The Short Sale - Not Your Typical Real Estate Transaction
As a home buyer looking for value in the purchase of Beverly MA real estate you may consider a "short sale" as a viable option. The process of finding and buying a short sale is not a typical real estate transaction. To have success, you must work with qualified professionals and understand the process. Utilize the services of Realtors, attorneys, accountants, mortgage lenders and home inspectors as they all provide expert advice.
What is a Short Sale?
Homeowners that have financial hardships may pursue a short sale prior to foreclosure. This process may be a preferable option to preserve their credit and limit their debt exposure. In Massachusetts, the laws governing foreclosures provide incentives for lenders to work with homeowners that can no longer afford their homes. The lender understands the market and the expense involved in foreclosing on property. Under the Home Affordable Alternatives Program (HAFA) offered in 2010 by the Treasury Department, lenders and homeowners have additional incentives to consider a short sale.
The first step to a successful transaction requires the negotiation of an acceptable contract with the Seller subject to lender approval with no guarantees that your offer will be approved. If the contract is not acceptable to the lender then the Seller may not have sufficient time to sell to another party and avoid foreclosure. The following tips will increase your chances of negotiating a successful short sale transaction:
You Must be Credit Approved
Providing creditable evidence that you qualify to purchase the property is absolutely necessary. The Seller is unable to accept your offer without a valid credit approval as the lender will reject the contract. Get pre-approved from a reputable lender or if a cash buyer provide proof of funds. The approval must not contain conditions such as selling an existing property.
Pre-Qualify the Listing
Sellers selling short typically have a time-line they must meet to avoid foreclosure. If they have not connected with their lender(s) and started the process, it may not be possible to close before foreclosure. As your real estate agent, I can identify properties that you may consider. Information I will obtain includes:
- Is the seller's short sale package prepared for submission to the lender?
- Does the property have multiple liens? If more than one, what are they? Is there a plan to satisfy all the lien-holders?
Don't take yourself out of the market for a property that has no chance of closing. Consider all properties available on the market. To view short sales, foreclosures and bank owned MLS listings go to Beverly MA foreclosures.
Negotiating the Offer
The first step is to have your offer accepted by the Seller and you will be competing against other contracts. Some real estate agents market the property substantially below market value to entice buyers. Others price the property at the bottom of fair market value. Price, terms and your qualifications will be the deciding factors for Seller acceptance. Sellers and lenders prefer "clean" contracts without contingencies.
- Earnest Money - Sellers may be hesitant to accept your offer with a low deposit. Buyers can easily "walk away" from a contract with low deposits. Offering the Seller a strong deposit indicates that you are serious about buying the property.
- Home Inspection - be prepared to invest the time and money in the home inspection prior to lender approval. A seller may not want to take the risk of allowing the inspection after lender approval. If they do, they risk losing the buyer on the inspection issues and will not have time to sell the property prior to foreclosure.
- Flexible Closing Date - once the lender approves the offer, they may require a "quick" closing. You must be prepared to comply if you want to consummate the sale.
- Subsequent Offers - As a rule, real estate agents must present all offers. A contract with a higher sales price may have a better chance at being approved by the lender. The lender will give the homeowner direction as to submitting additional offers. Also, be prepared to lock your interest rate thru closing so that your mortgage commitment will remain valid.
Lenders have no set formula for determining the value of the property other than to substantiate values through due diligence. However, Freddie Mac (one of the largest secondary market lenders) has a target sales price of 88% of one or more broker price opinions (BOP). Have realistic expectations of the approval process as it may take between 30-180 days and property values can change. If the lender and the Seller are participating in the HAFA program, these timelines will be streamlined for a quicker response.
Virtual Homes Real Estate agents can assist you with Beverly MA short sales, foreclosures and MLS listings currently on the market. Please call us at 800-856-2479.