Over the last few years, you’ve probably heard the term ‘short sale’. A short sale simply means the seller’s lender has agreed to accept a discounted payoff prior to the release of an existing mortgage(s). It’s usually the last step before foreclosure.
However, buying a short sale property can be a bit more difficult than a traditional sale. Should you find a short sale property that interests you, it would be very wise to seek professional assistance first. Short sales can be complex and have more hurdles to overcome than a typcial home purchase. You will benefit from the expertise of someone who’s familiar with the differences, like Ginny Gorman. Ginny is a real estate professional, whom we met on the professional real estate networking site ActiveRain. She is a well-versed short sale professional and offered us some advice to share on our blog.
Together, we created this short-sale buyer’s checklist:
- Find an agent with short sale experience. This is probably the single most important item on the list. And once you have a professional hired, you’ll have someone to guide you through the process. A short sale transaction will involve more detail and timing than a typical home purchase. You need to be prepared and your agent will help. Ask about the agent’s qualifications on the sellers’ side, and confirm they have a track record for getting short sales sold.
- Offer an appropriate price. The seller’s lender(s) want a ‘market value’ price for the home so remember to make your offer accordingly. Is the price you’re offering comparable to other homes for sale in the neighborhood? Can you support your data? Price is always important when purchasing a home, but don’t be caught off guard by potential additional costs of short sales. You have to weigh all the factors and decide when all is said and done, if this property is the right one for you. Utilize your real estate agent’s expertise to make the best offer you can.
- Schedule a home inspection with a reputable home inspection firm. You normally don’t want to do the home inspection until the short sale approval letter is received from the Bank. But once it is received, do it immediately. This gives you a chance to back out if unforeseen repairs are needed that the bank will not complete. (Banks always sell short sales as is). There likely will be no home protection plans or warranties offered either. Even though you are buying the home “as-is,” you still need to know what that means for this particular home, and decide whether the property is appropriate for your current budget and needs.
- Hire a reputable real estate attorney to check public records. Find out whose name is on the title and if a foreclosure has been filed. They will help you determine how much is still owed to the mortgage company and how many loans exist on the property. (The more loans on a home, the more difficult the short sale becomes). A short sale offer typically will need to satisfy each lender.
- Determine what it will take to bring HOA fees current. They need to be brought current or the short sale lender will not do the sale. What other responsibilities may the HOA require before taking possession?
- Know in advance the amount of earnest money you will be expected to provide. The seller’s lender may ask for more than the seller. Ginny advises that the deposit put down with the offer should be minimal (say $100) the rest of the deposit is to be given for escrow when the short sale approval letter is received by the seller and then forwarded to the listing agent to close. Usually you have 30 days to close from that point (with FHA you need to ask for 15 more days).
- Have your own lender and be pre-qualified. Provide this info to the seller’s lender at the time of your offer.
- Be patient. Understand that even though the seller accepts your offer, the lender must give final approval. This may take longer than a typical home purchase because of the additional processes that must take place. As a buyer, you are dependent upon the listing side of the transaction for moving things along and staying in contact with the bank to get all supported documentation. It is many times a long haul especially if there is more than one loan on the property. A buyer is usually required to sign a short sale addendum committing to staying in the sale for so many months (ex: 3 months) before bailing out of the transaction. Be patient and prepared for a 2-3 month (many are still going longer) decision timeline. It might happen sooner, it may not.
Note: Remember that all legal advice for short sales should be done through a real estate attorney not a real estate agent. Inspectors inspect houses, real estate agents sell houses, and attorneys know the laws.
Despite the extra effort and possibly additional emotional investment short sale purchases can require, they can also present a wonderful opportunity to become a homeowner. You just never know what the future holds!
Golden State Home Inspections