There are a couple common misconceptions about short sales that I often encounter when talking to buyers. I’d like to set those straight and give buyers a few pointers on what to consider when shopping for short sales. (A short sale by the way, is simply a sale where the seller is short on equity and thus must get permission from the lienholder(s) to take a loss on the property. It’s not as simple as it sounds, but we’ll get to that later.)
The first misconception I encounter is that short sales are always great deals. I hear from some potential buyers that they just want to look at short sales because the understand they are always better priced. Sometimes, that’s the case, but often people form that opinion after looking at listings for short sales that have been incorrectly priced. Just because the listing agent priced a home $100K or $150K below market value, doesn’t mean the bank is going to accept an offer at that price. The first thing any bank does before reviewing a short sale offer is to assess the value of the home, usually through a BPO (Broker Price Opinion) or an appraisal.
The second big misconception is from people who are at the opposite end of the spectrum. Rather than seeking out short sales, these potential buyers don’t want to touch them with a ten-foot pole. They’ve heard the horror stories about short sales that never close and they just want to avoid them.
Somewhere in the middle is the best course of action. Yes, there are good deals and yes, short sales can close. But you really need to tread carefully because buying a short sale can be a minefield (just as selling one can be). There are so many things that go wrong. Depending on what area you’re looking in, simply choosing to overlook short sales, may mean you’ll be missing out on a large percentage of available inventory.
We’ve closed a lot of short sales, both on the listing side, and representing buyers. In this blog entry, I’m focusing on the buyer side. What I tell my clients is that I will be happy to show them only the short sales that they’d have a reasonable chance of buying. Let’s say I have a client who is looking for homes up to $400,000. I wouldn’t show them homes priced correctly at $600K because it would only frustrate them. The same thing holds true if I show them short sale listings where the sellers and/or listing agent won’t ever be able to close escrow. So I do pre-screening — before I ever show the property.
Here’s the questions I ask:
1.Have you ever worked on a short sale before? How many?
2.Have you ever closed a short sale? How many?
3.Which lenders have you worked with?
4.Who does your negotiation?
5.How many loans are on the property? With which lenders?
6.Are there any other liens or encumbrances that will need to be cleared? HOA? Tax liens?
7.If we were to make an offer, is the short sale package ready to submit?
8.How did you arrive at the listing price? What’s your expectation regarding selling price?
9.Is there a Notice of Default filed and if so, when was it filed?
10.Is there a Notice of Trustee Sale filed, and if so, when is the sale date?
11.How many offers will you be sending to the lender?
12.Have you already sent any offers to the lender?
13.Is the seller eligible for the HAFA program?
There are specific answers I’m looking for to determine that this property is one my client might be able to purchase if they’re so inclined. If you’re a buyer, your agent should have these questions in mind and should know why they’re important and how the answers affect your chances of buying the home. If the agent doesn’t have a firm grasp of why this information is important, then you may want to look for a new agent before you look for a new house.