SHORT SALE 101 Making an Offer on a Short Sale? What You Need to Know.
Are you looking to buy a new home and want a smoking deal? Think now's a great time to find that bargain?
Before you make an offer, it pays to know a little about the seller's situation.
If a home is being sold for below what the current seller owes on the property and the seller does not have other funds to make up the difference at closing the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.
A short sale is different from a foreclosure, which is when the seller's lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.
You're a good candidate for a short-sale purchase if:
- You're very patient. Even after you come to agreement with the seller to buy a short sale property, the seller's lender (or lenders if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
- Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you're pre-approved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
- You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.
- Have expert assistance. It's important for you to have expert assistance. Interview a few practitioners and ask them how many buyers they've represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to find and show you short-sale homes, help negotiate your purchase, and smooth communications with the lender. You do not typically pay anything for this service as the bank pays your agent and the seller's agent at closing.
- Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic’s lien, homeowners association lien, etc.), it's much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you’ve waited for months for lender approval. If you don’t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.
Some of the other risks faced by buyers of short-sale properties include:
- Competition. There are often multiple offers from different potential buyers competing for the home.
- Potential for rejection. Lenders want to minimize their losses as much as possible.If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.
- Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
- No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.
The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the seller.
- You can call on us to answer questions, and do research on any subject, any property.
- You can count on us to be available for you, and adapt to your schedule at all times.
- You can depend on our years of experience and knowledge to help you prepare and negotiate your offer.
No one in Utah is better than the Realtors at NewUtahListings.com and their team of experts in finding the right house for you, then negotiating for you, to get the absolute best price and terms on your new home!
* Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics.
Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.
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