1. Understand the Rules accepting and offer. An offer on a short sale has to be accepted by both the seller and the lender, which means there’s an extra layer of negotiation involved. If there’s more than one loan, the process gets even more complex. All lenders, or lien holders will need agree to the terms of the deal. Usually the first lien holder will offer the jr lien holders a small amount to get them to go along with the deal.
2. Work with a Agent Who Has Short Sale Experience. Short sales take a lot of time, patience and skill. There are a lot of, moving parts, details and the process can be complex, time consuming and difficult, you will find it will go smoother with an experienced agent.
3. Work with a Lender Who Has Short Sale Experience. In addition to an experienced real estate agent, you also want an experienced lender, like Shellie Hatfield of Valley Financial, she knows what issues to look for and the all the details of short sales transactions and can help make the process is as smooth as a short sale can possible be for you.
4. Know That Short Sales are not short in Time. One of the most difficult parts of purchasing a short sale home is the uncertainty of when and if this home will ever close escrow. After an offer is made to the bank, it can take anywhere from 1 to 180 days to receive a response. Banks are trying to get responses back now within 10 days but sometimes it takes a lot longer. Lenders will receive offers and then present them internally to a committee or a decision-making authority figure. Remember, this industry did not exist 5 years ago on the scale it does now, the lenders do not have all of the kinks worked out, some do most don’t. If you’re looking for a quick close, short sales are not for you.
5. Have Realistic Expectations of the Price. Banks and mortgage companies have their own team of real estate professionals who will evaluate market prices and know what a property is worth. Its important to realize that in this day and age both sides have access to the same information, its unlikely any bank will take a offer outside of what the property is actually worth ie don’t expect the bank to take 125k on a house when all the houses in the area are selling for 200k. While you’re allowed to make any offer you want, banks aren’t always going to accept if they think you’re low-balling them. They have access to all the same information that you do, it’s also important to remember that you may not be the only one making an offer. A real estate agent can provide you with guidance and the information you need to make your decision on a price that’s a great deal, but still competitive enough to be accepted, and get the deal closed.
6. Have Realistic Expectations for the Negotiation of Cost and terms. Ask up front whether your lender will pay closing costs not many will. Every bank has their own guidelines. The banks generally will not tell you what their terms are for the sale before you write an offer, so don’t worry to much about it, the bank will counter you what they are willing to do, don’t fall in love with having the bank pay a fee, look at the big
picture and see if it fits your needs. Lenders generally won’t pay for items that sellers traditionally pay, like home protection plans and inspections.
Note: if the seller has a FHA mortgage, HUD will not reimburse lenders for closing cost paid by the seller on a short sale. If the lender allows closing cost paid for the buyer, FHA will not cover that part of the cost of the insurability/ reimbursement of the loan back to the servicer.
7. Have Realistic Expectations for Inspections. The purpose of an inspection with a short sale is to ensure that the “major stuff” is functioning properly. Ensure you’re comfortable purchasing the property in the “as is” condition for the offer you make, understanding that any required upgrades are on you. These conditions should be reflected in your offer. Do you think either the seller “leaving” the house or the bank is going to be willing to front the cost of any repairs? Its very unlikely. See #8 for more details.
8. Know the Rules for Repairs. In most cases, lenders holding onto distressed properties won’t do any repairs. Buyers are asked to purchase the property “as is”, which means the buyer is on the hook for repairs. Ask your agent after you get your inspections back if it’s a good idea to ask for a credit if you find something major. Ask your agent what is my downside risk? What is the best-case scenario?
9. Understand What Is Needed during the Lender Appraisal/Inspections step in the process. All the utilities need to be on when the appraiser goes to the property. If the appraiser arrives and utilities aren’t on, a return trip will be charged to the buyer, fees range between $75-$150. Also know that an appraiser can’t turn anything on that is off. Your agent should walk through the property before hand to make sure everything is in order.
10. Have Realistic Expectations for Closing Timeframes. After a contract is accepted, it usually takes a minimum of three to four weeks to close. There is a minimum of 10 companies or positions involved in a short sale transaction, and it’s important to understand that it takes time and is truly a team effort. Also this industry did not exist a short time ago and its always changing, so it’s a challenge to all involved. I tell my clients that have to be in a home by a certain date that short sales are not for them. If you can be flexible with your moving date, and are not the type of person that can will stress over the issues we can not control then a short sale might provide you with a great opportunity.