To Buy or Not To Buy a Short Sale.....

I have come across more knowledgeable real estate agents lately, which is good news for the industry. It seems that only those who are serious about their profession and those who are seeking education are the ones left in the industry....

There is still plenty of confusion with the whole short sale process and it really bothers me that we haven't got a good handle on it yet. I don't mean that we don't understand the process, I mean that there's no standarized way of going through with a short sale.

So, I'm going to do my best at describing the short sale process for consumers and newbies....

Some are under the misconception that a Short Sale is always a better option, but is it really? We can't let consumers think that this is their only option besides foreclosure and as professionals we must adress this and tailor a short sale to homeowner's spefic situations. If they own the house as an investment property, have a HELOC or their income is high (this is relative of course), careful consideration must be taken when doing a short sale. These are just a few things to consider and the owner should seek their own legal advice. As buyer representatives, you want to know this information as it may put a stop on the transaction two, three plus months from now. Better to find out early on to decide whether or not to submit an offer.

So let's get started....

Step 1 - Make sure that all paperwork has been gathered to complete a short sale package. For the most part it's very similar for all banks, but there are a few that do like the paperwork to be in a certain order and may have their own financial statements and/or short sale applications.

The list normally will include at a minimum:

• 2 most recent bank statements
• 2 most recent pay stubs
• 2 most recent W-2's
• Letter of Authorization (to allow 3rd party to negotiate th short sale on behalf of the owner)
• Hardship letter
• Estimated Hud-1 net sheet
• Listing Agreement
• Signed Purchase Contract

Now... I've tried to get a short sale approved without a purchase contract, but haven't had much luck. I've found that it confuses banks when you attempt this because if you get an offer that will yield a different net amount to the bank, you'll have to send a new HUD-1..... and it seems that some banks can't handle extra paperwork. Some are pretty good, but if you can make sure the short sale package is complete before you send it out.

Step 2 - The bank gets the 'complete short sale package' and assign a negotiator. The negotiator will then do a quick review to qualify the owner for the short sale and if they do qualify they'll order a BPO or an appraisal. This is one of the most important steps of the short sale. Most short sales that I've seen fall through are because the appraiser was either from the opposite side of town, was new or just gave a bad appraisal/BPO. Luckily I haven't had one..... just heard of horror stories.

Step 3 - Once the appraisal gets back to the bank, they'll 'run the numbers' and send for approval of the short sale. This varies a little depending on whether or not the loan is conventional, FHA, etc.... This is pretty much invisible to the buyer but this is pretty much the final step.

From step one to step three, it can take anywhere from two weeks to one or two months. This is where most confusion happens. The bank may ask the owner to send in the best offer before they send for final approval. This is where it's left to the person handling the short sale what they want to do.... I tend to honor the first offer and at least give them a chance, even if I have higher offers as long as it doesn't affect the seller. Some agents will take the best offer even if the first offer has been waiting longer.

I think this is why some agents will steer buyers away from short sales. It happened to me once, where an agent took our offer, negotiated the short sale and then when it came to approval, they sent another offer into the bank without even giving us a chance to come up in price in our offer. That to me is ummm... not right (but who am I to say, right)...

Well don't be discouraged.... simply find out how the listing agent is handling the short sale and come to some sort of agreement before submitting an offer.

In arizona our short sale addendum states in lines 13-15 that "seller can accept back up offers and submitt those to the bank for consideration and they can sell only to the holder of the contract with terms and conditions most acceptable to creditors..."

So in essence.... if you can communicate with all parties and come to an agreement as far as how the short sale will be handled, then short sales are a great way to purchase properties in a down market. Before you discard all short sales, know that some agents are getting better at working with buyers and their agents.

What do you think? 

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