Buying a short sale property can sometimes be a trial of patience. However in a declining market more and more properties show up as short sales. Before you write and offer on a property that is listed as a short sale there are several factors you should take into consideration. Knowing what to expect when purchasing a short sale is very important.
What is a Short Sale?
The short answer, no pun intended, is that a short sale is the sale of real estate where the owner owes more to the bank than the property is worth. Thus, the owner is shorting the bank upon sale.
Use an Agent
The process for writing, negotiating, and successfully closing a short sale property can be extensive and time consuming. You don’t want to lose the property because you were learning how short sales work. An agent with experience in short sales will help to expedite your transaction and protect your interests. You don’t want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner. All Calibre’s Brokers have been trained and through the process many times. You can rest assured that we know how to handle the transaction and successfully close on your new home.
Research the Property
Have your agent check (or if you’re braving it alone, do the research to find out) how long the property has been listed and if there have been any price reductions or increases. Check title to see if you can find out how much is owed versus listing price. This will be important when the bank is reviewing the file. Banks like to see history to show investors that they selling their asset for a good value.
No bank will accept your offer without a pre-approval letter from your lender. Before you ever go look at any property (short sale, REO, or typical arms length resale) you should know what you can afford all the same. With a short sale however, an bank will not even look at your offer. Make sure you have that letter ready to go.
Write an offer, Use the Addenda
When you write your offer use a short sale addendum designed to protect the buyer. As short sales have become more proliferate, rules are getting more complex regarding the methodology for selling. (Another reason to use an experienced agent who keeps up to date on new rules and regulations.) You will want to make sure that your offer is protected from other offers coming in while you wait or as well as protect yourself in case in the long wait period while you wait for the bank you decide you don’t want to buy or you find a different home you might like better.
Don’t Expect the Seller to do repairs.
Wait Wait Wait
Now that the offer has been submitted, the bank will need to go through its due process. This could take over 3 months. Be patient. Your agent will keep you updated as best is possible and do what he or she can to ensure the process moves forward. Unfortunately, until you have a authorization letter to close with a closing date, everything is still up in the air. An offer approval on a short sale is not a true approval to close on the property. It means the bank will send the file to an investor for further review and then approval. If this process takes too long then the bank will re-assess the property and determine that a higher price may be necessary. (Due to late fees or monthly mortgage costs, etc that were not paid to the previous month while the file was in review.) Many of the files are determined case by case and will be based upon the negotiator at the time. On the other hand, if the price valuation came in higher than your offer, the bank will usually ask you to increase your offer before they will send to the investor for approval by countering you at a higher amount.
Above all, be patient. Remember that the long waiting period for a decision from the bank is not the listing agent’s fault, the sellers fault, nor is it the fault of your agent. The bank just needs to go through their process.
Close on the Sale
When the bank does present you with your letter of authorization, it’s time to take action. Call your lender right away and start the loan process. The worst thing that could happen now is that you miss the bank’s timeline and don’t get the property. Make sure that your agent received the same notice of approval that you did if he or she hasn’t contacted you already, then get the rest of the team (home inspector, lender, escrow agent) in motion as well. From this point you still have on average of 30 days to close, but you need to do everything possible to make it happen