Serhiy Onyshchuk / Realty One Group Preview – Northwest WA Real Estate, Call 425.610.SOLD (7653)

From the blog:

buying a short sale homeThinking about buying a short sale home? Here’s what you need to know:

1. The listed price is not approved by the bank.

In most cases the asking price is set by sellers and their agent. In order to attact a buyer, they may set it well below the market value.

The bank has the final word, though. However, they don’t usually start processing a short sale untill they get an offer from a buyer. They will order BPOs. It’s not uncommon that a bank comes back with a much higher price. If you were attracted by a low short sale price, be prepared that a bank will raise it closer to the market value.

With that said, there are some homes that are approved short sales. This is usually happens when a buyer backs out before the bank makes a desicision. You may ask your Realtor to search for approved short sales.

2. You may have to pay a short sale negotiation fee.

Selling  a short sale and negotiating with lenders present certain challenges. Therefore, many sellers and real estate agents have been enlisting the help of short sale negotiators in short sale transactions. Since sellers don’t have the money, in most cases the cost is passed on to the buyers. On many MLS short sale listings the “agent only” marketing remarks state that the buyer will pay the short sale negotiation fee. This fee may vary. Often it’s set at 1 percent of the sales price. Sometimes, there’s a fixed sum, like $5,000.

3. Short sales process takes a long time.

As mentioned above, in most cases the bank doesn’t start working on a short sale until they get an offer. Then there are other factors. First and foremost, banks have a lot of short sale requests, so the offer may get on the bottom of a tall stack. Also, they need to order BPOs, get approval from various level negotiators, investors (in many cases, the bank is only servicing a home loan sold to an investor). If you’re writing up a short sale offer, be prepared to patiently wait for weeks and months for bank’s response.

4. The more home loans are on the house, the longer the short sale process.

This one is a no-brainer. If you need to negotiate with two/three or more different banks, it’ll take more time and efforts. What I wanted to point out that even if both, the first and the second mortage, are with the same bank, it doesn’t necessarily mean the process will go quicker. As mentioned earlier, the loans may be owned by different investors.

Before submitting an offer you need to ask your real estate agent how many home loans the seller has.

5. Seller needs to be motivated, cooperative, and active to go through a short sale.

What occasionally happens is that you write an offer on a short sale, and then it takes a while before the seller’s agent collects required documents and sends them to the bank with your offer. Or the bank asks additional documents to qualify the seller, and the seller doesn’t promptly respond.

A short sale is usually accompanied with tough life events, such as job loss, divorce, death etc. With this emotional load, it’s not uncommon for a seller to have kind of “I don’t care” passive attitude. The short sale process will require seller’s active participation, otherwise the deal won’t close.

Before submitting your offer, make sure your agent checks whether the short sale packet is ready.

6. Seller needs to qualify for a short sale and may not agree with bank’s terms.

The bank may agree on the sales price but they may require that the seller agrees on certain terms. Depending on seller’s assets, they may ask that the seller brings a certain ammount of cash to the closing. They may also ask that a seller signs an note that he will be making a regular monthly payments to the bank.

Short sale and foreclosure resourceSo, even if the bank agrees to approve the short sale, the seller may not agree on the terms and let it go in foreclosure instead. It’s important that the seller is educated about possible consequences of a short sale and is prepared to go through.

If you have any additional quetions about short sales, don’t hesitate to contact me.

Post authored by Serhiy Onyshchuk, SFR (Short Sale and Foreclosure Resource)

Creative Commons License photo credit: TheTruthAbout…

6 Responses to “Buying a Short Sale House? You Should Know This!”

  1. cisss says:

    me and my husband buyng a house in sort ,24this month is closing,the
    seller still leaving in house and we are afraid they move out when the paper is signed.what we can do before sign the closing?

    • serhiy says:

      If I understand your concern correctly, you worry that after you buy the house the seller may not move out and continue living there.
      Well, I don’t think it happens that often… But if it does it may happen on any sale, not just a short sale. Can you do something before closing? If your contract says that possession comes after closing, the seller is the owner and can legally stay there until your documents are recorded.
      If the seller is not moving out after the closing, then my guess is you would need to get a lawyer, spend a few hundred dollars, and do an eviction…

  2. vivian says:

    I offered for a house, the seller agreed with the price, so how long it take the response from the bank? the house will pending or it still active on the market?

    • serhiy says:

      It’s hard to predict how long it’ll take the bank to make a decision. It may take a few weeks but it may take months. And yes, some banks require that the house remains active in the MLS. Sadly, most shortsales end up not being approved, so I usually advice my buyers not to get emotionally attached to the home and keep looking…

  3. Chris says:

    I negotiated in good faith the purchase of a home at a reasonable price ($880k ask, $815k offer, approximately 7.3% less than ask). When we got to signing the contract, the payoff was ordered and we were notified it’s going to be a short sale. We were told the bank was owed $805k, 2nd lien from a divorce was $40k to a law firm, and then back taxes and comissions would be around $50k (all in all, the bank would have to cover ~$90k). The seller just paid off the attorneys from the divorce, so the only “covering” by the mortgage company is any back taxes, accrued mortgage payment, and broker fees. We kept our bid price where it was, against our attorney’s recommendations, but are now wondering if the bank will come back asking for more or we should be OK with our price? Also, any idea of the timeline (bank is regional bank in FL)?