Buying a Short Sale

By
Real Estate Agent with Solutions Real Estate CalBRE License #01490977

For sale signAs a buyer watching the real estate market, you are undoubtedly aware that there are more "short sale" properties on the market, at least in many areas. A short sale is a home where the market value of the property is LESS than the loan amount owed to one or more lenders. And buyers often believe that these are the best deals, along with foreclosures.

Note that there may be state or regional differences in the requirements and paperwork - ask your agent.

Don't be scared off by these short sale properties as they may turn out to be a great deal for you.

But you need to know a few things before you decide IF you want to pursue a short sale purchase:

  • A seller must disclose if the home either IS a short sale or likely will be due to the market value.
  • A short sale MUST be approved by the lender. Even though a seller might accept your offer, it will be subject to approval by the lender
  • Lender will (likely) send out an appraiser to evaluate the property in light of recent sales - they are looking for market value, too, and you cannot expect a short sale to be a fire sale (i.e., it may NOT be a great deal after all)
  • For sales signsLender must receive hardship letter and other required documents from the seller in order to approve a short sale
  • Lender will likely have a checklist of requirements and paperwork required for the short sale process
  • Lender will likely request that the sale be "as is" and due to hardship will probably not approve any credit for repairs
  • Be prepared for a short sale to take more time (total time may be 60 days +/-) - this is one of the biggest complaints from buyers

If you are making an offer:

  • Make sure you make the offer contingent on the short sale being approved by the lender and set a time frame for approval
  • An addendum form (statutory in California) is advised to outline the short sale contingency terms and conditions (this is a optional state form here, but there may be other requirements elsewhere in California and in other states)
  • A letter to the seller is also advised requesting written confirmation that the lender has received the hardship letter and other documents as part of the short sale application
  • There is a good chance there will be more than 1 offer
  • It is still prudent (I would say it is ESSENTIAL) to conduct a home inspection even though the lender will probably require an "as is" sale - you still want to know what you are buying and what repairs need to be made
  • It is possible the seller will not be able to do any Section 1 repairs resulting from the Wood Destroying Pest Inspection (e.g., termites) due to hardship of funds. This may vary from state to state AND lender to lender

Be sure to discuss issues and questions with your agent before proceeding, preferably someone who has some experience with short sales.

I would NOT recommend taking on a short sale purchase without representation by a qualified, knowledgeable licensed agent. There is too much at risk for you, the buyer. And remember, the listing agent represents the seller's interests, not those of the buyer.

**************************************

UPDATE - November 21, 2007

Here is a link to some other articles I have written that answer other common questions asked by buyers about short sales. While the articles reference Carlsbad homes, the general issues are probably applicable in most areas depending on current practices and any particular laws.

UPDATE - APRIL 2008 

Short sales are a hot issueAs you will see in the comments, short sales continue to be very common, complex, and frustrating. And very time consuming, sometimes taking months before a response from the bank occurs. 

I recently was in a short sale situation where after 5 weeks the bank had not assigned a negotiator yet, even though all the paperwork (including buyer offers) was submitted and in their computer. The issue, per the bank, is being overwhelmed with the volume of short sale properties. 

It seems that REO (bank owned properties) are easier, at least in this area, to deal with since the bank owns the property. Neogiations on offers seems to be much faster, although it is hard to know how it will happen, i.e., will the bank look at all offers, the highest, in order of receipt, etc. And negotiations may only be verbal (even though we have a form for counter offers here in CA).

I have heard from more than one agent that getting a home to closing can take 3 to 6 months from start to finish. That mean a heckuva lot of patience on the part of buyers and agents. 

 

close

Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. Jamie Maxwell 11/06/2010 09:11 PM
  2. Joanne Gillet &The Edge Of The Beach Team ---- Pawleys Island, SC 11/11/2010 02:04 AM
  3. Justin Burke 12/21/2010 07:14 AM
  4. Margo Otey 01/13/2011 05:48 AM
  5. Cristina Salcedo 06/26/2011 08:10 PM
  6. Charles Stallions 09/15/2011 10:53 AM
  7. Laurie Clark CRB Angel Realty LLC Your Monument Realtor 719-502-6572 01/21/2012 05:30 PM
Topic:
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Rainmaker
2,466,882
Tony and Suzanne Marriott, Associate Brokers
Haven Express @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

This just in from Wells Fargo: No more extensions on approval letters - close by the approval date - or don't close at all!

