Short Sale SellersBuying A Short Sale
What to do when buying a short sale? Well, in many parts of the United States, including California, short sales are quite high in numbers. Due to the idea that short sales can yield a good deal, they’ve become quite popular with buyers but there are some things that all buyers (new and experienced) should be aware of when buying such a home.
-They are not all great deals. The bank wants to make as much money as they can and will approve a price based on market value. You probably may not buy a short sale for less than 10% off any of the comps.
-There is a lot of competition so the asking price may be set low to attract many buyers and encourage higher bidders. Many short sales have seen a dozen or so offers.
The biggest obstacle seen with short sales is timing. Obtaining an approval from the bank can take quite a long time due to the bank waiting out for the best offer or the bank not responding to the listing agents messages. Each bank is different in how they handle the process, so if you’re lucky you may get a bank that is very response.
Here are a few tips when looking to purchase a short sale property to ease the mystery and possibly make the process just a tad easier.
-A seller must disclose if the home is a short sale.
-The short sale must be approved by the bank or lender even if the seller accepts the offer. It is still subject to lender approval.
-Lenders will most likely get a BPO to get an idea on property/market value
-The lender will most likely have a list of requirements and paperwork need to start the short sale process, including a hardship letter to approve the short sale.
-The lender will request the property be sold “as is” and will probably not approve any credits for repairs.
-Short sales typically more time to complete and is probably the number 1 complaint amongst short sale buyers.
-The listing price is set by the agent and seller not the bank. Thus causing issues with pricing and possibly denial of offers if the price doesn’t match the lenders target. Sometimes the lenders lack of price awareness can lead to the process taking much longer than anticipated.
-If there are multiple loans on the property, it can definitely lengthen the process as more than one bank has to agree on the sale price.
-Lowball offers tend to generate a slow or no response at all from the bank or lender.
-Some banks are looking for the strongest offers while other banks are looking for the strongest buyers. The bank has all the power in approving the sale. You may be able to get a deeper discount with an all cash offer.
If you plan on making an offer on a short sale:
-Make sure to the the offer contingent on the short sale being approved by the bank or lender.
-There is an addendum form that your agent can attach to the purchase agreement that outlines short sale contingency terms
-There is a high chance that there are multiple offers on the property.
-It’s highly recommended to conduct a home inspection even though the home is being purchased “as is”. You still want to know how many repairs are possibly needed and weigh out the costs.
-If the seller has filed for bankruptcy, few lenders will consider a short sale because negotiating a short sale is considered a collection activity which are prohibited in bankruptcies.
-Some lenders will not accept short sale offers unless the borrower has demonstrated they cannot make payments by defaulting or falling behind on payments and a notice of default has been issued.
Short sales have the possibility to give a buyer an opportunity to save big, but be watchful of the comparables and make sure you don’t overpay. Remember the banks do not want to hold onto the property and want to get rid of it, in a way that makes sense to them financially.