When people hear the words “short sale” they almost always think: great deal. Back in 2008, this was the case. Short sales represented a great investment for buyers and they could often get a house for cheap. However, these transactions aren’t in high supply today. While we may see some throughout 2021, safeguards that have been put into place since 2008 will prevent exorbitant amounts of short sales from hitting the market. If you do find the right one for you, here are some tips on making it a smooth transaction.
What is a Short Sale?
A short sale is 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 in order to sell for a loss. Lenders don’t love to lose money so they don’t always make the process easy. This can make getting approval difficult and requires experience, knowledge, and persistence on the part of the listing agent.
Shannon discussed more about short sales in the video below.
Short sales can sometimes be bargains, but it’s important for buyers to do their homework. Above all, it is important to be patient and remain unemotional during the sometimes lengthy process. Here are 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. Plus they can advise you on what to include in your offer. That way, they can help you craft an offer that a lender will view favorably. In order to determine the experience of an agent, ask them how many buyers they’ve represented in short sales. More importantly, ask how many of those they successfully closed. An experienced agent can help you evaluate the viability of your offer.
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 to generate multiple offers. They then send all the offers to the lienholder, but usually, this strategy 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. The sellers can submit paycheck stubs, bank statements, tax returns, letter of hardship, budget worksheet, etc. to convince the lender to agree to the sale. The approval process can take weeks or months – longer if multiple lienholders are involved. Furthermore, once you have 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. As the buyer, you should already be preapproved for a mortgage. Additionally, you will need proof of funds and a copy of the first page of your credit report.
5. Avoid Contingencies & Be Flexible
If 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. They are likely losing money they already put into the home (either for a down payment or upgrades). The seller has a financial hardship and isn’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.
Need More Information on Short Sales?
Shannon Jones of the Shannon Jones Team at Keller Williams Coastal Properties is an expert in short sales. She has successfully navigated many buyers through the process. She is a wealth of knowledge so if you have any questions, please feel free to reach out to her and her real estate team below.