Buying a short sale? What the buyer needs to know.

By
Real Estate Agent with Alain Pinel BRE 01367196
https://activerain.com/droplet/fWB

Thinking of buying a short sale property? There are NO guarantees.

 

Then you'd better understand what a short sale is, and what it will take to close that deal.

My buyer was looking for a good buy --- not merely a good deal -- but a good buy. Based on his criteria, I told him about several listings that may be suitable. The best one in terms of location, condition, amenities and price was a short sale.

Before writing an offer, I had to set expectations by first educating my buyer on short sale basics from a buyer's point of view.

What's a short sale?

Generally, it's a sale wherein the seller is selling the property for less than what is owed. And as such, the seller's lender will have to approve the sale, price, terms and conditions.

Who accepts the offer

The seller still decides whose offer to accept. Most lenders will only want to look at the best and highest offer. In multiple offer situations, highest offer doesn't always win -- which may be true with regular sales and foreclosures, too. The onus is on the seller to choose/accept the offer which has the best chance of getting approved by the short sale lender.

What are the terms and conditions that a short sale lender is likely to approve/disapprove?

Every short sale lender is different. But there are certain elements that are quite common.

Price. An offer that is too low or below the investor guidelines is likely to be rejected or countered. Just because it's distressed or a short sale doesn't mean the buyer can get it with a significantly low-ball offer.  You can deal, but not steal.

Find out how much is owed and to whom, check the comps in the area. Then go from there.

Close of escrow: For example, when the short sale lender grants approval, the lender typically sets an aggressive closing date, usually within 30 days. This makes it challenging for an offer with FHA loan and its 45 days or longer escrow period.

HOA: The lender may also refuse to pay for HOA documents, fines and delinquent fees. If the seller is delinquent, buyer (and seller) may be requested for a contribution to satisfy these demands.

Credits: The lender may also refuse to give credits for closing costs, repairs, replacement and/or warranty.

What does the buyer need to know?

Who is the lender? Some lenders are a lot harder to work with and may take longer than others to approve a short sale, while other lenders (like Wachovia) have a good track record of closing short sales.

How many liens are there, and are they by the same lien holders? Having one lien holder is tough enough. Having two is tougher. But when there are different lien holders, it can become extremely difficult to negotiate the short sale.

Liens against the property can be by anyone besides the banks: utility companies, the IRS, mechanic's liens. Each one of these has a claim against the property and has to be satisfied. If the seller is totally insolvent, the bank may need to offer payouts to these lienholders who may refuse or negotiate for more.

DOES THE AGENT HAVE SHORT SALE EXPERIENCE? 

It makes a world of difference to work with a listing agent who has a track record of successful short sales. That agent knows what to do, and can avoid pitfalls and delays in the process.

By the same token, the buyer's agent must also have short sale experience to guide the buyer how to write an offer with a good chance of getting the short sale accepted and approved.

What notices has the seller received?

Notice of Default?

Notice of Trustee Sale? If the seller is just days away from being foreclosed, there may not be enough time to do a short sale.

Inspections and reports. If there are none, by all means, get them during your buyer investigation contingency period. With so little room to negotiate, the buyer must have all pertinent information to determine if he is getting a good value with the purchase.

Condition of the property. If there are safety hazard issues, the buyer may be able to justify asking for credits or repairs for a loan to be approved. For example, lenders and their appraisers may look for a functional kitchen which generally means having a working stove. There must also be a functional heating system.


How long will it take to get a short sale approved? 

There is no one answer to this question. It's not unusual to wait 3-6 months, or even longer. It all depends on the lender, the situation, the market, the completeness of the short sale package, the willingness of all parties to negotiate and/or contribute. This where one must have patience, persistence and perseverance.


Remember
There are NO guarantees.


Can a buyer continue to look and write offers on other properties?

A buyer can...but this could also mean that the buyer was not acting in good faith when he wrote the offer on the property.

Good faith is defined as: Effort made, information given, or transaction done, honestly and without a deliberate intention to defraud the other party. However, good-faith does not necessarily mean "without negligence:. Also called bona fides, it is implied by law into commercial contracts.

Can a buyer walk away?

After offer acceptance: Like any sale, there are contingency periods after acceptance (or approval by the short sale lender) during which time the buyer is expected to do his due diligence in terms of buyer investigation, loan appraisal and loan approval.

