If you are shopping for a home in this market it's inevitable that you are going to come across a home for sale that is being sold as a short sale. What should a serious buyer do when they find a home they like or even love and are ready to make an offer and discover it's a short sale listing? Especially when everything you hear from the media and friends and the guy in the checkout line at the supermarket is the terrible experiences they've had in trying to purchase a short sale and how much time they can take.
It is certainly true that there is nothing "short" about a short sale. That being said, if done right, a short sale can be approved in a little as a few days depending on the seller's lender. In our office the average short sale approval is taking roughly 60 - 90 days.
My advice to buyers:
1. Find a Licensed Real Estate Agent experienced in short sale negotiations to work with you. They will help guide you through asking the right questions up front before making an offer and an experienced short sale agent can sniff out when a property is going to be a waste of your time.
2. Even if you need to be in a home in 60 days don't automatically rule out a home you like because it's listed as a short sale. Do a little more due diligence and ask the right questions as some short sale listings might already be approved and can close quickly.
"Well Joby," you say, "What are these questions we should be asking upfront when considering a short sale listing?" Fair enough. Here is a list of questions that I always like to ask a listing agent before making an offer on a home for one of my clients.
1. "How many mortgages are there on the home?" - I ask how many mortgages to find out if there is just a first mortgage or a second mortgage as well and in one case there was actually 4 mortgages on a home. In general the less mortgages, the less number of banks the seller is having to negotiate with in seeking a short sale approval to sell you their home.
2. "Who are the lenders?" - This make a difference in that some banks are much faster at the short sale approval process. My fastest short sale approvals have come from Citibank and many agents and attorney's will probably say the same. My longest, Suntrust, and again many agents and attorney's will probably say the same. So, if I hear Suntrust, I might get a little nervous about how quickly a deal can get done.
3. "Who is negotiating the short sale for the seller's?" - Most short sales are negotiated on behalf of the seller by their Real Estate Agent or an attorney. If the listing agent tells me they are negotiating the short sale for the seller I might ask how many times they have done this successfully. If they tell me this is their first short sale listing I will probably be telling my buyer to be prepared for a long wait and to maybe pass on this one. If the agent tells me an attorney is negotiating it I will ask who the attorney is and if I don't recognize them as someone who I know processes short sales then I might give the attorney a call as well to discuss their process and experience with short sales. I've had to pull files from attorney's offices before who accepted a short sale file and then the file sat in their office for several months going nowhere because they had no experience in negotiating a short sale. So, I try to make sure upfront whoever is negotiating the short sale has experience doing so.
4. "Have their been any other offers submitted to the seller's lender?" - By asking this question I can find out if they've already had an offer and if they did when submitted to the bank, what was the bank's response. You can sometimes find out what purchase price the bank was requesting or how long the process took the first time which should give a real good indication of how long it might take to get an approval on your offer.
5. "Are you submitting multiple offers to the bank?" - This is probably the most important question in deciding whether to make an offer on a short sale listing. The answer you want to hear as a buyer is "No, we only submit one offer to the bank at a time, all other offers that come in will be held as backups." The last thing you want is to be under contract on a home for 3 months and right before it gets approved someone comes in and makes a competing offer that could knock you out of the deal.
Other tips: If you are a cash buyer you will need a copy of a bank statement, investment account statement or a bank letter stating that you have enough cash available to complete the purchase. If you are getting a mortgage then you will need a pre-approval for your lender showing that you qualify for the purchase price you are offering.
Also, be prepared to play the waiting game at times. Short sales can be unpredicatable in that there are so many parties involved from the seller, the listing agent, the lender or lender's, bank negotiator, the investor that owns the loan (which may not be the bank that is servicing the loan), the mortgage insurance company that insured the loan and then add in just the normal parties involved in a real estate transaction and there is a lot to coordinate and that is if everything goes smoothly. Be patient, hang in there, for as many not so great stories I have heard about the short sale process, I have also heard some equally great ones about how smooth the process went and how happy people are with the outcome, especially when they get the home of their dreams at a bargain price.
Joby Slay, MBA
Need to Short Sale in Palm Beach County, FL, visit www.short-sale-guidance.com