price. The bank has to approve what an acceptable offer would be. The lack of awareness in regards to price by the bank often leads to a longer process than anticipated. The bottom line is that the buyer needs to remain patient and understanding throughout the entire process.
One bank loan is better than two:
Having to deal with and get approval from two different banks is obviously a lot more difficult to get short sale clearance. Neither the agent nor the buyer can control this It simply depends on the bank or banks involved.
Make low ball offers at your own risk:
Remember the bank is typically unaware of the seller-set price during a short sale. When low ball offers arrive at the bank, they are often rejected, with little or no feedback for the prospective buyers. It may also take a considerably long time to hear back even on good offers due to the sheer volume of transactions lenders are overwhelmed with these days.
Knowledge of recent home sales:
The selling agent must be aware of recent home sales in the area to give prospective buyers a clearer picture of the properties that are selling. This will help the agent and seller when they seek approval of the asking price by the bank. Checking recent home sales will also give the buyer a better understanding of what the sales price of homes in the neighborhood are.
Don’t put your eggs in one basket:
In many cases, short sales are not “short.” It can be a very long process. A buyer must keep their options open and continue to actively look at other properties. Buyers must keep positive. The right property will come along. As long as the proper contingencies are in place, most areas allow an individual to have multiple offers out at any given time.
Sellers with multiple properties or healthy financials may not qualify:
If a seller owns more than a handful of properties or has a high net worth, they will most likely not be eligible for a short sale. In certain scenarios, the seller will be asked to pay the difference of the sale.
“Approved” prices are quickest:
An “approved short sale” has a price that has already been approved by the bank. Short sales are not always timely; however, making an offer on an “approved short sale” can be a much faster process. These types of short sales are some of the most highly desirable.
Each bank is different:
In short sales, the bank has all the power, and each one has a different idea of what the most appealing buyer is. One bank may prefer buyers with large down payments while another just wants the highest price. Most buyers want to know if the bank will give a lower price for an all cash offer. This is difficult to predict; they will not know until they make an offer.
Renovations are not happening , but credit is:
Any improvements that are necessary on a home, even if they are required for a loan, will most often not be done. Generally credit is issued and the buyer must take on the responsibility for any of the repairs.
The window is awfully small:
A short sale has little or no leniency in regards to the closing date compared to a traditional sale. Exceptions are rarely made and the buyer must close on time. It is imperative that all loan paperwork get completed immediately after opening escrow. If an issue is uncovered that could cause a delay, a request for an extension should be made immediately. If the request is made early enough, many banks will grant an extension. Don’t just assume it will happen.
Short sales can be a great opportunity to find your new home at a competitive price. They can also be a major headache that lasts for months. It is important to have a good understanding of the many factors that lead to a successful deal; or hire someone who does.
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