If you’re considering buying a short sale, you may have heard horror stories about buyers who’ve waited for months or even years only to find out they can’t buy the dream home they’ve been waiting for. That does happen. But if you understand the process and follow the five tips below from Long Beach short sale expert Shannon Jones, you may be able to save yourself some heartache and wasted time.
First let’s review what a short sale is — it’s simply the sale of a home by an owner who is “short” on equity. Because they are “upside down,” they must get approval from their lender(s) in order to sell for a loss. Lenders don’t love to lose money so they don’t always make the process easy and getting approval can take experience, knowledge, and persistence on the part of the listing agent.
Short sales can sometimes be bargains, but it’s important for buyers to do their homework, be patient and remain unemotional during the sometimes length process. Here’s some tips for successfully buying a short sale while protecting yourself emotionally and financially:
1. Hire A Realtor Short Sale Expert
A knowledgeable, experienced agent can determine a sensible offering price, and advise you on what to include in your offer to make the lender view it favorably. Ask agents how many buyers they’ve represented in short sales and how many of those they successfully closed. An experienced agent can help you evaluate the viability of the short sale.
2. Learn The Home’s Fair Market Value
By agreeing to a short sale, lenders are agreeing to forgive some of the money on the loan they made to the sellers to purchase the home. Their goal is to minimize those losses and make sure an offer is at or close to the home’s actual market value. Sometimes inexperienced listing agents will list short sales at “fire sale” prices and then send multiple offers to the lienholder, a strategy that usually doesn’t work. Your agent can help you determine market value and structure an offer the bank is likely to approve.
3. Be Patient and Expect Delays
There are two stages to a short sale. First, the sellers must consent to your purchase offer. Then they must submit it to their lender, along with information about their financial information and hardship (paycheck stubs, bank statements, tax returns, letter of hardship, budget worksheet, etc.) to convince the lender to agree to the sale. The short sale approval process can take weeks or months — longer if multiple lienholders are involved. And once you have short sale approval from all lienholders, you’ll still have a “normal” escrow period as well.
4. Firm Up Your Financing
Short sale lenders want to know you’ll be able to close the transaction if they approve it. You should be preapproved already for a mortgage and have your proof of funds and a copy of the first page of your credit report.
5. Avoid Contingencies & Be FlexibleIf you must sell your current home before you can close on the short-sale property, or you need to close by a firm deadline, your offer may present too many variables for a lender to approve it. Also, be aware that the seller isn’t getting any money from the transaction and they are likely losing money they already put into the home (either for a down payment or upgrades). They have a financial hardship and aren’t going to be in a position to make repairs, pay for termite work, or provide you with a home warranty. These may be costs you need to plan for. The short sale lender also may be unwilling to offer a credit, either for closing costs or repairs, so try not to ask for one. You may want to consider ordering a property inspection as soon as your offer is accepted, rather than waiting for short sale approval. This way, you’ll be fully informed and you’ll know what you’re getting into.