Buyers who seek short sales believe they will offer a good deal. Before jumping on a home you see listed at a price you think is very low for the neighborhood, ask your agent to contact the listing agent to find out if the home is a short sale, as you may want to think twice before making an offer on a short sale home before the legal proceedings of the home. It’s not as straightforward as you might think, and very few buyers can close the deal in 30 days or less.
Hire an Experienced Short Sale Agent
Hiring an agent specialized in short sales will help you anticipate surprises and stop problems before they escalate and speed up the sale process. Your agent can also assist you in researching the property, including whether the home is in legal proceedings. Often, short sale buyers are required to purchase the home as-is, so it’s important to retain the right to inspect before agreeing to purchase the home.
Definition of a Short Sale
A successful short sale means that the seller’s lender is willing to accept a reduced payment to release the current mortgage. It does not mean that the property listed under short sale conditions will accept your offer, even if the seller accepts the offer. This is because sellers need to qualify for the short sale. If their agent is selling very few short sales, this is a red flag for your buyer.
Verify Public Records
Do the necessary research before making a purchase offer. Your agent can find out who the current owner is, whether a legal notice has been filed against the home, and how much is owed to lenders – this is important as it will help you determine the value of the offer to make. Remember that banks are not obligated to accept the short sale, so the offer must be reasonable.
Hire an Experienced Short Sale Agent
It is indeed less than ideal if the listing agent has never handled a short sale before, but it’s much worse if your own agent lacks experience in this area. You need an experienced short sale agent who can anticipate surprises, prevent problems, help expedite the sale process, and protect your interests. You don’t want to miss any important details due to the agent’s lack of experience or discover that the sale will not proceed on time because no one bothered to follow up on matters in a timely manner.
Qualifying the Property and Seller for the Short Sale
The bank is unlikely to approve a short sale unless the seller has no equity in the property and is unable to cover the gap between your sale price and current loans. Sellers will need to provide a hardship letter to the lender and may owe taxes on the amount forgiven. It is illegal for sellers to ask buyers to pay a fee for the right to purchase the property, so don’t let yourself be tempted by sellers who suggest this practice. In a short sale, the seller typically receives no money because the bank incurs losses. The HAFA short sale was previously an exception, but this no longer exists.
Submitting Documents and Purchase Offer to the Lender
Once the seller accepts your offer, the listing agent will send the offer to the lender for approval; you do not have a deal until the lender approves it. The lender will need a copy of the earnest money deposit and proof of funds, and they may also want to see that you are approved for your loan, so send a current approval letter to the lender, dated within the last 30 days. Sending your agent a comparative market analysis that supports the price you are offering to buy the home will also help.
Grant
The Lender Has the Time to Respond to the Short Sale
Submit your offer subject to the lender’s approval and give the lender a timeframe to respond; after that, you will be free to cancel the deal. Some lenders submit short sales to a committee, but most can make a decision within two to three months. As a buyer, you cannot contact the lender, nor can your agent contact the lender; the listing agent must have the necessary information for the lender, so be patient.
Understanding Short Sale Commissions
The seller does not keep any of the money but still pays the commission from the sale proceeds. Regardless of the commission agreed upon by the seller, the lender is the entity that approves the commission. The lender is likely to negotiate the commission directly with the listing broker, who will, in turn, share the commission with your agent. If you have signed a buyer’s agent agreement with your agent, ask whether the agent will waive the difference owed, or you may have to pay it out of pocket. Some brokers believe it is unfair to penalize the agent, but the lender is the one making decisions.
Retaining the Right to Conduct Inspections
Generally, the seller will not allow the buyer to pay for the normal items a traditional seller pays for, including home protection plans for the buyer, roof inspections, and pest or insect inspections. The buyer will be required to purchase the property “as is,” meaning no repairs. It is extremely important for the buyer to get a home inspection. Make sure you retain your right to inspect before agreeing to purchase a short sale home.
Additional Resources
There are additional resources you can refer to for more information on short sales and how to deal with them. You can learn the six things you need to know about short sales, how to wait for short sale approval, 11 reasons not to buy a short sale, how to determine your market type, what title insurance is, how to find short sales, how to find a short sale agent, whether you should hire a short sale agent to represent you, how sellers can cancel a short sale, requirements for short sale sellers, why banks reject short sales, how to determine short sale pricing, how to handle multiple short sale offers, how to protect your good faith deposit, negotiation tips for purchase offers, writing market offers for buyers, who pays real estate commissions, how to negotiate real estate commissions, buyer agent agreements, basic concepts of home warranties, how to spot a distressed property, and final home inspections.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
National Association of Realtors. “Short Sales and Legal Procedures.”
Freddie Mac. “Buying a Short Sale.”
REALTORMag. “How to Succeed in Short Sales.”
Nolo. “Short Sales with Multiple Mortgages.”
Congressional Research Service. “Keeping Homeownership: Initiatives to Prevent Foreclosure,” pages 11 and 17.
Quicken Loans. “Explaining the Short Sale (No, It’s Not the Same as Foreclosure).”
Realtor.com. “In a Short Sale, Can a Potential Buyer Communicate Directly with the Bank?”
Rocket Mortgage. “What is a Short Sale? A Guide to the Process.”
Source: https://www.thebalancemoney.com/before-buying-a-short-sale-1798232
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