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Destin Florida Short Sales: A Buyers Guide

By
Real Estate Agent with Scenic Sotheby's International Realty www.caseyjoiner.com

I have found that most real estate agents (myself included) assume that buyers completely understand the short sale process or have a general idea.  But this is a very bad assumption from a group that continues daily to learn on the job about the short sale process.  The key for buyers is to have the right expectation going in.  It is a long and can be aggravating process.  Mostly because we never really know how the lender/bank will respond to our offer at the end of the process.  I say that to also say that some of the better values that I have seen purchased over the last year have been short sales.  I have helped buyers that secured short sales in 7 months....and also helped a few buyers secure short sales in 30 days.  Every single situation is different.  My job is to find out as much about the seller's situation in advance. 

Keys for me to determine for you are:

  • Will the seller qualify for a short sale?  Some people are attempting a short sale more out of convenience than distress.  The bank is more likely to ask them to bring something to the table or not approve them at all...and we need to know this going in.
  • Who is the lender?  It can matter and will give us a certain time frame for approval based on past experience.
  • Are there multiple loans?  This is a biggee.  If there is more than one lender involved in the approval process it can be a mess. 
  • Do they have an attorney or short sale negotiator handling the transaction?  I love situations where the seller has put the back end negotiation in the hands of someone who does this primarily for a living.  There are some Realtors who have teams and structure for negotiating this......but I tend to prefer that the Realtor is not the one responsible for the follow up and pressing of the bank.  I'm a Realtor and I know that we are constantly looking for the next buyer....and should the option of dialing away with Bank of America for an hour or showing a condo to a prospect arise....i have no doubt the showing will take first place.

I wanted to provide you below with the steps of the buying process and also a list of frequently asked questions we receive.  This list grows everyday....but I will say as a whole that the short sale process is way more efficient than it was 18-24 months ago.

Short Sale Buying Process:

  1. Make Offer- Relative to comps just like any other transaction. 
  2. Negotiate offer- This is still done with the seller of the property.  We do not negotiate with the bank until the Seller is comfortable with the offer we are presenting and willing to submit to the lender.  Some Sellers will get in the way a bit here...but most will take a reasonable offer to the bank for consideration.
  3. Escrow - If offer is accepted by Seller, we will be responsible for an initial escrow deposit.  In a traditional transaction we put 2% of the purchase price in escrow.  We do not put the whole 2% amount here.  We wait for lender approval....I will explain more below.
  4. Pre Approval/Proof Of Funds:  Once the seller has accepted our offer, we are responsible to provide a pre approval letter for financing from our lender of choice....or a proof of funds statement from a banking institution verifying funds if we choose to pay cash.  The bank/lender will not review our offer without this statement.
  5. Submission to the Lender for approval:  Now we wait.  Our job is done for a while...maybe months.  During this time the Bank/Lender will perform an appraisal, evaluate offer compared to market comps, and determine what, if anything, the Seller will still be responsible for.
  6. Counter, Acceptance, or Denial:  Once the bank/lender has made their evaluations and terms with Seller, they will respond to us with one of these 3 items.  If our offer is viewed as too low compared to appraisal, we can simply be denied.  If the offer is close but they feel they need more, then we can receive a counter.  Or if our offer is viewed as fair based on appraisal...we may be accepted (and yest I have had this happen)
  7. Escrow Due:  If accepted, we will receive and approval letter from the bank and our full escrow will be due.
  8. Contingency Period:  Our right to inspect and other contingencies do not come into play until we receive official approval of transaction from the lender.  Remember, all short sales are sold "as is", meaning that if we do find something troubling in the inspection, we cannot ask the bank to make repairs on the property.  But we can walk away from the contract should the burden of repair be more than we are willing to take on.
  9. Close:  If all contingencies are satisfied.....we close.

 

 

Frequently Asked Short Sale Questions

 
What is a Short Sale?
A homeowner is "short" when a borrower owes an amount on his property that is higher than current market
value. A short sale occurs when a negotiation is entered into with the homeowner's mortgage company
or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and
the property is "sold short."
How long does the typical short sale take from offer to close?
You should expect the purchase process to take a minimum of four months. Extensions are common and
there is certainly a possibility that the process could take even longer as each seller's situation varies.
Should our offer come in well below asking price since it is a short sale?
The bank will only accept what is fair market value (FMV) for the property. A common misconception is that
the bank is so eager to sell that they will take any deal. This is not the case, and banks have been known to
reject offers and allow prospective buyers to walk if the offer is not FMV.
Are short sales the best deals on the market?
Often, short sales may appear to be the best deals on the market; however, this is not necessarily the rule,
as some owners have sufficient equity to sell at market value.
Does it matter which bank is making the decision?
Some banking institutions have a longer approval period for short sale transactions than others. Local
banks with a short decision-making chain tend to move more quickly than larger, national banks.
Can we negotiate directly with the bank?
No. A short sale transaction is between the buyer and seller. The seller is still the owner of record. Only the
seller and those parties acting on their behalf can negotiate the deficiency with the bank.
Can sellers continue to take offers after they accept our offer?
Unless negotiated otherwise, yes, this is to be expected. It is very common for buyers to tire of the short sale
process and walk away. Back-up offers are insurance for the seller in this case.
Once we are under contract, what situations can arise that may prevent us from
taking ownership?
The bank may reject your offer; the bank and seller may not come to terms with one another (i.e., the bank
asks the seller to contribute money in order to close and they are not willing to do so, the bank will not release
the debt, or the bank decides the seller does not qualify for a short sale); the property is foreclosed upon by
the bank prior to short sale approval.
Can we ask the bank to pay all closing costs?
Yes. However, standard buyer and seller closing costs should be expected.
Should we only pursue a property whose seller has hired a short sale negotiator or
attorney to handle the transaction?

It is an asset to have a negotiator work on behalf of the seller. But, a negotiator is not always necessary if the
seller is active in the process.
Will a full price offer or greater than list price offer speed up the approval process?
No. While the bank will appreciate the offer, the approval and seller's deficiency will still need to be negotiated
regardless. It is important to remember the key is to focus on fair market value.
Can we back out whenever we want?
The short sale addendum outlines how much time we will allow for bank approval. Leaving the transaction
prior to this deadline could result in the loss of your EMD.

Comments (1)

Sandi Davidson
Florida's Realty LLC - Lehigh Acres, FL

I agree Casey.  Setting buyer expectations is essential. 

Mar 30, 2011 03:16 AM