Do you know what to expect when you make an offer on a short sale property?
One of my standard questions when a buyer calls about one of my short sale listings is “have you ever made an offer on a short sale property before?” Often times the answer is no and they have no idea what is involved in buying a short sale home.
The first thing to know about buying a short sale is that it is not just a two party transaction. You can make a full price offer to the seller and have them accept it, but if the bank reviews it and decides that it isn’t good enough they will not accept it. When making an offer on a short sale, be prepared for a counter offer from the bank and leave yourself a little room in your asking price to negotiate with.
This means that often times the situation is more of an ‘us versus them’ situation with the buyer and seller working to convince the bank to complete the transaction. There is less secrecy and hardball negotiations with the sellers because their only goal is to sell the home, not to make any money.
Patience is key when buying a short sale property!
With short sales the biggest thing to remember is that with a short sale you must be patient! There has been lots of talk about banks streamlining the short sale process, but in reality things still are moving very slow. Files get ‘lost’, negotiators get fired in mid-stream and all sorts of other ‘things’ happen at the bank to slow down these sales. Very rarely will a short sale ever get done in the normal 45 day time frame that a traditional transaction will take.
In fact sometimes it takes 45 days just for the bank to process your offer and make a counter back to you. You can count on a successful short sale to take a minimum of 90 to 120 days to complete.
Don’t take the negotiating in a short sale personally!
Remember that you are not negotiating with a person. The representative at the bank is looking at a file and deciding on a price based on the data they are given. Furthermore, often times the bank is just the servicer for a loan and there is an investor hidden in the background making the final decision on what they will take on a property.
Just because the bank says yes, you may not have a deal!
Sometimes when the bank counters back on an offer, they will include conditions for the sellers as well as the buyers. All parties to the transaction must be in agreement, so if the bank is asking for conditions from the sellers that they won’t agree to, or can’t do then you don’t have a deal. Often times this takes the form of promissory notes or cash contributions from the sellers.
Once everyone is in agreement then things move along in a much more normal fashion. From this point forward you can expect about 45 days for your financing to get approved and all the paperwork to be done.
Some bonus tips on buying a short sale
Utility Hold-backs – In a normal transaction there is a hold back done at escrow to make sure that the utility bills are paid up to the date of transfer. Banks do not allow for this, so make sure your agent is getting proof that the utilities have been paid in full at the time of transfer. No one wants to move into a house and be greeted with an $800 water bill!
Sewer Inspections – If the home you are purchasing has a septic system, be sure to include in the contract for the bank or seller to pay for a sewer inspection.
Utilities for Inspection – Often times the power and water are shut off at vacant short sale homes, so put it in your contract that those are to be turned back on prior to your home inspection. Finding out that all the pipes are shot after closing would not be a happy thing!
Be sure that you are working with an experienced short sale agent!
The biggest stumbling block you will hit is working with a real estate agent that does not fully understand the short sale process and is not willing to put in the extra work to complete one. Short sales are nightmares for real estate agents and many won’t even show them to their clients.
Have more questions about short sales? Please drop me an email and if you are in the Seattle area, I would be glad to meet with you and discuss your goals and what I can do to help you achieve them!