How does buying a "short sale" affect the buyer? So many buyers are asking this question and it’s a good one. Sometimes us REALTORS sound like we are speaking a foreign language. We talk about ARM’s, Buy Downs, BPO’s, CMA’s, Negative Am, and so on. It’s worth explaining rather than using our “industry dialect”
Lets first talk about “short sales” and how it affects buyers. A short sale is simply a transfer of ownership with the seller’s lender agreeing to accept less then the total amount owed on the seller’s loan or loans. All of the seller’s loans on the property must be paid or satisfied by the banks in order to convey a “clean” title to the buyer. There are situations when the proceeds of the sale will not satisfy the seller’s payoff. So the seller is “short”, thus a “short sale”. For any buyer purchasing such a property it can be a blessing in disguise.
● GETTING GOOD VALUE - The buyer is likely to get these properties below appraised value. Ultimately the bank has the final say on all the terms of the agreement.
● BEING PREPARED - The sales process takes longer then traditional sales. Since there is one more person involved, obtaining an accepted sales agreement takes longer. In light of the fact that many lenders across the nation are flooded with Short Sales and Foreclosures, the one property that you are buying is of little priority to the bank. It is only one drop in the bucket that is already full to the rim. We sometimes wait weeks or even months to get a response from a bank on an offer on a property.
● ACCEPTED AGREEMENT - Once the bank agrees, the buyer then proceeds with the terms of the agreement just as they would with any other sale. Inspections, appraisal, and all the usual details spelled out in the sales agreement. Keep in mind, the property may or may not have utilities turned on. Many times the buyer will turn on the utilities in order to do inspections. In some cases, the buyer is so thrilled with the terms of the sale they may elect not to have utilities turned on for inspections. This is on a case by case basis to the satisfaction of the buyer and in compliance with the terms of the agreement. In most cases, the buyer will be purchasing the property in its “as is” condition. Expect no repairs to be done by the seller or the bank. This is one reason the buyer will get a good value. The bank will have their process. After receiving a complete package from the listing agent and the seller, it is highly likely the bank will order a Broker’s Price Opinion (BPO) or an Appraisal. Then the bank will present to their investor for approval of the contract. This all sounds easy, but is a time consuming process that can take weeks or even months. When the REALTOR tells you the property has been assigned to a short sale negotiator, then the ball will begin rolling. Until then, time is frozen, and no progress occurs. Having successfully closed many short sales in Baton Rouge, La, I have learned to teach agents and buyers to expect enormous delays in the process. Remember “patience is a virtue”.
● CLOSING THE SALE - The bank must also approve the final sales documents before the closing takes place. Primarily they are interested in approving the HUD which is a statement showing the details of all money involved in the transaction. Since it’s a short sale, they definitely do not want to see any proceeds going to the seller. Will the buyer be faced with any unusual title issues? As long as a reputable closing agent does their job, the answer is no. One of the jobs of the closing agent is to verify that the title conveyed is clean with no liens or encumbrances. The buyer can also buy an owner’s title insurance policy from the closing agent. So when you accept the keys to your home at the act of sale, you can feel good about your home.
● HOME OWNERSHIP - It’s been said that the misfortune of one can be the fortune of another. This can be true to buyers who are buying such properties. Just remember, your penance is weathering the time factor and remaining patient. This is can prove to be money in the bank for you. Happy house hunting!