Short Sale Buying Tips from Richmond VA. I have had many calls over the past 6 months about my blog Short Sale Tips from Richmond VA. Some of my calls were from frustrated buyers looking for advice on how to buy a short sale property. So here it is Short Sale Buying Tips from Richmond VA. This blog is to provide information to agents and buyers about Short Sales in Richmond VA.
If you found your way to my blog..you may have experienced some headaches with short sales or you want to know more. If you are looking to buy a short sale find, an agent to assist you that has successfully completed at least a few short sales on the listing side. They should be more aware of the potential pitfalls when working with listing agents. Any licensed agent can list a short sale and they DO! Only a few can actually close them without leaving you running and screaming. Short sales listings are everywhere. Some short sale listings are NOT even a candidate for a short sale and will probably foreclose. Some listings have offers on them and the bank has not decided if they will accept the offer. Some have foreclosed and the listing agent does not even know. Short Sales can be fantastic deals! Be prepared to pay for them with your patience. "Common sense" is not a requirement for some of our lending intuitions.
Homes listed as "Short Sales" are basically sellers owing more than the property is worth and the bank agreeing to settle for less than payoff and releasing the seller from the debt. Short Sales are an option for sellers that want to get out of a bad situation and start over. Short Sales are what sellers do before they foreclose. Some sellers have applied for a loan modification and have been denied...(loan modifications deserve their own blog) Short Sale sellers are hoping to save their credit and do the best they can and be fair to the banks. Most sellers that short sell have been told by their bank they should look into a short sale.
Here is where things get confusing. The bank does not typically give a price they will accept for the property. They tell the sellers to hire an agent that knows something about short Sales. Sounds simple...they call their agent that sold them the home or an agent friend in the neighborhood, etc. STOP and think about this...they should hire a short sale expert, someone who knows short sales. Short Sales are HARD and can be very time consuming. When listed incorrectly they waste buyers and sellers time!
The listing agent has a very important job of pricing the home correctly. They must price the home to get an offer and provide information to the bank so they will approve the offer. The lending institutions have different formulas to determine the amount they will accept. The list below could be factors in the "magic" formula. I call it a "magic" formula because...they (lenders) are all different and they change the rules like the wind.
- The current value of the home in today's market. This amount is determined by an agent hired by the bank to perform a BPO (Broker Price Opinion)
- The amount the sellers owe (payoff)
- The bank's opinion of the seller's hardship.
- The relationship the sellers have with the bank. (Did the sellers call the bank and and inform them they were having trouble or just stop paying the mortgage?)
- How far behind are the payments?
- Has a foreclosure sale day been set?
This information is important because the sellers want to move on with their life and the bank wants to recoup as much as they can. Here is the problem: If the property is listed too high you will have no traffic and no offer. If the property is listed too low you will get an offer and the bank may not accept it. Some agents list low and see if the bank will take the offer. When a bank turns an offer down they typically counter with we need "X" this means the original offer has been rejected. The listing agent is aware of what the bank is willing to accept and they call this a pre-approved short sale. However the listing agent has at this point wasted time (usually months of time) The potential buyers and sellers are both frustrated and the offer is more than the sellers want to pay and sometimes more than the list price. This is NOT the most effective way to get a short sale property sold. Buyers have learned to stay away from short sales because of the nightmares they have experienced or heard about.
The key to listing the property is to market the home to sell within a reasonable amount of time. I typically reduce the price every 3/4 weeks until I get an offer. The sellers can sign ANY offer but the bank is the one that will actually DETERMINE what they will accept. Oh, I forgot to mention the property may have a second mortgage and PMI (Private Mortgage Insurance) Yikes! Yes, EACH one of the lenders that have loaned money or insured the loan(s) has a say and could stop a short sale at any time. The PMI companies are the most difficult to figure out.
SHORT SALE BUYER TIPS
Tip: If a property goes to foreclosure the second mortgage gets "0" and the PMI company must pay a portion of insured. Sometimes the PMI company is allowed more time to pay with a foreclosure than a short sale.
Tip: In a short sale the Second mortgage is usually given a portion determined by the first mortgage. The second mortgage companies tend to be more flexible than one would expect. Truthfully they don't have much choice.
Tip : PMI companies say "NO" and often...They can and will block a short sale from closing. They typically expect the seller to contribute cash and they will offer a "zero" interest note to be paid over 5 to 10 years. I know this sounds strange they are short selling because they can no longer afford to keep their home. This is why the sellers decided to sell short! This happens often and can cause a short sales to fall apart.
Before writing an offer or even viewing a short sale...Ask the listing agent if the loan(s) have PMI. The mortgage companies must agree with the PMI companies requirements or they will stop insuring their loans. This can be a difficult situation that is hard to find out prior to having an offer accepted by the bank. Oh and sometimes the sellers do NOT know if they have PMI. Some banks charge higher rates and purchase PMI on the loan without the sellers knowledge and they have the right to. This was a lesson I never expected to learn.
Next important things to consider when looking purchasing a short sale property...
- How long the home has been on market?
- How many offers are on the property?
- Has the agent ever spoken to the bank?
- Who will be negotiating with the bank?
- Has the agent looked at the financial documents?
- What is the banks process for reviewing the documents?
- How often will the listing agent communicate with the selling agent?
- What items on the HUD 1 will the lender/seller not approve...Some banks will not pay fees that are required, some will ask the buyer to pay. Make sure your agent knows the right questions to ask.
With all of these potential problems...Have your agent write in the contract that you can be released from the contract and your deposit returned if the lender has not approved the offer in writing within a specific period of time.
Hope my Short Sale Tips will save you some headaches.
Thank you for reading,