Short Sales For Buyers. How am I Affected?
We talk quite a bit about short sales and how they affect the seller but no one really talks about how they affect the home buyer. If you are the buyer of a short sale property, here are a few things you should be aware of.
1. Short sales are NOT guaranteed to close! Since the requirement of closing this transaction is an agreement between the seller and the sellers bank, don’t think that your seller accepted contract on a short sale property is guaranteed. There are many things that can cause a seller and their bank to disagree such as:
* The seller’s bank does not agree to approve the transaction because the seller does not have a true “hardship”. If the seller’s situation doesn’t meet the bank’s criteria, this transaction is not going to fly. Period. Your real estate agent should be questioning the listing agent of the short sale property. There are privacy restrictions here and they cannot divulge the seller’s financial situation to your agent, but they can confirm with your agent that the seller’s situation is in fact a true hardship. If the listing agent cannot answer this or has no idea what your agent is talking about…MOVE ON! The listing agent plays such a key role in whether or not a short sale property is approved. If they are not experienced short sale negotiators, you are wasting your time.
*The seller’s bank does not agree to approve the transaction unless the seller comes to closing with a certain amount of cash (determined by the bank) or signs a promissory note with the bank for a certain amount of money. If it’s a requirement to approve the sale and the seller cannot or will not agree to the payment terms, the bank may decline to approve the sale and the property will go into foreclosure.
*The bank approves the transaction but does not agree to include the verbiage in the approval letter that states that the bank will not file a judgment against the seller for the difference (sales price to what is actually owed on the property). Most sellers these days are looking for this “safety net” and will not agree to the terms outlined in the approval letter if the bank does not agree to release the lien and ability to file suit.
2. Short sales take a while to close. In most cases you are looking at 3 to 6 months from start to finish. The clock starts once your offer has been accepted by the seller and has been sent to the sellers bank for approval. Unless the listing agent has already started with the bank (usually because they received an offer prior to yours or because they know what they are doing and they are efficient), you can expect to wait 3-6 months for approval on your transaction. So, short sales are not a good fit for those buyers that need to move into their new home quickly or by a certain date.
3. The list price on a short sale means practically nothing. In order to work with a bank to get a short sale approved, a listing agent must have an offer to work with. So, short sale properties are priced at or below market value to entice a buyer to submit an offer that the listing agent can use to work with the bank. 9 times out of 10 the list price of a short sale is NOT approved by the bank and has been determined by the seller with the help of the listing agent (if it is an approved price, because the sellers agent has been working with the bank previously, it should be stated in the listing information on the MLS…these are few and far between). Once the bank receives your offer they will hire a BPO agent or appraiser to appraise the property. The sellers bank will base their approval off of this value. So, if you’ve low balled your offer, expect a counter offer from the bank in most cases.
Side note: When negotiating short sales on behalf of my sellers, I have been able to negotiate a lower than approved sales price for the buyers during the inspection period (the inspection period in Arizona is the 10 days following receipt of the approval letter from the sellers bank). If the home has enough damage or has been neglected long enough and we have proof that it is in need of serious attention, we can usually make a case for a lower purchase price in lieu of repairs. The inspection report and invoices from contractors are usually a must when negotiating a lower than approved offer during the inspection period.
4. Even if the seller is still living in and maintaining the home during the negotiation process, the home is to convey in as-is condition. The seller is not obligated to make any repairs and neither is the sellers bank. Most short sale transactions will require the buyer to sign an “as-is” agreement, stating that they understand that the property is to convey in as-is condition and that no repairs will be made by the seller or the seller’s bank. So, if you are short on cash for repairs, it’s probably a better idea to seek a traditional sale. Those are typically not “as-is” condition sales so you can negotiate any repairs needed with the seller.
5. On a positive note, as a buyer your home search does not have to end because you have an offer in on a short sale. As per the short sale addendum to the Arizona purchase contract, a buyer can withdraw their offer on the short sale home at any time and for any reason prior to the receipt of the approval letter from the seller’s bank. Your buyers agent will assist you with what you need to disclose on any subsequent offers that you make.
It’s important that you have experienced buyer representation in the current market conditions otherwise the home buying purchase will quickly become frustrating and, after a spinning your wheels, you’ll end up without a property. Since prices are on the rise and projected to increase further, you want to be sure your efforts are focused and efficient…that’s where great buyer representation comes in. We are experienced buyer’s agents and have been negotiating short sales on the buyer and seller side since the downturn of the Arizona real estate market.
We at Leagan Realty have a team of experts that will help you to smoothly go through the short sale buying or selling process.
Contact us at Leagan Realty to talk to an Arizona Short Sale Specialist today
Office: 480-656-7714
Cell: 480-766-2115
Info@LeaganRealty.com
FREE MLS access: http://www.LeaganRealty.com
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