Buying A Short Sale – What you need to know

Short Sales are properties that have not gone through the full foreclosure process. They are still owned by the homeowner, but in most cases the homeowner has stopped making payments. The homeowner’s hope is that someone will buy the property before the lender forecloses and that the lender will accept less than they are owed. If you make an offer on this type of property, please remember that there is nothing ‘short’ about a short sale. Be prepared to wait weeks and even months for the lender to to review your offer and to either accept or reject your offer. All offers are subject to the lender’s review and approval – even if you offer the full asking price.

How Long Does A Short Sale Take?

Some lenders are faster than others, but even the fastest can take six weeks before you get a response to your offer. On average, you’ll wait 8 to 10 weeks for a response from the bank. Before making an offer, find out if there is more than one lender holding a mortgage on the property. Both lenders will have to approve the sale – this can take even longer. We are experienced short sale negotiators and are acredited as Certified Distressed Property Experts (CDPE). We know how to evaluate the feasibility of any short sale that you are considering making an offer on, and we’ll be able to guide you as to how long the negotiations might take.

Who Determines the Asking Price?

Banks do not approve the asking price of a home. The asking price is the amount that the real estate agent thinks the bank will accept. Unfortunately, the agent is not alway right, and sometimes the bank will reject an offer even if it is equal to the asking price.

Does the Bank Have to Accept a Full Price Offer?

No. The bank performs their own appraisal after an offer is received, and then evaluates the offer price based upon that appraisal. If the offer is within an acceptable range of the appraisal, then the offer is accepted. If not, then the bank will counter the offer. In some cases the counter-offer is higher than the asking price.

While I am Waiting for Bank Approval, Can Anyone Else Make an Offer on the Same Short Sale?

No. Once your offer is accepted by the homeowner and sent to the bank for evaluation, the property is taken off the market and is shown as “Pending” in the MLS. If another buyer wishes to make an offer after yours has been accepted, then this offer is held as a backup offer – it is NOT shown to the bank and the bank is not told that the backup offer exists – even if it is higher than your offer. You are not subject to competitive bidding while your offer is being evaluated by the bank.

What Information Is Sent To Bank When A Short Sale Offer Is Received?

The bank receives a complete financial dossier on the seller including tax returns, bank statements, pay stubs, a summary of expenses, liablilities and assets, and a letter explaining the homeowners reason for asking for a short sale. Along with the financial dossier, the bank receives the complete offer along with a letter of Pre-Approval from the buyer’s lender or proof of cash if the offer is for cash.

What Steps Are Taken When A Short Sale Offer is Received By The Bank?

  1. The seller is required to submit a complete package of financial information with the offer.
  2. The bank reviews the seller information to insure it is complete, and frequently asks the
    seller for additional, updated information before the file is determined to be ‘complete’.
  3. Once the seller’s documents are complete, the bank orders an appraisal of the subject property.
  4. The appraisal is conducted, returned to the bank and matched with the file.
  5. A negotiator is assigned to the case.
  6. The negotiator reviews the sellers financial statements, appraisal and offer.
  7. The negotiator contacts the mortgage owner (Investor) and presents the offer and financial findings.  (Remember, most mortgages were packaged and sold by the banks, so the bank no longer owns the mortgage. Subsequently the final decision as to whether to accept the deal has to come from the actual owner of the mortgage.)
  8. Investor approves, rejects, or counter’s the offer. If the appraisal is subtantially higher than the offer, the offer will be rejected with no counter-offer and the file is closed with no further negotiation.
  9. If the offer is accepted, the Negotiator sends formal Letter of Acceptance stating terms and setting a closing date.
  10. The seller has the right to review the Letter of Acceptance. Sometimes the seller is required to sign a promissory note for a portion of the mortgage balance. The seller has the right to reject the bank’s terms, and if they do, then the sale is cancelled.
  11. If the seller accepts the banks terms, the buyer deposits earnest money into escrow.
  12. The Buyer conducts an inspection of the property within 1 week of acceptance. If the property is found not to be acceptable to the buyer, the buyer can cancel. (The bank will not pay for any repairs to the property.)
  13. Buyer secures financing.
  14. Closing is scheduled and completed.

Can I Demand When I Make My Offer That I Get An Answer Sooner?

No. The bank will not change or accellerate their processes, if you are not willing to wait then you should avoid short sales. You can specify an expiration date of your offer (typically 90 days) that gives you the right to cancel the offer if you have not received an answer by that date, but the bank will not adjust its time-frame based upon this date.

If I See a Property I Like Better While I’m Waiting, Can I Cancel The Sale?

No. When you submit a short sale offer, you must agree to remain committed to the sale for a pre-determined number of business days (usually 90 days). If the bank accepts your offer within that timeframe, you must complete the sale or lose your deposit.

How can I make sure I’m not wasting my time with a short sale?

We have done dozen’s of short sales and know how to evaluate them. If you work with us, we’ll research the deal before you make an offer and we’ll be able to tell you if it is a viable transaction and how long it might take.

Ready to make an offer?

Contact us before making your offer – we’re buyer’s agents and represent your interests, not the bank’s. We’ll help you determine the true value of the property by finding comparable sales, and we’ll find out as much as we can about the condition of the property. We’ll also find out how much the bank is owed, research the property taxes, homeowner association fees, and any other fees associated with the property. Finally, we’ll assemble the offer for your signature, and since banks almost always sell REO properties “as is”, we’ll include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.