How to Successfully Buy a Short Sale Property ~ A short sale is a property that is what we call "upside down" in the market. The owner owes more money on the property than the property is worth in the current market.
The short sale property will be on the market for less than market value. This provides opportunity for Buyers in this current market. It is important to understand some important aspects of short sales for your success. A short sale is all about the numbers to the lender. They are most concerned with the bottom line amount of money that they will save or loose on the property. The formula on a short sale is typically 10% below market value.
The listing agent on a short sale is looking for the Buyer to come in close to listing price. The lender will not approve the sale unless the offer is within a reasonable range of 10%. The Buyer will also be expected to purchase the property in an "AS IS" condition. They Buyer will also have higher closing costs and be required to purchase the Home Warranty. The sale is subject to the lenders approval. There is opportunity with short sales if listed properly. Working with an experienced Realtor will help you determine the investment opportunity and the market value of the opportunity.
How to Successfully Buy a Short Sale Property--Many aspects of the short sale remain a mystery. Many buyers are interested in looking at short sales because they offer a possible below market opportunity. Not all Realtors or Real Estate Agents use a method that will provide the seller or the buyer an assured process to complete the transaction and get bank approval. How will you know if you can be successful in your short sale transaction?
Here are a few ways you can check on your transaction to know if the listing agent will be successful:
- Are you in a binding contract and has escrow been opened? The contract is between you and the seller...not the lender or bank. The seller still owns the home and your contract is with the seller. The lender or bank must approve the transaction....but do not own the home. They must agree to take a short pay off.
- The listing agent should be expecting and be able to have an answer within 10 to 15 days. If the short sale package is complete and the BPO on target and the bank has a policy of working with short sales you will progress within this time period. If the bank has policies that take longer or are not progressive in approving and working with short sales, it may take longer and may not be approved. Banks that are known to be difficult are GMAC, CitiMortgage and Bank of America.
- The financial model of the short sale is that the lender will accept 20% below market value as a general rule. However, if the property has identifiable deficiencies that can affect value that percentage can go lower. So as a test, you should have the agent representing you provide you with a market analysis and a determined market value for the home. It should be listed for 10% under market value. The other 10% pays for the closing cost and the commissions. If the price is higher or lower, then you may be working with a listing agent that may not be able to get the short sale approved.
- Discuss this with the listing agent, there may be reasons why the property is listed above or below, however if it does not match within reason the model described above, you will know that it may not be approved.
Often times, buyers make offers on short sale and are caught in a limbo situation for 2 or 3 months waiting to hear. The loss mitigation department will need an executed purchase contract and a financial package for the buyer to determine if they can approve the transaction. When incomplete packages are sent to the lender they are put aside to be addressed on a "when time allows" which is seldom.
How to Successfully Buy a Short Sale Property--To help our Buyers we list foreclosures and short sales on our websites for your convenience. You can look through the current list of foreclosures and short sales and we can discuss other "good buys" that are on the market and afford opportunity. Call today and we can talk about Redding CA Real Estate and the Great Deals that are available.
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