A Short Sale means that the seller is trying to sell the property for less money than is owed to the bank.
Since the bank is going to take a loss if the property sells, the bank must sign off and agree to the offer. Initially, we make the offer to the seller and negotiate directly with the seller. Once we reach an agreement, the offer is then sent to the bank for approval. This is the part of the process that can take a while.
It typically takes the bank 2-5 months to approve an offer. During that time, we are free to make offers on other properties. We would not put down a deposit and open escrow on a short sale until we receive the bank’s approval. If we have found a different home in the meantime, it’s ok for us to pursue the second property and forget about the short sale. We are not committed to the short sale until the bank approves our offer AND we put our deposit into escrow.
Short Sale Pit Falls:
- In order for a bank to consider a short sale, the sellers must prove that they have a hardship and can no longer make their house payments. If a seller has not completed the hardship package of paperwork and received the bank’s agreement that a hardship exists, a short sale may not even be possible. When a short sale is new on the market, this step has often not yet occurred.
- Banks normally do nothing to assess the value of the property until an offer is received. Many real estate agents price their short sale listings well below market value in an effort to get an offer quickly and get the process started. It’s important to remember that the list price on a short sale typically has nothing to do with the price that the bank will accept. The bank’s bottom line is often higher than the list price.
- There is no guarantee that the bank will accept our offer.
- The seller and the bank can continue to offer the property for sale and collect other offers that may be better than ours. If they receive a better offer than ours, they may come back and give us the opportunity to match the higher offer. Then again, they may just go with the higher offer.
- Sometimes there is more than one loan on the property. Each bank that has a loan on the property, which will not be paid in full, has to agree to our offer. Sometimes the first lien holder may agree to the offer, but the second or third lien holders may not. If all lien holders do not agree to our offer, we cannot proceed.
- Most sellers that are trying to do a short sale are no longer making their house payments. Therefore, there may be a Notice of Default filed on the home. If that is the case, the property may be foreclosed on and sent to auction even though we have written an offer on it. This can occur even after the bank has accepted our offer. Therefore, you may have already spent money on your inspection and appraisal and the house could still be sold at auction. If that happens, we cannot recoup the money you have spent.
- If we receive bank approval and open escrow on a short sale, there are two important things to keep in mind.The Seller has no equity in the home and the bank will not want to spend anything on the sale, since they are already losing money. Therefore, you need to expect that no repairs will be made to the property as a result of our physical inspection.
- Banks involved in Short Sale properties often times will not approve the expense of a Home Protection Plan, termite repairs and sometimes HOA Transfer Fees.
- It is very uncommon for banks to agree to pay for a buyer’s closing costs. Therefore, if you require assistance with closing costs from the seller, it will be a lot more challenging to negotiate that on a short sale property.
- If you decide to cancel your escrow within the terms of the contract, you may have trouble getting your deposit returned. If the Seller has left the state, or is otherwise unavailable, he or she may not sign the necessary forms to release your deposit. For this reason, we never recommend offering more than $1,000 as a good faith deposit on a Short Sale. When you make an offer on a Short Sale, you need to be prepared to lose your deposit if the worst case scenario comes to pass.
Some Good News – Approved Short Sales:
Frequently, by the time a bank has approved an offer, the buyer has wandered off and bought something else. In that instance, the home may be listed as an Approved Short Sale and the listing agent will then know what price the bank has approved. If you make an offer at the previously approved price, the time to receive the bank’s approval of your offer is significantly shortened. You could actually receive approval within 2-4 weeks. All of the other risks involved in a Short Sale still apply, but the waiting time is significantly reduced.
This is a brief rundown of some of the intricacies of making an offer on a Short Sale. It is possible to get a nice home for a good price, however, Short Sales come with additional risks. It is important to be aware of the complexities and to go into the process with your eyes wide open.