When shopping for a home, you may notice that certain listings are labeled as approved short sales, potential short sales, or pre-foreclosures. All of these terms mean essentially the same thing, which is that the seller owes more for the property than it is currently worth, and they are attempting to negotiate with the lender to allow the property to be sold for less than the payoff. A short sale is in many cases a much more attractive alternative to the lender who would stand to lose more money in the event they need to foreclose. It also is a dignified alternative for a homeowner who wants to do all they can to avoid foreclosure.
If you're interested in buying a property that's listed as a short sale, there are some things you should be aware of. First of all, the purchase and sale agreement is still negotiated between the seller and the buyer; however the sales contract includes an important contingency. The lender must approve the transaction. Since the lender is being asked to take a loss on the property, ultimately they will have the final say on whether or not the purchase price and terms are acceptable. This may make it seem like the bank is the seller, but they in fact are not. It is also important to keep in mind that in most cases, the list price the property is being offered at has not been approved in advance by the bank. Instead the list price represents an amount the listing agent thinks the bank may accept. If you’re dealing with an agent who is experienced in handling short-sales, the process is much more likely to go smoothly and end successfully. In no instance do you want to deal with a listing agent who is not experienced in handling short sales. This type of transaction is too complicated to leave to amateurs.
Short sale transactions are much more time-consuming and patience-testing than any other type of transaction including foreclosures. If you make an offer on a short sale property, you need to be prepared to wait. Banks may take as long as several months to respond. While you can give the bank a deadline to respond, it is unlikely that will make a difference. It is not usually a case where they are just ignoring the offer, but instead it is an issue of backlog where the negotiators have so many files to handle that it takes a long time to get through the process. Sometimes it is just not practical that a buyer can wait for an extended period of time for the bank to make a decision. In these instances, I would recommend either not attempting to purchase a short sale, or writing a stipulation into the contract that states if the short sale is not approved by a certain date, the buyer will be released from the offer and the earnest money will be returned. That way you can at least move on to a new property.
When deciding whether or not to make an offer on a short sale, you will have to weigh the pros and cons. Experts disagree on whether short sales are a good deal for buyers. Some say that short sales are priced below market values, creating opportunity for buyers to get a great deal or for first-time homebuyers to get into a home they otherwise might not be able to afford. Unlike a bank-owned property, many short sales are still owner occupied and less likely to be in poor condition. While there may be some maintenance issues, the utilities are usually on and in general there are fewer damages. Along the same lines, because short sale properties are often occupied, they won't have suffered at the hands of unscrupulous people who have chosen to squat in or vandalize the property which can be common problems with foreclosures.
Above all else, make sure your agent is experienced with short sales. Because of the complexity of this type of transaction, you don't want to work with someone who is unfamiliar with the process. Short sales are more work for agents, and many agents are simply not willing or experienced enough to do the work that is necessary to see this type of transaction through to the closing. It is also not uncommon for the bank to refuse to pay a full commission on these transactions, which can be another reason some agents don’t want to be involved with them. Agents have to work harder for less money, which no one likes to do. The bottom line is that buyers of short sale properties should proceed with patience and caution, and know that sometimes the bank still will not cooperate in the end. Short sales can be a good deal for some buyers though, and Terri & Company Realtors® has had a very good success rate with these transactions. Several agents on our team have earned the distinguished CDPE (Certified Distressed Property Expert) designation, which is specifically for handling short sales. If you are considering buying a short sale, contact us and specifically request a CDPE agent to assist you. We can help you navigate through even the most complicated of short sales.