Sep 15, 2010 12:16 PM #434
Rainmaker
117,170
Kevin Kauffman
Keller Williams - Tempe, AZ
Kevin Kauffman

WHen buying a short sale the biggest factor is determining if the listing agent is competent or not.  Not all agents have the ability, desire or drive to battle through a short sales.  Make sure you interview the listing agent before writing an offer.

Sep 26, 2010 05:48 AM #435
Anonymous
Trevor M

Short Sales just may get easier. There has been a new bill introduced in the U.S. House of Representatives that would impose a deadline on lenders to respond to short sale requests within 45 days.

        If you know anything about short sales, the banks can drag the process on for months. Many times the buyers just back out of the deal because it just takes too long for the bank to make a decision. , But now, with the bipartisan bill (H.R. 6133), sponsored by Reps. Robert Andrews (D-New Jersey) and Tom Rooney (R-Florida), the process just may speed up.

        Congressman Rooney is quoted as saying, "I have heard from many short sellers in Florida whose potential homebuyers have walked away because they couldn't get a ‘yes' or ‘no' from their lenders. This bill would spur growth in the housing market by helping sellers and buyers complete short sales quickly."

        I would agree with Congressman Rooney. I believe that it will not only speed up the process for a yes or no from the bank, but I think, if H.R. 6133 became law, that the banks will lean towards accepting more home short sale offers. Why, because I just don't think they want to take any more houses back. They have enough homes to deal with.

Oct 11, 2010 09:48 AM #436
Rainer
17,631
Yuriy V.
Carolinas Metro Realty & Property Management - Charlotte, NC
Charlotte NC Real Estate, Property Management, Short Sales, Rental

Great article.  I will check back in and read some more of your posts.

Oct 29, 2010 08:12 AM #437
Anonymous
Ingrid, Buyer, Chicago

Hi Jeff,

This is a great post. I am a first time buyer who just put in an offer on a short sale. I was accepted by the seller on Sunday so now we wait... Our offer was low but beat out one other offer. Our contingencies are minimal and we will have an inspection this week so I hope that helps. I have seen many people in you post recommend not going for a short sale if you're a first time buyer. We will not go again if this ones fails. We love this house - location, location, location so will wait up to 3 months (in contract) to hear. If that fails we'll move on to a non-short sale property. 

Our agent keeps telling us not to get our hopes up because of a strong possibility the bank will say no, but it's hard not to. Our agent has the experience we need. He's currently dealing with another short-sale where the bank has come back with a counter offer - gives me a little hope that we might get there in the end!

It's interesting to see how things have changed and others have not in the 3 years since the start of this post. You would think the banks would have figured it out by now!

Nov 09, 2010 02:47 AM #438
Ambassador
3,248,674
Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Ingrid - well I hope it works out. You are right...not much has changed. There have been some improvements, but some banks have not gotten any better at all and the wait times are extensive. If it's the right home it is worth waiting if you can, but there is always the risk, as you know, until you get the approval.

Good luck and keep us posted. It's been great getting feedback from so many people over the last couple of years and helpful for those who are pursuing short sales.

Jeff

Nov 09, 2010 03:00 AM #439
Rainmaker
588,865
Phil Leng
Retired - Kirkland, WA
Phil Leng - Retired

Hi Jeff,

This post must be one of the definitive posts on short sales, with all the comments over a period of several years.

Way to go!

Phil

Nov 16, 2010 09:09 PM #440
Ambassador
3,248,674
Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Thanks, Phil. I have been completely surprised as it has taken on a life of its own over time. The history and the comments from consumers has been enlightening.

