Short Sales
Short Sales and Bank Owned Properties can provide buyers with a great opportunity to enter the market at a lower price than other homes in the same neighborhood. This does not mean that all short sales and REO Properties are bargains. Buyers still need to do their research and work with their agent to determine if, in fact, they are getting a good deal.
What are Short Sale Properties?
A short sale occurs when a property is being sold for less than the current mortgage and the bank is being asked to release the remaining balance on the loan. These properties are typically in the pre-foreclosure process, but unlike REO properties, the bank doesn't own the property. However as they are being asked to take a loss on the loan rather than foreclosing, the bank needs to approve the sale amount. If there is more than one loan on the property, both loans need to be negotiated for the short sale to occur. As a buyer you can expect to wait up to 60 and sometimes even 90 days before getting a response from the bank on a short sale property. Some loss mitigators have upwards of 300 files they are working on at any given time, so you can see why it may take longer response times.
What should I know about bidding on a short sale property?
Set realistic expectations.
First and foremost, realistic expectations are important when making an offer on a short sale property. Banks are not foolish; they are not going to approve the sale of home at 50% of its value. Your agent should provide you with at least 5 comparable sales (not contract pendings) that you will include with your offer. Short sales that are being accepted by banks, generally speaking will be no lower than 10% off the comparable sales. Banks will consider and often approve offers that ask for 3% seller contribution towards closing costs. Gone are the days that the bank will also provide for down payment assistance. After all, that is how we got into this mess in the first place. A home buyer should have some vested interest in the property; otherwise it's just too easy for them to walk away.
Be prepared to wait.
As we mentioned above, it sometimes take 60 days or more to get a response from a bank. This is not your agents fault, and not the listing agents fault. Once the offer has been submitted, the owner and/or listing agent and short sale facilitator are the only people that are allowed to speak with a bank representative. After all, the property at the short sale stage is not owned by the bank. The bank could not possibly discuss the details of another person’s loan with you, or anyone else without express written permission of the person who holds the loan. This would be a violation of privacy.
Complete a home inspection.
Almost all short sale properties are sold in “As-Is” condition, so before you submit any offer you’ll want to complete all home and pest inspections. Many short sale properties have been neglected and have not been properly maintained, so you’ll want to know what you’re getting into before you submit an offer.
Be prepared for multiple offers.
Typically the seller will reserve the right to accept multiple offers on the property up until the point that the bank approves any one offer. This means that if you’re the first one to submit an offer, the chances are fairly good that by the time the bank is reviewing your offer in 60 days, they are probably reviewing multiple offers. It’s important for your agent to keep in contact with the seller and their agent, so you know if other offers have been submitted. Nothing is more frustrating than to wait 60 days, only to find out you were out bid.
Get Preapproved.
If a bank is going to approve a short sale they’ll want to know that the buyer can actually close on the home. Have your financing in order; get pre-approved by a lender and submit your pre-approval letter with your offer.
Be patient. Have a back-up plan. If you do not have the time to wait for a short sale to go through, or if you don’t like the uncertainty of a short sale, and having to begin your home search again - don't enter into the short sale arena. If you have the time and patience to wait - often times you'll get a great deal. You and your agent should continue to watch the market for properties that may fit your criteria in a home.
