Buying a Short Sale Property
Short Sales are all the rage today with home buyers and investors. Why? Well, lenders don’t want to be property owners. Before you start spending your time researching and viewing properties, first find out what is a short sale. Once you know exactly what short sale is, only then should you start considering them.
Short sales are not for everyone. For someone that has to purchase a property using 1031 exchange or move in to a house in a short period of time, may want to look elsewhere. Most buyers don’t realize that short sales can take upwards of 2-4+ months. I’ve even had one that was longer than that. If you are in need of a quick closing go for a regular purchase and sale. You don’t want to be stuck homeless.
For those of you able to stick to the long schedule, a short sale can be a lucrative opportunity. To shorten the timeframe of your purchase, it’s recommended [and sometimes required] that you furnish the following with the offer:
- Earnest Money Deposit – In almost all real estate transactions, an earnest money deposit (or EMD for short) is required by the seller. An EMD is a Buyers way of saying, “I really want this property and I’m willing to put down a substantial amount of money to show you how much I want it.” Short sales are no different. Be prepared to include an EMD with your offer as it’s usually a requirement on the Lenders side.
- The Property Will Be Sold “As-Is” – Although you are free to conduct any inspection you desire, Lenders will require that the offer be on an “As-Is” contract. This is due to one reason: the Lender has never seen the property, thus having no idea what condition the property is in. Please note that the Lender will not pay for any repairs or replacements on the property as stated in the “As-Is” contract.
- Short Sale Addendum – You will be asked to sign two short sale addendums. The first is standard. It tells you that the offer is contingent upon:
- the Seller’s Lender(s) approval of the purchase price, terms of the contract and HUD-1 Settlement Statement
- the Lender’s agreement to accept a payoff which is less than the balance due on the loan
- The Lender’s release and satisfaction of the mortgage(s) or other leans.
- It also states that the Buyer acknowledges that the Lender is not a party to the contract and therefore is not obligated to approve the contract. The last it says is that unless otherwise agreed by the Buyer and Seller [in writing], the Seller may continue to market the property to receive multiple offers.
- The second short sale addendum is actually received from the Lender. This must be looked at closely as there may be items in there of interest such as “If the closing passes ‘x’ amount of days, Buyer will pay Lender ‘x’ amount of dollars for each day past the closing date.”
- Pre-Approval Letter From Your Bank – If you will be purchasing the property through the assistance of a lender, an approval letter must be included with the offer. This is required by the Seller(s) Lender.
Ok, now it’s time to submit the offer. Once the offer is submitted with ALL the correct paperwork, I strongly suggest relaxing, finding a hobby or even take a vacation. All kidding aside, it honestly can take a while from hereon out. All REALTORS® put in short sale listings to “Give lender at least 30 days to reply.” According to the agents in our office, and experience with them myself, expect to wait at least 50 days. During this time it has to go through various departments to be approved. Also, the Lender will have to request a Broker Price Opinion (BPO) or appraisal to be done on the property. Once the BPO is received, each department must analyze the report and either deny or approve the offer.
Hopefully the Lender will counter, as we’ve had many that just flat-out deny the offer. When we tried to go back and counter our first offer, we were told that the process would have to start all over again. This is where many Buyers get frustrated.
When purchasing a short sale, stay calm and know that they do take time. If you keep that in the back of your mind, your short sale experience will be pleasant.