Before offer acceptance: In several states, a buyer can stipulate how long his offer is good for.

For example, in California and per our short sale addendum, the buyer can specify that his offer is good for 45 days or longer from the time the seller accepts his offer until the time the short sale lender approves the short sale. If no approval is forthcoming, the buyer's offer expires.

There are NO guarantees.

 BOTTOM LINE

If a buyer doesn't have the patience, perseverance, motivation and/or the time to wait...

Then the buyer should NOT buy a short sale.

close

Re-Blogged 18 times:

Re-Blogged By Re-Blogged At
  1. Ellie McIntire 08/02/2011 12:24 AM
  2. Fernando Herboso - Broker for Maxus Realty Group 08/02/2011 01:31 AM
  3. Bob Southard 08/02/2011 02:36 AM
  4. Rob Spinosa 08/02/2011 03:17 AM
  5. Robby Leviton 08/03/2011 03:48 AM
  6. Ben Blonder 08/03/2011 03:59 AM
  7. Michael Collins 08/03/2011 04:07 AM
  8. Saralou Durham 08/03/2011 05:12 AM
  9. Jim McCormack 08/03/2011 05:49 AM
  10. Karen Steed 08/03/2011 06:53 AM
  11. Althea C. Barnes 08/03/2011 12:39 PM
  12. Ruby Lee Sweeting 08/03/2011 04:26 PM
  13. Gene Riemenschneider 08/04/2011 05:56 AM
  14. Joseph Robinson 08/04/2011 07:28 AM
  15. Georgia Perez 08/04/2011 11:38 AM
  16. DeeDee Riley 08/04/2011 03:33 PM
  17. DEBORAH STONE 08/05/2011 10:38 AM
  18. Gabe Sanders 08/08/2011 12:10 AM
Topic:
Home Buying
Location:
California Alameda County
Groups:
Short Sale REALTORS®
Dedicated Bloggers
First Time Homebuyer
Diary of a Realtor
Short Sale Support Group
Tags:
short sale buyer
short sale agents
buying a short sale
what buyers need to know about short sales

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Show All Comments
Rainmaker
710,627
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Ruby --- my pleasure, and thanks for the reblog. Good luck!

Aug 03, 2011 04:11 PM #75
Rainer
152,957
EMILIA B COOPER, REALTOR® SFR.NCHSE.AHWD
LAROSA REALTY - Orlando, FL
Short Sales, Foreclosure & Bank Owned Real Estate

Excellent Post Pacita!!  Thank you for sharing!!

Aug 03, 2011 04:32 PM #76
Rainmaker
525,554
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

The most important decision is choosing the right short sale Realtor who can navigate the changing tides of bank guidelines and practices.

 

Aug 03, 2011 04:35 PM #77
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Excellent Post and so true.  Short Sales are a very tough business but you can get a good buy.

Aug 04, 2011 05:47 AM #78
Rainer
318,606
Gwen Kelly
Broadmoor Realty, Inc - Long Beach, CA
Long Beach, CA Real Estate

Patricia, very well written and detailed blog of what happens in a short sale.  Thanks for sharing!!

Aug 04, 2011 06:01 AM #79
Rainmaker
710,627
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Emilia -- Thanks. Glad you found this helpful.

Gene -- thanks for the reblog.

Gwen -- My pleasure.

Aug 04, 2011 06:16 AM #80
Rainer
154,163
Deb Espinoza
Stage Presence Homes, San Diego Real Estate - Ramona, CA
GRI, Broker, SRS,ABR ePro, SFR, CNE

All great points Pacita! The short sale is not for everyone; another thing to remember is that by the time the sale is approved the buyer may not qualify for the loan anymore due to rising interest rates or changes in underwriting guidelines which seem to happen on a regular basis these days. Thanks for sharing!

Aug 04, 2011 06:44 AM #81
Rainer
13,110
Joseph Robinson
Coldwell Banker Paradise, Satellite Beach, FL - Melbourne, FL
Melbourne Florida Homes for Sale, MLS Real Estate Search

Hey Patricia.  I agree with so many of the comments above.  I'm re-bloggin you girl!

