Short Sales: What Does this Mean for Buyers?

Here’s a quick review of Short Sales. This week I am going to talk about Short Sales for Buyers.

A Short Sale is the sale of a house in which the proceeds of the sale fall short of what the owner still owes on their mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. In many scenarios the homeowner owes the lenders as much or more than the current value of the property, therefore, selling the property via traditional methods is no longer possible. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure process, and the owner is able to pay off the loan for LESS than what is owed. This will prevent a foreclosure form being on the homeowner’s credit report.

When a home is listed as a Short Sale in the Multiple Listing Service it usually means that the seller is attempting to sell their home before the foreclosure process takes place. The seller still owns the property but since it will be sold for less than the seller’s loan amount, all contracts need to be approved by the bank.

Sounds fair, right? We have had ACCEPTANCE DATES on these contracts take anywhere from 5 weeks to several months. The banks have so many properties in the foreclosure process that currently acceptance dates are 90 days and above.

What does that mean to the buyer? Well, the buyer makes their initial offer and NO ONE responds their offer for over 3 months. You don’t know if it’s accepted, rejected or if the bank is going to counter offer.

Banks don’t always take the highest offer. There are other items that make the purchaser’s offer attractive. Often the bank gives much consideration to the type of financing or CASH offers.

Short Sale properties are almost always sold “As Is”. The seller makes no repairs and ALL inspections are the responsibility of the purchaser. The purchaser can still have an inspection and make the determination if they would like to continue with the contract from the inspection information, but any request for repairs are usually turned down.

The banks usually will not accept a contract with a Home Sale Contingency. On rare occasion, they will accept a contract with a “Home Sale Contingency” when the purchaser’s home is under contract and only needs to close.

If you are a patient person, the process can work quite well. Joann and I have had a couple who saved over $100,000 and another first time buyer who saved about $35,000. In both cases, the buyer’s had the patience of saints. Since banks operate by their own set of rules, much of our sales contract has bank addendums added to comply contractually with bank rules.

Short sales are great for:

*Investors
*Buyer’s who don’t have anything to sell OR can make a purchase not contingent on the sale of their existing home
*Buyer’s who are renting with a flexible lease
*A buyer who is not emotionally attached to the purchase

Short sales aren’t great for:

*Buyer’s who need to use the proceeds from a sale
*Buyer’s who need a specific closing date
*Buyer’s who need a fast closing
*Buyer’s who like a fast, stead fast responses

So, there you go! When you hear someone talking about a Short Sale and what a great deal it was, you have additional information to make the determination if that’s the route you would like to take.

Our next blog will be addressing Short Sales once again and how the affect Sellers.