Low Price, Long Process: The Truth About Short Sales

• November 16, 2009

by Michele Lerner

Homeowners who owe more money on their mortgage than the current value of their home have few options, particularly if they must sell the home because they can no longer afford to make the payments. In order to avoid foreclosure, some owners have been able to negotiate a short sale, which means that the lender agrees to accept less than the full amount of the mortgage principal as payment.

The allure of a short sale to buyers is that they can sometimes pay below market price for a home. However, the downside is that this buying process can be quite long and unpredictable. Unlike a standard real estate transaction between a buyer and a seller (and their representatives), a short sale is a three-way negotiation in which the buyer’s offer must be accepted by both the seller and the seller’s lender. Below we point out some important things to keep in mind if you are considering a short sale.

Time

The short sale buying process can last anywhere between 60 days and a year. Because of the uncertainty of this process, renters should make sure that they can go to a month-to-month lease so they are not tied to a specific settlement date. If you have a goal of moving within a couple of months or are committed to a certain date, then a short sale is not for you.

Financing

Buyers in traditional transactions start by getting a preapproval for a mortgage (unless they can pay cash), and short sale buyers should do the same. Unfortunately, short sale buyers usually are at a disadvantage when it comes to locking in a specific loan rate. While buyers in a normal transaction can lock in a loan rate for 30 days or a little longer, the uncertainty of a short sale makes a lock-in nearly impossible. Preapproval for a loan can also be limited to a certain time period, so buyers need to know how long their loan approval will last and reapply if they are still waiting for word on the short sale when the first approval expires.

Condition

Short sales are usually in better shape than foreclosures, but buyers still need to expect that the home will be sold “as is”. Be sure to pay for a home inspection that will give you a full rundown on the condition of the home.

Making an Offer

When deciding how much to offer, buyers should consider not only what the sellers will accept but also what the bank will accept. An offer close to what comparable homes are going for in the area, discounted to allow for repairs, is more likely to be accepted than a low-ball offer. However, if there are no other prospective buyers, a lower offer may be acceptable to all sides.

Buyers can also put a time frame in their offer which allows them the option to withdraw it if approval has not been given fast enough.

Professional Help

Work with a CDPE (certified distressed property expert) who has extra training in short sales and foreclosures and may be able to push the short sale closer to settlement. In addition, retain the services of a reliable settlement attorney who can expedite the short sale and the release of any liens against the property.

3 Comments

1. Emil said at 4:20 pm on Monday November 16, 2009:

   Time… & patience!

   Arduous process because both the seller’s agent and the bank both want a higher cost but the seller himself or herself just wants to get out. You end up dealing with a lot of conflicting people.

1. Stephanie said at 5:50 pm on Monday November 16, 2009:

   If you’re going to go the short sale route, expect it to take a lot of time and for most of the people you deal with to be unyielding.  The bank and selling agent are in the business of making money and are going to push to get as much as possible.  The downside is that they take a long time to process, with a lot of back and forth.  The process will try your patience and you will get frustrated at some point in the process.  I’m going through all of this right now, and just want to be done with it all.

1. Mike said at 11:42 pm on Monday November 16, 2009:

   My wife and I closed today on a short sale, and it was a little frustrating to deal with as it went along. We had initially made an offer on it two months ago, but had it rejected because we had wanted it to be contingent on selling our condo. Wound up selling the condo while the house was under contract to someone else, but that contract fell through because the other buyers couldn’t pay what the bank was willing to accept.

   By the time the listing agent came back to our agent, we knew what the bank’s bottom line was, and we just offered that. It was a little complicated, but in the end, worth it. We do realize, though, that we probably experienced the very easy end of the short sale-buying spectrum…