Short Sales for Buyers can be complex
There is nothing like understanding short sales for buyers. A short sale is a complex transaction and requires many things to consider. The best advise I can give you is find an agent that is well versed in short sales. Sometimes the best thing to do is walk away from a short sale is your agent is not getting a good feeling about the negotiator and the situations. Otherwise you will wait around for months only to be disappointed.
Definition of a short sale:
A short sale of a property is where a homeowner must sell their home due to a hardship (usually financial) for less money than what is owed to the mortgage holder(s). In a short sale the seller must get permission from all the lien holder(s) to sell for less money than what is owed.
Many times there may be more than one lien holder, there can be a first mortgage, a second mortgage, a home equity lien of credit and /or private mortgage insurance. All of these parties must come to terms on the short sale collectively. It may take months of negotiations to get everyone to agree. Because many of these home owner are under financial distress there can also be tax liens, municipal liens and so on. Provisions need to be made for all of these entities to be satisfied.
Why would a bank want to do a short sale?
In many cases a short sale is cheaper for the bank to allow than going into the foreclosure process. They get the house sold with out ever taking possession of the home. A short sale can save a bank $20-50,000. Not only could the bank have the cost of foreclosure, they would incur carrying costs once they take possession of the home.
The short sale process can be very involved and take time. As a buyer once you have tendered an offer on a short sale, it is packaged with a complete seller financial package and submitted to the loss mitigation department at the bank. There the short sale package will be assigned to a negotiator for a review. Once the negotiator has the file they will review the file to see if there is truly a financial hardship and then will order a Broker Price Opinion or Appraisal of the property. What comes back for a number is what the bank will work from. Many times the bank must actually talk to the final investor and /or a private mortgage insurance company to approve the short sale.
Once the first lien holder has approved the deal many times there are other parties like a second lien holder that must also approve the deal. All of this takes time!!
If you are putting an offer in on a short sale, realize It can take 3-5 months for the bank to agree.
Hopefully all parties will come to terms in the negotiating and the short sale will be approved. Even if the seller accepts your offer remember the bank can counter your offer.
Some things to remember about buying short sale:
- You are negotiating with the home owner, not the bank.
- Short sales require at least 90 days for approval if not more. If you do not have the time to wait, do not consider a short sale.
- All contracts will be subject to lien holder approval. Meaning the lien holder(s) must approval the deal for a valid contract.
- Every real estate agent handles a short sale differently. Make sure you understand how the agent will handle the short sale.
- Make sure the listing agent is experienced in short sales or much delay and disappointment will follow.
- A bank will not customarily allow for any home inspection concessions, as well as the home owner usually has no money as well. You can do a home inspection but there will be no money for repairs.
As a Massachusetts Realtor who specializes in short sales, I typically see a 3-10% discount on short sales for home buyers. There is a formula the bank follows and a good agent can back into the formula to see if your offer has a chance of being approved. While a short sale can provide a moderate discount for a home buyer it is not a license to steal. Very rarely do you see short sales going for 20-30% of fair market value.
If you are considering purchasing a short sale, use a real estate agent very familiar with short sales and realize the process will take time. If you do not have the time to wait don’t put an offer in on a short sale!!
Kevin Vitali is a Massachusetts Short Sale Realtor. If you are considering purchasing a short sale or are a home owner thinking of doing a short sale, call Kevin at 978-360-0422