5 Short Sale Myths to Put to Rest
If it's a short sale why does it take so long?
In reality, the "short" in short sale has nothing to do with timing. Short sales usually take many months, longer than a traditional real estate transaction, running anywhere from 3 to 8 months-plus, on average from contract to closing! There are some that I have successfully closed in 2-3 months.
The only thing short in a short sale is the sales price, it is less than, or "short" of, the amount the seller would need to pay off all the loans and outstanding obligations (tax liens, delinquent HOA dues, etc) against the property. In these situations, unless the seller is willing to write a check to make up the difference, their lender(s) must agree to forgive the shortfall in order for the sale of the property to close.
But most short sale buyers and seller know this by now. With one in four homeowners in America owning more on their homes than they are worth, short sales won't be going away anytime soon. The more people get involved in a short sale transaction or talk to someone that has, the more confusion and misunderstanding result.
Here are 5 Short Sale Myths you can put to rest!
Myth #1 That There Is Aything Typical, Standard Or Normal When It Comes To Getting A Short Sale Approved.
Fact: There is no such thing as "normal" in a short sale.
The questions I am most often asked are:
- What is the amount of time it takes to get the bank approval?
- How much below asking price will the bank accept?
- Will the bank want more than the list price?
Good intentions by the government to streamline the process and create a set of standards most banks would follow in processing short sales has not been effective. Buyers submit their offers, sellers sign them and hand over all their financials to their listing agent who then submits it all to the bank. Weeks and sometimes months go by without hearing anything, other times it moves along with good communication with the bank.
The bank is in the power position, and can respond to your offer however they want. The bank will either order an appraisal or BPO (broker price opinion) to determine the value of the home and what they should accept. The bank may counter at a much higher price if the property was listed too low and could demand a cash payment from the seller. The bank does have to get the approval of the investor(s) before they can approve the sale. and sometimes that is what takes the longest.
Hint: Short sale listing agents who have done a lot of recent, successful short sales with the same bank do often have insider knowledge. If you are a buyer, prioritize short sales that are listed by short sale masters, your agent will know who they are. If you are a seller, ask prospective listing agents for a list of shorts sales they recently closed, including which banks(s) were involved.
Myth #2: It's Smarter For Homeowners To Walk Away Than To Short Sell their Homes?
Fact: I hear a lot of people that are upside down ask why they should bother with a short sale when they can just walk away. The reality is that walking away and letting your home go to foreclosure is an extremely serious, personal decision that varies significantly from owner to owner and state to state. Lenders can and do reserve the right to pursue the default amount. You can recover your credit faster through a short sale than you can a foreclosure.
Given that a short sale costs a seller little or nothing except some time and effort, in many instances it is smarter to make the effort to do a short sale than walk away.
Myth #3: A Short Sale Is The Same As A Pre-Foreclosure.
Fact: A short sale is a home being sold for less than what is owed. A pre-foreclosure is a home that is in some stage of the foreclosure process because the owners are behind on the mortgage payments. Many short sales are pre-foreclosures, because the owners stopped making payments because they can't afford them, or simply don't see a need to continue paying. Many short sale agents believe the bank is more likely to approve their short sale application if they are in default on the loan.
But not all. Short sales are closed every day on which the seller is still in good standing on their loan. These sellers usually try to maintain their credit as much as possible and/or had to move for work or family reasons.
Buyers should not assume that every short sale will come on the market later as a foreclosure. The agent should inquire as to any foreclosure notices against the property.
Myth #4: The Buyer's Broker Or Even The Buyer's Offer Has Much To Do With Getting A Short Sale Approved.
Fact: Writing a good, clean, well-qualified offer is important to getting a short sale seller to believe that a buyer will stay in the short sale process for the duration.
Of course the bank cares about the price you offer, that is not as important as several other factors, including:
- The bank's perception of the home's fair market value (as usually indicated by a third-party broker's opinion (BPO) or computer automated model).
- The seller's financials (if they have a lot of cash stashed, the lender is unlikely to let them sell the home without a contribution).
- The completion of the seller's workout application package and follow-up (need an experienced short sale agent to get the job done).
Myth #5: That The Bank "Can't" Do X Or "Has To" Do Y.
Fact: The seller's bank in a short sale is being asked to waive debt that they legally are entitled to. They have the absolute right to reject the offer and demand full payment. However, if they do choose to waive some or all of the shortfall, they also have the right to place whatever conditions on that waiver. They can ask for more money from the seller or the buyer (and often do). They can ask the agents to reduce their commissions (and often do that, too). They can refuse to pay any or all of the closing costs, if they want. The buyer or seller can counter the bank, accept or refuse any or all of the bank's demands. Just remember, the bank is in control and if the buyer really wants the home, try and find a compromise.
A short sale is almost always worth the time and effort!
Sandra Mathewson
Certified Residential Specialist, CRS
Accredited Buyer Representative, ABR
Graduate Realtor Institute, GRI
Certified New Home Specialist, CNHS
Cell: (775) 287-8222Follow me on:
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