Eight Things You Should Know About Buying Short Sales
1. Short Sale Time Frames
If you are not in a hurry, short sales can be great buys! They may take from three to six months or more to purchase depending on the short sale situation. Short sale homeowners with mortgage liens from two different banks will most likely take longer for bank approval and can be much more complicated. Be sure to ask your agent if the home of interest has more than one lien holder.
2. Getting an Accepted Offer
Multiple offers are common in the market now, which means you will compete with other buyers. It is therefore very important to submit a strong, attractive and thorough offer! This means a pre-approval letter preferably from a direct lender including high FICO scores, proof of funds (down payment), reasonable earnest deposit, and an accurately prepared offer with applicable addendums. Short sales are often listed below market value to quickly engage buyers. Keep in mind, the accepted price of the home will ultimately be determined by the bank and will almost always be at market value.
3. Back-up Offers
Back-ups are offers that were not originally accepted and are being held by the listing agent on behalf of the seller should the current escrow fail or the buyer back out of the purchase. Many short sales take a long time to obtain lender approval. The buyer often gets impatient, or makes multiple short sale offers and changes their mind if during the wait, another home comes available they like better. When this happens, the listing agent will call the buyer’s agents that previously submitted offers, (back-ups) for the home before putting it back on the market. This happens quite often, so making back-up offers can lead to a successful purchase.
4. Accepted Offers
When your offer is accepted on a short sale, it is sent by the listing agent with the seller’s short sale package to the lien holder for short sale approval. There are thousands of short sale packages sent to banks every day. Banks have difficulty dealing with the volume of requests which is the main reason short sales take so long. Most, but not all brokers open an “accommodation escrow” during this waiting period which is the correct way to handle a short sale transaction. Escrow will be in a holding pattern until approval is received from the lender. The escrow holder may prepare escrow instructions for the principles as well as complete other documents and procedures during the wait, possibly catching any problems that may occur ahead of time. Once approval is received from the lien holders, escrow is completed.
5. Bank Approval
The first lien holder will demand a net proceeds amount at the close of the sale based on the broker’s price opinion (BPO) and other factors. Additional liens such as homeowners associations, tax liens, and mechanics liens must be paid before escrow can close. If these liens are extensive they will make it difficult to meet the lender’s net proceeds demand. In such cases, it can be necessary for the buyer and seller to contribute funds to satisfy the bank’s demands in order to complete the sale.
6. Short Sale Certification
Short sales are more likely to close if handled by an agent with short sale experience or a certified short sale specialist. Be sure your agent checks the experience of the listing agent for short sale listings in which you are interested. Buyer’s agents with short sale experience will also add to the likelihood of success on a short sale transaction.
7. Follow up
Your agent should follow up with you at least once a week or so during the waiting period and contact you with progressive actions, updates and communications.
8. Terms & Conditions
Most short sale listings are listed “as-is” which means the seller will do no repairs. Professional property inspections are highly recommended and should always be done on the purchase of any home. Although the seller has indicated no repairs will be done, health and safety issues must legally be addressed and solved by the seller. Banks will most likely take these issues in consideration in order to sell the property.