Aug 04, 2011 07:25 AM #82
Rainmaker
1,470,764
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

Great explanation of the short sale process and I agree with much of it!

Aug 04, 2011 07:31 AM #83
Rainmaker
131,417
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Great points for talking about with an individual buyer.  Investors are not a big deal with timing.  It's huge for somebody who wants to buy one.

Aug 04, 2011 10:00 AM #84
Rainmaker
710,627
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Debbie -- changing interest rates are definitely a consideration as well. Thanks for adding that to the list.

Joseph -- thanks for the reblog. I am honored.

Mike --- you're right about the investors. But it's also the investors who are writing multiple offers on properties. I have a listing where the buyer is an investor. The bank countered the offer. Investor holding firm and may walk. He's got other irons in the fire. So we went through 2 months waiting, and he'll walk?

Aug 04, 2011 10:31 AM #85
Rainmaker
29,239
Georgia Perez
Windermere Real Estate / WSI - Seattle, WA
Broker, ABR, CNE, Seattle, WA 206-356-9872

Pacita, I too re-blogged this and thought your post was right on. I handle a large number of short sales myself and this was really on point. I would only add to it that the agent representing the buyers needs to be patient and cooperative as well.

Once my seller has accepted the offer they feel is best for them, I have a mind set that, in a way, I'm working for everyone now - making my best effort to negotiate the best terms from the lender and get to closing. Nothing makes this more unpleasant than an agent on the other side posturing constantly on how their buyer can just walk and buy the next property if there is even the whiff of the bank asking for one penny more or asking for a chnage of dates etc.. I know a lot of agents here that simply won't represent any buyers or sellers in a short sale. It does take a special touch!

Aug 04, 2011 11:46 AM #86
Rainmaker
646,871
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Pacita,

Well, well done!  You covered all the big issues that short sale buyers need to understand. 

Aug 04, 2011 03:29 PM #87
Rainmaker
1,317,551
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Nice job of outlining the short sale from the buyer's perspective.

Aug 04, 2011 03:38 PM #88
Ambassador
4,300,542
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Pacita, one of the best posts I have read for buyers of short sale. It is not for faint-hearted buyers and one must be willing to wait - to get a good deal on a good home. The patience is the key - because at times, lenders take lot longer than what buyers want to wait for.

Aug 04, 2011 03:40 PM #89
Rainer
2,788
Peter Wahli
Home Run Realty - Kingwood, TX

Pacita,

this information came right on time given the fact that I am just about to enter a short sale deal with my buyer. I will inform them (first time home buyers, cash buyers though!) of the pros and cons of a short sale deal.   I am sure they will want to go for another property sold by a homeowner, a 'regular sale' after learning about the time they might have to wait.  I don't really have much experience with those kind of deals and would have to seek lots of guidance from my broker or more experienced co-agents.

Aug 04, 2011 03:57 PM #90
Rainmaker
710,627
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Georgia --- thanks for the reblog. And you're right about the buyer's agent needing to give the listing agent some space. Having been on both sides of the fence, I try to be sensitive to the other parties. We all have the same thing in common: get this short sale approved and sold.  But relentless follow ups can be terribly grating!

Deedee --- how very nice of you to reblog. I am so honored.

Joan --- thanks. I hope it helps you with your next short sale buyer.

Praful -- how kind of you. And yes, patience is the number one must-have trait. If agents set the property expectations, it will surely help foster understanding to develop patience.

 

Aug 04, 2011 03:59 PM #91
Rainer
247,800
Gerard Gilbers
Higher Authority Markeing - Asheboro, NC
Your Marketing Master

Well stated. The fact that a short sale is often like a moving target, it takes patience to work with them.

Aug 04, 2011 04:57 PM #92
Ambassador
2,875,266
Anna Banana Kruchten - Phoenix Homes Sales
Phoenix Property Shoppe - Phoenix, AZ
603-380-4886

Deborah Stone reblogged - so I was happy to read your excellent post.  Very nicely done!

Aug 05, 2011 12:14 PM #93
Rainmaker
710,627
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Gerard -- moving target it truly is. Oftentimes, it's the luck of the draw as to whom you get as the negotiator. Some are very very good, while others have no clue

Anna -- glad to have you!

Aug 05, 2011 12:29 PM #94
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