Short Sale – a Good Deal?

Thinking of purchasing a short sale because you think you can get a good deal? It can be a very complicated process filled with many possible pitfalls.  A short sale means the seller is about to go into foreclosure, they owe more than the home’s current worth.  The seller’s lender must agree to accept less than the amount owed to pay off the loan now, rather than taking the property back by foreclosure and trying to sell it later. Lenders agree to a short sale because they believe it will net them more money than going forward with a lengthy and costly foreclosure process. This means when purchasing a short sale property you are actually negotiating with a bank – not the seller. Given this it is important when making an offer you consider things from the banks point of view. It is also helpful to be aware of what is going on in the market at the time. Banks are not settling with prices as low as they were a few years ago.

Should My Offer Be Low?

Among the key issues you must consider before making a bid on a short sale property is how any repair or upgrade work will be handled. Not all properties that are put up for sale as short sales’ will have any work done. Many properties are sold as is, which of course means you will be doing the repairs. So using needed repairs as a negotiating tool for a lower price may not be an option. If however after seeing what obvious repair work is needed you are still willing to proceed with a bid there are few things that would be helpful to know. Before writing a short sale offer, a buyer should ask his or her agent for a list of comparable sales. Banks are not in the business of giving away a home at rock-bottom pricing. The bank will want to receive somewhat close to the current market value. The short sale price may be much lower than comparable sales, or what the lender may accept. If the comparable sales don't support the sales price, it's unlikely the bank will accept your offer. So your offer may have to be equal to or higher than the short sale price, especially if there are other offers on the table.  If there are certain closing costs that the seller typically pays, the bank will most likely pay those fees. However, if you agree to pay part of those fees, even if the bank receives an offer identical to yours, your offer will net the bank more money. A big question on the short sale seller's mind is whether the buyer is financially capable of closing the transaction.

So make sure to include a pre-qualification letter from your lender. Here is a list of the paperwork your agent/broker should be sending:

• Listing agreement
• Executed purchase offer
• Buyer's pre-approval letter and copy of earnest money check
• Seller's short sale package – make sure your agent/broker assures this is complete

If the package is incomplete, the short sale process will be delayed. In this event, the bank might even shred the package. So make sure your agent/broker has some experience with short sales. As a buyer you may wait a very long time to get a response from the bank. It is imperative for the listing agent to regularly call the bank and keep careful notes of the short sale process. The key to a successful sort sale is careful documentation of every piece of paper, every record, and every lender interaction. Some short sales get approval in 2 to 8 weeks. Others can take 90 to 120 days, on average. If you're running past 120 days, it's possible that the listing agent or a third-party negotiator is not on the ball and is lax about calling the bank. Calling the bank means waiting on hold anywhere from 10 minutes to an hour or longer. Or, a lengthy short sale period can also mean the bank has internal problems, not enough staff or has lost the file a few times, prompting the listing agent to resend the package over and over. It can also mean that the appraisal is substantially higher than your offer, and the listing agent is building a case for a new appraiser.

Patience is key. You'll most likely eventually get short sale approval.