I think the biggest change in Residential Real Estate over the last year, is the emergence of the Short Sale and knowing how to handle all the issues surrounding them. This blog post will address this question and some of the issues that a buyer should think about before considering making an offer on a short sale listing.
First, allow me to define a Short Sale. Many buyers do not truly understand what is a short sale. The short answer is that a short sale is a sale of a property where the bank or banks that hold mortgages against a property will accept a payoff that will be less than what is owed on the mortgage. The next question that most people have is how long will it take the bank to get back to me? Most banks are taking at least 2 months to provide a response if they will accept your offer. However some smaller local banks may provide a response within a week. The next logical follow up question is why does it take so long to get a response? While short sales have been in existence for many years, they haven't come into the mainstream real estate realm until the last year or two here in the Twin Cities area. It seems where there have been high foreclosure rates, that's where the short sales started popping up. Since the banks have started seeing a massive number of foreclosures, they are also getting massive numbers of short sales on their properties. They have had to create processes to handles these high numbers of short sales requests. This process is about 10 steps and each step can take 1 - 5 weeks to complete. The steps that a bank takes before they can approve a short sale are:
•1. Review the package that is submitted and ensure that it is complete, which includes the purchase agreement, the preliminary HUD1, the Listing Contract and the seller's financials.
•2. Assign the file to an assistant negotiator
•3. Order the Broker Price Opinion (BPO)
•4. Receive the BPO and get input in the bank's system
•5. Assign the file to a negotiator
•6. Negotiator reviews the file. Depending on the bank, some negotiators handle 100 files or more per month.
•7. Make a recommendation to management to accept the offer or counter.
•8. Send the file to management to approve.
•9. Send approval letter to the agent.
The bank hires an appraiser or Realtor to do a Broker Price Opinion. With this information, they will decide if they want to accept the offer or if they feel the property is worth more, they will counter higher. the buyer has the option to accept their counter or counter back. Keep in mind if the buyer decides to counter, you could wait another week or month before you get a response.
At some point, the listing agent will receive the approval letter, which the buyer can then use to start the financing process. Since the sale is subject receiving the approval from the bank and there is no guarantee that the bank is going to approve the short sale, the buyer should not start the financing until they get the approval letter from the bank. Since buyers need to pay for the appraisal and inspection, it wouldn't make sense to order those things until you are sure that you can purchase the home. I have seen buyers that have worked with other agents where they have paid for and had the inspection done and even started working on the property, cleaning and installing updates in the kitchen, moving storage items to the garage, only to decide after 2 months of waiting that they wanted to withdraw their offer.
Should you put an offer on a short sale listing? If after understanding the steps described above, and if you are working with an agent that is experienced in representing buyers and sellers in short sales and has successfully closed short sale transactions, you have to decide for yourself.
I will describe other short sale experiences that I have had in future blog posts. While the short sale process takes a long time, we are getting them done.
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