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Should You Advise Your Buyer to Make an Offer on a Short Sale?

Real Estate Agent with RE Ebroker Ca. BRE# 01344900

If you're acting as a buyer's agent for a client and they are looking at a house that is currently available as a short sale, should you advise them to make an offer or not?  It seems to me that this depends a lot on who the clients are and what their particular situation is.

In general, for a first-time home buyer, a short sale can prove discouraging and may even result in the buyer leaving the market.  Obviously, this is not true of all first-time buyers; however, it is something that both buyer's agents and first-time buyers need to consider.  For those buyers who can afford to spend around 60-90 days waiting for a short sale to be approved and can then close in 2-3 weeks AND who don't mind if the short sale never pans out, then a short sale can be a reasonable option.  Short sales are tough for all concerned except the lenders, who would usually prefer not to bother with them.

There are inherent problems in making offers on short sales.  One of the biggest problems that buyers need to understand and deal with is that they are not negotiating with the seller, they are negotiating with the lender.  And they are not negotiating directly with the lender, they are negotiating through proxies - the seller and the listing agent.

Once in a while, the buyer  lucky and the lender has already approved a short sale and a price range on that sale before the home is listed, but, most of the time, the lender has not yet approved a short sale or a price that they will accept.  That means that the seller and the listing agent are in the process of negotiating with the lender, not just for a market price that the lender will approve, but for approval to proceed with a short sale at all.  So what happens to many offers is that there is no acceptance at all.  Unfortunately, the time it takes to get any response from the lender, either way, can stretch over 60-90 days, only to find out at the end of that time that the lender is not going to approve the short sale and the offer and all of the time lost waiting has been wasted.

A good listing agent will advise a seller who wants to put a property up for short sale to price it at, or slightly under, CURRENT market rates that can be easily supported through CMAs on recently sold properties in the same area.  A lender will not be interested in pursuing a short sale if a property is priced above market rates and will also be discouraged if the property is priced too far below market price since they may, rightly, feel that they can get a better price for the house after foreclosure.  Therefore, it is to the seller's advantage to price the house at a realistic market rate.  It's been my experience that, as soon as properties are priced pretty much at market price, there will be multiple offers on a property.  Multiple offers on a property favor those with more money who are willing to offer a price at or above the listing price.  Cash offers are always preferred by lenders even to buyers with great credit records who can put 40-60% down.

Keeping all of these things in mind will help you and your client decide if making an offer on a short sale is a feasible thing to do.