What to know when looking to buy a short sale home.
With Short Sales making up a large majority of the real estate market, home buyers are forced to consider purchasing a short sale property.
While buying a short sale may not be the most pleasant real estate transaction, it is still doable and The Lawhead Team would like to provide some tips to making sure you are fully prepared to start your short sale buying process.
A short sale is an attempt by the current owner to sell a home instead of the bank taking it back to partially save their credit and lift the burden of the huge mortgage debt they were paying. Unfortunately, with a short sale the entire process relies on the hope that the bank will take a loss, approve the sale and eliminate the costly process of foreclosing, clearing and reselling a home.
The potential buyer should keep these tips in mind:
- It is better to have a loan owned by one bank than two: If the seller has loans owned by two different banks it is a lot more difficult to approve the short sale. This is something the agent or the buyer cannot control; it simply depends on the willingness of the bank or banks involved. Buyers should know that when the seller only has loan(s) with one bank the short sale often becomes more buyer-friendly.
- The bank doesn’t set the price, they agent and seller do: The agent and seller often create a very low asking price in order to attract buyers. The bank is normally unaware of the asking price; however, the bank has the final say in what an acceptable offer will be. Since the bank has the power to ultimately accept or deny offers, their lack of price awareness often leads to the process taking longer than anticipated. The bottom line is that the buyer needs to remain positive and patient throughout the entire process, sometimes even for months.
- Lowball offers are rarely given the time of day: Remember that the bank is typically unaware of the pricing during a short sale. When lowball offers stream into the bank they are often scoffed at and rejected, giving the prospected buyers little or no feedback. Surprisingly, it may also take painstakingly long to hear back even on good offers due to the high volume of transactions lenders are inundated with these days.
- Price should be based on comparables in the area: The agent must be sure to check recent home sales in the area to give buyers a better idea of the properties that are selling. This will give the agent and the seller appropriate grounds for an asking price that will be more likely to be approved by the bank. Checking comparables will also give the buyer a better knowledge of what price homes in the neighborhood are selling for and ultimately make them a more informed homebuyer.
- Don’t get attached to the one short sale you’ve put an offer on: Despite their name, short sales are normally not “short”. It can sometimes be a very long process. Don’t get your hopes up for just one property, keep your options open and continue to actively look at multiple properties. Buyers must remain optimistic, the right property will come along. It is usually a good idea to have multiple offers out at the same time just in case the one you want falls through.
- If you are looking for a faster deal, put an offer in on an “approved” short sale: It is important to remember that short sales are not always timely; however, making an offer on an “approved short sale” can be a quicker process. An “approved short sale” has a price that has already been given the green light by the bank. This could be due to the fact that another interested buyer made an offer that was approved, but didn’t end up buying the property. These types of short sales are some of the most highly desirable.
- The bank ultimately has all the power: The bank has all the power in approving short sales. The bank can pick the most appealing buyer, which may mean different things to different banks. Some banks may prefer the buyers with large down payments while others just want the highest price regardless of down payment. Many buyers want to know if they will get a deeper discount for an all cash offer. This is very hard to predict and one will never really know until they make an offer. As long as the buyer is surrounded by a good team we would advise them to do just that.
- Buyer is responsible for any repairs: If there are improvements that need to be made on a home, even if they are necessary to get a loan, it is often unlikely that they will be done. Typically there is some sort of credit issued and the buyer must take the responsibility of fixing anything that is broken.
- Once the approval is made by the banks, you must close on or before the closing date: During a short sale there is no leniency with the closing escrow date as there often is in a traditional sale. During a short sale, exceptions are rarely made and the buyer must close on time. Because of this, it is important to take care of all loan paperwork immediately after opening escrow. We’d advise buyers to be extra prepared and try to have the loan finalized a few days in advance of the closing date. If there is going to be an issue that will prevent closing on time, a request for an extension will need to be made immediately. If the request is made early enough, many banks will grant an extension but don’t just assume it will happen.
Short sales can be a great opportunity to find your new home at a competitive price. A short sale could also be a major headache that lasts for months. It is important to have a good understanding of the factors that lead to a successful short sale to make it an enjoyable and profitable experience. Remember to contact The Lawhead Team for all your Real Estate questions and needs.