Buying Short Sale Property

So many questions from clients recently has prompted me to do a part 2 on short sales. This time it's about purchasing a short sale property.

As a review, a "short sale" means that the lender is willing to accept less money for the purchase of a property than is actually owed on it. Properties listed as "short sale" on the MLS may or may not actually be approved short sale properties. Sometimes the agent will be presumptuous about a lender agreeing to a short sale and will list it as such, hoping that the lender will accept it.

Under any condition, the buyer must be aware of what is actually happening with the property. For an agent to list a property as a real short sale, he or she must have done all the work prior to the listing. That begins with communicating with the seller's lender. If the agent has not done this, then this is a "speculative" short sale.

PRICE: When a buyer makes an offer on a true short sale, he should not expect to get a "low ball" on the house. The lower listing price has already been determined by the lender, and while they are willing to take a lower price, they want to sell the property for as close to market value as possible. Sometimes lenders will foreclose on the property because it's less expensive to do that as opposed to a low ball short sale.

WAITING: A short sale contract is still between the buyer and seller, but has to have lender approval. Waiting times for lenders to respond are typically between 30 and 60 days. However, if the lender is local, it's usually a much quicker turnaround. Buyers should be prepared to wait for a long period of time to hear back from their offer. Lenders have thousands of these to review and before they will approve a contract, they have to make sure the seller cannot pay the difference they would loose.

CONDITION: Sometimes the property will be in top-notch condition. Sometimes it won't. If the short sale is pre-foreclosure and needs a paint job, for example, then the lender will probably not approve for the seller to paint it for the buyer. Rationally, the lender thinks that if the seller could pay to have it painted, then he/she could have made the payments on it.

CONTRACT: Lenders want the contract to be clean. Sometimes they will agree to paying some closing costs for the buyer, but this is not typical. Buyers should be prepared to pay their own closing costs, warranty, and other expenses. There's no harm in asking for those in the initial offer, but lenders will not necessarily agree to paying those in the end.

CLOSING: For a short sale to be closed, the seller's lender must have the following from the seller: (1) Hardship letter/statement; (2) W-2's from the last several tax years; (3) Recent federal income tax returns; (4) A HUD-1 settlement statement: (5) The listing agreement from the sellers/listing agent; (5) Title work already completed by the title company; (6) Any other documents such as a Disclaimer, Disclosure of Relationships, Notice of Consent/Agency Status, etc. (approximately 32 pages of information); and after the contract is signed, (7) A final copy of the contract agreement between buyer and seller.

A good listing agent will have already taken care of all except the settlement statement prior to receiving an offer. After the offer is received, the agent will get the title company to prepare a HUD-1 statement based on the contract. The lender now has everything it needs to make a decision.

Waiting is the most difficult part of this process. But after the wait, everyone is happy it's all over.

If you need help purchasing a short sale or foreclosure home, and/or listing your home for sale, please give me a call. I'm here to help.