Jeff

Nov 17, 2010 02:12 AM #441
Rainmaker
259,546
Kim & Kristine Halverson
www.LiveWorkSiliconBeach.com, Santa Monica Real Estate :) - Santa Monica, CA
Realtors

Great Article!  Thanks for sharing the basics of short sales.  I have been getting $250 credit towards termite reports and repairs.  2 years ago we were getting $0 for termite requests.  The banks are realizing short sales are going to be here for awhile.  They make on average 12% more than a foreclosure.  Take a chance, help a homeowner out, buy their short sale with an experienced agent on your side.  :) Kristine

Dec 13, 2010 04:27 AM #442
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Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Kim and Kristine - good for you. At least it is some progress. And I hear stories now and then about faster approvals, with some lenders.

Jeff

Dec 23, 2010 02:33 AM #443
Rainer
20,307
John Johnson
Exit Platinum Realty - Plainfield, NJ
Your Realtor For Life

Very good article.  Many people do not know what goes on behind the scenes to buy a short sale.  Although, you can get a great deal for your client, you often have to jump through hoops and whistles to get the bank to buy in and work with you.  That requires a lot of documentation and patience that both you and your client have to endure.  At the very end of it all, it is a great deal for your client and a great opportunity to associate yourself with the bank for ongoing business.

Mar 12, 2011 02:38 AM #444
Rainmaker
85,885
Goran Utvic
Goran Utvic | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
Make 15-20% Profit On Fix-N-Flip Or I Pay You $5k!

Jeff - Short Sales are better than foreclosures if a hombuyer is willing too wait it out.

Most Short Sale properties are in good condition as opposed to the REO foreclosure... they are most times damaged and have been vacant for at least the redemption period if not longer.

May 29, 2011 03:10 PM #445
Rainer
22,376
Michele Hanigan
Keller Williams Realty Plano, Texas - Dallas, TX
Realtor - Dallas & Plano Real Estate - (214)738-5555

Very good ideas.  Texas has pretty much the same requirements as you do there in Cali.  I try and tell all my clients that if they are in a rush to purchase, then maybe they should reconsider a short sale.  Simply because lenders are moving at snail speed here.  

Jun 16, 2011 12:23 PM #446
Rainmaker
105,792
Cristina Salcedo
REMAX Champions - Riverside, CA
Corona, Riverside Realtor

Jeff this is a great post. Short Sales have evolved since you posted this blog but your advice still right on. Thank you.  I am reposting.

Jun 26, 2011 07:53 PM #447
Rainer
16,305
mike bitar
Executive Estates - Salinas, CA

Amazing, things have really changed in the past 4 years but your advise is right on. I think your were ahead of the curve while people were still in the old market way of thinking. Right on

Jul 25, 2011 06:01 PM #448
Rainer
334,074
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo

Well sometimes i dont know what to think of short sales. They are getting better and then they are not!

Aug 13, 2011 12:48 PM #449
Rainmaker
120,210
Sean Williams
AcklesWilliams of Semonin Realtors - Louisville, KY
Your Louisville Realtor

Great, detailed blog with fantastic information for the short sale process. It is very important to cover all of your bases when making an offer to ensure you are protecting the buyer.

I have noticed lately that some banks are approving a certain price while the home is on the market which would also allow the home to close in about 30 days (Bank of America)...do you have any knowledge or this or how a listing agent would go about getting this done?? I have briefly dealt with short sales and am learning as much as possible...thanks!

Dec 07, 2011 06:52 AM #450
Ambassador
980,725
Sharon Paxson
Arbor Real Estate - Newport Beach, CA
Newport Beach Real Estate - Arbor Real Estate

Hi Jeff - this is incredible the amount of participation on this blog post. Great info about short sales.

Feb 06, 2012 03:11 PM #451
Rainmaker
228,101
The Isaacs Team llc
Slate Properties 1121 5th St NW DC 20001 - Washington, DC
BUY SMART. SELL SMART. HIRE SMART AGENTS.

Glad there are short sale experts like you out there, Jeff! Buyers and sellers need experiened, knowledgeable representation for these.

Jul 22, 2012 02:22 AM #452
Rainer
8,059
Sara Chris
Absolute Consultant Group - Toluca Lake, CA

I really like the whole idea! There are may be a number of problem when dealing with a short sale, but an experienced short sale specialist like you is a great help.

May 05, 2014 08:53 PM #453
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