I still meet buyers that don't really know what a short sale is. A short sale listing is a property the seller is trying to sell for less than what is owed on the mortgage. A short sale can actually take a very long time, the "short" is referring to the fact that there will be less money to the mortgage provider than what is owed, not the length of time from contract acceptance to closing. Short sales are available in every town and every price range.
Data suggests that only about 50% of short sale offers ever make it to closing. Agents, buyers and sellers don't understand why a mortgage provider would rather foreclose than sell short, especially when it seems like most closed short sales sell for higher prices than foreclosures. Not to mention the cost of foreclosing, holding onto a vacant property and keeping it up and having to offer it at a real discount.
I just attended a short sale seminar and the speaker explained that the banks and mortgage providers just don't have the staff to handle the lengthy process of short sales. Too bad they can't hire and train more employees to help with this backlog to get homes sold "short" rather than foreclose. In many short sale listings, the sellers still reside in the home and are taking some type of care with it. Many short sales are in very good to excellent condition.
SHORT SALE BUYERS NEED TO KNOW
- Your offer is first accepted by the seller, but the short sale and monetary amount must be approved by the mortgage provider
- Getting mortgage provider approval can take up to a year or more
- Only around 50% of short sales make it to closing
- You will probably have to bring in earnest money once the seller accepts the offer
- You could lose your earnest money if you walk away
- You might be expected to complete your home inspection once the seller signs the contract (per contract dates)
- Short sales are sold in "as-in" condition
- Your agent has no control over the communication between the listing agent, seller and mortgage provider
- Your agent cannot contact the mortgage provider or seller
- You could get approval, a counter-offer (sometimes higher) or a rejection
- You must be ready to close - sometimes once approval is made you are expected to close very quickly
- If you aren't ready to close, the mortgage provider could close your file and you've lost the property
- The property could foreclose even after short sale approval has been made
- Some short sales have fallen apart at the closing table
SO WHY WOULD YOU WANT TO BUY A SHORT SALE?
- Many mortgage providers are attempting to streamline the process so it doesn't take so long
- The properties are usually in better condition than foreclosures
- You can get a good deal - most short sales sell for under market value
- You might have less buyer competition on short sales since many are not interested in them
UNDERSTAND THE PROCESS
As has been mentioned, you write up a normal offer on our approved purchase contracts. The offer is presented to the seller and the seller can accept the offer, make a counter-offer or reject your offer. A knowledgeable listing agent (and your buyer's agent) should have an idea of what the mortgage provider will accept. Some listing agents prefer to have the seller accept any offer to get the short sale process moving and to see what the bottom line will be for the mortgage provider. Most listing agents prefer not to put a lowball offer in and will counter-offer at what they think the mortgage provider will accept (sometimes it is somewhere within 10%-20% of appraised value, but each mortgage provider has their own standards).
Once an offer is accepted by buyer and seller, the buyer might be expected to treat it as any other offer by bringing in earnest money and handling inspections within the time frame provided on the contract. Some listing agents will allow these things to occur after mortgage provider acceptance. However, this makes it much easier for a buyer to walk away as they have no skin in the game.
Once the seller has accepted the contract and all inspection/attorney/earnest money contingencies have been taken care of, the wait begins. The listing agent will send the contract to the mortgage provider. It is usually by fax, and for some reason these faxes constantly get "lost." I believe the faxes get lost because no one has been assigned to handle the file yet. I feel the wait is trying to get the person assigned that is responsible for the particular sale/file.
Once the person is assigned the file, things usually start moving a bit more quickly. But keep in mind, I've waited 60-90 days just to get that person to finally be able to communicate with. Prior to that, you get a different person every time and they don't have a file in the system yet - for 3 months or longer! Your contract is in limbo somewhere at the mortgage provider's short sale office. Until it is assigned to one of their employees, no one knows where it is.
In the meantime, the buyer is calling their agent who is calling the listing agent who is calling the mortgage provider and getting the same answer over and over - we don't have that fax, send it again. The listing agent might have to send that contract package (with much more than the contract - this can be a very lengthy package) many, many times. Until someone is assigned that file and it gets entered into their computer system, there is simply no one that can help.
I even sent a package in via Fed Ex once and was told they don't look at anything that is sent by mail! They only wanted faxes. I've also had short sale employees switched and have to establish a rapport with yet a new person who doesn't know anything about the file.
During the months this is happening, the seller, the attorney and the listing agent are all calling, faxing and e-mailing (once we get someone's e-mail), trying to get an answer. There is a fine line to keep up contact vs. getting these employees upset. Some listing agents call daily and I think that's taking a big chance at having your file get "lost" or something else. It is recommended to only make a weekly call.
These short sale employees are inundated with short sale files. One very nice person told me they were so understaffed that even if he worked 24/7 he could only make a small dent in the files. And that is why many short sale listings end up getting foreclosed on, even when they have a good offer in the works.
Be prepared to get a counter-offer from the mortgage provider, and it could be for more than the list price! They send out agents/brokers to provide them with BPOs (Broker Price Opinions). They want a certain value based on those BPOs and expect to get it. You must decide whether you feel the property is worth it. They can also outright reject your offer, after all that time.
You must also be prepared to close very quickly. I've heard of short sale approvals expecting a closing in less than a week! If you have applied for your mortgage like you should have, you should be able to close quickly. However, in a case like this, you would have also already paid for an appraisal. Your mortgage company might give you the choice to send the appraiser out prior to mortgage provider approval or take the chance of waiting for approval and having enough time to get the appraisal in and be ready to close quickly. Most times, once approval is made you could have up to 30 days to close, but each mortgage provider is different and if you're not prepared you could lose the deal.
Keep in mind, the foreclosure department is separate from the short sale department, and they rarely communicate. I've heard of transactions making it to the closing table only to be told it was officially foreclosed on that morning! Sometimes, that can be reversed (by a good attorney) and the closing can happen at a different time.
THE AGENTS USUALLY GET BLAMED
There are some inexperienced agents, both listing and selling/buyer's agents, that should not handle a short saleon their own. But many agents get blamed when they've done nothing wrong because no matter how much is explained to the buyer and seller (who is usually going through an emotional roller coaster), they simply don't understand the wait and the lost paperwork and the "broken record excuses".
I've told buyers what to expect yet they start calling me twice a week after a two or three week wait and they start getting antsy. This wait also negatively affects the sellers since they don't know if they're going to be able to do the short sale of if they will foreclose. Many buyers walk away before approval, which wastes valuable marketing time for the seller, bringing the looming foreclosure ever closer.
Judy Orr is an experienced sw Chicago suburbs real estate short sale agent and has a 100% closing ratio on her short sale listings. In fact, there is only one short sale that didn't make it to closing and Judy represented the buyer on a problem property listed by another brokerage. That home is still up for sale and we've waited since January of 2010!
If you're interested in buying short sale listings give Judy Orr a call at 708-536-8200 or use the Contact Form.