The truth about short sales
Buyers often shy away from considering short-sale listings, either because they've had a bad experience or have heard horror stories about the deals that take forever and never close. Buyers' agents sometimes steer their clients away from sales that are subject to the lender agreeing to accept less than what they're owed, because it can mean a lot of work for nothing.
Short sales will probably be a part of the home-sale market for the next couple of years. They provide opportunities for buyers, particularly those attempting to buy a home in a low-inventory market.
Before you enter into a contract to buy a short-sale listing, make sure that you understand the process and set your expectations accordingly. One of the biggest differences between a short sale and a conventional sale is that short sales take longer. Although many lenders are streamlining the short-sale process, it can still take 45 days from contract acceptance to receive lender approval.
Make as clean an offer as possible, but be sure to include contingencies for inspections and appraisal and loan approval. Your contract should also include a short-sale addendum that includes a time frame for lender approval.
Listing agents often want the buyers' contingencies to begin when the offer is accepted by the seller. However, buyers usually prefer to pay for inspections and the appraisal after lender approval. As in all home-sale transactions, these items are negotiable.
Your short-sale offer will stand a better chance of lender approval if you are preapproved for financing. Include verification of the funds needed for your downpayment and closing costs and a preapproval letter from your lender with your offer. The ratified purchase offer and supporting documentation from the seller and listing agent will be submitted to the lender.
Short-sale approval is often contingent on the buyer and seller making concessions. This means that the lender could ask the buyers to pay a higher price. The seller could be asked to bring money into escrow so that the lender nets more from the sale than the contract provides. If either party is unable or unwilling to do so, the transaction will fail unless the lender reconsiders.
HOUSE HUNTING TIP: Regardless of how committed you are to buying, it's not wise to bid on every short sale you come across that might work for you. Approximately one-third of the short-sale listings on the market don't close, either because the lender won't approve a realistic price, or because there are multiple liens secured against the property. Generally, if there are more than two liens, the likelihood of the short sale going through is slim.
Don't look at a short-sale listing until your agent has talked with the listing agent to find how much ground work has been done. Does the listing agent have the sellers' written authorization to negotiate on their behalf with the lender? Has the listing agent been in touch with a representative of the lender's loss mitigation department? Have the sellers provided all the documents that will need to be submitted to the lender when an offer is accepted, such as a financial statement, hardship letter, bank statements, pay stubs, etc.
Stay away from short-sale listings where the listing agent doesn't have the seller's cooperation. For instance, the sellers may not have their paperwork in order to present to the lender. Understandably, it's difficult for most people to face losing their home and good credit. But, without the sellers' cooperation, the sale won't go through.
THE CLOSING: Short sales require a lot of patience, a cooperative effort between the buyers, sellers and agents involved, and frequent communication to keep everyone involved in the process up-to-date.